The wealth-building thread

[MRC01]

I'm as cynical as anyone. All data is subject to all sorts of bias, political or otherwise, that doesn't meal all data is corrupted. I think that the data on wages and GDP over time is pretty clean.

I agree some data sets are clean enough, but even clean data is incomplete which can create a misleading picture.

One example of drawing incorrect conclusions from clean data, relates to common misunderstandings of variance and how cohorts are formed, best explained by Phil Birnbaum: http://blog.philbirnbaum.com/2014/09/income-inequality-and-fed-report.html

Another example is Picketty's famous book from a few years ago. He made some conclusions from data, and while the data he used was clean as far as it went, he failed to consider the complete picture which undermined his conclusions.

Another example is studies on minimum wage. UW and Berkeley both studied the impact of Seattle's minimum wage, and drew opposite conclusions by applying different methods and assumptions to the same data. In fact, the city of Seattle first asked UW to do the study and when they didn't like its conclusions, they asked Berkeley to publish another.

My point, that even clean data can be misleading and analysis complex and subjective, is nothing new. Bastiat phrased it as considering both what is seen, and what is unseen. Hayek in The Fatal Conceit said, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." All this doesn't mean we can't get the answers, but it means it's not as simple as posting data and discussion here in this forum. Which is why I said what I did back in post #402.

 

[Jim Matthews]

The belief that economic data is not subject to political bias, is either naive or quasi-religious.

That's a logical fallacy, "No true Scotsman".

You got nothing, and you're out of your depth

I agree some data sets are clean enough, but even clean data is incomplete which can create a misleading picture.

This is a Gish Gallop - rather than support your original assertion, you attempt to wave away the objections. FYI - using anecdotes, claims without citations and appeals to authority aren't displays of expertise.

"#402 : Pursuing this would derail this thread and lead to a contentious political discussion. No thanks! "

(Which lead to this overtly political gem)

"#410 : ROFLMAO. Nice joke! If you torture the data, it will always confess. It's politics disguised as data."

This is a Science based forum. Make your case, support it against objections and test the conclusions.

For 1.5 million working adults, saving any amount of money (even with multiple roomates) is not possible. What might not be obvious to those no longer earning the minimum wage is the downward slide in purchasing power against rising rents.

https://www.bls.gov/opub/reports/minimum-wage/2020/home.htm


.275 cumulative inflation since 2009.
https://www.usinflationcalculator.com/

Median rent for a single bedroom apartment is $997.
At $7.25 per hour, pre-tax, that's 137 hours on the clock.

https://worldpopulationreview.com/state-rankings/average-rent-by-state

Pesky Math

 

[RayDunzl]

I'm starting to wonder if you really understand "price action" and its use.

Well...

I seem to understand something about how price wobbles around.

I already know I'm not lucky, nor terribly smart, and far from perfect.


Spending money account - $24200 principal, margin for one contract is $9,000 today - results for August and so far into September

Six weeks, 30 trading days, 25 trades.

I might graduate to trading two contracts one of these days to double the results.

 

[MRC01]

...
I might graduate to trading two contracts one of these days to double the results.

As you likely know, options trading has a reputation for high risk, and it can be that. But options can also be used to reduce risk compared to trading stocks outright. They're a flexible tool with many uses.

PS: regarding investing: we've talked about mutual funds designed for different investment goals. For any given mutual fund, you can usually find an ETF that matches those goals. Even though they have the same investment goals, the ETF may be better than the mutual fund in some ways. One of those difference is options: you can't trade options on mutual funds, but you can on many ETFs. For example if you want to get into an ETF, instead of buying it outright, you can sell puts on it at a strike price and date range that suits your goals.

 

[TLEDDY]

Well...

I seem to understand something about how price wobbles around.

I “think” I understand what you’re doing: the bet is that the market will exceed the strike price of your option. The good thing about the wager is the loss risk is the amount paid for the option, basically a stop-loss, no matter how far the market drops.

I am uncertain about the cost of a contract - Is it $9,000 ?

what do you think of selling covered options?

 

[RayDunzl]

what do you think of selling covered options?

Too complicated for my feeble mind.

I suppose they are generally related to a stock, and I don't like stocks.

I did it a couple of times, some worked out, the others didn't.

All I want is to trade is something that moves every day, in at least a somewhat predictable manner, and has the volume to execute my order when it hits. Indexes tend to do that, and not be too too volatile.

I am uncertain about the cost of a contract - Is it $9,000 ?

https://www.investopedia.com/terms/i/initialmargin.asp#:~:text=For futures contracts, exchanges set,5% of the contract value.

The margin is your guarantee that you can pay if you lose on the trade. Actually, I think money is moved around between the winners and losers every day at 4:15pm (for YM), so nobody gets screwed by another's non-payment.

Leverage:

Imagine a stock selling for $34,679 - current Dow Futures price. The $5 contract (mini) pays or takes $5 per dollar change of the Index. To get the same rate of change, were it a stock, you would need to own five shares, valued at $173,395

You contract to obtain the same rate of loss or return with (currently) a minimum $9000 balance in your account. A leverage of 19.26x

Want to make/lose faster? Buy/Sell 2 or 3 or 10 or more contracts.

In and Out costs $5.50 in fees and commissions for me per contract. Not the cheapest around.

Long or Short don't care no difference. Buy then sell or sell then buy.

Another little bonus:
In the United States, futures contracts are subject to the 60/40 rule. This advantageous tax treatment also applies to day trades and is broken down into two parts: 60% profits – taxed as long-term capital gains. 40% profits – taxed as short-term capital gains.

And, there's no "settlement" period like with stocks. I can transfer the gains from a winner into the Bank all but immediately, takes a few minutes (5 or so) to clear during the day. When the Bank closes transfers delay overnight.

There are many many kinds of Futures to trade - Oil Lumber Soybeans Corn Heating Oil and on and on - should you feel the need or opportunity.

There's even Bitcoin futures now, but as I look the margin requirement is $129,657, so forget that.

 

[Pdxwayne]

Too complicated for my feeble mind.

I suppose they are generally related to a stock, and I don't like stocks.

I did it a couple of times, some worked out, the others didn't.

All I want is to trade is something that moves every day, in at least a somewhat predictable manner, and has the volume to execute my order when it hits. Indexes tend to do that, and not be too too volatile.





https://www.investopedia.com/terms/i/initialmargin.asp#:~:text=For futures contracts, exchanges set,5% of the contract value.

The margin is your guarantee that you can pay if you lose on the trade. Actually, I think money is moved around between the winners and losers every day at 4:15pm (for YM), so nobody gets screwed by another's non-payment.

Leverage:

Imagine a stock selling for $34,679 - current Dow Futures price. The $5 contract (mini) pays or takes $5 per dollar change of the Index. To get the same rate of change, were it a stock, you would need to own five shares, valued at $173,395

You contract to obtain the same rate of loss or return with (currently) a minimum $9000 balance in your account. A leverage of 19.26x

Want to make/lose faster? Buy/Sell 2 or 3 or 10 or more contracts.

In and Out costs $5.50 in fees and commissions for me per contract. Not the cheapest around.

Long or Short don't care no difference. Buy then sell or sell then buy.

Another little bonus:
In the United States, futures contracts are subject to the 60/40 rule. This advantageous tax treatment also applies to day trades and is broken down into two parts: 60% profits – taxed as long-term capital gains. 40% profits – taxed as short-term capital gains.

Nice, if you can do this consistently over long term with play money, why not.

I may look into this after I retire. Hopefully I won't end up like my uncle who loss all his retirement funds due to options.....

 

[MRC01]

Too complicated for my feeble mind.
I suppose they are generally related to a stock, and I don't like stocks. ...

Covered calls are as simple as the contracts you are already trading. They are related not only to stocks, but also to ETFs and other commodities.
A call is the right to buy X at a fixed strike price on (or before) a certain date.
If you buy the call, you have the option to buy X at the strike price (regardless of its market price). You decide whether to exercise it.
If you sell the call, you agree to sell X to the buyer at the strike price, on or before the expiration date, if the seller decides to exercise.

So if you already own X, selling calls on X generates immediate income with little risk because (A) you already own X (thus a covered call; if you don't already own X it's a naked call which is higher risk), and (B) you decided what strike price and date you are comfortable with. Generally speaking, as a seller you pick a strike price higher than current market price and your risk is upside beyond the strike price.

Computing the value of options (what the premium should be for a given contract) is complex, involving several factors. Black & Scholes devised a model for this, and I believe won a Nobel prize for it. So options traders typically compare the market premiums with the Black & Schole model to decide whether a particular options contract is "a good deal". Sellers want to see premiums above the index, buyers below.

 

[ahofer]

your risk is upside beyond the strike price

This is still a risk worth emphasizing when you think about how portfolio gains arrive over time. Your investments on which you've sold covered calls will be called away when they go on a tear (as one's winners generally do...). You can leave a fair amount of portfolio gains on the table that way, so it's good to set a strike price that you believe is a fair-to-generous price for the business, not just above today's trading price. Generally speaking, value investors are more comfortable doing that than growth or momentum-oriented investors.

 

[Pdxwayne]

That's a logical fallacy, "No true Scotsman".

You got nothing, and you're out of your depth

This is a Gish Gallop - rather than support your original assertion, you attempt to wave away the objections. FYI - using anecdotes, claims without citations and appeals to authority aren't displays of expertise.

"#402 : Pursuing this would derail this thread and lead to a contentious political discussion. No thanks! "

(Which lead to this overtly political gem)

"#410 : ROFLMAO. Nice joke! If you torture the data, it will always confess. It's politics disguised as data."

This is a Science based forum. Make your case, support it against objections and test the conclusions.

For 1.5 million working adults, saving any amount of money (even with multiple roomates) is not possible. What might not be obvious to those no longer earning the minimum wage is the downward slide in purchasing power against rising rents.

https://www.bls.gov/opub/reports/minimum-wage/2020/home.htm


.275 cumulative inflation since 2009.
https://www.usinflationcalculator.com/

Median rent for a single bedroom apartment is $997.
At $7.25 per hour, pre-tax, that's 137 hours on the clock.

https://worldpopulationreview.com/state-rankings/average-rent-by-state

Pesky Math

Why would you use median rent to assess affordablility of housing for those who earn minimal wage?

You do know what median means, right?

 

[Jdunk54nl]

Sorry to hear that. I had a ruptured L5/S1 disc that led to a diskectomy and replacement. Doing much better now, so it's curable.

I am two months out of my disectomy (no replacement) after a 13.2mm (HUGE) herniation in l4/l5. Now just dealing with my left leg sciatic nerve firing properly again and causing my muscles to knot up after not working properly for about a year. (Originally herniated the disc in 2012 but became an issue again last August)

Now I need to go back and unsubscribe from updates on this thread. Was too much of a time suck for me.

 

[MRC01]

This is still a risk worth emphasizing when you think about how portfolio gains arrive over time. ...

Yep. And that risk depends on volatility: bigger if X is an individual stock, compared to an ETF that is an index or blend of stocks.

 

[Jim Matthews]

Why would you use median rent to assess affordablility of housing for those who earn minimal wage?

You do know what median means, right?

In any distribution, the mean describes the center of the data plot.

In the distribution of plotted in the graph linked above, the median already skews lower than the average in any Major metropolitan center.

https://livingwage.mit.edu/metros/14460

While there may well be lower prices for rent (tabulation would be granular below the scope of illustration) the point remains the same, at the current (Federal) minimum wage saving 30% for retirement isn't possible.

Certainly you don't contest that real buying power has decreased while rent, food costs and commodities have risen?

https://worldpopulationreview.com/state-rankings/average-rent-by-state

 

[Pdxwayne]

In any distribution, the mean describes the center of the data plot.

In the distribution of plotted in the graph linked above, the median already skews lower than the average in any Major metropolitan center.

https://livingwage.mit.edu/metros/14460

While there may well be lower prices for rent (tabulation would be granular below the scope of illustration) the point remains the same, at the current (Federal) minimum wage saving 30% for retirement isn't possible.

Certainly you don't contest that real buying power has decreased while rent, food costs and commodities have risen?

https://worldpopulationreview.com/state-rankings/average-rent-by-state

Inflation.....

Unlikely to stop any time soon.

But it is nothing new.

I think many of us here worked minimum wages before. How do we eventually ended up with some retirement money?

 

[Jim Matthews]

Inflation.....

Unlikely to stop any time soon.

But it is nothing new.

I think many of us here worked minimum wages before. How do we eventually ended up with some retirement money?

Wow. I'm going out on a limb here - your first car had "three on the tree"?

My bad - I thought you were serious. I won't make that mistake, again.

 

[Pdxwayne]

Wow. I'm going out on a limb here - your first car had "three on the tree"?

My bad - I thought you were serious. I won't make that mistake, again.

No. My first was a well used beater. Often had problems starting. Can't even afford one without help of my wife. Can barely afford rent and food then.


How about you?

Instead of keep arguing about why someone "can't", how about thinking about how anyone "can"? This is the original purpose of this thread anyway.

 

[MRC01]

...
Instead of keep arguing about why someone "can't", how about thinking about how anyone "can"? This is the original purpose of this thread anyway.

Yep. One of the mistakes Piketty made, and is also being made here, is ignoring transfer payments. Lots of different kinds of people making minimum wage. Many are teenagers with part-time jobs, only a fraction are heads of households. The concept of "living wage" doesn't apply to the first group, but it does apply to the second. And those who are in that second group have numerous benefits or transfer payments. FHA helps them pay rent, food stamps (now called SNAP) helps them with grocery bills, when they file income tax they get "refundable credits" meaning their income tax is negative (they get a check from the feds), programs to help pay for their utilities, phone, internet, etc.

Also, as you mentioned, the median rent doesn't represent the housing these folks are buying. An accurate analysis would have to include the distribution of rents to see the prices and inventory at the cheap end of the spectrum. And as some of us know, having been in this situation before, there are often housing approaches that may not appear in those distributions of "normal" apartments / condos / etc. Like sharing a motor home, retired folks renting a room in their house, etc.

So if one is to do the math, all this this must be included else it creates a misleading picture.

 

[Chromatischism]

Yep. One of the mistakes Piketty made, and is also being made here, is ignoring transfer payments. Lots of different kinds of people making minimum wage. Many are teenagers with part-time jobs, only a fraction are heads of households. The concept of "living wage" doesn't apply to the first group, but it does apply to the second.

It does. It is the modern neoliberal reimagining of the minimum wage that you are describing, not minimum wage as it was conceived.

FHA helps them pay rent, food stamps (now called SNAP) helps them with grocery bills, when they file income tax they get "refundable credits" meaning their income tax is negative (they get a check from the feds), programs to help pay for their utilities, phone, internet, etc.

Industry has become increasingly reliant over the years on the government to make up for their low wages. Guess who benefits from this arrangement.

 

[blueone]

It does. It is the modern neoliberal reimagining of the minimum wage that you are describing, not minimum wage as it was conceived.

View attachment 153706


Industry has become increasingly reliant over the years on the government to make up for their low wages. Guess who benefits from this arrangement.

Minimum wage hasn't lived up to decent living wages in my lifetime, and my first job when I was a teenager was in 1972, and the minimum wage was $1.60/hour. We've had inflation, but even in 1972 the minimum wage was not one for independent living. Not even a bare subsistence level. That quote may have been FDR's objective, but it hasn't been the nation's objective. And still isn't, which I have to say I'm glad about, because otherwise teenagers would seldom or ever get jobs. IMO, getting a job as a teen is just as important a development experience as going to high school.

The current labor market is making the minimum wage a bit irrelevant, because it's become very difficult to fill minimum wage jobs even in areas with a relatively low cost of living. I've noticed here that 7-Elevens are offering $13/hour, and even then can't compete with Walmart and the supermarket chains. The biggest signs at convenience stores used to be advertising cigarettes and beer, now they're help wanted signs.

As for who benefits from the government programs that make up the slack... pretty much all of us, it looks like to me. Since the federal government runs a massive deficit we are essentially paying for these programs with debt rather than taxes, which lowers prices. The recipients of the programs don't pay income tax or social security taxes on the value provided, as they might if they're wages were increased to make up the difference. The businesses who hire the employees at what is really a subsidized lower wage obviously benefit, but most will pass some part of that savings onto buyers by lower pricing due to competition, so we all probably benefit from lower prices.

 

[TLEDDY]

One thing not mentioned in this thread is the "forced" savings of Social Security and Medicare; the total right now is 15.3% of wages. Half is paid by the employee and half by the employer.

This year, the minimum SS payment at full retirement is $886 per month. The deduction for the Medicare premium is about $145 per month.

I may be wrong about this, but if the employer elects to pay the employee's share of the deductions, it is not taxable to the employee as income. Tax wizards, please check me on this.