THESE
COMMENTS AND WEB LINKS ARE OFFERED FOR A COUPLE WEEKS AND THEN DELETED.
YOU
HAVE TO COME HERE OFTEN TO BE SURE YOU GET ALL THE NEW STUFF SINCE I
TEND TO
UPDATE DAILY. (MOST OF THE LINKS ARE THEN ADDED TO OTHER PAGES ON MY
SITE AND
SOME OF THE COMMENTS MAY BE EXPANDED ON IN OTHER SECTIONS.)
USA
Today-"This
is a high-powered personal bookmark list that spans the spectrum of the
truly
useful."
FORBES-
"You'll find some great information."
BUSINESS
WEEK: "For an Expert, Click here"
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Investor Sourcebook: One of the top Personal Finance sites on the
Internet
NO NONSENSE FINANCE II
(ONLINE IN LATE JANUARY
2010)
THE
FAILURE OF OUR FINANCIAL, ECONOMIC and EDUCATIONAL SYSTEMS- THE
REFUSAL AND INABILITY TO UNDERSTAND REAL WORLD RISK
WHAT TO LEARN ABOUT THE RISK AND REWARDS OF
INVESTING AND HOW TO APPLY IT TO REAL LIFE
MANDATORY FOR ALL WHO
WANT TO KNOW WHAT RISK REALLY MEANS FOR YOUR PERSONAL PORTFOLIO.
(The book is included for
all consumers buying the video and for all taking the
continuing education courses. Actually it is
a supplement to the videos and provide detailed additional
commentary. However, for those well versed in
investing, it will stand on its own. But if the only thing you have
ever read or seen is Suze Orman or Robert Kiyosaki, you will have a
difficulty without the videos providing more in depth insight)
"Thank you for sending me a copy
of your book; I'll waste no time reading it."
- Moses Hadas
From a
industry journalist: "It is
wonderful
- full of very sound advice, and in your typical no nonsense style,
you've made
sure the reader knows what is what. As usual, you have pulled no
punches, and
spared no illicit or immoral activity and/or schemes. Good for you.
Investors
need a healthy dose of reality, sans the sugar-coating."
Industry
dialogue: From noted author Rick Ferri. "I GUARANTEE this
book is
worth every penny. For a little bit of insight into who E F Moody is,
go to the
widely acclaimed EFMoody.com website. You will not be disappointed."
From a
reader: Errold
Moody is unusually well
qualified to write a book about financial planning. He enjoys more
credentials
than nearly anybody in the field. In my opinion, no one can be an
expert in all
the subjects covered. Mr. Moody comes as close as possible.
From a
reader:
I am studying for my MS in
financial planning. I use information from your site to stimulate my
appetite
in contrast to the traditional texts used in the course. Your site and
book
rocks!
Yale: As
stated, my book is not for
industry. Generally, they
don't like it since it shows a lot of the warts that exist. That said,
others
find it very useful. I acted as an expert witness on a major case.
One of
the attorneys found it useful. He also had this to say: "I showed it to
another expert of ours, David ........, who is a Yale professor. He
thought it
was great and said he was going to order a copy. And he is going to
require it
for his students."
From a
reader: Thank
you for writing the
informative and refreshingly honest No-Nonsense Finance. Unfortunately,
I found
myself described amongst the pages as the uneducated investor who takes
advice
from a friend, hires a planner and a broker and loses 60% of her money.
Ouch.
Luckily, yours is the first publication that actually explains what
went wrong
and how to take more grounded steps going forward. Your book
(and
website) have helped me begin to understand many important principles
for
prudent investing. Thank you again for your dedication to making
Finance and
Investing accessible for the rest of us.
From a
reader: I
am in middle of reading No
Nonsense Finance and think it is one of the best financial books I have
read to
date. Due to watching my monthly statements continue to remain stagnant
and the
absence of any calls from my various brokers, I decided to take matters
into my
own hands and become my family's self-proclaimed CFO. First step was a
financial plan from a CFP which turned out to be a 68 page piece of
crap with
relatively no validity or specific recommendations.
From a
reader:
Read part of Moody's book last night
and this morning. Moody covers the 2000-2002 years so well and I really
needed
to see someone knowledgeable address it. You certainly never see
anything in
any magazines or from CFPs providing any real information.
From a
reader: Your
book arrived, wow, must say
it has had a major impact on my perspective. As I read and absorb the
information, I gain clarity on all levels.
My
direction or approach has shifted, taking into consideration my own
ignorance
as well as the misleading information & handling of my funds.
Understand
the importance of being prepared to take responsibility for my own
actions,
along with taking time to gather information necessary to present my
case in
any forum.
Your book
has become an important tool for me, confident I will gain satisfaction
if
presented properly.
Thank you
for putting the information together in such a way that makes sense,
especially
when life doesn't!
From a
reader- I
picked up your book last
year, read it, put it down and picked it back up during the last couple
of
months. I would first like to say your writing is indeed
hilarious and I
have enjoyed every minute spent reading it. !
From a
reader:
I've read parts of your book &
have been reviewing your web site & frankly ----WOW!!! What you
are saying
is beginning to open my eyes & making some sense to me ,
However it also
struck fear in my heart -knowing how stupid I've have been all these
years.
From a
reader:
I most especially enjoyed your
tapes. I also bought your book and read it cover to cover. I have been
profoundly enlightened. Thanks. I also share your cynicism and caution
about
getting financial advise.
Another
reader: I
purchased your book to
investigate issues related to long term care and it was very helpful.
From
a reader- This weekend (2009) I finally finished your book
No Nonsense
Finance I just wanted to let you know how much I
enjoyed it,
especially the chapters where you shared your experience and insight
with some
of the cornerstones of financial planning (estate planning, insurance,
basis,
and the investing pyramid).
From
a reader-
As you may recall, I completed the required CFP courses, and I felt
your book
was what I should have learned. You did a great job of
explaining the
major concepts of financial planning and sharing your experience about
the
different things a person needs to be aware of. I especially enjoyed
the depth
of your insights, gathered from a career of "being in the trenches."
I hope you plan to write some more books. I would especially
love to see
books that focused on a single financial planning topic. With
all the
financial fluff in the media and the difficulty of finding a competent
planner,
your books would become an invaluable asset in any investor's library.
* Of course
I am not going to print the couple responses from people who hated it.
But I
will tell you this- they wanted/expected me to provide the "exact"
triggers that would tell you what, when and where to invest. If you
want that,
try Rich Dad/Poor Dad, or some other piece of sophomoric claptrap. Or
ask some
CFP, Suze Orman, whoever. None of them have ever been taught the risks
of
investing.
(Hint- see Inverted Yield
Curve)
No
Nonsense Finance was
published in Chinese
in 2005. If it didn't make sense in English, try this.
The only course on
investments ever approved for continuing education by the
California State Bar-
Practical
Investment Theory and
Application
The
only course on life insurance and annuities ever
approved for continuing education by the California State Bar-
Practical
Life
Insurance and Annuities Analysis and Application
I
have reviewed all State Bar associations and on line attorney CLE
services as well. Nothing like this has ever been offered. Actually I
have found nothing like this for CPAs or CFPs either.
Seminars available throughout the
U.S. for Law, Arbitration and Mediation firms and Bar Associations
A report
describing the fallacies of knowledge and competency from planners to
B/D
Firms, attorneys and arbitrators. And absolutely for consumers
Factual and
objective. It is based on this solid premise: If you do not understand
diversification by the numbers, you cannot determine risk. If you
cannot
determine risk, you cannot determine suitability.
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.
In
affiliation with the Insurance Advisor Services
JOIN
EMAIL LIST
Within the
next two months, on line 24/7
videos will be available for CLE Credit for attorneys, CFPs, CPAs etc.
See course overview above. I will keep you informed of the offering.
I will also do at
least one consumer video on investing that will
include what 401k participants need to know. It sure won't be
the
standard hogwash normally offered employees.
Additionally, my monthly newsletter Moody's Review will be offered.
And current Press Releases
Your subscription therefore keeps you both informed and
educated.
VIDEOS- Hope to
have Ebook up by the end of January.
Consumer video and investment video edited by first of February.
Once they go online, I will finish up the Insurance section.
Evolutionary economics
badly needs a behavioral theory of household consumption behavior, but
to date only limited progress has been made on that front. Partly
because Schumpeter's own writings were focused there, and partly
because this has been the focus of most of the more recent empirical
work on technological change, modern evolutionary economists have
focused on the "supply side". However, because a significant portion of
the innovation going on in capitalist countries has been in the form of
new consumer goods and services, it should be obvious that dealing
coherently with the Schumpeterian agenda requires a theory which treats
in a realistic way how consumers respond to new goods and services. The
purpose of this essay is to map out a broad alternative to the
neoclassical theory of consumer behavior.
Preference for
control affects investment behavior. Participants of laboratory
experiments invest different amount of money in a risky asset when face
with two different methods of control which have identical payoff
structure and probability distribution, but provide different sense of
control. Preference for controlling and not controlling are both
observed. Participants increase their investment when their preferred
method of control is used. Participants who prefer to control more
reduce their investment more strongly when face with less control.
Preference for control has larger effect on investment behavior when
participants are induced to have a comparative mindset rather than
non-comparative mindset.
Keywords:
Preference for control, sense of control, risk attitudes,
illusion of control, source preference, portfolio choice, behavioral
finance, comparative mindset, non-comparative mindset
Experimental
analyses have identified significant tendencies for individuals to
follow herd decisions, a finding which has been explained using
Bayesian principles of statistical inference. This paper outlines the
results from a herding task designed to extend these analyses.
Empirically, we estimate logistic functions using panel fixed effect
estimation techniques to quantify the impact of herd decisions on
individuals‘ decisions about whether or not to buy a
financial asset. We confirm that there are statistically significant
propensities to herd and that social information about
others‘ decisions has an impact on
individuals‘ decisions. We extend these findings by
identifying associations between herding propensities and individual
characteristics such as gender, age and specific personality traits
including impulsivity and venturesomeness.
Keywords:
herding, social influence, financial decision making,
personality
2/8:
2/8: WSJ- Jason Zweig notes-
Consider Philip Eberlin, 56 years old, who runs a
woodwork-restoration business in Chicago Heights, Ill. Trading hot
stocks a decade ago, Mr. Eberlin got burned on picks like Krispy Kreme
and Tyco. In 2007 he got back into stocks, only to take another hit.
"Having been burned twice in 10 years," says Mr. Eberlin, he now has
about 80% of his family's assets "protected from the market" in
certificates of deposit and fixed annuities. "I don't have trust in Wall Street to help
the small investor in any way, shape or form."
EFM- somebody kidding me. Maybe not- the
industry has never addressed diversification. I may be hard on Eberlin
for buying single issue securities but that is what the bulk of the
industry suggests.
Americans were asked how much they
trusted bankers and other Wall Street leaders "to reduce the risk of
the financial challenges the country is facing now." On a scale of 1 to 5, with 1 meaning
no trust at all, the rating averaged a paltry 1.7
But Zweig also says, "I believe the old truths remain valid:
Buying and holding a diversified stock portfolio still makes
sense." ." But then I believe he also has stated that one
must accept 50% losses every so often during their lifetime. Not a
chance. the average 401k investor cannot handle that emotionally nor
financially.
,
Also, Paradoxically, as fewer people cling to their faith in
traditional stock investing, the future rewards from it are likely to
grow greater." Possibly but as Bernstein noted. the future is
unknown.
"Likely" is not acceptable.
2/8: The unemployment rate fell
from 10.0 to 9.7 percent in January and
nonfarm payroll employment was essentially unchanged (-20,000).
Employment fell in construction and in transportation and
warehousing, while temporary help services and retail trade added jobs.
It is actually MUCH higher than this with the people no longer looking,
immigrants etc. Probably closer to 17%..
2/8: The Nursing Home
Abuse Center is an informational website committed to providing
comprehensive information on nursing home abuse and neglect for the
elderly and their loved ones
2/8: From my June 1995 newsletter.
ILLITERACY: (Marcia Kaplan, SF Chronicle) "Each year over
700,000
graduate from high school unable to read their high school diploma. The
US.
Department of Education says that 20% of American adults are
functionally
illiterate. Functional illiterates can read words but they cannot
comprehend
their meanings, synthesize information or make decision based on what
they
read. And marginally illiterate people feel most comfortable receiving
information in a visual format, relying more on television than print
for
information.
At the same time that American's skills are declining,
entertainment,
computer and telecommunications companies are creating new,
technologically
advanced methods to amuse and educate us. (However) in the
excitement about
the information superhighway, businesses are ignoring a troubling fact-
a
substantial number of Americans are not intellectually capable of using
their
technologies.
.....Any business that sells a products or services that
require
a user's ability to exercise cognitive skills will face a shrinking
market.
No other industrialized country treats literacy with such
contempt
as the United States."
It has gotten worse over the past 15 years.
2/8: They have to change allocation: Many employees of U.S.
institutions of higher learning are feeling nervous about their
retirement finances.
1. ING U.S. Retirement Services, Windsor, Conn., a unit of ING Groep
N.V., Amsterdam, has published figures supporting that conclusion in a
summary of results from a Web survey of 301 individuals employed by
colleges, universities, technical schools and other post-secondary
schools who participate in defined contribution plans.
About 62% said they are less certain today about living comfortably in
retirement than they were before the financial market decline in 2008,
but 63% said they do not expect to delay their retirement in light of
the financial downturn.
Although 64% said they had calculated their retirement income needs at
some point in life, 30% admitted that they have not done so within the
past year, ING says.
In other survey findings:
- 40% of the participants said they have never changed their retirement
plan investment mix.
- 28% said they have not changed their asset allocations in the past
year.
- 55% of the participants ages 55 and over have sought retirement
advice from a financial professional.
- 26% of the participants who have not sought a professional’s
financial advice said they would now consider doing so.
2/8: <endnote>Many employees of U.S. institutions of higher
learning are feeling nervous about their retirement finances.
<P>ING U.S. Retirement Services, Windsor, Conn., a unit of ING
Groep N.V., Amsterdam, has published figures supporting that conclusion
in a summary of results from a Web survey of 301 individuals employed
by colleges, universities, technical schools and other post-secondary
schools who participate in defined contribution plans.</P>
<P>About 62% said they are less certain today about living
comfortably in retirement than they were before the financial market
decline in 2008, but 63% said they do not expect to delay their
retirement in light of the financial downturn.</P>
<P>Although 64% said they had calculated their retirement income
needs at some point in life, 30% admitted that they have not done so
within the past year, ING says.</P>
<P>In other survey findings:</P>
<P>- 40% of the participants said they have never changed their
retirement plan investment mix.</P>
<P>- 28% said they have not changed their asset allocations in
the past year. </P>
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src="http://oascentral.nationalunderwriter.com/RealMedia/ads/adstream_jx.ads/www.nulh.com/distribution/News/2010/2/Pages/ING-Downturn-Weakens-Educators-Retirement-Security.aspx/112010251317@!"></SCRIPT>
<NOSCRIPT>
- 55% of the participants ages 55 and over have sought retirement
advice from a financial professional.
- 26% of the participants who have not sought a professional’s
financial advice said they would now consider doing so.
2/8: Waddle this: In 2001 and 2002, Waddell & Reed Inc., Overland
Park, Kan., shifted customers with $616 million in 6,742 variable
annuities from one carrier to Nationwide variable annuities, officials
say.
