The Depression Playbook

by Jeff Thomas May 29, 2018


A crash is coming, and it may be terrific…The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed…Wise are those investors who now get out of debt.

— Roger Babson, September, 1929

In the run-up to the 1929 crash, which heralded in the Great Depression, many pundits claimed that the new highs in the market signified that the business cycle had been “repealed.”

Stocks had never enjoyed such a bull market before, and this led many to believe that “the sky’s the limit.” All over the US, people put all the money they could find into stocks. Then, wanting to buy more, they bought on margin. Then, wanting still more, they borrowed privately to buy on margin—a double-dip into debt.

In essence, this meant that a large portion of the extreme bull market was the result of stock investments that were made with money that didn’t exist—a mere “promise” to somehow pay, with nothing to back that promise up.

This, of course, is the very essence of a bubble. And, sooner or later, bubbles pop.

After the crash, the pundits that had driven the market ever-upward were all but speechless, saying only, “No one could have predicted this.”

However, it was predicted by those who understood market bubbles. Roger Babson, in particular, made the statement above to the Annual Business Conference in Massachusetts on 5th September, 1929. At that time, he was vilified by Wall Street for making such an obviously false proclamation, yet, after the crash, he was again vilified for having brought on the crash with his statement.

Neither was true and no lesson was learned by those who created the crash. Yet, it was the logical conclusion to the buildup of events. In fact, there could have been no other outcome… and the same is true today.

The $20 trillion debt that the US government has created is far beyond anything the world has ever seen and, in fact, it exceeds the total of all other countries combined.

To add insult to injury, the unfunded liabilities of Medicare, Medicaid, Social Security, etc., bring the total real debt to over one hundred trillion—an amount so large that not even the interest can be repaid.

Although Republicans have traditionally railed against debt, they’ve recently voted in a dramatic tax cut, with no corresponding cut in federal spending. This is akin to an addict giving himself a shot of heroin. A brief period of investment in business will occur, but, within a year, will be followed by a deeper tightening.

In addition, dramatically increased spending has been approved. Republicans have joined Democrats in the elimination of budget caps on defense (read: foreign invasions) and domestic spending. Entitlement spending is higher than at any time in history, yet that, too, will be expanded.

(Even the poor understand that expenditure cannot be increased if income has been curtailed, yet this basic arithmetic has been overlooked by legislators.)

Hence, both Democrats and Republicans are on board for dead-ended economic policies that will lead to a depression.

The present economic condition is riper for a crash than ever before in history. In 1929, it was triggered by the central bank raising the interest rate, assuring that those who were up to their chins in debt were now underwater, as the cost of borrowed money had just risen.

And of course, the Fed has raised rates repeatedly in the last year and has announced that it will raise them five times more over the next two years. Which rise will prove to be the trigger this time around?

All right, so a crash appears inevitable, but surely, a crash does not ensure a depression. So, let’s have a look at the events that took place after Black Friday in 1929 that sent much of the world into a prolonged economic collapse.

Decreased International Trade

The Smoot Hawley Tariff of 1930 introduced “protective” tariffs that instead sparked a trade war with other countries. Today, there’s a slight difference. Rather than wait for a crash, the US government has created major tariffs prior to the crash, speeding the process up. Announcements have been made that more may be on the way.

Demand for Goods

Throughout the “roaring 20s,” the demand for goods rose at an unprecedented rate. This has been blamed on greed by some economists, but, in truth, it was fueled by a loose-money policy by banks, willing to offer loans to all and sundry. Today, the level of money-lending is far beyond that of 1929. Never before in history has the private sector debt level been so high. Its total now exceeds the total of private sector assets.

Bank Failures

By 1929, the amount of money that had been loaned far exceeded the amount of money that banks held on deposit. A crash assured that the non-existence of the money was revealed. Credit crashed and thousands of banks went under, taking people’s savings with them. In 1933, the FDIC (Federal Deposit Insurance Corporation) was created to assure that this could never happen again. Yet today, the FDIC is underfunded to the point that it cannot bail out even one major bank. (This time around, bail-in laws will allow the banks to simply absorb deposits legally.)

Unemployment

The banks had provided the loans that created the spending spree. When they went into liquidation, the demand for goods dropped off dramatically. As sales dried up, countless people lost their jobs. And many of those jobs never came back, assuring that the Great Depression would far outlast any previous depression.

All of the conditions that were present in 1929 are once again in place today. Although we can’t project a precise trigger date for the bubble to burst, it most certainly will—as do all bubbles.

But, what we can do is anticipate that, historically, the crash and its subsequent damage are invariably equal to the level of indebtedness. As the present level so far exceeds what existed in 1929, we can presume that the crash itself will be far more devastating, as will the subsequent damage.

The Depression Playbook has been faithfully followed. However, the reader need not choose to play. If he sees fit, he can opt out. Although time may now be rather short, he may choose to do all he can to remove himself from the system, so that his own economic life is impacted as minimally as possible.

America’s long-term challenge #3: destruction of the currency

Simon Black May 22, 2018
Santiago, Chile


On April 2, 1792, George Washington signed into law what’s commonly referred to as the Mint and Coinage Act.

It was one of the first major pieces of legislation in the young country’s history… and it was an important one, because it formally created the United States dollar.

Under the Act, the US dollar was defined as a particular amount of copper, silver, or gold. It wasn’t just a piece of paper.

A $10 “eagle” coin, for example, was 16.04 grams of pure gold, whereas a 1 cent coin was 17.1 grams of copper.

Did you know? You can receive all our actionable articles straight to your email inbox… Click here to signup for our Notes from the Field newsletter.

The ratios between gold, silver, and copper were all fixed back then.

But if we apply today’s gold price of $1292 per troy ounce, we can see that the current value of the original dollar as defined by the Mint and Coinage Act of 1792 is roughly $66.75.

In other words, the dollar has lost 98.5% of its value since 1792.

What’s incredible about this constant, steady destruction of the currency is how subtle it is.

Few people seem to notice, because modern day central bankers try to “manage” inflation between 2% to 3% per year.

2% to 3% per year is pretty trivial. But it happens again the next year. And the year after that. And the year after that.

