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Retiring Early? Here’s How to Delay Taking Social Security Anyway

My Comments: I’ve you’ve not yet signed up to receive your monthly Social Security benefit, this is worth a read. I encourage everyone to try and wait until Full Retirement Age (FRA). The outcomes are likely to be much better.

If you claim Social Security early, your checks will be permanently reduced. Consider looking for income elsewhere so that you can wait until full retirement age.

Wendy Connick \ Aug 9, 2017

Sometimes retiring early is unavoidable. If you’re struggling with chronic health issues, or if you’re laid off from your job in your early 60s and see no prospect of getting another, it just makes sense to go ahead and retire. On the other hand, claiming Social Security early can put a serious crimp in your income later on: Starting Social Security payments before full retirement age means your benefits checks will be permanently reduced. But if you can scrape together enough income from other sources, you can wait to claim Social Security until the most financially practical time for you.

Here are five ways to fill the income gap between the day you retire and the day you start collecting retirement benefits.

Buy an annuity

If you retire early, it may make sense to take a chunk of money and use it to buy an immediate fixed annuity. These annuities pay you a set amount of money every month for the rest of your life. That makes them something of a substitute for Social Security, and if you have cash to buy a substantial annuity, you may be able to delay taking Social Security for years, thereby letting your eventual benefit amount grow.

A caveat: Annuities are complex products that come with fairly restrictive terms, so do plenty of research on your options before buying one. You can start by learning some of the basics HERE.

Construct a bond ladder

Bonds are an excellent source of guaranteed income in the form of interest payments — but the drawback is that in order to get a decent return on investment these days, you need to purchase fairly long-term bonds, which means your principal will be tied up for years and years. Bond ladders help you to get around this problem. To construct a bond ladder, you buy bonds with different maturity dates so that you will regularly have bonds reaching maturity and releasing principal back to you. As you get your principal back, you use it to buy new bonds and keep the ladder going. Another perk of bond ladders is that if interest rates go up, you’ll be able to take advantage of the new rates as you continually buy new issues to replace the bonds that have matured. While interest rates are quite low even on long-term bonds, a good bond ladder can provide a substantial amount of income.

Buy dividend stocks

With their exceptionally high long-term returns, stocks are an excellent money maker. However, in order to realize the income from a stock’s increased value, you have to sell it. An alternative way to get income from stocks is to buy ones that pay regular, high dividends to their stockholders. While dividends aren’t as reliable a source of income as bond interest payments, if you invest in dividend aristocrats — companies that have paid dividends for at least 25 consecutive years — then those payments are likely to keep coming, and increasing, for many years. This strategy works well for retirees, because dividend aristocrats also tend to be large, stable companies that are unlikely to suffer from high volatility.

Get income from your house

The above strategies require a retiree to have a substantial chunk of money at their disposal. If your accounts aren’t quite so well-funded, you might not be able to generate enough income from them to get by without Social Security. In that case, your house may be the resource you need to make up your income gap. If you have more house than you require, renting out a room might be an excellent source of income — especially if you live in a college town. A somewhat more permanent option would be to get a reverse mortgage on your house, but before you pursue this option, make sure that you understand all the consequences of doing so. Finally, if all you need is a little extra cash to smooth out your cash flow, a home equity line of credit can help.

Work part-time

The side hustle is an increasingly popular way to make money at any age, and the best side hustles are the ones you actually enjoy doing. Your favorite hobby might be just the thing to bring in some extra cash; it’s clearly something you enjoy doing, since you’re doing it now without being paid for it. You may be surprised by how many people would be willing to pay you for the fruits of your labor. So if you practice any sort of craft, from sewing to building bird houses, try setting up a shop on Etsy or a similar site and peddling your wares. If you love gardening, look for a local farmers market and figure out what it would take to set up a profitable booth. And if you have years of experience in a job that can be done without leaving a computer, then you may be able to find freelance work online. There are several websites that exist solely to connect freelance workers with companies that have a short-term need for help.

A side hustle likely won’t pay the bills on its own, but combined with the other options above, it could help you stay afloat until you reach full retirement age — and finally claim those Social Security benefits.

Income Inequality and Local Politics

My Comments: As an economist, I’ve talked consistently about the threat to society posed by income inequality. My rantings make zero difference at the national level, where if this issue is not addressed, there will be rioting in the streets.

A friend and I talked this morning about the apparent collapse of societal norms he and I have used to navigate our lives for the past 60 years. Our hope now is that with the antics of 45 now a daily happening, the backlash from within the GOP and Democratic party, coupled with inevitable demographic changes, we’ll come out OK. Unfortunately, “hope” is rarely an effective management strategy.

Meanwhile, I’ve also become more engaged with elected people at the local level. And so while I can do little more than talk about it, I’m sharing this article with people I enjoy spending time with who might collectively be called progressives.

