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Post-Mortem Analysis Of A Bullish Investment Thesis

In order to become a good-enough investor, it’s worth doing a post-mortem analysis of your investment calls. Constantly reviewing what we got wrong and what we got right is important for improvement.

We must not confuse any investment outcome with improper reasoning. If we do, we will suffer from Dunning-Kruger, which could lead to deleterious future investment decisions.

Determining whether you made a good investment decision is harder in the short run. There is so much noise in the short run investors can easily be tricked into thinking they are geniuses. It often takes time for an investment thesis to play out, which means patience and humility are required.

Instead of short-term thinking, I firmly believe it’s better to identify long-term investment trends. If you do, you’ll experience a much greater ROI on your time than if you try to pick individual investments.

Bullish Investment Case Study

There is a lot of Fear, Uncertainty, and Doubt (FUD) right now with FTX blowing up, geopolitical risk in Ukraine and Taiwan, and an extremely aggressive Federal Reserve. The general consensus is for more downside, which means making a bullish call is risky.

However, as an optimist (a potential crutch), on November 2, 2022, I decided to publish a post entitled, The Most Bullish Economic Indicator Yet: A Lower Series I Bond Rate.

My thesis was the 2.7% drop in the rate was massive and indicative of how quickly interest rates and inflation could drop in the future. I believed there was a good chance the upcoming inflation figures would come in below expectations, resulting in an increase in risk appetite.

I thought the investment community wasn’t connecting the dots. As a result, I thought we should be buying stocks ahead of the November 10, 2022 inflation report. At the very least, we shouldn’t be selling.

The October inflation figures that came out on November 10, 2022, indeed came in below expectations. The S&P 500 and NASDAQ then proceeded to rocket higher by 5%+ and 7%+ that day, the largest gains since 2020.

Then on November 15, 2022, the October Producer Price Index came in at +0.2%, below expectations of 0.4%. This was another positive data point for risk assets, including real estate.

The lower-than-expected inflation figure means the Fed should feel added pressure to admit publicly that inflation is rolling over. If the Fed was to do so, it would imply the Fed is unlikely to hike rates as much or as long.

An Optimistic Cynical Investor

Although I’m an optimist, I’m also a cynic when it comes to listening to people in power. Greed and pride are difficult sins to overcome.

Since I started investing in 1996, I’ve seen too many cases of corruption, insider trading, and data manipulation to believe everything I hear from politicians and government officials.

Senior officials at the Federal Reserve Board care more about their legacy than the health of the economy. They don’t want to be described in the history books as the governors who weren’t able to contain inflation after decades of price stability.

Since Fed Board Governors are all very rich and got out of the stock market around October 2021, they are OK with tanking the stock market and the economy.

As a result, I expect my bullish call to face stubborn headwinds. Fed Board Governors will likely continue to state publicly they want to raise rates while ignoring real-time inflation data. For people like St. Louis Fed President James Bullard, it is better if millions lose their jobs and the economy goes back into a recession in order to contain inflation.

Therefore, as an optimistic cynic, I’ve shared ideas on how we can enjoy life more while the Fed ruins the world. Below is a chart that shows the yield curve is the most inverted since 1981.

The U.S. bond market is screaming for the Fed to stop hiking rates. If the Fed doesn’t listen, it is practically a certainty we head back into a deeper recession in 2023. Millions of jobs will be lost thanks to the Fed. You can see from the chart how an inverted yield curve always portends to a recession.

Post-Mortem Analysis Of The Bullish Investment Thesis

The investment thesis turned out correct, but was my reasoning for the correct outcome accurate? Not quite. Here’s what I wrote in my post.

The lower Series I Bond interest rate means the government believes inflation has peaked and is heading down. The government has shown us its cards! Its action must be consistent with the data.

This passage infers I believe the government has the power to manipulate the data. If the government could have announced the Series I Bond rate after the November 10 inflation report, it would have to protect its cards. But shifting the Series I Bond rate offer announcement date would have raised too many red flags. Hence, the government and the Fed became more restricted in what they can do in the future.

Risk-free rates and investment returns are intertwined. A 6.89% I Bond rate through April 2023 means the Fed has a lower upper-bound limit to hike up to. A 6.89% I Bond rate also means mortgage rates are likely to come down by 2% – 3% by May 1, 2023, which would be bullish for the real estate industry.

