Master Financial Education

E. F. Moody Jr.


I have asked Errold Moody to provide a brief example of what he has actually found on behalf of a client who engaged his services to review the insurance contracts which funded the client's estate plan. You will be amazed. In my 30 years in the business, I have never seen an authoritative, objective, prudent expert speak so clearly on the use of insurance. What Errold can do is unique in the industry.

Steven Winks

Secretary of State John Kerry - In America,  "you have a right to be (as) stupid (as) you want to be."
(But too many Americans are abusing the privilege)

Why did our systems fail and why will they continue to do so?  From Paul Volcker

"our economics are based on “an unjustified faith in rational expectations, market efficiencies and the techniques of modern finance"

You must not believe everything you think

Stephan Thomas Vitas

  Albert Einstein
Linkedin members: this website started in 1996 and I have done the Daily Commentary since that time. I used to do more reports and commentary here but it simply seemed more important from  around the early 2000s to present some of what I review every day and let the readers figure out the relevant issues themselves. Of course investments are covered but long term care, economics, life insurance, arbitrations et al command the bulk of a planners capabilities- though generally it's nothing more than lip service, Not so here.
Risk of Loss: There is a lot more to discuss but at this point I will give you a look at one of the most important videos you will ever see-  and that should change the industry regarding the "illusive" element of risk. You will need a financial calculator  Note- these were not initially designed for brokers but the material would not be much different.

Risk of Loss and Risk of Loss 2

Dollar Cost Averaging Down: Here is another very important video on risk-  that being a retiree will run out of money before death and the (semi) traditional 4% annual income rule. The position of the industry has been a buy and hold through the most perilous times and the market will always come back. So, over a long period of time, the investor will recoup their losses.  So, does it work? Well, from Peter Bernstein forward, the use of historical numbers tends to indicate that about 20- 30+ years you might do OK.   However, for middle income Americans,  it probably won’t work (very few things are 100% and maybe there will be far fewer major downturns in the next decades -as I type laughing greatly).  The trillions lost from 2000 and 2008 simply states that the middle class cannot take another big hit coming up soon.  So here is a video that will help consumers stem their losses on equities to around 10 to 15% (I was too pessimistic in the video at 20%-- that is too much to lose). It is DCAD- Dollar cost Averaging Down- another straight forward description to avoid large losses. Effectively guaranteed to work up to 95% of the time unless you are very emotional and/or stupid.  It's not perfect but it gets the job done. It is far better than the mathematical calculations that defy dieties and are based on numbers from the 1800s.  (It's almost an hour long and your spouse must watch as well. Extra bacon is a good incentive for men.)


DCA UP  Dollar Cost Averaging UP What goes down hopefully comes back up. But effectively every critic and pundit says there are no such triggers to  help advisors. .WRONG This  video shows you that an independent point in time can provide a valid entrance to the equities (bonds now dance to a different Yellen drummer). It is unemotional, nothing to do with a seance by the guru du jour of the week and it also negates your own ego (if that actually is possible). . Should provide around 85% to 90% of the upside.

DCA Dollar Cost Averaging: This is a marketing tool that is still being taught to "supposed" investors. It IS a conservative way to buy stocks and funds simply by not buying them. By the same token, it also lowers overall return about 2/3rds of time.  And in most cases the term is misused.


These are not to be redistributed or used by anyone else in any manner whatsoever.

World Clock by

10/21 From a reader  Mr. Moody while I'm going to school to get my CFP, do you have any recommendations on how to gain experience in the field of finance?

I wish there was a magic bullet of some type but it still seems that either you become appointed with a large brokerage firm to learn some of the ropes (mainly selling products that few might comprehend to people who could use something else.)  In part that is cynical- mostly it is real life. Or you could latch on to a fee planner for a few years as perhaps another way to get started. You wouldn't get caught up in most of the sale hype, That said, it is still about how much Asset Under Management that will determine your supposed 'rung on the ladder''.
You didn't specifically ask about increasing knowledge while getting experience (though I assume it was part of your request) but I will tell you this. Financial planning, properly done, requires a HUGE commitment to reading and research- far more than the industry will ever let on since there is no way they can provide it. The CFP is good but far from good enough. I got mine 30 years ago and it was necessary but I still didn't know that much. Got the Masters 23 years ago. Much better of course but since 1995, the world economics and finance has changed dramatically. Many of the revered theories never were tested so you got to keep your eyes and ears open to the entities who are very very good. Read Peter Bernstein, Mandlebrot, some of Taleb's commentary; Mauldin and Ben Hunt for economics and more, I like Edesess  stuff etc. Keep an open mind to change- which means don't let your ego tell you what to do. I have to change my insight and orientation regularly as I read some  of those that have a lot more expertise in their respective areas.
In short (though I wasn';t) you are not going to get that good by just "working" because so many changes occur and you must try and keep up. Maybe there are some courses or institutions that are cutting edge though I am not aware of any.
The videos will give good real life (non marketing,. non brokerage) insight and a firm is requesting that I do some for continuing ed.
Good luck

10/21: The Entire US Economy Depicted In Emoji

Interesting visual  but a little tough to comprehend. Worth it though

10/21: Washington Posts commentary on the market and economy.. I tend to lean towards Larry Summers

The wave of panic that knocked down international stock markets on Wednesday subsided by the end of the week, with equities recovering most of their lost value. But is the tide coming in?

If selling continues, it may be that investors are starting to buy the gloomy thesis of secular stagnation, according to which the world will struggle to avoid a long period of disappointing growth -- decades, or more. On this view, an aging global society, the end of a certain kind of technological innovation, a glut of saved-up cash moldering in banks worldwide, or some other combination of factors will hobble the economy for the foreseeable future. First it was Japan, next it will be Europe, and then it will be all of us.

Academic economists don't all buy into this theory, with one extremely notable exception. Larry Summers has argued that secular stagnation is on the way, and that there will be little central bankers can do to stop it. They'll do they most they can -- keeping interest rates at zero indefinitely, as they have been since the financial crisis, with the goal of discouraging people from saving money and encouraging them to borrow and spend.

If the global economy really is headed toward stagnation, then Janet Yellen and the Federal Reserve might have no choice but to keep interest rates there for a while longer, and maybe a little longer after that, and maybe even...

In a wry column on Saturday, Robert Shiller basically accuses Summers of giving investors Ebola (in a metaphorical sense, of course):

Fundamentally, stock markets are driven by popular narratives, which don’t need basis in solid fact. True or not, such stories may be described as “thought viruses.” When they are pernicious, they are analogous to the Ebola virus: They spread by contagion.

In other words, Summers hasn't convinced the academy, but he just might have won over the market. Shiller warns that Summers's pessimism about the economy could become a kind of self-fulfilling curse as squeamish investors pull back from the market, and less money trickles into the real economy.

If the stock market continues to wobble this week, that doesn't necessarily mean that Summers is right. It could just be that he's very persuasive. We won't know for years. In the meantime, the central bankers of the world, especially in Europe, must do everything in their power to prove him wrong.


What is global market turbulence telling us?


The extraordinary volatility in all financial asset classes in the past week can only be described as ominous. On Wednesday, the US ten year treasury, perhaps the most liquid financial instrument in the world, traded at yields of 2.21 per cent and 1.86 per cent within a matter of hours. This type of volatility in the ultimate “risk free” asset has previously been seen only in 2008 and other extreme meltdowns, so it clearly cannot be swept under the carpet.

EFM the statistical odds of that much movement is far beyond the fluid  standard deviation curve.

10/19:   The FED may delay because of the fragile economy

The US Federal Reserve should carry on with its asset purchases in October, said James Bullard of the St Louis Fed on Thursday, as he became the first policy maker to call for a central bank response to recent market turmoil.

“Declining inflation expectations are a serious matter for a central bank,” . He said the Fed could “pause at the October meeting”, wait for more data, and then cease purchases in December if the economy looks strong.


10/19: For the first time

For the first time ever, mutual funds have surpassed banks as the largest holders of corporate and foreign bonds, holding 13 percent of these securities.


A group of market watchers, led by the IMF, has signaled the alarm over high yield bonds. A handful of large asset managers, including Pimco, Fidelity, BlackRock, and Dodge & Cox, hold an eye-popping proportion of high yield bonds, and that poses an unequivocal threat to credit markets. In many bonds, such as auto financier Ally Financial, or student loan company SLM, managers like Pimco control as much as 30-50% market share. This commanding position creates severe issues for both the managers and the markets, as most of their holdings are highly illiquid and only held by one another, meaning in a period of stress, perhaps similar to the one we have just seen, the managers would very likely be unable to offload the bonds without extraordinary losses. This is a major concern because it would incite panic across credit markets, but further, because individual managers would therefore be very unlikely be able to meet redemption demands from their own fund investors. If they cannot liquidate the bonds quickly enough, or at prices high enough, there is no way they could meet immediate withdrawal demands. The same bond investors hold even higher shares of bonds in European markets, including heavily indebted sovereigns like Italy and Spain. Because of regulatory constraints, banks are no longer major market-makers in illiquid credits.

10/19: Signs of the Next Industrial Revolution and Its Impact on Investing

Very concise and interesting

10/19: We are sooooooooooo stupid

EVEN if we grade on a very generous curve, many Americans flunk when it comes to financial literacy. Consider this three-item quiz:


• Suppose you had $100 in a savings account and the interest rate was 2 percent a year. After five years, how much do you think you would have if you left the money to grow? More than $102, exactly $102 or less than $102?

• Imagine that the interest rate on your savings account was 1 percent a year and that inflation was 2 percent. After one year, would you be able to buy more than, the same as or less than you could today with the money?

• Do you think this statement is true or false: “Buying a single company stock usually provides a safer return than a stock mutual fund”?

Anyone with even a basic understanding of compound interest, inflation and diversification should know that the answers to these questions are “more than,” “less than” and “false.” Yet in a survey of Americans over age 50 conducted by the economists Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania, only a third could answer all three questions correctly.

This is particularly troubling given the inherent complexity of our modern economy. Whether in taking out a student loan, buying a house or saving for retirement, people are being asked to make decisions that are difficult even if they have graduate training in finance and economics. Throwing the financially illiterate into that maelstrom is like taking students currently enrolled in driver’s education and asking them to compete in the Indianapolis 500.

A new paper by three business school professors — Daniel Fernandes of Erasmus University in the Netherlands and the Catholic University of Portugal, John G. Lynch Jr. of the University of Colorado and Richard Netemeyer of the University of Virginia — presents a discouraging assessment of attempts to teach people how to deal with money. Their article uses a technique called meta-analysis, looking at results from 168 scientific studies of efforts to teach people to be financially astute, or at least less clueless.

The authors’ conclusions are clear: over all, financial education is laudable, but not particularly helpful. Those who receive it do not perform noticeably better when it comes to saving more, for example, or avoiding ruinous debt. Even more depressing, the results of efforts aimed at low-income people are particularly weak. Those who need the help most seem to benefit the least.

we shouldn’t fool ourselves into thinking that adding a household finance class to a high school curriculum will in itself create knowledgeable consumers who can understand today’s wide array of financial products.

It would be premature to conclude that all efforts at improving financial literacy are futile. But it is a fair conclusion that simply doing more of the training commonly used now will not produce significant results.

10/19: just-in-time education. Because learning decays quickly, it’s best to provide assistance just before a decision is made.

education decays over time; even large interventions with many hours of instruction have negligible
effects on behavior 20 months or more from the time of intervention. Correlational studies that measure
financial literacy find stronger associations with financial behaviors. We conduct three empirical studies,
and we find that the partial effects of financial literacy diminish dramatically when one controls for
psychological traits that have been omitted in prior research or when one uses an instrument for financial
literacy to control for omitted variables. Financial education as studied to date has serious limitations that
have been masked by the apparently larger effects in correlational studies. We envisage a reduced role
for financial education that is not elaborated or acted upon soon afterward. We suggest a real but
narrower role for “just in time” financial education tied to specific behaviors it intends to help. We
conclude with a discussion of the characteristics of behaviors that might affect the policy maker’s mix of
financial education, choice architecture, and regulation as tools to help consumer financial behavior.