1. The exchanges resulted in 4,937 of the customers paying a total of
$9.6 million in surrender charges, and some of the customers ended up
with lower death benefits, according to officials at the Minnesota
Department of Commerce
Although Waddell & Reed sold the annuities, “regulators from
the five states assert that Nationwide Life and Nationwide Life and
Annuity did not take the required steps to ensure that Waddell's
supervision and control were adequate,”
Nationwide will reimburse affected consumers for surrender charges they
may have incurred as a result of the exchanges covered by the
settlement, give consumers the option of rescinding some riders
purchased in connection with the exchanges, and increase the death
benefits for consumers who shifted into annuities with lower death
benefits than their original annuities offered,
This type of stuff will never stop under current laws and regulations.
Sure some of this stuff got reversed but many others in smaller
companies are out of luck.
2/8: For wealthy global families seeking new passports, Canada
is the world’s best kept secret. Although top marginal tax rates
are a bit higher than the U.S., there are significant planning
opportunities for wealthy immigrants. In some cases, wealthy families
can legally acquire and, generation after generation, maintain Canadian
citizenship without any substantial tax exposure. A summary of
Canada’s advantages:
TAX
The “Immigrant Trust” –
Wealthy immigrants can settle an “immigrant trust” the
income and capital gains of which are legally tax free for a period of
5 years after the settlor (“grantor” in U.S. parlance)
becomes a tax resident;
There are no estate taxes in Canada;
There are no gift taxes in Canada;
Where the settlor of a trust does not
accumulate 5 years of tax residency status in Canada, the tax free
period of the trust lasts in perpetuity. In Canada this is called a
“Granny Trust”, the notion being that if you have an
offshore Granny who never becomes a tax resident then the trust, and
its Canadian tax resident beneficiaries vis-à-vis trust assets,
have no obligations to pay tax in Canada on income, capital gains or
distributions -- in perpetuity;
If the settlor of the trust is an
immigrant/citizen of Canada but never accumulates 5 years of tax
residency status then he/she is like the “Granny” who never
immigrates. The trust is tax free in perpetuity;
Personal and corporate tax rates have been
trending downward in recent years. U.S. tax rates are trending upward;
Canadian citizens, unlike citizens of USA,
can shed their Canadian tax residency status and still keep their
Canadian passports merely by moving offshore.
IMMIGRATION
Many U.S. persons are qualified to immigrate to Canada as
“skilled workers”. For wealthy business people there are a
number of options including the “investor” category wherein
CAD $400,000 is lent to the government or a qualified financial
institution at 0 percent interest on a completely no-risk basis for a
period of 5 years. One variation permits the immigrant to borrow the
$400,000 by prepaying $120,000 interest for the 5 year period. The
$120,000 is the cost of immigration for a whole family;
Immigrants, known as “Permanent Residents”
(the equivalent of a U.S. “Green Card”) are not necessarily
tax residents. Again this is quite unlike the USA where all citizens
and all green card holders are deemed to be tax residents. In Canada
only those people whose home base is Canada are regarded as tax
residents;
The immigration process takes between 1-2
years to complete.
CITIZENSHIP
Immigrants to Canada will qualify for citizenship after
residing in the country for 3 years. This usually requires 1095 days of
physical presence in the 4 year period prior to the application for
Canadian citizenship;
A Canadian passport is one of the safest and most widely
accepted in the world;
It is possible, therefore, to acquire citizenship (3 years
residence) before the tax free period of the trust (5 years) expires;
Unlike the U.S., Canadian citizens are not
necessarily tax residents. In fact it is estimated that nearly 10
percent of Canada’s citizens are non-tax residents of Canada
living in other jurisdictions, including tax havens.
CULTURE AND LIFESTYLE
Canadians (at least English-speaking ones) and Americans share a common
language and popular culture. Nonetheless there are important
differences.
While generally having enormous respect for the stunning economic,
cultural, social, technological and even military achievements of our
American brothers, Canadians are a bit smug about having declined to
participate in many of the seriously odd chapters in U.S. history (eg.
slavery, Civil War, prohibition, McCarthyism, the Vietnam war, S&L
insolvencies, the Iraq War, sub-prime mortgage lending, massive
taxpayer funded bailouts of well-connected financial institutions).
Canadians are cautious and conservative. The upshot is that Canada now
has the strongest economy and likely best prospects of all OECD
countries. It has the best banking system in the world. It is in a
strong fiscal position. It is geographically isolated from the
world’s trouble spots. And it is a resource and energy superpower
(the leading exporter of oil, natural gas, uranium and hydroelectric
power to the USA) in a world that is running out of energy and
resources.
As for lifestyle, three of Canada’s cities (Vancouver, Toronto
and Montreal) are among the most cosmopolitan urban centers anywhere.
Vancouver is often rated (see, for example, the Economist Intelligence
Unit) as the number one city in the world in terms of lifestyle.
CONCLUSION
In conclusion, wealthy global families are increasingly aware of their
need for a carefully crafted citizenship and residency strategy to
protect family assets and enhance mobility in what may be a troubled
future. In this context Canadian citizenship should be given serious
consideration.
2/7: Oy!
“Thinking about your household’s financial condition, do
you expect it to be better or worse in the next 6 months?”
.One in five U.S. adults (21%) expect their household’s
financial condition to be better in the next six months while half
(49%) expect it will remain the same. Three in ten (30%) believe their
financial condition will be worse in the next six months. This is
similar to how people felt in December when 19% believe their
household’s financial condition would be better in six months,
48% believed it would be the same and one-third (33%) believed it would
be worse.
These are some of the results of The Harris Poll of 2,576 adults
surveyed online between January 18 and 25, 2010 by Harris Interactive.
Looking to economic growth, 14% of Americans believe the economy has
started growing already while 12% believe it will begin growing in the
next six months. Two in five U.S. adults (22%) believe the economy will
begin growing between six and 12 months from now and two in five (39%)
do not think it will begin growing for another year or longer.
Many Americans saw their incomes shrink over the past year. In fact,
two in five (39%) say their household income now is lower than it was
in 2008 before the downturn in the economy and one-quarter (26%) say it
is lower now than it was just three months ago. Only 18% say their
income is higher now than in 2008 and 10% say it is higher now than
three months ago.
There have also been claims that people are saving more now that
there is this economic uncertainty and concern over jobs. However, two
in five Americans (40%) say they are saving less now than they were in
2008 before the downturn in the economy while 36% say they are saving
less than just three months ago. Less than one in five (18%) of U.S.
adults are saving more than in 2008 while 14% say they are saving more
than three months ago.
2/7:
annuity like: Now there's a simple annuity-like product that
seniors are excited about. It's easy for them to understand and easy
for you to sell. It offers a combination of outstanding
benefits in convincing fashion:
A true, simple-issue whole life product for advisors who
don't want the hassle of underwriting
Passes benefits TAX-FREE (unlike annuities) to
beneficiaries (perfect for their grandchildren!)
Offers instant
liquidity and competitive cash value growth
Unbeatable living benefits —
clients can use the death
benefit for LTC, HHC, assisted living and terminal illness needs (allay
their fears!)
Offers a competitive 15% commission
2/7:VPIKE: Go
to site and type in any address and a picture of the house at
that address will appear. Use arrows to get 360 degree
viewing. Zoom also available
2/4: Finance
and Investment U, V or W: What Kind of
Recovery Can We Expect, and When? Delegates to the
just-ended World Economic Forum in Davos, Switzerland, found plenty of
positive economic signs -- but not enough to keep them from wringing
their hands. The consensus at the five-day gathering called for strong
growth in emerging markets like China, India and Brazil, and poor
growth in Japan and much of Europe, with the United States somewhere in
between. The Forum's official statement called the global recovery
"fragile."
2/4: Human
Resources (Article
with Video) One Ambivalent Economy + Many
Cautious Employers = One Difficult Job Market More than seven
million jobs have been lost during this recession, and so far, few have
come back. When jobs do return, say experts, many will be temporary,
contract or short-term. Risk-averse employers seeking cost savings and
flexibility will outsource whatever they can to smaller firms or
independent contractors before hiring full-time employees. That means
job seekers will have to be more flexible, willing to take short-term
assignments or relocate to places where jobs are plentiful.
2/3: $3.8
trillion budget?????????
Use any rationalization you want,
this will derail the U.S.
economy for decades.
Glad I will be dead by then.
2/3:A typology of risk management failures Rene Stultz-
How can risk management go wrong? The way we describe the role of risk
management suggests important ways in which risk management can go
wrong. We started by saying that the first step in risk management is
to measure risk. Let’s assume, for now, that the right risk
measure is used given the situation of the firm. This measure could be
VaR or could be some other measure. Two types of mistakes can be made
in measuring risk: Known risks can be mismeasured and some risks can be
ignored, either because they are unknown or viewed as not material.
Once risks are measured, they have to be communicated to the
firm’s leadership. A failure in communicating risk to management
is a risk management failure as well. After management decides what
kind of risks to take, risk management has to make sure that the firm
takes these risks. In other words, risk managers must then manage the
firm’s risk, a task that may involve identifying appropriate
risk mitigating actions, hedging some risks, and rejecting some
proposed trades or projects. Lastly, a firm’s risk managers may
fail to use appropriate risk metrics.
With this perspective, there are six types of risk management failures:
1) Mismeasurement of known risks.
2) Failure to take risks into account.
3) Failure in communicating the risks to top management.
4) Failure in monitoring risks.
5) Failure in managing risks.
6) Failure to use appropriate risk metrics.
2/3: Correlations Rene Stulttz: When an institution has many positions
or projects, the risk of the institution depends on how
the risks of the different positions or projects are related. If the
correlation between the positions
or projects is high, it is more likely that all the firm’s
activities perform poorly at the same time,
which leads to a higher probability of a large loss. These correlations
can be difficult to assess
and they change over time, at times abruptly. A partner of LTCM
described the problem they
faced in August and September as being one where correlations that they
thought were extremely
small suddenly became large. With this perspective, correlations would
have been misestimated.
It is well-known in finance that correlations increase in periods of
crisis. Failure to assess
correlations correctly would lead to the wrong assessment of the risk
of a portfolio or of a firm.
The problem of mismeasurement of correlations is more subtle, however,
if correlations are
10
random and sometimes turn out to be unexpectedly large ex post. In this
case, risk managers
could not be expected to know what correlations will be, but their
assessment of the risk of a
portfolio or of the firm would depend on their estimates of the
distribution of the correlations. In
this case, it would be possible for realized correlations to be
different from their expected value
and yet there would be no risk management failure. 2/3: Caterpillar
Fourth Quarter Profit Plunged 65%
The world’s largest maker of construction and mining equipment, Caterpillar
Inc. (CAT), reported fourth-quarter earnings that plunged 65%. In
addition to the disappointing results, the company offered up a
cautious outlook for the remainder of 2010.
2/2: Guaranty
Funds and Guarantee Associations
What happens when an insurance company is declared insolvent? The
mechanism which protects policyholders is called the "State Guaranty
Fund" or Guarantee Association system. All fifty states and the
District of Columbia operate guaranty funds which may pay the claim of
a financially-impaired company that operates in their state.
In any policy making
exercise, whether it is about matters of economic, social or political
problems, both domestic and international, such as diplomatic relations
or national defense, there are various cognitive issues that affect the
design and implementation of the policy. Without correct cognition of
the actuality and history regarding the problems in question, or
without correct cognition of the problems that might arise in the
process of the policy implementation, the policy making exercise is
bound to fail. Yet, in the history of economics, sociology or the study
of the diplomacy or of national defense, philosophical inquiry about
“cognitive issues in
policy making� has been very poor.
More specifically, on one hand, epistemologists have hesitated to go
into this kind of inquiry, since policy making always embraces
questions of values or other subjective judgments, and hence,
objectivity is not assured. On the other hand, the attention of the
economist, sociologist, or analysts on diplomacy and national defense
has focused on the analysis of relationships among the economic,
social, diplomatic or defense factors, while neglecting the cognitive
issues in policy making itself. Policy makers should have far better
knowledge in this area, but they have paid scarce attention to it,
despite their policy failures, caused by their failures to recognize
the factors that really mattered in the case in question
2/2: Interesting- particuilarly that compusory attendance may not
do any good. However, it may be the only way to avoid fiduciary
reponsibility.
When do individuals
actually improve their financial behavior in response to advice? Using
survey data from current defined-contribution plan holders in the RAND
American Life Panel (a probability sample of US households), the
authors find little evidence of improved DC plan behaviors due to
advice, although they cannot rule out problems of reverse causality and
selection. To complement the analysis of survey data, they design and
implement a hypothetical choice experiment in which ALP respondents are
asked to perform a portfolio allocation task, with or without advice.
Their results show that unsolicited advice has no effect on investment
behavior, in terms of behavioral outcomes. However, individuals who
actively solicit advice ultimately improve performance, in spite of
negative selection on financial ability. One interesting implication
for policymakers is that expanding access to advice can have positive
effects (particularly for the less financially literate); however, more
extensive compulsory programs of financial counseling may be ultimately
ineffective.
Can you read this?
i cdnuolt blveiee taht I cluod aulaclty uesdnatnrd waht I was rdanieg.
The phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at
Cmabrigde Uinervtisy, it dseno't mtaetr in waht oerdr the ltteres in a
wrod are, the olny iproamtnt tihng is taht the frsit and lsat ltteer be
in the rghit pclae.. The rset can be a taotl mses and you can sitll
raed it whotuit a pboerlm. Tihs is bcuseae the huamn mnid deos not raed
ervey lteter by istlef, but the wrod as a wlohe. Azanmig huh? yaeh and
I awlyas tghuhot slpeling was ipmorantt!
2/1: ETFs:
ETF assets and trading volume are highly concentrated in just a handful
of funds. The 10 largest ETFs account for almost 40% of total ETF
assets, while the 10 funds with the largest dollar trading volume
accounted for roughly 60% of the total volume for all ETFs in December
2/1: Equities: U.S. stocks make up only 42% of the value of all the
planet's equity markets. Yet the average American investor keeps 72% of
stock assets here in the U.S., a preference for local companies that's
known as "home bias."
Roughly 95% of the $25 billion that U.S. investors pumped into
international funds in 2009 went into funds that specialize in emerging
markets like Brazil, Russia, India and China, according to Morningstar.
By year-end, U.S. investors had just under $300 billion riding directly
on the developing world, and perhaps another $110 billion indirectly,
through other funds that have some assets in emerging markets.
Add it all up and the average fund investor's stock portfolio sits
roughly 68% in the U.S., 6% in emerging markets and 26% in all the rest
of the planet combined. Yet companies based in advanced, as opposed to
emerging, foreign economies make up 45% of the world's stock-market
value. Americans are top-heavy at home, spread thin in countries like
Australia, Britain, France and Japan, and diving headlong into emerging
markets.
The argument for going global used to be based on low correlations,
or the tendency for foreign stocks to thrive when U.S. stocks dive (and
vice versa). In the 1980s and 1990s, foreign shares were generally less
than 50% correlated, zigging whenever the U.S. zagged. But in 2008,
stocks fell in lock step both at home and abroad, while in 2009 they
rose almost in unison around the world. The correlation between foreign
and U.S. stocks has risen above 90%.
But correlations have converged between U.S. stocks and just about
everything, including commodities and hedge funds. There are other,
better reasons to invest world-wide.