How The Series I Bond Interest Rate Is Calculated

In reality, the Series I Bond interest rate is determined by the percent change in the CPI-U over a six-month period ending prior to May 1 and November 1 of each year.

In other words, the government has “no say” in the rate according to its literature and as pointed out by some commenters. When it comes to investing, I like to delineate clearly who is friend or foe. But doing so is an emotional response which can be dangerous.

Below is an example from TreasuryDirect that highlights how the latest Series I Bond interest rate was calculated.

How the Series I Bond rate is calculated using an example

Hard To Believe Fed Reserve Governors And Politicians

In order to be a senior government official or politician, you need to be an egomaniac who craves power and attention. Craving power and attention is the antithesis of a Financial Samurai.

See: The Joy Of Being A Nobody

I won’t let go of my belief the government has a say in the data. After all, there are ~3,000 Fed Board employees. One of their responsibilities is to gather and report the data. But how do we really know what is real?

When you hear the President publicly warn the inflation data “could be high,” that is a clear sign the government knows the data well in advance and has input into the creation of the data and the timing of the data’s release.

The government is incentivized to massage the data in order for politicians to keep their power. Yes, this is a cynical view. But have you ever gotten to know a politician or someone running for office? I have. Deep down, many are incredibly focused on themselves and their legacies!

historical trust in the government

Put Your Money Where Your Mouth Is

Part of being a good-enough investor is having the appropriate amount of skin in the game. If you truly have high conviction, you invest more aggressively. If you don’t have conviction, you might just aimlessly jibber jabber without ever putting money to work.

Have a read of this passage from my bullish investment thesis post.

From the latest Series I Bond interest rate , we can assume inflation figures coming out on November 10, December 13, January 12, Feb 14, March 14, April 12, and May 10 will either be below inflation expectations or have a blended overall inflation rate below expectations.

This paragraph is actually a hedge. I believed the November 10 inflation data would come in below expectations. However, I wasn’t sure enough to say it.

Instead, given the Series I Bond rate is for the next six months, I took the safer route and included the inflation dates for the next six months. Then I talked about having a blended overall inflation rate below expectations as another option.

So what ended up happening? I just bought $50,000 worth of the S&P 500 before the November 10 inflation report when I could have bought $250,000.

As I wrote in my post, How I’d Invest $250,000 In A Today’s Bear Market, I invested ~$150,000 of my cash in Treasury bonds instead. The 4.2% – 4.6% risk-free returns Treasury bonds provided were just too enticing to pass up.

If I had had a ton of conviction in my bullish thesis, I would have bought $250,000 worth of S&P 500 out-of-the-money call options! Alas, I couldn’t afford to take too much risk given my wife and I don’t have steady paychecks and we have two young kids.

At least buying bonds when the 10-year yield was at 4.2% was a good investment. The yield has since dropped to about 3.75%.

Investing Is Too Damn Hard To Consistently Get Right

Unless you are an investing enthusiast or a professional money manager, spending time coming up with a public investment thesis and then investing accordingly is probably not a good use of your time.

I mainly write about investing because I used to work in equities. We had to always come up with a point of view or else what use were we? Having significant money at risk is also why I like to write. Finally, having a platform to easily gain feedback can be valuable. I don’t mind criticism or looking like a fool.

It is much better for your health and your finances to follow a risk-appropriate asset allocation model. Following an asset allocation model helps minimize the emotion that comes from investing.

You should also follow a logical split between active and passive investing based on your interest and abilities. The less interest you have in investing, the greater percentage of your investments should be in passive index funds

Spending too much time on your investments drains your energy. The less energy you have, the less time you can spend enthusiastically doing something else. Ultimately, we want to push our investments into the background so they quietly work for us.

I believe the Fed will ultimately relent to public pressure and pivot sometime in 1Q2023. As a result, I believe the S&P 500 will be higher six months from when I made my bullish call on November 2, 2022. Further, I will be hunting again for real estate deals before mortgage rates drop.

The biggest risk to my bullish call is a larger-than-expected drop in earnings and a de-rating of the S&P 500. Let’s see what the future brings!

Reader Questions And Poll

What do you believe? And where are you putting money to work? What could go wrong that would derail a recovery?

Here’s the poll again from my bullish thesis post. After over 550 votes, the results are decidedly split.

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If you like investing and building more wealth, join 55,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail.

You can also pick up a copy of my instant WSJ bestseller, Buy This, Not That. The book helps you make more optimal decisions so you can build more wealth and live more free.

