A Junk Drawer of Changes

December 8, 2019

A tip of the hat in respect to those servicemen who lost their lives at Pearl Harbor on December 7th, 1941 – almost 80 years ago.

This week I was cleaning out two kitchen drawers that had turned into junk drawers over the years. I became aware of how much things have changed in the past twenty years. There was a digital pedometer that we don’t use anymore. A cell phone app does that now. There were 9- volt batteries in the drawer that were long past their expiration date. The new lithium smoke and carbon monoxide detectors don’t need them. The manufacturer says to replace the entire unit after ten years. There were bayonet type Garden Accent light bulbs in the drawer. We use LED fixtures now. There were phone cords and phone couplers for landline phones. We don’t have those anymore. There were batteries for a modest digital camera. We use our cell phones to take photos now. There were expired C-batteries for a battery-operated adding machine that we don’t use anymore. Technology is changing more rapidly than I clean out my junk drawer. Maybe I should do that more often.

Talking about change….

I was in Amish country in Iowa a week ago. Although different communities have different rules, they ordinarily don’t use fossil fuels. We were in one store with a big iron wood burning stove. At a grocery warehouse, the clerk used a battery powered adding machine instead of a cash register. We saw a few men cleaning up the fields and tossing the remains of last season’s planting into a large container sized like a dump truck. It was pulled by a team of four horses. For tasks requiring gasoline, natural gas and electricity, the Amish rely on outsiders whom they call “English.” For farm work requiring a combine, they hire outsiders.

Most of us do not want to live the way of the Amish. We have become accustomed to the benefits of the very efficient energy provided by fossil fuels. Our society and economy thrive on energy. Stricter regulations have spurred technological advancements that enable our cars, furnaces and power plants to burn fuels much cleaner now. Climate scientists point out that we are putting far too much carbon dioxide in the atmosphere. Some scoff at the idea that carbon dioxide can be a problem. We breathe it out. Plants breathe it in. As part of the dynamic energy cycle, carbon dioxide itself is not a problem.

The threat to our way of life is the extra amount of carbon dioxide that our industrialized society is exhaling into our atmosphere. We are rapidly tapping a reservoir of carbon that was stored in the earth more than 300 million years ago. The key word in that sentence is “rapidly.” We are putting more carbon dioxide into the atmosphere than the plants can absorb. In some developing countries, people are cutting down the trees that absorb carbon dioxide as part of their life cycle.

From ice cores extracted from Greenland and the Antarctic climate scientists have been able to deduce a familiar cycle of events when the carbon dioxide concentration increases. The planet warms, the oceans rise, and precipitation increases. Permafrost at extreme latitudes melts and releases the carbon it has stored. That creates a feedback loop that intensifies the effect.

We need to slow down our consumption of fossil fuels, but we don’t want to give up the savings from the energy they provide. The internal combustion engine lowered food production costs, increased yields and lowered the cost of food for all Americans. Farmers dry their corn and other staple crops with fossil fuels. In another time, they might have plowed a damp surplus crop back into the ground.

We can’t attribute the lower cost of food entirely to fossil fuels, but a comparison of prices surprised me. A hundred years ago butter cost .58 per lb. in NYC (BLS, 2006). That’s $7.54 in current dollars. Eggs were .57 per dozen, so about $7.40. Current price for eggs was $1.28 last month (BLS, 2019). That’s a sixth of the price a century ago. Milk, a government subsidized product, was .28 per 1/2 gallon – approximately $3.64 in today’s money. The current price for milk is $3.12 for twice as much, a gallon. Milk today is about 40% of the cost it was a century ago.

Sixty years ago, the development of nuclear energy plants promised cleaner and less expensive energy. After the Three Mile Island accident in 1979, the building of new nuclear plants was severely curtailed [Wikipedia, n.d.]. Each year more coal miners die in accidents than all the people in history who have died from a nuclear accident. When it comes to nuclear, people disregard comparative statistics.

We don’t like making hard choices. We don’t like inconvenience. We absorb change and become accustomed to it. We put our old ways of doing things in the junk drawer of history and forget about it. We don’t want to live like the Amish to adapt to a planet with rising levels of carbon dioxide. What choices will future generations make?


Bureau of Labor Statistics (BLS). (2006, May). 100 Years of U.S. Consumer Spending. [Web page, PDF]. Retrieved from https://www.bls.gov/opub/100-years-of-u-s-consumer-spending.pdf

Bureau of Labor Statistics (BLS). (2019, November). Average Retail Food and Energy Prices, U.S. City Average and Northeast Region. [Web page, PDF]. Retrieved from https://www.bls.gov/regions/mid-atlantic/data/averageretailfoodandenergyprices_usandnortheast_table.htm

Photo by katherine cunningham on Unsplash

Wikipedia. (n.d.). Three Mile Island accident. [Web page]. Retrieved from https://en.wikipedia.org/wiki/Three_Mile_Island_accident#Effect_on_nuclear_power_industry

Thanksgiving Leftovers

December 1, 2019

by Steve Stofka

My wife and I were visiting dear friends in Cedar Falls, Iowa, a college town surrounded by farms, small industrial businesses and several Amish communities. The people are friendly, the town is bucolic, and the downtown area has been revitalized after a flood several years ago. I was introduced to Hurts Donuts, a franchise of cake style donuts that just opened in Cedar Falls (KWWL, 2019). Yum, yum.

A 1600 SF house built in the 1950s can be had for less than $200K. I priced one house in Cedar Falls that would have sold in Denver for $350-$400K. Asking price was $180K. We helped a friend move into a townhome with 1100 SF living area and a garage. Rent? $850 per month, half of what I could rent a townhome in Denver.

