The Final Word

A friend passed along a simple recipe composed of four ingredients last week. I shook a couple over the weekend and found another keeper for my cocktails shortlist.

The drink is The Final Word, based on gin and incorporating a new ingredient for me, green Chartreuse. I’m no stranger to gin cocktails; it’s become my favorite base spirit. It helps that gin goes with darn near everything, but it’s also refreshing on the palate, making it the base of many warm-weather pleasers.

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A sip of green Chartreuse puts me in the mind of absinthe, not only for its vivid color but also for its complexity of flavor.

 This liqueur is made by aging over a hundred herbs, plants, and flowers in neutral spirit, then bottled at a sturdy 110-proof. Where absinthe is light on the palate, Chartreuse is heavy, but not cloyingly so.

According to its Wikipedia entry, Chartreuse is one of the few liqueurs that continue aging in the bottle, which is good because I’ll probably have this one around for a while.

The recipe is simple: equal parts London Dry gin—a juniper-forward spirit works best—plus green Chartreuse, maraschino liqueur, and fresh lime juice. Shake with large cubes and double-strain into a chilled glass. Double-straining removes small ice shards from the finished cocktail. A chilled glass, well, that looks pretty and keeps your drink as cold as possible for as long as possible.

I recommend The Final Word to anyone who enjoys gin-based cocktails, herbal concoctions, and anise.

#cocktails #ginDrinks #theFinalWord

The Market is Not Our Friend

In stock market news today:

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The market cares not about people. It is not our friend.

The market is an organic expression of investor sentiment about the future useful for growing wealth. People angered by its apparent disregard of the suffering underlying its gyrations misunderstand this essential fact.

#COVID19 #pandemic #unemployment

Fallows: Flying Will Never Be the Same

James Fallows, writing on what the future of air travel might look like for The Atlantic:

Check-in and security. Anyone who has traveled through China in the 15-plus years since the SARS outbreak is familiar with the large temperature-check gates that inbound and outbound passengers must walk through. Some of them look like bigger versions of the metal-detector gates that are standard-issue in many U.S. buildings. … The gates alert quarantine officers to the presence of anyone who seems to have a fever, enabling individual follow-up examination by thermometer. Virtually no U.S. airports ran passengers through such equipment a year ago, and virtually all of them are likely to do so a year from now.

Our awareness of one another and the germ dangers posed in public spaces has become more acute lately. We should expect public health safety efforts to reach beyond anti-terror measures after 9/11 as more people emerge from self-quarantine into public living.

Imagine, though, the don’t-tread-on-me crowd facing such a portal before a flight. They can’t be troubled or imposed upon to wear a mask for our common good today. Such masks are common in Asian countries where the SARS epidemic killed over 750 patients among 8,000 cases, paling in comparison to COVID-19’s numbers. A fringe of Americans have almost always put their individual liberties ahead of the greater good—contradictions such as world war and natural disaster are the exception for them, not the rule. The future will be a tough place for these folks’ sensibilities.

The Broader Perspective

Of greater concern is the long-term expansion of the underclass. While many small business owners—the largest employment segment—are clamoring to resume operations, my hunch is that we’ll see little increased demand for their products and services until there exists a vaccine. The longer we remain at home the more we learn to make-do without them. Large employers, such as the airlines, will be hard-pressed to employ anything like their current government-supported payrolls. In short, unemployment is going to be a major problem in the American economy throughout 2021 and into 2022, at least.

There will be an ugly recognition on Wall Street when institutional investors give in to this reality. A spike in COVID-19 cases in this areas “re-opening” should trigger it.

The COVID-19 pandemic has given wise business executives an opportunity to clean-sheet redesign their businesses from the ground up. Everything from who and how many they employ to how they operate should be re-considered.

Think on this: What will you, as a consumer, do without down the road now that you’ve successfully suffered it the last couple of months? How does it change our economy and culture if millions share your sentiments?

#COVID19 #publicHealth #airTravel #employment

The Sucker Factor

The trouble with associating a political agenda with a disease possessing a two week incubation time is that, by the time any so-motivated activity yields evidence of error, that error amounts to tragedy.

Looking on the bright side, we’ll get a good read on the agenda vs. relative intellect—aka the sucker factor—in two weeks.

Crashing Markets and the Urge to Do Something

Markets declined at a historic pace last month. Did you look at the rapid decline in your investments—your means of retirement subsistence—and feel a flutter of panic? Confidence and contentment are natural when markets are advancing; not so much as paper losses mount.

Financial experts tell us to remain calm and stay the course when that happens. The arrangements we’ve made, they say, are as prudent and useful in bad times as good. Splitting up investments across multiple asset classes, company sizes, and tax efficiencies is a smart practice. As has been noted elsewhere, a broad allocation can feel like running uphill with a weighted vest on, but it sure feels good in a downhill slide.

Still, we are, in the quiet of our thoughts, alone and prone to second-guessing the choices we’ve made, or might fail to make. What if the markets, having surged back this far, are about to take another significant fall? Should I step off the roller coaster here, closer to the peak?

At the same time, doing nothing feels like a choice, too, and not a particularly good one. I’m a smart investor—or a lucky one, at least—I should be doing something now.

Such thoughts have been the downfall of many investors. Those exiting their investments after declines and remaining out for fear of losing more lock in their losses as markets move higher.

I could rest easy if I invested in a target-date fund whose primary feature is set-it-and-forget-it. Professional management keeps the fund’s internal allocation appropriately balanced for the target retirement date regardless of market conditions. I have only to restrain myself from bolting the market altogether.

I have more on my mind if, on the other hand, I’ve decided to self-allocate my investments across asset classes.

Here’s a handy bit of make-work to occupy myself with something beneficial while markets remain in turmoil: Rebalancing my allocation back to what I’d previously set. If I’m not in the habit of periodically doing this, now’s a great time to begin.

If I had set, say, a 75-percent stock, 25-percent bond allocation, and further, split the stock assets evenly between large-cap and mid/small-cap, and split my bonds between the Aggregate index and a junk bond fund, that allocation is all over the place today. Stocks are down but large-caps not so much. Bonds fell at the outset of the plunge, but investment-grade issues have rebounded. The various valuations probably don’t reflect the care I once took.

Here’s where a spreadsheet or an investment company’s allocation tool comes in handy. My 25-percent bond allocation could amount to well over 30% of my portfolio today. I’ll take a look at my allocation values using current balances and shuffle money back and forth to bring each back in line. And I’ll have purchased additional stock fund shares at discount prices that’ll appreciate well as markets recover.

This activity isn’t only make-work, however. As has been noted elsewhere, periodic rebalancing leads to better overall investment performance. My frequency of rebalancing is mostly a function of how much attention I’m willing to give it and how much it’ll cost to execute the trades. Sales within a tax-advantaged retirement account are, of course, without capital gains taxation, so causing taxable events isn’t a consideration. Investment companies generally don’t charge for transfers among funds, though they may restrict re-investment after transferring out of some of them. Many brokers are charging nothing for trading now, so even rebalancing among individual stock shares might be without cost.

Take a quiet afternoon to look through the links above and research how your investment company handles asset transfers. You might be surprised at how easy and cost-free the practice of rebalancing is, and how satisfied having done something beneficial for your financial prospects leaves you.

#retirementInvesting #rebalancing #markets #stocks #bonds

Vox: Essential Workers Have Found Their Power During the Coronavirus Pandemic

Emily Guendelsberger, writing for Vox:

Americans tend to look at big societal problems and see only individualist solutions. Look at the comments on any article about recent work stoppages in Amazon warehouses or fast-food chains, advising workers to improve themselves and find a better job if they don’t like the one they have.

This is what “no society” looks like, and it’s not just ugly — it’s a death cult.There are no free-market solutions to a pandemic. There’s no free-market answer to climate change, or homelessness, or the rise of new germs that shake off our old antibiotics. If there’s no society, there are no solutions to humanity’s looming existential problems. There’s only the grinning skull-face of eat-or-be-eaten capitalism mouthing, “You’re on your own.”

American individualism and the free-market capitalism built America and are what drive our society, but they’re not without a downside. A vocal minority of Americans are irate at being told to stay home and are protesting to re-open the economy.  They employ the harsh rhetoric of individualism, epitomized by a protester’s placard in Nashville, Tennessee this week: “Sacrifice the weak.”

Protester uging

No, thanks.

There’s a divide between when it’s our right to seek our own best fortune and when we should and must submit to the greater good. It’s for wise—and decent, humanitarian—citizens to recognize where it lies. Fortunately, we’re still in good, majority company on the right side of the issue.

For those times when a workers employment hinges on accepting unsafe or disadvantageous circumstances, the right solution is a labor union. American workers have let union membership dwindle over the last few decades to their detriment, ever since President Reagan fired striking air traffic controllers. It’s time to reverse that trend. Employees at Amazon and elsewhere have begun to figure that out.

#employment #individualism #society #culture

Mortgage Payoff?

A friend who stood to collect a windfall of money asked me what I thought of using it to pay off his mortgage. His other option, investing the proceeds for growth or income, were on the table, as well. What to do?

Equity markets are in a turmoil these days as they lose both supply and consumer demand to the COVID-19 outbreak, but for this question I want to consider more normal times. We’ll get back to there, someday.

I’ll use my own circumstance to run the numbers, so assume a $216,000 remaining balance on a mortgage financed at 4% fixed, with twenty-eight years remaining on a 30-year note. The monthly payment amortizes to about $1122 net of tax and insurance expenses.

Assume, too, that our retirement investing is already taken care of. If it weren’t, the right move would be to put the windfall to work there.

In exchange for paying off the mortgage, we can keep the $1122 I’d otherwise hand to my lender every month, or $13,464 annually. That’s 6.23% of the outstanding balance. The money has already been taxed when I earned it, and I’m assured of keeping that payment in-hand as long as I own this house. That makes the virtual dividend both tax-free and guaranteed.

This option carries significant intangible benefits, as well. There’s the peace of mind that comes from knowing that we have a place to live for not much outlay—taxes, insurance, utilities, and upkeep—no matter what.

We could invest the money in the financial markets, instead. Since the money isn’t destined for our retirement accounts, growth isn’t absolutely necessary. Increased current income would also be a welcome outcome. Stocks and bonds, respectively, fit the bill. I’m partial to mutual funds and ETFs rather than direct stock and bond purchase, so I’ll draw my comparisons from them.

We’ll have a more significant opportunity for gain if we decide to invest in equity funds. The US stock market returns roughly 8% annually over the long term. More narrowly focused funds and ETFs perform better than that, so let’s be generous and assume an overall annual gain of 10%. Over the course of a reasonably smooth decade such as the one just finished, we could see our principle rise by $344,000 to over $560,000.

But that gain is taxable. Our current long-term capital gain tax is 15%, or about $52,000 of that gain, yielding a net gain of around $292,000. And although there are no historical ten-year spans when equities returned negative results, this return is by no means guaranteed. Throughout the decade this money is invested, it’s out of reach and there’s still a monthly mortgage payment to be made. Still, a potential six-figure gain is enticing.

Finally, we could invest the money for current income. Recall that the mortgage payoff yields a virtual income gain of roughly 6.25% on $216,000, tax-free. The equivalent taxable yield for taxpayers in the 22% tax bracket is an astounding 7.99%! Any income-producing investment would have to beat that.

The closest we can come is with high-yield bonds, bond funds, and ETFs. For example, the Vanguard HY fund’s (VWEAX) dividends are paying about 5.25% annualized right now, taxable. Bond fund dividends are generally reliable, but not guaranteed.

So: pay off the mortgage and reap a 6.25% guaranteed, tax-free virtual dividend plus peace of mind; shepherd an investment in equities for a decade—on top of any retirement investments I’m already holding for long-term gains—and hope the market adds to my wealth; or sink the money into, say, high-yield bonds for an income of around 5.25% taxable.

It it were my money, I’d pay off the mortgage.

#mortgage #payoff #choices