After a decade or so, it really starts to add up.

But there’s an important, other side of the equation: income.

Costs are clearly rising. And it’s fair to say that incomes have been rising too. But which one has risen more?

In 1982, back when I was a toddler, the price of a Ford Mustang was $6,572. Today the cheapest Mustang starts at $25,680 according to Ford’s website.

So a Mustang today is around 4x as expensive as it was 36 years ago.

US Labor Department data from 1982 shows that average earnings were $309 per week, or $16,086 per year. That was enough to buy 2.45 Mustangs.

Today’s earnings are $881 per week, or $45,812 per year. That’s only enough to buy 1.78 Mustangs.

So when denominated in Ford Mustangs, people’s incomes have fallen 27.3% since 1982.

More recently than that, say, back in 2005, an entry level Mustang cost $19,215 at a time when average wages were $40,664 per year– or 2.12 Mustangs per year.

So even since 2005, average income levels have fallen 16%.

Obviously this trend doesn’t just apply to Ford Mustangs.

If we look at housing in the United States, we can see that the median home price in 2003 was $186,000 (according to Federal Reserve data) at a time when the Labor Department reported average weekly wages of $620.

So that was roughly 0.173 houses per person per year.

Today the median home price is $328,000, with average wages of $881, or 0.139 houses per person per year.

That’s a decline in income of 19.6% over the last 15 years.

Again, it’s a slow, subtle destruction. But over time, inflation REALLY adds up. Over the long-term, the average person becomes poorer.

We can view this trend anecdotally as well. Back in the 1950s and 1960s, it was common for a man to go out into the work force and support his entire family.

On a single salary, the average American family could afford a home, a car, modern technology at the time, savings, and even a summer vacation.

Today it’s normal for both spouses in a family to have full-time jobs, just to make ends meet.

Data from Pew Research shows that 70% of American households (married couples with children) back in 1960 were single income, i.e. only the father worked.

Today, 60% of households have BOTH spouses working.

And given the other statistics we routinely see about how the average US household has very little savings and is loaded down with debt, they’re barely making it even with TWO incomes.

That’s because inflation has slowly robbed people’s livelihoods.

What’s truly bizarre is that this exact same inflation is actually OFFICIAL POLICY.

Both central bankers and politicians deliberately try to engineer inflation, and they formally disclose this to the public.

The Fed announces its “inflation targets”, and economists panic if inflation is too low… or even worse, if there’s “deflation” and prices fall.

The government actually has a vested interest in inflation. They like rising prices because the national debt is so obscenely large.

The idea is that, if the government borrows $10 billion today on a 30-year term, they want the value of that $10 billion to be as little as possible three decades from now.

So a slow, steady destruction of the currency is actually to their benefit; the government wants to be able to inflate the debt away.

But as consumers, we prefer falling (or at least stable) prices. Price stability ensures that people’s purchasing power remains the same.

Rising prices are destructive, rewarding those who go into debt (like the government) at the expense of anyone who has been responsibly saving.

Think about it– if you put $100 in a savings account 10 years ago, you wouldn’t be able to buy as much with it today as you could have back then. Saving money actually COSTS you purchasing power.

The month-to-month and year-to-year variations on inflation will be all over the board. But the long-term trend is pretty clear: prices continue to rise.

And it’s fair to say that no nation or empire in history has ever been able to prosper by slowly destroying the value of its currency and its middle class.

You’re making a high-stakes bet that everything is going to be ok in that one country — forever.

America’s long-term challenge #2: the looming retirement crisis


Simon Black  May 17, 2018
San Juan, Puerto Rico

Last week, the financial services giant Northwestern Mutual released new data showing that 1 in 3 Americans has less than $5,000 in retirement savings.

It’s an unfortunately familiar story. And Northwestern Mutual’s data is entirely aligned with other research we’ve seen in the past, including our own.

The Federal Reserve’s most recent Survey of Consumer Finances, for example, shows that the median bank balance among US consumers is just $2,900.

And Bank of America’s annual report from last year showed that the average balance per HOUSEHOLD (i.e. -not- per person) was $12,870… which was actually LESS than the average account balance that Bank of America reported in 1997!

On average, the typical US household has less savings today than they did 20 years ago… and almost nothing put away for retirement.

In fact 21% of Americans (based on Northwestern Mutual’s data) have absolutely nothing saved for retirement.

And 33% of Baby Boomers, the generation closest to retirement, have between $0 and $25,000 saved for retirement.

That’s hardly enough savings to last more than a few years… and a major reason why most retirees currently rely on Social Security to meet their monthly living expenses.

According to a Gallup poll from last May, 58% of US retirees said that they rely on Social Security as their major source of income. They simply don’t have enough of their own personal savings stashed away.

But as we’ve discussed many times before, Social Security is rapidly running out of money.

The most recent report from Social Security’s Board of Trustees (which includes the US Secretaries of the Treasury, Labor, and Health & Human Services) tells us that the program’s cost has exceeded its tax revenue since 2010.

Last year this shortfall was $59 billion, 11% worse than in 2016.

And in order to make up the difference and cover this deficit, Social Security has to dip into its trust fund, effectively burning through the program’s savings.

The problem with this approach is that, eventually, these annual deficits will burn through ALL of the program’s savings.

The government knows this; the Board of Trustees even state this in their annual report, projecting that the Social Security trust funds will become fully depleted in 2034.

Sixteen years may seem like a long way off. But we’re talking about retirement here. You’re supposed to think long-term about retirement. And the math simply doesn’t add up.

The Trustee Report states explicitly that, once the trust funds run out of cash, the program will have to, at a minimum, reduce the monthly benefit that’s paid to its recipients.

So if you’re planning on being retired at any point past 2034, the government is LITERALLY TELLING YOU that they won’t be able to pay the retirement benefit that’s been promised to you.

Longer term (pay attention to this if you’re under 40), the numbers get even worse.

The way Social Security works is that retiree benefits are essentially paid for by people who are currently in the work force.

If you have a job, a portion of your paycheck each month goes to Social Security and ends up in the pockets of people who are currently retired.

In order for Social Security to function, there has to be a certain number of workers paying into the program for each retiree.