Thursday, Dec 29, 2016 \ Theo Anderson

In 1980, the top 1 percent earned 27 times more than workers in the bottom 50 percent. Now, they earn 81 times more

The income gap between the classes is growing at a startling rate in the United States. In 1980, the top 1 percent earned on average 27 times more than workers in the bottom 50 percent. Today, they earn 81 times more.

The widening gap is “due to a boom in capital income,” according to research by French economist Thomas Piketty. That means the rich are living off of their wealth rather than investing it in businesses that create jobs, as Republican, supply-side economics predicts they would do.

Piketty played a pivotal role in pushing income inequality to the center of public discussions in 2013 with his book, “Capital in the Twenty-First Century.” In a new working paper, he and his co-authors report that the average national income per adult grew by 61 percent in the United States between 1980 and 2014. But only the highest earners benefited from that growth.

For those in the top 1 percent, income rose 205 percent. Meanwhile, the average pre-tax income of the bottom 50 percent of workers was basically unchanged, stagnating “at about $16,000 per adult after adjusting for inflation,” the paper reads.

It notes that this trend has important political consequences: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”

But the authors also note that the trend is not inevitable or irreversible. In France, for example, the bottom 50 percent of pre-tax income grew by about the same rate — 32 percent — as the overall national income per adult from 1980 to 2014.

The difference? In the United States, “the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions and an eroding minimum wage,” the paper reads.

Piketty and Portland

President-elect Donald Trump’s administration promises at least four years of policies that will expand the gap in earnings. But a few glimmers of hope are emerging at the local level.

The city council of Portland, Oregon, for example, recently approved a tax on public companies that pay executives more than 100 times the median pay of workers. The surtax will increase corporate income tax by 10 percent if executive pay is less than 250 times the median pay for workers, and by 25 percent if it’s 250 and over. The tax could potentially affect more than 500 companies and raise between $2.5 million and $3.5 million per year.

The council cited Piketty’s “Capital in the Twenty-First Century” in the ordinance creating the tax. Steve Novick, the city commissioner behind it, recently wrote that “the dramatic growth of inequality has been fueled by very high compensation of a few managers at big corporations, as illustrated by the fact that 60 to 70 percent of people in the top 0.1 percent of income in the United States are highly paid executives at large firms.”

Novick said that he liked the idea when he first heard about it because it’s “the closest thing I’d seen to a tax on inequality itself.” He also said that “extreme economic inequality is — next to global warming — the biggest problem we have in our society.”

Investing in children

There is also hopeful news in the educational realm. James Heckman, a Nobel Laureate in economics at the University of Chicago who has spent much of his career studying inequality and early childhood education, recently published a paper that lays out the results of a long-term study.

In “The Life-cycle Benefits of an Influential Early Childhood Program,” Heckman and others report that high-quality programs for children from birth to age 5 have long-term positive effects across a range of metrics, including health, IQ, participation in crime, quality of life and labor income.

Predictably, perhaps, the effects of the programs weren’t limited to children. High-quality early childhood education also allowed mothers “to enter the workforce and increase earnings while their children gained the foundational skills to make them more productive in the future workforce,” a summary of the paper reads.

“While the costs of comprehensive early childhood education are high, the rate of return of [high-quality programs] imply that these costs are good investments. Every dollar spent on high quality, birth-to-five programs for disadvantaged children delivers a 13 percent per annum return on investment.”

The research is important because early childhood education has bipartisan support. Over the summer, the Learning Policy Institute released a report that highlighted best practices from four states that have successful early childhood education programs. Two of them — Michigan and North Carolina — are swing states in national politics. The others are Washington and a solidly red state, West Virginia.

Although it isn’t a substitute for other policy tools to address inequality, like progressive taxes, early childhood education has strong bipartisan support because it produces measurable payoffs for both children and the economy. One study found, for example, that the economic benefit of closing the educational achievement gaps between children of different classes would be $70 billion each year.

Early childhood education fosters an “increasingly productive workforce that will boost economic growth, provide budgetary savings at the state and federal levels, and lead to reductions in future generations’ involvement with the criminal justice system,” the Economic Policy Institute recently noted. “These benefits will, of course, materialize only in coming decades when today’s children have grown up. But the research is clear that they will materialize — and when they do, they are permanent.”

Do Social Security Payroll Taxes Need to Increase?

My Comments: If you have not already signed up for Social Security, chances are good you will draw the short straw. If you are now getting monthly benefits, chances are you have a longer straw. Me, I have no idea.

What we do know is that sooner or later the crisis will become immediate and it will get fixed. The problem is if it gets fixed now, the pain will be far less. But that’s not how Congress works, so don’t hold your breath.

Sean Williams \ Jul 30, 2017

The longer Congress waits to act, the bigger the actuarial deficit grows.