The weights within MSCI's All Country World index approximate how
all the world's investors already have placed their bets: 42% in the
U.S., 45% in developed foreign markets, 13% in emerging m. arkets.
efm- fine, but just be careful if we go into a another bad patch
since, if all the correlations are the same, everything will tank.
With stocks down 6% from that Jan. 19 high, analysts and investors
are concerned the market could be in for a period of ragged, possibly
disappointing, stock behavior.
1/31: Joke: The
House bill would require all
brokers providing advice to abide by fiduciary standards but would give the Securities and Exchange
Commission the discretion to write regulations defining those
standards. Advisers have argued that an SEC revision of fiduciary
standards could result in rules closer to those under which brokers
work, which require only that products be suitable to the investor.
they are both jokes- a broker cannot provide the fiduciary element
since they have never been tuaght the fundamentals of investing. And
the SEC doesn't know them and won't include them anyway.
Bascially the public gets screwed.
1/31: Past
performance- Very few funds manage to consistently repeat top-half
or
top-quartile
performance. Over the five years ending September 2009, only 4.27%
large-cap funds, 3.98% mid-cap funds, and 9.13% small-cap funds
maintained a top-half ranking over the five consecutive 12-month
periods.
No large- or mid-cap funds, and only one small-cap fund maintained a
topquartile
ranking over the same period.
Our research suggests that screening for top-quartile funds may be
inappropriate. A healthy plurality of future top-quartile funds comes
from the
prior period’s second, third and even fourth quartiles. Screening
out bottom
quartile funds may be appropriate, however, since they have a very high
probability of being merged or liquidated.
Standard & Poor's threatened to cut Japan's government debt
rating by a notch, saying the government isn't fixing the nation's
bloated finances as fast as expected.
Can you be normal weight and fat at the same time? A Mayo Clinic
report suggests that fat in your body can get you and your heart into
trouble even if the scale tells you you're healthy.
Does capital markets
uncertainty affect the business cycle? We find that financial
volatility predicts 30% of post-war economic activity in the United
States, and that during the Great Moderation, aggregate stock market
volatility explains, alone, up to 55% of real growth. In out-of-sample
tests, we find that stock volatility helps predict turning points over
and above traditional financial variables such as credit or term
spreads, and other leading indicators. Combining stock volatility and
the term spread leads to a proxy for (i) aggregate risk, (ii)
risk-premiums and (iii) monetary policy, which is found to track, and
anticipate, the business cycle. At the heart of our analysis is a
notion of volatility based on a slowly changing measure of return
variability. This volatility is designed to capture long-run
uncertainty in capital markets, and is particularly successful at
explaining trends in the economic activity at horizons of six months
and one year.
1/26: Disability insurance: The percentage of companies that
paid all or part of the cost of workers' private long-term disability
insurance fell to 48% last year, from 59% in 2002
Many employers are "taking a step back in terms of what they pay and
putting the onus on employees" to purchase richer benefits if they
choose
disability claims are pouring in to the Social Security Administration,
and that's resulting in bigger backlogs. The agency expects claims to
jump to 3.3 million in the current fiscal year, ending Sept. 30, from
2.6 million two years earlier. That's led to a greater number of cases
pending—about 794,000 this month, up from about 557,000 in late
2008
Social Security is only available to those with a condition that is
either expected to leave them unable to work for at least a year, or is
terminal. For those who do qualify—around 36% on average on the
first application, though more win benefits after appealing—the
payout averages just 40% of their predisability income. For high
earners, the share will be smaller.
Tom Klett, a consultant with Towers Watson & Co., says qualified
applicants should count on waiting three to five months or longer to
get Social Security disability benefits. And with the number of
applicants growing
If you are buying an individual long-term disability policy, the
initial premiums will be set based on factors including your age,
health status and occupation, according to insurer Unum Group. You may
have the option of a level premium, which won't change over the life of
the policy, or premiums that could rise at a fixed rate. If you're
joining your employer's group disability policy, the premiums will be
adjusted based on the claims history of the entire group.
A growing number of employers offer basic disability coverage and
let workers buy more. But you'll have to figure out how rich a benefit
you need. Long-term disability insurance will generally pay a
percentage of your predisability income—60% is common—and
it may not include extras such as bonuses. Also, be aware that most
private disability policies require you to apply for Social Security
benefits, and then subtract the government payout from what the insurer
pays, a move called an "offset."
1/26: From 2006-
A Morningstar journalist had this to state about
fiduciary duty and standard deviation- (2006) "In the following
examples, basic rules of arithmetic show how reducing volatility (or
risk) can reduce loss. (We will also see how reducing volatility risk
can enhance gain. By the way, I equate "volatility" with "risk," which
I define as standard deviation in this article. While using standard
deviation as a measure of risk is not ideal (e.g., it encompasses both
bad "uncompensated" risk and good compensated" risk), nonetheless it
can help illustrate a basic concept: the reduction of a portfolio's
volatility reduces loss and can also enhance gain."
EFM- the problem is that it is WRONG. It is true that
the longer you hold onto a portfolio, the lower the overall annual
standard deviation/volatility. But the problem is the risk of loss goes
UP.
When I contacted the author, he simply said it was
better to teach something wrong than not to teach it at all.
From a paragraph in my upcoming Ebook, No Nonsense Finance II
"Theory is great. But it does not have to apply to real life.
Nonetheless, the responsibility of advisers is to know the
implications of risk. If nothing else, they have to know the risk of
loss. They have to convey it to clients in understandable terms
along with what they will do regarding the scenarios where risk raises
its ugly head. If what they are doing- and will only do- it is
just the simplistic annual rebalancing based on software correlations
that may be years old, it is illogical to pay a fee for such advice."
The client has just paid money for an invalid advice.
Whenever the standard deviation is used and indicates a lower element
of risk and nothing else , there has been a breach by the adviser and
firm.
1/26: The standard gaussian bell shaped curve.
One standard deviation is occurrences
68% of the time
Two deviations is 95%
Three is 99%
Problem is, real life does not work like
this- but if standard deviation is taught at all, this is what it 'is'.
1/26: Buffet on standard deviation-
many people talk about “sigmas” (the
standard deviations of price changes) and equate volatility with risk.
He asked why a rational person would substitute the opinions of the
public (as reflected in volatility caused by mass decisions) for
one’s own measurement of the inherent risk of a company.
Buffett: The measurement of volatility: it’s
nice, it’s mathematical, and wrong. Volatility is not risk. Those
who have written about risk don’t know how to measure risk. Past
volatility does not measure risk. When farm prices crashed, [farm
price] volatility went up, but a farm priced at $600 per acre that was
formerly $2,000 per acre isn’t riskier because it’s more
volatile. [Measures like] beta let people who teach finance use the
math they’ve learned. That’s nonsense. Risk comes from not
knowing what you’re doing. Dexter Shoes was a terrible
mistake—I was wrong about the business, but not because shoe
prices were volatile. If you understand the business you own,
you’re not taking risk. Volatility is useful for people who want
a career in teaching. I cannot recall a case where we lost a lot of
money due to volatility. The whole concept of volatility as a measure
of risk has developed in my lifetime and isn’t any use to us.
1/25: Arbitrations: New arbitrations filed with Finra surged in 2009 to
7,137 cases, up from 4,982 cases in 2008, according to statistics
recently released by Finra. That's a 43% gain
The most common complaint on the list involved — surprisingly
— breach of fiduciary duty, racking up 4,206 arbitration claims
last year. Though registered representatives are bound to ensure only
that products they sell are suitable, clients' attorneys have used the
common-law definition of fiduciary duty when filing claims.
Misrepresentation and negligence claims were second and third on the
list, cited in 3,408 and 3,405 cases, respectively.
Cases involving mutual funds and common stock were the most
numerous, with the former being the subject of 1,556 claims last year,
up from 1,069. Common stock claims rose from 773 to 1,367 in the space
of a year.
Interestingly, variable annuities experienced a threefold spike in
arbitration claims, rising to 123 cases filed with Finra. Only 47 were
filed in 2008
EFM- but a lot of these cases will never see the light of day
since most attorneys will suggest settlement. Not necessarily bad but
also not necessarily good for the plaintiff since the attorneys are not
necessarily well versed in how to try the cases on what SHOULD have
been done. Remember, next to no attorneys know the fundamentals of
investing and nary a one can use a financial calculator.
Pundits will say that is not necessary. After all, an attorney does not
have to have a medical degree to file against a doctor. True. But there
is a huge body of work based on medicine that provides a direction.
There is hardly anything in the real world that addresses the practical
application of products since none of the fundamentals have been taught
to effectively anyone. Even where some insight is offered, I still
point to practical application. A stock with a good beta is a fine
example. The point is, so what? You need up to 350 of these stocks for
proper diversification. And an attorney knows what diversification is
by the numbers, don't they?
No they don't.
Nor does the NASAA, FINRA, SEC, State Departments of Insurance or
Corporations.
Past experience suggests
that multifunctional banking is the leading source of financial crisis,
while large bank size contributes to contagion and systemic risk. This
indicates that resolving large banks will not solve the problems
associated with multifunctional banking--a conclusion reached after
every financial crisis, and one that should apply to the present crisis
as well. Senior Scholar Jan Kregel observes that it is important to
recognize that past solutions may not be appropriate for present
conditions. The approach to the current financial crisis has been to
resolve small- and medium-size banks through the FDIC, while banks
considered "too big to fail" are given direct and indirect government
support. Many of these large government-supported banks have been
allowed to absorb smaller banks through FDIC resolution, creating even
larger banks. As these institutions repay their direct government
support, the problem of "too big to fail" is simply aggravated. Thus,
the current thrust of government regulatory reform--increased capital
and liquidity requirements, and further legislation--is unlikely to
lessen the systemic risks these institutions pose.
Classical capital asset
pricing theory tells us that riskaverse investors would require higher
returns to compensate for higher risk on an investment. One type of
risk is price (return) risk, which reflects uncertainty in the price
level and is measured by the volatility (standard deviation) of asset
returns. Volatility itself is also known to be random and hence is
perceived as another type of risk. Investors can bear price risk in
exchange for a higher return. But are investors willing to pay a
premium to enjoy lower volatility? In this essay, I try to answer this
question by (1) introducing two different measures of volatility, (2)
summarizing findings about volatility risk and its premiums in
financial equity markets and (3) presenting preliminary research on
volatility risk premiums in the markets for corn, wheat and soybeans,
which are relevant to the South Dakota economy
We consider a long-term
optimal investment problem where an investor tries to minimize the
probability of falling below a target growth rate. From a mathematical
viewpoint, this is a large deviation control problem. This problem will
be shown to relate to a risk-sensitive stochastic control problem for a
sufficiently large time horizon. Indeed, in our theorem we state a
duality in the relation between the above two problems. Furthermore,
under a multidimensional linear Gaussian model we obtain explicit
solutions for the primal problem.
I live in ground zero of the
real estate crisis: Arizona. We’ve seen prices drop to pre-bubble
prices, and it looks like they are going to drop some more.
Why is the market descending past
what one would think would be support levels? I think a large part is
going to be a liquidity crunch. The people with the guts to invest in
real estate as investments have been obliterated, and it is going to be
some time before they are able to get back onto their financial feet.
Not only are the investors
hit with the actual losses on their real estate investments, but also a
large number of them are going to be hit with large tax bills in the
years to come due to something called the Discharge of Indebtedness.
Discharge of indebtedness
(DOI) is a fancy way for saying that the IRS believes that if you are
relieved of an obligation to pay debt, your net worth has increased;
and the IRS wants to be able to tax that increase in net worth. While
there are some neat loopholes available, they are mainly for DOI on a
personal residence, or if you are a real estate,
“professional”. (If you have a full time job other than
real estate, you probably aren’t a real estate professional.)
One simple way to avoid the
DOI taxes is simply to go bankrupt. Under the tax code it specifically
says that if the DOI is incurred after a bankruptcy is filed no DOI
taxes apply. Keep in mind that you need to go bankrupt before the
foreclosure or short sale. If you wait to go B.K. until after the short
sale or foreclosure, chances are the tax debt is going to survive
bankruptcy, which is going to be a massive hindrance to your ability to
get back on with your life. I can’t tell you the number of people
I’ve met who think that going B.K. is going to relieve them of
this burden. It’s a real heartbreaker to tell people they filed
B.K. for nothing, and the $200K tax bill is going to haunt them for
years to come.
A couple of recent court
cases highlighted some other interesting ways to manage the DOI tax
liability. In the first case, the court took pains to highlight that
the amount of the debt must be “definite and liquidated”.
In this case, a taxpayer was disputing the amount of debt they had with
Citifinancial and Chase. Evidently Citifinancial got tired of arguing
about it and just issued the taxpayer with a 1099-C. The IRS received
the 1099-C and was nice enough to assess taxes on the taxpayer for the
relieved debt; pretty much standard stuff.
However, the taxpayer was
not standard material. To their credit (sorry, couldn’t resist)
they kept on fighting. In Tax Court they argued the 1099-Cs issued were
incorrect. The court pointed out that the tax code provides that,
“In any court proceeding if a taxpayer asserts a reasonable
dispute with respect to any item of income reported on an information
return, and has fully cooperated, the Commissioner shall have the
burden of producing reasonable and probative information concerning the
deficiency in addition to the information return.”
In short, the burden of
proof was on the IRS to prove the 1099s were correct. Apparently the
IRS didn’t provide any information other than the 1099s, and so
the court reduced the amount of DOI to the amount the taxpayers agreed
was valid debt.
Moral to the story? If you
are facing a large tax bill for DOI on a foreclosure or short sale,
dispute the hell out of the debt: Argue fraud, truth in lending
violations, RESPA violations, argue the world just isn’t fair,
but argue and dispute the hell out of the debt before the short sale or
foreclosure. This way you might have a chance when it comes tax time to
show the debt was not bona fide or “definite and
liquidated”.
The other DOI case was all
about timing. In 2000 the taxpayer went through foreclosure with the
bank getting $35K less on the foreclosure sale than the balance on the
loan. Time dragged on, and it wasn’t until 2007 that the bank
issued the taxpayer a 2006 1099-C for the $35K. The taxpayer ignored
the 1099-C and didn’t report the $35K as income on their 2006
return. Thus the Tax Court case.
The taxpayer took the
position that the debt was really discharged in an earlier year, not
2006. Once again the court determined the 1099-C wasn’t
dispositive of the issue, rather, the burden of proof was upon the IRS
to say otherwise. As the court so eloquently put it, the IRS,
“did not present one scintilla of other evidence . . ."
Bang! The gavel came down on
the side of the taxpayer saying the DOI was not income for 2006.
Moral of this story? If the
creditor waits a couple of years to hit you with the 1099-C, you
probably have a good defense.
Overall moral of this
article? Kinda the same thing I wrote about last year. Do not accept.
There are tools available to you if you are willing to fight.
Yeah, the above are long
shots and may not work for everyone, but if you don’t try them,
what are your results going to be? Then, if by some miracle they do
work for you, how much money could you save? How much emotional trauma?
Asset protection is not taking one simple step to achieve planning
nirvana; instead it is a process to identify and fully utilize all the
tools available to you.
I do not dismiss the element of continuing
contributions, but I have a difficult with an industry that has refused
to teach participants what risk actually means. The idea that one is
going to lose 50% or so of their capital every so often from age 30
forward is a breach of duty by the industry not to instruct them of the
odds of success of what they are saving. And how to save it from
devastation. No rational person will ever feel comfortable with an
investment that loses that much money when it may be needed the most.