Social Security tracks this worker-to-retiree ratio VERY closely. The higher the ratio, the better.

In 1995, for example, there were 4.9 workers paying into the program for every retiree receiving benefits.

By 2020, Social Security projects the ratio will be down to 3.7 workers per retiree. And by 2040, just 2.75.

That’s simply not enough workers.

Do the math– at 2.75 workers per retiree, you’d have to pay nearly 40% of your salary just in Social Security tax (i.e. NOT including Medicare, federal, or state income tax) to keep the program running.

It’s also noteworthy that, just this morning, the US government released data showing that the birthrate in the United States is at a 30-year low.

If you project this alarming trend forward by a few decades, you can see how the worker-to-retiree ratio could easily fall below Social Security’s already dismal forecast.

It’s not just Social Security either. State and local pension funds, and even a lot of union and corporate pension funds, are also terminally insolvent.

A report issued a few months ago by the American Legislative Exchange Council estimates that the total amount of unfunded liabilities for state and local government pensions now exceeds $6 TRILLION.

Bottom line, Social Security is broken. State and local pensions are broken. And the federal government is far too broke to be able to bail any of them out.

Even the Social Security trustees admit this– they’re practically giving us a date to circle on our calendars for when the program will run out of money.

Yet a disturbing number of Americans has little to nothing set aside for retirement… and they’re expecting to be able to rely on Social Security.

Something is obviously wrong with this picture, and it would be utterly ludicrous to expect this won’t have a substantial impact.

Either future workers and businesses are going to be hammered with all sorts of new taxes to bail out Social Security–

— or retirees who have no savings and rely exclusively on the program to survive are going to have their benefits drastically slashed.

Either way, retirement is a nuclear problem set to explode in the Land of the Free.

One way or another, tens of millions of people are going to have their lives turned upside down.

And it is beyond the powers of the government to do anything to stop it.

Breaking down America’s worst long-term challenges: #1- Debt.

Simon Black May 14, 2018

Cleveland, OH, USA


On October 22, 1981, the national debt in the United States crossed the $1 trillion threshold for the first time in history.

It took nearly two centuries to reach that unfortunate milestone.

And over that time the country had been through a revolution, civil war, two world wars, the Great Depression, the nuclear arms race… plus dozens of other wars, financial panics, and economic crises.

Today, the national debt stands at more than $21 trillion– a milestone hit roughly two months ago.

Did you know? You can receive all our actionable articles straight to your email inbox… Click here to signup for our Notes from the Field newsletter.

This means that the government added $20 trillion to the national debt in the 37 years between October 22, 1981 and March 15, 2018.

That’s an average of nearly $1.5 BILLION added to the national debt every single day… $62 million per hour… $1 million per minute… and more than $17,000 per SECOND.

But the problem for the US government is that this trend has grown worse over the years.

It took only 214 days for the government to go from $20 trillion in debt to $21 trillion in debt– less than eight months to add a trillion dollars to the national debt.

That’s an average of almost $52,000 per second.

Think about that: on average, the US national debt increases by more in a split second than the typical American worker earns in an entire year.

And there is no end in sight.

At 105% of GDP, America’s national debt is already larger than the size of the entire US economy. (By comparison the national debt was just 31% of GDP in 1981.)

Plus, the government’s own projections show a steep increase to the debt in the coming years and decades.

The Treasury Department has already estimated that it will borrow $1 trillion this fiscal year, $1 trillion next year, and another trillion dollars the year after that.

They’re also forecasting the national debt to exceed $30 trillion by 2025.

To be fair, debt isn’t always bad. In fact, sometimes debt can be useful.

Businesses and individuals use debt all the time to shrewdly finance productive investments.

Real estate investors, for instance, often borrow most of the money they need to purchase a property once they determine that the rental income should more than cover the debt service.

In this way, when applied prudently, debt can actually help build wealth.

And the US federal government did the same thing in its early history.

It was an incredibly astute move on the government’s part, for example, to go into debt to finance the Louisiana Purchase back in the early 1800s, which dramatically expanded the size of the budding nation.

These days, however, the government flushes money down the toilet in the most wasteful ways imaginable, both big and small.

We’ve covered some of the more ridiculous examples in our normal conversations, from that $2 billion Obamacare website to the $856,000 that the National Science Foundation spent teaching mountain lions to run on treadmills.

Even the government’s more legitimate expenses are absolutely colossal now.

Last year the government spent HALF of its budget just to pay for Social Security and Medicare.

The situation is so dire that the government spends more than its entire tax revenue just on these mandatory entitlement programs, plus Defense and interest on the debt.

Even if you could eliminate entire departments of government, they would still be running a budget deficit and going deeper into debt.

The larger the national debt becomes, the more interest the government has to pay each year.

And interest payments increase even more rapidly as rates continue to rise… which is exactly what’s happening now.

A few years ago, the government paid less than 1.5% on its 10-year Treasury note. Today the rate has doubled.

This has a profound impact on Uncle Sam’s cash flow: they have to borrow MORE money just to pay interest on the money they’ve already borrowed… and spend a larger and larger share of the budget on debt service.

It’s a financial death spiral.

Think about it: if the government is having this much trouble making ends meet when they’re paying 2% interest on $21 trillion in debt, what’s going to happen when they’re paying 5% on $30 trillion?

It’s foolish to think that this trend has a consequence-free outcome. No nation in history has ever become prosperous by borrowing record amounts of debt to finance reckless spending.

MassMutual Seeks to Raise Long-Term-Care Insurance Rates

Insurer wants to raise rates by 77% on average for about 54,000 policyholders


MassMutual is seeking sharp increases in premiums for long-term-care insurance policies. Photo: Jonathan Wiggs/The Boston Globe/Getty Images

By Leslie Scism May 15, 2018 4:12 p.m. ET

Massachusetts Mutual Life Insurance Co. is seeking steep premium increases on long-term-care insurance policyholders, a move that will make it much costlier for thousands of customers to pay for nursing homes, assisted living and in-home assistance.

The potential increases would apply to about 54,000 of its 72,000 long-term-care policyholders, the company said. In total, the insurer is asking state regulators to approve increases averaging about 77% per customer, a company spokeswoman said.