Social Security is an absolute monolith of a program. Last year, the program generated $957 billion in revenue and wound up spending $922 billion, a vast majority of which went to the more than 25 million retired workers who currently receive a monthly check from the program.

However, this vital program, which is currently cash-flow positive, is also facing some major issues. And, according to the latest report from the Social Security Board of Trustees, major changes could be just around the corner.

Social Security’s foundation is crumbling
The heart of the problem for Social Security is this: By 2022, it’ll begin paying more in benefits than it’s generating in revenue from payroll taxes, interest income earned on its asset reserves, and taxes on Social Security benefits. The Trustees have estimated that after reaching approximately $3 trillion in 2022, Social Security’s cash reserves will be completely exhausted 12 years later. By 2034, should Congress fail to enact any new laws to generate additional revenue for Social Security, benefits will need to be cut by as much as 23%. Enacting a steep 23% benefits cut across the board would keep the program solvent for another 75 years (through 2091), but it would also be a devastating blow to the more than 60% of retired workers who currently rely on Social Security for at least half of their monthly income.

Understanding that Social Security is coming to a crossroads, the public has rightly looked to Congress to fix things. Ironically, a lack of solutions isn’t the problem. Both Democrats and Republicans have put forth Social Security fixes that would resolve the estimated $12.5 trillion budgetary shortfall and provide financial certainty into the early 2090s. Unfortunately, since Washington politics is so partisan, neither party has been willing to work with the other. Thus we have multiple solutions that work, and no lawmakers willing to vote those plans into law.

A payroll tax hike of this much would fix Social Security
Arguably the simplest fix of all would be to increase the payroll tax, which is a 12.4% tax on all earned income between $0.01 and $127,200, as of 2017. Increasing the payroll tax on all American workers would generate additional income and possibly make benefit cuts unnecessary, at least through 2091. Keep in mind that if you’re employed by someone else, your employer pays half of your Social Security tax (6.2%), leaving Americans who aren’t self-employed to pay just 6.2% of their earned income up to $127,200 into Social Security. Any earned income above $127,200 is free and clear of the payroll tax.

Just how big of an increase is needed to fix Social Security? According to the Trustees report, the actuarial deficit grew by 17 basis points from the previous year to 2.83%. In plainer terms, this means that the Trustees estimate that a 2.83% increase to the payroll tax right now would eliminate the $12.5 trillion cash shortfall between 2017 and 2091. It would also likely mean no benefit cuts for anyone. It’s worth noting that the longer Congress waits to act, the bigger the deficit gets.

What would this tax hike actually look like? Self-employed folks would see their share of Social Security payroll taxes rise from 12.4% to 15.23% on earned income up to $127,200, while the average American who’s employed by someone else would see their responsibility increase by 1.415% (half of the 2.83%) to 7.615%. Assuming the average American makes around $30,000 a year, we could be talking about handing over an extra $425 a year for Social Security payroll taxes under such a scenario.

The public has previously shown their support for gradual increases to the payroll tax to help fix Social Security, but support for tax hikes usually fizzles out beyond a 0.4% increase in average worker payroll taxes (0.8% overall), which isn’t anywhere near the projected 1.415% (2.83% overall) needed to offset demographic changes to Social Security.

A potentially easier path to more revenue
There is, however, a potentially easier way to generate more revenue that wouldn’t require a 2.83% payroll tax hike on all workers — and it’s a pathway that a majority of Americans support. Raising the maximum earnings tax cap would substantially reduce Social Security’s cash shortfall, while eliminating it would wipe out the deficit entirely.

The aforementioned $127,200 figure, which often increases annually with the Wage Index, represents the peak dollar amount that is assessed the 12.4% payroll tax. Approximately one out of every 10 workers earns more than this peak figure annually, meaning they get an exemption on a portion of their earned income, while 90% of working Americans pay into Social Security with every dollar they earn. Raising the maximum earnings cap so that it’s reinstituted on earned income above, say, $250,000 or $400,000, would require the wealthy to contribute more, and it would resolve a good chunk of the program’s cash shortfall. Eliminating the cap entirely and allowing all earned income to be taxed would be a popular and easy fix.

So, why not simply make the wealthy pay more? After all, the well-to-do are unlikely to be as reliant on Social Security income during retirement as lower-income folks. The answer is that Social Security’s monthly payouts at full retirement age are capped at $2,687, as of 2017. Like the maximum taxable earnings cap, the maximum monthly payout at full retirement age adjusts annually, often moving similarly to the rate of inflation. Because there’s a cap on what seniors can receive each month in retirement, there’s also a cap on how much income can be taxed. In other words, it doesn’t make a lot of sense to have a self-employed individual pay 12.4% on $5 million in income if all he or she can net once retired is $2,687 a month at full retirement age. The cap does serve a purpose, after all.

The simple question is: Can lawmakers on Capitol Hill find an amicable solution to boost revenue? If history is any indicator, seniors and pre-retirees should be concerned.