Every employee portfolio has a risk of loss that needs to be formally
explained to each employee. I do not know of any instruction that
covers that- further it requires a personal financial calculator- and
that is not demanded of advisers.
Being scared is also being uninformed of the consequences. That is NOT
how one invests nor does much of anything else.
In short, it IS fighting the plan you have since it is incomplete and
needs to be changed to add real life applications. Looking at a flat
rate of return from historical projections starting from the 'ice age'
is not planning. While not gambling per se, false and old data it is a
poor way to design one's financial future. As Peter Bernstein noted,
“the future is unknown” but it is current work on economics
and correlations that needs to be evaluated for potential success.
You are rarely going to fid the instruction needed in the industry to
truly help the employee. Brokers have never been taught the
fundamentals of investing and the designations of CFPs, ChFCs, CPA PFS
et al are lacking in a presentation on true risk. I do not
believe that anyone at the Investment Company Institute can do a risk
of loss. Hence the bulk of commentary from the industry is flaccid
marketing
Errold Moody
PhD MSFP MBA LLB BSCE
Life and Disability Insurance Analyst
1/22: CFP voluntary relinquishment. I have my two year annual renewal
for
the designation - which I have not promoted publicly in 10 years
(got in 1984) . I just took the mandatory 2
hour ethics course where I state that I will adhere to ethical and
fiduciary standards. After passing, I took a long hard look at the
fiasco. Why should I pay money to an organizations that
allows illegal activity form the get go. .
Here is part of the reason- recognize the date
May 6, 1996
Mr. Alex Nocon
Investigator
California Department of Insurance
45 Fremont St. 24th Floor
San Francisco, CA 94105
Dear Mr. Nocon,
I sincerely appreciated your call and the opportunity to objectively
define some of the issues. I do wish to elaborate on one part that I
did not address in our conversation (though left a subsequent message).
It is in regards to being reasonably sure that not only are the
individuals in question no longer able to act illegally, but that
the rest of the practitioners in California are also forced to adhere
to the law starting immediately.
I recognize, both as an arbitrator and as a realist- and I appreciate
your candor here- that when people are faced with an investigation of
clear illegal activity, they may distort the truth, outright lie or
"lose" files and documents. As such, it may be that you are unable to
locate the documents needed to confirm the violations that they
have repeatedly indicated to me over the years that they perform.
Nonetheless, it is imperative that the Department clearly inform
such people that, regardless of the outcome, continued marketing,
advertising and offering of comprehensive fee only services that cover
the areas of risk management, retirement planning and estate planning,
(among others) without the proper licensing as an Insurance Analyst is
tacit admission of a continued violation of the law and that the
Department will therefore pursue additional actions accordingly. (It is
not necessary to dictate actually what the Department could do, but
that continued violations would not be tolerated. It is mandatory that
this be done, particularly in the case if files and evidence have been
destroyed. Otherwise, they and the other practitioners will continue to
violate the law.) My point here is the continued membership under
the NAPFA banner wherein the requirements of membership absolutely
mandate such planners MUST offer fee only planning in estate planning,
retirement planning and risk management, etc. No one can legitimately
state that these areas do not involve insurance or that they would
simply exclude such insurance review. Therefore, the mere offering of
advice for a fee demands the adherence to the Code and at least stops
further violations. For those not involved with NAPFA, marketing
oneself as a comprehensive financial planner implies the same
requirements of law- licensing either as an agent or as an Insurance
Analyst.
As stated, I have no personal animosity towards any of these
individuals- though their continuing violations of the law coupled with
an arrogant attitude regarding their "inherent" expertise- is testing
that resolve. The problem solely arises from their obvious lack
of insurance knowledge that I noted at least 6 years ago, their vocal
disdain for anything to do with the insurance industry and their
refusal to adhere to the law (though the past CFP president
indicates that he was oblivious to the law)- while at the same time
extolling their high ethical standards. The essence is that the
consumer, through the repeated advertising and statements of said
individuals and their numerous compatriots, erroneously
believe they are getting some of the best and most independent advice
possible. Not even close. Their conduct violates every tenet of the law
and ethics and must be stopped. Recognize that I am not saying that all
licensed agents would provide exacting knowledge either, but at least
the consumer had a legally qualified and reasonably trained
individual for such effort. That is a big difference.
I hope that you will be successful since, if you are, so will the
California consumer. And it will change the focus and direction of
financial planning nationally. It will show that states can actually
force legal compliance, mandate continuing education standards
and protect consumers from fraudulent activity.
If I can be of any further assistance in clarifying any points in my
submission or in any previous discussion with the individuals, just
give me a call.
Very Truly,
Errold F. Moody Jr.
CC:
Dale Wisemen
Patricia Staggs
Bill Palmer
Chuck Quackenbush
And this in 2007 for which no reply was received
June 5, 2007
Mr. Steve Poizner
California Insurance Commissioner
300 Capitol Mall, Ste 1700
Sacramento, CA 95814
RE: Life and Disability Insurance Analysts
Dear Mr. Poizner,
Over the last 15+ years, I have been directly involved with the various
financial planning agents and organizations regarding the
continuing violation of California State Insurance Code Chapter 8, Part
2, Division 1
1. A Life and Disability Insurance Analyst is a person who, for a fee
or compensation of any kind, paid by or derived from any person or
source other than an insurer, advises, purports to advise, or offers to
advise any person insured under, named as beneficiary of, or having any
interest in, a life or disability insurance contract, in any manner
concerning that contract or his or her rights in respect thereto.
As of this year, I am still the only CFP that has ever taken and passed
the Analyst exam. I am the only fully licensed and legal financial
planner in the state who can charge a fee for comprehensive advice-
which always includes insurance review . (Pursuant to review of a few
years ago, none of the other Analysts do financial planning or are
licensed to do so.) This is not meant as a statement of my abilities
but the fact that none of the other planners- as well as none of the
planning organizations- have ever bothered to adhere to the law.
While these comments do not expressly relate to commissionable agents,
recognize that effectively all are offering (supposed) financial plans
for a fee wherein insurance review and advice is part of such plan.
They are therefore charging an (illegal) fee plus a commission. Yet
under my license, I am precluded from doing so.
I have provided a couple of background letters. You will note in my
letter to Patricia Staggs , November 1995, that the National
Association Personal Financial Advisers (fee only) had directly
stated that they had an formal release from compliance to the law
directly from the DOI. When that failed, they tried the exemption as
RIAs. They knew the law did not apply since I had previously
received the letter of ‘clarification’ from
Patricia Staggs, Chief, Compliance Bureau, Assistant General Counsel
dated July 1995- almost 12 years ago. But not a planner has paid
attention then nor now. Subsequently I worked with the then DOI
attorney Fred Butler regarding the problem and that culminated with a
meeting with the various planning entities (including CPAs practicing
planning) on July 30, 1997. The letter from Jeffrey Kenny,
Assistant Ombudsman and Legislative Liaison, February 1998, was
presented to the CFP Board, Financial Planning Association, et
al. It appeared that the DOI would pursue the issue but then came the
legal debacle with Chuck Quackenbush and nothing happened after that.
And that cessation pretty much stopped any compliance by any of the
associations or agents whatsoever- then and now.
That said, I requested confirmation of the DOI’s stance to same
from John Garamendi and received validation about two years ago. I need
to corroborate your position as well.
But one major thing has changed. The Financial Planning Association
recently won the case against the Merrill Lynch Rule whereby all
‘Financial’ Advisers have to act in a fiduciary capacity to
their clients. The CFP Board of Standards has now also actively
promoted the fiduciary level of its representatives (about 8,000 in
California), “making it explicit that the nearly 55,000
planners it oversees must put clients’ interests first, act as
fiduciary and disclose the scope of their engagement and their
compensation when engaging in planning activities.” (Once
again I note that the predominant current focus in financial planning
is on a fee basis, not a commission, so the issues I have raised since
1991 carry even more significance.)
And “Ethical service is something that people expect and deserve
when they hire a CFP professional, so at the CFP Board we take this
very seriously. We wanted to make sure that in the financial planning
relationship that clients have an utmost good faith standard, that we
have a clear fiduciary standard and that the disclosure rule is not
misleading … all the components to having the best relationship
with the client.”
I spoke with a ethics professor by asking if one is a
‘fiduciary’ in acting as an investment adviser while acting
illegally as an insurance analyst, can one still be a fiduciary?
Obviously not. But it is the position taken by financial planners
throughout the state. (There are about 35 states with similar licensing
laws- the illegal activity is the same).
The issue is, has the California Department of Insurance changed its
mind in regards to the law or the violations thereof? Is the law intact
and do the rules still apply for licensing? I was told years ago
(privately) by the Chief of Compliance that the state would not enforce
this statute and that I might as well drop my Analyst license and act
illegally as well. But that would make me no better than the fraud that
is currently perpetrated on the public. I could not do that and have
continue to pay fees- though for little reason.
I have presented just a few letters on this issue (my file is enormous)
merely to indicate the essence of the problem that has lasted for over
a decade. The positioning by the various planning entities is a
ridiculous charade on fiduciary standards that will only continue to
harm consumers on the most difficult area in planning.
However, if the DOI has shifted its position on the law, its
application and the necessity for public good, I need to know before I
contact these entities once again.
I would appreciate a reply at your earliest convenience.
Very Truly,
Errold F. Moody Jr.
1/24: Couple lost an arbitration. Here was part of the broker ADV- Option
I: Annual management fee of 4% of the total account value for
individuals with no more than $750,000 under management or net worth of
no more than $1,500,000. Sales commissions are charged to the account
by the broker as transactions occur.
If you pay 4%, you probably are pretty stupid to begin with. Yes,
I know it is not nice. But they lost $2,2 million. Which is worse?,
1/24:Medicare
51% of Affluent
Retirees Rue Focusing on Numerical Goal
Given the opportunity to approach their retirement savings again, 51%
of affluent Americans who have retired said they would have preferred
to have focused on life goals rather than a retirement number, Merrill
Lynch found in a survey. However, the remaining 49% still believe in
zeroing in on the numbers
The World Bank warns that
while it believes the global economy will grow 2.7 per cent this year
and that the risk of a double-dip recession is receding, the effects of
the crisis will linger
China’s
economy grew 10.7 per cent in the fourth quarter from the same period a
year earlier but the strong growth was accompanied by higher inflation,
raising fears that Beijing may introduce stronger measures to avoid
economic overheating
1/22: FINRA joke-
In today’s environment, compliance professionals, securities
attorneys and other industry professionals are called upon to lead
their firm’s process of revisiting, developing and implementing practices to protect
investors.
For 2010, the FINRA Annual Conference has been expanded to three
days to cover core areas—including anti-money laundering,
examination findings and focus, risk management, supervision and
suitability
EFM- Protect investors??????????? Unless
one knows the fundamentals of investing- certainly standard deviation,
correlation and risk of loss- it is a farce on their part to put out
anything.
`1/22: Performance
Maximization of Actively Managed Funds � Paolo Guasoni, Gur
Huberman, and Zhenyu Wang (no. 427, January 2010)
JEL codes: G11, G12, G13, G14
Ratios that indicate the
statistical significance of a fund’s alpha typically
appraise its performance. A growing literature suggests that even in
the absence of any ability to predict returns, holding options
positions on the benchmark assets or trading frequently can
significantly enhance performance ratios. This paper derives the
performance-maximizing strategy--a variant of buy-write--and the least
upper bound on such performance enhancement, thereby showing that if
common equity indexes are used as benchmarks, the potential performance
enhancement from trading frequently is usually negligible. The
enhancement from holding options can be substantial if the implied
volatilities of the options are higher than the volatilities of the
benchmark returns.
1/21: From
Bill Jahnke 2003- You attack the conventional wisdom applied by many of
the nation’s leading financial planners. Why? The conventional
wisdom has resulted in bad practices. Among them would be static asset
allocation––the setting of asset allocation policy and
sticking with it regardless of what’s going on in the
world––and the overstatement of return expectations, which
results in under-funding financial plans. In a world that is dynamic,
static asset allocation doesn’t make sense. It’s not the
way things were done for a long time. It was an idea that took root in
the latter part of the 80s. Before that, the idea of sticking with
investment solution through thick and thin was not part of the received
wisdom. But there was a recognition that being an active asset
allocator is a tough job. Then came development of performance
measurement and statistics of how the stock market had done going back
to 1926, and the realization that stocks had handily outperformed bonds
over that period. Consultants selling databases suggested that you can
take the historic numbers and put them into optimizers and use the
result to make investment decisions. I believe that it is important to
know how the market behaved in the past, but if you assume you can
extrapolate historical returns, there is a problem. Expected returns on
stocks deviate significantly from historical returns and the output of
portfolio optimization programs is only as good as the input.
1/21/ More from Jahnke: You say that advisors have totally misapplied
the Nobel-prize-winning ideas of Harry Markowitz and Modern Portfolio
Theory. So let’s focus on the hijacking of MPT for a minute.
Markowitz’s name has been co-opted. Markowitz is recognized as
the father of Modern Portfolio Theory. In his 1952 paper, Portfolio
Selection, he cites three significant influences. One was John Burr
Williams, who argued that investors should figure out what companies
will earn, what they will pay in dividends and then discount dividends
back to a present value. If you figure in the current price of a
company’s shares, you can calculate the expected return.
Markowitz said that was all fine and good, but asked, “What
should we do about the risk of the stock not fulfilling your return
expectations?” He figured out the mathematics of how to trade off
the expected return from security selection with uncertainty, to find
the sweet spot. And then he elaborated on this in his 1959 book,
Portfolio Selection. I believe Markowitz would say his ideas and MPT
have been co-opted. I have had several brief conversations with him
about my ideas on matching investment solutions with financial planning
objectives, and he recognizes that single period mean-variance
optimization is not up to the task. Markowitz does not believe you can
use historical returns as inputs in portfolio optimization. He thinks
the assumptions underpinning the capital asset pricing model are
strange. The idea that applying MPT requires that you believe in market
efficiency came about because of the work by Bill Sharpe, Eugene Fama,
and others. These two things got connected at the hip. But Markowitz
does not believe that markets are efficient and that the process of
generating returns is stable. MPT got co-opted by zealots of the
efficient market school.
1/21: US Government Agency Step-Up Coupon. You can get a 7% rate
till 2025. Not a bad return if you can deal with a 15 year
maturity.
1/21: Disaster
Preparedness for Elder Loved Ones
1. By Dana Carr
It’s no secret that a large percentage of deaths in
Katrina-ravaged New Orleans were our sick and our elderly. Even
institutions built to safeguard our elderly loved ones were
ill-equipped to handle a disaster of this magnitude.
In his September 19, 2005 report, New York Times reporter David Rohde
exposes Katrina’s impact on nursing homes and hospitals. About
60% of nursing homes failed to evacuate successfully before the storm
hit. Many nursing home operators feared their frailest residents would
die on the buses leaving town. So far, more than 150 of the deaths in
New Orleans were patients in hospitals and nursing homes.
This report should be a wake-up call to all families with elderly loved
ones. What would happen in the event of a major earthquake? Or even in
other areas of the US where unanticipated disasters such as tornados,
floods or fires could occur. The damage could be even more extensive
due to the element of surprise.
