The Leaving

January 30, 2022

by Stephen Stofka

Every week I read about the Great Resignation. What is it? The number of people quitting their jobs is at a historic high. In the leisure and hospitality industry, the number of quits is up 20% from pre-pandemic levels. In retail jobs, quits are up 16%. People quit their jobs for a lot of reasons. In more normal times, a higher quit rate indicates a greater confidence in finding another job. As the quits rate goes up, the unemployment rate goes down. I’ve inverted the unemployment rate to show the historic trend between job quits and unemployment.

These are not normal times. Employees in public facing jobs are enduring abuse from patrons. We have lost a social cohesion, an agreement on the rules of civility. In response to physical threats to employees over mask wearing, Denver’s Children’s Museum closed for ten days. According to the FAA, the number of active investigations into unruly passengers climbed 7-fold in 2021. The number of quits in healthcare field, in the leisure and hospitality industry, education, and food services are all more than 1/3 higher than pre-pandemic levels. In professional services, quits have increased by 28%. In the retail sector, the growth is only 18%.

In the South and Midwest regions that the Labor Department surveys, the quits rate has climbed 30%. According to US Census data almost 40% of the country lives in the Southern region and is the fastest growing region of the country. The Midwest region has about half the population, has recently experienced a slight population decline, but is experiencing the same job churn. Are people moving from the Midwest to the South? In the Western and Northeastern regions, the quits rate has grown more modestly – at 20-22%.

The first estimate of last quarter’s real GDP growth was an annualized 5.5% growth (GDPC1). That’s real growth after subtracting the effect of inflation. Household purchasing grew by a strong 7.1% after inflation (PCEC96). How much have households borrowed to fund that buying spree? 3rd quarter real debt rose by only 2.5%, easing slightly after the first two quarters of last year (CMDEBT/PCEPI). We won’t have 4th quarter debt levels until early March but real debt levels are still below the peak of 2007 when households had gorged on debt. Until the financial crisis in 2008, real household debt was growing 7-8% per year then went negative for six years after the crisis. Household debt did not rise above a 1% growth rate until the final year of the Obama presidency.

Households have a historically low debt burden as a percent of disposable income (TDSP). If a household’s monthly income after taxes is $1000, the average debt payment is less than $100, near a four decade low. There is a lot of guesswork in this series but the important thing is the declining trend in the data. People are not borrowing beyond their means as they did during the 2000s. Do lower debt levels mean that buying pressures will remain strong? Will another Covid variant further strain hospital staff and resources?


Photo by Clem Onojeghuo on Unsplash

A Good Decade

January 23, 2022

by Stephen Stofka

As a year-end review I’ll compare risk and returns of the past ten years with the decade before. I submitted several standard portfolios to Portfolio Visualizer. These portfolio metrics are based on broad indexes with a yearly rebalancing. These are broad benchmarks and the performance metrics don’t include fees, taxes and transactions costs that would reduce an investor’s actual returns.

The CAGR is the compounded annual return. Worst Year measures the worry level that an investor might face. The first portfolio might be termed aggressive but would be typical for a person who is more than ten years from retirement. The 60/30/10 is a moderate portfolio allocation and the 50/40/10 is a balanced weighting, more appropriate for those who might need to draw funds from the portfolio.

2012-2021                                           2002-2011                            

Stocks/Bonds/CashCAGRWorst YearCAGRWorst Year

The last decade stands in stark contrast to its predecessor, which included the great financial crisis of 2008-2009. The 7.5% difference in annual returns between the two decades was worth $106K extra return on a $100K portfolio. The more aggressive 70/25/5 portfolio gained an additional 1.5% during the past “good” decade but had only a .1% lower return during the previous “bad” decade. During that bad decade, however, the aggressive portfolio lost 25% of its value in one year. A 20% drop in value is considered a bear market. For investors with no need to sell any of their portfolio, those were “paper” losses. Some investors needed to tap their portfolio for living expenses in retirement or to recover from job loss. During the recovery from the financial crisis, some older investors continued to work past retirement age to replenish their portfolio. Many of them left the labor force when the pandemic struck. The number of workers over 55 is still 1.2 million less than it was at the onset of the pandemic (FRED Series LNS12024230).