Investment Returns Will Shrink

My Comments: Putting money to work for the future is something we all try to do. Our expectations vary all over the map. If you use the past to predict the future, you’re probably going to be disappointed.

This is very relevant if we have money sitting somewhere that we plan to use tomorrow to support our standard of living.

If we’ve stopped working for a living, our only recurring income comes from Social Security, pensions, and whatever money we’ve saved. All of which makes it imperative we find a way to manage financial risk going forward.

by Dr. Bill Conerly, August 5, 2017

What will an investment portfolio earn over the long term? That issue is important to individual investors, state pension agencies and corporations offering defined benefit pensions. State pension agencies have been lowering their assumed returns. A decade ago, 8.0 percent was the dominant assumption, with some states higher and some lower. Now the most common assumption is between 7.0 and 7.5 percent. The sub-seven assumption was never used as recently as 2011 but is now embraced by several pension authorities.

What assumption should a family, a government agency or a corporate pension fund use? For a long time, it’s been best to go back to the long-term averages, but the current outlook is less rosy. I personally have revised down the estimate I use in planning the Conerly family’s spending and saving, and I concur with public bodies who do the same. I’m not fully convinced that I’m right; I just think the pain from erring on the low side will be less than the pain of erring on the high side.

The traditional approach is to look at long-run returns, and the book of numbers for that analysis is the SBBI Yearbook covering stocks, bonds, bills and inflation (hence the SBBI name). This research is based on pioneering work done by Roger Ibbotson and Rex Sinquefield.

Since 1926, when their dataset begins, U.S. common stocks have rewarded investors by 10 percent per year, counting capital gains and dividends, before taxes. Corporate bond returns averaged 5.6 percent returns. An investment portfolio split 50 percent in stocks (the Standard and Poor’s 500) and 50 percent in corporate bonds would have earned 8.3 percent per year over 1926-2016. That justifies a long-run expected return around 8.0 percent as was common.

But don’t stop reading yet! Remember two important points. First, past returns are not guaranteed in the future. Second, even if the past points the way to the future, the past includes whole decades with negative returns to stocks, albeit just slightly negative.

On the first point, the structure of the economy has changed substantially since 1925 when the good data begin. Jeremy Siegel in his book, Stocks for the Long Run, shows stock market data back to 1802. He finds a seven percent annual return from 1802 through 1925. This suggests that we cannot take investment returns fixed in stone; they can be higher or lower over long periods. (Siegel’s book is one of my top two picks for the average person making investment decisions. The other is Burton Malkiel’s A Random Walk Down Wall Street.)

Stock market returns have been pretty good recently. Look at the S&P 500 since 2012 (counting capital gains and dividends, before taxes):
2012 +16%
2013 +32%
2014 +14%
2015 +1%
2016 +12%

But high returns can be due to overly optimistic speculators rather than economic fundamentals. We know that economic growth has been below normal in recent years. We also know that interest rates have been well below long-run averages. That suggests – but does not prove – that returns on capital are lower now than in the historic average.

Low returns on capital might trigger a stock market gain in the short run, as lower interest expense makes corporate profitability look better. But in the long run, stock market returns must reflect the returns of investing capital in a business. So if low corporate bond interest rates today reflect low returns on capital, then stock market returns should be low in the future.

The story for low returns on capital now is simple: much of our new production requires very little capital. A steel mill or car factory requires lots of capital. A Google or Facebook requires far less. With less need for capital, the owners of capital will earn lower returns. And the global supply of savings is rising, partly due to aging baby boomers around the world and partly because a larger share of world income is in countries with weak social safety nets. I provided more detail in “Returns on Capital – And Interest Rates – Will Be Low In The Future.”

The second caution mentioned above is the tremendous variability of returns. The long-run average for stocks may be ten percent, but the entire decades of the 1930s and the 2010s had negative returns. An investor ended a ten-year period with fewer dollars than at the beginning. And don’t forget the spectacularly bad years: 1931, -43 percent, and 2008, -37 percent.

The long-run average tells you little about next year’s return. If the next bad decade starts just as you retire, you may feel pretty uncomfortable waiting for the long-run average to return. And if you can’t stomach the occasional bad year, then you’re likely to shift into a low-return investment when the stock market rebounds.

If I have to make a best guess as to how the next 100 years will look, I roll with the long-term average and say that stocks will return about ten percent. But I have arranged my personal affairs so that long-run returns can be much lower and I’ll still be able to eat.

Capitalism’s excesses belong in the dustbin of history. What’s next is up to us

My Comments: Some of you will not bother to read this. Like when you’re in the car looking for a radio station and you hear classical music or country & western; you can’t stand either so you just move on.

But we all have a responsibility to our children and grandchildren. So, in my opinion, we need to better understand what we don’t like. Especially when their economic future is at stake.

