Topley’s Top Ten – September 30, 2019

Author

Matt Topley
September 30, 2019

1.IPO’s 2019-114 U.S. IPO Pricings-63 Positive Returns.

Follow up to my IPO comments from last week

Barrons

Amidthe headlines about IPO disappointments, there is a broader takeaway: Investorshave become more discriminating, and that’s good for everyone. “Everything haschanged, and nothing has changed,” says Lise Buyer, founder of Class V Group,an IPO consulting firm. “Lately, there’s been lots of noise and fireworks, andhullabaloo about direct listings. But the No. 1 thing is that fundamentals havenot changed. Institutional investors are pretty darned smart when looking atIPOs, regardless of structure and buzz. Investors will analyze the company, theprospects for the future, and the price at which they’re being offered thechance to invest. That has not changed as long as I’ve been in the business.”

IPO trackerIPOScoop.com counts 114 U.S.IPO pricings in 2019—63 have had positive returns.

IPOs Have Been Crushed in 2019. WhyThat’s Actually Good News for Stocks.

2.JUUL Not Long Ago Bright Future.

How JUUL’s Situation Changed Quickly

3.Farm Exports Dip and Bankruptcies Move Higher.

4.Agriculture ETF -65% from Highs.

DBA Agriculture ETF

Drop from all-time highs…

5.U.S. Consumers Still Cautious and Saving.

 Americans’ incomes climbed 0.4% in August, in line with economists’ expectations.

However,consumer spending was disappointing. Given the robust retail sales data lastmonth, economists expected a larger increase in consumption. This reportsuggests that US consumers have become more cautious.

 TheDaily Shot

6.PersonalSavings Rate Hit All-Time Lows Before the Great Recession 2.5%…..7.5% Last.

7.Marijuana and Taxes.

8.Warren Picks Up 10 Points in One Week on Odds to Win Nomination.

From Barry Ritholtz Blog

Warren’s stock continues to rise — odds to winnomination up 10 points over the last week to 47%.Source: @BespokeInvest

9.Opinion: These 7 Social Security myths just aren’t true, no matter how often you hear them-MARKETWATCH

 Believing these myths can be dangerous to yourfinancial well being — and even your ability to afford your retirement

Courtesy Everett Collection Don’t worry — you’ll get your money.

ByDEVINCARROLL

With a system ascomplex as Social Security, it’s inevitable that misinformation (or simply amisunderstanding of the facts) will spread. It’s hard to understand what’s trueand what’s not, and often, our brains prefer the version of events that feelintuitively more simple to understand.

And of course, SocialSecurity is anything but simple to understand.

People tend to repeatsome of these not-quite-true tidbits and downright falsehoods so often thatthey’ve reached mythical status and are often accepted without question.

In fact, that’s exactlyhow these myths seem so plausible and continue to live on. It’s called theillusory truth effect: people are more likely to believe something is trueafter hearing it said over and over again.

Separating fact fromfiction is critical. Believing these myths can prove dangerous to yourfinancial well being — and even your ability to afford your retirement — becausethey can screw up the way you plan and prepare for the future.

But it’s time that wecleared these muddy waters. Today, I want to break down seven Social Securitymyths that you might hear and believe but that just aren’t true… no matter howmany times you’ve heard them repeated before.

Myth No. 1: Illegalimmigrants collect Social Security

My YouTubechannel is absolutely inundated with these kinds ofcomments. The belief that illegal immigrants can come to the United States andimmediately receive Social Security benefits is simply not true.

What is true is thatcitizenship is not required. However, immigrants must be lawfully present andmust pay into the system for at least 10 years.

In short, they have tofollow the same eligibility rules as everyone else.

The CongressionalResearch Service makes the rules around Social Security benefits fornon-citizens very clear when they say “If an individual never obtains workauthorization, none of his or her Social Security covered earnings count towardqualifying for benefits.”

We can’t get much moreclear than that, which makes this myth an easy one to bust. Illegal immigrantsare not collecting nor can they collect Social Security benefits.

Myth No. 2: Thegovernment raided the trust fund

Some people believe theSocial Security system wouldn’t be facing insolvency today if the governmentkept their gosh-darned theivin’ hands out of it.

Here’s the truth: Therehas never been any change in the way Social Security payroll taxes are used bythe federal government.

The Social Securitytrust fund has never been “put into the general fund of the government.” It isa separate account, and always has been.

We can find the originsof this myth in the change that happened back in 1969. At that time, thegovernment began listing the trust fund’s transactions in a single budget alongwith all the other functions of the federal government.