Do the residents make considerably less? Not according to Best Places (n.d.). Their median household income and average income are almost exactly the national average. Cedar Falls sister city is Waterloo, which has the largest population of African-Americans in Iowa. At about 10,000, that’s less than 2% of the state’s population. That’s half of the black population in a neighborhood two miles from where I grew up in New York City. Iowa doesn’t do black. New York City does.

The city made the local news this year when the financial web site 24/7 ranked the city as the worst place in America to be African-American. Ouch. A reporter with the Waterloo-Cedar Falls Courier dug deeper into the Census Bureau numbers used by 24/7 and confirmed that the data was not skewed or taken out of proper context (Steffen, 2019).

Presidential candidates visit the twin city area frequently. Elizabeth Warren was going to be back in Cedar Falls on December 1st, but we couldn’t stay there. Candidates for either party pound the rostrum and offer solutions for big problems. The biggest problems are the small ones next door to us.


Works Cited:

Best Places. (n.d.). Cedar Falls, Iowa. [Web page]. Retrieved from https://www.bestplaces.net/economy/city/iowa/cedar_falls

KWWL. (2019, November 6). Hurts Donut open today in Cedar Falls. [Web page]. Retrieved from https://kwwl.com/news/top-stories/2019/11/06/hurts-donuts-open-today-in-cedar-falls/

Steffen, A. (2019, February 2). Waterloo Confronts List’s Label as Worst Area to Be Black. Waterloo-Cedar Falls Courier. [Web page]. Retrieved from https://www.usnews.com/news/best-states/iowa/articles/2019-02-09/waterloo-confronts-lists-label-as-worst-area-to-be-black

Wikipedia. (n.d.). Bayside, Queens. [Web Page]. Retrieved from https://en.wikipedia.org/wiki/Bayside,_Queens

Holiday Snacks

November 24, 2019

by Steve Stofka

I’ll keep it short this holiday week and pass on a few things that caught my attention. The comedian John Oliver called it “whataboutism.” When accused of something, point to someone else and say, “What about them?” I thought the term was new, but Wikipedia says it goes back to 1960s Russia (Wikipedia, n.d.). I did it when I was a kid. My kids did it. In Russia, the practice is a national pastime.

In the impeachment hearings this week, several Republicans repeatedly defended their President of crimes by raising up the Steele dossier. Not familiar? There’s a book out by the two former Wall St. Journal reporters who formed Fusion GPS (NPR, 2019).  It’s the same argument Republicans gave to accusations regarding wiretapping at the Watergate complex.

Until the Supreme Court decided the 2000 election in Bush v. Gore, I thought the judiciary was above this. They were not. The decision was a rare one for the Supreme Court and it was careful to note that the decision set no precedents (Oyez, n.d.). A few months later, the stock market began its hard fall from the dot com boom, China was admitted into the World Trade Organization and later that year, the tragedy of 9-11. That election and the year 2001 marked the end of American innocence. By the time President Bush stumbled into the Iraq war, we were wearing the masks of our own folly.

Now Russia’s Putin smiles wryly as he watches the Americans behaving like Russians. When accused of something, point to someone else and say, “What about them?” Every week comes another revelation of secret visits to Ukraine by someone on the Trump squad. Devin Nunes, the ranking member on the House Intelligence Committee, has just been fingered by Lev Parnas, one of Mayor Giuliani’s indicted Ukrainian fixers. In a crowd of crooks, who knows what the truth is? Putin sees the arrogant Americans pointing fingers at each other and smiles.

Let’s move on to other news. County by county surveys reveal that half of single person senior households have trouble meeting basic expenses each month (Elder Index, 2019). Ouch. A quarter of two-person senior households have the same problem. I was even more surprised to learn that seniors can now live less expensively in Los Angeles than in Denver. Whether renting or having no mortgage payment, costs were higher in Denver. Another ouch. Denver has California-itis. Interested readers can check the web site in the notes below and compare counties of their choosing.

There’s got to be some good news in this week’s blog! Sales of existing homes climbed 4.6% in October. Hooray. On the other hand, less than a third of those sales were to first time buyers, who are getting left out of the market.

Ok. I’ll stop. Next week, I promise I’ll have some cheerier news.



Elder Index. (2019). The Elder Index™ [Public Dataset]. Boston, MA: Gerontology Institute, University of Massachusetts Boston. Retrieved from ElderIndex.org

Haddad, T. (2019, November 23). After Giuliani ‘Fixer’ Alleges Nunes Met with Ukrainian Officials to Seek Biden Dirt, Congressman Threatens to Sue Media. Newsweek. [Web page]. Retrieved from https://www.newsweek.com/parnas-lawyers-nunes-ukraine-officials-meeting-lawsuit-1473679

NPR. (2019, November 22). Book Reviews: In ‘Crime In Progress,’ Fusion GPS Chiefs Tell The Inside Story Of The Steele Dossier. [Web page]. Retrieved from https://www.npr.org/2019/11/22/781589327/bosses-of-fusion-gps-tell-the-inside-story-of-the-steele-dossier

Oyez. (n.d.). Bush v. Gore. [Web page]. Retrieved from https://www.oyez.org/cases/2000/00-949

Photo by Steve Stofka

Wikipedia. (n.d.). Whataboutism. [Web page]. Retrieved from https://en.wikipedia.org/wiki/Whataboutism#Soviet_and_Russian_leaders_usage

The Tweet Heard Round the World

November 17, 2019

by Steve Stofka

Those who voted for Mr. Trump in 2016 were drawn to his plain-spoken if gruff manner. Some older voters might have been reminded of another New Yorker with the same characteristics: Archie Bunker, of the 1970s TV series All in the Family. During the financial crisis, politicians handled the financial elite with kid gloves while ten million families lost their home to foreclosure (Picchi, 2018). Despite candidate Barack Obama’s 2008 promise to treat homeowners fairly, most of those foreclosures happened on his watch (Qiu, 2017). Tired of mealy-mouthed rhetoric from politicians of either political party, almost half of voters in 2016 pulled the lever for a candidate with no political experience.