So, do yourself a favor, especially those of you who recoil at the term ‘socialism’. There are forces at work like the tides at the beach. No amount of yelling will cause them to stop.

Martin Kirk/Aug 1, 2017

It’s time to dethrone capitalism’s single-minded directive and replace it with a more balanced logic, laying the foundations for a better, more equitable world

Back in February, a college sophomore called Trevor Hill stood up during a televised town hall meeting in New York and put a simple question to the House minority leader, Nancy Pelosi.

Citing a study by Harvard University that showed that 51% of Americans between the ages of 18 and 29 no longer support capitalism, Hill asked if the Democratic party would contemplate moving farther left and offering something distinctly different to dominant rightwing economics? Pelosi, visibly taken aback, said: “I thank you for your question,” she said, “but I’m sorry to say we’re capitalists, and that’s just the way it is.”

The footage went viral on both sides of the Atlantic. It was powerful because of the clear contrast: Trevor Hill is no hardened leftwinger. He’s just your average millennial – bright, well-informed, curious about the world and eager to imagine a better one. By contrast, Pelosi, a figurehead of establishment politics, seemed unable to even engage with the notion that capitalism itself might be the problem.

It’s not only young voters who feel this way. A YouGov poll in 2015 found that 64% of Britons believe that capitalism is unfair, that it makes inequality worse. Even in the US it’s as high as 55%, while in Germany a solid 77% are sceptical of capitalism. Meanwhile, a full three-quarters of people in major capitalist economies believe that big businesses are basically corrupt.

Why do people feel this way? Probably not because they want to travel back in time and live in the USSR. For millennials especially, the binaries of capitalism v socialism, or capitalism v communism, are hollow and old-fashioned. Far more likely is that people are realizing – either consciously or at some gut level – that there’s something fundamentally flawed about a system that has as its single goal turning natural and human resources into capital, and do so more and more each year, regardless of the costs to human well-being and to the environment.

Because that is what capitalism is all about; that’s the sum total of the plan. We can see it embodied in the imperative to increase GDP, everywhere, at an exponential rate, even though we know that GDP, on its own, does not reduce poverty or make people happier and healthier. Global GDP has grown 630% since 1980, and in that same time inequality, poverty and hunger have also risen.

The single-minded focus on the growth of the capital supply is why, for example, corporations have a fiduciary duty to grow their stock value before all other concerns. This prevents even well-meaning chief executives from voluntarily doing anything good, such as increasing wages or reducing pollution, when doing so might compromise the bottom line – As the American Airlines CEO, Doug Parker, found earlier this year when he tried to raise workers’ salaries and was immediately slapped down by Wall Street. Even in a highly profitable industry – which the airlines are, despite many warnings – it is seen as unacceptable to spread the wealth. Profits are seen as the natural property of the investor class. This is why JP Morgan criticized the pay rise as a “wealth transfer of nearly $1bn” to workers.

It certainly doesn’t have to be this way, and we don’t need to look backwards to socialism, or any other historical system, as an prebaked alternative. Instead, we need to evolve. The human capacity for innovation and fresh thinking is boundless; why would anyone want to denigrate that capacity by believing that capitalism is the final system we can come up with?

Martin Luther King spoke of a “higher synthesis”, that takes the best of historical systems, draws on this boundless capacity, and creates something new. There is no shortage of ideas. We can start by changing how we understand and measure progress. As Bobby Kennedy said, GDP “measures everything, in short, except that which makes life worthwhile”. We can change that. We can adopt regenerative agricultural solutions to help us to live in balance with the environment on which we all depend for our survival. We can introduce potentially transformative measures like a crypto-currency-based universal basic income that could fundamentally improve the money system.

Measures like these and many others could dethrone capitalism’s single-minded prime directive and replace it with a more balanced logic. If done systematically enough, they could consign one-dimensional capitalism to the dustbin of history.

We need our political and business leaders to go from clinging on to the myth that growth will solve all our problems, to joining the conversations that social movements, progressive forces, and young people like Trevor Hill are having about how we can lay the foundations for a better, safer, more equitable post-capitalist world. ■

Wall Street is sending huge warning signs for stocks

My Comments: Sooner or later, the penny will drop.

Joe Ciolli \ Jul 30, 2017

To a growing chorus of strategists and investors across Wall Street, the stock market looks like it’s headed for a rude awakening.

Their mounting pessimism comes at a time when US equities are looking healthy, at least on the surface. Major indexes are hovering near record highs they reached this past week, while corporate earnings are growing at a blistering pace.

Yet some market experts think this apparent strength is just masking deeper problems brewing under the surface.

Count Marko Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy, as one of those stressing caution. In a client note on Thursday, he said that record-low volatility should “give pause to equity managers.” Kolanovic even went as far as to compare the strategies that are suppressing price swings to the conditions leading up to the 1987 stock market crash.