Before this week, MassMutual had been one of relatively few holdouts, resisting raising rates on existing policyholders as errors in pricing have haunted insurers and turned many consumers against the product. Over the past decade, some rivals have saddled customers with a doubling in premiums.

While the 54,000 customers is a small slice of the approximately 7.3 million U.S. policyholders across all insurers, financial advisers say the move dramatizes how serious the mispricing problems are for the industry. MassMutual has more flexibility than most to absorb poor results without asking longtime customers to pay more. The Springfield, Mass., company is also one of the most diversified and financially strongest, and it is owned by its policyholders, not shareholders.

“This was a difficult decision, made only after our ongoing analysis indicated it was absolutely necessary to preserve our ability to continue to protect our policyowners given the many factors that have changed over the years, such as people living longer, the need for long term care growing rapidly, and the cost of long term care services increasing,” MassMutual spokeswoman Laura Crisco said in an email.

The reverberations will hit as investors and policyholders are still absorbing the disclosure in January that General Electric Co. needs to add $15 billion to back its long-term-care policyholder reserves, over seven years. The unexpectedly large size of the shortfall has investors and analysts concerned that additional reserve charges and rate increases are ahead as more insurers come to grips with past mistakes.

“The challenges occurring [at GE] will broaden and impact additional insurers,” Evercore ISI analyst Thomas Gallagher said in a note to clients.

MassMutual began selling long-term-care policies in 2000. At the time, many insurers thought they had the perfect product to profit from people’s concerns about becoming unable to care for themselves and outliving their savings.

But by the end of the decade, growing numbers of insurers concluded they had badly miscalculated how many people would hold on to the policies and file claims, and how long they would draw benefits before dying. Since 2008, ultralow interest rates have hurt their ability to earn interest income as they await claims.

From a peak of more than 100 insurers selling long-term-care policies, only about a dozen still do, including MassMutual. Sales have collapsed amid consumer alarm and fewer agents pitching the product.

Just 66,000 traditional policies were bought last year, insurance-industry-funded research firm Limra says. That is down from hundreds of thousands a decade ago.

MassMutual said the increases would apply to its “earlier policy series,” some of which have lifetime benefits that are no longer sold. Policyholders will have options for holding down an increase. Typically, insurers allow consumers to give up features such as inflation adjustments or otherwise reduce benefits.

Policies sold today typically cost significantly more and have less-generous benefits than earlier versions. A buyer in his or her late 50s to early 60s can expect to pay roughly $3,000 annually for a policy whose benefits grow to just over $300,000 or so when the owner is in his or her 80s, when claims are often filed, according to financial advisers.

Write to Leslie Scism at leslie.scism@wsj.com

Appeared in the May 16, 2018, print edition as ‘MassMutual Seeks to Raise Rates.’

Stop Facebook From Using Your Private Info: A Beginner’s Guide

Mom always said to share, but Facebook has us thinking twice. Here, how to regain command of your digital privacy from social media sites to dangers lurking in your own smartphone


Illustration: DAN PAGE

By Steven Melendez April 26, 2018 10:45 a.m. ET

SOCIAL MEDIA was supposed to be a fun, lively place to connect with high-school flings, share photos, brag humbly and get in occasional spats over “Star Wars” sequels. But recent revelations about the ways political consulting firm Cambridge Analytica trawled through Facebook
FB +1.17% data have made people realize they’ve shared much more than just cat memes online.

A recent HarrisX poll found that 46% of Americans surveyed don’t believe Facebook protects their personal information, often more than twice that of rivals Twitter , Google, LinkedIn and Snapchat—another 25% were “uncertain.” While most people favor stricter regulations than ever around data privacy, years of studies by groups like the Pew Research Center have found that users are specifically concerned about who had access to the online information they share.

“It’s not so much the old definition of privacy—’I want the right to be left alone,'” said Lee Rainie, director of internet and tech research at Pew, who sums up the new goal as “I want to control the world’s understanding of who I am.”

‘A HarrisX poll found that 46% of Americans surveyed don’t believe Facebook protects their personal information.’

Gaining that control in 2018 can seem an eminently daunting task, but you can take certain steps to protect your privacy from digital crooks, creepy advertisers and unsavory programs.

First, don’t fall behind on those security updates your computer and phone seem to constantly bug you about. Also, try not to reuse passwords from site to site, and set up all of your social and messaging accounts with two-factor authentication, a system by which apps and sites text a verification code to your phone when you log in from new devices, which you then enter to confirm it’s truly you. It’s designed to thwart hackers who may have stolen or guessed your insufficiently ingenious password since they won’t be able to see the code.

For added security, you can also set up a virtual private network (VPN), which routes your internet traffic through an extra layer of encryption. Once it’s activated, you can browse the web more freely, as hackers will have a difficult time spying on you. VPNs can be especially valuable if you frequently use public Wi-Fi in places like airports and coffee shops. TunnelBear offers an easy-to-install VPN that works across devices (free, upgrades from $4.99 per month, tunnelbear.com). But be diligent: A VPN doesn’t protect you from sites you intentionally access and not all VPN services have your best interest in mind.


Facebook’s data privacy scandal has driven many to contemplate ditching the social network for good. WSJ’s Katherine Bindley explains how, and suggests some non-permanent alternatives. Photo illustration: iStock

Facebook recently stated it would soon prompt users to review their privacy settings upon login, but, as with most social websites and apps, you can generally evaluate your options any time through the settings menu. But remember: Platforms evolve and new features are rolled out with default privacy settings you might want to change—like whether the platform can use face recognition to find you in photos. It’s smart to periodically check for unsavory surprises that let third parties access your info more easily, said Mary Madden, a research lead at the Data & Society Research Institute.

You might also want to check the “Apps and Websites” tab in your Facebook settings to ensure no third-parties have access to more data than you care for—does that farming game that mom bullied you into joining still need access to your friends list? While you’re at it, you can go into the settings menu on your smartphone to see if your iOS or Android apps are running with permissions they don’t need—like access to your location, your photos or your microphone, either to target you with ads or for more nefarious purposes like stealing data. Your flashlight app might be handy when you drop your keys between cinema seats but not if it’s infected with malware that can read your texts, as was the case with at least three not-so-bright apps last year. A simple, smart option is uninstalling apps you no longer use or need.