The financial services industry — either on its own or as required by government regulators — needs to find ways to make it easier for people to make sound decisions

10/19: Lower net worth


10/19 Everbody felt that oil prices would rise with all the worldwide problems


10/19: Very bad Greece and possible contagion

Amid the wider market selloff, Greece has suffered a particularly volatile period. Interest rates on the country’s ten-year bonds have spiked in the last week, soaring from around 6.5% to near 9% now, a level many believe represents an unsustainable borrowing cost. Equity markets in the country dropped 8% in just two days. Meanwhile, German bonds touched new lows, hitting near 0.7% on ten-year bunds. Investors are increasingly worried about Greece, because the party leading in the polls is in favour of enforcing at least 50% haircuts to the country’s bonds holders in an effort to cut the country’s debt, which is currently 174% of GDP. Fears over Greece have also reignited worries over other Eurozone periphery countries and Italy saw its borrowing rates rise 40 bp on Thursday morning alone. The Eurozone is in the midst of a recession, with near deflation, and little prospect of breaking out of the malaise because of serious political disagreements over the proper course of action. 

10/19: And more of the mess  Senior Financial Times Columnist Gillian Tett has written an insightful article on the links between the recent market selloff and the important reality of liquidity. Tett explains that liquidity has been hurt by four factors, and all of them helped exacerbate market volatility over the last few weeks. Firstly, most market investors are holding the exact same views, which has left everyone caught by surprise. Last week, 100% (truly) of surveyed economists said they believed interest rates would rise soon—this helps explain the like-mindedness of investors. Secondly, and leading on from the first point, asset managers have adopted a severe herd mentality, and are all buying and selling the same assets at the same time, which makes rises and falls much steeper. Thirdly, computer programs and algorithms, despite purporting to boost market liquidity, have actually made things worse. Most of them operate in a similar fashion to one another, and because they can function at lightning speed, move markets even faster downward than in the phone-based days. Finally, and perhaps most critically, regulations have forced large banks out of the market-making space in many products. This means that there is simply not enough liquidity in trading to handle the volume of bonds in the market at an adequate level, leading to heavy losses.
The chief risk officer of Goldman Sachs, Craig W. Broderick, warned at the I.M.F. meetings last week that the asset management firms that now hold the bulk of these bonds had not yet been tested in terms of how they would react to a market shock.The chief risk officer of Goldman Sachs, Craig W. Broderick, warned at the I.M.F. meetings last week that the asset management firms that now hold the bulk of these bonds had not yet been tested in terms of how they would react to a market shock.
Especially vulnerable, I.M.F. economists say, are companies in which one manager and one investment view hold sway over a wide family of funds. That can lead to a situation in which numerous funds companywide accumulate concentrations in the debt of a certain company, sector or country. When retail investors are driving the investment money coming in and flowing out, the dangers are compounded.


10/19: Types of Cash Flow and Cash Flow Calculations Guide


10/16: Ruble Rubble

The Russian ruble has collapsed to a record low against a basket of dollars and euros despite intervention by the central bank to prop it up. The Russian central bank has spent as much as $1.75 billion from the country's foreign currency reserves to support the ruble, buying it on currency markets in an attempt to prop up its price,

10/15: Big data explained

Over the last few years, the world has been flooded by so-called big data, or large data sets culled from a wide variety of sources. The idea of using massive amounts of data to solve issues has been highly touted, promising to cure all evils from healthcare to financial markets. However, despite a decent amount of interest and promises made, fund managers, from private equity to hedge funds to mutual funds, have been scratching their heads with what to do on the topic. Fund managers have reportedly been amazed with the data they can obtain, from corporate sales, to Twitter data, to search term analysis, but many simply do not know how to put them altogether into a usable investment strategy. Many funds, such as Schroders, say they are “fascinated” by the possibilities, but have “nothing set in stone” as to how to use the technology. This lack of uptake is worrying the same managers, as they fear that asset management could quickly come to be dominated by tech giants like Google, Facebook, and Amazon, who have a great degree of expertise in using big data to make decisions. “I suspect that [Google’s artificial intelligence] people could clone an asset management stalwart before breakfast”, says an FT commenter.

10:15:  China's problem (oxfwd_

For the fourth year in a row, US investors in Chinese-focused equity funds have withdrawn money from the space. This year, over $1.1bn was withdrawn from funds focusing on China, meaning the space lost 20% of its capital. European investors have withdrawn money as well, but not to such an extent. Investors have become disgruntled with China’s corruption, ailing real estate market, high indebtedness, and its weakening economic outlook. Investors have also been unhappy with the Chinese equity market’s volatility, down 6.8% last year, but up 16% this year. Because of a lack of institutional investment in the country, the market is still driven by retail trades, making it much more volatile. The development will hurt large Chinese fund houses’ efforts to penetrate western markets. Such businesses, which are dominant in China, have been trying to attract AUM from western sources, but have been unable to do so because of the negative outlook for the Chinese economy, and a generally distrusting view of the fund businesses themselves.

10/15:  We will not see 3% however in 2015 or 2016


10/15: US oil exports

For forty years the US has adamantly stuck to its policy of a crude oil export ban. However, as the country has once again become awash in black gold, companies are having more and more success chipping away at the blockade. Several weeks ago, a shipment of American crude oil left harbour in Texas, destined for South Korea. The shipment represents a major step towards exporting, as it was the first ship to leave port with light liquid hydrocarbons, a category of oil which has historically been referred to as “crude” because of its only minute differences to the benchmark resource. Such a substance, like many others that the US Commerce departments’ new policy allows, is only very lightly refined, and the process of doing so can be done right at the wellhead in little time with low costs. This means that much of Texas’ new oil is now exportable. Since refined petroleum products, like gasoline, are already allowed to be exported, the government says this is not a change of policy. However, in reality, it represents a fundamental shift, as an estimated 300,000 barrels a day are now eligible to be exported.

EFM- I wonder if fracking will not cause significant problems. there have been lots of earthquakes and ground water pollution. Mother Earth may really get pissed and force a shutdown.
10/15: Where Not To Die In 2015  (estate tax)

10/15: Key Person Disability Insurance

10/15: Business Overhead Insurance

10/15: Buy-Sell Disability Insurance

10:15 Active versus passive

Active portfolio management involves the selection of securities and market timing in an attempt
to provide value to fund investors. It has been suggested that periods of falling securities prices provide
opportunities for expert managers to locate underpriced investments. The notion that active managers are
better able to earn their management fees during recessions is cited in the literature (Moskowitz [2000],
Kosowski [2006], Glode [2011]) as a justification for holding actively managed funds within a portfolio.
This assertion has been subject to little scrutiny. In this article, we estimate the performance of active
equity portfolio management across business cycles.

Our study attempts to answer two simple questions. Is active portfolio management performance
superior in recessions relative to passive investing, and to what extent is performance persistent across
business cycles? Our findings suggest that active portfolio management is not superior to a passive
investment strategy in either expansions or recessions. We also find that persistence is weak across
business cycles. Collectively, the findings support a low cost passive investment strategy for retail
investors across all business cycles.

EFM- all critiques of active management tend to reflect the first sentence. And that is fine for most purposes IF the consumer can handle major losses without difficulty AND that the market will always some back- or at least in enough time to make the consumer whole once again. But middle class cannot accept huge losses under a buy and hold nor accept the fact that the market will gain enough in a relatively short period of time to make up such losses. With the latter, the retiree is spending money for retirement and waiting for the eventual gain. Probably will simply lose out. Period
What to do? View DCAD above. Simple no brainer. . 

10/15: But.......

the U.N. said that an estimated 180,000 Iraqis have fled Heet since it fell earlier this month to the radical Islamist group
Kim Jong Un has bad feet
Ebola is scaring America
The Pope has softened views on homosexuality
And so on
But Putin and the Ukraine  don't really get mentioned now,

Special Needs Children Turning 18 Years Old

By Lori K. Murphy, Esq., Bean, Kinney & Korman, P.C.


A single mother of an adult child visited me to prepare her estate plan.  During our first meeting, she shared that her 24-year-old adult son lives at home and has a mental impairment.  He recently needed a new physician and my client requested to direct his medical care. In response, the new physician asked for her son’s medical power of attorney.  My client was thrown for a loop–she had always directed his medical care and no one before had asked for a power of attorney.  Later, she determined this was because her son had the same medical treatment team since he was a young boy and the team knew her son’s medical condition and that his mother directed his care.  Now that new care was needed, the physician’s office properly sought the mother’s authority to direct care and she needed to determine how to continue to help him.  Our discussion turned from her own estate planning to one about guardianship, conservatorship and powers of attorney. 
In no legal field have I been challenged more than in representing families with special needs children.  Over the past 14 years, I have had the pleasure of working with families with estate planning efforts, including those who have children with Down syndrome, autism spectrum disorder, spina bifida, birth injuries and other conditions impacting a person’s mental capacity.  A topic many families are passionate about is determining how to attend to the less-abled child after he or she attains the age of 18 (the age of legal majority) and whether a guardianship and conservatorship is appropriate. 
When discussing this topic with clients, it is crucial to consider both the cognitive capability of the child and the parent’s perceived need to continue involvement in the child’s financial life and medical affairs.  Other relevant factors include an analysis of the pros and cons of guardianship, conservatorship, agency under a financial power of attorney, and agency under an advance directive/health care power of attorney.  Additional factors that impact the analysis include whether the child needs outside care, such as an assisted-living facility or companion-care home, and the parent’s financial resources.
Important Factors
In determining how to best help parents provide for their adult child with special needs, it is important to take into account the self-sufficiency of the adult child.  Here are factors to discuss when tailoring a course of action:

  • Whether the child is capable of communicating his or her needs and wants regarding his or her care;
  • Degree to which the child can adequately feed, clothe and otherwise take care of his or her basic needs;
  • Whether the child is employed outside of the home;
  • Whether the child will require outside care (i.e., an assisted-living facility);
  • Degree to which the child can understand the effects and consequences of his or her actions; and
  • Income and finances of the child and the child’s family.

It is crucial to take the adult child’s needs and wants, if capable of expressing them, into account when determining how to best provide for him or her.  Apart from moral sensitivities, Virginia law provides that fiduciaries in charge of the child’s care allow the child to participate in the process as much as he or she is able.  Further, if the child has no input in the process, it could disrupt his or her relationship with the parents, making the process emotionally taxing on everyone involved.
Guardianships & Conservatorships
Run to the Courthouse
One way to provide continued care for special needs children over the age of 18 is by securing a guardianship and conservatorship.  Adult guardianship is the legal process in which a guardian is appointed by a court to make personal decisions on behalf of the adult child, including decisions about where he or she lives and what medical treatment he or she receives.  In contrast, adult conservatorship is a legal process in which a conservator is appointed to make decisions about an adult’s financial world, including property and estate.  An adult’s guardian and conservator are often the same person, but need not be, and one does not have to seek the appointment of both.  If a guardianship and conservatorship is sought by the parents, an official opinion from a physician must be presented to a court stating the reasons these are necessary. 
Virginia law provides that a court order granting guardianship be tailored to rectify the incapacity of the individual.  As a result, guardianship is a particularly flexible system in Virginia: the court order appointing a guardian can be as broad as covering all decision-making or limited to specific decision-making spheres, such as medical care.  Some parents welcome the child’s right to vote, for example, and are pleased to learn that a court order can provide that the adult child retains that right.