“The fact that we had many volatility cycles since 1983, and are now at all-time lows in volatility, indicates that we may be very close to the turning point,” he said.

A sudden move down in US stocks on Thursday — including a notably outsized loss in tech — was widely attributed to Kolanovic’s note, highlighting just how seriously many investors have started taking such warnings.

His consternation extends into the hedge fund world, where investment managers are also crying foul about low volatility to anyone that will listen.

Baupost Group, a $30 billion fund, recently highlighted the lack of price swings as a harbinger of pain to come, calling it a possible “accelerant for the next financial crisis.” Meanwhile, Highfields Capital Management, which oversees $13 billion, said this past week that low volatility is giving people the false impression that the market is risk-free.

Going beyond the much-maligned low-volatility environment, Bank of America Merrill Lynch has its own reasons for expecting an upcoming rough patch in stocks — one it sees coming sometime this autumn.

Michael Hartnett, the chief investment strategist of BAML Global Research, points to how the S&P 500 has continued climbing to new highs, even as the size of the Federal Reserve’s balance sheet has stayed relatively unchanged. He says this divergence is a “classic euphoria signal.” Such overexuberance has historically been a sign that investment sentiment is overextended.

Legendary investor Byron Wien, who currently serves as vice chairman of Blackstone’s private wealth solutions group, agrees with BAML. He sees the stock market outpacing the Fed’s balance sheet as problematic and called the development “disturbing” in a July 26 client note.

BAML also points to record low private client cash levels as a sign that the stock market may be close to maxing out. With investors looking fully invested, there’s limited dry powder for them to put to work in the market, should they feel inclined to add to positions.

And, perhaps most importantly to BAML’s call for a market top this autumn, a proprietary indicator maintained by the firm sits on the brink of reaching a sell signal. It’s put together a list of things that need to happen for the market to peak in August:
• The dollar index falls to 90, coinciding with “unambiguous” US labor/consumer weakness (non-farm payrolls lower than 100,000) and a flatter yield curve
• The end of high-yield leadership, which “should be an early warning system”
• Fatigue in equity growth leadership, in areas like the Nasdaq Internet Index, emerging markets Internet, and semiconductors

But, amid the growing pessimism, there are still strategists on Wall Street who see the S&P 500 hanging in there, at least through the end of 2017. A survey of 20 chief equity strategists conducted by Bloomberg shows an average year-end forecast of 2,439, basically unchanged from Friday’s close.

So while it’s anyone’s guess what will transpire in the coming months, it’s good to at least be aware of the cracks forming in the market’s foundation. And don’t say you weren’t warned.

How Hitler Conquered Germany

My Comments: I find the parallels uncomfortable. There’s also the truism that includes the words “… are doomed to repeat the past”.

The new White House Communications Director, is, by definition, expressing the ideas of his employer. His message, to me, is very similar to those expressed by his counterparts in Germany in 1937, despite the passage of time, and presumed lessons from the past.

It is to convince us that we are doomed unless and until we eliminate some perceived threats to society. We’re not directly told what those threats actually are, but steps are being taken to remove them. The outcome could also be similar if we let it run and simply acquiesce to this intent.

There were valid reasons why the electorate in the US felt compelled to align itself with the messenger. That was also true in Germany in 1937. Today, like then, the message is designed to promote an agenda that could have dark consequences for all of us. The denial of health benefits for millions of Americans (TrumpCare), coupled with restrictions on their ability to vote (gerrymandering), leads to an outcome (dead people don’t vote) that the Koch brothers, among others, are willing to spend hundreds of millions of dollars to advance. They’re not spending all that money out of the goodness of their hearts; there is an economic and tribal agenda that is not consistent with our Constitution and democratic principles. The phrase Make America Great Again doesn’t include ‘for whom?’.

We cannot afford to go too far down this slippery slope. Yes, explore some alternatives, but never forget the past. The outcome could be more than painful.

By Nicholas O’Shaughnessy , March 2017

Historian Karl Dietrich Bracher argued that the success of Nazi ideology can only be understood via the role of propaganda in the Third Reich. The Nazis’ modern techniques of opinion-formation in order to create a “truly religio-psychological phenomenon” made the propaganda especially powerful.

This is not to deny the role of coercion in the Nazi regime; this was a totalitarian state after all. During the ballot campaign in the spring of 1936, for instance—an “election” for the Reichstag and referendum on the Rhine remilitarization—all Germans were instructed to listen to Hitler’s speech from the Krupp arms factory at Essen. A typical press announcement of the time read: “The district party headquarters has ordered that all factory owners, department stores, offices, shops, pubs, and blocks of flats put up loudspeakers before the broadcast of the Führer’s speech so that the whole workforce and all national comrades can participate fully in the broadcast.” The near 100 percent result was of course an entirely manipulated one.