The government learned valuable lessons from its response to the financial crisis in 2008-9. Both the fiscal and monetary response had been too moderate and that prolonged the recovery over many years. When the pandemic struck in March 2020, Congress and the Federal Reserve enacted strong relief measures that protected many families and some businesses from the economic fallout of pandemic restrictions. Occasionally, Congress can come together on a bipartisan basis and accomplish something.

It is unlikely that the 2020s will have the same high returns as the last decade. A younger investor can take a more aggressive stance and rely on the law of averages. Time is on their side. An investor who may need funds from their portfolio in the coming years might check their allocation and rebalance to a more appropriate level of risk.


Photo by Markus Winkler on Unsplash

Wealth-Income Ratio

January 16, 2022

by Stephen Stofka

Analyses of wealth and income inequality engage policymakers and economists and provoke lively discussion on social media. Thomas Piketty (2013) stirred up debate with the publication of Capital in the Twenty-First Century. Five years later came the publication of After Piketty (Boushey et al., 2019), a series of essays by prominent economists. I wanted to tackle a different aspect of this subject – why the ratio of wealth to income has become so erratic in the past two decades. The answers are too complex for a blog post and beyond my capability to understand. But let’s take a short journey down the rabbit hole.

In the past ten years both stocks and housing prices have more than doubled, moving in a synchronized dance. In the graph below I’ve plotted the two series on top of each other to show the similarity in trend.

The Federal Reserve charts a ratio of household wealth to disposable income, which is income less taxes plus transfer payments like Social Security. Although there are some similar components, the ratio is different than the capital-income ratio that Piketty uses. Housing represents the majority of wealth for many households. Many workers own part of the stock market through mutual funds, 401K plans at work or IRA retirement plans. The doubling of these two asset classes has led to a rise in household wealth and raised the wealth-income ratio to historically elevated levels.

In the graph above I have highlighted past decades where this percentage found a level and remained there. For almost 50 years following WW2 household wealth was about 5x disposable income. Beginning in the mid-90s, this percentage turned erratic, unable to find any stability until the violent recession following the fiscal crisis. In 2013, stock prices and housing began a steady climb that endured the pandemic shock and continues to this day. Will we establish a new level of wealth at 8x disposable income in the next few years? I doubt it. Such a growth curve is unsustainable.

As I search for the underlying causes, I look back to the mid-90s when the wealth-income ratio first turned erratic. The internet first began to grow into our commercial and personal lives. Heady expectations of rocketing business profits led many investors to make wild bets on companies who had little history, a lot of hype and little profit. Out of the carnage of mis-investment emerged an internet platform that has transformed our personal lives. Apple and Amazon are two success stories. In 1997 giant Microsoft made a $150 million investment in failing Apple Computer that kept Apple out of bankruptcy. This year Apple’s valuation passed the $3 trillion mark, about 13% of the entire GDP of the U.S. That same year Amazon went public. It’s business model? Selling books. For years it struggled to make a profit. Amazon’s market capitalization is now over $1.6 trillion. The so called FAANG stocks of big tech have surpassed the industrial and financial giants of the 20th century. Two researchers at Morningstar studied the decade long impact of the ten largest stocks and the impact they made on the overall return of the entire stock market (Solberg & Lauricella, 2021). Perhaps that concentration of market power is contributing to a more erratic wealth-income ratio.

Low interest rates and leverage have affected household wealth. In the mid-90s, bankers at JP Morgan developed the collateralized mortgage to spread risk. In ten years, misuse and overuse of that idea led to a historic meltdown in housing prices and caused a worldwide fiscal crisis. Since then the supply of new housing has not kept pace with demand. Fueling that demand is a large Millennial generation which is settling down. Persistently low mortgage rates have increased the pool of qualifying buyers. Low rates have raised the present value of the future housing services a homeowner receives from the house they buy. Not enough supply to meet demand has led to higher housing prices.