When a child does not have the cognitive ability to direct his or her own financial or medical affairs, a guardianship and conservatorship is appropriate.  The parents are relieved to know they can continue to direct the child’s affairs after the age of 18 and welcome the daily involvement.   Most parents of children with mental incapacity determine that a guardianship and conservatorship is the right thing to do for a child who cannot live independently.
Slow down
However, guardianship and conservatorship are not always the appropriate tools to protect individuals with mental impairments.  First, the cost to be designated by a court as a guardian and conservator can easily exceed several thousand dollars in legal fees.  Second, a guardian is required to provide significant attention to the incapacitated adult.  Third, the guardian has to report at least annually to the state as to, in part, the living arrangements, mental, physical and social condition, and the scope of services provided and whether those services provide adequate care to the individual.   Furthermore, the guardian directs the living arrangements and health care of the incapacitated individual and often those decisions are challenging. 
Conservatorships, in particular, require significant maintenance.  A full conservator is required to post surety on a bond with the court, annually report on all income received on behalf of the adult child, and annually report on all funds expended on behalf of the adult child to the local Commissioner of Accounts.  This means a conservator must collect and keep records of all receipts, checks and bills so he or she can account for all the child’s funds “to the penny.”  Without help from an accountant or financial planner (which can be costly), this can be time consuming.  Many of my clients are working parents, juggling the responsibility of raising multiple children, including the special needs child, so this additional work is burdensome.
Further, a guardianship and conservatorship can infringe upon the child’s independence if it is not tailored toward that child’s needs and level of functioning.  A child who is autistic, for example, may be able to work, earn an income, ride public transportation, and pay rent, and may not need such parental control after the age of 18.  Also, the legal process of obtaining a guardianship and conservatorship over an adult child may be a stressful experience for such a child. 
If a guardianship and conservatorship is the right decision for a parent and child, the process is typically instigated about six months before the child turns 18.  This provides sufficient time to obtain the necessary medical, psychological, or psychiatric opinions required, to seek the input of a guardian ad litem (a person appointed to protect the rights of the adult child), and to prepare the court petition for appointment of guardian and conservator.
Powers of Attorney
Let’s get powers of attorney
An alternative to guardianship and conservatorship are the powers of attorney.  A power of attorney is a legal document in which a person (the “principal”) appoints an individual (the “agent”) to make decisions and take action on behalf of the principal.   For our discussion purposes, an adult child who has already attained the age of 18 would execute powers of attorney as the principal and would delegate authority to one or both parents as the agent(s).  The adult child would also name successor agents if the parent was unable to attend to the adult child’s affairs.
There are two types of powers of attorney used in lieu of a guardianship and conservatorship: (1) Advance Directive/Health Care Power of Attorney and (2) Durable General Power of Attorney.  The former document allows an agent to make decisions about medical affairs to include typical, daily health care decisions as well as the serious end-of-life decisions, and the latter document allows an agent to make decisions about financial and administrative affairs.  Generally, if powers of attorney are properly executed, a guardianship and conservatorship is not necessary.  Additionally, the cost to secure powers of attorney is low in comparison to the court-administered process of guardianship and conservatorship and the ongoing cost is nil – there is no annual reporting to a third party associated with the powers of attorney (unless the adult child makes that specific request). 
The appointment of a power of attorney can be a wholly private affair.  So long as the adult child demonstrates sufficient capacity, he or she can execute the two powers of attorney and the relationship between parent as caregiver and overseer will be continued with little interruption after the eighteenth birthday. 
But only if there is capacity
However, powers of attorney can be executed by the adult child only if he or she has sufficient mental capacity.  (For powers of attorney, “capacity” is the term used rather than ability or disability).  In fact, determining capacity is often the crux of the decision-making process of whether to obtain a guardianship and conservatorship or to request the child to execute powers of attorney.  No legal checklist exists that can be used to determine whether a child meets the capacity level required to execute a power of attorney.  Thus, it is often the most important thing an attorney can do.  Yet, many attorneys are uncomfortable with making the assessment as it can be perceived to cross into the medical arena of determining cognitive ability.
Thus, if the adult child has a diagnosed condition affecting decision-making capacity, it is important to secure a medical opinion as to the adult child’s mental capacity.  If decision-making capability is not a factor, then it is general practice that an adult child with sufficient capacity must be able to consciously understand (1) the nature of a power of attorney; (2) the effect of signing a power of attorney such as when the power begins and the subject matter over which the agent can exercise control; (3) the power of attorney can be limited or broad; (4) the power of attorney can be revoked so long as the adult child has capacity to do so; and (5) the power of attorney continues even if the adult child becomes incapacitated.   However, in any case, the attorney will want to meet with the adult child alone, without the influence of his or her parents.  This allows the attorney to make the difficult decision of whether the adult child has sufficient capacity to execute the powers of attorney and that the terms in the powers of attorney are directed by the adult child. 
An issue that needs to be acknowledged by the parents is that if the adult child has sufficient capacity to execute the powers of attorney in favor of his or her parent, he or she can also execute powers of attorney in favor of another person.  An elderly woman called me to express concern that her middle-aged adult child with some mental impairment had recently executed powers of attorney in favor of his girlfriend.  It was difficult to hear the elderly woman express her concern that the girlfriend may take advantage of her son.  This is a real issue that needs to be considered if powers of attorneys sound like an easy, cost-effective solution to managing an adult child’s care.
Even though executing a power of attorney comes with its own complex issues, especially when adult special needs children are slightly mentally impaired and the determination of capacity is a close call, a power of attorney is a far less invasive means of providing for the care of a special needs adult child. It requires almost no maintenance, unlike a guardianship and conservatorship, and is a low-cost method to ensure the continued care of the child by the parents.   
Other Considerations
When deciding whether to pursue a guardianship and conservatorship of an adult child with special needs or have the adult child execute powers of attorney, it is imperative that the discussion includes consideration of whether the child is receiving or will receive public benefits (both Federal and local) and whether the parent has completed his or her own estate planning.  Public benefits and the special needs child go hand in hand with topics like appointing Representative Payee for Social Security payments, preparing special needs trusts, and the relationship of the child to the parent’s own financial estate. 
In evaluating whether a guardianship and conservatorship or powers of attorney are appropriate, a parent should consider the adult child’s mental capacity, the ability of the child to manage his or her own affairs, and the deprivation of rights imposed by a guardianship and conservatorship.  If the adult child has the capacity to execute powers of attorney, then that is a good first step.  A formal guardianship and conservatorship may then be sought later, but only if needed.


10/14: Global Economy DOWN

The IMF is expected to cut its estimate of global growth in 2014 from 3.4 per cent to a little over 3 per cent this week as poor second quarter figures from Germany, Japan and other countries weigh on the outlook. As recently as April, the IMF was expecting 3.6 per cent growth this year, faster than the long-term average.

FT Interactive – Tiger Index

Explore the index, which delivers a snapshot of the state of the global economy, with an interactive graphic

Eswar Prasad, an economist and senior fellow at Brookings, said: “The world economy is now being powered mostly by the US growth engine, a situation that is untenable for a sustained and durable global economic recovery”.

10/14: Probabilities (Kahneman)

“to compute probabilities you need to keep several possibilities in your mind at once. It’s difficult for most people. Typically, we have a single story with a theme. People have a sense of propensity, that the system is more likely to do one thing than the other, but it’s quite different from the probabilities where you have to think of two possibilities and weigh their relative chances of happening.”

10/14: Active Management

Dougal Williams, CFA11 Oct 2014 21:23

Prof Ken French often reminds folks that identifying skill is incredibly hard, indeed.  For example, if you take a manager who has outperformed by about 5% per year, but experienced a similar level of volatility as the US stock market, it would take roughly 64 years to say with statistical significance that manager wasn't lucky.  60+ years to say with confidence it's skill, not luck.

Forget 64 years.  Think about what our industry does to managers who "ouperform" for 3 years, 5 years even 10 years--those "winners" are featured on the front page of newspapers, grace magazine covers, and become the keynote speakers at industry conferences.  Money flows into those mutual funds, advisors allocate to their funds / separate accounts, and those same advisors tout their own ability to pick-stock-pickers skill.

Just for a moment, check your ego, suppress your emotions, detach your mind from your source of income and think agnostically:  SIXTY FOUR YEARS to say with confidence that manager was indeed skillful, not just lucky.

Now tell me how good you are at picking winning managers in advance.

Lastly, studies comparing index vs. active performance don't compare index performance the "average" manager.  They compare them to all managers.  Every credible study concludes the same:  over short periods, the relevant benchmark outperforms about 60% of active managers; over 10 years about 70%; and over 20 years about 80%.  

Interestly, the same long odds face those previous periods' winners in the subsequent period.  Past winners are HIGHLY UNLIKELY to win again.

Yes, outperforming due to picking stocks / funds / managers or through market timing is POSSIBLE but not PROBABLE.  Highly improbable, in fact.

10/14: Planners suck

How Long will I Live

Simple 8 question form.

Married men live longer than single men

But married men are more willing to die

  • Life expectancy at birth for the U.S. population reached a record high of 78.8 years in 2012.
  • The age-adjusted death rate for the United States decreased 1.1% from 2011 to 2012 to a record low of 732.8 per 100,000 standard population.
  • The 10 leading causes of death in 2012 remained the same as in 2011. Age-adjusted death rates decreased significantly from 2011 to 2012 for 8 of the 10 leading causes and increased significantly for one leading cause (suicide).
  • The infant mortality rate decreased 1.5% from 2011 to 2012 to a historic low of 597.8 infant deaths per 100,000 live births. The 10 leading causes of infant death in 2012 remained the same as in 2011

Much of the recent improvement in death rates and life expectancy for population groups examined can be attributed to reductions in death rates from major causes of death, such as heart disease, cancer, stroke, and chronic lower respiratory diseases (2).

Although continuing declines in mortality have slowly reduced longstanding gaps in life expectancy, differences in life expectancy at birth and at 65 years between sexes persist (3).

Death rates in 2012 continued to decline among most groups defined by sex, race, and Hispanic origin. Although changes in mortality are relatively small from one year to the next, long-term trends show the apparent progress in reducing mortality (4). For example, the age-adjusted death rate in the United States decreased 15.7% from 869.0 to 732.8 deaths per 100,000 standard population from 2000 to 2012

10/12: The  DOW is now flat for the year

10/12: Life settlement

Example: $3M UL policy, insuring an 82 yr old male with a 9 year life expectancy.

Option 1. Cash offer of $325,000

Option 2. Cash offer of $75,000 and $1,000,000 in Retained Death Benefit (paid-up coverage).

Michael Edesess on stocks for the long run

My reply: Nice job! And I agree with almost everything in your conclusions since, by reading Peter Bernstein, Mandlebrot, Pfau et al, I reached the same conclusions save for one area. That of the "irrational investor" chart.

I have taught DCAD- Dollar Cost Averaging Down for close to two decades. It is designed for the average middle class investor/401k participant. It simply means that one must accept a correction of 10% to 15% but that is about all. A precipitous decline (validated by other economics of course) dictates a reduction of risk to avoid (potential) large loses.

Also, I do NOT understand why more advisers did not adhere to the inverted yield curve evident in 2000 and 2006. A 100% indicator of recession is not to be a guarantee 100% in the future, but one is hard pressed to dismiss it. Mauldin noted in Oct 2000 that ..." everytime we have been at these yield curve levels for the last 40 years we have had a recession.:(Admittedly it cannot be used anymore.) 

looking at your chart, a RATIONAL investor would actually sell out at roughly your points 1 for both recessions. (Though one does not just do this at one singular point but I am taking the liberty here),

And in regards to your point 2s- since pundits will always say this is market timing and no one knows when to get back in, etc,. etc- these actually correspond to what I suggest for consumers in getting back in. It's independent of me, you, Cramer, Snow white or any other entity with "amazing insight", they actually are the points I use for Dollar cost Averaging  UP.

They are the dates of the press releases by the National Bureau of Economic Research indicating when the trough of each recession had occurred. On July 17, 2003, they stated that the trough had been reached on Nov 2001. On Sep 10, 2010, they indicated that the trough had been reached on June 2009.

Coincidence with your chart of the irrational investor? Possibly. No matter, I am unwilling to simply assume that after these major downturns (and another coming up soon I submit) that a reversion will occur. I am not willing to base a decision on numbers from the age of the dinosaurs nor dismiss the teachings on risk by Benrstein, Mandelbrot, Taleb, Lo and more.

Middle class investors and retirees specifically, cannot take the risk that the market does NOT come back- or does not do so in some (undefined) timeframe. This focus also negates a lot of the monte carlo "studies" on what to take out.annually since there is a logical, rational avoidance of deep losses. If you miss deep losses, you will do better, period.

Further, the emotional impact of huge losses is far greater than that caused by the losses themselves. Marriages/family life can still exist.

Is this prefect?.Of course not and it is does require an interpretation at times.(But arrogance and ego tend to destroy rational thought.) However, does it reflect real life? YES and that is different from all the formulas and statistics one can muster.   And it is simple which is a major factor for the bulk in the business that are clueless. Remember that the fundamentals of investing have never been taught  to  brokers nor RIAs nor is the use of a personal financial calculator required by same nor insurance agents. 