Yet while external compliance can be commanded, internal belief is an assent freely given. Joseph Goebbels, the appointed minister of propaganda of Nazi Germany, once said: “There are two ways to make a revolution. You can blast your enemy with machine guns until he acknowledges the superiority of those holding the machine guns. That is one way. Or you can transform the nation through a revolution of the spirit …”

Propaganda was the operational method of the Third Reich, the idea that projected the ideology. Hitler’s chief architect, Albert Speer, told the Nuremberg Tribunal “that what distinguished the Third Reich from all previous dictatorships was its use of all the means of communication to sustain itself and to deprive its objects of the power of independent thought.” Hitler was a magician of illusion. The cultural historian Piers Brendon has described propaganda as the “gospel” of Nazism and notes that Goebbels “liked to say that Jesus Christ has been a master of propaganda and that the propagandist must be the man with the greatest knowledge of souls.”

Hitler enacted a theory of persuasion which he first promulgated in Mein Kampf. It is difficult to think of “great” historical leaders—dictators, war lords, kings, and their like—who theorized about the integuments of power or abstracted from this an idea of psychological process. A Caesar might write a De Bello Gallico, and though there are also various other memoirists, they offer little in the way of a theory of persuasion per se.

Hitler was different. Mein Kampf is an incontinent bulk crammed with reflections, ruminations, biographical extracts and frenzied speculations. But, within its seething mass, there is a complete manual of propaganda, one which is focused, concise, harsh and pragmatic. Hitler’s great insight, which makes him unique among historical actors, was the recognition that violence and propaganda could and should be an integrated phenomenon. War and its articulation should not be disentangled since they were interdependent. The Nazis claimed “we did not lose the war because artillery gave out but because the weapons of our minds did not fire.”

The Third Reich represents the evolution of a partnership between masses and demagogue, a co-production—for example, the invitation to believe the idea that the Jews had simply been removed to external work camps, and not murdered. What the Nazis were really saying was that their truth lay deeper than their lies and that their lies were merely a permissible methodology since the end always justified the means. In historian Aristotle Kallis’ view, the identification of propaganda with falsification is misleading: Propaganda is a form of truth “reshaped through the lens of regime intentions.” From the perspective of the Reich, the Nazis were selling German truth rather than British falsehood.

The idea of people willingly misled offends our notion of man as rational. A more accurate representation of the psychology of the Third Reich would be to conceive of a partnership in wishful thinking in which the masses were self-deluded as well as other-deluded. Persuasion in such cases offers an idea of solidarity and the target of that persuasion is more co-conspirator than victim, an invitation to share in the creation of a hyperbolic fiction. Successful persuasion in business, media, or government, does not make the error of asking for belief. It makes no pretense of objectivity. The notion of persuasion as “manipulative” evokes a passive recipient and a hypodermic or stimulus-response form; but a more sophisticated idea is that of an invocation to partnership.

Thus, the Third Reich was the emanation of a collective as well as an individual’s imagination. Submersible parts of the ideology, such as the antagonism to religion, the euthanasia campaign, the massacre of Jews, could all have been discovered by the determined enquirer. One theory advanced as an explanation of this is that of group narcissism, which is described by historian and psychologist Jay Y. Gonen as one of the most important sources of human aggression: “In a world that is seen through a narcissistic tunnel vision, only oneself or one’s group has any rights.”

The purpose of Nazi propaganda was not to brainwash ordinary Germans, and it was not intended to deceive the masses even though it did enable the movement to gain new recruits. The principal objective, according to historian Neil Gregor, was “to absorb the individual into a mass of like-minded people, and the purpose of the ‘suggestion’ was not to deceive but to articulate that which the crowd already believed.”

The essence of the Nazi propaganda method was repetition. Goebbels argued that the skill of British propagandists during the Great War resided in the fact that they used just a few powerful slogans and kept repeating them. Historian Baruch Gitlis has argued that: “Wherever the German turned, he met his most ‘dangerous enemy,’ the Jew,” and that “while he walked in the street he encountered posters and slogans against the Jews at every square, on every wall and billboard. Even graffiti greeted the German at the entrance to his dwelling: ‘Wake up Germany, Judah must rot!’”

The message penetrated the barriers of inattention through the massive insistence on its replication. Goebbels was a proponent of the “repeated exposure effect.” The mass mind was dull and sluggish, and for ideas to take root, they had to be constantly re-seeded: recognition, comprehension, retention, and conviction are different stages in the cognitive process, and repetition can facilitate them. It is important to remember, therefore, that what Nazi propaganda also offered was the dubious benefit of sensory exhaustion. The citizen was not a target to be persuaded so much as a victim to be conquered, ravished even. They wanted internal commitment, not just external compliance.

Another core part of Nazi grand theory was the dethronement of reason and the celebration of emotion. Nazism felt rather than thought, and therefore the nature of its propaganda appeal was also to feeling rather than thinking. The mobilization of emotion lay at the heart of everything the Nazis did; propaganda’s operational formula. For Goebbels, the role of the propagandist was to express in words what his audience felt in their hearts.