This past Friday, former Ukraine ambassador Marie Yovanovitch testified before a House Select Committee on Intelligence. Ms. Yovanovitch is a highly decorated officer with the foreign service, and for several decades has served both Republican and Democratic presidents. Shortly after her opening statement on Friday morning, President Trump tweeted an attack on Ms. Yovanovitch, linking her service in dangerous regions like Mogadishu with the unrest in those countries (Shear, 2019).

Mr. Trump’s spiteful tweet reminds us of someone who rode a wave of worry in post-WW2 America. In 1953-54, Senator Joseph McCarthy hunted down communists in the U.S. and found them everywhere, including the U.S. Army. Thousands of American citizens ran afoul of Mr. McCarthy’s self-aggrandizing campaign and suffered the permanent loss of their careers. This included several high-profile actors, writers and directors in Hollywood.

Mr. McCarthy, a heavy drinker, was noted for his lack of decorum at the committee hearings he chaired. Fed up with the personal attacks and insults at a hearing, the Army’s lawyer, Joseph Welch, asked Mr. McCarthy, “Sir, have you no decency?” (U.S. Senate, n.d.). The question resounded with the American public who soured on McCarthy and the hearings. He quickly lost power and the witch hunt was over.

Mr. Trump attempts to vindicate himself against criticisms that he was the chosen candidate of Russian leader Vladimir Putin. As Republicans in Congress gather around to defend the president, they are ignoring the fact that the 2016 Russian disinformation campaign was launched against fellow Republican candidates before it was turned on Democratic candidate Hillary Clinton.

The comments by members of either party surrounding this week’s proceedings are characterized by a low signal-to-noise ratio. Each side tries to frame the debate, the process and the facts in evidence. The contradictions in speech and behavior thrive like weeds in a sunny field. When House Republicans launched impeachment proceedings against President Clinton twenty years ago, Democrats protested procedures and cried foul. These are experienced politicians with access to the same playbook.

Despite assertions to the contrary, the Constitution specifies no rules of impeachment. In 1998, the Congressional Research Service (CRS) prepared a history of previous impeachments for the U.S. Senate. What is an impeachable offense?

Each of the thirteen American impeachments involved charges of misconduct incompatible with the official position of the officeholder. This conduct falls into three broad categories; (1) exceeding the constitutional bounds of the powers of the office in derogation of the powers of another branch of government; (2) behaving in a manner grossly incompatible with the proper function and purpose of the office; and (3) employing the power of the office for an improper purpose or for personal gain.

(CRS, 1998)

 13 impeachments? Presidents are not the only federal officers subject to impeachment. Our political system is an organized street fight. There are rules of engagement that both sides have agreed on and each presidential impeachment has been prompted by a breach of those rules.

In 1868, President Andrew Johnson was impeached for the termination of a cabinet member without approval by Congress (CRS, 14). A Democratic House impeached Mr. Nixon because he obstructed a Congressional investigation into illegal campaign activities during the 1972 election (CRS, 15). Mr. Clinton was impeached for lying to Congress about his dalliance with a White House aide, Monica Lewinsky. Mr. Trump has been accused of parlaying foreign aid to Ukraine to gain an electoral advantage in the coming election.

No president has been convicted of the charges of impeachment brought against them. The Republican led Senate seems little inclined to break that tradition in President Trump’s case. In 1974 the public impeachment hearings of Mr. Nixon helped the Democratic House turn public opinion in their favor. Responding to public pressure, Republican Senators advised Mr. Nixon that they could not guarantee his safety against a vote of conviction. Mr. Nixon resigned rather than face the ignominy of a conviction in the Senate.

Democrats are hoping for a similar shift of opinion against Mr. Trump. While there is only a slight chance of conviction, Democrats hope that the impeachment hearings will convince a decisive number of voters that Mr. Trump does not deserve a second term in office. If he is to be convicted, it will be at the ballot box next November.


Picchi, A. (2018, September 14). 5 groups still recovering from the financial crisis. [Web page, video]. Retrieved from https://www.cbsnews.com/news/5-groups-still-recovering-from-the-financial-crisis/

Qiu, L. (2017, January 5). Barack Obama’s top 25 campaign promises: How’d he do? [Web page]. Retrieved from https://www.politifact.com/truth-o-meter/article/2017/jan/05/tracking-obamas-top-25-campaign-promises/

Photo by Wim van ‘t Einde on Unsplash

Shear, M. (2019, November 16). With a Tweet, Trump Upends Republican Strategy for Dealing With Yovanovitch. New York Times. [Web page]. Retrieved from https://www.nytimes.com/2019/11/15/us/politics/trump-tweet-yovanovitch.html

U.S. Senate. (n.d.). Have You No Sense of Decency? [Web page]. Retrieved from https://www.senate.gov/artandhistory/history/minute/Have_you_no_sense_of_decency.htm

Congressional Research Service (CRS). (1998, October 29). Impeachment Grounds: A Collection of Selected Materials. [PDF]. Retrieved from https://www.senate.gov/CRSpubs/dfe6ac8e-78ad-4e59-bcda-d612c382ec2f.pdf Pgs. 14, 15, 26.