See  for videos on Risk of Loss and for DCAD. DCA UP will be available next week. (These were made for intelligent consumers, not the industry, so view accordingly).

Bon Apetit.

A theory should not be so simple that it does not conform to reality


10/12: John Hussman- As much as investors seem to want to believe that aliens from Xenon have brought some brave new world, our valuation approach is consistent with a century of market history and has not missed a beat even in recent market cycles. We continue to view long-term prospects for the stock market as dismal at present valuations.

Secular bear market lows don’t occur very often, but when they do, valuations typically average about 50% of pre-bubble norms.

While every bear market in history except the October 2002 market low brought our estimates of prospective 10-year nominal returns above 10% annually, I have no particular expectation that the present market cycle won’t be like the 2000-2002 instance and end without bringing valuations to that level. As always, the strongest estimated return/risk profiles emerge when a material retreat in valuations is coupled with an early improvement in market action. There is no requirement that stocks must retreat anywhere near historical norms over the completion of the present market cycle. Nor, of course, can we rule out a substantial move below those norms, which has regularly occurred throughout history, including the period prior to the 1960’s despite interest rates that were quite low

10/12: Oil prices

Oil benchmarks are now at their lowest levels in almost four years, since December 2010. Prices have fallen dramatically over the last few months, and even more sharply recently. Yesterday, America’s WTI crude prices fell an eye-popping 3.7%, and ICE Brent, the world’s benchmark, fell 3.2%, with the former at just $84.06/barrel. Prices have been falling steadily for several months as demand has slowed alongside stagnating growth, especially in China, and supplies have increased due to new technologies, like fracking. However, yesterday fears of a global slowdown, including both in Asia and in Europe, where German industrial output numbers shrunk dramatically, culminated in a heavy sell-off. Equity markets fell as well, with the S&P 500 down 2.1%. Saudi Arabia cutting its oil prices also led to declines, as many believe the moves signals the beginning of a new OPEC price war. The market fall comes despite news that China has been on an oil “buying spree”. It is unclear whether such Chinese buying is because of organic demand, or simply due to efforts to grow their strategic oil reserves.

10/12: oxwfd

Over the last month, much press, including in this publication, has been given to the pending issues regarding emerging market debt. EM debt issuance has surged alongside low rates, and countries now have large debt piles, often in foreign currencies (meaning they have exchange rate risk), and are highly vulnerable to rising US rates. However, the IMF has just signaled the alarm on another issue, which has not been discussed as frequently—EM inflation. Inflation is rising alongside the strengthening of the Dollar, and in markets like Turkey and South Africa—two of the “fragile five”—inflation is now near 10%, far above targets. Brazil has risen to 6.7% as well. In addition to exchange rate risk exacerbated by asset quality deterioration, higher inflation would accelerate bond sell offs, send interest rates spiking, and make it even harder for EMs to pay off foreign currency debt. Ghana, Kenya, and Nigeria are also major EM markets with inflation problems to watch.

10/12: Much worse than I thought

Everyone is aware of the Eurozone’s current struggles—high debt, recession, crushing unemployment, and near deflation. However, a new piece has been published which shows the extent to which the Eurozone is blackhole on the rest of the global economy. Deutsche Bank strategist George Saravelos, this week published a paper explaining that because of high levels of fiscal austerity, the Eurozone is current running the largest fiscal account surplus in the history of the world, bigger than China’s in the early 2000s. Essentially, the Eurozone is exporting, but imports have entirely dried up, sapping demand for the rest of the world’s goods. Little money is being invested. In the early 2000s, China’s surplus was used to invest in US Treasuries, keeping interest rates abnormally low, which ultimately led to the US subprime crisis because of huge lending. This time, the combination of Europe’s huge surplus, and possible quantitative easing, are likely to lead to the “largest capital outflows in the history of financial markets”, said Saravelos. Saravelos believes the QE would not lead to a pickup of domestic demand in the Eurozone, and would create huge rounds of capital flight to markets with better interest rates or return prospects. Ultimately, this action could see the Euro fall to 95 cents to the Dollar, from its current 1.2710/12:

Humankind may become extinct (Elon MUSK)

advanced artificial intelligence could spell the end of humanity.

I don’t think anyone realizes how quickly artificial intelligence is advancing. Particularly if [the machine is] involved in recursive self-improvement ... and its utility function is something that’s detrimental to humanity, then it will have a very bad effect. 

He went on to muse about just how serious the problem could be.

If its [function] is just something like getting rid of e-mail spam and it determines the best way of getting rid of spam is getting rid of humans ...

FRED Series DGS7: 7-Year Treasury Constant Maturity Rate

10/12: Curses!

The curse of knowledge is a cognitive bias that leads better-informed parties to find it extremely difficult to think about problems from the perspective of lesser-informed parties

10/12: Never heard of it- Famesane

Anyone who follows the airline industry knows that jet fuel is one the most important costs that any airline faces, and one that many have trouble controlling. However, it what will be a mutually-welcomed development for both travelers and airlines, a new fuel is slowing being introduced into the passenger travel market that has the potential to lower costs for all. The fuel, called farnesane, is made from sugar and was developed in Brazil. Last summer, the fuel was used on its first passenger flight, from Florida to Brazil. The fuel can be blended with regular jet fuel up to a mixture of 10% without any changes to the plane or its engines. That is one of the major keys to the fuel’s potential success, as it costs essentially nothing to integrate. Many airlines, including Lufthansa, are beginning to phase it into their fuel channels. Farnesane is also environmentally friendly and will help airlines reduce their lofty carbon emissions. Many bio-fuels have been highly touted in the past, but failed to deliver because they were uneconomical to produce. However, Amyris, the producing company of farnesane, is said to have a robust and scalable infrastructure to produce it, which could keep costs manageable.

Accredited Investor definitions changed

a “significant percentage” of individuals who currently qualify as accredited investors are not in fact capable of protecting their own interests.................,

10/12: Risk- again and again and again and........
"On the investment front, I know that most advisors do spend a lot of time trying to educate clients about risk management and its relationship to investment returns. But the research that I’ve seen indicates that most clients don’t really get it. The problem seems to be that advisors often use technical terms that clients don’t understand. It’s a complex subject, but if you’re clients don’t really understand what you’re doing for them, and why, that confusion can lead to problems—particularly in today’s environment." Bob clark

EFM- This is due in large part to a very limited background in risk by advisors - actually to the fundamentals of investing. See the videos above on risk of loss. Clients will understand

10/9: Equity returns over the long run

......" Both the BFP results and my results imply that over the past hundred years or so, the volatility of long-run equity returns – as compared with their short-run volatility – has been less than traditional investment theory would imply.

BFP interpret the result to imply that equity returns “revert to the mean.”

But does it imply that? Does it show that even when equity returns plummet in the short run, we can relax and depend on them to stabilize eventually at a comfortable level? Does it suggest that real equity returns can be reliably counted on to fall within a band of, say, 2-7% in the long run, as they did in the last 100 years,4 whatever may happen in the interim?

No. None of these conclusions are warranted based on BFP’s results or on my results."

......... The mean-reversion interpretation is problematic however, for several reasons.

First, consider the physics analogy, “what goes up must come down.” For an object to come down – to mean-revert – it must earlier have had the momentum to go up. The same goes for securities prices. Before mean-reversion can occur, momentum that persists in carrying prices away from their mean must first occur. Studies of equity returns have in fact found that they exhibit momentum in the short run, from one 3-12 month period to the next. Other studies have found that equity returns exhibit mean-reversion in the longer run, from one 3-5 year period to the next.

Thus, the mean-reversion effect appears to be a momentum-and-mean-reversion effect, not just a mean-reversion effect. The problem with a momentum-and-mean-reversion effect that occurs at vaguely defined, unevenly and randomly spaced time intervals is that it is very difficult to know how to make use of it. If at any moment, momentum can turn into mean-reversion, but you can’t predict when, what use is that knowledge? That is why, for example, periodic rebalancing does not increase returns.

EFM: Here is Michael Edesess graph of an irrational investor 

He notes that this (supposedly) irrational investor is still making a profit over the buy and hold. My position is clearly/slightly different. In my videos, you can take a 10% to 15% hit (beyond a correction)=   when there is a precipitous drop in the market.  In 2000 mess, the drop in 2000 was 9%, 2001 it was 12% and in 2002 it was 21%.  So you were out of the market as shown in the first number 1. This MUST be done for retirees who have "just enough money" for retirement. You could NOT afford to take the subsequent losses PARTICULARLY if the market did NOT go up thereafter or simply because you had to take out more and more stocks each month as the market plummeted downward in order to pay for your monthly retirement.. In the video DCA UP, the independent point I use to get back in is from the press release by the  National Bureau of Economic Research on July 17. 2003 indicating the trough had been reached on Nov. 2001. That coincides with his "Buy here 2". Do the same thing for the great recession. Be willing to take a 10% to 15% correction which (very surprisingly is his second point 1) and get back in with the NBER statement  that the market trough was on June 6 2009 and was a press release on September 10, 2010 which, once again,, is the point on his graph  of buy here 2. It is true that you make more money than a buy and hold and as a retiree you have some ability to miss the worst of it all and also do not have to worry when of IF the market will come back. Another main point is that one misses the EXTREME emotional impact which you cannot put a value on.

It is not perfect since there was a significant drop in late 2010 which would have triggered another sell and then another buy. But that is my point that if a correction is REALLY bad, you have no idea if it might have been the beginning of a double dip recession. I know I was very skittish then but I had been using bonds then. Read his commentary.


The New York Times has published an in-depth article looking at the global wage slowdown, with a particular eye on understanding the fundamentals of the US market. The piece firstly establishes that year on year wage contraction is now worthy of being discussed as a trend, rather than a short-term issue, as average American families now earn less than they did 15 years ago, the first time this has happened since the Great Depression. President Obama has called this issue one of major challenges for the US and world, but believes that the next decade will hold much more benefit for the middle and lowers classes than the last decade has. Median income for American workers has dropped, while the top 10% to top 0.1% has grown strongly. The problem has puzzled economists and this article has no clear answers. However, they do highlight how the struggles of American families have caused numerous partisan allegiance changes as people have become frustrated with the direction of the country and sclerotic government. Perhaps worsening the issue is the fact that healthcare costs and energy costs have actually flat-lined lately, meaning people are so short of cash even in an environment where they should probably have more disposable income.


A most interesting point when I went to my doctor recently and they were inputting my background on a different questionnaire. How many drinks do you have per week. Maybe 4 or 5. Maybe less. the nurse says let's make it 2 o3. Why? Well this is a new form from MADD and if I put down 4 or 5, it says your an alcoholic and will end up on data that insurance companies can see 

I had to have a drink after that.

10/9" Confidence?? 

10/9: Very interesting

Philadelphia Fed Introduces Partisan Conflict Index
October 8, 2014 — The Federal Reserve Bank of Philadelphia has launched the Partisan Conflict Index, a new monthly indicator that measures the degree of U.S. political disagreement at the federal level by tracking the frequency of newspaper articles reporting discord in Washington. Research suggests that increased partisan conflict creates uncertainty among firms and households, which may hinder investment and spending. The indicator is based on research presented in the Philadelphia Fed working paper “Partisan Conflict.”
Read the report.


Chapter 1: Investor Behavior: An Overview

H. Kent Baker

American University - Kogod School of Business

Victor Ricciardi

Goucher College - Department of Business Management

January 25, 2014

Investor Behavior: The Psychology of Financial Planning and Investing. H. Kent Baker and Victor Ricciardi, editors, 3-24. Hoboken, NJ: John Wiley & Sons, Inc., 2014.