The transactions wereshown alongside other functions, but the trust fund remained a separateaccount. In 1990, the government began listing the activities of the trust fundseparately.

None of these movementshad anything to do with the actual operations of the trust fund; it was purelya change of accounting practices.

The government did notraid Social Security’s trust fund. But you might still believe the myth that itdid if you don’t understand where the money went — because it is true that thesystem faces insolvency today.

Why isn’t there a trustfund sitting around with trillions of dollars from all the money we workingtaxpayers put into the system? Because the Treasury uses those dollars.

Before you say, “aha!This proves the point; the government did steal the money!” …not so fast. Thegovernment always uses incoming revenue to meet its current obligations beforeit borrows money. This includes funds coming in and earmarked for the SocialSecurity trust fund.

For every dollar thatcomes in from Social Security taxes, a special-issue Treasury bond takes itsplace. These bonds earn interest — which is a good thing.

In fact, since thesebonds were first introduced to the trust fund, they generated $1.9 trillion ininterest. For reference, the total trust fund balance is only $2.9 trillion.

Had all those dollarsbeen left in cash, the trust fund would be worth about two-thirds less andwould have run dry much earlier than currently projected.

The bottom line is thatthere’s no difference between the way the federal government runs the trustfund and the way your bank handles your cash accounts.

When your paycheck isdeposited, that bank uses that money and makes an accounting entry. When youneed your money, the bank pulls it from the institution’s account and notes adebit to your account. But no one gets hooked on conspiracy theories aboutbanks misusing funds.

No one should get tooworked up about the federal government using a nearly identical process,either.

Myth No. 3: SocialSecurity is going bankrupt

Many politiciansleverage this myth to manipulate people into voting a certain way. In everycampaign, someone always talks about how bad Social Security is — and howthey’re the only candidate who can and will fix it and make everything okayagain.

To compound that, thenews channels figured out this is a headline that will get people to click, sothey use it often. The result is you hear this myth perhaps more than anyother… but it’s not quite true.

Here’s what’s reallygoing on.

Social Security benefitsare considered a “pay as you go” system. This means that the money that comesin from taxes today goes out to pay retirees today. For example, the taxes thatI pay in right now also go out right now — and they pay for my dad’s benefits.

For many years, morepeople paid in taxes than the system needed to pay out at the same time. Moremoney came in than went out, and the excess started to accumulate in the trustfund that we hear so much about.

But now, the worker toretiree ratio has started to shift. By 2020, we’ll reach a point where there isnot enough money coming into the system to pay out to people claiming benefits.To make up this shortfall, the Social Security Administration will beginpulling money from the trust fund.

The issue here is thatthe current trust fund balance will only last until 2035. Once it’s dry,benefits can only be paid from Social Security taxes. The projections show thatwill only generate 76% of what’s needed to pay all benefits.

While not great news,this is not bankruptcy.

If your boss told youtoday that you were only to get paid 76% of your normal salary, would you bebankrupt? No. You’d be mad, to say the least, but you would not start receiving$0 and file for bankruptcy. Pay cuts happen, and when they do, we must adjustto our new level of earnings.

Social Security willhave to do the same. The most likely adjustments will come in the form of areduction in benefits or an increase in taxes. But Social Security will notjust collapse and disappear.

Myth No. 4: Members ofCongress don’t pay into the Social Security system

Many people believethat members of Congress, being the ones who wrote (and get to revise) therules, carved out a special retirement plan just for themselves. They get tolive above Social Security, and don’t have to rely on its benefits — andtherefore, don’t care what happens to it.

This is not true.Members of Congress may not end up relying exclusively on Social Securitybenefits in their old age… but many other Americans can say the same. Either way,both you and the men and women in Congress pay into the system.

This is anothereasy-to-bust myth: Since 1984, all members of Congress are required tocontribute to Social Security just like anyone else.

Myth No. 5: You’llnever get back what you put in

This is one that I’veheard for years, but it wasn’t until recently that I decided to dive in andfigure this out once and for all.

To do this, I looked atthe dollars I would put into Social Security over my working career, versus thedollars that I would take out.

I also looked at onlythe part of Social Security taxes that I personally put into Social Security.Remember that the total FICA tax is 15.3%, but as an employee, you only payhalf of that (or 7.65%). Your employer pays the rest.

Of the money you owe,1.45% goes Medicare and 6.2% goes to Social security. It’s that 6.2% that Icounted.

I then looked at anindividual who started working in 1972 and retired in 2019. That’s a long timeto work, but I wanted to illustrate what a maximum working lifetime may looklike and thus give an opportunity for more taxes to be paid in.

Then I looked at fourdifferent income levels during that time period. To get a baseline I used theNational Average Wage Index published by the Social Security Administration.