For some communications, you might also consider replacing traditional texting tools with ones that offer end-to-end encryption of your messages, meaning only the sender and recipient should be able to read them. Hackers, rogue employees at tech companies and even government spies will be largely kept at bay. Signal is a popular texting tool with security experts (signal.org), Facebook-owned WhatsApp now offers end-to-end encryption (whatsapp.com) and there’s even a “secret conversation” mode now built into Facebook’s Messenger app.

Meanwhile, if you’ve ever looked at buying something online and then noticed ads for said thing following you all over the internet, there’s software to limit what companies can see. A free plugin called Ghostery (ghostery.com) works with most devices to highlight and filter tracking tools. Another free tool named Privacy Badger from the Electronic Frontier Foundation (eff.org) automatically spots and blocks the sneaky code that helps ad firms track you from site to site.

Once protected, you may consider erasing embarrassing posts and tweets. Services like Scrubber, a Denver-based company, can automatically search old posts for vulgarity, drug and alcohol references or select keywords. Searching is free, and those with haunted pasts can commandeer a tool to help delete posts for $19 per month (scrubber.social). Just be careful who you trust with that level of access to your accounts and be wary of anyone asking for login credentials.

In 2018 people use Facebook for many reasons: for work, for managing events like children’s sports games or just to stay in touch with far-flung friends and relatives. With all that at stake, think about updating your privacy settings, installing some security software and maybe taking down those angry posts about the 2012 Super Bowl.

Appeared in the Wall Street Journal April 28, 2018, print edition as ‘Like Control?.’

You Can Limit Death’s Financial Costs, if Not the Emotional Ones

The transfer of assets when a spouse dies can be fairly simple—if you learn from my mistakes.


The author’s late wife, Dr. Lisa Jane Krenzel. Photo: Courtesy of Warren Kozak

By Warren Kozak April 27, 2018 6:34 p.m. ET

I pride myself on keeping meticulous financial records. But since my wife died on Jan. 1, I discovered I had made some real rookie mistakes that led to hours of extra work and substantial fees. The transfer of assets between spouses can be fairly simple—if you learn from my mistakes.

Dr. Lisa Jane Krenzel and I shared everything throughout our marriage. Like many couples, we split responsibilities. I paid the bills and made investments. She took care of our health insurance, plus the house. We maintained individual checking and savings accounts, as well as separate retirement accounts from various jobs throughout our careers. What went wrong?

Issue One: When we opened those checking and savings accounts, we never named beneficiaries. I had assumed, incorrectly, that our accounts would simply transfer to the other in case of death. The banker who opened the accounts never suggested otherwise. With a named beneficiary, her accounts would have simply been folded into mine. Instead, I had to hire a lawyer—at $465 an hour—to petition the court to name me as the executor of her estate. I needed this power to transfer her accounts. Filing costs in New York City for the necessary document was $1,286. The running bill for the lawyer stands at $7,402.00, and I expect it to rise.

I also needed the documents for the companies that managed her retirement accounts and a mutual fund, because, as at the bank, we never named a beneficiary. By the way, this paperwork also required signature guarantees or a notary seal, which can take up an afternoon.

Issue Two: The highly charged question of funeral and burial. Last summer, when I was told Lisa would not survive this illness, I tried to raise the issue of burial with her. She refused to have the conversation, but I quietly went ahead and purchased a plot of graves in the cemetery in Wisconsin where my parents, grandparents and great-grandparents are buried. This was something I actually did right.

We had to employ two funeral homes—one in New York and one in Wisconsin—and her body had to make the journey out there. All told, I spent $46,359 to cover funeral expenses, graves, transportation, a headstone and a basic casket.

I noticed something interesting in this process. All of my fellow baby boomer friends I have since asked have so far refused to deal with the issue. They wince when I even raise the question. Hear me: You don’t want to have to make this decision at the time someone close to you dies. You simply are not thinking straight.

Issue Three: Our health insurance plan covered the long hospital stays and doctors’ visits. However, shortly after Lisa died, I still received bills, even though our deductibles and copays had long since been covered. I paid them immediately, which was a mistake. I was incorrectly billed and I have been fighting the hospitals and insurance company since January to get a refund, even though everyone agrees the bills were incorrect. Before you pay any medical bills, make a simple call and determine their legitimacy. Mistakes are constant: The systems are so complicated, even people in these offices don’t always understand the intricacies.

Issue Four: Lisa had two life-insurance policies—one through her work and the other we purchased privately. The former was handled quickly and efficiently by her job and a check arrived almost immediately. Although the insurance company sent me a check for her private policy soon after her death, it took three months of constant calls and emails to determine a refund of the premium I had already paid for three months past her death. I kept getting wrong information from the company, because the people I dealt with didn’t understand it themselves.

Issue Five: Over the course of Lisa’s working life—from her first job at a fast-food restaurant to medicine—she paid more than $100,000 to Social Security. Since she died at 60, and our 19-year-old daughter is one year past the age of receiving a monthly benefit, all this money has simply disappeared into the lockbox in Washington. Nothing you can do about this one.

Finally, there is the major psychological trauma of grief. I think most people believe death will never intrude on their lives and when it does, we will be so old and decrepit that it won’t much matter. Trust me on this—even when it’s been expected for a while, it still shocks deeply. There is absolutely no way you can prepare yourself for the shattering heartbreak of loss. When it did come to me, I found the support of friends, family and faith to be invaluable. Amazingly, that cost nothing.

Mr. Kozak is the author of “LeMay: The Life and Wars of General Curtis LeMay” (Regnery, 2009).

Appeared in the Wall Street Journal April 28, 2018, print edition.

For consumers with credit card debt, Fed rate hike will sting

Published: Mar 21, 2018 9:29 a.m. ET

iStockphoto

Average household credit card balance in New York City is over $10,000

By  AnoraM. Gaudiano  Reporter

A mere quarter percentage point rate increase by the Federal Reserve might seem small and gradual, but for millions of consumers with credit card debt it will be stinging.