“Investor Behavior: An Overview” is the introduction chapter for the book Investor Behavior: The Psychology of Financial Planning and Investing edited by H. Kent Baker and Victor Ricciardi that presents a historical perspective of investor psychology and theory. The field of investor behavior attempts to understand and explain investor decisions by combining the topics of psychology and investing on a micro level (i.e., the decision process of individuals and groups) and a macro perspective (i.e., the role of financial markets). The decision-making process of investors incorporates both a quantitative (objective) and qualitative (subjective) aspect that is based on the specific features of the investment product or financial service. Investor Behavior examines the cognitive factors (mental processes) and affective (emotional) issues that individuals, financial experts, and traders reveal during the financial planning and investment management process. In practice, individuals make judgments and decisions that are based on past events, personal beliefs, and preferences. The chapter also provides an overview of the emerging research topics covered in Investor Behavior and the abstract descriptions for the remaining 29 chapters of the book.

Acid reflux

Ocean acidification has risen by a quarter since pre-industrial times as a result of rising carbon emissions, casting a shadow over the seas as a future source of food.

In the past two centuries, the sea's acidity level has risen 26 percent, mirroring the proportion of carbon dioxide it absorbs from the air

Rising acidity will have damaging consequences for shellfish, corals and other calcium-making organisms which play a vital part in the food web.

"It is now nearly inevitable that within 50 to 100 years, continued anthropogenic [man-made] carbon dioxide emissions will further increase ocean acidity to levels that will have widespread impacts... on marine organisms and ecosystems and the goods and services they provide,".

Acidification may already be affecting shellfish farms in the northwestern United States

EFM maybe it is part of the reason that millions of starfish have died.

10/9: Americans are soooooooooooo smart

A 2010 Pew Research Center poll showed that 41 percent of Americans did not know that Joe Biden was our vice president.


10/8: Here we go again

The US Justice Department has just announced that it is preparing a fresh round of heavy charges against a slew of top banks in relation to the recent probe into foreign exchange trading manipulation. The Justice Department believes that several top American and European banks colluded to set currency rates, and several banks are expected to plead guilty to the charges. The government plans to begin prosecuting the corporations themselves, and then move on to individuals involved in the market manipulation. Interestingly, the Justice Department is trying out a new tactic in this case, as it is planning to argue that misbehaviour in relation to forex abuse violated previous terms set in the Libor-rigging settlement. Successfully making this case would give the Justice Department grounds for more penalties. Deutsche Bank, Citigroup, JP Morgan, UBS and Barclays are all suspected of being involved, and based on recent fines, the penalties for misbehaviour are expected to be steep, perhaps into the tens of billions.


Just 9.4% of American students is a top performer in financial literacy, similar to the OECD average of 9.7%. These students can, for instance, calculate the balance on a bank statement and understand the implication of income-tax brackets.
Baseline financial literacy is being able to recognize the difference between needs and wants, make simple decisions on everyday spending and recognize the purpose of everyday financial documents such as an invoice.

In the U.S, having one parent in a skilled occupation such as midwife, software engineer, was associated with a 56-point higher score in financial literacy, compared with students whose parents worked in semi-skilled or elementary occupations such as farmhand or machine operator. Similarly, students with at least one parent working in a finance-related occupation performs better by 62 points than students of similar socioeconomic status with parents and other fields.

Students with a bank account scored 37 points higher, on average, then students without, but the advantage disappeared when socioeconomic status was taking into account. Just one in three students less well off socioeconomically has a bank account, compared with 70% of advantaged students.




The IMF is expected to cut its estimate of global growth in 2014 from 3.4 per cent to a little over 3 per cent this week as poor second quarter figures from Germany, Japan and other countries weigh on the outlook. As recently as April, the IMF was expecting 3.6 per cent growth this year, faster than the long-term average.

FT Interactive – Tiger Index

Explore the index, which delivers a snapshot of the state of the global economy, with an interactive graphic

“The world economy is now being powered mostly by the US growth engine, a situation that is untenable for a sustained and durable global economic recovery”.

10/7 OIL PRICES STABLE (Roubini)

the turmoil in the Middle East has not triggered a massive shock to oil supplies and prices like those that occurred in 1973, 1979, or 1990. On the contrary, there is excess capacity in global oil markets. Iraq may be in trouble, but about 90% of its oil is produced in the south, near Basra, which is fully under Shia control, or in the north, under the control of the Kurds. Only about 10% is produced near Mosul, now under the control of the Islamic State.

10/6:  Find prices & ratings for senior communities over 59,178 Reviews,

10/6 :

  1. The imprecision of volatility indexes




Rohini Grover (Indira Gandhi Institute of Development Research)
Ajay Shah (National Institute of Public Finance and Policy)


Concerns about sampling noise arise when a VIX estimator is computed by aggregating several imprecise implied volatility estimates. We propose a bootstrap strategy to measure the imprecision of a model based VIX estimator. We find that the imprecision of VIX is economically significant. We propose a model selection strategy,where alternative statistical estimators of VIX are evaluated based on this imprecision.


Implied volatility, volatility index, imprecision


G12 G13 G17

  1. Returns to Active Management: The Case of Hedge Funds




Kazemi, Maziar (Board of Governors of the Federal Reserve System (U.S.))
Islamaj, Ergys (Vassar College)


Do more active hedge fund managers generate higher returns than their less active peers? We attempt to answer this question. Using Kalman Filter techniques, we estimate the risk exposure dynamics of a large sample of live and dead equity long-short hedge funds. These estimates are then used to develop a measure of activeness for each hedge fund. Our results show that there exists a nonlinear relationship between activeness and performance. Using raw returns as a measure of performance, it is found that more active funds outperform the less active ones. However, when risk adjusted returns are used to measure performance, we find the opposite results; that is, activeness is inversely related to returns. Still, we find that a few very active managers outperform the moderately active funds and generate higher returns. We conclude that the most active managers use their skills to manage the riskiness of their portfolios and are, there fore, able to provide higher risk adjusted returns. Finally, we find that compared to the least active managers, the most active managers are less homogeneous and, therefore, due diligence is far more important when selecting an active manager.



After being interviewed by the school administration, the prospective teacher said, "Let me see if I've got this right:


You want me to go into that room with all those kids, correct their disruptive behavior, observe them for signs of abuse, monitor their dress habits, censor their T-shirt messages, and instill in them a love for learning.


You want me to check their backpacks for weapons, wage war on drugs and sexually transmitted diseases, and raise their sense of self esteem and personal pride.


You want me to teach them patriotism and good citizenship, sportsmanship and fair play, and how to register to vote, balance a checkbook, and apply for a job.


You want me to check their heads for lice, recognize signs of antisocial behavior, and make sure that they all pass the final exams.


You also want me to provide them with an equal education regardless of their handicaps, and communicate regularly with their parents in English, Spanish or any other language, by letter, telephone, newsletter, and report card.


You want me to do all this with a piece of chalk, a blackboard, a bulletin board, a few books, a big smile, and a starting salary that qualifies me for food stamps.


You want me to do all this, and then you tell me....... I CAN'T PRAY?"


  1. Banks' Stockholdings and the Correlation between Bonds and Stocks: A Portfolio Theoretic Approach




Yoshiyuki Fukuda (Bank of Japan)
Kazutoshi Kan (Bank of Japan)
Yoshihiko Sugihara (Bank of Japan)


In this paper, we analyze the optimal asset composition ratio of stocks and bonds for a bank taking into consideration the correlation between the interest rate risk and equity risk in the financial capital market using a portfolio model. The analysis reveals that in determining the asset composition ratio in Japan, the correlation coefficient between the interest rate and stock prices as well as the stock price volatility plays a more important role than the interest rate volatility. We also show that in the present circumstances, the stockholding ratios of most financial institutions in Japan are higher than the levels calculated from the model. It is suggested that when the market is exposed to severe stress such as a surge in stock price volatility or reversal of the correlation between the interest rate and stock prices, the stockholding ratios would be even more excessive than the levels obtained from the model.

  1. Does Gold Act as a Hedge or a Safe Haven for Stocks? A Smooth Transition Approach




Joscha Beckmann
Theo Berger
Robert Czudaj


This study deals with the issue whether gold actually exhibits the function of a hedge or a safe haven as often referred to in the media and academia. In order to test the Baur and Lucey (2010) hypotheses, we contribute to the existing literature by the augmentation of their model to a smooth transition regression (STR) using an exponential transition function which splits the regression model into two extreme regimes. One accounts for periods in which stock returns are on average and therefore allows to test whether gold acts as a hedge for stocks, the other one accounts for periods characterized by extreme market conditions where the volatility of the stock returns is high. The latter state enables us to test whether gold can be regarded as a safe haven for stocks. The study includes a broad set of 18 individual markets as well as five regional indices and covers a sample period running from January 1970 to March 2012 on a mont hly frequency. Overall, our findings show that gold serves as a hedge and a safe haven. However, this ability seems to be market-specific. In addition, by applying a portfolio analysis we also show that our findings are useful for investors.

10/5: John Mauldin

There is considerable disagreement throughout the world on what policies to pursue in the face of rising deficits and economies that are barely growing or at stall speed. Both [the austerity and stimulus] sides look at the same set of realities and yet draw drastically different conclusions. Both sides marshal arguments based on rigorous mathematical models “proving” the correctness of their favorite solution, and both sides can point to counterfactuals that show the other side to be insincere or just plain wrong….

Both sides have arguments that are intellectually appealing, yet both cannot be right at the same time. What I think we need to consider is the possibility that there is something that is happening outside of traditional economic theories, which will mean that following either traditional policy solution could lead to disaster.

EFM- the idea of market timing and simply buy and hold are representative of the DCAD video above. Like it says it is simple and should work the great percentage of the time. 

10/5: But jobs may only be paying 1/3 of what  the jobseeker was payed before.

The US created 248,000 jobs last month, the Labor Department said on Friday in its monthly snapshot of the labour market. That compares with 180,000 in August and the 215,000 economists forecast.

Unemployment has fallen, in part, because so many people have given up looking for work rather than finding it, and there are still millions of part-timers who want full-time jobs.

But then there are deeper factors at work. The economy has gotten bigger, but much of that growth hasn't reached the middle class. Indeed, the top 1 percent grabbed 95 percent of all the gains during the recovery's first three years. And that's not even the most depressing part. Even adjusted for household size, real median incomes haven't increased at all since 1999. That's right: the middle class hasn't gotten a raise in 15 years

only 9.2 percent of the middle 20 percent of households owns stocks, versus almost half of the top 20
63 percent of that middle quintile own their homes, which are more likely to be a financial albatross than asset. And it doesn't help that, with student loans hitting $1.2 trillion, people have to take out more and more debt just to try to stay in, or join, the middle class.

Losses always come back if you wait  long enough, right?

Using a universe of Russell 3000 companies since 1980, roughly 40% of all stocks have suffered a permanent 70%+ decline from their peak value. Looking at the table below, we see that nearly sixty percent of Tech companies have had a catastrophic loss, which they define as “a 70% decline from peak value with minimal recovery.”

Averaging down in a losing stock sounds like a great strategy in theory. And it is, assuming you have a good idea about the future prospects of the business in question and are fairly certain the market is undervaluing the company. Stating the obvious, this is not an easy task.

From a trust administrator on EUIL

Illustrating Equity Index Universal Life Policies, I point out a web based Indexed UL Rate Translator that one carrier believes “represents one approach to translating an assumption of long-term performance of the selected index into a hypothetical assumed rate for the purposes of the policy illustration.” This particular carrier sells Indexed Universal Life and is attempting to show one way to determine a reasonable expectation for the interest credited to the policy. In the modeling I did for that blog entry, I assumed a 100% participation rate, 10% cap and 0% floor. (Note: If you do not understand these terms or how IUL works, refer back to those earlier blogs). In that scenario, in order for the policy to be credited with a 6.52% return, the Translator determined that the actual return in the Index would have to be 12%.

Let that sink in. And think about that the next time you are shown an Indexed Universal Life policy illustration outcome with a hypothetical return of 7% or more. Because according to this Translator, that would mean that the corresponding Index return would have to be 12% or greater. Does that seem plausible?

