August 2017

  • August 2017 Looking for the Minsky Moment

    Looking for the Minsky Moment


    The stock market has been hitting new all-time highs and it’s certainly a fair question to ask how far it can go.  I am reminded of an old saying, “Bull markets don’t die of old age.”  Well, if that’s true, then what do they die of?


    Great News!  Federal Reserve Chair Janet Yellen says there are no bubbles forming anywhere.  She said recently, “Would I say there will never, ever be another financial crisis?  You know probably that would be going too far, but I do think we’re much safer and I hope that it will not be in our lifetime and I don’t believe it will be.”  Well, how cool is that?  That’s a bit of a stretch though.  I have a feeling that I will be able to use that quote a lot in future newsletters when it comes back to haunt her.


    But the relief is understandable because Fed Chairmen know what they’re talking about when it comes to bubbles, recessions, and bear markets.  Well, there was that little hiccup in 1999 when then Fed Chairman Alan Greenspan said, “Nah” to the question of whether we were in a stock market bubble.  And a housing bubble in 2004?  “Nah.”  And then there was that little 2007 matter with Ben Bernanke about a Sub-prime mortgage bubble?  “Nope, it’s contained.”  Oh well.  Maybe this time is different.


    I have always been a student of economic history.  Most people who have known me for a while know I consider myself more of a macro economist and one who uses demographics to understand the big picture and long term trends.  One of my favorite economists is a guy named Hyman Minsky, an American economist who died in 1996.  His research attempted to provide an understanding and explanation of the characteristics of financial crises.


    Isn’t that a great name for an economist?  It just sounds like one.  Okay, I know it’s kind of weird to have a favorite economist.  I was telling my granddaughter (who always knows how to bring me back to reality) about this recently and she said, “You know, only a total geek would have a favorite economist.”  Okay, guilty as charged.  I can’t help it.


    By the way, if you want to have a little fun - next time you’re at a party or social event, standing around making small-talk about football or basketball, try saying with a straight face, “So, who’s your favorite economist?”  Then watch them all move away.  Of course, if someone answers “Hyman Minsky” you should turn around and run.


    One of the things Minsky was known for was his studies on debt.  Not all debt is bad.  There is productive debt, such as debt that produces something or creates something of value.  Infrastructure improvement, public works, roads, bridges, etc. come to mind.  In the private sector it might be plant and equipment and things that help produce something.  Then there is unproductive debt, such as debt to generate consumer spending or temporary demand.  In the end, the money is spent and there is not much to show for it.  Finally, there is counterproductive debt, such as debt to pay other debt.  The problem we have today, both in the public and private sector, is we have too much unproductive and counterproductive debt instead of the productive kind.


    Anyway, Minsky was also known for his theory that stability breeds instability.  In other words, the longer things are good and going well, the more comfortable and complacent people become.  The more comfortable and the more they believe things are good, the more they are likely to spend and invest and eventually even take risk.  Sound familiar?  Things get better and better and the risks get higher until eventually it is no longer sustainable.  2007 was a good example.  The collapse of housing in just 4 states was the trigger that led to a global financial crisis.


    This is the classic definition of the business cycle and why things go from highs to lows and back over a period of time.  Think of it like slowly pouring sand onto a pile.  It gets higher and higher until finally one grain of sand triggers instability and the pile collapses.  In economic terms, that has become known as the Minsky moment.


    I tell you all this because I think we are building a number of potential Minsky moments and risks.  I don’t know when this bull market will top.  No one knows that.  However, I do know that no market goes up forever.  You can’t make decisions based upon the news, because the news is always good at the top, just as the news is always terrible at the bottom.  They don’t ring a bell when the market tops.


    While the economy seems to be improving and the market is hitting new highs, there are a number of underlying warning signs.  Many are minor, but collectively they have the potential for damage.  At some point we are going to find that Minsky moment.  Probably not now, but it is something to think about.  Thanks for reading.


    Nick Massey is President of Massey Financial Services in Edmond, OK.  Nick can be reached at  Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment advisor.

  • July 2017 The Death of Email is Greatly Exaggeraged

    The Death of Email is Greatly Exaggerated


    I keep hearing that email is dead, or at least dying.  As a heavy user of that form of communication, that was pretty upsetting.  Why and when did that happen?  Say it ain’t so.


