We have a lot to cover today, starting with an emerging parade of yield curve deniers including some in the Fed and Blackrock (BLK) CEO Larry Fink (clients own Blackrock). What is being denied is the that this go around with an inverted yield curve will lead to a recession...this time is different. This has become so prevalent that Neel Kashkari from the Minneapolis Fed had to write an essay reminding people why it is not different. Bloomberg TV had an early morning segment on this earlier today (Tuesday) to sort through whether it is or is not different this time. As a reminder from me, when the yield curve is positively sloped banks pay us a low rate in our savings accounts and collect a higher rate when they lend money out, they profit from the spread. When the curve is flat or flattish then the profit is less. When the curve is negatively sloped then lending is less profitable which impedes access to capital which is what makes inversion recessionary; companies need capital to expand. I think of this as just being common sense..if credit is not readily available, there are going to be problems. It won't be different.
Joe Wiggins had a blog post titled The Death of Diversification. The post was not about why investors should bail on diversification but instead why diversification is crucial for long term investing success because in keeping with this post, it is just common sense. Equities have of course had a great run, longer than normal without a serious bear market. Where equities can go on a very long run of out performance, they can also go on a very long run of under performance...like the eight or nine years before the current bull market started. You might be able to outmaneuver the next stock market cycle but in case you don't want to go down that road then you need to maintain a diversified portfolio, it is anyone's best chance to having enough money when they need it. The cycle of having enough money when you need it is more like 30-60 years (if you include the accumulation phase) not nine years...and counting.
Ben Carlson had a post titled Are SUVs Ruining Retirement Savings? In the post, Ben talks about how expensive these rigs can be in terms of monthly payments. When I saw the post, I retweeted it with the following comment: Have this open in a tab to read but buy a used Toyota SUV or pickup and drive it for 15 years (or even better, 20 years); 11 years and counting on my Tundra. Sure enough Ben goes down the road of used cars with a table of 15 cars most likely to last for 15 years along with the extent to which not having a car payment for an extended period becomes a huge financial benefit. I've been saying the same thing for many years because it is just common sense. This ties in with living below your means which gives a great chance of not ruining retirement savings (planning might be a better word). Everyone knows this but actually doing it, whether you're just talking about driving a car for longer or more broadly living below your means, is where people lose their way on this path. Funny note, in the 15 cars likely to last for 15 years, nine of them were Toyotas and number 3 on the list was the Tundra.
REI posted a list of ten essential items (common sense items) for hiking, I would add Purell and a bandanna. We go hiking at the Grand Canyon almost every year and we always see people a couple of hours from getting out, wearing the wrong shoes, without water, the exact opposite of common sense. Hiking without the right gear is much more difficult and life without common sense is much more difficult.