No one likes to plan for the worst. However, objectively considering
the possibility of a disaster and developing a contingency plan is
exactly what’s needed to offset the tremendous impact such an
event could have on our elderly loved ones and on us. Even if your
loved one resides in an assisted-living facility, there is no guarantee
the employees would elevate your loved one’s interest ahead of
their own family’s safety. Indeed, you may be called upon to
transport and care for your loved one until the situation stabilizes.
Are you prepared to care for your loved one? Do you have a week’s
supply of their daily medications? How will you transport your loved
one?
Here is a brief checklist of tasks that should be completed now.
Completion of these tasks will help prepare you to effectively and
efficiently handle any emergency.
Provide the facility with in-state and out-of-state emergency contact
information.
Find out if the facility has a website where they will post information
in case of a major emergency.
Keep a current copy of your loved one’s medical requirements with
you. Arrange with the doctors, pharmacy and/or facility to have at
least a seven day supply of each of their medications.
Prepare a bag that you can carry with you to the facility if the roads
are out. It should contain a portion of each of the following items.
Stock disposable rubber gloves, antibacterial gels, adult diapers,
wipes, skin creams and a supply of plastic bags to dispose of any
waste. Elders with special medical needs require special hygiene
products.
You should have a change of clothes for your elder family member. Many
elders in facilities always wear a nightgown or very light clothing. If
you need to bring them home, they will need shoes, socks, sweaters,
jackets, etc.
For dementia or Alzheimer’s patients, make sure your loved one
always wears their medic alert bracelet. It contains the appropriate
contact and medical information. You may also want to consider putting
an emergency pack in their room with all of the pertinent information
about their care in writingg
Meet with other family members and discuss the following questions.
Which family member is closest to the facility should transportation
become necessary?
Who is responsible for moving the loved one? Also, establish a backup
person..
If the loved one can’t be moved, who can stay in the facility
with them?
The bottom line is that we are the primary caregivers to our loved ones
during an emergency, not the facilities they live in. It’s in our
loved one’s best interest to take responsibility for their care
in the event of a disaster rather than for one hospital administrator
to care for all of the patients in their charge
1/21:
Tax Credit Helps Pay for
Higher Education Expenses
The American Recovery and Reinvestment Act was passed
in early 2009 and created the American Opportunity Credit. This
educational tax credit – which expanded the existing Hope credit
– helps parents and students pay for college and college-related
expenses.
Here are the top nine things the Internal Revenue Service wants you
to know about this valuable credit and how you can benefit from it when
you file your 2009 taxes.
The credit can be claimed for tuition and certain fees paid for
higher education in 2009 and 2010.
The American Opportunity Credit can be claimed for expenses paid
for any of the first four years of post-secondary education.
The credit is worth up to $2,500 and is based on a percentage of
the cost of qualified tuition and related expenses paid during the
taxable year for each eligible student. This is a $700 increase from
the Hope Credit.
The term "qualified tuition and related expenses" has been
expanded to include expenditures for required course materials. For
this purpose, the term "course materials" means books, supplies and
equipment required for a course of study.
Taxpayers will receive a tax credit based on 100 percent of the
first $2,000 of tuition, fees and course materials paid during the
taxable year, plus 25 percent of the next $2,000 of tuition, fees and
course materials paid during the taxable year.
Forty percent of the credit is refundable, so even those who owe
no tax can get up to $1,000 of the credit for each eligible student as
cash back.
To be eligible for the full credit, your modified adjusted gross
income must be $80,000 or less -- $160,000 or less for joint filers.
The credit begins to decrease for individuals with incomes above
$80,000 or $160,000 for joint filers and is not available for
individuals who make more than $90,000 or $180,000 for joint filers.
The credit is claimed using Form 8863, Education Credits,
(American Opportunity, Hope, and Lifetime Learning Credits), and is
attached to Form 1040 or 1040A.
1/20: Getting rich-
Seven out of 10 say
it is harder to get rich in America today than it used to be, according
to the most recent Bankrate.com survey
Compare that response
to a similar poll taken in 1999, during the era of the dot-com bubble:
Only 38 percent of Americans said it was harder to get rich than it
used to be. Just more than a quarter, 26 percent, said it was easier.
Today, 9 percent say it's easier.
1/20: Possibilities of 401k
disclosure
According to the House committee's Web site, the 401(k) Fair Disclosure
and Pension Security Act (H.R. 2989), would:
- Require 401(k) plans to disclose fees on workers'
quarterly statements as a dollar figure taken from participants'
accounts. Fine
- Require service providers and plan administrators
to disclose fees in four categories: administrative, investment
management, transaction, and other fees. Fine
- Help workers understand their investment options
by providing information on risk, return, and investment objectives.
Not a chance. There is no training in the industry for risk or much of
anything else.
- Require plan administrators to offer at least one
low-cost index fund in order to receive protection against liability
for participants' investment losses. Wrong. The S&P 500 lost 55%.
The requirement is insipid.
- Require service providers to disclose financial
relationships so companies that sponsor 401(k) plans can make sure
there are no conflicts of interest. Fine
- Ensure that investment advice is based on workers'
needs--not the financial interest of those providing the advice. Cannot
be done without a budget and an individual analysis.
- Provide adjustments to pension funding rules to
ensure plans can weather economic crises without providers being forced
to cut jobs or freeze plans. No idea what that means.
1/19: Pets- Forty-two
states and the District of Columbia now have laws that
specifically authorize the creation of trusts for the care of pets.
That's up from 16 states in 2003, with Connecticut, Maryland and
Vermont enacting their pet trust laws just last year.
1/19: Stock ownership: 50 or so years ago about 92
percent of stocks were owned by individuals and only 8 percent were in
the hands of institutions. Today it’s almost the reverse,
with more than three-quarters of stocks owned by mutual funds and
pension funds and less than a quarter in the hands of individuals.
Bank creditors to Dubai
World that are owed billions of dollars are trying to reduce their
exposure to the debt-laden conglomerate by offering their loans for
sale ahead of an expected restructuring of the
company’s $22bn of debt http://link.ft.com/r/NA70KK/722MF3/8ZDJB/ZB0ZOD/C77EB/RF/h
Chinese investors known
for picking up distressed assets at knockdown prices are turning their
attention to Dubai in the hunt for property bargains in the wake of its
financial crisis
1/19: Fools: A nationwide survey last year found that
investors expect the U.S. stock market to return an annual average of
13.7% over the next 10 years.
We empirically analyze
rational investors' optimal response to asset price bubbles. We define
bubbles as a sudden acceleration of price growth beyond the growth in
fundamental value given by an asset pricing model. Our new bubble
detection method requires only a limited time-series of historical
returns. We apply our method to US industries and find strong
statistical and economic support for the riding bubbles hypothesis:
when an investor detects a bubble, her optimal portfolio weight
increases significantly. A dynamic riding bubble strategy that uses
only real-time information earns abnormal annual returns of 3% to 8%.
Many studies assume
stock prices follow a random process known as geometric Brownian
motion. Although approximately correct, this model fails to explain the
frequent occurrence of extreme price movements, such as stock market
crashes. Using a large collection of data from three different stock
markets, we present evidence that a modification to the random model --
adding a slow, but significant, fluctuation to the standard deviation
of the process -- accurately explains the probability of
different-sized price changes, including the relative high frequency of
extreme movements. Furthermore, we show that this process is similar
across stocks so that their price fluctuations can be characterized by
a single curve. Because the behavior of price fluctuations is rooted in
the characteristics of volatility, we expect our results to bring
increased interest to stochastic volatility models, and especially to
those that can produce the properties of volatility reported here.
1/19: “Fee-only.” A certificant may describe
his or her practice as “fee-only” if, and only if, all of
the certificant’s compensation from all of his or her client work
comes exclusively from the clients in the form of fixed, flat, hourly,
percentage or performance-based fees.
This is from the CFP mandatory ethics course. However, the
failure of the definition is that fee ONLY reflects what the
adviser will do, not the fact that if teh client is referred to a
standard life agent, a commission will be charged. Secondly, the laws
determine if a planner can charge a fee. 99.99% of fee only advisers
are RIA eitehr through the SEC or state.
But about 32+ states have requirements for fee advice on insurance. And
maybe 0.5% are licensed.
So there really is only a fee only investment
advisor. There are NO fee only planners in
these states.
1/18: Three quarters??? Goldman
set aside $16.7 billion for compensation in the first nine months of
2009, and in good years, the firm dedicates about three-quarters of its compensation budget
to year-end bonuses
1/18: From the WSJ:
The third step to an all-weather portfolio: Hire good professionals
-- cheaply. How? By investing some money in smart, flexible mutual
funds where the managers can pick their bets and avoid risks.
I tend to sort these into three broad types. Asset-allocation funds
give a manager freedom to move money between different asset classes
like stocks and bonds in response to perceived risks. (Ho Ho Ho Ho Ho
Ho ho Ho Ho Ho ho)
1/18: Oy!: A nationwide survey last
year found that investors expect the U.S. stock market to return an
annual average of 13.7% over the next 10 years
1/18: Stiglitz
Securitization, the hottest financial-products
field in the years leading up to the collapse, provided a textbook
example of the risks generated by the new innovations, for it meant
that the relationship between lender and borrower was broken.
Securitization had one big advantage, allowing risk to be spread; but
it had a big disadvantage, creating new problems of imperfect
information, and these swamped the benefits from increased
diversification. Those buying a mortgage-backed security are, in
effect, lending to the homeowner, about whom they know nothing. They
trust the bank that sells them the product to have checked it out, and
the bank trusts the mortgage originator. The mortgage originators'
incentives were focused on the quantity of mortgages originated, not
the quality. They produced massive amounts of truly lousy mortgages.
The banks like to blame the mortgage originators, but just a glance at
the mortgages should have revealed the inherent risks. The fact is that
the bankers didn't want to know. Their incentives were to pass on the
mortgages, and the securities they created backed by the mortgages, as
fast as they could to others. In the Frankenstein laboratories of Wall
Street, banks created new risk products (collateralized debt
instruments, collateralized debt instruments squared, and credit
default swaps, some of which I will discuss in later chapters) without
mechanisms to manage the monster they had created. They had gone into
the moving business—taking mortgages from the mortgage
originators, repackaging them, and moving them onto the books of
pension funds and others—because that was where the fees were the
highest, as opposed to the "storage business," which had been the
traditional business model for banks (originating mortgages and then
holding on to them). Or so they thought, until the crash occurred and
they discovered billions of dollars of the bad assets on their books.
The financial crisis
of 2008, which started with an initially well-defined epicenter focused
on mortgage backed securities (MBS), has been cascading into a global
economic recession, whose increasing severity and uncertain duration
has led and is continuing to lead to massive losses and damage for
billions of people. Heavy central bank interventions and government
spending programs have been launched worldwide and especially in the
USA and Europe, with the hope to unfreeze credit and boltster
consumption. Here, we present evidence and articulate a general
framework that allows one to diagnose the fundamental cause of the
unfolding financial and economic crisis: the accumulation of several
bubbles and their interplay and mutual reinforcement has led to an
illusion of a ``perpetual money machine'' allowing financial
institutions to extract wealth from an unsustainable artificial
process. Taking stock of this diagnostic, we conclude that many of the
interventions to address the so-called liquidity crisis and to
encourage more consumption are ill-advised and even dangerous, given
that precautionary reserves were not accumulated in the ``good times''
but that huge liabilities were. The most ``interesting'' present times
constitute unique opportunities but also great challenges, for which we
offer a few recommendations.
Keywords:
Financial crisis, bubbles, real estate bubble,
derivatives, super-exponential
Thorsten Lehnert (Luxembourg School of Finance,
University of Luxembourg)
Aleksandar Andonov (Limburg Institute of Financial Economics,
Maastricht University)
Florian Bardong (Fixed Income Research, Barclays Global Investors,
London)
Previous research
indicates that the US market for inflation-linked bonds is not
efficient and that market inefficiencies can be exploited by informed
traders who include survey estimations or inflation model forecasts in
trades on break-even inflation. Results from this extended research
over a time-period in which the TIPS market matured and increased in
depth, while the volatility of real yields and inflation increased,
confirm that TIPS market inefficiency was not temporary but persisted
over the entire time period between 1997 and 2009. Using estimations
generated by the Survey of Professional Forecasters or forecasts based
on the Kothari and Shanken (2004) inflation model to construct a
break-even trading strategy leads to excess returns over a static
buy-and-hold strategy. These excess returns remain substantial even
after accounting for trading costs. Furthermore, TIPS returns still
include a substantial liquidity premium, which increased during the
financial crisis.
Jiri Novak (Institute of Economic Studies, Faculty of Social
Sciences, Charles University, Prague, Czech Republic)
Dalibor Petr (Palacky University, Olomouc)
Measuring risk in the
stock market context is one of the key challenges of modern finance.
Despite of the substantial significance of the topic to investors and
market regulators, there is a controversy over what risk factors should
be used to price the assets or to determine the cost of capital. We
empirically investigate the ability of several commonly proposed risk
factors to predict Swedish stock returns. We consider the sensitivity
of an asset returns to the variation in market returns, the market
value of equity, the ratio of market value of equity to book value of
equity and the short-term historical stock returns. We conclude that
none of these factors is clearly significant for explaining stock
returns at the Stockholm Stock Exchange, which casts doubt on their use
as universal risk factors in various corporate governance contexts. It
seems that the previously documented relationship is contingent on the
data sample used and on the time period.
1/14: The
Roller Coaster of Caregiving
1. By Jane Cassily Knapp, RN, LCSWC
The decisions to become a caregiver are usually made in crisis
situations. We rarely have time to consider the ramifications of these
decisions nor do we really fully understand that there are any
ramifications. What could be so difficult about caring for someone we
love?
In the ideal situation a family meeting should be called to get an
understanding from all involved as to what the primary
caregiver’s role will be. What are each family member’s
expectations and understanding of caregiving? What is the
family’s plan for support to the caregiver? Scheduled assistance
and relief to the caregiver should be routinely incorporated into the
weekly schedule from the onset.
The caregiving role is a pivotal one: You become the center person, the
“expert” in the care of someone. Everyone else in the
family is required to go through you to find out what is now needed for
this person. Your new position forever changes your role with each
family member.
It’s a little like working with the same group of people on your
job for 20 years and suddenly being promoted to the boss. People who
were your comrades and trusted support system are now critical of you
and your actions. They don’t want your job but they’re
jealous that you have it. They may also feel that through your new
caregiving role you now hold control over their actions to some extent.
Avoid pit falls……….. Dispel misunderstandings/
myths regarding your desire to be the caregiver. Others not available
or not wanting the responsibility to caregive may misunderstand your
motives. Often this is rooted in their guilt over not taking on this
role themselves. They begin to
question………”what is your hidden agenda for
caregiving?”
You must want the estate or checking account, etc. If this is allowed
to brew you may find yourself in the midst of serious family conflict.
You think everyone should be so grateful to you for the incredibly
generous gift you are providing the family and suddenly you become very
hurt by these knives of jealousy and misperceptions.
Usually caregivers are by nature giving people. This additional
responsibility seems natural to them. These persons occasionally suffer
from co-dependency. This means that they have had a history of setting
poor boundaries and healthy limits to protect themselves from being
victimized or exhausted.