November 10, 2019

by Steve Stofka

All states require that automobiles be insured. Would you support a state law that stipulated that you had to provide proof of insurance in order to start your car? It might be a card reader or a fingerprint reader that interfaces with an electronic interlock system. An insurance card might be a small chip on a key ring. Insert the chip, the car verifies the insurance and is ready to start.

 Some states already mandate such interlock systems called IIDs for drivers convicted of DUI and DWI offenses (McCurley, n.d.). In their implementation just laws can become unjust. A New York Times investigation recently revealed that the breathalyzers used by police are unreliable (Cowley, Silver-Greenberg, 2019). Thousands of cases have been thrown out because the machines were not calibrated and gave high readings. Some states have ignored or tried to cover up the inaccuracy of their tests.

The federal government has mandatory Social Security payments that we must pay when we work. States have mandatory sales taxes that must be paid when buying many goods and some services. Mandates are part of our everyday lives and yet people vociferously protested the Obamacare mandate to buy health insurance. Why? Working and buying things are activities that have some voluntary component. Obamacare’s mandate was on the activity of breathing, on being alive.

Some people resent jury duty for the same reason. People are called every few years where I live. For those who are unemployed, the reimbursement is small (NCSC, n.d.). In some states, jurors are paid about the same as convict labor. However, there is some choice. I can choose to move out of the district and avoid the frequency of being called. On the other hand, how do I avoid an Obamacare mandate on simply being alive?

Should young people be subject to mandatory national service of some kind? When I hear that suggestion, it usually comes from an older person. Younger people, who don’t make as much money earlier in their careers, will vote for mandates that older people making more money should pay higher taxes so that the government will be able to afford more services for younger people.

Retired people want mandates for those who are working to pay more money into the Social Security system so that retirees can be assured of getting their full pension checks. It is part of the human condition that we like mandates imposed on other people more than we like them imposed on us. We want more prisons but not in my neighborhood because that might drive property values down. We want more housing for the homeless but not in my neighborhood. I want to be charitable, but I have an obligation to protect my property values more than the homeless. We want more money for the poor and unfortunate but don’t want to pay higher taxes because we’re already taxed enough. Can’t the government get the taxes from the rich guys and leave me alone? Elizabeth Warren thinks so.

This year’s election was held last Tuesday and now we have a year of election festivities before the Presidential election in 2020. Among the Democratic contenders, Ms. Warren speaks with greater ease and confidence on the stage. She has policies and plans to pay for those policies and it’s the rich guys who are going to pay. I like that. I pay enough already. Ms. Warren fights for middle class families but she fights just as hard for the idea of big beneficial government, a variation of the philosopher king who rules his people with temperance, strength and charity.

President Trump is now the spokesman and leader of the Radical Right. Mr. Trump believes he is the philosopher king, immune from all laws while he is president. So his lawyer argued last week to a dumbfounded courtroom. Republicans believe in a philosopher king of another sort – the free market. This king rules with the wisdom of crowds, the temperance of competing interests and the strength of competition. That’s the idea at least. In practice the free market is not free. Politicians pass legislation to protect market interests from competition both domestic and foreign.

This coming election will feature candidates who have captured the extremes of either party yet claim that they represent the center. It is the other side that is radical. That’s the rhetoric we have been hearing from a radical Republican, leader Kevin McCarthy. “We’re normal. They’re crazy.” Welcome to the crazy ward at Congress, whose job approval ratings are in the low 20s (Real Clear Politics, n.d.). Why is that? Well, it’s because those crazy Democrats are trying to impeach our President and not getting anything else done. That’s one sentiment. However, Congressional approval ratings have improved since the Republicans held the House last year.

Every time I hear a politician say the phrase “the American people,” I know that I am about to hear utter nonsense following that phrase. They often profess to know and speak the will of the American people but few of them have the slightest clue or their job approval ratings wouldn’t be so low.

230 years ago, a large multinational company like the East India Company needed a powerful government like England to protect its interests and profits. This country fought a war against England to check the dominance of the East India Company. Today, Republicans openly support corporate interests over much else. Democrats say they are for the little guy, but they supported large financial institutions, big corporations and big unions during the financial crisis. They believe in big government; they need the support of big corporations to enact their big plans with their big government. The Senate minority leader, Chuck Schumer, hails from New York City and helped soften laws and regulations designed to curb Wall Street’s abuses.

The Radical Republicans believe in a form of anarchy that they call small government. Small, however, does not include military spending or subsidies to their friends and constituents. When Republicans spend big, it’s small government. When Democrats spend big, it’s socialism. We’ll get plenty of this nonsense in the coming year.

 The Radical Democrats keep insisting that this country is a democracy. No, it’s not. Look it up. The country was specifically founded on the principle that this was not a democracy. It was a republic. Shortly after the Constitution was written, the French Revolution vindicated the founders’ antipathy toward democracy. Democracies lead to either pandemonium or paralysis. In a democracy, the majority rule and inevitably enslave the minority. James Madison pointed to the institution of slavery to prove his case (Feldman, 2017). A republic of competing sectional interests would provide a better balance between warring factions within the new nation.

The Radical Republicans run against wind and solar subsidies because they are serving the interests of the oil and gas industries who have received direct and indirect subsidies for more than a hundred years. Businesses which dominate market share in an industry generously support their friends in Congress. There was no free market 200 years ago, there is no free market today and there won’t be one 150 years in the future.