Financial Samurai, started in 2009, is one of the largest independently-owned personal finance sites today. Everything is written from firsthand experience because money is too important to be left up to pontification.

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Post-Mortem Analysis Of A Bullish Investment Thesis is written by Financial Samurai for www.financialsamurai.com

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IRS Out For Blood More Than Doubling Penalty Interest

IRS taxes increase

In a blatant act of financial tyranny, the IRS is intensifying its assault on hardworking Americans by shamelessly jacking up the interest penalty on underpaid taxes from a pitiful 3% to an exorbitant 8%. This calculated move, recalibrated quarterly, serves as a stark reminder of the insatiable appetite of the IRS, an oppressive behemoth relentlessly extracting every last penny from citizens already shackled by burdensome taxation.

Specifically targeting non-corporate taxpayers, the IRS demands the federal short-term rate plus an additional three percentage points, a blatant money grab that directly targets struggling self-employed individuals, independent contractors, and gig economy workers. These individuals, already grappling to make ends meet, find themselves in the crosshairs of a government voraciously hungry for more of their hard-earned wages.

For those daring to resist this blatant financial coercion and falling short on their payments, brace for the punitive underpayment penalty. There’s a meager concession – if the amount due is under $1,000 after begrudgingly considering credits and other tax factors, citizens might receive a temporary reprieve from the claws of the taxman.

This audacious maneuver puts the self-employed and independent contractors in the IRS’s oppressive grip, coercing them to make quarterly estimated tax payments under the looming threat of severe financial retribution. The January 16, 2024 deadline for the fourth quarter of 2023 is fast approaching – a date that casts a dark shadow over those grappling with the suffocating weight of government overreach.

While the regular W-2 employees might momentarily sigh with relief as taxes are conveniently siphoned from each paycheck, tax experts issue a stern warning against such complacency. Joseph Doerrer, a CPA and financial planner from New Jersey, challenges individuals to scrutinize their tax situation, posing the provocative question, “Are you where you should be?” A question that echoes as a stark reminder of the government’s overreach into the pockets of hardworking Americans.

One taxpayer, Sameet Durg, found himself blindsided by an underpayment penalty reaching into the thousands – an unwelcome surprise that serves as a chilling testament to the relentless demands of the IRS. Durg, a marketing executive, now watches his finances with unwavering vigilance, refusing to endure a hefty hit come April.

As the IRS unabashedly cranks up the interest penalty, taxpayers are left grappling with the heavy-handed tactics of an agency that seems insatiable in its quest to confiscate more of their hard-earned money. This move underscores the urgent need for citizens to vehemently resist the oppressive tax regime, actively defy the IRS’s overreach, and reclaim sovereignty over their wages.

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GUILTY! Sam Bankman-Fried Faces Over 100 Years in Prison

GUILTY! Sam Bankman-Fried Faces Over 100 Years in Prison

(ConcernedPatriot.com) – Sam Bankman-Fried has been found guilty of all charges related to the collapse of his Bitcoin exchange, FTX.

“A New York jury in Manhattan federal court agreed with prosecutors that Bankman-Fried defrauded investors, customers and lenders in connection with the collapse of his crypto empire,” reported Fox Business.

“Prosecutors accused Bankman-Fried, who founded and controlled both FTX and sister hedge fund Alameda research, of misappropriating and embezzling billions of dollars in FTX customer deposits, scheming to mislead investors, and instructing other executives at his businesses to do the same,” it added.

Bankman-Fried was charged with five charges of conspiracy and two counts of wire fraud in the first two criminal trials.

The maximum sentence for each crime was 110 years in prison.

The hearing for Bankman-Fried’s sentence has been scheduled for March 28.

The Southern District of New York’s U.S. attorney, Damian Williams, commended the decision and said that Bankman-Fried “perpetrated one of the biggest financial frauds in American history.”

“The cryptocurrency industry might be new, the players like Bankman-Fried might be new,” Williams said. “But this kind of fraud, this kind of corruption, is as old as time.”

NBC News gave some background information and historical context before the decision:

“FTX and Alameda quickly collapsed in November 2022 after some of their financial liabilities were exposed.

The fact that Alameda had taken billions of dollars from FTX’s customers and that much of Alameda’s balance sheet was comprised of digital currency assets it had created was central to the case against Bankman-Fried.

Unnerved by disclosures about the firm’s financial position, many of FTX’s customers tried to get their money back. That set off the equivalent of a bank run.