Others, not attuned to this, often misunderstand. They may have
healthier boundaries and would never allow themselves to do more than
they feel they can do. Therefore, they assume that the caregiver is not
going to work harder than they can tolerate. If an exhausted caregiver
continues to try to provide everything needed without asking for help,
those around them assume that they are fine. If they weren’t fine
they would stop and ask for help. The caregiver may become angry and
feel abused and victimized. They feel that others should know that they
need help but if you don’t ask, no one will know. The people
around you may not be unwilling or uncaring; they just aren’t
mind readers. No one enjoys being related to a martyr.
When a dependent family member first moves into your home for care
giving there is often a “honeymoon” period.
Everyone is polite, friendly and appreciative. This new change in the
family dynamics can temporarily make even old persistent family
problems seem like they have been resolved or forgotten. Everyone puts
his or her best foot forward.
However, as many of you are aware, this is often short lived. The
“new” family member may offer “suggestions”
about how your family should do things; especially concerning how you
should raise your children. There is no longer just you and your
husband watching TV in the evening. His mother is sitting in between.
Your children compete for attention by fighting with each other while
you’re changing grandpa’s diapers. They may let you know
how they feel about the new member in their home by acting out at
school; grades may drop. All these wonderful things add to your
exhaustion and frustration. Your mother-in-law may re-arrange your
furniture or your kitchen closets. And just to make life more
interesting, you are up every 3-4 hours to take your new family member
to the bathroom only to get there and have them say, “I guess it
was just a false call.”
There are many positive gifts to be had by participating in caregiving.
You have the unique opportunity to get to know the dependent person in
a very intimate and wonderful way. You can experience tremendous
satisfaction from caregiving. You become the model for family members
and others who take on the caregiving experience.
You provide the gift of allowing the dependent person to live in a home
environment and to be taken care of by someone who loves them and who
will honestly work to maintain their privacy, security, and personhood.
Family caregivers have history with the dependent person. They knew
them before their many losses. They knew and respected the personhood
of their past. Therefore they don’t only see them as who they
appear in the present. This provides a connection and intimacy that is
very comforting.
Family caregivers also provide a sense of comfort and relief to the
other family members of the dependent person by the fact that they now
have the peace of mind that their dependent loved one is being cared
for by someone who really cares for them.
We have mentioned:
Anger
Ambivalence
Exhaustion
Frustration
Guilt
As difficult feelings common to the family members of a dependent
person and the caregiving role.
Now let’s look at
Scorekeeping—Who did what, when? Who did more? Whose turn is it?
Who never takes a turn? Who is the most exhausted? There is no equality
in caregiving as in parenting. Be careful not to fall into this pit. It
will only add to further family discord.
Advise Givers—Sometimes those family members who, for various
reasons, are not the primary caregivers attempt to make themselves feel
less guilty or more involved than they actually are by stopping by
weekly or monthly to loudly advise the caregiver regarding all the
things you aren’t doing adequately for “Mom” or all
the ways in which you need to improve your caregiving.
Don’t allow yourself to be hurt by these people. Just let them
vent. They are only trying to take care of themselves. It’s not
really about you or the quality of your caregiving. You may choose to
respond by saying, “I know it must be very hard for you to not be
able to be here as often as you would like to be and not to be able to
do the things for Mom that you wish you could.”
Overcoming Losses
One thing that is often overlooked by the caregiver and other family
members is the impact of the losses for both the caregiver and the
dependent family member. A wife may miss the husband she has known and
loved for many years. She experiences the loss of the friend with whom
she has shared interests and confidences. Who was her companion for
parties, grocery shopping, going to church or just taking a walk or
watching TV together. Not only have you lost your friend but now you
may have to take on the roles that this person used to hold within the
relationship
like financial responsibilities and household jobs.
You may feel guilty, angry, and sad for feeling like “this
isn’t the person I married.”
The dependent loved one experiences many losses as well. Their
lifestyle, their independence, their jobs (at home and/ or at work),
their health, friendships with co-workers or others are now cut off.
Others now see them as invalids but they may feel like screaming
“I’m in here and I’m a person!” It’s very
hard to tolerate a constant state of dependence.
On whom do we find it easiest to take out our frustrations? The person
we love, of course. When we are totally dependent on that person, we
often take out our anger and frustrations. This can make for very
difficult times.
Ambivalence—We may find ourselves saying “I want to do
this…I don’t want to do this…..I wish this was
over…” Does that mean I don’t love this person?
“Sometimes I daydream about their funeral. Sometimes I wish they
had died while they were independent and not survived to be in this
state. What’s wrong with me….sometimes I wish they were
dead.” Does that mean I’m terrible? You are not terrible
for thinking these thoughts. You are not wishing the person you love is
gone; you are wishing this state of constant caregiving and decreased
quality of life for your loved one are gone. You are wishing your
exhaustion and frustration are gone. That is why you need to improve
your self caregiving. Your dependent loved one is counting on you to be
there for them but you can’t do this if you don’t take care
of yourself.
What you can do to assist in caregiving and to care for yourself.
Allow others to help you.
Be assertive of your needs.
Set healthy boundaries.
Use respite services.
Participate in support groups and church activities.
Exercise.
Take time out for yourself and your family; take vacations.
Make sure you have planned caregiver relief routinely into your weekly
schedule. (i.e. Every Tues. from 2-5 my sister Mary comes in to care
for Joe. Or my friend from the church comes in every Wed. 1-3.)
Don’t wait until you are exhausted to ask for relief!
Maintain your own health. Keep routinely scheduled doctor appointments,
counseling appointments; get adequate sleep and nutrition.
Use a “baby” monitor so that you have peace of mind while
working in the yard or doing anything out of ears’ length of your
loved one.
Use a monitor if applicable so that you can safely leave your loved one
for short periods.
Invite friends in.
Create a private space for you and your family within your home for
socialization away from the dependent person.
Allow yourself to vent your frustrations.
Don’t beat yourself up with guilt.
Compliment yourself for the tremendous caregiving job you are doing
Son asked his mother the following question:
'Mom, why are wedding dresses
white?' The mother looks at her son and replies:
'Son, this shows your friends and
relatives that your bride is pure.'
The son thanks his Mom and goes off to
double-check this with his father.
'Dad why are wedding dresses white?'
The father looks at his son in surprise
and says:
'Son,
all household appliances come in white.'
1/14: Fitness at 50+: Five Barriers You Can Beat
While exercise is often touted as a fountain of youth, it often gets
harder to do as you get older.
Physical medicine and rehabilitation (PM&R) physicians, also called
physiatrists, are doctors who restore and maintain function lost due to
injury, illness and age-related conditions such as osteoporosis,
arthritis, joint replacements or stroke. They often prescribe exercise
to prevent and treat many of these conditions, working with their older
patients to help them get the right kind of exercise so that they can
remain active and independent. PM&R physicians offer these tips to
help seniors overcome five common fitness obstacles:
OBSTACLE: Declining Strength
What you can do: use your endurance. It’s true we lose muscle
mass as we age, and older people have been told that weight training
will help prevent this loss of strength and keep them young. However,
many seniors find they can’t lift the heavy weight experts say is
necessary to actually build muscle. A recent study has shown that while
muscle strength diminishes with age, muscle endurance does not. You may
benefit from working muscles longer - doing more repetitions - with
lighter weights. Exercises that emphasize endurance, such as swimming,
walking or biking, may be more enjoyable and beneficial for you than
those that require great strength.
OBSTACLE: Arthritis or Other Conditions That Make Moving Difficult
What you can do: you can, and should, still exercise. Ask your doctor,
or physical therapist, about how to use a cane, rollator (rolling
walker) or other assistive device. These can be especially helpful if
you’re recovering from a joint replacement, or a serious illness
such as stroke or cancer. Another condition that becomes more common as
we age is neuropathy, which is nerve damage in the feet and extremities
that makes it difficult to maintain balance and walk steadily. For all
of these conditions, assistive devices can keep you active while
helping you prevent a fall and further injury.
OBSTACLE: Exercise and Activity After Surgery
What you can do: follow your doctor’s orders, but the best,
general rule is to get moving as soon as possible. The type of surgery
you had and the type of exercise you plan to do will influence when you
should start exercising after an operation. But a recent study found
that people who began physical rehabilitation two days after heart
surgery recovered faster than those who delayed. PM&R physicians
say keeping active becomes more important as the body ages and loses
its ability to recover. The longer you delay returning to activity, the
more difficult it will be to regain fitness.
OBSTACLE: A History of Inactivity
What you can do: get started on the path to fitness by using everyday
activities as exercise. Recent studies have shown that
“functional exercises,” those that mimic actual daily
activities such as walking up stairs and getting in and out of chairs,
are most effective for you. Climbing a flight of stairs several times
or repeatedly rising from and returning to a seated position is an
effective way to build leg strength. As you become stronger and more
fit, increase the challenge by holding some sort of weight on your
shoulders, like soup cans. PM&R physicians say that even mundane
household chores such as transferring wet laundry from the washer to
the dryer, one piece at a time, can be used to increase strength and
flexibility in your abdominal, low back and hip muscles. Once
you’ve established a routine of exercise, functional fitness
exercises can also be used to maintain your health.
OBSTACLE: Chronic Pain and Inflammation
What you can do: choose low impact activities to keep moving and
minimize pain. Experts say that certain types of exercise can reduce
joint stiffness, pain and inflammation associated with arthritis
conditions that affect more than 40 million Americans. A PM&R
physician can advise you on the exercise best suited for your
arthritis, but activities such as walking, swimming and water-based
exercise are generally effective and well tolerated. PM&R
physicians also advise arthritic patients to take breaks from long
periods of sitting so that joints don’t become stiff and painful.
If you face chronic pain or other medical conditions, consult a
PM&R physician who can help you overcome obstacles and develop a
realistic and effective fitness program. PM&R physicians are
experts at diagnosing pain and restoring function, treating the whole
patient, not just symptoms. Many recommend a simple tool to help aid
accurate diagnosis, development of tailored and effective treatment and
evaluation of progress: keep a log of daily activity, pain and
questions that you bring with you to appointments with PM&R
physicians or other doctors.
1/13: Interesting: The drop in real-estate values
accompanying the credit crunch is enabling conservationists to snap up
and preserve land that had been marked for development. Nonprofit
groups and state and local governments have purchased thousands of
acres of land, from New Jersey marshland to wooded Idaho foothills, as
the real-estate bust has led property owners to slash prices.
1/13: Wrong: Trustmakers
talking about rebuilding your portfolio: "If you lost
money in a stock, you should ferret out the cause. Did earnings come in
below estimates? Are sales in a slump due to consumer spending? Is
their market share increasing? Are profit margins growing or shrinking.
All of these factors affect corporate earnings. A study of the
company's financials will keep you out of harm's way. Lastly, look for
signs of institutional block buying or selling. All you have to do is
see the foot prints of the major players
Buying stocks breaches any rational teachings. Did earnings come in
below estimates? Whose estimates. Based on what, by whom? Profit
shares increasing? By whose estimates? And on an on.
People who buy stocks to make a portfolio are simply not that bright
They also note, "In addition to the above factors, evaluate your
ability to manage risk".. There are about 2 consumers in
the US who know their actual risk of loss
1/13: IRS Fact Sheet -- 2009 Tax Credits and Deductions
In FS 2010- 4, the IRS has released a fact sheet that explains 2009 tax
law changes. These deductions and credits may assist taxpayers in
reducing their payments on 2009 taxes. The fact sheet focuses on
deductions for college tuition, energy credits, vehicle deductions and
increased limits for the standard deduction, personal exemption and
alternative minimum tax exemptions.
1. American Opportunity Credit - The American
Opportunity Credit provides for a 100% deduction for the first $2,000
of tuition and a 25% deduction for the next $2,000. For expenditure for
tuition and qualified books, the total deduction can be $2,500. Persons
with a modified adjusted gross income (MAGI) of $80,000 single or
$160,000 married qualify. The credit applies to the first four years of
college and is 40% refundable. Even individuals who do not pay tax may
obtain a partial refund.
2. Energy Credits - There are two main energy
credits. The non-business or homeowners credit is 30% of expenditures
up to $5,000. The $1,500 credit may be used for improved heating and
air conditioning systems, biomass stoves, and some types of energy
efficient windows, doors and installation. The second residential
credit is 30% with no cap on solar systems, wind turbines and
geothermal heat pumps. The manufacturer must certify that the installed
energy equipment qualifies for this credit.
3. New Vehicle Deduction - The state and local
sales tax paid on a new car, light truck, motor home or motorcycle with
a value up to $49,500 may be deducted. The vehicle must have been
purchased between February 16, 2009 and December 31, 2009. Individuals
qualify with incomes of $125,000 (single) or $250,000 (married).
4. Standard Deduction - The 2009 standard
deduction for married couples is $11,400. Single persons qualify for
$5,700 and a head of household may receive $8,350 as the standard
deduction. With the higher standard deduction rates, the majority of
taxpayers no longer itemize.
5. Alternative Minimum Tax - The AMT exemptions
were increased for 2009 to $70,950 (married), $46,700 (single) and
$35,475 (married filing separately).
6. Personal Exemptions - The personal exemption
will be $3,650. This exemption is available for the taxpayer and for
eligible dependents.
1/13: Pensions
Only about half of private sector workers had any sort of
employer-sponsored retirement plan in a given year between 1979 and
2008, according to a new Center for Retirement Research at Boston
College analysis.
Many workers also move in and out of retirement plan coverage
throughout their career as they change jobs, which leads to smaller
retirement payouts than if they consistently participated. Plus, about
a third of primarily low-income households are not covered by any sort
of retirement plan throughout their entire working life. These people
will be entirely dependent on Social Security in retirement.
The percentage of employers offering some form of retirement
benefits has remained relatively stable for the past 25 years. But as
private sector employers eliminated mandatory pensions and began
offering only voluntary retirement accounts, fewer low- and
middle-income workers used their retirement benefits. Workers in the
top third of the income scale had nearly constant participation
throughout the shift, but participation for the middle third declined
from 94 percent in 1979 to 86 percent in 2008.
Among low-paid workers, participation in any sort of
retirement plan fell even more sharply from 85 to 69 percent over the
same time period.
1/12: Dying couch potatoes: each
hour of TV-viewing was associated with an 11 percent increased risk of
death from any cause, and an 18 percent increased risk of death from cardiovascular disease.
These findings held true even after the researchers took into account
other factors that could raise the risk of dying, such as age, gender, waist circumference and
exercise habits
The researchers suggest this link between TV-time and early death
could be partly due to the fact that sitting in front of the tube may
take away from time a person might otherwise spend moving about,
engaging in light activity, which has been shown to reduce the risk of
developing certain biological indicators of cardiovascular disease. The
new results agree with those of another recent study, which showed that
adults who watch less TV also burn more calories.
The results also showed that those who watched TV for four hours a
day or more had a 46 percent increased risk of death from any cause and
an 80 percent increased risk of death from cardiovascular disease,
compared with those who watched TV less than two hours a day. This
connection was found to be independent of other risk factors for death
and cardiovascular disease, including smoking, high cholesterol, poor
diet, high blood pressure
and a large waistline
In Australia and
the United Kingdom, the average person watches about three hours of TV
a day, the study's authors say, while in the United States, the average
daily viewing time is around 5 hours,
And skinny people are not off the hook when it comes to the risks of
sedentary behavior. "Even if someone has a healthy body weight, sitting for long
periods of time still has an unhealthy influence on their blood sugar
and blood fats,"
*
Analysts are not all-knowing. For the most part, they are intelligent,
well informed and highly paid. But like most human beings, they
extrapolate the recent past as a guide to what comes next.