Adam Smith published the Wealth of Nations the same year as the signing of the Declaration of Independence. The free market was an ideal that Adam Smith proposed after detailing the corruption that people and governments bring to any market. He didn’t like the idea of a free market but saw no better alternative. In his day, mercantilism dominated the economic and political system. Governments competed to protect the industries in their country against competitive pressures from those same industries in other countries.

These are our choices for next election: two philosopher kings. The big benefits of a strong, wise and caring government vs a market that can be efficient, just and cruel, that rewards effort and innovation but leaves many of the unprotected in despair. Those who don’t like mandates will vote for the market because they reason that markets can’t pass laws and mandates. Not directly, that’s true. However, dominant businesses try to get government to pass mandates which protect their profits. In either case, we are going to get mandates.


Works Cited:

Cowley, S. and Silver-Greenberg, J. (2019, November 3). These Machines Can Put You in Jail. Don’t Trust Them. N.Y. Times. Retrieved from http://www.nytimes.com

Feldman, N. (2017). Three Lives of James Madison: genius, partisan, president. [Print]. New York: Random House.

McCurley, J. (n.d.). Ignition Interlock Devices: Costs and Requirements. [Web page]. Retrieved from https://dui.drivinglaws.org/interlock.php

National Center for State Courts (NCSC). (n.d.). Jury Management: State Links. [Web page]. Retrieved from https://www.ncsc.org/Topics/Jury/Jury-Management/State-Links.aspx?cat=Juror%20Pay

Photo by Willian B. on Unsplash

Real Clear Politics. (n.d.). Congressional Job Approval. [Web page]. Retrieved from https://www.realclearpolitics.com/epolls/other/congressional_job_approval-903.html

What Hides Below

November 3, 2019

by Steve Stofka

Think the days of packaging subprime loans together is gone? Nope. They are called asset-backed securities, or ABS. The 60-day delinquency rate on subprime loans is now higher than it was during the financial crisis (Richter, 2019). The dollar amount of 90-day delinquencies has grown more than 60% above the high delinquencies during the financial crisis. Recently Santander U.S.A. was called out for the poor underwriting practices of its subprime loans. In this case, Santander must buy back loans that go into early default because of fraud and poor standards.

Credit card delinquencies issued by small banks have more than doubled since Mr. Trump took office (Boston, Rembert, 2019). Did a more relaxed regulatory environment encourage these banks to take on more risk to boost profits?

In the last century, geologists have developed new measuring and analytical tools to better understand the structure of the Earth. GPS technology can now detect movements of the earth’s crust as little as ¼” (USGS, n.d.). The same can’t be said for human foolishness. During the past half-century, financial analysts and academics have developed an amazing array of statistical and analytical tools to understand and measure risk. Despite that sophistication, the Federal Reserve has mismanaged interest rate policy (Hartcher, 2006). Government regulators have misunderstood risks in the banking and securities markets.

Earthquake threats happen deep underground. I suspect that the same is true about financial risks. To gain a competitive advantage, companies try to hide their strategies and the details of their financial products. On the last pages of quarterly and annual reports, we find a lot of mysterious details in the notes. After the Arthur Anderson accounting scandal in 2002, the Sarbanes-Oxley Act was passed to bring greater transparency and accountability to financial reporting. Six years later, the financial crisis demonstrated that there was a lot of risk still hiding in dark corners.

The financial crisis exposed a lot of malfeasance and foolishness. Some folks think that investors are now more alert. After the crisis, corporate board members and regulators are more active and aware of risk exposures. Are those risks behind us? I doubt it. Believing in the power of their risk models, underwriters, bankers and traders become victims of their own overconfidence (Lewis, 2015).

Each decade California experiences a quake that is more than 6.0 on the Richter scale. Following the quake come the warnings that California will split away from the North American continent. Still waiting. The recession was due to arrive eight years ago. We did experience a mini-recession in 2015-16, but it wasn’t labeled a recession. The slowdown wasn’t slow enough and long enough. Eventually we will have a recession, and all those people who predicted a recession in 2011 and subsequent years will claim they were right. In many areas of life, being right is all about timing. Few of us are that kind of right.

The data demonstrates the difficulty of financial fortune telling. The Callan Periodic Table of Investment Returns shows the returns and rank of ten asset classes over the past two decades (Callan, 2019). An asset class that does well one year doesn’t fare as well the following year. An investor who can read the past doesn’t need to read the future. Does an investor need to diversify among all ten asset classes?  Many investors can achieve some reasonable balance between risk and reward with four to six index funds and leave their ouija boards in the closet.



Boston, C. and Rembert, E. (2019, October 28). Consumer Cracks Emerge as Banks Say Everything Looks Fine. Bloomberg. [Web page]. Retrieved from https://www.bloomberg.com/news/articles/2019-10-28/consumer-cracks-emerge-as-banks-say-everything-looks-fine

Callan. (2019). Periodic Table of Investment Returns. [Web page]. Retrieved from https://www.callan.com/periodic-table/

Hartcher, P. (2006). Bubble man: Alan Greenspan & the missing 7 trillion dollars. New York: W.W. Norton & Co.

Lewis, M. (2015). The Big Short. New York: Penguin Books.