The first income levelwas for an individual at 50% of the national average. Then I looked at 100%,and then 150%, and for a maximum amount of Social Security taxes paid in I alsolooked at an individual who would’ve earned the maximum taxable wages for everyyear he or she was working.

With these earningsnumbers, I used the calculator on the Social Security Administration website tocalculate the benefits for each of these income levels at full retirement age.Finally, I increased that amount by 2% per year to keep up with the SocialSecurity cost of living adjustment.

When you look acrossall of this data, it’s clear that each individual at their various income levelgot back the dollars they’d personally paid in — and they got that money withinjust a few years of filing for benefits.

In fact, the amount oftaxes paid in pales in comparison to the average amount of lifetime benefitspaid out! That makes this myth wildly untrue.

Not only do you getwhat you pay in to Social Security… you get that, and then some.

Myth No. 6: SocialSecurity benefits are an earned right

This would be reallynice. If it were true. Unfortunately, Social Security payments are notguaranteed, and laws can be changed at any time that impact what you’ll receivein benefits.

Some of the other mythson this list seem… well, a little ridiculous. But I don’t blame people forbuying into this one. It seems logical, for one — but what’s more deceiving isthe fact that the government has essentially encouraged the belief that SocialSecurity benefits are guaranteed.

A 1936 pamphlet fromthe Social Security Administration specifically states the following:

“The United Statesgovernment will set up an account for you … The checks will come to you as aright.”

That sounds pretty rocksolid, clear, and obvious to me. But it didn’t take long for the Supreme Courtto step in and “clarify” this language for us.

In Helvering v.Davis, the Supreme Court’s language set the tone for the future.Here’s what they stated in the written opinion on the case:

“The proceeds of bothtaxes are to be paid into the treasury like internal-revenue taxes generally,and are not earmarked in any way.”

That eliminated theidea of the separate, personal account that the Social Security pamphletoriginally implied. And then, in Flemming v. Nestor, the Supreme Court doubleddown to make it very clear what the government thought about our “right” toSocial Security benefits:

“There has been atemptation throughout the program’s history for some people to suppose thattheir FICA payroll taxes entitle them to a benefit in a legal, contractualsense. That is to say, if a person makes FICA contributions over a number ofyears, Congress cannot, according to this reasoning, change the rules in such away that deprives a contributor of a promised future benefit. Under thisreasoning, benefits under Social Security could probably only be increased,never decreased, if the Act could be amended at all. Congress clearly had no suchlimitation in mind when crafting the law.”

If there was any doubtleft about an individual’s “right” to a Social Security benefit, this courtcase should’ve banished it completely.

But just in case peopleforget that benefits can be changed or stopped altogether at any time, theSocial Security Administration puts this reminder on every statement theycreate:

“Your estimatedbenefits are based on current law. Congress has made changes to the law in thepast and can do so at any time.”

The takeaway here is that the criteria foreligibility could change with the whims of politics. (Just take a look atthe means-testing conversations that we’re starting tohear about if you need further proof of this.)

I’m not trying to bethe prophet of doom here, but I think we’ll see changes to the system — and tobenefits paid out — coming down the line soon. I also believe these changeswill hit those who have significant assets and income.

Remember, just becauseyou get a statement showing a benefit amount doesn’t mean that you’lleventually get that benefit. The government can change the rules.

Myth No. 7: Everyoneshould delay filing for Social Security benefits until age 70

This is a myth thatfinance folks like to spread based purely on the fact that for every month youdelay filing, you get a higher benefit amount — and more must be better, right?

Not necessarily, andcertainly not in every single case. You can’t apply this blanket rule to allsituations, because there are multiple scenarios where filing early makes moresense than filing later.

Frankly, if you needthe income, you need to file as soon as you’re eligible to receive it.Sometimes there is no strategy; if you are no longer working and you need theincome, go file for benefits. Simple as that.

You might also want tofile early if you’re single and have health issues. You really only have yourown income needs and life expectancy to consider in this situation, and it’sone of the few cases where using a break-even analysis makes sense.

A break-even analysiswill tell you the age you need to live to in order to receive the same amountin benefits as you would if you waited and filed later.

Another situation inwhich filing early could be the best route is in the case of a few differentspousal issues. The first is if your spouse is the higher earner and has healthconcerns which will shorten their life expectancy.

Since their earningswere higher, their Social Security benefits will likely be higher. If they passaway early, your lower benefit will drop off and you’ll begin to receive theirhigher benefit. Delaying filing for several years to increase your own benefitwon’t be worth it if you will eventually get your spouse’s higher benefit.