Dan Dorfman
Here is where I think the failure is. It is the
assumption/inference that intelligence and competency are
essentially the same. No, there is very little in the investment
game outside of theory and numbers. Very little practical application.
Dan is correct that they use history since there is very little
else that may guide them. And remember that even if they are correct
with a couple stocks, you need up to 350 to reduce the risk overall.
Can it be done with less and can it be successful. Yes. At least for
awhile. Consider Bill Miller. Beat the S&P 500 for 14 years
straight and then went flaming down.
1/12:
Risk Aversion, Over-Con…dence and Private Information as
determinants
of Majority Thresholds
Giuseppe ATTANASIy Luca CORAZZINIz
Nikolaos GEORGANTZISx Francesco PASSARELLI{
September 2009
Abstract
We study, both theoretically and experimentally, the relation between
pre-
ferred majority thresholds and behavioral traits such as the degree of
risk
aversion and the subjective con…dence on others’
preferences over the
alter-
native to vote. The main theoretical …ndings are supported by
experimental
data. The majority threshold chosen by a subject is positively and
signi…cantly
correlated with her degree of risk aversion while it is negatively and
signi…-
cantly associated to her con…dence on others’votes.
Moreover, in a
treatment
in which each subject can privately observe the distribution of
preferences over
a sub-group of participants, we …nd that the quality of
information
crowds-out
subject’s con…dence.
1/11:
Efficient market theory: (wsj) Benjamin Graham wryly described
the efficient-market hypothesis as a theory that "could have great
practical importance if it coincided with reality." Mr. Graham marveled
at how Avon Products,
which traded at $140 a share in 1973, had sunk below $20 in 1974: "I
deny emphatically that because the market has all the information it
needs to establish a correct price the prices it actually registers are
in fact correct."
Mr. Graham proposed that the price of every stock consists of two
elements. One, "investment value," measures the worth of all the cash a
company will generate now and in the future. The other, the
"speculative element," is driven by sentiment and emotion: hope and
greed and thrill-seeking in bull markets, fear and regret and revulsion
in bear markets.
The market is quite efficient at processing the information that
determines investment value. But predicting the shifting emotions of
tens of millions of people is no easy task. So the speculative element
in pricing is prone to huge and rapid swings that can swamp investment
value.
* "The
market may be crazy, but that doesn't make you a psychiatrist."
Prof. Meir
Statman
Jason Zweig concludes, The
market may be inefficient, but it remains close to invincible.
Probably true but do you note that everyone says the same thing- the
MARKET. The point is that the market supposedly determines what you are
to
do/invest in. Why is the market the only place to be? OK But ONLY if
you keep risk at the forefront. If risk is too HIGH, simply exclude the
market altogether. Of course pundits say that that is market timing-
trying to get in at the bottom and out at the top.
No, I am simply avoiding risk altogether whether it be real estate, the
market, gold and a bunch of other stuff that is out of favor. Does out
of favor mean zero or negative returns? Not necessarily at that point.
With an inverted yield curve, the market, for example tends to go
up for awhile while the FED comes in and tries to stop a
debacle. Out of favor can also mean value stock or
contrarian investing. Sure they can work. But sometimes a stock that is
not priced high is simply because the company sucks.
Here is one of my major comment on market efficiency that nobody seems
to address. Graham notes that the price of stock contains the value and
the other part is speculation. Frankly I think there is yet other
elements. Incompetence and lack knowledge. Even if all info was
there, and negating speculation for a moment, why is the assumption
that everyone has the same capability to dissect the info into
objective numbers. If a janitor does the numbers, is the analysis as
good as mine? Is mine as good as Peter Bernsteins? How about two
CFAs? Shouln't they come up with the same value given the same input?
Theyu do not. Why? It is an interpretation of tens if not hundreds of
pieces of data that must be processed.
Investment value measures the worth of all the cash a company
will generate now and in the future. But the measurement in the
FUTURE is unknown. Hence it requires analysis by humans of tons of
data with completely different end analysis, irrespective of any
speculation.
{Per Mandlebrot: for
each stock, you must laboriously calculate its covariance with, or how
it fluctuates against, every other stock. For a thirty stock portfolio,
about the minimum needed to make the numbers work well, that means 495
different calculations of mean variance and covariance. For the entire
NY Stock Exchange, 3.9 million calculations. And because prices change,
the exercise needs constant repetition.
And everyone ofthose
entries may be different by
different advisors.
1/11: When: A $10,000 investment 15 years ago would be worth about
$36,173 today. But anyone who jumped in with $10,000 around the peak of
the market in October 2007 would have just $5,734
1/11: Other costs for managed funds: transaction and
trading costs. These are more likely to be higher for an actively
managed fund, which typically does more trading than an index fund.
They average about 1.4% or 1.6% on top of the published expense ratio
which may reach 2%
1/11: Many of you may not be
loading up the front page. I can get it on my Apple phone but not on
the computer. It is being fixed in that the whole site is going through
a makeover for the videos.
1/10: Monetary Cycles,
Financial Cycles, and the Business Cycle,� Tobias Adrian,
Arturo Estrella, and Hyun Song Shin (no. 421, January 2010)
JEL codes: E52, E50, E44, G18
One of the most robust stylized
facts in macroeconomics is the forecasting power of the term spread for
future real activity. The economic rationale for this forecasting power
usually appeals to expectations of future interest rates, which affect
the slope of the term structure. In this paper, the authors propose a
possible causal mechanism for the forecasting power of the term spread,
deriving from the balance sheet management of financial intermediaries.
When monetary tightening is associated with a flattening of the term
spread, it reduces net interest margin, which in turn makes lending
less profitable, leading to a contraction in the supply of credit.
Adrian, Estrella, and Shin provide empirical support for this
hypothesis, thereby linking monetary cycles, financial cycles, and the
business cycle. http://www.newyorkfed.org/research/staff_reports/sr421.html
1/10 About 5% of boomers are on ellicit drugs. They never gave them up
as they got older. Getting close to 50% obese.
Most individuals do not have
a sufficiently long time frame to recover from large drawdowns from
risky asset classes.
Mebane T. Faber
(my point is that a S&P 500 fund lost 44% and 55% this past decade.
Negative overall. That is risky enough for just about all)
1/7:
Eight Facts About Filing Status
Everyone who files a federal tax return must determine
which filing status applies to them. It’s important you choose
your correct filing status as it determines your standard deduction,
the amount of tax you owe and ultimately, any refund owed to you.
Here are eight facts about the five filing status options the IRS
wants you to know in order to choose the correct filing status for your
situation.
Your marital status on the last day of the year determines your
marital status for the entire year.
If more than one filing status applies to you, choose the one
that gives you the lowest tax obligation.
Single filing status generally applies to anyone who is
unmarried, divorced or legally separated according to state law.
A married couple may file a joint return together. The
couple’s filing status would be Married Filing Jointly.
If your spouse died during the year and you did not remarry
during 2009, you may still file a joint return with that spouse for the
year of death, provided the joint return election is not revoked by a
personal representative for the deceased spouse.
A married couple may elect to file their returns separately. Each
person’s filing status would generally be Married Filing
Separately.
Head of Household generally applies to taxpayers who are
unmarried. You must also have paid more than half the cost of
maintaining a home for you and a qualifying person to qualify for this
filing status.
You may be able to choose Qualifying Widow(er) with Dependent
Child as your filing status if your spouse died during 2007 or 2008,
you have a dependent child and you meet certain other conditions.
1/7:
The
economy is so bad that . . . . 1.
I got a pre-declined credit card in the mail.
2. I
ordered a burger at McDonald's and the kid
behind the counter asked, "Can you afford fries with that?"
3. CEO's are now playing miniature golf.
4. If the bank returns your check marked
"Insufficient Funds," you call them and ask if they meant you or
them.
5. Hot Wheels and Matchbox
stocks are trading higher than GM.
6. McDonald's is selling the 1/4 ouncer.
7. Parents in Beverly
Hills fired their nannies and learned their children's names.
8. A truckload of Americans was caught sneaking into Mexico
. 9. Dick Cheney took his stockbroker
hunting.
10. Motel Six won't leave the light on anymore.
11. The Mafia is laying off judges.
12. Exxon-Mobil laid off 25 Congressmen. 13. Congress says they
are looking into this Bernard Madoff scandal. Oh,
Great!! The guy who made $50 Billion disappear is being
investigated by the people who made $1.5 Trillion disappear!
And,finally...
14. I was so depressed last night thinking about the economy, wars,
jobs, my savings, Social Security, retirement funds, etc., I called the
Suicide Lifeline. I got a call center in Pakistan, and
when I told them I was suicidal, they got all excited, and asked if I
could drive a truck.
1/7: Which one is it??? What's
Hot (Podcast) Jeremy Siegel on 2010: Good
for Stocks, Bad for Bonds -- and Why Interest Rates Will Go Up U.S. stocks boomed
in the last nine months of 2009, but remained well below earlier highs.
Indeed, many people referred to the first 10 years of the 21st century
as "the lost decade," because stocks returned virtually nothing while
investors had been conditioned to expect 10% a year. Meanwhile, bonds
and commodities experienced a stunning run. Have the rules of investing
changed? What's ahead for 2010? Knowledge@Wharton talked with Wharton
finance professor Jeremy Siegel, who sees some hazards, especially for
bonds, but expects a good year for stocks.
or
Finance and Investment (Podcast
with Transcript) Global Interdependence: Are
the U.S and Other Markets 'Sowing the Seeds' for the Next Crisis? Despite renewed
GDP growth and other positive signs, the U.S. isn't out of the woods,
says Wharton finance professor Franklin Allen. In fact, the country
could be heading into a "double dip" scenario that tips it back into a
recession. That depends on how a number of factors play out in the
coming months -- or even years -- not only in the U.S., but also around
the world. Global interest rate policies, property markets and public
deficits will all demand attention, Allen notes in a recent interview
with Knowledge@Wharton.
1/6: The fallacy of theory: These are
comments from the Journal of Financial Planning, "Second, assume that
markets have produced Black Swan returns—an event that has a 1
percent chance of occurring,
according to the same Monte Carlo simulation—hence,
Robert’s wealth of 950,000 has declined to $342,400 while
Sandra’s wealth of 330,000 has declined to $197,700.
So Moshe Milvesky comments is how much is left blah, blah and
developing another index to determine what retirement success they
might have. It's called a sordex index. “The SORDEX Ratio is a
value between zero (very good)
and infinity (very bad) that summarizes the vulnerability of a number
to statistical outliers, defined within the same simulation.
A SORDEX Ratio greater than 1 should raise alarm bells, while anything
above 2 should set-off ear piercing sirens. Moreover, this technique
can be extended to inflation and longevity Black Swans as well.”
What the @&)U()*&(**+!! . There is no way 'Robert' could
lose over 607,000 and not do anything. Admittedly a Black Swan
can happen all at once- 9/11 for example- but even given that, it
should have been avoided in any case because the inverted curve
had already indicated a period during which equities would have been
limited anyway. .(The current mess is NOT a black swan. The
recession was knonw simply not the severity) Assumimg a reduction
of value over time, why in god's name would one simply sit around and
lose 64% and do nothing??? It is so far from real life as to be laughable.If the intent by all
academics is to put out another statistic to show that there is A risk
in investing,is, why bother? Consumers need to know what is THE risk of
their portfolio and what the adviser will do to protect assets. Or
will they do anything at all?? If not, you got the wrong adviser.
1/6: Chubby women: After adjusting for other variables, the
10-year weight gain for an average 140-pound woman was 20 pounds if she
had a baby and a partner, 15 if she had a partner but no baby, and only
11 pounds if she was childless with no partner
1/6:
New Year Primer:
What's Your 2010 Fiduciary Risk Management Plan?
January
2010 Edition
By
Ken Golsan
As
many begin the New Year with the formation of hopeful aspirations (or
necessary modifications!), one such goal within the RIA practice could
be to review one's current strategy for fiduciary risk-transfer, or
broader yet, one's total Fiduciary Risk-Management Program.
The
subject of risk-management can be categorized into four main strategy
fields - let's call them "The 4 Pillars of Risk-Management".These "pillars" constitute the support for
your risk-management plan.They are: (#1) Risk Avoidance, (#2) Risk Retention, (#3) Risk Control, and (#4) Risk Transfer.Every
good RM plan will possess components from each field; some avoidable,
some intentional.
Obviously,
the presence of fiduciary risk to the RIA professional is manifest by
law (1940 Act the primary framework).So,
while it would be great to simply apply the aforementioned (#1) and
move on to more enjoyable activities, understandably youthful avoidance
does not mean risk abated.Further, we may
innocently believe the establishment of a corporation or similar
entity, applying (#3), shields and therefore completes either/and (#1)
and (#4) by removing one's personal liability imposed by fiduciary law
- unfortunately, that would be a risk management plan missing an
important "capstone"; entity protection is a common misconception.Thus, let us maturely move onward and upward
as we briefly review our 2010 risk-management program and determine
true and proper strategies.We know... no
fun... yet imperative, unless you take pleasure in "rolling the dice".Last time we checked, most investment advisors
avoid gambling.
Briefly,
let's examine the "4 Pillars" with some simple examples:
#1 - Avoidance:how about the
strategy of client selection (or de-selection)?... new clients
interview you, but what is your process for interviewing them?... how
are they suited to your investment philosophy?... what might you hear
in the interview process that causes concern?... then, what about
existing clients?... are there any names that arise more than
twice-a-week during the lunch hour?... could it be time for a little
client de-selection?!... think of your most difficult client... do they
regularly disregard or counter your recommendations?... do they
complain about other professionals or boast of disagreements,
subsequent terminations or lawsuits aimed at past various professional
counsel?... are they overly afraid of investment losses?... abusive to
your clerical administration staff?... notice any unethical or immoral
personality traits or activities?... some of your clients might be
better served elsewhere.
#2 - Retention:consider an
appropriate level of insurance deductible (retention)... deductibles
are always per claim... understand that, historically, suitability
claims can come in "bunches"... a "leader" brings a complaint and
"followers" show up to the party later, based on the leader's
encouraging progress... so, if such a "wave" hit (historically tagged
to market meltdowns), what would be an acceptable aggregated dollar
level that you could financially support?... leading into Transfer, how
does your contract of insurance (E&O) speak to "interrelated
wrongful acts"?... might the deductible for "related acts" apply only
once? ... or individually to each claimant?
#3 - Control:how about a
word on documentation?... document, document, document... a defensible
file will contain (1) a documentation of your client's life
circumstances, tolerance for risk, investment objectives and style,
leading to a plan and/or broad (but brief) investment policy statement,
(2) file notes on client interactions, which need not be extensive, but
should capture the essence of the interactions, (3) at least an annual
summary (quarterly is considered "best practice") of activity or
discussion signed by the client acknowledging their understanding, and
(4) complete documentation of any changes in objectives, advice given,
and those not heeded.Then, a second key
example is in the area of "execution errors"... match every order
against its return confirmation and promptly resolve discrepancies.
#4 -Transfer: the primary risk-management, specifically
risk-transfer, tool applied by RIA professionals falls within this
category - the insurance mechanism.... yet, buyer beware!... comprehend
that ISO (the Insurance Services Office), the insurance industry "body"
with insurance company members, writes and issues "commodity" standard
forms of insurance for most types of insurances (such as General
Liability insuring a manufacturer, distributor, restaurant or
retailer)... those standard forms of insurance are adopted by all
insurance company members... not so with RIA professional liability!...