High inflation this year has grabbed headlines and stirred up comparisons to the stagflation of the 1970s. There are too many differences between now and then but that is a subject for another blog post. A rising federal debt has certainly contributed to a rising level of wealth but does not account for the erratic behavior of the ratio itself. In the mid-90s, the federal debt began falling and the wealth-income ratio rose dramatically.

I suspect that finding an equilibrium in this ratio will be a painful process. To reestablish a sustainable ratio, there are two possibilities. The first is a hard landing where asset valuations fall more than incomes fall. The second scenario is a soft landing in which incomes rise more than valuations rise. Let’s hope for the soft landing.


Photo by Ludde Lorentz on Unsplash

Boushey, H., Bradford, D. L. J., & Steinbaum, M. (2019). After Piketty: The agenda for economics and inequality. Harvard University Press.

Cautero, R. M. (2021, December 28). What is disposable income? The Balance. Retrieved January 15, 2022, from

Piketty, T. (2013). Capital in the Twenty-First Century. (A. Goldhammer, Trans.). The Belknap Press of Harvard University Press.

Solberg, L., & Lauricella, T. (2021, December 1). The FAANG Market is Fading. Morningstar, Inc. Retrieved January 15, 2022, from

A Man With No Blame

January 9, 2022

by Stephen Stofka

A 63 year old man came into a hospital because of a heart problem and found out that his condition was aggravated by Covid. He had not gotten the vaccine because he was fed some incorrect information, he said to a reporter. He was not on a ventilator yet but regretted not getting the vaccine. He was not to blame. One of the many rioters on January 6th a year ago cried that his intentions were honest – a protest against what he had been told was a stolen election. As the riot turned violent, he was swept up in the motion of the crowd. He was not to blame. In the song I Shall Be Released Bob Dylan wrote about a man who also was not to blame. We want others to take responsibility for their actions but are reluctant to shoulder responsibility for our own actions.

In the middle of the 20th century, many psychotherapists took a mechanistic approach to explaining behavior, helping their patients understand that their actions were the result of environmental and genetic factors (Maddison, 1959). Therapists wanted to avoid moral labeling because it did not present a constructive way to help a patient manage their behavior. Scholars like Marshall McLuhan and Noam Chomsky argued that the mainstream media shaped public opinion to conform to corporate and institutional norms. When Noam Chomsky (1988) co-authored Manufacturing Consent there still was a mainstream media. Now we select the media that we want to listen to. We are the curators of our own information stream. Still we blame a conspiracy of misinformation for our own misfortune.

The formation of social media happened in America because it gave us an opportunity to form impromptu victim communities based on race, sexual orientations, political, economic and religious ideologies. We have become communities of umbrage, rallying in opposition to a stream of offenses. We form credential communities who challenge the right of others to call themselves victims.

We are drawn to conspiracy theories because there have been many of them throughout history. A small group of men – it is usually men – conspire in secret to pull the levers of power and affect the lives of many. Price fixing and asset bubbles are two examples. In the 19th century, Cornelius Vanderbilt busted up a cabal of New York politicians who kept railroad rates high and profited handsomely at the expense of merchants and consumers (Stiles, 2011). There was so much political corruption in America that taxpayers no longer trusted politicians with money. There was more transparency if the politicians contracted out the work to publicly held corporations, who had some accountability to their shareholders. By the dawn of the 20th century, corporations ruled America.

America has long been a country of victim communities. In the 18th century, colonists complained of British persecution while they persecuted black slaves, Native Americans and anyone thought to be a “loyalist.” In the Virginia colony, James Madison defended the Baptists who complained of religious persecution by the Anglican majority (Klarman, 2016, 566). Farmers complained of being exploited by “the rich and ambitious,” particularly northern bankers who seized upon every opportunity to repossess their land for failure to meet a payment deadline (Klarman, 2016, 385). In 1783, Pennsylvania farmers surrounded the statehouse demanding relief from their debts. In 1786-7, several thousand armed rebels occupied Massachusetts’ courthouses in an attempt to nullify tax liens and private debt contracts (Klarman, 2016, 88-90). This uprising, known as Shay’s Rebellion, showed a lack of respect for authority and the sanctity of contract that alarmed many leaders of colonial governments. The rebellion prompted the adoption of a stronger central government embodied in a new Constitution. The participants in the rebellion were dealt harsh sentences.