The value of Alameda’s investments crashed, and FTX couldn’t return much of that money because it had been given to Alameda. Some went to the fund’s lenders, and billions were spent on sponsorships, commercials, and loans to top executives. That, too, was a major part of the case against Bankman-Fried.”

Following the collapse, more FTX and Alameda executives were prosecuted, including former CEO of Alameda Caroline Ellison, co-founder of FTX Gary Wang, and chief technology officer of FTX Nishad Singh.

All three pleaded guilty, agreed to cooperate, and testified against Bankman-Fried.

In exchange for their cooperation, they will receive less severe punishments.

In his defense, Bankman-Fried stated that he never intended to deceive anyone and that, following the failure of FTX and Alameda, the government had been searching for someone to blame.

“Mr. Bankman Fried maintains his innocence and will continue to vigorously fight the charges against him,” Mark S. Cohen, counsel to Bankman-Fried, said in response to the verdict.

Williams stated that he hoped the conviction would be an example for others.

“It’s a warning, this case, to every single fraudster out there who thinks that they’re untouchable, or that their crimes are too complex for us to catch, or that they’re too powerful for us to prosecute, or that they could try to talk their way out of it when they get caught,” Williams said. “Those folks should think again.”

Copyright 2023. ConcernedPatriot.com

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Brutal ‘Bidenflation’ Has 1 in 6 Retirees UNRETIRING

Brutal 'Bidenflation' Has 1 in 6 Retirees UNRETIRING

(ConcernedPatriot.com) – According to an analyst, “Bidenflation” may be a long-term issue, leading one out of every six pensioners to contemplate retiring early.

It will undoubtedly persist if Biden wins re-election.

In the far-left USA Today, Patrice Onawunka laments the possibility that the “financial insecurity” brought on by inflation—which was brought on by “reckless federal spending”—will last forever.

More:

“People have connected the dots between ill-advised government policies and harsh economic outcomes. Spending nearly $2 trillion on government transfers to almost every household during supply-chain disruptions and exacerbated labor shortages caused inflation to accelerate. Putin’s invasion of Ukraine and other production disruptions worsened it.

The Biden administration and congressional Democrats passed a climate change bill that they falsely labeled the Inflation Reduction Act in hopes of fooling Americans, especially seniors.

The bill never addressed rising food, housing, or energy prices — households’ most basic and critical needs. Any climate savings would take years to come to fruition and could be offset by new costs for families — tens of thousands of dollars — on new electric vehicles.

Meanwhile, the green subsidies cost more than three times what the law’s supporters claimed.”

What could be crueler than adopting a law that does the exact opposite and is titled the Inflation Reduction Act?

55 percent of those who have already had to un-retire claim it was because they needed more money.

The White House and corporate media continue to lie to us by promising that the inflation issue will pass quickly, yet nothing ever appears to change.

Everything’s cost is skyrocketing especially housing. Meanwhile, Joe Biden is exerting every effort to keep inflation high. The federal government spends like a drunken sailor, which cheapens money.

Even worse, Biden has permitted countless millions of illegal immigrants to enter our nation, which raises the price of housing by increasing demand for limited items like housing.

Housing is a necessity, Onwuka tells us, unlike other discretionary expenses. Rent costs in America are rising, disproportionately affecting older folks and those with low incomes, especially those on fixed budgets.

In addition, she states that “10 million households headed by people aged 65 or older spend more than a third of their income on housing, and half of these pay more than 50%.”

See what happens when you factor millions of illegal immigrants into the housing problem.

Biden punishes Americans who have lived by the book, paid their taxes, saved money, and worked hard. He is putting the interests of millions of illegal aliens—who raise demand for everything and drive up prices for everything—above the interests of those Americans.

“In a little over four years, I intend to retire. I’ll never be wealthy, but since I started my first 401K in 1994, I’ve been setting money aside for that moment. I enjoy both my job and my coworkers.”

That isn’t the problem. The dream is the problem… the desire to live out your third act with the freedom and resources to do whatever you want.

Similar actions are taken by many working Americans who save money and forgo immediate enjoyment to prepare for their elderly years. As a result, I find it difficult to understand what it must be like to enter a dream before having it destroyed.

The anguish of coming out of retirement, returning to the grind, and facing Monday mornings all over again escapes me.

The only idiots, child abusers, and masochists vote Democrat.

Copyright 2023, ConcernedPatriot.com

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