In a report this week, WalletHub analyzed data and found that U.S. consumers have been piling on credit card debt at an alarming pace, adding $92 billion in new debt last year alone—twice the postrecession average.

Lenders so far seem only too happy to extend credit, thanks to low levels of defaults and charge-offs, but the day of reckoning is coming, warns WalletHub.

“Only four times in the past 30 years have we spent so much in a year. And in each of those prior cases, the charge-off rate—currently hovering near historic lows—rose the following year,” said WalletHub.


And rising interest rates are only going to hurt these consumers. The Federal Reserve is expected to raise interest rate by a quarter of a percentage point on Wednesday with two more penciled in for later this year.

Average credit card debt levels are already higher than what consumer can handle, according to WalletHub.

Credit card companies, like commercial banks, adjust interest they charge their customers after the Fed raises key interest rates. When an average balance is in the neighborhood of $8,600 the minimum payment goes up, burdening consumers and potentially forcing them to reduce overall consumption. According to Bankrate.com, the average credit-card interest rate is 16.8%.

The WalletHub research found that consumers in certain cities were in a much worse shape financially. For example, more than 60% of New Yorkers carried credit card balance and an average household balance was $10,193, much higher the national average.

The cost of this rate hike to someone with that much debt in New York is $153, as debt to income ratios are pretty high at more than 20%. It will take more than 50 months to pay off the debt.

This cost will only rise, as the Fed is currently projecting to raise rates a few more times until the end of the year and perhaps three more times next year.

On an aggregate level, household debt to GDP ratio has been flat over the past few years, according to St. Louis Federal Reserve data. But nominal credit card debt levels have been rising, surpassing $1 trillion over the past quarter.

“It isn’t a question of whether consumers are weakening financially, but rather how long this trend toward prerecession habits will last and just how bad it will get,” the report said.

We compared buying a car through Costco to buying a car on your own at a dealership — here’s how they stack up


Ted S. Warren / AP

Mark Matousek/Mar 12, 2018

Shopping for a car can be an overwhelming process.

If, say, you know you’re looking for an SUV, you have to determine the brand, model, and model year you’d like, as well as the dealership you want to use, whether you’d like to buy new or used, and whether you want to buy or lease. Where do you start your research? Which sources can you trust? What’s a reasonable price for a given model?

The Costco Auto Program attempts to eliminate some of that uncertainty. Costco members can use the program’s website to research and compare vehicles, calculate monthly payments, and get a discount at participating dealerships. While the size of the discount varies based on the vehicle’s class, brand, and model, a Costco Auto Program spokesperson told Business Insider that the average discount is over $1,000 off a vehicle’s average transaction price.

And since the program uses the same customers as Costco’s retail operation, it has plenty of reasons to vet dealers and salespeople so their customers don’t end up feeling like they were tricked — and putting the blame on Costco.

“We’re not just providing leads to dealers. We’re creating a referral,” Costco Auto Program senior executive Rick Borg told Business Insider.

Here’s how using the Costco Auto Program is different than the average car shopping process:


Damian Dovarganes/AP

1. You have to be a Costco member

This may sound obvious, but while non-members can use some of the Auto Program’s research tools, you need to be a Costco member to be eligible for the discounted price.


Costco Auto Program

2. Multiple strands of research are condensed into one place

One of the most difficult parts of car shopping is figuring out where to start and end your research, especially if you don’t read car news and reviews for fun.

The Costco Auto Program brings reviews, safety ratings, a financial calculator, and vehicle comparison tool under one roof. While it never hurts to compare research from multiple sources, the Costco Auto Program’s website gives customers a good place to start.


Carlos Osorio / AP

3. Your choice of dealerships and salespeople is limited

According to Borg, Costco works with one dealership per brand in a defined geographic area around a given Costco warehouse. And at each participating dealership, only a handful of salespeople are authorized to work with customers shopping through the Auto Program.

Borg said Costco picks dealerships based on their prices, customer satisfaction index (CSI) scores, and reputations on social media. And authorized salespeople are also evaluated based on their CSI scores and must work at their dealership for at least six months before being eligible for the program.

But the limited number of dealerships and salespeople makes things a little more difficult for customers who don’t end up satisfied with the first dealership Costco recommends to them. While Borg said Costco can point customers to other participating dealerships if they don’t like the first one they’re sent to, they may not be geographically convenient.


YouTube / Costco Auto Program

4. Costco has already negotiated the price

Negotiating the price on your car can be an intimidating process. The dealership has much of the information — inventory, the dealership or salesperson’s proximity to their quarterly goals, the average discount customers receive — you need to negotiate the lowest possible price.

Borg said Costco takes a holistic approach when negotiating prices with their participating dealerships, looking at national and local prices for given models, as well as the prices customers can find through other discount programs to determine the discount its members should receive. And since it has a large membership base it can funnel to selected dealers, it has more leverage than any individual shopper.


M. Spencer Green / AP

5. You have a multi-billion dollar corporation behind you that can resolve disputes

If Costco’s incredibly generous return policy is any indication, it will bend over backward to retain its members. Since buying a car is a much bigger investment than the average grocery shopping trip, the company doesn’t wants its members associate Costco with a $40,000 purchase they regret.

While Borg said the company is “fairly selective” about which dealers it works with, it also provides customer support before and after a purchase. If a customer, for example, finds a scratch on her car immediately after buying it and it falls outside of her warranty, Costco can at least serve as a mediator between the customer and dealership.

“Are we going to advocate for members? Absolutely,” Borg said. “Should a dealership have concerns as to whether they are responsible [for cosmetic damage] or the customer, we’re certainly going to step in and have a conversation with the dealer and ask them to do the right thing.”

Free Credit Freezes Coming for All U.S. Consumers

Congress moves to respond to massive Equifax hack with a national standard for credit freezes


Congress, in response to the massive Equifax data breach, is on track to approve a measure that would require credit-reporting firms to offer consumers freezes on their credit reports at no cost. Photo: wise/epa-efe/rex/shutterstock/EPA/Shutterstock

By Lalita Clozel and AnnaMaria Andriotis
March 8, 2018 5:30 a.m. ET

WASHINGTON—Consumers are on track to get one thing from Congress in response to last year’s massive Equifax Inc. EFX 0.18% hack: free freezes of their data held by the credit-reporting companies.