10/5: Oh yeah, this is news

Ashton Kutcher, Mila Kunis Reveal Newborn Daughter's Name


Five Misconceptions of Retirement Plan Participants: Retirement plan participants subscribe to a variety of wrong ideas about retirement and their retirement plans, but there are ways to set them on the right track. For example, a common misconception about target-date funds (TDFs) can be righted with education. About one-third of participants surveyed by AllianceBernstein said they believe their account balance in a TDF will never go down. In addition, AllianceBernstein found that 37% believe it guarantees lifetime income. Fearful thinking is responsible for a common misconception among participants, according to Michael Fein, managing partner of CIC Wealth Management in Owings Mills, Maryland, who says the big misconception his firm sees is participants' belief that they’re never going to retire because they won’t be able. Read more »

10/5: More on accredited

A remarkable and alarming regulatory change is underway in the United States. As part of the evolving Dodd-Frank regulations, the SEC is planning an overhaul of the definition of “accredited investors”, potentially constraining the term’s meaning so that many less people would qualify to make private investments. Being an “accredited investor” currently means an individual must have an annual income greater than $200,000 for two consecutive years or $1 million in investable assets, excluding a primary residence. However, the SEC favours changing this definition to a much higher level, with the income threshold being $500k, and investable assets of $2.5m, a level it feels is necessary to safe guard “unsophisticated” investors from losses. The SEC is worried that people under this threshold are particularly vulnerable to the risks of private investment, where information and due diligence may be scarce as opposed to in more transparent capital markets. Many investors are demanding that the SEC create other considerations as well, such as taking into account experience or expertise.

10/5: People

We screw up the climate and in 4 decades the global wildlife population has decreased by 50%.



About 10 percent of female University of Oregon students surveyed have been raped while attending the school and the vast majority of those sexual assault cases were never reported to campus officials, school researchers found.

University researchers said 35 percent of students - and 14 percent of men - had at least one forcible sexual encounter and about 90 percent of students assaulted never told of the violence

The White House has declared sex crimes to be "epidemic" on U.S. college campuses, with one in five students falling victim to sex assault during their college years.

10/5: LTC 
Rates for long-term care policies have risen 4.8% on average during the past 2 years

10/2:Man who came from Liberia to Dallas is the first U.S. Ebola case. "A man who flew from Liberia to Dallas this month was diagnosed with Ebola on Tuesday, becoming the first person to board a passenger jet and unknowingly bring the disease here from West Africa, where it has killed thousands of people in recent months. Experts had said that such an event was increasingly likely the longer the epidemic rages in West Africa. But health officials were quick Tuesday to tamp down any hysteria, emphasizing the ways in which the U.S. medical system is well equipped to halt the spread of the disease. 'We’re stopping it in its tracks in this country,' Thomas Frieden, director of the Centers for Disease Control and Prevention, said." Mark Berman, Brady Dennis and Elahe Izadi in The Washington Post.

10/2: If fracking does not cause a problem.........
WE ARE #1 IN OIL - According to the International Energy Agency, the U.S. is overtaking Saudi Arabia to become the world's largest producer of liquid petroleum (oil and related liquids such as ethane and propane) in a sign of the booming energy sector.


QUIET RETIREMENT SUPPLEMENT - According to the Employee Benefit Research Institute, HSAs and HRAs are getting more popular as companies shift health-care costs to their employees. Last year, Americans kept $23.8 billion across 11.8 million HSAs and HRAs. That is a 2,725% increase from 2006

WOMEN AND SOCIAL SECURITY - According to the 2014 Social Security study by Nationwide Financial, "women rarely take steps to maximize Social Security benefits, and only about a third say they work with a
professional financial adviser."  The study goes on to conclude that "just 3% of women take Social Security at an optimal time."  Over 80% of women take Social Security early, locking in a lower payment for life.  

10/2: Still unemployed

LAID OFF - One in five U.S. workers was laid off in the past five years and about 22% of those who lost their jobs still haven't found another one, according to a new survey at Rutgers University showing the extent Americans have struggled in the sluggish labor market since the Great Recession ended. Nearly 40% said it took more than seven months to find employment and about one in five of laid-off workers said all they could find was a temporary position. Almost half -- 46% -- of the estimated 30 million layoff victims who found new jobs said they paid less than their old ones

Student Debts Are Costing Housing $83B/Year

  • "414,000 home sales- or 8 percent of all sales- won't happen this year because more buyers are strapped with too much student-loan debt." (realtormag)
Dismal economics

economics students needed to become “much more independent thinkers and communicators” and that, at the moment, they instead felt “disempowered”. Despite the crisis underlining the subject’s flaws, she also spoke of “huge inertia” when it came to reforming undergraduate teaching, adding that universities were loathe to change a curriculum which could be taught cheaply by any decently qualified economics doctorate.

Juliet Schor, a professor at Boston College who wanted a far greater role for teaching undergraduates how environmental change affects economies, took aim at the root of the discipline, saying she was “not a believer that the standard concepts are fine” and that the whole of macroeconomics was built around one model. “And it’s not a good model,” she said.

Tim Harford, the FT’s undercover economist, said it was not so much a case of the sum of economic knowledge proving irrelevant but that people did not know when to apply it, or how to adapt it to reality.

“We knew [asset-price] bubbles burst,” Mr Harford said. “The real world details matter. And they’re a cause of constant surprise.” But Mr Harford questioned how easily the complexities of the real world could be taught. “All this stuff is deliciously messy.”

“The problem is not so much that economists have envied physicists, but they’ve picked the wrong type of physics,. “Physics has moved on – it now takes uncertainty more seriously.”

9/30: Far too much debt

The Geneva Report, an annual report on global economics written by the International Centre for Monetary and Banking Studies, a group of senior economists, has reported that a new crisis is very likely to occur, caused by a “poisonous mix” of high debt and slow growth. The report was intentionally released ahead of the IMF’s major meeting next week. The piece shows how the burden of private and public sector debt rose from 160% of national income in 2001 to 200% in 2009 (following Crisis bailouts), and has now shot up further to 215%. This info runs counter to commonly expressed notions that global debt is shrinking as part of mass deleveraging after the crisis. However, sovereigns have continued to buildup their debt piles, especially in emerging markets likes China. The report says that rates will have to stay ultra low for a “very, very long” in order to avoid another debt-driven crisis.

Revisions to accredited investor.

It is true that a CFA has credibility, but not so for the series 7. The fundamentals of investing have never been taught to a broker- standard deviation, correlation, diversification, et al. As far as consumers go, the implied competence determine by how much money they have has always been a joke. The rule does need an update and maybe a test would work but it would need a lot of scrutiny beforehand.

 The FED
The Fed holds more than four times as many assets as it did before the 2008 financial crisis. Though the central bank said Wednesday it is committed to shrinking the balance sheet to a more normal size, it formally announced it does not plan to sell any of its assets, a reversal of the plan laid out three years ago.

9/29: Income changes


Here are some of the U.S. statistics for 1905: The average life expectancy in the U.S. was 47 years.


Only 14 percent of the homes in the U.S. had a bathtub. Only 8 percent of the homes had a telephone. A three-minute call from Denver to New York City cost $11. There were only 8,000 cars in the U.S., and only 144 miles of paved roads. The maximum speed limit in most cities was 10 mph. Alabama, Mississippi, Iowa, and Tennessee were each more heavily populated than California. With a mere 1.4 million residents, California was only the 21st most populous state in the Union. The tallest structure in the world was the Eiffel Tower!


The average wage in the U.S. was 22 cents an hour. The average U.S. worker made between $200 and $400 per year. A competent accountant could expect to earn $2000 per year, a dentist $2,500 per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical engineer about $5,000 per year.


More than 95 percent of all births in the U.S. took place at home. Ninety percent of all U.S. physicians had no college education. Instead, they attended medical schools, many of which were condemned in the press and by the government as "substandard." Sugar cost four cents a pound. Eggs were fourteen cents a dozen. Coffee was fifteen cents a pound. Most women only washed their hair once a month, and used borax or egg yolks for shampoo.

Canada passed a law prohibiting poor people from entering the country for any reason.


The five leading causes of death in the U.S. were:

1. Pneumonia and influenza

2. Tuberculosis

3. Diarrhea

4. Heart disease

5. Stroke


The American flag had 45 stars. Arizona, Oklahoma, New Mexico, Hawaii, and Alaska hadn't been admitted to the Union yet. The population of Las Vegas,Nevada,was 30!!!


Crossword puzzles, canned beer,and iced tea hadn't been invented. There was no Mother's Day or Father's Day. Two of 10 U.S. adults couldn't read or write. Only 6 percent of all Americans had graduated high school. Marijuana, heroin, and morphine were all available over the counter at corner drugstores. According to one pharmacist, "Heroin clears the complexion, gives buoyancy to the mind, regulates the stomach and bowels, and is, in fact, a perfect guardian of health." (Shocking!)


Eighteen percent of households in the U.S had at least one full-time servant or domestic. There were only about 230 reported murders in the entire U.S. And I forwarded this from someone else without typing it myself, and sent it to you in a matter of seconds!

An examination of average income growth [in the U.S.] during every postwar expansion (from trough to peak) and its distribution between the wealthiest 10% and bottom 90% of households reveals that income growth becomes more inequitably distributed with every subsequent expansion during the entire postwar period

9/28: Macy's CEO- "Forget about all of the holiday projections soon to be bandied about by the legions of economists, analysts, pundits, experts and faux experts"There will be no overall market growth this holiday season." 


From Boston College Retirement Center

Excellent article on retirement from Yahoo 

Most of you have heard parts of this in one form or another, but pay attention to loneliness.

9/28  big difference


9/25" Active versus passive

Over the past year 70% of global equity funds, 75% of international equity funds, 81% of international small-cap funds and 65% of emerging markets funds underperformed their benchmarks. Overall, active managers did "even worse over a three- or -five year period."

“It gets worse over the longer term. Over the past three years, 65% of actively managed funds underperformed in the broad international category, and 61% underperformed in the emerging markets category, while over five years, 70% underperformed in the broad international fund category, and 68% of actively managed emerging markets funds underperformed their benchmarks," 

The Power and Limitations of Monte Carlo Simulations

9/25: Can Retirees Still Use a 4% Withdrawal Rate? Practical Applications of Monte Carlo Analysis

EFM- no. Wait for this next big drop and it will become apparent

9/25: Disability

At present, nearly 12% of the total U.S. population—more than 37 million people—are classified as disabled. Disability claims are at all an all-time high, which is both a great challenge and opportunity for disability insurers.

From 2011 to 2012, disability insurance sales went down 2%, even as claims went up. By the end of 2012, some 2.5 million disabled workers in their 20s, 30s and 40s were drawing Social Security disability benefits.


This is generally being offered using just the 3.35% rate. But look at the surrender charge. It's 7 years.


Jeremy Siegel vs. Zvi Bodie: Does Equity Risk Decrease Over Time? A Monte Carlo Simulation of Time Diversification

Siegel (2008) noted that stocks have been less risky over long holding periods based on historical equity returns in the U.S. going back to 1801.

EFM- I was not born in 1801. nor 1901 so I tend to be somewhat skeptical of looking back long periods. Further, unlike pure statistics, I tend to look at a period of time from about 1995 with the advent  of technology far beyond anything previous. I do think that times are that different and require a different outlook with far more outliers. Stocks will be more risky. Bonds are already more risky and will stay that way for some time.
Add in climate change, ruthless dictators (Putin??) terrorists, Ebola, faster computers, less social environment (face to face)- the world is now so much different and escalating into technology the ordinary consumer cannot comprehend and, yes, there will be more risk. Certainly for those who will never escape 2008. 

9/24: Huge increase

 1.3 million. is  number of homeless children enrolled in U.S. schools for the 2012-2013 year, an 8 percent increase from the previous year.

  1. Predicting Stock Market Returns Based on the Content of Annual Report Narrative: A New Anomaly




Wisniewski, Tomasz Piotr
Yekini, Liafisu Sina


This paper uses the tools of computational linguistics to analyze the qualitative part of the annual reports of UK listed companies. More specifically, the frequency of words associated with praise, concreteness and activity is measured and used to forecast future stock returns. We find that our language indicators predict subsequent price increases, even after controlling for a wide range of factors. Elevated values of the linguistic variables, however, are not symptomatic of exacerbated risk. Consequently, investors are advised to peruse the annual report narrative, as it contains valuable information that may still not have been discounted in the prices.