    What do I do now and how am I going to reach you?  How do we communicate with each other?  And if that is true, what comes next?  To paraphrase Mark Twain, “Rumors of the death of email is greatly exaggerated.”  However, this form of communication is certainly morphing along with the rest of our crazy world.


    We were one of the early adopters of email for communicating with our clients and followers.  But it wasn’t always easy.  About 12 years ago, perhaps only about 25 percent of our clients had an email address.  Today it is probably closer to 95 percent.  Twelve years ago those people with an email address also checked it regularly.  Now almost everyone has one, but they check it far less frequently.  A lot of that has to do with the volume of email we all get and the amount of junk that comes with it.


    Remember the good old days of “snail” mail?  How about actually hand-writing your letters?  Today, on the brink of turning 70, I look back on those days with great fondness.   It was always a thrill for me to collect letters from the mailbox and see who had written.


    During my years in the Army, long distance phone calls were very expensive, especially from a foreign country, and they were reserved for emergencies or special occasions.  Instead we wrote letters.   I would write letters to my mother, and later my wife, especially when I was overseas.  Yes, I wrote my mother regularly and looked forward to her writing back.  (Can we hear a collective awwwww?)


    Then snail mail died, or at least the letter-writing that connected us.  Email, at first, provided a similar intoxicating thrill.  Remember that first “You’ve Got Mail” that would pop up on the computer?  How about that initial “Send” sensation?  Soon, the rage was sending jokes and funny stories to our friends and family.


    And then came spam.  (Did we even know what spam was 15 years ago?  I thought it was a terrible meat in a can.)  We now have filters to weed out the worst of it.  But it goes well beyond unwanted junk from strangers trying to sell us anything you can imagine.  Sometimes I miss my friend the Nigerian prince who was willing to share millions with me for helping him get a fortune out of the country in exchange for my bank account number.  And let’s not forget the lonely Russian girl who wanted to be my friend.  Ah, the good ole’ days.


    But now it’s not just the crazy stuff.  It’s the volume.  We get dozens or hundreds of emails every day, and we simply can’t keep up.  If I don’t go through my emails for a few days, I find several hundred that accumulated in the inbox.  I know that most of it is junk, but unfortunately I have to go through much of it to see what is and isn’t.  I’m always afraid I will miss something important.


    Of course I realize that we add to those numbers, but we try to only send you something important or informative, and we will never send you any “special offers.”  In an effort to break through the clutter, we try to be specific in the subject line indicating what it is about.  I hope that at least helps.


    Like snail mail, email is functionally dead.  It just doesn’t know it yet.  Landline telephones at home, meanwhile, have been dead for years.  (My grandchildren don’t even know how to talk on a phone anymore.)  Do you answer the home phone if you don’t recognize the number?  The only ones who call me on it are the telemarketers.


    It seems that social media is how we connect these days.  It’s a more targeted way of communicating and developing community.  And it allows you to manage how engaged you want to be.  We don’t have a company Facebook page because the regulatory issues in my industry make it pretty complicated and probably not that effective.  We do have a website as a way to learn more about us.  Check it out sometime.


    What comes next in the evolution of written communication?  Beats me, but we’ll just have to adapt as best we can.  My question to you is, “What’s the best way to reach you?”  We send out our newsletters via email and it seems that about half of the recipients actually open them.  While this is better than average in our industry, we want to do better.  And of course, many of you read it in “Edmond Life and Leisure.”


    In the meantime, I’ll keep writing and trying to send things that are informative, useful or entertaining.  Hopefully some of them are all three.  We won’t send you any junk to waste your time, and certainly no special offers for the investment of a lifetime in some far off country if you’ll just share your credit card number.  I wonder what ever happened to my Nigerian prince.  Thanks for reading.


    Nick Massey is President of Massey Financial Services in Edmond, OK.  Nick can be reached at  Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment advisor.


  • May 2017 Snap Away On Wall Street

    Snap Away On Wall Street


    I recently became aware of a product called Snapchat.  Since I’m not normally tuned into this kind of thing and am a complete novice in this area, I heard about it from my granddaughter.  She says I need to learn how to use it so I can instantly share pictures and videos with her and all my friends.  But I do that already (although not instantly but via text message), so I haven’t quite figured out why I need to do this.  Maybe someday, but that’s a subject for another day.


    What I also became aware of is the company that owns and developed Snapchat, Snap Inc., which became a publicly traded stock in February under ticker symbol SNAP.  Please note that I have absolutely no idea whether it is a good stock investment or not, and this is NOT a suggestion as to whether you should own it or not.  But there is an interesting back story here about the structure of the company and the publicly traded stock.


    After a little research, I learned some interesting things about the company.  I discovered that Snap Inc. is a camera company. The Company's flagship product, Snapchat, is a camera application that helps people to communicate through short videos and images known as a Snap. The Company offers three ways for people to make Snaps: the Snapchat application, Publishers Tools that help its partners to create Publisher Stories, and Spectacles, its sunglasses that make Snaps.  (I have no idea what I just said.)  Snaps are viewed primarily through the Snapchat application, but can also be embedded on the Web or on television in certain circumstances. According to their website, as of December 31, 2016, on average, 158 million people used Snapchat every day to Snap with family, watch Stories from friends, see events from around the world, and explore curated content from publishers.  That sounds like a lot of people and pictures to me.


    I may not know much about how to use Snapchat, but one thing I do know is that Wall Street has no shortage of ways to hose the gullible and uninformed.  Snap Inc. went public and sold stock to “investors” who were content, apparently, to be in possession of equity that didn’t have voting rights.  That’s right, Snap’s stock doesn’t vote.  Did you know that?  I didn’t.  In a sense, this isn’t new. This tactic has been successfully used by media companies in the past; like Twenty-First Century Fox and Viacom.


    But the latest goofy structure with no voting rights doesn’t come from old-geezer media CEOs, but from millennial tech CEOs.  Alphabet (known by most as Google) has split its stock into voting and non-voting share classes, and Mark Zuckerberg owns super-voting shares of Facebook.  They are basically insulated from outsiders telling them what to do.


    Snap just issued stock that doesn’t vote. There is one vote and it belongs to CEO Evan Spiegel.

    Evan Spiegel happens to be 26 years old, and he happens to be engaged to Victoria’s Secret model Miranda Kerr.  Knowing myself at age 26, and knowing what I might have been like had I been engaged to Miranda Kerr, you can forgive me if I am guessing that Spiegel might be a bit distracted.


    The key question is, “If you own stock that doesn’t vote, do you really own stock?”  Pretend you own 10 percent of a company, but you have no say in how it is run.  Do you really own part of it?  Is it equity in the company or did you just make a loan?  Interestingly enough, some of the large institutional investors are lobbying hard to keep Snap out of indexes like the S&P 500 because the stock has no voting rights.


    In the case of Snap, you have a company that might need a little adult supervision; but the CEO, Evan Spiegel, is accountable to no one. There are “stakeholders” and some of them like NBC Universal bought $500 million worth.  I would imagine that Spiegel would be wise to listen to them, but if he doesn’t want to, he doesn’t have to.  This sounds like a pretty sweet deal for Mr. Spiegel, but what about you?


    I don’t think it’s a coincidence that everyone is crazy for non-voting stock with the S&P 500 near all-time highs.  My guess is that if you tried to create non-voting stock when the S&P was at 666 (almost eight years ago), you would have been laughed out of the room.  I guess its’s a sign of the times.


    Okay, maybe I’m just a little jealous of a handsome, successful kid and his model girlfriend.  Actually, I wish the guy all the success in the world.  I have my doubts about the investment merits, but my real beef here is about the voting rights.  It takes a certain amount of arrogance to deny stockholders a say in the direction of the company.  That’s what happens when you go public.  You have to give up some control in exchange for being able to raise more capital and get liquidity for your investment.  Spiegel didn’t have to do that, so good for him - I guess.  As that old P.T. Barnum quote says, “There is a sucker born every minute.”  Thanks for reading.


    Nick Massey is President of Massey Financial Services in Edmond, OK.  Nick can be reached at  Investment advice offered through Householder Group Estate and Retirement Specialists, a registered investment advisor.