The bipartisan agreement, set to be approved in the Senate by next week as part of a broader banking bill, would require credit-reporting companies to let consumers block access to their credit reports to potential lenders without paying a fee. Freezing access to credit data is a crucial measure consumers can take if they want to protect themselves from identity theft.

Credit-reporting firms are mixed about the measure, which would erode a source of revenue, while consumer advocates worry it doesn’t go far enough to give people more control over their data.

The provision would set a single national standard for credit freezes. Currently, 42 states allow credit-reporting firms to charge for the service unless an individual was a victim of identity theft. Eight states and the District of Columbia mandate waiver of the fees under all circumstances.

Fee Block

Consumers in 42 states ,under proposed federal legislation, would join those in eight states and the District of Columbia that already have guaranteed access to free credit-data freezes.

Sources: U.S. Public Interest Research Group, TransUnion and The Wall Street Journal

The U.S. has three main reporting companies—Equifax, Experian
EXPGY 1.18% PLC and TransUnion
TRU 1.00% —that typically charge $10 or less each to freeze or reinstate credit-data access, depending on a patchwork of state laws. The measure bars fees for both.

Under the provision, credit-reporting firms would have to place the freeze within one to three days after receiving a consumer’s request. Consumers would also be able to unfreeze their credit within an hour, if the process is requested electronically, or three days if requested by mail.

Consumer groups are concerned the measure would override future efforts by states to implement stricter freeze requirements on credit-reporting firms—for instance, making credit freezes a default setting for credit reports, essentially requiring consumers to approve any credit inquiry from potential lenders.

“It’s stopping the states from doing anything better in the future, and that’s a problem,” said Mike Litt, a director at U.S. PIRG, a consumer-rights group.

Sen. Mark Warner (D., Va.), one of the chief sponsors of the broader Senate bill, said he regretted the legislation—the result of a compromise between the political parties—doesn’t do more to rein in credit-reporting companies.

“They have all of our personal information,” Mr. Warner said. “And there are not clear standards and clear penalties.”

The credit-reporting firms have accepted the change is coming. “This is likely to be Congress’s opportunity to address the credit-reporting industry,” said Francis Creighton, head of the Consumer Data Industry Association, a trade group that represents credit-reporting companies.

“We think it’s fair that we’re able to charge a fee on a freeze,” Mr. Creighton, said. But, “given that [policy makers] don’t agree with us, this bill is perfectly reasonable,” he added.

“We are not upset with the provision of the proposed law. We support a federal security freeze statute that simplifies the process for consumers,” Experian said.

The provision likely will result in credit-reporting firms pitching credit-monitoring and other subscription-based services, according to a person familiar with the matter. People who contact the firms to sign up for the freeze will likely be marketed services that have a monthly fee attached to them, the person said.

Credit-reporting firms don’t break out what share of their revenue comes from credit freezes, though an industry executive says it is much smaller than other services they sell consumers, such as credit monitoring and identity-theft protection. But removing freeze fees would eliminate funds some of the companies say they use to help cover the costs associated with the freezes, including maintaining call centers. In some cases, the companies incur losses from the service.

The provision’s impact likely extends to lenders who receive loan applications from consumers with frozen reports. In some cases, lenders that contact the firms for the applicant’s credit reports and receive a notice that the report is frozen will still pay for that service. The lenders in most cases wouldn’t move forward with the loan application without a credit report.

Some firms are letting consumers place limits on their credit reports at no cost. Equifax and TransUnion offer a free service that allows consumers to lock and unlock their credit reports, while Experian charges for it. Locks are similar to credit freezes in helping to block identity thieves from obtaining financing in another person’s name. While they offer more convenience, such as control of data via an app, locks also give consumers less legal protection, consumer advocates say.

The credit-freeze provision is one of several proposals circulating in Congress since last year’s disclosure of the massive Equifax hack, which compromised the personal information of 147.9 million people. Many of the proposals go further than this bipartisan deal, with provisions to impose stricter regulatory oversight on the credit bureaus, charge penalties in the event of further breaches, or establish credit freezes as the default option for consumers.

Equifax itself hasn’t been able to shake off condemnation from policy makers and is the subject of several government probes. It also has upset its competitors. Experian and TransUnion believe the freeze legislation wouldn’t have materialized without the Equifax breach, according to the person familiar with the matter.

Write to Lalita Clozel at lalita.clozel.@wsj.com and AnnaMaria Andriotis at annamaria.andriotis@wsj.com

Guggenheim’s Minerd warns of a possible replay of 1987 stock market crash

Jennifer Ablan

NEW YORK (Reuters) – Investors should brace for a possible replay of the 1987 stock market crash later this year, given this month’s slump came against the backdrop of Federal Reserve interest rate hikes and rising inflation, Scott Minerd, Global Chief Investment Officer at Guggenheim Partners, said on Tuesday.

“Eventually the Fed will acknowledge that three rate hikes will not be enough, but it is going to raise rates four times in 2018, and market speculation will increase that there may be a need for five or six rate hikes. That will be the straw that breaks the camel’s back,” Minerd said in a note to clients.

On Monday Oct. 19, 1987, following large declines on Asian and European markets the previous week, the Dow Jones Industrial .DJI Average plunged 508 points, or 22.6 percent, for the biggest-ever single day decline in percentage terms by the blue-chip benchmark.

Despite healthy U.S. corporate earnings and economic growth, inflation fears and rising bond yields, have already resulted in a 1,175 point fall in the Dow Jones Industrial Average on Feb. 5, the biggest ever in point terms, though in percentage terms it was only 4.6 percent.

The U.S. consumer price index for January published last week rose more than expected, with headline CPI inflation up to 2.1 percent, leading investors to expect the Fed to raise interest rates at least three times this year.

U.S. Treasury bond yields have been rising since last autumn, and are starting to raise the cost of borrowing for consumers and companies, with the benchmark 10-year note reaching 2.94 percent last week, up from 2.08 percent in July last year. Home mortgage rates rose to 4.57 percent last week, the highest since 2014. And the U.S. dollar .DXY has fallen 15 percent in the past 13 months.