For this reason, propaganda had to be primitive, appealing to what Hitler described as man’s inner Schweinehund (“pig dog,” thereby a sort of deprecatory idiom for one’s inner self). Typically brutally “either- or,” the propaganda appealed to the audience’s primitive desire for simplification, thus: “There are … only two possibilities: either the victory of the Aryan side or its annihilation and the victory of the Jews.” The Nazis believed a formulaic propaganda methodology must be applied even at the cost of alienating the sophisticated. Nazi theorist and proponent of propaganda Walther Schulze-Wechsungen wrote:

“Many a one laughed at the propaganda of the NSDAP [National Socialist German Workers’ Party] in the past from a position of superiority. It is true that we had only one thing to say, and we yelled and screamed and propagandized it again and again with a stubbornness that drove the ‘wise’ to desperation. We proclaimed it with such simplicity that they thought it absurd and almost childish. They did not understand that repetition is the precursor to success and simplicity is the key to the emotional and mental world of the masses. We wanted to appeal to the intuitive world of the great masses, not the understanding of the intellectuals.”

According to Goebbels, what was distinctive about the Nazis was “the ability to see into the soul of the people and to speak the language of the man in the street.” The propagandist was an artist who “sensed the secret vibrations of the people.” What distinguished European fascism above all was its discovery of new ways, a methodology, of speaking to the working class. The fascists were not ashamed of mass media and marketing, understood the cultures of consumerism, and recognized the role these now played in the lives of the masses; media was a new language with which the masses were now familiar, including its styles, forms, and assumptions. Fascists were at ease in this exciting new world and recognized that it could be exploited for political purposes, both as a source of methods and as a new kind of culture with a different set of governing assumptions.

The propagandists did not have it all their own way and we are much mistaken if we imagine Nazi Germany to have been a nation only of fanatics. There were the convinced, the semi-convinced, and the doubters; one could in fact have been in all three categories through the lifetime of the Reich. The Nazis were the most electorally successful of all Europe’s fascist parties, yet they never garnered more than 37 percent of the vote.

They also recognized the limitations of propaganda in that it is predicated on political results. As Schulze-Wechsungen noted, “It is clear that even the best propaganda cannot conceal constant political failures.” Then there was the acknowledged tedium of much of the propaganda. Nazi Germany had inherited (perhaps) the most creative film industry in the world, and yet American journalist and wartime correspondent William Shirer, for example, remembered the hissing of German films. Eric Rentschler, an authority on Nazi cinema, asked, “But how was one to explain repeated instances of derisive laughter at melodramas and films that hardly set out to be funny?”; in Rentschler’s view, out of sync laughter is a potential terrorist in the dark, someone who refuses to let the film cast its spell.

Morale ultimately deteriorated when victories did not materialize into victory. Another criticism, well-articulated by Harold Nicolson MP, was that German propaganda brought short-term impact at the cost of long-term credibility:

“The German propaganda method is based upon seizing immediate advantages with complete disregard of the truth or of their credit. Our method is the slower and more long-term method of establishing confidence. For the moment, the Goebbels method is the more successful. In the end ours will prove decisive.”

Many were still with Hitler right until the end of the war (Germany had to be re-conquered, sometimes street by street), and even beyond the end—there were those guiltless of many war crimes who chose to follow him into the oblivion of suicide. All of this is merely to demonstrate that Nazi propaganda was not invincible and that the Reich could miscalculate because the ideology was, in the end, monstrous. As to whether all this persuasion was causal or merely decorative, I have advocated a perspective: Events are seldom inherently deterministic and they have to be “sold,” their meanings made vivid, via all the gathered powers of eloquence or pictography—whether by Marat in the French Revolution, Lenin in the Russian, or Churchill in 1940.

Hitler understood, as few others had ever done, the need for the serial creation of enemies. He was a political entrepreneur possessed of the truly devastating insight that all recent enemies could eventually merge into the one super-enemy, the Jews. Here was an intuitive understanding of how self-definition is achieved through other-rejection, that solidarity, identity, and community are in essence gained at the expense of others and appeals based on the brotherhood of man (as, in a sense, even Communism did) would always ultimately fail. His construction of tribal passion could arouse the emotions and therefore render people vulnerable to any kind of visionary persuasion or invocation to epic quest.

Nazism did not ask for belief but for surrender—not through coercion, primarily, but by assaulting consciousness. The essential aim was the extinction of independent thought via images that would now think for you.

Yet the seeming ease with which Germans “went along” with, or ostensibly ignored, the true frauds continues to astonish.

http://www.slate.com/articles/news_and_politics/fascism/2017/03/how_nazi_propaganda_encouraged_the_masses_to_co_produce_a_false_reality.html