The long-term jobless keep reeling. "A third of those 1,153 interviewed for the study said their lives were 'devastated' by the Great Recession, forcing major and permanent changes in the lifestyles they once enjoyed. Eighty percent rated their financial condition as fair or poor, while four in ten said they had to sell some of their possessions in order to make ends meet....More than six in ten say they have experienced stress in family relationships and close friendships since losing their jobs. More than half said they would have to postpone their plans for retirement. Perhaps most disheartening of all, 55 percent are so beaten down that they are convinced that 'hard work and determination do not guarantee success in America.'" Eric Pianin in The Fiscal Times.


GovBeat: Married same-sex couples make up less than one half of one percent of all married couples in the U.S.

For the first time ever, the U.S. Census Bureau now counts married same-sex couples in its survey of married Americans, and despite a 35 percent increase from last year, same-sex couples make up less than one half of 1 percent of all married couples in the U.S.

Read full article >>

But they sure get the press's attention. Not saying that that is bad in itself. But it speaks to what is not being addressed in the "hard" news.

The new economics

Universities across four continents are rolling out a revamped economics curriculum, after students protested that conventional academic courses failed to grapple with the problems befalling the global economy.


 9/23: Do you know what a 70% allocation in the S&P means in terms of the potential risk of loss if we have a bad economic hiccup? Will a 30% position in bonds soften the risk? tough to say since a standard bond fund should drop fsor many years to come.

9/23: Frankly, I do not believe that the world will provide a good living for mammals by the end of the century. It will take mother earth a long time to absorb the mess we have caused. Maybe ebola will mutate into air borne....

But the elephant in the room is the divide in nations' wealth. "As they seek to build momentum for a new global deal on climate change by 2015, the 126 heads of state in attendance are likely to find themselves plagued by an old divide....If history is any guide, the rich countries of the world will say how concerned they are about the damage their emissions of heat-trapping gases are causing. The poor countries — whose people have done little to contribute to global warming but stand to suffer the most from it...will point out that this professed concern never seems to translate into sufficient action." Justin Gillis and Coral Davenport in The New York Times.

9/23: They just sent up a 3d printer to the space station. Instead of such printers not making major inroads until 2030, they will start popping up like microwaves  by 2020. Prices and improvements will allow most homes to have one by 2030.   Probably one of the best industries to now consider.

9/22: Home expenses

In 2011, people ages 65 to 74 spent an average of $18,720 on home and home-related expenses; those 75 to 84 spent $14,732, says the analysis of about 5,000 households with folks 50 and over. Many are retired or on the cusp of retirement. The survey has tracked people every two years from 2001 to 2011.

Home-related expenses include mortgages, property taxes, homeowner's or renter's insurance, rent, utilities, home repairs, home furnishings, housecleaning supplies, housekeeping and laundry services, gardening and yard supplies, and gardening and yard services.

Flawed from its foundation, economics as a whole has failed to improve much with time. As it both ossified into an academic establishment and mutated into mathematics, the Newtonian scheme became an illusion of determinism in a tempestuous world of human actions. Economists became preoccupied with mechanical models of markets and uninterested in the willful people who inhabit them….

Some economists become obsessed with market efficiency and others with market failure. Generally held to be members of opposite schools – “freshwater” and “saltwater,” Chicago and Cambridge, liberal and conservative, Austrian and Keynesian – both sides share an essential economic vision. They see their discipline as successful insofar as it eliminates surprise – insofar, that is, as the inexorable workings of the machine override the initiatives of the human actors. “Free market” economists believe in the triumph of the system and want to let it alone to find its equilibrium, the stasis of optimum allocation of resources. Socialists see the failures of the system and want to impose equilibrium from above. Neither spends much time thinking about the miracles that repeatedly save us from the equilibrium of starvation and death.

– George Gilder, Knowledge and Power: The Information Theory of Capitalism and How It is Revolutionizing Our World


Number 5: Social Security is Massive
In 2014, over 59 million Americans will receive Social Security. Among them are:

·         38 million retired workers

·         9 million survivors and dependents

·         11 million disabled workers and dependents

·         Number 4: The Elderly Could Not Survive Without This Program
Many elderly Americans heavily rely on Social Security; it's the major income source for most older Americans.

·         In fact, 9 out of 10 people age 65 and older receive Social Security benefits, which at times comprises 38% of income. Even more important, half of married couples and three quarters of singles receive at least half their retirement income from Social Security.

Number 3: The workforce is shrinking
Demographics are not in our favor as fewer workers support more retirees. In 1950 there were 16 workers per Social Security recipient. In 1960 there were 5 workers per recipient. In 19 years: by the year 2033, only 2.1 workers will support one retiree.

Number 2: The Numbers Just Don’t Add Up
Social Security relies on its trust fund in order to cover shortfalls between taxes paid and benefits paid. The trust fund is projected to run out of money in 2033. Once the money is gone, retirees can only expect to receive about 75% of the benefits they would have received.

Number 1: The #1 Way to Increase Your Benefits
Every year you wait to claim social security benefits until age 70 you will boost your annual payouts by 8%. Waiting until you're 70 will give you 32% more in benefits than if you took them at age 66 and you can receive 76% more than taking them at age 62. If you can afford to delay benefits until age 70 and if you live past age 82, you will receive more in lifetime income from Social Security than if you had waited until full retirement age.

9/22: You must read this. So many children refuse to admit something may be wrong with a parent and dementia.

Here are eight dangers of denial, ideas about how to maintain a realistic outlook on your loved one’s care, and thoughts on helping your other family members do the same.

8 Risks of Denial

Last year we reviewed “A Gradual Disappearance,” by Elizabeth Lonseth, which was described as “a warm, personal and concise guide for people who have a loved one with Alzheimer’s disease or dementia.”

Lonseth is a seasoned caregiver uniquely qualified to write about caregiving and connect with other caregivers. Both of Lonseth’s parents and both of her parents-in-law faced dementia in their later years. Lonseth still oversees the care of her mother, who now lives in a group home specializing in memory care.

A main theme of “A Gradual Disappearance” is the promotion of a realistic perspective about your loved one’s illness and his or her needs. Lonseth’s latest speaking engagements have focused exclusively on the issue of denial, including its risks and how to avoid it. We culled this list of eight dangers of denial from Lonseth’s speaking notes, which she generously shared with us.

1. Overdosing on Medication

“Refusing to accept that your loved one has Alzheimer’s or dementia can lead to bigger problems, like your parent overdosing on medications… My mother-in-law gave us a scare. We thought by getting a weekly pill dispenser, the kind with the days of the week, it would be easier for her to take her medications. My husband organized all the pills and explained it to her one morning. A few days later we noticed all the pills were gone. She seemed okay, so she probably threw them out. But we realized we had to disperse medications ourselves.”

2. Accidents

“Not accepting that your loved one has declined to another level of care can be dangerous. Ignoring the fact that they need a walker can lead to a fall, resulting in broken bones, displaced joints, hospitalizations and the use of pain medication… Leaving them unsupervised could lead to accidents in the kitchen and bath, and even a fire. They could cut or burn themselves, leave the stove on, or eat certain foods in excess. My father-in-law would have eaten a full pound of butter in one sitting if we had let him.”

3. Family Conflict

“Denial on the part of a family member can cause major family conflict. The ones in denial create all kinds of frustration for the ones who are facing the disease. The children in denial don’t help out and the aware ones take on multiple burdens sometimes alone. Often the ones in denial accuse their siblings of ‘over reacting.’ The ones in denial don’t think additional care is needed and Mom or Dad can be retrained to make their own meals or dress themselves.”

4. Delaying Professional Help

“Often times a spouse is very aware that their husband or wife has memory disease but they don’t want anyone else knowing about it. They associate shame with the disease. They lovingly try and protect their spouse from the outside world and begin to hibernate. Maybe in the beginning stages a spouse can handle providing the needed care, but as it snowballs, it will become overwhelming. Caring for a loved one at home is draining physically, mentally and emotionally. But the memory patient has an added dimension that wears the caregiver down. The dimension of unreality. The confusion seems contagious at times as you care for them day after day. It becomes a psychological game as you try to catch up to which reality they are in at that moment. It can be like trying to care for a two year old, on steroids, in a large body.”

5. Missing Opportunities for Quality Time

“I was in denial with my father and I avoided visiting him as often as I used to. It was so painful seeing this brilliant geneticist no longer able to hold a long, intelligent conversation. His communication skills became that of a young child. So instead of visiting every month like I had been, I came every other month or every three… Deep in denial, I lost the chance to create special memories with my father.”

6. Financial Exploitation

When a family is in denial about their older loved one’s memory loss, they leave their loved one vulnerable to financial exploitation.

Lonseth provided this amusing but sobering example: “A few years ago at a book signing at my mother’s facility, a happy little lady who I had never seen before walked up to me. At first, I assumed she was part of the group of ladies from the surrounding neighborhood. She said she would like to purchase all of my books. I had about twenty copies of each of my fiction novels stacked on the table. ‘All of them?’ I asked. She insisted that she wanted all of them. She handed me her checkbook. ‘Will you make out the check for me?’ she asked. ‘I’ll sign it.’”

“…After some negotiation I convinced her that one copy of my first book would be good enough. I wrote the check making sure I had her name on the receipt. After the signing I went to the receptionist and found out she was a new resident. Then I went to the head of assisted living and suggested that she inform the family of the incident. I also suggested that they take away her checkbook and give her small denominations of cash instead. I also offered to refund the money for the book if the family wanted. My husband and I joked afterwards that I could have had a much better book signing.”

7. Not Getting Papers in Order

“Another problem stemming from denial could be not getting needed legal papers in place, such as financial power of attorney, medical power of attorney also known as advance health directive, and written permission for adult children to see their health records. Without those in place, getting proper care, dealing with finances, and authorizing needed medical procedures can be difficult. You would have to go to court to get legal rights to supervise their care, in the form of a Conservancy (or guardianship), which is expensive to initiate and maintain. Not to mention the time it would take. Obtaining a Conservancy also involves having your loved one deemed incompetent, which can be very humiliating for them. Once they are deemed incompetent they can no longer execute legal documents.”

8. Caregiver Health Decline

Family caregivers also put their own health at risk when they are in denial about the help they need caring for a loved one. Lonseth points out that family caregivers over age 66 have a 63% higher mortality rate than non-caregivers, and that “often the caregiver dies before the loved one they are taking care of does.”

“I know of two cases where that happened this past winter. In each case it was the husband taking care of the wife with Alzheimer’s or dementia. Both gentlemen did not let their children know what they were really going through physically, mentally and emotionally. One got so worn out he had a heart attack even though he had no previous history of heart disease. The other gentleman was also so worn out and sleep deprived he contracted infections and developed other complications that his depleted body could not fight. In both cases, the children had to step in and care for Mom, immediately.”

Preventing Denial

Lonseth believes that one of the best ways to prevent or overcome denial is the family meeting, and she quoted Gary Joseph LeBlanc who, writing for the Fisher Center for Alzheimer’s  website, said: “If possible, a family meeting should be held right after the initial diagnosis is obtained. The sooner everyone realizes that their loved ones will no longer be able to care for themselves in the near future, the less denial will be brought forward.”

Lonseth also highly recommends techniques in an article called “Denial is Dangerous“ by Carole B. Larkin. The article includes tips to help overcome denial among your family members. For example, “Help them to understand that fear is overruling logic,” and, “Explain that denial or doing nothing is actually doing something; and that doing nothing is going to cause more pain for all involved.”

Wrong direction

Spurred chiefly by China, the United States and India, the world spewed far more carbon pollution into the air last year than ever before, scientists announced Sunday as world leaders gather to discuss how to reduce heat-trapping gases.

The world pumped an estimated 39.8 billion tons (36.1 billion metric tons) of carbon dioxide into the air last year by burning coal, oil and gas. That is 778 million tons (706 metric tons) or 2.3 percent more than the previous year.

  1. Cheating and loss aversion: do people lie more to avoid a loss?




Grolleau, Gilles
Kocher, Martin G.
Sutan, Angela


Does the extent of cheating depend on a proper reference point? We use a real effort task that implements a two (gain versus loss frame) times two (monitored performance versus unmonitored performance) between-subjects design to examine whether cheating is reference-dependent. Our experimental findings show that self-reported performance in the unmonitored condition is significantly higher than actual performance in the monitored condition - a clear indication for cheating. However, the level of cheating is by far higher in the loss frame than in the gain frame. Furthermore, men are much more strongly affected by the framing than women.