“Today, investors have the same sorts of concerns they had in 1987,” Minerd said. By August 1987, equities were at record highs, the Fed was raising rates, the U.S. dollar was under pressure and there were increasing concerns over inflation, Minerd noted.

Dow Jones & Company Inc25219.38

.DJIDow Jones Indexes

–(–%)


“The concern was the Fed was behind the curve as it accelerated rate increases,” he said. “By October, things were becoming unhinged. Bond yields had risen in the face of an extended bull market in stocks. The market reached a tipping point and began its infamous slide.”

As the Fed continues to raise rates this year, valuations of risk assets based upon faith in ultra-low rates and central bank liquidity will come into question, Minerd said. “Prepare for danger ahead, but also opportunity,” he added.

“Anytime we see strength in economic data, we are going to see upward pressure on rates,” Minerd said. “Upward pressure on rates is going to result in concern over the value of risk assets, and we are going to have a sell-off in equity markets, or the junk bond market, or both. Credit spreads will widen.”

The reality of the situation is that the amount of fiscal stimulus in the pipeline, the U.S. economy fast approaching full employment, the economic bounceback in Europe, and the pickup in momentum in Japan and in China “are all real,” he said.

A Slowdown Is in Store for the Self-Storage Business

A flood of new supply is crimping growth in the self-storage sector


Gotham Mini Storage in New York City in May 2016. Earnings in the self-storage sector are still increasing, but no longer at the double-digit rates many companies enjoyed between 2010 and 2015. Photo: Jason Andrew for The Wall Street Journal

By

Peter Grant

Updated Jan. 16, 2018 2:24 p.m. ET

The party is coming to an end in the self-storage business.

For most of the current economic expansion, the sector has been beating all other major commercial property types in earnings growth and stock performance. Real-estate investment trusts like Life Storage Inc., Extra Space Storage Inc. EXR -1.78% and Public Storage have been able to push through stratospheric rent increases thanks partly to the scant supply of new development.

But growth is slowing as markets get flooded with new supply. Earnings are still increasing, but no longer at the double-digit rates many companies enjoyed between 2010 and 2015.

Stock valuations, meanwhile, are falling back to earth. Self-storage companies are trading at a 2% discount to the estimated market value of the properties they own, compared with an average 16% premium over the past five years, according to Green Street Advisors.

Self-storage company executives point out that the business remains prosperous and continues to hold its own against other property types. The only major REIT sector trading more favorably is industrial, which is trading at a 4% premium to asset value. Malls and office REITS are trading at discounts of 13% and 9%, respectively, Green Street says.

“When you have five or six blowout years and you get back to normal, it just looks slow,” said David Rogers, chief executive of Buffalo-based Life Storage, which has 700 facilities in 28 states.

But the supply pipeline is expected to stay fat for some time. “We are seeing few signs of a slowdown in new projects,” said Baird Equity Research in a report published in late November.

Packed AwayConstruction spending on self-storagefacilities*Source: Census Bureau*Seasonally adjusted and annualized

.billion2014’15’16’17012345$6

Demographic trends, meanwhile, raise concerns about the strength of future demand. Aging baby boomers can be expected to absorb a lot of new supply as they leave large houses for smaller apartments. But household formation has generally been slow in the U.S. economy. Also, urban-living millennials have tended to accumulate less stuff than their parents up until now.

“When you live in urban settings, you live small,” Mr. Rogers said.

Mr. Rogers and others said they see signs millennials are beginning to form families, move to the suburbs and accumulate patio furniture, pool toys and the other items that ultimately seem destined for self-storage. “We missed a five-to-six-year period, but we’re catching up,” Mr. Rogers said.

The self-storage business generally has enjoyed strong growth over the years thanks to the emotional and occasionally nonsensical love affair between Americans and their stuff. Once people rent out a unit they become a captive audience for rent increases.

“This is why it’s such a great property type,” said R.J. Milligan, a Baird analyst. “Say you’re paying $100 a month and they increase your rent $5—which in commercial real estate is a significant increase. You’re not going to move your stuff on a Saturday to a place that’s charging $95.”

The biggest self-storage companies have adopted a wide range of new technologies such as data analytics and search-engine optimization to find and keep customers. “Our ability to outperform the mom-and-pop [self-storage facilities] has gotten bigger and bigger,” said Joseph Margolis, chief executive of Extra Space, a Salt Lake City-based REIT that operates more than 1,500 properties.

Profits also have been plentiful for self-storage operators for most of the recovery from the 2008 crash because new supply has been limited. Roughly 2,000 self-storage facilities were developed annually between 2000 and 2009, Mr. Margolis estimated. That declined to a few hundred per year in the years after the downturn, he said.

But development has spiked. The Census Bureau reported that in November the annualized rate of new construction in the sector was about $4.6 billion on a seasonally adjusted basis. That’s more than double the level of November 2016 and more than triple the level of November 2015.

Public Storage, the largest REIT in the sector, has 5 million square feet under construction, compared with an average 3.5 million square feet over the past four years, according to Jon Cheigh, a global portfolio manager with Cohen & Steers, which has about $38 billion in real-estate assets under management. “New development has overwhelmed certain key markets” like Phoenix, New York City and Orange County, Calif., he said in an email.

Private-equity firms in the business include Brookfield Asset Management and Carlyle Group LP. TPG, another private-equity firm that had been active in self-storage, sold its business in 2016 for $1.3 billion to the REIT that later changed its name to Life Storage.

The new capital that has flowed into the sector has kept private market values of individual properties high, especially those that are well leased. High-quality self-storage operations are more than 90% occupied in most markets at near-record rent levels.

But there’s doubt that the market will be able to sustain such high levels with the new supply being added. Green Street is projecting that net operating income growth for the self-storage sector will be below the broader REIT industry.

“That typically hasn’t happened historically,” said Ryan Burke, a Green Street analyst. “It speaks to the fact that self-storage as a business is in uncharted territory over the near term.”

Write to Peter Grant at peter.grant@wsj.com