Another issue toconsider: if your spouse’s earnings were lower and they’re older than you. Ifyour spouse’s earnings were so low that the spousal benefit from your recordwill be the highest benefit they will receive, they cannot receive that benefituntil you file for your own benefit.

This means that byfiling early, you will receive a reduced benefit, but your spouse will becomeentitled to a benefit as well.

The reason we includethis is that once your spouse reaches his or her full retirement age, theirspousal benefit will not increase. So if they are older than you, they could bemissing months or years worth of benefits while waiting on you to file.

If you receive asurvivor’s benefit, filing early could make sense for you, too. The survivors’ benefitstill allows you to switch back and forth between benefit options. You couldfile for your survivors’ benefit at 62 (or even 60) and switch back to your ownbenefit at 70 at which point it would be at least 24% higher than your fullretirement age benefit.

Finally, if you haveminor or disabled children at home, you might want to consider filing earlybecause they may qualify for a benefit when you file. By delaying your filing,you miss out on your own reduced benefit plus the benefit payable to yourchild.

Just keep in mind thatif you file before your full retirement age, the earnings limit will apply.Once you pass your full retirement age, the earnings limit will no longerapply.

Devin Carroll runs his own firm, CarrollInvestment Management, and blogs on Social SecurityIntelligence, where this first appeared. He also has written the book “Social Security Basics: 9 Essentials That Everyone Should Know”.

10.There Are 2 Reasons Teams Disagree. This Shouldn’t Be 1 of Them

Sometimes a conflict isall about the process.

By Thomas GoetzCEO and co-founder, Iodine@tgoetz

GETTYIMAGES

Not long ago, I was presented with a routine, evenboring, workplace problem. We redesigned a part of our website andaltered some basic functionality. Some colleagues learned of the change onlywhen they went online, and were baffled by the new flow. And so began atempest: Why was this change made? Who had given the OK? And wasn’t the old waybetter, anyway?

Thiswas just one small huff in the long history of conflicting opinions. But as acompany grows, and decisions get more distant from thepeople who have to execute them, a different kind of conflict emerges. Thesedisputes may seem like they’re about a single decision with a specific adverseeffect (the wrong redesign). But they’re actually disagreements about process(Why wasn’t I consulted?), not the decision. Learning to distinguish betweenthe two is invaluable for any leader.

Here’show I’ve learned to map the difference. A decision conflict is one in whichcolleagues disagree about a choice that was made–anything from choosing aproduct strategy or a company priority or the wording of an email campaign.When someone disagrees, it’s a pretty simple matter to determine if theobjection has merit, or whether it’s an opinion that will be duly noted but notaddressed. You make the call and move on.

Buta process conflict is a different beast. Disagreements over process emerge whena decision lacks expected input or participation from meaningful stakeholders,or where one decision (often made unilaterally) contradicts shared prioritiesor strategies. In these cases, protocol was not followed, and unpacking theproblem requires chasing down what happened and why.

Here’swhat I’ve learned after about a decade of startups: These are distinct kinds ofconflicts, but they get conflated all the time, and a process conflict getstreated as a decision conflict. This means that people waste time and energytrying to solve the wrong problem: They’re second-guessing and litigating thedecision, when the real grievance is that a process wasn’t followed. Indeed,the aggrieved may not truly disagree with the decision at all, but are puttingup a fight because they weren’t consulted along the way.

Andas obvious as the difference between a decision conflict and a process conflictmight appear, in the heat of the moment most people struggle to disentangle thetwo. Often, leaders will reverse a decision but miss the opportunity todelineate a process that would help sort out disputes down the line. In otherwords, they solve the wrong problem.

It’sessential for leaders, especially in rapidly expanding startups, to grow theirorganization’s decision-making process in lockstep with scaling theorganization. I’ve failed to do this myself. A few years ago, I was in aleadership meeting in which a new production process was presented for final executiveapproval. Despite being an executive, I was caught off-guard: The new processwould require that I change the way I worked. My response, sad to admit, was toquestion the whole thing, creating more than a hiccup in the rollout. In time,I realized my issue wasn’t with the new–and better–schedule, but with thefact that I hadn’t really been given a heads-up about its requirements.

Thesedays, when I’m presented with a grievance, I’ve learned to first hold theproblem up to the light: Is this really about a failure in decision making, oris the issue a failure of process? More often than not, it’s the process thatwent south. So, if you find yourself in this kind of situation, stepback and make sure that protocols are heeded–or, if necessary, make thoseprotocols clear for everyone. The distinction won’t spell the end ofconflicts in your organization. But it will help you better solve those thatarise.