More than 200 years later, a former President, pampered since he was in diapers, claimed that he too was a victim. Like his predecessor, Richard Nixon, he claimed the role of Victim In Chief. He goaded his supporters to storm the Capitol building to deny the certification of an election which he had lost. One supporter carried a Confederate flag into the halls of Congress, a gesture of defiance and a repudiation of Lee’s surrender at Appomattox almost 150 years earlier. More than 700 of those who participated in the riot have been charged. Their leader, a man who has persistently avoided responsibility for any of his actions, faces no charges yet. He is the Victim, the Man Without Blame.


Photo by Andrey Tikhonovskiy on Unsplash

Klarman, M. J. (2016). The Framers’ Coup: The Making of the United States Constitution. Oxford University Press.

Maddison, D. C. (1959, August 15). The doctrine of “diminished responsibility” in the Criminal Law. The Lancet. Retrieved January 8, 2022, from

Stiles, T. J. (2011). The First Tycoon: The Epic Life of Cornelius Vanderbilt. Alfred A. Knopf.

The Old Normal

January 2, 2022

by Stephen Stofka

“We wish you a Merry Christmas and a Normal New Year” could be this year’s chorus. We left normal about 13 years ago when the global financial crisis erupted. Twenty schoolchildren were massacred at Sandy Hook Elementary in 2012. When Congress could not agree on any weapon restrictions, we knew we had veered onto the land of abnormal. In 2016, 60 million people voted for a candidate with no political experience. They had stopped believing in the normal and now embraced the abnormal. When the pandemic emerged in 2020, we stepped off the gangplank into the dark waters of the unnormal. That year a record number of people voted for a candidate who had spent most of his adult life in politics. They voted for normal.

On January 6th, 2021, the abnormals stormed the halls of Congress. They wore American flags and big bull horns and painted their bodies red and blue. They believed in a vast conspiracy. They had convinced themselves they were heroes. American cable and social media had created a funhouse of distorted reality and values. In that palace of crazy where everyone looked warped and bent, the warped and twisted looked like everyone else. Acting irrational became a strategy.

What is normal? In the past ten years, the SP500 has nearly quadrupled. Investors know the momentum can’t last but when will it end? Abnormal returns don’t return to normal. They pause then lurch in a different direction. The latest craze has been ESG funds, which grew by another $120B this year, according to Bloomberg. As the dot-com craze and the housing boom showed, investment flows can be fickle.

The flow of goods and services in the economy is more stable but the pandemic upset that dynamic balance. As we avoided close contact with others we diverted our purchasing power from services to goods. In April 2020, orders for durable goods fell 36% from the previous year’s level, comparable to the decline during the 2008-2009 recession (FRED, 2022). Production of gasoline fell 25%. National refineries did not return to their former level of production until April 2021(EIA, 2022). Durable goods boomed back in the spring of 2021. Federal relief supported many families but helped fuel inflation in a distorted economy. When and if the pandemic eases and people resume their habits, the economy may discover a more familiar equilibrium. That will help relieve price pressures.

What will relieve the erratic sentiments that drive investment flows? Casual investors who are young can afford to follow an investment theme. Older investors must protect their savings and avoid chasing the latest passion. A portfolio can protect us only if we protect it.


Photo by Christophe Hautier on Unsplash

EIA. (2022). Weekly petroleum status report – U.S. energy information administration (EIA). Retrieved January 1, 2022, from Table 3.

FRED (Federal Reserve). (2020, November 4). Manufacturers’ New Orders: Durable Goods (DGORDER). Retrieved January 1, 2022, from