Richter, W. (2019, October 25, 2019). Subprime auto loans blow up. [Web page]. Retrieved from https://wolfstreet.com/2019/10/25/subprime-auto-loans-blow-up-60-day-delinquencies-shoot-past-financial-crisis-peak

Szeglat, M. (n.d.) Photo of lava flow at Kalapana, HI, U.S. [Photo]. Retrieved from https://unsplash.com/photos/NysO5Rdn7Mc

USGS. (n.d.). About GPS. [Web page]. Retrieved from https://earthquake.usgs.gov/monitoring/gps/about.php

Calibrating the Narrative

October 27, 2019

by Steve Stofka

Mr. Z, the man himself, head of Facebook, showed up in Washington this week to testify before a House committee about privacy and money (C-Span, 2019). Congress is worried about Mark Zuckerberg’s desire to create a digital currency. Several committee members expressed their concern that a private company with a large global influence might wrest control of the world’s currency away from the American government.

Article 1, Section 8 of the Constitution – the enumerated powers section – gave Congress the power “to coin Money, regulate the Value thereof, and of foreign Coin.” The United States has a powerful influence on the international payments system because 52% of transfers are in U.S. dollars (SWIFT, n.d.). The U.S. does not want to give up that global control to Facebook.

As I listened to the exchange between members of Congress and Mr. Zuckerberg, I was reminded that money itself is a narrative. Who gets to dominate that narrative? China and other countries would prefer that U.S. politics did not control the global financial market. When the British controlled the world’s dominant currency, the pound, more than a century ago, the U.S. didn’t like the influence that British leaders had on American lives. The sun never set on the British empire. Now its the U.S. that operates the world’s merry-go-round and the tickets are priced in dollars.

In the digital age Google and Facebook control many of the social and financial exchanges between people around the world. The U.S. government is the 800-pound gorilla in the room and doesn’t like challenges of its dominance. As Facebook and Google get larger and more influential, they become the 600-pound gorillas, but with one important difference. They don’t have an army and a court system like the U.S. does. When Presidential candidate Elizabeth Warren campaigns on breaking up the digital giants because of their monopoly power, those giants pay attention. There is a mood change in Washington that reminds me of the attacks on Microsoft in the 1990s.

We can expect that Facebook and Google will continue their heavy lobbying campaigns and trust in the paralysis of our system of government. The strength of that system lies in the checks and balances built into the Constitution. However, the past decade has shown that those same checks and balances stymie a lot of policy making in Washington. During the worst financial crisis since the Great Depression, it was difficult to enact fiscal policy because that requires legislation which requires consensus, compromise and maturity. Not much of that left in Congress these days.

The chief response to the crisis was handled by a small group of central bankers at the Federal Reserve whose reach is limited by law. Its monetary tools are designed to work with and for banks. Because of that, Wall Street got bailed out during the crisis but not Main Street. Mr. Trump got elected partially on a promise to remedy that situation, particularly in rural America. He was the rainmaker, a billionaire who could get things done that no politician could. No person – even the President of the U.S. – has that much power. Despite the low employment numbers, many communities throughout America have not fully recovered. Mr. Trump’s performance has been theatrical, to say the least. His popular twitter barrage dominates the Washington narrative every day.

And that brings us back to that august body where Mr. Zuckerberg appeared this week. His motives are good, he assured the House committee. A third of the world’s population is unbanked, he noted. Facebook’s promotion of the digital currency Libra and its integration within the Facebook app can help. Calibra is not live yet but the web site will give you a taste of the future (Calibra, n.d.). Concerned about the attention from Congress, large financial institutions like PayPal, Visa and Mastercard have dropped out of the Calibra consortium. Or did Mr. Zuckerberg call it a partnership?

Every criminal organization around the globe is hoping that Mr. Zuckerberg will succeed. Moving $100 bills around is so inconvenient. Mr. Zuckerberg has a solution to help government track down criminal transactions and prevent the digital currency from being used for illegal activities. Law abiding citizens can stay anonymous. How will he accomplish this? It’s a secret. He will tell us soon – very soon.

Even though Calibra will be headquartered in Switzerland, Mr. Zuckerberg promised several times that Facebook will not go through with these digital currency plans until it meets all the concerns of U.S. regulators. There are a lot of regulatory agencies in the U.S. and that very plethora of regulatory bodies contributed to the financial crisis. Investment firms played off one agency against another until they found an agency they liked. Will Mr. Zuckerberg do the same?

Who will control this narrative? The big guns of the U.S. government or the billions of dollars of profit to be had by Facebook if it can scrape just a few pennies per transaction off the trillions of dollars traded around the world each year? My bet is on Mr. Zuckerberg. He is sometimes inartful, but he stumbled on a way into the lives of a few billion people around the world and he has quite artfully capitalized on that.



C-Span. (2019, October 23). Facebook CEO Testimony before House Financial Services Committee. [Web page, Video]. Retrieved from https://www.c-span.org/video/?465293-1/facebook-ceo-testimony-house-financial-services-committee

Calibra. (n.d.). A connected wallet for a connected world. [Web page]. Retrieved from https://calibra.com/

Public Domain. (n.d.) Obverse of United States one dollar bill, series 2009. [Image]. Retrieved from https://commons.wikimedia.org/w/index.php?curid=23332139

SWIFT. (2015, December). Worldwide Currency Usage and Trends. [PDF]. Retrieved from https://www.swift.com/node/19186

Price Plateaus

October 20, 2019

by Steve Stofka

Occasionally the stock market plateaus for six to nine months. The competing market sentiments – positive and negative – that cause a price plateau usually turn in one direction or another. Rarely does this leveling period last for twelve months or more. When those indecisive conditions don’t resolve for a year, what happens next?

Let’s begin by looking at shorter duration plateaus which occur more frequently. The market gets a bit too exuberant or conflicting economic signals make it more difficult to predict the future. Some investors read the data and reach for risk; others read the same tea leaves and opt for safety.

In 1999, near the peak of the dot-com fever, prices plateaued for seven months before going onto new highs in 2000 . Again, the market paused for much of the year.  It was the end of the huge bull market of the 1990s.

In the beginning of 2004, investor indecision caused a leveling of price action after market sentiment had turned positive in 2003. The dot-com bust, the 2001 recession, the 9-11 tragedy, and the Enron and accounting scandals had combined to cut stock values in half by the spring of 2003. Investor optimism following the tax cut package of 2003 suffered when employment gains in late 2003 turned erratic. Investors were wary. Would this be a double-dip recession like the early 1980s? 

A relaxation of financial regulations helped spur more residential investment and the market continued upward. The erratic gains in employment were attributed to seasonal volatility in the construction industry. Many factors contributed to the complex international financial environment that spurred a boom in housing. In 2007, investors began to question market evaluations and prices plateaued for six months.

Two recent price stalls lasting more than twelve months seem to buck the trend of shorter-term plateaus. That there have been two in less than five years is concerning. In mid-2014, oil prices began a steep decline. Lower commodity input prices helped the profits of the broad market but by early 2015, investors grew worried that this decline was a reaction to a broad economic downturn. For 18 months, prices leveled. As voters went to the polls in early November 2016, prices were the same as in February 2015. Some voters chose an inexperienced Donald Trump as an alternative to Clinton 3.0 or Obama 3.0.

Shortly after the passage of tax reform in December 2017, investor optimism hit a peak and it has barely surpassed that high since then. The optimism of this year’s gains has only balanced the pessimism and losses of last year’s final quarter. What will happen after this? I don’t know. Investors need to think like fighters who stay balanced on their feet because they don’t know where the next punch is coming from.

Minority Control

October 13, 2019

by Steve Stofka

On September 15, 2008 the trading firm Lehman Brothers declared bankruptcy. A small number of outstanding shares traded on the stock market that day. The SP500 lost almost 5% of its value. New Yorkers gathered in Times Square to watch the ticker tape display. A small number of people controlled the direction of the market and constructed a reality that they sold to the rest of us.

In politics, a few key people control the direction and fate of legislation. In the Senate, the Majority Leader decides whether to bring legislation up for a vote. Even if a bill makes it out of a Senate committee, the Majority Leader can stop it from reaching the full Senate.  Unlike the Majority Leader in the House, his position is practically impregnable. Legislation vetoed by the President can be overridden by Congress. There is no recourse to a veto by the Senate Majority Leader.

The current holder of the position is Sen. Mitch McConnell from Kentucky. He is up again for re-election next year. When Democrats held the Senate, Sen. Harry Reid ruled with a similar disregard for others in his own party as well as the minority.

In 2014, 800,000 voters chose McConnell. In effect, less than 1% of the country’s voters control the course of legislation in the U.S. Did the founders of this country intend that one person should control Congress? James Madison, the chief crafter of the Constitution, worried that a majority would overwhelm and take advantage of a minority (Feldman, 2017). Accordingly, the Constitution is structured so that a minority controls power. However, one person is a very small minority. What would the founders think of the current arrangement in Congress? If Americans wanted a king with veto-proof power, America would still be a colony of Britain.

Our method of electing a President is a 230-year-old compromise between republicanism and democracy. An electoral college composed of men not subject to the passions of the crowd would elect the leader of the country. It was an Enlightenment model of dispassionate rationality.

Even if they had Fox News and CNN on Election night at the time of the founding, all the thirteen states were in the same Eastern time zone. At a recent symposium on our election, former RNC chair Michael Steele pointed out the west coast states are mostly taken out of the Presidential election (C-Span.org, 2019). By 5 P.M. Pacific time, they are discouraged from voting because much of the action has already been called. The founders did not design a system for four time zones.

We have 50 states but the election for President takes place in eight to twelve battleground states. Most polling is done at the national level, not in the battleground states. Many polls do not accurately survey the sentiments of the critical minority of voters in the states that will decide the election.

A minority of people own and control much of the wealth of the world. They now pay a lower percentage of their income than the bottom 50%. That includes federal, state and local taxes. In the Triumph of Injustice, due to be released next week, authors Saez and Zucman (2019) tally up the tax bills for the rich and ultra-rich. The book is #1 bestseller at Amazon and it hasn’t been published yet.

In 1980, the top 1% paid 47% of their income in total taxes at all levels. Now they are down to 23% and below the rate paid by the bottom half of incomes. Two sets of rules – one set for the peasants and one for the castle royalty. The Constitution prohibits the granting of titles so the rich granted themselves the titles. This book is sure to get a lot of media attention. Like we need more controversy.


Feldman, N. (2017). Three Lives of James Madison: genius, partisan, president. [Print]. New York: Random House.

C-Span.org. (2019, October 7). National Popular Vote Election, Part 2. [Video]. Retrieved from https://www.c-span.org/video/?464997-2/national-popular-vote-election-part-2

Saez, E. & Zucman, G. (2019) Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay. [Print]. Available for pre-order at https://www.amazon.com/Triumph-Injustice-Rich-Dodge-Taxes/dp/1324002727

Effective tax rates: If you make $100,000 and you pay $25,000 in federal, social security, state, sales and property tax, then your total effective tax rate is 25%.

Photo: WyrdLight.com [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D Page URL: https://commons.wikimedia.org/wiki/File:Bodiam-castle-10My8-1197.jpg

Portfolio Performance & Presidents

October 6, 2019

by Steve Stofka

The employment report released Friday was a Goldilocks gain of 136,000 jobs for the month of September. Why Goldilocks? Not as weak as some feared following news this week that manufacturing was getting hit hard in the trade war with China (Note #1). Not so strong that it ruled out the possibility of another rate cut from the Fed this year. Just weak enough to speculate on another rate cut by year’s end. After several days of big losses, the market rallied on Friday.

Although manufacturing has been contracting, a report on the rest of the economy was more encouraging, although a bit lackluster (Note #2). Service businesses are continuing to hire but the pace has slowed. New export orders have accelerated but new orders in total slowed significantly from August. Something to like, something not to like.

Billions of dollars around the world are traded as soon as the employment report is released each month. During Mr. Obama’s tenure private citizen Donald Trump accused Obama of fudging the employment numbers. Larry Kudlow, now Mr. Trump’s economic advisor, took him to task for that. Mr. Kudlow worked in the Reagan administration and knew well how sacrosanct the employment numbers were. The BLS is an independent agency working in the Department of Labor and its 2400 employees try to collect and publish the most accurate data it can accomplish. The agency’s Commissioner is the only political appointee in the BLS and once confirmed by the Senate, serves four years, the same as the head of the Federal Reserve (Note #3). According to Mr. Kudlow, the White House gets the number the night before only to prepare a press release when the report is released.

Mr. Trump’s reckless behavior helped him take out 16 other Republican presidential candidates in the 2016 election. He acts quickly and aggressively. That lack of caution has led to several bankruptcies, and because of that, no bank in the world will loan him money (Note #4). What if, on an impulse, Mr. Trump tweeted out the employment number shortly before its official release time? Some traders pay a lot of money so that the news will hit their trading desk a split second faster than a conventional news release. It’s that important. An early leak of the employment numbers would cost a lot of influential people big money around the world and would prompt a national if not a global crisis. Forget about the phone calls to foreign leaders to discredit Joe Biden. That would be an act of treason for sure – against the global financial community. Can’t happen? Won’t happen?

Mr. Trump knows no rules. His father protected him when his rash behavior got him into trouble as a child. The elder Trump sheltered Donald from his own mistakes in the real estate industry and his foolish foray into the Atlantic City gambling business. Now that Mr. Trump’s father is no longer there, he depends on others to protect him. He has enlisted a long line of people in that effort. They have come in the revolving door to the White House and left. The list is longer than I imagined (Note #5). John Bolton, the third National Security Advisor under Mr. Trump’s tenure, was the last high-profile team member to leave.

Mr. Trump has said that Americans would get tired of winning so much while he was President. To use a baseball analogy, when he takes the mound, the team doesn’t win very often. People who lose a lot either give up or blame everyone and everything else for their losses. They need to have an ideal environment or get lucky to win. Mr. Trump berates the independent Fed because he wants them to protect him. He needs every crutch he can get. He couldn’t succeed in a war or in the financial crisis because he is not disciplined or organized.

What does this mean for the average investor? Take a cautious approach and keep a balanced portfolio. Betting that Mr. Trump will pitch a good game is a poor bet.

Or is it? At an event on Friday, he claimed that the stock market has gone up 50% since he was elected. Not quite but it is up 42% since the day after he was elected (Note #6). It’s been about 35 months. That’s pretty good. A 60-40 stock-bond portfolio has gone up 30% in that time. Under Obama’s tenure the market only went up 27%. A balanced portfolio went up almost 40% and he had to deal with the worst recession since the Great Depression. The budget battles with Republicans put a big dampener on investor enthusiasm during Obama’s first term.

35 months after the Supreme Court awarded the presidency to George Bush, the market was down 25% but a balanced portfolio was up 21%. Even Mr. Clinton could not best Mr. Trump, although he comes close. 35 months after the 1992 election the market was up 38%. A balanced portfolio was up 40%. The winner? A balanced portfolio.

What might an investor expect? At today’s low interest rates and inflation, a break-even return might be 5% a year, for a total gain of 22% in four years. Will Mr. Trump’s first four years be one of his few wins? Check back in a year. It’s bound to be a tumultuous year.



  1. Institute for Supply Management (ISM). (2019, October 3). September 2019 Manufacturing ISM Report on Business. [Web page]. Retrieved from https://www.instituteforsupplymanagement.org/ISMReport/MfgROB.cfm
  2. Institute for Supply Management (ISM). (2019, October 3). September 2019 Non-Manufacturing ISM Report on Business. [Web page]. Retrieved from https://www.instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?navItemNumber=28857&SSO=1
  3. Bureau of Labor Statistics. (n.d.). About the U.S. Bureau of Labor Statistics. [Web page]. Retrieved from https://www.bls.gov/bls/infohome.htm
  4. Business Insider. (2019, August 28). The world is talking about Trump’s relationship with Deutsche Bank. [Web page]. Retrieved from https://markets.businessinsider.com/news/stocks/trump-tax-returns-deutsche-bank-relationship-drawing-intense-scrutiny-2019-8-1028482268#why-it-matters2
  5. Wikipedia. (n.d.). List of Trump administration dismissals and resignations. [Web page]. Retrieved from https://en.wikipedia.org/wiki/List_of_Trump_administration_dismissals_and_resignations
  6. Prices are SPY, the leading ETF that tracks the SP500. Clinton: 42 to 58 (approximately) – up 38%. Bush: 138 to 103 – down 25%. Obama: 91 to 116 – up 27%. Trump: 208 to 295 – up 42%. Balanced portfolio returns from Portfolio Visualizer calculated using a mix of 60% U.S. stock market, and 40% of an evenly balanced mix of intermediate term government and corporate bonds. Dividends were reinvested and the portfolio re-balanced annually.