ISO has decided to ignore this specialty form of coverage and allow
each independent insurance underwriter to uniquely issue their own
manuscripted contracts... are there differences among the carriers?...
how many colors in the painter's palette?!Finally,
think of your insurance as not only a key risk-management tool, but as
a business asset.Paid for and, if
properly written, your "army" for defense and/or financial
indemnification.
1/6: Retirement at the Tipping Point revealed four key
illuminating and provocative findings, including:
#1: Resetting the Retirement Clock * Seven-Year Money Setback - Nearly
60% of Americans have lost money in mutual
funds, 401(k) plans, or the stock market. Respondents think it will
take an average of seven years for their investments
to recover. * Number One Fear: Uncovered Medical Costs are the
Retirement Wildcard - The single biggest worry among those 55+ is that
they will be unable to afford uncovered medical expenses (46%). This is
now a greater concern than either lack of personal savings (18%) or
uncertain entitlements (11%). * Retirement Postponed - For the first
time in U.S. history, we may witness a significant increase in the
retirement age as respondents say on average they will now need to
postpone retirement by 4.2 years - which will also adjust the
"work-to-retirement ratio."
#2: Needed: Financial Rehab * Lessons Learned - Only 4% of respondents
strongly agree that Americans behave in a financially responsible
fashion. 81% said that to "live within your means" was the most
important financial advice parents could pass on to their children -
jumping up from 69% a year ago. "Begin saving at an early age" came in
second (65%). * A Call for Financial Fitness at Every Age - An
overwhelming 95% of respondents agree that financial management should
be a standard part of high school curricula. Although 35 states mandate
sex education,
only three - Utah, Tennessee and Missouri - have, to date, made
personal finance courses a requirement. * Seeking Financial Peace of
Mind - A majority of all survey participants (56%) agree that the best
thing about having money is "feeling secure." In recent months, we have
seen Americans go "back to basics" as evidenced by an increase in the
savings rate, now over 4%, twice the savings rate over the past decade,
and household credit card debt has dropped almost 10% from the prior
year.
#3: Am I My Brother's Keeper? * What We Value Most - The majority of
respondents (58%) said that loving family and relationships are at the
heart of what we hold most dear today - twice as important as being
wealthy (33%) and twenty times more important than wielding power and
influence (3%). * Brother Can You Spare a Dime (or $50,000, or a
bedroom)? With growing uncertainty about both government benefits and
work security, millions of men and women are turning back to their
families for financial assistance. * The Sandwich Generation has Turned
Into Multigenerational "Rubik" Families - Four out of ten respondents
now worry they will have to financially support their parents or
in-laws. This growing interdependence extends to siblings, with nearly
a quarter of Millennials worrying they will need to provide care and
support for siblings as well.
#4: Retirement Finds a New Purpose. Out of the Ashes, New Possibilities
- A new and, in some ways, more optimistic vision for retirement is
emerging. 60% of Americans now say they view retirement to be "a new,
exciting chapter in life" contrasted with 52% last year. And, 70% want
to include working in retirement as a way to contribute, remain
stimulated and pay the bills. * Sage Elders Needed - Three-quarters of
all respondents think our country would benefit in important ways if
retirees were more involved in contributing their valuable skills and
experience to our communities, with the most enthusiastic response
coming from retirees themselves (83%). * The Emergence of
Philanthropreneuring - As I've written about in my book, With Purpose:
Going from Success to Significance in Work and Life, with growing
interest in civic engagement, the majority (57%) of respondents would
prefer a volunteer activity that makes use of their full range of work
and life skills and experience - rather than basic service and support
tasks.
According to Age Wave's Senior VP of Research, David Baxter, "While we
discovered both disturbing and encouraging signs about retirement from
each generation, there are indications that of all cohorts, it's the
Millennials that are coming out of this financial storm a wiser, more
cautious, and more responsible generation. They were the most likely to
have learned valuable lessons about financial responsibility and had
the biggest jump over the past year in their concern about living
within their means (63% to 81%)."
Dogs, cats, parrots, and other pet animals play extremely
significant roles in the lives of many individuals. People own pets for
a variety of reasons – they love animals, they enjoy
engaging in physical activity with the animal such as playing ball or
going for walks, and they enjoy the giving and receiving of attention
and unconditional love. Research indicates that pet ownership
positively impacts the owner’s life by lowering
blood pressure, reducing stress and depression, lowering the risk of
heart disease, shortening the recovery time after a hospitalization,
and improving concentration and mental attitude.
The primary goal of the pet owner’s attorney is to
carry out the pet owner’s intent to the fullest
extent allowed under applicable law. Accordingly, the attorney should
select a method which has the highest likelihood of working
successfully to provide for the pet after its
owner’s death. (The pet owner should also determine
if any special arrangements need to be made to care for the pet if the
owner becomes disabled.) After discussing the history of providing for
a pet after the owner’s death, this article
discusses the variety of techniques currently available and comments on
the advisability of each.
1/5: INVESTING
IN RISKY ASSETS
2008 was a devastating year for buy and hold investors. The classic
barometer of stocks,
the S&P 500 Index, declined 36.77%. The normal benefits of
diversification disappeared
as many non-correlated asset classes experienced large declines
simultaneously.
Commodities, REITs, and foreign stock indices all suffered losses over
35%.
While many global asset classes in the twentieth century produced
spectacular gains in
wealth for individuals who bought and held those assets for
generation-long holding
periods,1 most common asset classes experienced regular and painful
drawdowns.2 All of
the G-7 countries experienced at least one period where stocks lost 75%
of their value.
The unfortunate mathematics of a 75% decline require an investor to
realize a 300% gain
just to get back to even – the equivalent of compounding at 10%
for 15 years..
* "I can calculate the
motion of heavenly bodies, but not the madness of people."
Issac Newton
1/5:
Risk
Management for Non-QuantsSM January
27 – 28, 2010, New York
City 14 CPE Credits
“An
Education in Risk Management Can Offer a Leg Up,” according
to the New York Times of Aug 19, 2009. “Among the hot areas now
are positions related to minimizing risk, as firms try to mitigate the
chances of another financial crisis. Risk in general is a relatively
new focus, and the openings range from business, credit and operational
risk to product and technology risk.” Today nearly everyone
in the financial services industry has risk management listed in their
job description. Yet, when trying to grasp the concepts, many
people are intimidated by the mathematics in most texts and risk
courses.
Bernard S. Donefer, a Wall Street veteran and now
professor at NYU Stern and Distinguished Lecturer at Baruch CUNY graduate
business schools, has created a unique 2 day seminar covering the
essential topics of risk management, requiring only basic high
school mathskills. If you need to read and
understand risk reports, interact with risk managers or just want to
broaden your expertise in a critical skill, this is the
seminar. It is not aimed at financial engineers looking
for hedging and trading strategies, but for those managers responsible
for monitoring, measuring and controlling risks. It is a
pragmatic course for practitioners who must deal with or are
regulators, board members or senior management This course has
been given at the SEC and Federal Reserve Bank in Washington DC, as
well as to major financial firms in New York, Chicago, Boston, Los
Angeles, Toronto and Oxford, UK.
This program will identify varieties of risk at portfolio and
enterprise level, estimating its impact, and best practices for
mitigating it. Several cases will be discussed, such as Barings Bank,
Amaranth, LTCM and lessons learned will be discussed. Excel
spreadsheets will be provided so that participants can review concepts
demonstrated in class. All class notes and readings are provided,
including a guide to additional sources (books, articles and
websites).
Topic 1: Background - Introduction to Risk Management
Review and
Critique of Modern Portfolio Theory
Concepts of Probability and Statistics
Topic 2:Value at Risk
(VaR) Concepts
Portfolio Risk, Incremental and Marginal Risk
Topic 3: Advanced Value at Risk
Monte Carlo Simulation
What is the Fat Tail and Black Swan?
Weaknesses in VaR and how to address them
Topic 4: Regulatory Environment
Basel II and Proposed Industry Regulation
Disclosures and Measures, Sharpe Ratio et al.
Topic 5: Extreme Events
Worst
Case Scenarios
Back
Testing
Stress Testing
Extreme
Value Theory (EVT)
Topic 6: Credit Risk
Altman Z Score, Transition Models, Merton and Jarrow Models
Collateralized Debt Obligations, (CDOs)
Credit Default Swaps (CDS's)
Their Impact on World Markets
Topic 7: Multi Factor
Models
Alternative Way to Identify and Manage Risk
Topic 8: Liquidity Risk
What Brought Down Bear Stearns
Topic 9: Operational Risk
Control Self Assessments (CSAs) and Key Risk Indicators (KRIs)
1/4: Correlations: Eugene F. Fama of the University
of Chicago and Kenneth R. French of Dartmouth have calculated the
returns of growth versus value categories back to 1926. But their
database shows no
correlation in performance from one year to the next for either class.
That means that, while growth stocks this year may very well continue
to lead the market, whether they do so won’t be determined by
their 2009 performance.
1/4: Not very good
According to the MSCI indexes, which measure virtually all stock
markets using consistent criteria, an investor in the American market
who reinvested all dividends — and who somehow avoided all taxes
and transaction costs for the decade — would have ended 2009 with
12 percent fewer dollars than when the decade began. That is an annual
return of negative 1.3 percent.
Even that calculation understates the sad news for stock investors.
Because of inflation, as measured by the Consumer
Price Index, a 2009 dollar is worth about 78 cents in 1999 dollars.
Over all, the developed world did manage to rise a puny 2.3 percent,
or an annual rate of 0.2 percent, not enough to offset the transaction
costs any investor would have faced, and far below inflation.
1/4: What a move: When the decade began, China had the 43rd-largest
stock market in the world, trailing such countries as the Philippines,
Peru and Poland. At the end of the decade, its market capitalization
ranked ninth in the world, having passed countries like Brazil, Spain
and Italy.
1/4: Wheelchairs
Abound:
Discount Mobility Equipment & Healthcare Supply Store
While "hundred
year storms" do occur, firms fail far more frequently because they have
estimated the distribution of outcomes incorrectly, through model error
or management myopia, or risk ignorance.
New England Economic
Review, Federal Reserve Bank of boston
1/4: Variable annuities: (Times)
There are many variations of guaranteed-minimum variable annuities,
but they typically involve keeping track of two figures: the actual
value of the customer's funds and a guaranteed-minimum "benefit base,"
which is used to calculate the annual income if the funds tank and the
owner opts to go this route.
When the owner is eligible to pull money out of the contract, it
comes down to which is the better option: keeping control of his funds
for withdrawals as he pleases, or collecting the guaranteed annual
income pegged to the benefit base (in which case the insurer uses what
remains in the funds to cover fees).
So how is this benefit base calculated? Under contracts that got
many insurers into trouble, it is "reset" at least annually to
incorporate gains from the owner's funds, and many contracts promise
minimum annual boosts of 7%. Since the crisis, new contracts typically
give 5% boosts. Typically, owners in their mid- to late-60s are
eligible for annual income of 5% of the base.
Of redesigned products now hitting the market, "Retirement
Cornerstone" from AXA SA's AXA Equitable Life Insurance Co.
incorporates market gains into customers' benefit bases just once every
three years. But a big selling point is expected to be its use of a
floating rate to determine minimum rises to those bases and the size of
annual checks ultimately pegged to them, rather than the static 5% in
most rival products.
Should interest rates rise as many economists expect, the floating
rate would put more money in the pockets of buyers who use the safety
net. The rate will be set annually at one percentage point above the
10-year Treasury, ranging from 4% to 8%, according to the insurer's
marketing material. The product has launched with a 5% rate; the
10-year Treasury currently yields 3.8%.
In November, insurer MetLife Inc.
teamed with Fidelity Investments for the Boston fund giant to sell
"MetLife Growth and Guaranteed Income" variable annuity. It restricts
buyers to a single Fidelity asset-allocation fund, annually locking
investment gains into the benefit base. Depending on the investor's
age, lifetime withdrawals range from 4% to 6% of the base. All-in cost:
2.7% a year.
Buyers of "AnnuityNote" from Manulife Financial Corp.'s John Hancock
unit invest in a designated indexed-based stock and bond fund.
After five years, the contract guarantees 5%-a-year lifetime
withdrawals based on the amount invested or the investment's value at
that point, whichever is higher. Buyers must be at least 55. Fees total
just under 2%; a sales charge may apply.
"The first
rule of investing is don't lose money; the second rule is don't forget
Rule No. 1."
Warren
Buffet
1/4: “innumeracy” -- or
mathematical illiteracy.
According to the Department of Education’s National Assessment of
Adult Literacy, U.S. adults are terrible at solving real-world math
problems, like calculating tips or comparing prices in grocery stores.
Some dismal results:
*Only 42 percent were able to pick out two items on a menu, add them,
and calculate a tip.
*Only 1 in 5 could reliably calculate mortgage interest.
*1 in 5 could not calculate weekly salary when told an hourly pay rate.
*Only 13 percent were deemed “proficient.” Worse yet, only
1 in 10 women, 1 in 25 Hispanics and 1 in 50 African Americans made the
grade.
*Americans are terrified of numbers when it counts most: 20 million
Americans pay someone to file their 1040EZ, a one-page tax form with
around 10 blanks to fill out.
1/3: Four
Key Elements of Investing (Bogle)
Ability to Control
Risk Yes
Time Yes
Cost Yes
Reward
No
none of us can control Reward. With few exceptions, generous
investment rewards
have been generated in the financial markets over the long-run. But we
have the ability to predict neither
when the rewards will occur, nor when they will depart from past norms.
Our markets are remarkable
arbitrageurs that reconcile past realities with future expectations.
The problem is that future expectations
often lose touch with future reality. Sometimes hope rides in the
saddle, sometimes greed, sometimes
fear. No, there is no “new paradigm.” Hope, greed and fear
make up the market’s eternal paradigm.
Women scare me
At least those who can beat me into a bloody pulp
(Just what IS that??)
1/3: Efficient market (Bogle) The conventional wisdom is wrapped up in
what we call “Efficient Market Theory,” which holds
that since the financial markets incorporate all knowledge of all
investors about all things, they are by
definition efficient, eternally priced to perfection. But I wonder, and
no one has ever been able to explain
to me why the market was perfectly priced on August 31, 1987, or
January 2, 1973, or September 8, 1929,
each of which was followed by a catastrophic market decline, ranging
from 35% to 85%.
(Comments made in 2000).
1/3: Efficient Market Theory (Bogle) All of these statistics
leave me apprehensive. Why? Because the future is not only unknown but
unknowable. Yet with the acceptance of Modern Portfolio Theory; the
ease of massaging data with the
computer; and our existence (at least in the U.S.) in today’s era
of remarkable political stability combined
with powerful economic growth, investors seem to have developed growing
confidence that they can
forecast future returns in the stock market. If you fall into that
category, I send you this categorical
warning: The stock market is not an actuarial table.
To which I add: When everyone assumes, at least implicitly, that the
market is an actuarial table,
that the past is inevitably prologue, and that common stocks, held over
an extended period, will always
produce higher returns than bonds—and at lower risk—then
stocks inevitably will be priced to reflect
that certainty. At that point, however, the certainty becomes that
stocks will produce lower future returns,
and at higher risk at that. It is impossible to escape the suspicion
that such an actuarial mindset, if you
will, is extraordin