  1. Do Personality Traits Affect Productivity? Evidence from the Lab




Maria Cubel (University of Barcelona and IEB)
Ana Nuevo-Chiquero (University of Sheffield)
Santiago Sanchez-Pages (Edinburgh School of Economics and University of Barcelona)
Marian Vidal-Fernandez (University of New South Wales and IZA)


While survey data supports a strong relationship between personality and labor market outcomes, the exact mechanisms behind this association remain unexplored. In this paper, we take advantage of a controlled laboratory set-up to test whether this relationship operates through productivity, and isolate this mechanism from other channels such as bargaining ability or self-selection into jobs. Using a gender neutral real-effort task, we analyse the impact of the Big Five personality traits on performance. We find that more neurotic subjects perform worse, and that more conscientious individuals perform better. These findings are in line with previous survey studies and suggest that at least part of the effect of personality on labor market outcomes operates through productivity. In addition, we find evidence that gender and university major affect the impact of the Big Five personality traits on performance.

9/21: Fama
Some money managers may outperform short-term, but “you can't tell good luck from good skill, or bad luck from bad skill,"

One questioner insisted that when an advisor or investor senses an index is headed for a very tough period, such as in 2008, it pays to employ an active strategy.

Fama isn’t persuaded. “You’re talking about market timing,” he says. "If you sold when the market crashed, you made a big mistake. If you saw it coming a year ahead of time, you're a genius."

EFM: Market timing is the attempt to find the perfect market top and bottom. Foolishness.

But one is also a fool to dismiss a 100% indicator or a recession. The inverted yield curve in 2000 and 2006. So in 2000 I used dollar cost averaging down (which I had taught since the mid 90s) and in late 2007 I used it again. Kept equity losses under  15%.

Genius? Nope. Just reading and research.

Do you know what to do this time?????

 Does Rebalancing Really Pay Off??

Knock yourself out. Very extensive. But you note that they still like standard deviation as risk. It is not.


Leveraging Filial Support Laws Under the State Partnership Programs to Encourage Long-Term Care Insurance

Jamie Patrick Hopkins

The American College

Ted Kurlowicz

The American College

Christopher P Woehrle

The American College

July 21, 2014

Widener Law Review, Vol. 20, No. 165, 2014, 20 Widener L. Rev. 165 (2014)

As thousands of the United States’ baby-boomers retire each day, people live longer, families disperse, and the population ages. Financing long-term care needs has become an increasingly important focal point in both civilian and government budget discussions. In order to reduce reliance on government provided long-term care funding programs such as Medicaid, states can leverage the often unenforced filial responsibility laws and State Long-Term Care Partnership Programs. Through the enforcement of existing filial responsibility laws, states can provide the proverbial “stick” to incentivize people to purchase long-term care insurance by increasing their personal liability for their family members’ long-term care expenditures. Furthermore, by offering liability protections from filial responsibility laws under the state’s long-term care insurance partnership program, states will be able to offer a “carrot” to encourage participation in the long-term care insurance market. Ultimately, by leveraging these two existing legal structures, states can incentivize the purchase of long-term care insurance and reduce reliance on government provided long-term care financing programs.

9/21: Stoners

A new report has found nearly 1 in 10 Americans are showing up to work high on marijuana. conducted the survey in partnership with SurveyMonkey, and found 9.7 percent of Americans fessed up to smoking cannabis before showing up to the office.

add in alcohol and ?????

9/21: Here is the

Group letter to Congress in support of a strengthened and updated fiduciary rule (September 17, 2014) :

I have read maybe a hundred such letters so far. While the letter make reference to the need for updated DOL rules (The DOL fiduciary rule is outdated, and those saving for retirement need sound investment advice more than ever) I trumped by at least two years the necessity of changes to the prudent man rule for effectively the same reasons (see Uniform Prudent Investor Act) for the full commentary..

In short however, the background of a prudent man or a fiduciary are not spelled out with any specificity at all. When you look at the organizations below, I submit that not a one has an idea that the fundamentals of investing have never been taught to a broker or RIA. Or that a CFP is simply one semester on money. 95% pf the fiduciary rhetoric misses the point.

National Organizations: AARP AFL-CIO AFSCME Alliance for Retired Americans American Federation of Government Employees American Federation of School Administrators American Federation of Teachers Americans for Financial Reform Better Markets Consumer Action Consumers for Auto Reliability and Safety Consumer Federation of America Consumers Union Demos The Economic Policy Institute Fund Democracy Inc. International Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists and Allied Crafts International Association of Machinists and Aerospace Workers International Brotherhood of Electrical Workers Union International Brotherhood of Teamsters International Federation of Professional and Technical Engineers International Longshoremen’s Association International Union of Bricklayers & Allied Craftworkers The Leadership Conference on Civil & Human Rights Metal Trades Department, AFL-CIO NAACP National Association of Letter Carriers The National Coalition for Asian Pacific American Community Development National Committee to Preserve Social Security and Medicare National Senior Citizens Law Center National Women’s Law Center Pension Rights Center Public Citizen SEIU United Auto Workers United Food and Commercial Workers Union U.S. PIRG United Steel Workers Wider Opportunities for Women State and Local Organizations: California School Employees Association Chicago Consumer Coalition Consumer Federation of the Southeast Massachusetts Consumers’ Coalition Oregon Consumer League cc: Hon. Thomas E. Perez, Secretary, Department of LaborPhyllis Borzi, Assistant Secretary for Employee Benefits Security, Department of LaborHon. Shaun Donovan, Director, Office of Management and BudgetJeffrey Zients, Director, National Economic CouncilLily Batchelder, Deputy Director for Domestic Affairs, National Economic Council - See more at:

: IMF"
Emerging markets are suffering an unprecedented and broad-based slowdown that threatens the future of the global economy,

The Fund’s paper finds that growth is slower across a swath of developing countries, not just the largest economies such as China and India. Expansion rates in more than 90 per cent of emerging markets are lower than before the 2008 turmoil.

9/21: Toasty

The globe smashed more heat records last month, including Earth's hottest August and summer

May, June and August all set global heat records this year. Meteorologists at the National Oceanic and Atmospheric Administration said the average world temperature in August was 61.36 degrees Fahrenheit (16.35 degrees Celsius), breaking a record set in 1998.

KRUGMAN: Could fighting global warming be free and cheap? "You know that such assessments will be met with claims that it’s impossible to break the link between economic growth and ever-rising emissions of greenhouse gases, a position I think of as 'climate despair.' The most dangerous proponents of climate despair are on the anti-environmentalist right....Where is the new optimism about climate change and growth coming from? It has long been clear that a well-thought-out strategy of emissions control, in particular one that puts a price on carbon via either an emissions tax or a cap-and-trade scheme, would cost much less than the usual suspects want you to think. But the economics of climate protection look even better now than they did a few years ago." Paul Krugman in The New York Times.

9/17: ECB money

Back in June, the ECB announced that it would take serious steps to combat its persistently low inflation, which recently dropped to 0.3%. Now, three months later, the ECB is set to take action, and will this month auction €174 bn of loans to financial institutions, followed by €167 bn in October. All told, the ECB plans to give out at least €400 bn in loans in the next three months. The ECB hopes the move will stimulate lending in the Eurozone and boost inflation. However, the bank is also planning to ramp up its promised Asset-backed security (ABS) stimulus package in the near future, and plans to buy nearly €1 tn of ABS. The issue is that the European ABS market is still very quiet, with weak issuance, meaning the ECB has little to buy in order to stimulate lending. The bank hopes that by buying ABS, it will incentivise banks to lend by taking the risk of loans off their balance sheets.

9/16: This will actually get worse. 

firms such as Merrill Lynch have started to offer internship programs to college students. Additionally, colleges have started financial planning programs where students work with the Certified Financial Planner Board of Standard, Inc. to "provide students with the education requirement for the group's financial planner certification."

However, there's a problem. Only about one-third of students "who graduated from a college program that prepares them for the CFP certification actually choose to sit for the CFP exam" and programs have noticed a recent decrease in enrollment. Only approximately 50% of students get a passing grade, which is definitely a contributing factor to why less and less are taking the courses..

EFM- Having written courses, it is possible to design whatever passing rate you want. I think they just want to make in hard by, probably, demanding theoretical knowledge, not real life.  That way it is  either right or wrong and avoids intellectual subjectivity. Further, I truly wonder on the instructor's insight to the real world and the products coming to market daily are truly addressed. . 

The Big Book of Everything

Great great material


Table of contents
Personal Information
Current Resume
Emergency Plan
Passwords and Logins
Data backup plans
Groups and Organizations
Bank Accounts
Account Numbers
Previous Addresses
Employment History
Schooling History
Life Insurance Policies
Health Insurance Policies
Car Insurance Policies
Homeowner/Renter Insurance
Medical History
Prescription Medication
Extended Family Medical History
Long Term Health Care
Organ and Body Donation
Final Arrangements
Eulogy Notes
Personal Letters
Estate Plans
Other Contacts
Funeral Receipts
Other Assets
Retirement Plans
Private Business
Real Estate
Safes and Storage
Valuables Inventory
Tax Issues
Loan Obligations
Credit Report
Credit Cards
Other Debts
Debts Owed to You


Asset allocation:

Students of finance and investment management heading for the classroom this autumn will be taught the same mainstream theories as their predecessors.

Those theories failed to anticipate the 2008 financial crisis, or earlier crashes, and probably will not spot the next one. How can they when the underlying assumption is that markets are in a state of equilibrium that can only be disturbed by unpredictable events unconnected to market operations?

“No investment strategy based on mainstream finance theory can, therefore, protect investors from market-wide crashes,”

The assumptions underlying mainstream finance theory are “clearly false”, it says. Markets are not in general equilibrium or populated by rational agents with perfect knowledge of the future. Even supporters of the theory acknowledge the unrealistic nature of the models and the need to add extra components, such as taking account of money creation and the banking system.

In spite of this, the study reports a consensus that students should still learn the prevailing theory, with the caveat that it should be taught less dogmatically and more pragmatically.

The CFA study is encouraging in some respects, dispiriting in others. It gives a thorough airing to the critiques of finance theory that have surfaced post-crisis (although some are longer standing than that). It also acknowledges the difficulties in moving away from established theory and practice, not least because faith in the efficiency of markets and their self-correcting mechanisms is the dominant ideology.

With so much at stake, though, it is disappointing to realise that investment professionals are to a surprising extent working in the dark.(Who is an investment professional????? Inquiring minds would like to know)

"That the reality of markets should be the primary object of study is perhaps the key adjustment that needs to be made to both the theory and the teaching of finance,”

EFM: The bulk of those doing investments at the fund level do include CFAs. But I took two years of the courses in the mid 90s and was trying to figure out why they were teaching pure theory in a dot com bubble where every analyst was coming up with different valuation numbers> Or nobody did anything except listen to a 30 year old pretty boy on CNN say that business cycles were just a thing of the past. While I tend to agree that it is next to impossible to determine the scale of a downturn, in 2000 and 2006 a recession was readily identifiable.

There will be a pretty big drop due to our fabricated economy, but a consumers exposure to equities loss should not exceed about 10 to 15%. But consumers are irrational and  not very bright. Advisers are extremely limited since few have much background.

9/14: Permanent life insurance- just 22 percent of Americans own one. For the very wealthy they can make sense. Otherwise, why?????

Soldiers From Poor Countries Have Become the World’s Peacekeepers

On balance, the troops contributed by developing countries are more likely to be less well trained, under-supplied and ill equipped for the missions. Delays in financial contributions only complicate the challenges of modern peacekeeping.

So does the fractured nature of modern conflicts. Military experts, like General Sir Rupert Smith, have noted the shift from “industrial wars” of the past to today’s “war amongst the people.” Modern conflicts involve combatants whose ends are not merely the control of territory or the monopoly of politics. They wage war with their own rules, without concern for the U.N.’s mission to referee.

9/14: Just an example

Joint LTC: Are You Using the Right Plan?

$100,000 total
single premium

$100,0000 total
single premium

Thomas and Michelle
$200,000 total
Single Premium

Benefit Pool:

Monthly LTC Max:

Death Benefit: