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"
AOL selected this site as an Editor's Pick for Financial
Planning, Long Term Care, Insurance Information, Investment Professionals and
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Investor Sourcebook: One of the top Personal Finance sites on the Internet
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).
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)
And no, I have no intent in writing another book. It did not make a difference.
No
Nonsense Finance was published in Chinese
in 2005. If it didn't make sense in English, try this.
As of 2008, the only course on investments ever approved for
continuing education by the California State Bar-
Practical Investment Theory and Application
Seminars available for Law, Arbitration and Mediation Firms
and Bar Associations throughout the U.S.
If you deal in any securities or financial planning- as defendant
or plaintiff- you need this. It is mandatory education that you must
know and a fiduciary requirement for any issue regarding investment
suitability.
As of 2009, 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
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.
7/5:: Obesity is going up (think pun): Last year there was a gain in
obesity in 23 states and none going down. Childhood obesity has
tripled since 1980.
Excluding the very poor, the bulk of the obesity (pun?) is in the
middle class. So now consider the comments about the inefficient
markets, behavioral finance and so on. Wasn't it obvious that if
people refuse to understand that eating 24 twinkies at a sitting was
going to creat problems, they were never going to learn anything
about investing?
That is grade school logic.
7/5: HOME SALES DOWN BIG – Department of
Commerce reports that home sales declined in May nearly 33% below the same
period last year. However, the number of newly constructed homes sold last month
dipped only 0.6% during the same period.
7/5: FINANCIAL REGULATION OVERHAUL - The Obama
administration released a white paper, Financial
Regulatory Reform -- A New Foundation: Rebuilding Financial Supervision and
Regulation, which is intended to serve as a blueprint for the overhaul of
U.S. financial regulation. Highlights include the Federal Reserve monitoring
"systemic risk" in the economy; giving the FDIC the power to seize and resolve
the problems of troubled non-bank companies that pose risks to the economy;
creation of a National Bank Supervisor; increasing capital requirements for
financial companies; creation of an independent Consumer Financial Protection
Agency; and additional oversight of asset-backed securities, hedge funds, credit
rating agencies and derivatives.
7/5:
7/5: FEDERAL WAGES – , the average pay per federal worker will
leap from $72,800 in 2008 to $75,419 next year...all 14.6 million of them. That
is up from about 12 million when George W. Bush took office.
7/5:
U.S. MORBIDITY AND MORTALITY
UPDATE
Notifiable Diseases and Reported
Deaths
Once again one of the most sought after statistics. Men use these a lot
to pick up women. Try it and you will be as successful as I was.
7/5: US Economic data- monthly statistics The
chart really shows how bad things have gotten. Unemployment in
particular. Just a month ago theyt were talking about 10% unemployment
by June of NEXT year. Now they are talking about THIS year.
7/5:
Myth: Increased Doses of Painkillers
Cause Death
By Jennifer B. Buckley
Many professional and family caregivers deem increasing the
amount of prescription pain medication, for chronically ill people in pain, an
unacceptable act. Terminally ill people are literally dying with an unnecessary
amount of pain because of the negative stigma attached to administering surplus
pain-killing opioids when needed. Many family caregivers and medical personnel
are under the notion that upping doses of painkillers can be fatal. In addition,
some believe pain medications like opioids, are a narcotic that is extremely
addictive and includes heavy side effects. But, a new survey published in the
July 29, 2000 issue of The Lancet suggests, “Increasing use of pain-killing
opioids such as morphine in terminally ill patients does not shorten life.”
Researchers reviewed the cases 238 patients who died during
palliative care in their institutions. The study was prompted by public and
professional concern that the use of opioids for symptom control might shorten
life. They retrospectively analyzed the pattern of opioid use in the last week
of life; the daily doses were low. However, marked increases in opioids at the
end of life did not significantly influence survival, frequency of unexpected
death, or description of death.
The study challenges the myth that proper pain control for
end-of-life care means killing the patient. According to Sandra Johnson, former
president of the American Society of Law, Medicine and Ethics and expert in the
area of health law, pain management and care for the elderly, “The problem is
many people believe that pain medication, like opioids, are addictive and have
terrible side effects. The fact is, the risk of addiction for someone who is
receiving end-of-life care, is irrelevant and side effects aren’t severe and
eventually clear up.” Some of the side effects attributed to opioids include
constipation, blurred vision and lethargy and eventually, a person’s body will
become acclimated to them.
Part of the problem in nursing and medical education is that
much of the research on the effectiveness and safety of pain management is
relatively recent and contradicts common knowledge of earlier pain control
practices. Some professionals in the medical community think proper palliative
or comfort care is euthanasia under a different name. In the Lancet report, Drs.
Andrew Thorns and Nigel Sykes of St. Christopher’s hospicee in London said,
“There is no connection between competent symptom control and euthanasia. It is
possible to achieve good symptom control by using morphine competently, and you
do not shorten people’s lives when you do that.” Also, physicians feel
threatened by legal sanctions for treating patients in pain especially when the
treatment relies on the use of controlled substances. The report recommends that
if a doctor is seriously concerned about shortening a patient’s life, they
should consult a specialist in the field of palliative care.
Another myth concerning pain control is that over-the-counter
pain medications, like ibuprofen, are much safer than opioids. This perception
is incorrect and according to Ms. Johnson, “Large doses of ibuprofen are more
dangerous and more harmful to the stomach and liver, than we realize.
Over-the-counter does not mean safer.” Non-prescription pain relievers should be
administered with caution and still may not relieve pain properly.
Suffering doesn’t have to be a necessary part of death. Ms.
Johnson comments, “What we know now about pain management is that, 95% of cancer
pain can and should be relieved through simple means, like morphine. In the past
we were told not to medicate, that was then and this is now.” She believes that
drugs do not hasten death but pain may hasten death.
Through good hard information, like The Lancet report, the
perception of treating pain by care professionals and the public could
transform. Family caregivers may want to communicate with their doctors their
interest in obtaining more information about certain pain medications; because
it is possible not all care professionals have read the new research themselves.
According to the study, our loved-ones do not have to spend the last days of
their lives in pain any more.
7/5: Education abroad The site provides all sorts of info on various study opportunities overseas.
I personally know that the Berfle School of Finance, where I went,
you can earn a degree in just a month. I think it was located in
Nigeria since I keep getting Emails from them that I can get some free
money.
Wonderful people.
We propose an empirical approach to
determine the various economic sources driving the US yield curve. We allow the
conditional dynamics of the yield at different maturities to change in reaction
to past information coming from several relevant predictor variables. We
consider both endogenous, yield curve factors and exogenous, macroeconomic
factors as predictors in our model, letting the data themselves choose the most
important variables. We find clear, different economic patterns in the local
dynamics and regime specification of the yields depending on the maturity.
Moreover, we present strong empirical evidence for the accuracy of the model in
fitting in-sample and predicting out-of-sample the yield curve in comparison to
several alternative approaches.
It is a common wisdom that individual
stocks' returns are difficult to predict, though in many situations it is
important to have such estimates at our disposal. In particular, they are needed
to determine the cost of capital. Market equilibrium models posit that expected
returns are proportional to the sensitivities to systematic risk factors. Fama
and French (1993) three-factor model explains the stock returns premium as a sum
of three components due to different risk factors : the traditional CAPM market
beta, and the betas to the returns on two portfolios, "Small Minus Big" (the
differential in the stock returns for small and big companies) and "High Minus
Low" (the differential in the stock returns for the companies with high and low
book-to-price ratio). The authors argue that this model is sufficient to capture
the impact on returns of companies' accounting fundamentals, such as
earnings-to-price, cash flow-to-price, past sales growth, long term and
short-term past earnings. Using a panel of stock returns and accounting data
from 1979 to 2008 for the companies listed on NYSE, we show that this is not the
case, at least at individual stocks' level. According to our findings,
fundamental characteristics of companies' performance are of higher importance
to predict future expected returns than sensitivities to the Fama and French
risk factors. We explain this finding within the rational pricing paradigm :
contemporaneous accounting fundamentals may be better proxies for the future
sensitivity to risk factors, than the historical covariance estimates.
7/2: Losses: The U.S. households have lost $6.4 trillionn in net
worth since the financial crisis began. Obviously a goo section might
be in home prices but the remaining is in other investments that, were
for the most part, liquid. So they lost money they should not
have. Think 401k . Three million Americans have lost jobs. About
10% by the end of the year.
7/1: Consumer confidence declined quite a bit last month. It is again under 50.
7/1: Does Dollar Cost Averaging Work?
No, it doesn't if you are looking to maximize return. Here is a
proactive chart so you can punch numbers to your hearts content.
7/1: IRS Blueprint:
What is an “IRS Blueprint”? Just as credit reporting companies
keep exact details of someone’s credit history, the IRS keeps pretty thorough
records on each and every taxpayer as well. These records have all sorts of
powerful information such as:
1) is the IRS planning on auditing you?
2) has the IRS filed a return on your behalf?
3) does the IRS think you owe them money?
4) has the IRS conducted a criminal investigation on your taxes?
5) has the IRS filed a “secret” lien against your assets?
6) better yet, has the IRS “written off” your debt and given up
on trying to collect it?
Britain’s gross domestic product fell 2.4 percent in the first
quarter of 2009 from the previous quarter. From a year earlier, the economy’s
decline was the largest ever.
6/30: Retirement??: Ten percent of Americans polled recently who have retirement savings have added
bank savings and CDs to their portfolios in the past six months because of the
economic downturn.People are as likely to have added to stocks and
mutual funds in their personal savings (8%) as to have moved personal savings
out of stocks and mutual funds (9%), but more than one-in-five Americans polled
(22%) say they have no personal savings and three in ten (30%) have no
retirement savings.
6/30: Madoff got the well deserved maximum sentence. While I have
empathy but not an awful lot of sympathy. There is no way that anyone
could have ever provided a flat 12% annual return. You NEVER give
anyone like that all your money.
6/30: 401K plan fees
Good stuff from the Department of Labor. From there it all goes
downhill. Pay cheap fees, fine. But to be told that by the end of
"x" period you will have so many dollars is a fraud. It IS true that
you might, but it will be by luck. You actually could have more. But
the point for retirement is to gather a minimum amount no matter what.
And you cannot do that with 40%+ losses. But people never paid
attention to that and have used advisors with no more than a CFP.
Sorry, CFPs are not taught risk. Never have been
6/29: Effective
Strategy in the Face of Uncertainty
By now, most
investors and managers have become painfully aware of the difference between
risk and uncertainty. In decisions involving risk, it is assumed that
the full range of possible future outcomes and their associated probabilities
are known in advance and remain constant over time. The great majority of
economic and investment theory is based on the assumption that they involve
decisions in the face of risk. Unfortunately, in most real world decisions,
neither the full range of possible outcomes, nor their associated probabilities
are known in advance - and they have a nasty habit of changing over time. In
the real world, economies and markets pass through regimes of high uncertainty
and inflation, in addition to periods of normal growth. "Unknown unknowns" that
aren’t even on our radar screen - Taleb's "black swans" -- can suddenly appear
and have a great impact on the outcomes of our decisions. To put it bluntly,
most real world decisions are made in the face of uncertainty, not risk.
EFM- What you are reading is why so many people lost money.
It IS assumed or it WAS assumed by almost all that things remain
constant. I have NEVER felt that the status quo was simply that and you
can
look at my book or material at this site. But the point is not about
Taleb since the ability to determine a purely random event is
impossible. Think October 1987, Think 9/11. But there are times where
you ARE able to do stress testing. An inverted yield curve tells you an
inflation is coming. Do you really want to stress test your allocation
in a recession. Don't you think that a bunch of things might fail.
Don't you think you could lose a bunch of money. Don't you think a
recession is UNCERTAINTY??
I do not want to try and sail in a hurricane. Maybe I will make it.
Maybe the winds will get me to my destination in a heartbeat. But the
overall odds are against me and I will probably sink.
6/29: LTC: The cost of long-term care continues to climb. Indeed, research from the
Genworth 2009 Cost of Care Survey* found the average median yearly rate for a
private nursing home room in the United States to be $74,208, compared to
$62,415 in 2005, a 4.27% compound growth rate.
The bank’s new projection showed that the Russian economy would
contract by 7.9 percent this year and not recover to precrisis levels until at
least 2012.
EFM- that usually means they become more aggressive in order to still look powerful
Marcia E. Asquith
Office of the Corporate Secretary FINRA 1735 K Street, NW Washington, DC 20006-1506
RE: Proposed Consolidated FINRA Rules Governing Suitability and Know-Your-Customer Obligations
I have the unique background of teaching almost all the securities
licensing courses in the past (4, 6, 7, 86, 22, 24, 27, 63, etc) as
well as acting as an securities arbitrator, expert witness and more. A
resume is attached for validation. Beyond that I am almost assuredly
the only one who replies who definitively defines suitability on a real
world application, not just with words.
I have also approached the NASD/FINRA for over 15 years in regards to
investor protection via broker knowledge. Without such fundamental
training, suitability cannot be determined.
I note that the material states, “NASD Rule 2310,
addressing suitability obligations, and Incorporated NYSE Rule 405,4
addressing know-your-customer obligations, are critical to protecting
investors.”
While an acceptable plaudit, it has no meaning. None of the brokers via
a series 7 (the most common broker license) have ever been taught the
fundamentals of investing. I have independently taught that such
fundamentals include alpha, beta, standard deviation, diversification
(by the numbers), correlation, risk of loss and more. I estimate that
over 85% of RIAs are equally dumbstruck by even the most rudimentary
elements of risk and reward. In such regard, how is one to
“know thy customer???” The agent can get all types of info
from a naive and unsophisticated investor and then what?- protect them
from what? Unknowledgeable competitor advisers? Well, you won’t
have anyone left.
FINRA also seeks comment on whether it should propose expanding
suitability obligations to all recommendations of investment products,
services and strategies made in connection with a firm’s
business, regardless of whether the recommendations involve securities.
That goes without saying. Effectively all the investment plans,
retirement analyses and certainly any variable life and annuity
illustrations I have seen to date, regardless of the size of the B/D,
are deceptive at best and fraudulent at worst. The prime example
involves the use of the term and numbers of standard deviation that is
used to supposedly indicate something reflective of what risk is
(wrong). Almost all the computerized plans are incorrect and deceptive.
AIGs index life policy is backtested to use a 17.53% annualized return
each year for the next 50 years. FINRA will now demand that indexed
products be suitable? And no broker is trained on the use of a
financial calculator? Well this will be interesting.
As far as I am concerned, such activity, which invariably includes any
type of retirement income plan, budgeting and so on, has always fallen
under the purview of suitability since the selection for the
investments to be used requires scrutiny of not only how it works for
the intended purpose, but whether they will work at all. So why not
expand the suitability limits? It will make my job easier overall in
showing the limited to nil competence of the brokerage community. But
you need to realize that it will further denigrate the status of FINRA
for refusing to instruct licensees on the fundamentals.
Information Gathering Regarding the Proposed Suitability Rule
Proposed FINRA Rule 2111 contains a number of minor changes regarding
the gathering and use of information as part of the suitability
analysis. For instance, the information that must be analyzed in
determining whether a recommendation is suitable would include not only
information disclosed by the customer in response to the member
firm’s or associated person’s reasonable efforts to obtain
it, but also information about the customer that is “known by the
member or associated person.” The proposal also requires members
or associated persons to make reasonable efforts to obtain more
information than is explicitly required by NASD Rule 2310 (e.g., age,
investment experience, investment time horizon, liquidity needs and
risk tolerance).
The words are nice but investment experience is a wasted request when
put into the real world. As stated to Shapiro years ago, consumers may
have bought various investments over the years but generally without
any true insight to what was going on or what they should have done. I
repeat the fact that there is literally no consumer who knows what
diversification is by the numbers. If you cannot determine
diversification you cannot determine risk. If you cannot determine
risk, you cannot even remotely identify suitability. Of course I
took liberty with the comments about the knowledge of diversification
by consumers- but not by more than 0.0005%. That said, the
understanding to risk is nil.
Investment experience CANNOT be used as a guide to what they should
have done over the same period. To have uneducated brokers use this as
a rationale or crutch is a breach of duty.
It is within this same commentary that ‘risk tolerance’ is
a joke. I have NEVER seen any type of investment plan that has defined
risk properly. A recent major B/D firm- as with effectively all others-
has no clue to risk tolerance and to suggest that they can
transfer the risk tolerance to an individual who cannot properly spell
it is ludicrous.
Further: Whether the firm or associated person has a reasonable basis
to believe that the institutional customer is capable of analyzing the
risks of investments independently, both in general and with regard to
particular transactions and investment strategies involving a security
or securities;
And how do you propose to determine such capability?
Because the “FINRA Institute at Wharton provides an understanding
of the foundation, theory and practical application of securities laws
and regulation. Participants learn from Wharton faculty, senior
regulators and industry practitioners, and earn the distinct
designation of Certified Regulatory and Compliance Professional (CRCP)
upon successful completion of the program”?
And the point is what? There is no practical application of use
of product. There is nothing on a financial calculator. After all, you
would have all know about the fraud of a 17.53% projection and
would have curtailed it, right??
No matter, Professors Herring and Diebold of Wharton noted this
recently when asked if risk can be measured accurately: Dick Herring:
“I think the last year shows that we can't, that there are lots
of things we can't quantify very successfully and that we became
overconfident in the things we could quantify. We've made great strides
in risk analysis, risk measurement, and aggregating risk. But we've
tended to focus most of those efforts on things that are relatively
easy to manage. And even some of those relations broke down. We simply
didn't have enough data. Our techniques were not good enough. We
weren't using enough forward information and, unfortunately, this
crisis has blame that can be shared across the entire spectrum of
participants, from regulators to participants in securitizations and
even to risk managers themselves.
Francis Diebold: I think that's right. That reminds me of our project
on the known, the unknown, and the unknowable that we've done here at
Wharton at the Financial Institutions Center in conjunction with the
Sloan Foundation. What we focused on and really came to realize more
intensely was that there's a whole spectrum of risks ranging from
market risk to credit risk to operational risk to legal and
reputational risk and things beyond that. Some are comparatively easy
to model, which isn't to say they are easy, but they're comparatively
easy. Others are really challenging and basically we're not good at at
all.”
But the fundamentals of risk analysis can be taught. However not to
brokers since one needs a financial calculator. Such capability has
never been required for licensees.
Supposedly, ‘The proposed FINRA know-your-customer
obligation, proposed FINRA Rule 2090, captures the main ethical
standard of NYSE Rule 405(1). Firms would be required to use due
diligence, in regard to the opening and maintenance of every account,
to know the essential facts concerning every customer (including the
customer’s financial profile and investment objectives or
policy’.
I will agree that the words are acceptable. But the whole emphasis on
know the customer is a fraud due to the continuation of a severely
bankrupt knowledge base to any licensee from the time I started
instruction in the 1980s to now. The position taken in the
mid 90s by NASD that increased knowledge would slow sales and would
never be allowed remains. Shapiro’s statements that FINRA is a
procedural entity and not a substantive one (2004) continues to reflect
the dearth of ethical responsibility to consumers. Brokers do not even
know what diversification is.
Finra has provided nice words. The theory is valid. But it cannot back
them up with any industry elements since it refuses to even expose
licensees to any of the fundamentals of investing. Add any credentials
from Wharton or Harvard or whatever. Compliance over entities that are
effectively clueless to the proper use of product is absurd. Unless and
until the necessary knowledge is mandated, changes in a rule like this
per se will provide little, if any, benefits to the consumer.
Why bother??
6/29: Effective Pain Management
1. By Cheryl Ellis, Staff Writer
In both acute and chronic health conditions, pain is top on the list of
concerns for patients, caregivers and physicians. Effective pain
control improves the individual’s state of mind and ability to
move through the healing process. There are a variety of options for
pain control, and doctors work toward addressing side effects that can
occur with pain medications.
Coming to terms with being in pain, acute or chronic, is a hurdle for
many folks who grew up learning to “put aside” pain.
Individuals who have been vocal about pain levels and received negative
responses may feel angry, refusing treatment as an expression of
emotional pain.
Fortunately, pain control centers, physicians and other healthcare
personnel have become more aware over the years. Asking about pain
levels during office visits is as common as checking vital signs.
TYPES OF PAIN
Acute pain can occur at the same time chronic pain is experienced. The
euphemism “breakthrough pain” is one type of acute pain an
individual can undergo. This pain can occur because of movement or
activity, but it can also happen when the body has involuntary
movements, such as expelling gas or muscle twitches. Medication can be
prescribed for the “break” in pain that around the clock
medicating provides.
Breakthrough pain may occur in the same area as the chronic pain, but
not always. Noting the events leading up to the episode of breakthrough
pain can help caregivers adjust activity levels if needed. In some
cases, the area in pain and/or the event that contributes to it cannot
be pinned down. Recording episodes, including seemingly random
incidents, will still help when pain management is reviewed.
When pain resurfaces before the next scheduled dose of medication and
isn’t associated with a voluntary or involuntary action, the
physician can be notified to examine the timing and amount of around
the clock medication. Noticing the time of pain onset and keeping a
record can help the doctor make a decision about keeping pain relief
consistent. Caregivers will find their loved one complains at or about
the same interval of time prior to their next dosage.
Chronic pain is consistent and “stable.” While there may be
some fluctuating of intensity, it is “reliable” in its
characteristics. Medication for this type of pain is generally around
the clock to provide continuity of relief. Over time, medications are
adjusted to account for changes in the pain cycle, including a
patient’s tolerance to a given dosage.
AGE DOESN’T MATTER
Children and adolescents with cancer or AIDS experience pain just as
deeply as an adult. They may be better equipped to admit to pain and
track where they are hurting, as opposed to adults who may have
dementia as a hindrance to assessment.
Physicians have a specific protocol, or pathway, to follow when
managing pain for adults and children. When dealing with “pain
psychology,” caregivers will learn to watch facial expressions,
body positions and other gestures to determine if their loved one is
understating their pain level. Kids may not want to worry their
parents, or be afraid of a visit to the doctor or hospital. As the
healthcare experience continues, parents become more attuned to what
their child is feeling, and may find that personnel involved in their
child’s care are able to help them understand what is typical at
different stages of treatment.
While the same is true for caregivers of adults, the adult-to-adult
psychology can have a wider range of variation. Children helping their
parents through a health crisis may take time to relate to them on an
adult-to-adult level, and parents may attempt to mask their fear and
pain by amplifying “Parent Mode.” When possible, ask the
doctor to allow for some time alone with the parent, to allow them to
express their needs without feeling “weak.”
Relationships of every kind are challenged when there is a health
problem, and relationship dynamics should be evaluated at the time of
diagnosis by loved one and caregiver. Understanding that there will be
changes in any relationship is a first step toward coping with those
changes, and making them positive ones.
PAIN MANAGEMENT IS A SCIENCE
Over the decades, the perspective on managing pain has widened.
Healthcare practitioners and patients have a closer relationship in
deciding pain management routes, incorporating “natural”
and prescribed medications and “alternative” methods of
pain relief.
Pain management was once considered “doping up” the patient
in some circles. Today’s viewpoint incorporates consistent pain
relief with keeping the patient alert and functioning.
The variety of conditions that require pain management has created a
demand for an accurate “science” to provide help based on
condition and individual need. The World Health Organization has a
“ladder” for managing cancer pain. Level One uses
non-steroidal anti-inflammatory medications (such as aspirin) and
“adjuvant,” or supplementary medications that have a
secondary effect of controlling pain by eliminating a side effect. As
pain increases with cancer progression and/or treatment, professional
caregivers step to the next level of pain management. By Level Three,
opiates are incorporated and the adjuvant medications are there to
assist with opiate side effects.
OPIATES AND PAIN CONTROL
In the classic film “The Wizard of Oz,” the Wicked Witch
deters Dorothy and her friends by creating a field of poppies they must
walk through before reaching the Emerald Castle. Dorothy and the Lion
fall asleep until the Good Witch intervenes with snowflakes to wake
them up, and the crew moves toward their destination.
The poppy plant is used to create opiates such as morphine and codeine,
which relieve pain, but also make the individual sleepy or lethargic.
The effects of “Opiates from Oz” are shorter lasting than
those administered for those in chronic pain. Since alertness is a
factor in complying with pain medications, patients may be unwilling to
try them, looking to “natural” remedies instead.
The brain has receptors that recognize both opiates and endorphins.
Endorphins are “feel good” chemicals produced naturally in
the brain, and have an analgesic effect. While they are preferable to
medications, both acute and chronic pain sufferers may not produce
sufficient quantities of endorphins to dull or eradicate pain. Even
simple pain relievers like acetaminophen or aspirin may not do the
trick, and pain control must include opiates.
Morphine and its opiate cousins can be given by mouth or intravenously.
In some cases, morphine can be delivered by a nebulizer, dispersing the
drug into an aerosol that can be inhaled. The lungs also contain
receptors for opioids, absorbing and processing the medication.
Caregivers should be aware that any medication delivered by nebulizer
can disperse through the room. Taking precautions when it comes to room
ventilation and proximity to the patient will help the caregiver with
unwanted exposure to medication. The concern for precautions has less
to do with a “secondary high” for the caregiver than with
residuals of the medicine showing up in their urine if drug tested.
The type of morphine nebulized is the intravenous type without
preservatives. When given by aerosol, morphine can activate histamines
and constrict breathing passages. The goal of morphine by aerosol is to
alleviate difficult, painful breathing rather than bring it on, so
doctors may order an aerosol treatment with medication to keep the
airways open prior to nebulized morphine. There is a specialized,
single dose nebulizer that delivers morphine to the lungs. The
medication “strips” look very similar to the ones used to
test blood sugar, but contain the correct medication dosage. Aerosol
particles do not “fly” around because of the design.
TOLERANCE IS NOT ADDICTION
Caregivers and loved ones may worry that tolerance means addiction, but
they are not the same. Over extended periods of time, the dosage of the
medication may need to be increased because the individual has
developed a tolerance to the medication, or there has been a rise in
pain levels. Doctors work to use the lowest effective dosage to keep
the patient alert and pain free.
Medication dependence occurs when there is a physical reliance on the
medication and withdrawal symptoms (that are specific to the drug
class) occur. There may be tolerance present, but the withdrawal
symptoms are noted if the medication is suddenly removed and/or levels
of the medicine in the bloodstream decrease.
When addiction is present, caregivers and medical personnel notice that
the patient may “lose” prescriptions, and/or take their
medications at inappropriate times. A number of other behaviors may be
present, including behavioral changes that include isolation from
family members.
Rather than diagnose your family member, bring concerns to the family
physician to evaluate the situation. What seems like dependence or
addiction may be the response to changes in pain level, tolerance or
other factors that the doctor must evaluate. Behavioral responses such
as anger or depression may be due to poorly controlled pain, especially
if the pain control journey is just beginning.
AIDS AND THE PAIN EXPERIENCE
With better medications and awareness on the part of doctors and
patients, individuals diagnosed with AIDS are receiving improved care.
The pain experience varies from one person to another, even in the AIDS
journey.
Neuropathy (“nerve damage”) affects an estimated 20 million
Americans according to The Neuropathy Association. Damage to the nerves
can create burning and sometimes “stabbing” pains in the
feet.
In some cases, anti-cancer and retroviral treatments may create their
own painful side effects, some of which can be balanced by other
medications, including antidepressant therapy.
This immune deficiency virus makes patients of all ages susceptible to
yeast infections, throat and mouth sores and other viruses that can
attack the body. Bacterial infections are experienced, too, and require
antibiotics as the doctor decides.
The AIDS patient may have skin eruptions, and these sores or rashes
contribute to pain and require treatment. For example, Kaposi sarcoma
is a skin lesion seen in the AIDS patient that initially doesn’t
cause pain, but as it becomes worse, pain can be extreme. While Kaposi
is not considered “curable,” it can be treated by an
oncologist or dermatologist with experience in this area.
Mouth sores or other conditions affecting the mouth can hamper eating,
whether the foods are acidic or not. Physicians are familiar with this
aspect of the challenges of living with AIDS, and may recommend
supplements in addition to other treatment for thrush or mouth sores.
Accommodate your loved one’s choices in whether or not to eat at
given times, and oversee that medications are taken when ordered, even
if alternate routes must be prescribed.
In some cases, individuals with AIDS may have a concurrent infection
with the Hepatitis C virus, which also challenges pain management and
treatment. When doctors assess for pain in the AIDS patient, they look
for other causes of pain, even if the pain felt is typical for an AIDS
patient. Hepatitis C is one possibility for a
“co-infection,” but other conditions such as cancers of
organs or blood may be present.
Treating the root cause of pain (such as mouth or ear pain from
infections) is the doctor’s priority, which is the reason why
patients may be at the doctor or hospitalized frequently. The choice is
to act quickly to stop infections from causing more problems.
CONTROLLING PAIN IN CANCER
The National Cancer Institute (www.cancer.gov) offers an online booklet
to assist cancer patients and their caregivers with pain management.
“Cancer pains” may arise from chemotherapy or radiation,
creating nerve damage or phantom pain from body parts that have been
removed. Radiation can cause painful “sunburn” during
treatment.
Whenever there is surgery performed, temporary pain may be experienced
because skin and organs are cut and maneuvered around. Post-surgical
pain fades with time and appropriate management, which may include
physical therapy and resuming daily activities.
The growth of cancer within the body contributes to pain, also. As
cancer is being treated, therapeutic levels of controlling the growth
are sought; but patients may still experience pain while waiting for
the abnormal cells to be eradicated. This is where pain control offers
a great deal to assist in stress reduction and continuing patient
compliance with therapy. It’s difficult to ask a loved one to
continue with treatment when pain makes them feel they aren’t
getting better, and the goal is to quickly assess the level of pain to
begin pain control. It makes the treatment much easier to cope with,
for caregiver and loved one.
Differential pain assessment in cancer is important also, to help the
treatment team to discern if new pain is from cancer that has moved to
a new area, or if there is an acute condition that must be addressed
(such as appendicitis or gall bladder stones). It may seem unlikely
that cancer patients may experience an acute episode of pain unrelated
to their cancerous process, but it is possible. It may help to keep a
written record of pain to offer feedback to the physician during
visits, or if a call must be placed after hours.
Swelling, itching and rashes cause pain, and while minor when compared
to pain from cancer, they can actually make it harder to tolerate pain
levels if the minor pain is left unaddressed.
COMPLEMENTARY PAIN TREATMENTS
Biofeedback has been around for some time, and there are competent
technicians able to instruct patients in controlling their breathing
and heart rate. The technique has worked well for persons who have an
ability to focus on these measurable parameters, which can help reduce
pain and the anxiety that comes from being in pain.
Massage therapy can work in almost any case to reduce pain and improve
the relaxation effect. It is not necessary to “work” the
area where pain is felt to provide comfort and a sense of healing.
Patients with swelling from radiation or surgery (such as removal of
lymph nodes) can look for a lymphedema therapist, who is trained in
proper technique for massaging swollen areas as well as the rest of the
body.
Reflexology can be performed on the hands or feet to help release tense
areas which may be related to painful spots. The body in pain will
tense itself in a variety of ways in response to pain, and by relaxing
one part of the body by massage, the rest of it can follow.
Massage can be combined with biofeedback, imagery or other alternative
therapies (such as aromatherapy) to diminish stress response.
WORKING WITH OPIATE SIDE EFFECTS
Constipation arising from opiate medications is a frustrating
consequence for caregiver and loved one. A common misconception is that
fiber and exercise will address all types of constipation. When opiates
are given, the bowels are slowed down; the result is constipation,
which occurs in many people who take opioid/opiates.
The buildup of waste in the intestines creates discomfort in all
people. In general, suggestions to alleviate and control constipation
include increasing water intake to soften food passing through the
digestive tract, and exercise, which helps muscles
“massage” the internal organs. The intestines made
“sleepy” by opiods can be helped by these two suggestions,
but more help may be needed; especially when pain hinders the ability
to move.
Fiber is an excellent “homespun” cure to deal with
constipation, and as long as the individual has a somewhat hearty
appetite, salads and vegetables can be given as snacks and meals. When
appetites are poor or finicky, fiber bought at the health food store
can be sprinkled on easy-to-consume foods (like pudding or baby food).
Fiber is helped by fluid intake, and those who are having trouble
keeping up with their liquids may prefer “fun fluids,” such
as snow cones and popsicles.
Caregivers and loved ones may be reluctant to continue pain medication
when constipation is the result. The key to working with this side
effect is to allow for the body’s changing ability to pass waste
as usual. Constipation may also be a result of compressed nerves or
other factors that are at work in a health challenge. Continuing
medications is important, but advise the doctor about constipation and
the success of any home remedies. Combining simple fixes like diet and
exercise with physician-prescribed solutions may be what is needed.
Laxatives and slow-release magnesium are over the counter remedies that
are helpful, but should not be used without speaking to the doctor.
Overuse of laxatives can create or increase constipation in the long
run.
There are prescribed medications which work to counteract the effects
of various drugs. “Antagonist” medications are given at the
doctor’s discretion. Discussion of possible medications to
counteract medication effects can be done when there are problems
noted, but as always, caregivers must give as much information possible
to the doctor so he can be guided.
PAIN CAN HAVE POSITIVE EFFECTS
If an area is completely numb from treatment, pain may be an indicator
that the area is “coming back to life,” however
uncomfortably. When pain is addressed within a reasonable time,
corrective measures can be taken to alleviate it. This assists the body
in healing, and helps loved one and caregiver enjoy their time together
as they move toward the next step in recovery.
People are aging with HIV. The introduction of highly active
antiretroviral therapy (HAART) more than a decade ago has allowed
people to live with the illness that was once almost certainly fatal.
But the problems associated with growing older have introduced a new
set of challenges.
While the virus is “not a death sentence,” it’s
“not a cake walk” either, said Dr. Kelly Gebo, a doctor and
researcher at Johns Hopkins Bloomberg School of Public Health. She
treats many infected patients over age 50. “The medications have
toxicities and are not easy to take,” she explained.
Among the issues older people face are weaker immune systems that have
a harder time fighting off infections, toxic side effects from
medications, and co-morbid diseases that may stem, at least in part,
from the aging process. “They appear to be prematurely
aging,” said Gebo, noting that people over 50 have higher rates
of malignancies, as well as cardiovascular disease and strokes.
New Face of AIDS
This older group represents a new face of the HIV/AIDS epidemic. About
29 percent of all people with AIDS (acquired immunodeficiency syndrome)
in the United States are age 50 and older. (AIDS is the serious disease
that can develop from the human immunodeficiency virus, better known as
HIV.) In some cities, as many as 37 percent of people with AIDS are in
this age group.
Meanwhile, the rates of HIV/AIDS among older people are 12 times higher
for blacks and five times higher for Hispanics compared to whites.
Also, in the last decade, AIDS cases in women over 50 were reported to
have tripled; heterosexual transmission rates in this age group may
have increased by as much as 106 percent.
These adults represent the first generation of older adults living with
HIV. Most are in their 50s, but some are in the 60s, 70s, 80s and even
90s. Also, while some of these cases are newly acquired, most are
people who have been living with the disease long-term, perhaps 10, 15
or 20 years or more.
“We are working with the first-ever generation of older people
growing old with HIV,” noted Karen Taylor, director of advocacy
and training for the organization SAGE (Services & Advocacy for
GLBT Elders).
Lack of Education, Awareness
One reason why this older cohort is succumbing to the illness is
because of lack of understanding, education and testing of older
adults, several resources say.
Many older people, because of divorce or the loss of spouses, are
dating again. They may not realize the risk of contracting HIV because
they were not raised in the “safe sex” era. Older women, in
particular, may believe they are immune to the virus because they are
beyond childbearing age. (Older women actually may be more susceptible
because of a decrease in vaginal lubrication and thinning vaginal walls
that can put them at higher risk during unprotected sexual intercourse.)
But health officials and doctors have not effectively communicated the
message. Little HIV prevention education is targeted at older people.
Most older people do not receive training in safer sexual activities.
Because older people don’t see themselves on posters or
billboards advertising AIDS prevention, they may think they are immune
to the illness, Taylor of SAGE said. Society itself has a blind spot
when it comes to thinking about older people contracting HIV. “We
don’t tend to think of older adults as sexual people and
don’t tend to think of them as using recreational drugs,”
she said.
The reality is that because people are living longer, they are engaging
in sex until a later age. Viagra and other sexual enhancement drugs may
contribute to increased rates of sexual activity. Also, physicians may
not diagnose HIV infection in older people, or inquire about their
sexual habits or drug use, or talk to them about risky behaviors.
Moreover, doctors may overlook early symptoms of HIV as normal signs of
aging.
Aging with HIV
The aging process tends to complicate the effects of HIV. While older
adults tend to adhere to drug regimens better than younger people, the
side effects can be more severe, researcher Gebo said. Renal failure is
more likely to happen in the elderly. Metabolism of the drugs is
affected by worsening kidney and liver function with aging, she added.
Complications from a variety of drugs also appear to be a major
problem. Medicines for age-related conditions, such as heart disease,
depression, osteoporosis and diabetes, may interfere with strong ARVs,
which are used to treat HIV.
Dementia is another problem that older people with HIV or AIDS are
facing. While older people tend to develop cognitive problems, ARVs may
worsen them. Moreover, many other health problems older people face,
such as osteoporosis, may progress faster in people with HIV.
Other “hidden” illnesses, such as depression and
loneliness, are common in older adults with HIV. Because of the stigma
attached to HIV and AIDS, they may feel they can’t tell their
families and friends about their illness. (“What will the people
in church think?”) Some may stop seeing their grandchildren.
While there are advocacy groups for older adults, this cohort may shy
away from joining support groups. Depression, while a problem in
younger people, can lead to other health problems and have more
detrimental effects in older adults.
Financial Stress
Financial problems among this population also cannot be overlooked,
according to Gebo. Under Medicare Part D, the government program that
pays for Medicare prescription drugs, there is a coverage limit at
which the government will stop paying for drugs annually. That
threshold is $2,250. When Medicare recipients reach this level in drug
costs, they are responsible for the total cost of their formulary
expenses—until they reach $5,100 in total spending. Many older
adults with HIV must seek other sources of funding, such as the Ryan
White CARE Act, that provide assistance to cover this gap.
Also, many older adults with the virus are in lower socio-economic
groups. Staying “in shape” is not as easy for them because
they may not have the means to join a gym, Gebo said. Exercising is
important in helping reduce the risk of diabetes and cardiovascular
disease, both of which are more common in older people.
Caregiving could present another financial burden as many older adults
may need to rely on paid caregivers, such as home health aides.
Problems to Solve
Many answers still elude scientists regarding this population with HIV.
Still a mystery is the precise cause of certain diseases, such as
Alzheimer’s, in older adults with HIV. Is it the medication? The
aging process? Or the disease itself, which can cause dementia in
younger adults? Neurological problems can be caused by vitamin
deficiencies, opportunistic infections or ARVs. Also, how much HIV is
worsening co-morbidities, such as heart disease and diabetes, remains
unclear.
Gebo is working on fine-tuning drug regimens for elderly people living
with AIDS to reduce the pill burden and offer the best combination of
therapies.
Another quandary doctors face with this population is what to treat
first. For example, is it more important to treat the HIV or the
tuberculosis? Those are just some of the new questions that scientists
are grappling with as the population with the disease continues to age.
There no doubt is still a lot to figure out regarding this population.
Exacerbating the problem for researchers is that drug companies have
not included older people in clinical trials of new drugs. Clearly,
that has to change. The population of people with HIV is not getting
any younger.
6/28: If you own a pet and want to leave them something, this might help. My name is Fluffy in case you are interested.
Humans and charities are no longer the primary entities many individuals wish
to benefit upon death. Instead, there is a growing interest in providing for
Rover, Fluffy, and Polly, that is, our beloved pets. There has been a recent
surge of public interest in pet planning as high-profile individuals have died
with significant provisions in their wills or trusts for the benefit of their
animals.
This increase in the special estate planning needs of pet
owners is reflected by legal scholarship, continuing legal education programs,
and legislative action in the pet trust arena. But little time has been devoted
to the tax ramifications of pet trusts although a brief discussions are included
in several articles. The purpose of this article is to fill this gap and give
practitioners guidance as to how pet trusts are treated for tax purposes and to
suggest to Congress how the Internal Revenue Code should be amended to clarify
taxation issues.
US equities outperformed their European counterparts as
investors shrugged aside disappointing labour market data and cautious comments
from the Fed
I think the investors are not going to be pleasantly surprised.
6/28:
6/28: Value at Risk: (Mandelbrot) Mandatory reading for sophisticated
investors (which pretty much eliminates almost everyone)
Value at Risk works like this. You start off be deciding how 'safe' you
need to be. Say you set a 95% confidence level. that means you want to
structure your bank's investments so there is, by your model, a 95%
probability that the losses will stay below the danger point and only a
5% chance that they will break thorough it. To use an example suggested
by some Citigroup analysts, supposed you want to check the risk on
your euro dollar positions. With a few keystrokes of your
computer formula, you calculate the volatility of the euro dollar
market, assuming the price follows a bell shaped curve. Let us say
volatility is 10%. Then with a few more strokes, you get your answer.
There is only a 5% chance that your portfolio will fall by more than
12%, forget about it.
The flaw is obvious. The potential loss is far, far greater than 12%,
The probability is not merely that bell curve leads up to underestimate
the volatility. That would be bad enough as it would understate the
odds of loss. The problem is worse than that. Assume the market cracks
and you land in the unlucky 5% portion of the probability curve. How
much do you lose. Well, 12% you say. Wrong. Even the VAR model
recognizes that the actual loss could be greater, the amount beyond the
theoretical 12% is 'overhang'. With a bell shaped curve assumption, the
overhang is negligible.But if price changes scale, the overhang can be
catastrophic. Once you are riding out on the fat tails of a
scaling probability curve, the journey gets very rough. There is no
limit as tho how bad it can get. Its own bankruptcy is the least of the
the worries; it will default on it obligations to other banks- and so
the final damage could be greater than its own capital .
EFM- does Long Term Capital ring a bell? I find it incredulous that
after that 1998 fiasco so many institutions felt that THEY had
come upon the Holy Grail that 27 PhDs and two Nobel Laureas could
not.
If you have not read The (mis)Behavior of Markets by this
time, you are not a sophisticated investor. Just somebody trying to
tell others how much you supposedly know. Don't mean squat.
I know that is harsh. Life sucks, then you die. Deal with it. READ!!!!
If you do not have the time to read his book or it is too difficult to understand, hire someone that can.
6/28: Wharton-
Can you really measure risk accurately?
Professor Dick Herring: I think the last year shows that we can't,
that there are lots of things we can't quantify very successfully and that we
became overconfident in the things we could quantify. We've made great
strides in risk analysis, risk measurement, and aggregating risk. But we've
tended to focus most of those efforts on things that are relatively easy to
manage. And even some of those relations broke down. We simply didn't have
enough data. Our techniques were not good enough. We weren't using enough
forward information and, unfortunately, this crisis has blame that can be shared
across the entire spectrum of participants, from regulators to participants in
securitizations and even to risk managers themselves.
EFM- When you read Mandelbrot and Taleb, they talk about extreme and
sudden risks: 9/11 for example. You cannot measure or determine that
risk with any certainty. As regards all the quantitative analyzes,
Herring is quite right- they were not that good.
But once again, I point to the 100% indicator of extremely high risk;
the inverted yield curve. It's about 12 months to a recession. I
did not have to even use a formula for that. Now, it certainly
won't tell you how bad things are going to be, how long it will last
and so forth. But to dismiss this risk is moronic. Yet I have not read
but a couple sentences after all these months about the curve- and none
from the quants. They got stuck in computer land and have to find a
formula to get out. But it was already too late.
John Drzik: I'm just going to add that there wasn't enough
attention on the unknown risks rule versus the known in that part of the
problem. For people who are risk analysts or practitioners who were in the
academic community who tracked risk there tends to be a focus on risk modeling
where there's data, rather than risk modeling where there's risk. You can build
much more sophisticated models where there's lots of data to work with. That
doesn't mean you're focusing on the biggest problems that the firms face,
because that's where you have thin data sets and often have to make judgment
calls. People with an analytical bent are often uncomfortable going into that
sphere. But that's really where a lot of the real big risks that firms face
are.
6/28: And does this sound familiar about my long time comments on correlation??
Diebold: I think there are two key issues, or at least two,
both of which are very difficult and related. The first is understanding
correlations across banks, financial institutions ...
Herring: And understanding how they vary over time.
Diebold: That's number two. And they certainly are different
in crises just as volatility is different in crises. And, of course, the way
that they're different is often in very adverse ways. Correlations rise just
when you don't want them to rise and you lose, for example, portfolio
diversification benefits just when you need them the most.
Herring: The dirty little secret of diversification is that
it disappears when you need it most. The only thing that rises in falling
markets is correlations.
EFM- doesn't anyone think that won't happen in a recession??
* You cannot beat the market, says the standard market doctrine. Granted. But you can sidestep its worst punches.
Benoit Mandelbrot
6/28: Looking forward- Herring: Another thing I'd like to highlight that follows on
John's comment is that there's been a failure in most risk technology to look at
forward-looking indicators. They're out there. We saw, long before it happened,
that Bear and Lehman and lots of other firms were going to fail because of the
credit default swap spreads widening up. But if you looked at the backward
statistics that you had to estimate from, you weren't picking that up. Virtually
every firm that failed over the last year had much more than the minimum
required regulatory capital, which simply means the regulators aren't measuring
capital very well.
EFM- well, the inverted yield curve is forward looking (Yes I am
taking some liberty because a recession doesn't mandate that everything
fails. But it is a severe stress test for inadequate risk measures
which was almost all the rest)
* We
send space shuttles into orbit; we send probes to Mars; be we haven't
studied the financial markets. We literally know nothing about how
economics works.
Richard Olsen
6/25: "Trillions have evaporated from those accounts that have become the prime source
of retirement funds for a majority of American workers, affecting their psyche
and their future. If you are still young enough, there's time to rebuild and
recover, but if you are in your 50s, 60s or beyond the consequences can be dire,
and its drawing attention to the shortcomings of a retirement system that has
jeopardized the financial security of tens of millions of
people." - Ira Rosen, CBS News
Attached is a resume that states the most extensive background in financial
planning. It's not an ego comment- just to validate who I am. More importantly,
I have taught all the securities courses for licensees, financial planning for
universities and so on. The point being that the fundamentals of investing have
never been taught to a brokers. I submit that is the same for probably over 90%
of all RIAs. No diversification, alpha, beta, standard deviation, risk,
suitability, Monte Carlo and on and on. Having acted as an expert witness
against B/Ds (though 60% of such work is for defendants), you are not going to
find a valid investment analysis/plan regarding allocations et al from at least
90% of all the major firms. It might be more but I have not seen them all.
It has always been 'comical' to see the admonishments of Roper, Shapiro,
NAPFA, NASAA et al when there are probably none that can use a financial
calculator.
Or take a look at NAPFA. Roper likes them, Quinn and more. But not a one in
California is legal. Never has been. To quote one officer in the mid 90s- "well,
we always knew what the law was but we figured we'd never get caught. And if we
did, we'd simply get the law changed'
Of 8,000 CFPs in California, only one is fully licensed and legal to offer
comprehensive fee services.
So all the rhetoric about some fiduciary standard is just that- words.
Until such time that the fundamentals are required knowledge, there cannot be
hardly a one that can act as a fiduciary.
Bradley's comments- "it’s important to educate consumers when making
investment decisions about the difference between the two types of obligations"
is specious at best. It will make little difference in the fees charged if you
are using a twit for the framework of your life. Certainly for retirement.
Getting screwed cheaper seems the height of folly.
And then per her request about legality and licensing-
Alexis
If one wants to offer investments for a commission, one needs an SEC
license- primarily a series 7 which is the bulk of brokers.
If they want to offer 'financial advice' which includes insurance,
annuities, etc. for a commission, they must have an insurance license.
If one wants to offer investment advice for a fee, they must be an RIA
through the SEC or state. But that is all they can offer- just investment
advice.
In California- and in about another 35 states- there is a separate license
for fee advice on insurance. And any entity that offers comprehensive advice, it
has to include insurance. California requires one be licensed as a Life and
Disability Insurance Analyst.
In the early 90s, I noted that no NAPFA members were licensed- yet they
talked and talked about fee FINANCIAL planning, how commissions were bad, that
insurance was a terrible product out to cause global warming. The kicker is that
one cannot do retirement planning, etc. etc. without addressing the implications
of the most mind numbing areas of planning.
They were not the only entities- FPA, CFP Society, CPAs and so on. I was
instrumental in getting them and the CFP Board of Standards, College for
Financial Planning with a mandatory meeting with the California Department of
Insurance.
This is the full letter below.
February 3, 1998
On July 30, 1997, a discussion concerning the life and disability insurance
analyst license was held between the California Department of Insurance (CDI)
and members of the financial planning industry. As you participated in this
dialog, I am writing to communicate CDI's policy on this matter.
The focal point for this issue is consumer protection, not the interests of
the individual factions. With all parties based in customer service, it is sad
that this detail has been lost in much of the discussion. As defined by
insurance code Section 32.5, 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 the insurer, advises, purports to advise,
or offers to advise any person insured under, named as beneficiary of, or have
any interest in, a life or disability insurance contract, in any manner
concerning that contract or his or her rights in respect thereto."
The fact that there are only 46 life and disability analyst in California is
not a valid argument for repealing this code. In fact, the limited number of
licensees and population in noncompliance begs for increased education and
enforcement. While the easy solution for those in noncompliance may be to repeal
this law, consumers who pay for fee advise on insurance matters deserve an
analyst educated in insurance per CDI standards. The current licensing
requirements ensure that relationship. Any legislative effort to repeal this law
will likely be opposed, on the basis that such action is harmful to consumers,
by consumer groups, insurers, agents and brokers, and the California Department
of Insurance.
At the July 30, 1997 meeting, representatives from the financial planning
industry raised two additional suggestions concerning CDI's examination
requirement. The first seeks to allow issuance of a Life and Disability Analyst
license to Certified Financial Planners and Certified Public Accountants
following the successful completion of their own professional examinations.
Again, this is an idea that requires legislation and will certainly face
opposition. CDI's position remains at only those individuals who pass CDI's exam
are to be issued a life and disability analyst license. CDI is the agency
charged with enforcing this license and will remain, via its examination and
related or regulatory functions, the authorizing agency for this license.
The final suggestion request a waiver of the requirement than an examinee
must have five (5) years experience as a life licensee, or employment experience
under said licensee, to sit for CDI's examination. Again, this is an idea that
requires legislation. CDI will reserve judgment until the full breadth of this
proposal has been introduced to the state legislature.
Despite some groups interest in changing current law, there is an existing
law which is, and has always been, quite clear. While a financial planner may be
illegally engaging in insurance analyst activities and may not be aware of their
violation, it is my hope that this the explanation of policy will provide them
with the impetus to come into compliance or cease the illegal activity
immediately. Per insurance code Section 1844, " any person who acts, offers to
acts, assumes to act, as a life and disability insurance analyst when not
licensed by the commissioner per this article...... is guilty of a misdemeanor."
Consistent with current practice, information obtained on individuals in
noncompliance will be aggressively pursued.
Sincerely,
Jeffrey Kenny
Assistant Ombudsman and Legislative Liaison
Efm- not one organization
complied. The CFP Society told its members to continue to violate the law but
just keep quiet about it. One of the reasons is that the exam and knowledge base
is far greater than any CFP has ever heard of. No CFP by training could ever
pass. You REALLY have to pay your dues and STUDY. It is hard. pure and simple.
But if you want to be legal and ETHICAL (the main focus of NAPFA and certainly
the new fiduciary standards) in the offering of FINANCIAL PLANNING fee services,
the law is clear. Quinn knows that, Roper must, NASAA does, Shapiro has done
everything to avoid knowledge to any broker, so let's forget her
altogether.
So there you have it. A RIA can only offer investment advice. In
California, one must also have the Life and disability Insurance Analyst license
in order to offer comprehensive fee services. So it is just me since there are
no other CFPs. No NAPFA members. No CPAs. No nothing. I'm it.
Impressed?? Don't be. Quinn, Roper, WSJ. Financial Planning Magazine, CFP
Board of Standards, FPA and add whatever you want, have all violated their
fiduciary duty to readers and consumers nationally by inferring ethics and
knowledge. You cannot act illegally and be a fiduciary/ethical. Period
But they get all the press as the 'be all and end all' of all
planning. That is a sad commentary on the industry and makes clear why so many
consumers end up being short changed. They have been lied to.
* A favorite pastime of cranks and academics is devising the financial equivalent of a perpetual motion machine
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 bolster 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.
The number of millionaires in the world plunged 14.9%
last year as the markets faced extreme losses and volatility,
I was not one of them- primarily because I wasn't one to begin with.
6/25: Arbitrations:
Obama also asked the SEC to consider forcing brokerages to stop requiring
customers to file complaints with industry arbitration panels, rather than
courts.
Investor advocates have expressed concern that panelists who previously
worked in the securities industry may favor firms, said Howard Mayers, a
Manhattan lawyer who teaches a legal clinic on arbitrations at New York Law
School. Letting investors file lawsuits would probably boost firms’ legal
defense costs and may give claimants greater access to internal company
documents or the ability to question additional witnesses, he said.
The Securities Industry and Financial Markets Association says no changes are
needed, according to Travis Larson, a spokesman for the Washington-based lobbying
group. The arbitration system “provides equal protection to all investors in a
manner that is fair, and both faster and less expensive than courts,”
EFM: Panelists in arbitrations DO favor the firms. If you are
knowledgeable and contradict the industry too often, an arbitrator will
be persona non grata (like I was. It is called a preemptory challenge). What is left is not necessarily fair
at all. Juries would be much more independent.
Employers expect many of their older
workers will need to work longer, but are lukewarm about keeping them.
Employers are failing to confront a
potential disorderly retirement process.
Firms more inclined to help workers plan
for retirement or work longer tend to be large, fast-growing, and worried about
"brain drain."
Firms that expect many older workers to
stay on show no special interest in such retirement initiatives.
In short, employers appear to view
retirement initiatives only as part of hiring and retention, not as a way to
ease retirement transitions.
As reported in previous Issue in Briefs, the survey found that employers
expect: 1) half these employees will lack the resources needed to retire at the
organization’s traditional retirement age; 2) one out of four will respond by
wanting to stay on the job at least two years past that traditional retirement
age; but 3) the employers are lukewarm about creating opportunities for even
half of these employees to work longer. Note that the survey was conducted well
before the financial crisis; the retirement preparedness of workers has
deteriorated since the survey – making potential employer responses all the more
important...
It's just business- neither their employees’ retirement security
nor the prospect of a disorderly retirement process currently
influences employer retirement policies.
624: Oops in England: One in 10 borrowers with an excellent credit record are trapped in negative
equity, owing more on their mortgage than the value of their homes, says a
report that forecasts a peak-to-trough fall in house prices of up to 35 per
cent.
6/24: Asset Protection
John Dietz, CWPP™, CAPP™- Senior Advisor
Dear Valued Reader,
There isn’t a day that goes by without someone
calling me about a strategy whereby the client asks us to move all their assets
into an entity without an owner. Sure, that’s a cumbersome sentence, but it’s an
even more cumbersome thought: “move all your hard earned assets into an entity
without an owner.”
For some reason, even bright people get
attracted to this idea, but there is one small problem; it’s BO or Beneficial
Owner. This BO acronym is bantered about in the financial industry when banks,
law firms, trust companies, and government agencies want to know “who is the
real owner” of a company, trust, or any financial transaction. Another way of
putting it, the BO cuts through the
BS.
Sure, the Beneficial Owner of any Asset Protection
structure can be obscured purposely to gain maximum security and privacy. The
concept is fairly straight forward. Take any asset you own and re-title it in
the name of a trust or company, and via privacy you are essentially shielding it
from future creditors. Even though you have a new title, you still maintain a
degree, directly or indirectly, as the beneficial owner.
Ask yourself this question: Do I have money in
stocks, bonds, mutual funds, hedge funds or whatever, in my family name?
If you were served papers for a
lawsuit tomorrow, and heaven forbid, lose that lawsuit, it is as simple as
entering your name in a database to get a list of all of your
assets.
The challenge to a solid Asset Protection Plan is
deciding the proper timing and titling of assets. Changing title to an asset can
be confusing; the right choices depend on the facts and circumstances of your
situation. To further add to the confusion, changing title does not necessarily
mean you are asset protected.
Beneficial Owner And Beyond
In some parts of the world, there are still
jurisdictions that offer bearer shares for companies and structures. As most
readers of this newsletter already know, bearer shares are just like the money
in your wallet. Whoever has possession of that money is the owner and therefore
the benefactor of the notes they are holding. Most places, and I dare say
Nevada, have outlawed bearer shares for a multitude of reasons. I am sure you
can think of a few.
Legally obscuring beneficial ownership can be prudent
Asset Protection Planning and should be looked at the same way you would view
trade secrets, proprietary formulas, secret sauces and the formula for Coke. You
can gain a competitive advantage from using these types of Asset Protection
Strategies. In this vein, beneficial ownership is a very important topic and
needs thoughful consideration.
"Clients call daily asking for privacy and security
in their financial affairs. The question becomes how much is too much? Is there
such a thing as too much protection?"
Undoubtedly there is balance between lunatic fringe
planning and real world planning. Going offshore, for example, fits certain
clients but not others. Insurance can be part of a solution and so can a trust.
There is balance that must be attained between planning and realistic client
goals.
Take your garden-variety foundation. The structure I
am referring to is the private interest foundation. You may know it as the
highly marketed Panamanian Foundation. This structure can be set up in any
number of ways, a host of options, and, in theory, can be set up to completely
remove the beneficial owner. Nevertheless, theory must meet reality. Is there
reality to a structure that has no beneficial owner? Why was it established in
the first place? Is there any economic reality to such an entity?
Creating stealth by building fortified walls around
your assets is a must in our litigious society. However, to what degree and to
what end? The question again is, how far do you go? Without disrespecting one
entity for another, and giving the fact that they all have their place; let’s
focus on removing the beneficial owner.
Ask yourself these questions.
- If I set up a structure that clearly makes someone
else the beneficial owner will my assets remain mine?
- Will I trust someone or some firm with my
hard-earned money?
- If I gave up ownership of
my assets to a structure in which I have no interest in; have I created a gift
that gives rise to a gift tax?
Asset Protection Planning can get so opaque as to the
ultimate goal, you may even start to think that since you may not be the
beneficial owner anymore, you probably do not owe any tax. Maybe you invoke the
16th Amendment. Yikes, and double Yikes--need I say more! (The 16th Amendment
allows Congress to levy an income tax without apportioning it among the states
or basing it on census basis). We have many real horror stories of clients in
this scenario. To quote Lieutenant General Frederick Browning speaking to Field
Marshal Montgomery (World War II battle of Arnhem), “But Sir, I think we might
be going a bridge too far.”
If Service Providers were to be honest they would
share stories of how clients lost money long before Bernie Madoff showed up on
the scene. The past is riddled with schemes and scams, from tax protestors to
dishonest people stealing money straight out of the till.
A carefully crafted Asset Protection Plan encompasses
privacy, tax considerations, inheritance planning, government agency
considerations, and most importantly never puts your money in harm’s way.
Any plan that goes beyond these parameters starts
looking like “a bridge too far” and an exercise in gluttony.
Although section 529, under which tax preferred college savings accounts may
be established, was enacted to alleviate the large financial burden of paying
for a taxpayer's family members' higher education, it has provided taxpayers
with the potential for additional income, gift, and estate tax benefits
unintended by the very generous statute. The government's advance notice of
proposed rule making cites several of those tax avoidance schemes, proposes some
solutions, and asks the public for its recommendations to curb those abuses.
Review of Federal Income Taxation of Estates and Beneficiaries by M. Carr
Ferguson, James L. Freeland, and Richard B. Stephens. This comprehensive volume
should help fill a void which tax practitioners have long endured. As the
authors properly point out, though many volumes have been written on estate
taxation and estate planning, relatively little attention has been given to the
income tax consequences resulting from death. The present volume is a welcome
and needed addition to the sparse body of literature on this subject.
6/23: Simple statistics- I fish at some farm ponds on a cattle ranch in
Sacramento. In over 15 years, I have been absolutely amazed that there
is NO consistency in what the pond will look like each year. One year
it has a lot of bloom, another TONS of weeds so you are sure the next
year will be impossible to fish, then it ends up with no high weeds,
then...................
This is just a pond. Same place, same water- there should be some
consistency from year to year. There isn't and never has been.
My point? Here we have all the economist and statisticians state that
subsequent years HAVE to follow a regression of returns based on
a 10 or 20 or 30 year or whatever history. Maybe there is
some correlation. I cannot argue otherwise. But I look to this simple
pond unaffected by direct development and nothing is the same from year
to year. Why should something far more exotic follow a
predetermined path. Why??? Charlie Munger may have said it best- " It seems like the higher mathematics with more
false precision should help you, but it doesn’t. They teach that in business
schools because, well, they’ve got to do something.”
6/23: What a joke- Sen. Jim Bunning, Republican from Kentucky, collects an approximately $20,000
annual salary from his namesake foundation, more than the charity’s yearly
grants payout. The Jim Bunning Foundation charges baseball-memorabilia
companies for appearances by the senator, a Hall of Fame pitcher. Under
Congressional ethics rules, Mr. Bunning is not allowed to charge for autographs
himself, but the restriction does not apply to the charity. The foundation has
paid Senator Bunning, its only employee, $155,000 since 2001, according to
financial disclosure forms. Internal Revenue Service documents and Senate
filings show it donated $16,350 in 2008 and has never given more than $19,575 in
a year.
6/23: Oy!:
The World bank earlier this month said it expected a deeper global recession,
forecasting a 2.9 percent contraction in gross domestic product for this year,
rather than 1.7 percent, as it projected as recently as March.
More detailed forecasts released Monday showed that much of this pain will be
in high-income areas like the euro zone, the United States and Japan. The bank
said that it expected economies in high-income nations to contract a total of
4.2 percent this year.
It expects the U.S. economy to shrink 3 percent and the euro zone 4.5
percent, rather than the 2.4 percent and 2.7 percent it forecast in March. For
Japan, the World Bank now projects contraction of as much as 6.8 percent this
year — significantly higher than the 5.3 percent it forecast three months
ago.
This paper explores how uncertainty over
investment returns affects pension systems. This issue is becoming more
important because of the dramatic spread of defined-contribution pension
provision around the world. It has also been highlighted by the recent financial
crisis: the OECD estimates that pension funds lost 23% of their value in 2008,
worth a heady USD 5.4 trillion. The scale of investment risk is measured in this
paper using historical data on returns on equities and bonds in major OECD
economies over the past quarter century. The results show a median real return
of 7.3% a year on a portfolio equally weighted between equities and bonds
(averaging across the countries studied). It might be expected that, over a very
long period, the degree of uncertainty in investment returns is small. After
all, a few bad years in the market are likely to be offset by boom years.
Nevertheless, the degree of uncertainty, even with the relatively long
investment horizons of pensions, is found to be large. In 10% of cases, an
annual return of less than 5.5% would be expected, while in 10% of cases, this
should exceed 9.0%. Compounded over the time horizon for pension savings of 40
years or more, such differences in rates of return amount to enormous sums of
money. However, there is a series of reasons why returns achieved by individuals
on their pension funds are less than the market return (as measured by
conventional indices). These factors include administrative charges, agency and
governance effects and demographic change, depressing investment returns below
the high levels recorded over the past two decades. As a result, a more
conservative assumption for future investment returns than the record over the
past quarter century is appropriate. Settling on a median of 5.0% annual real
return net of charges implies that 80% of the time, the investment return on
pension savings should be between 3.2% and 6.7% a year
6/23: I have no idea what they are talking about but konck yourself out
This paper is concerned with the e±cient
analytical computation of Value-at-Risk (VaR) for portfolios of assets depending
quadratically on a large number of joint risk factors that follows a
multivariate Generalized Laplace Distribution. Our approach is designed to
supplement the usual Monte-Carlo techniques, by providing an asymptotic formula
for the quadratic portfolio's cumulative distribution function, together with
explicit error-estimates. The application of these methods is demonstrated using
some financial applications examples.
This paper demonstrates gender differences
in risk aversion and ambiguityaversion. It also contributes to a growing
literature relating economic preferenceparameters to psychological measures by
asking whether variations in preferenceparameters among persons, and in
particular across genders, can be accounted forby differences in personality
traits and traits of cognition. Women are more riskaverse than men. Over an
initial range, women require no further compensationfor the introduction of
ambiguity but men do. At greater levels of ambiguity,women have the same
marginal distaste for increased ambiguity as men.Psychological variables account
for some of the interpersonal variation in riskaversion. They explain none of
the differences in ambiguity.
While much research has focused on the costs of obesity and economic factors
that drive obesity growth, little economic research has examined the factors
that contribute to obesity - physical inactivity and poor nutrition. This paper
will examine correlates and predictors of physical activity over time with
emphasis on economic factors. We use data for adults from the 2000-2005
Behavioral Risk Factor Surveillance System (BRFSS) survey that includes state
and county codes for each individual that allows us to add supplementary data on
state beer and cigarette taxes, local transportation costs, availability of gyms
and recreational facilities, county unemployment, crime rates, and prices of
related goods. We find that income and education has a strong and consistently
positive effect on physical activity across specifications. Sin taxes have no
effect on the likelihood of any exercise but generally have negative effects on
vigorous exercise or moderate and vigorous exercise. Physical activity is more
likely when there are more parks per capita in a county. Our results above are
robust to the inclusion of weight status and use of flu shots (a measure of an
individual's tendency towards prevention).
6/22: Inflation?? Alan S. Blinder is a professor of economics and public affairs at Princeton and
former vice chairman of the Federal Reserve The central bank is holding the Fed funds rate at nearly zero and has created a
mountain of bank reserves to fight the financial
crisis. Yes, these moves are unusual, but these are unusual times.
Concluding that the Fed is leading us into inflation assumes a degree of
incompetence that I simply don’t buy.
EFM- I am never so certain of anything and that includes the inverted
yield curve. But you have to pay attention to the above I have been
definitely leaning to TIPS in the near term. Not to say they may not be
correct but perhaps I have to take another look. and then another.
6/22: Maybe he has the guts but it me be superficial rhetoric:
Obama-“As we continue to recover from an historic economic
crisis,” he said, “it is clear to everyone that one of its
major causes was a breakdown in oversight that led to widespread abuses
in the financial system.
“An epidemic of irresponsibility took hold from Wall Street to Washington to
Main Street. And the consequences have been disastrous. Millions of Americans
have seen their life savings erode. Families have been devastated by job losses.
Business large and small have closed their doors.”
EFM- If you do not teach the fundamentals of investing, it will mean nothing.
6/22: Risk- (NY Times) There’s even a new study that
contends holding stocks over long periods of time may be riskier than previously
thought. Robert F. Stambaugh, a finance professor at the Wharton School at the
University
of Pennsylvania and a co-author of the report, said most investment research
only accounted for the risk of short-term market swings around the stock
market’s average gain over time. It doesn’t factor in the fact, he said, that
the average itself is subject to change.
EFM- yea, the rules might/will change. But underlying it all is the
inverted yield curve. I have never been able to see how any economy can
exist with long term rates lower than short term. The curve has ALWAYS
indicated a recession. Duriong such periods of stress, all bets
are off. Maybe it will all come back to normal. But why???? Because
some 10, 20, or 30 year old statistics say so? And after one of the
most unique changes in history- the persoanl computer and the Internet.
Nothing is the same anymore.
6/21: LATER "ON."A Watson Wyatt survey found that a third
(34%) of workers have increased their planned retirement age in the last 12
months. 44% of those age
50 and over plan to delay their retirement, compared with only 25% of those
under 40. Although the average planned retirement age for all employees is 65
years old, half of respondents age 50 or older plan to retire at age 66 or later
6/21 Never heard of these- automated “dark pools” are off-exchange trading venues that do not display quotes
to the public. Investors can anonymously trade large blocks of shares on dark
pools,
6.21: SEC Shapiro-
Ms Schapiro said the agency would also focus on standards of conduct that
apply to broker-dealers and investment advisers who provide financial services
to retail investors.
EFM- Conduct?? Well if they do not have to know the fundamentals of
investing in engaging the consumer, isn't that a problem that must be
dealt with first. I have tried for over 15 years and with no success
whatsoever.
The ARCH model shares with the related
literature on risk and return one common thing: the rational-expectation
paradigm. In particularly, market prices should reflect investors' rational
forecasts, based on the best available information. When new information
arrives, the market's expectations change. Therefore, prices fluctuate. Thus,
price volatility is due to information arrivals and hence, volatility can be
forecast, based on the up-to-date information. However, when the available
information is too complex, the rational expectation may no longer hold. Bounded
rationality should be added into our frame work to study risk and return, so
that, we can gain a better understanding of market volatility.
Sounds reasonable but here is the difficulty. Who determines what info
is simple and what is complex? Think about that. It';s not going to be
a computer- it has to be a human. Therefore much goes back to square
one.
6/21: Arbitration Cases Filed
Year
Cases
1994
5,586
1995
6,058
1996
5,631
1997
5,997
1998
4,938
1999
5,608
2000
5,558
2001
6,915
Year
Cases
2002
7,704
2003
8,945
2004
8,201
2005
6,074
2006
4,614
2007
3,238
2008
4,982
Through May 2009
3,163
Arbitration Cases Served by Controversy Involved
Type of Controversy*
2005
2006
2007
2008
May - 2009
Margin Calls
78
103
45
64
50
Churning
315
257
133
212
115
Unauthorized Trading
395
242
174
248
178
Failure to Supervise
1,828
1,425
830
1,029
937
Negligence
2,225
1,619
891
1,602
1,276
Omission of Facts
1,123
588
275
1,201
957
Breach of Contract
1,987
1,397
953
1,658
1,085
Breach of Fiduciary Duty
3,514
2,621
1,616
2,836
1,718
Unsuitability
1,926
1,347
695
1,181
985
Misrepresentation
1,826
1,187
739
2,005
1,385
Online Trading
7
8
1
3
0
*Each case can be coded
to contain up to four controversy types. Therefore the columns in this table
cannot be totaled to determine the number of cases served in a year.
Sir Allen Stanford has surrendered to US authorities in
Virginia after a warrant was issued for his arrest and will face criminal
charges tied to an alleged fraud,
Kateryna Shapovalova (CES - Centre d'économie de la Sorbonne - CNRS :
UMR8174 - Université Panthéon-Sorbonne - Paris I)
Alexander Subbotin (CES -
Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne
- Paris I)
It is a common wisdom that individual
stocks' returns are difficult to predict, though in many situations it is
important to have such estimates at our disposal. In particular, they are needed
to determine the cost of capital. Market equilibrium models posit that expected
returns are proportional to the sensitivities to systematic risk factors. Fama
and French (1993) three-factor model explains the stock returns premium as a sum
of three components due to different risk factors : the traditional CAPM market
beta, and the betas to the returns on two portfolios, "Small Minus Big" (the
differential in the stock returns for small and big companies) and "High Minus
Low" (the differential in the stock returns for the companies with high and low
book-to-price ratio). The authors argue that this model is sufficient to capture
the impact on returns of companies' accounting fundamentals, such as
earnings-to-price, cash flow-to-price, past sales growth, long term and
short-term past earnings. Using a panel of stock returns and accounting data
from 1979 to 2008 for the companies listed on NYSE, we show that this is not the
case, at least at individual stocks' level. According to our findings,
fundamental characteristics of companies' performance are of higher importance
to predict future expected returns than sensitivities to the Fama and French
risk factors. We explain this finding within the rational pricing paradigm :
contemporaneous accounting fundamentals may be better proxies for the future
sensitivity to risk factors, than the historical covariance estimates.
The market looked increasingly uncertain on Wednesday as
bearish signals from the US highlighted growing nervousness about the economic
outlook
6/19: Budgeting.A survey by Wells Fargo &
Company indicates that 95% of parents say they're confident their children will
attain their financial goals, but only 5% of the young adults surveyed said they
had such confidence about their personal finance goals.Parents and
young adults also have very different views on budgeting - 95% of youth said a
budget is not effective for them, while 92% of parents indicated budgets are
effective.
6.19: Ponzi- Ravaged by the same fiscal turbulence pounding the nation's
legitimate businesses, Ponzi operations have been collapsing at a record clip,
the Washington Post reports.The FBI has almost 500 open Ponzi
investigations nationwide - up from about 300 in 2006, bureau officials said,
according to the Post. Law enforcement officials with other agencies have
noticed similar trends, and authorities said they expect to turn up many more
cases in coming months.
Ninety percent of American investors are frustrated
by financial losses and 25 percent are considering changing financial services
firms or advisors,
EFM- /well, they should not have lost all that money if they had an
advisor. The problem is that they universally found such advisor via
their church or some simplistic referral that meant nothing. /they
accepted designations instead of degrees. they let someone have a
discretionary account. And it goes on.
Unfortunately, it was also a game of numbers. The advisors were all
focused on outdated statistics that showed that the market could
never go down that badly. And that a buy and hold was the only way to
invest. That's primarily because they did not have to think at all.
Just market to friends relatives or whoever and charge 1% or more with
one annual rebalancing.
6/18: VOCATIONAL SCHOOL DATABASE: RWM provides a database of Private Postsecondary Vocational Schools in
all 50 states. It is organized first by State, then by Training
Occupation.
Included are private schools that offer certificates, diplomas, associate
(junior college) degrees, and bachelor (college) degrees in various Business,
Trade and Technical disciplines.
6/18: NAPFA fraud- If you know the industry, you are aware that a past president of NAPFA has been
indicted for kickbacks on client accounts. Then we have a more publicized
screwing of a New York Times journalist and his NAPFA advisor. And another NAPFA
member in Ohio is indicted. Obviously those are just the ones that have been
caught recently.
Of course the NAPFA home office reasserts its members'
statement to the highest fiduciary standards, blah, blah, blah. NAPFA is a joke
and always has been. As I have repeated, "it is a lot easier to talk about your
ethics than to stand up for them". NAPFA has always been a fraudulent, unethical
and even 'illegal' entity since it has never had legal members in most states
and certainly the most populous- California. But they get all the press because
of the rhetoric on ethics and fiduciary standards by the press which is
generally very incompetent. Or stupid. Or they just don't care.
Actually
not much different from the rhetoric from the CFP Board of Standards.
As
stated, out of 8000 CFPs in California, all NAPFA members, all the thousands
upon thousands of FPA members there is only one in the state who is fully
licensed and legal to offer comprehensive fee planning. That is not a misprint-
there is just one. And all the planning organizations including the CPA Society
were told to comply with the law and all have refused. They can get away with is
since the states do not have the money to follow through. But why is that at all
necessary when you are dealing with the highest integrity to begin
with??????????
The continuing 'lapse' of public servants and the obvious
dearth of journalistic capability and integrity is part and parcel of the
reason we have taken such a financial bloodbath from 2000 forward. It will not
cease as long as ethics is just a word by the various planning organizations
that just like to lie and deceive under the banner of "fiduciary".
Caveat Emptor
6/18: On a seasonally adjusted basis, the CPI-U rose 0.1 percent
in May after being unchanged in April. The index for all items
less food and energy increased 0.1 percent in May after increasing 0.3
percent in April.
Yes, but you add in gas prices right now and one trip of 100 miles will kill whatever else you may be buying by a long shot.
6/18: DRIVER’S "ED?"What sends drivers into a rage? Talking
on a cell phone was the behavior that irked motorists the most (84%), while
driving too fast (58%), tailgating (53%), eating (48%) and texting (37%) behind
the wheel were also reported to cause stress and incite road rage.
Detroit and San
Francisco had the most text-happy
drivers,
6/17: MEDICAL COSTS AND PERSONAL BANKRUPTCY -
Harvard researchers say 62% of all personal bankruptcies in the U.S. in 2007
were caused by health problems — and 78% of those filers had insurance.
6/17: REVERSE MORTGAGES HOT - Inside Mortgage
Finance reports that in March and April, the number of reverse mortgages backed
by the government jumped nearly 20% from the same period last year. By contrast,
the number of new home-equity loans, which similarly allow homeowners to tap the
equity in their homes, fell around 70% in the first quarter from the prior-year
period. The maximum home value that seniors can borrow against was raised to
$625,500 from $417,000 in February. John Dugan, who heads the Office of the
Comptroller of the Currency, says that regulators are "crafting guidelines to
ensure that robust consumer protections are in place for reverse mortgages."
The concern is not with the majority of reverse mortgages that are insured by
the FHA and pose limited credit risk. Instead, the so-called proprietary
products offered by banks hold the potential to become the "next subprime
mortgage product to experience rapid growth while taking advantage of a
vulnerable segment of the population."
6/17: WOMEN WORRY MORE ABOUT MONEY – According
to Financial Finesse, women worry more about money management and are more
likely to ask for help with money problems than their male counterparts.
However, 53% of women say they have a handle on their cash flow and spend less
than they make each month, while 71% of men claim to do so. (Emphasis on
"claim"). Also 36% of women and 61% of men say they pay off their credit cards
in full on a regular basis.
6/16: U.S. retirement assets were down 22% at the end of 2008, compared with yearend
2007
6/16: Since Iran elected the same ol same ol, Israel may now decided to
blow up Iran's nuclear plants. Won't happen for probably a few months.
6/16: Give it up (WSJ) A rebound in the global economy will not undo the lasting impact of last year’s
massive drop in charities’ wealth. “This is a long-term problem and we
need to address it with a long-term outlook.”
Investment managers are
also taking another look at the endowment model for asset allocation made famous
by Yale and Harvard in the boom years, many of which have dropped more than
30%. "If you're managing a portfolio, it's time to take a step back and think
about risk differently, think about your portfolio differently,". To protect against often-hidden
illiquidity and credit risks, the impact will be seen in portfolio managers
moving from private equities to public equities, selling arbitrage hedge funds
in favor of fixed income and making allocations to emerging markets more
cautiously in order to create a more liquid portfolio.
EFM- I looked at Yale's allocation in the past. I know of the long term
trend of timber but I could never figure out how to use it for anyone
above age 50. These are L O N G term investments and totally illiquid.
If you have too much stuff like this and the market goes south, there
is pretty much nothing you can do.
6/16: If you have followed Barry Kaye, you will like this. Otherwise, skip it: It was the largest donation in
Florida Atlantic University history,
heralded in a flutter of press releases and repeated in promotions for
well-heeled benefactor Barry Kaye's insurance business. The $16 million pledge
announced in 2007 by the booming self-made mogul and author of the book "You
Buy, You Die, It Pays," led grateful university officials to rename their
business school the Barry Kaye College of Business. With state matches, Kaye's
pledge would equal $32 million. Previous Kaye donations engraved Kaye's, and
his wife's name, on the Carole and Barry Kaye Performing Arts Auditorium, the
Carole and Barry Kaye Great Hall in FAU's alumni center, and the Barry Kaye
School of Finance Insurance and Economics.
But there is question
now as to whether Kaye will be able to fulfill his pledges to FAU and keep his
name on the college in perpetuity - an increasingly common dilemma nationwide as
the economy slides. Reports
about trouble with the donations began circulating among professors following an
April faculty meeting where the business dean was asked about the status of
Kaye's gift. "The response we got was there have been substantial economic
problems involving Barry Kaye and we didn't get a payment that we thought we
would get," said Brenda Richey, chairman of the business faculty assembly.
Despite that, the status of the pledge has remained shrouded by the school - a
sharp departure from the huge publicity given to Kaye's contributions.
FAU officials will not
answer questions about Kaye or his donations, which were made at a time when
Kaye was promoting his 2006 book and holding symposiums at FAU touting life
settlements. Life settlements were a specialty of Kaye's insurance business,
which acted as broker on the deals.
The practice involves private
investors buying the life insurance policies of senior citizens for cash, taking
over the premium payments, and hoping for a big return with a quick death of the
seller. The life settlement industry, however, has recently fizzled, taken down
by the market collapse, an increase in life expectancy insurance tables, and
heightened scrutiny from regulators. In April, Florida Deputy Insurance
Commissioner Mary Beth Senkewicz testified before the U.S. Senate Special Committee on Aging on the
office's attempts to expand oversight of the industry, which she said has
"consistently attempted to circumvent statutes." "This was a booming business,"
said Susan Voss, vice president of the National Association of Insurance
Commissioners, about life settlements. "Then all of a sudden they couldn't turn
them around. The markets dried up."
State records show that Kaye's
Boca Raton-based Wealth Creation Foundation closed in September. The foundation
was used to buy insurance policies on senior citizens, sell the policies to
investors, and give part of the proceeds to charity. The for-profit company was
a multi-million dollar contributor to the Carole and Barry Kaye Foundation,
which, in turn, made donations to the FAU Foundation. Members of the executive
committee of FAU's Foundation spent their January meeting discussing whether to
release an unnamed donor from a large pledge in exchange for a smaller amount.
The foundation wouldn't say whether the donor was Kaye. There are clues,
however, that Kaye has left Florida behind. His 12,000-square-foot home in
Boca Raton's St. Andrew's Country Club, has been on and off the market since
2007, but was most recently re-listed in June 2008 for $16.7 million. His
Flagler Drive condominium overlooking the Intracoastal in West Palm Beach is
also up for sale. Asking price - $6.7 million.
6/16: Applicable Federal Rate of 2.8% for June -- Rev. Rul. 2009-16; 2009-22 IRB 1
(18 May 2009) The IRS has announced the Applicable Federal Rate (AFR) for June of 2009. The
AFR under Sec. 7520 for the month of June will be 2.8%. The rates for May of
2.4% or April of 2.6% also may be used. The highest AFR is beneficial for
charitable deductions of remainder interests. The lowest AFR is best for lead
trusts and life estate reserved agreements. With a gift annuity, if the
annuitant desires greater tax-free payments the lowest AFR is preferable. During
2009, pooled income funds in existence less than three tax years must use a 4.8%
deemed rate of return.6/16: SMART STUFF. A Universityof Floridastudy finds people with intelligence earn more in their
lifetime than those who are self-confident or attractive.
The researchers found that, after brains, self-confidence ranked
second in importance, followed by beauty.
Islamabad says the Taliban could spread beyond its borders
to neighbouring India and as far as the Persian Gulf unless it receives
international aid to help battle militancy on its soil http://link.ft.com/r/0QSDPP/VEOXW/167D3/Z9WU8/9BWS2/82/h
If it spread to India, you would have a massive war- perhaps spreading into Pakistan. Then what?
6/15: US DEBT CLOCK Watch the amounts go up and up. And up and up. And up and up
* "Facts and truth really don't have much to do with
each other."
William Faulkner
6/15: Coming due: Barclays
Capital has analyzed financial company debt among United States institutions
coming due over the next decade. During the rest of the year, for example,
roughly $172 billion in debt will mature; in 2010, an additional $245 billion
comes due. That amounts to about $25 billion a month in debt rolling into a
market with a shortage of buyers willing to invest in it.
6/14: Jim cramer????: Carnegie Mellon University in Pittsburgh, Pennsylvania, shows that we prefer
advice from a confident source, even to the point that we are willing to forgive
a poor track record. It argues that in competitive situations, this can drive
those offering advice to increasingly exaggerate how sure they are
The findings add weight to the idea that if offering expert opinion is your
stock-in-trade, it pays to appear confident
There are times, however, when this link breaks down. With
complex but politicised subjects such as global warming, for example, scientific
experts who stress uncertainties lose out to activists or lobbyists with a more
emphatic message.
So if honest advice risks being ignored, what is a responsible
scientific adviser to do? "It's an excellent question, and I'm not sure that I
have a great answer,"
6/14 Notice how nothing has changed in the last 9 years (It's called sarcasm)
:
there is good news where the spreads have dropped. I am still waiting
for the other shoe to drop and will not commit to anything till late
August. I think there are far more foreclosures on upper end
housing. That is my interpretation of risk- not returns. They do not
always dovetail in movements. However, oil prices are killing me in any
analysis. Prices are already over $3.00 out here and a continuing
increase over the summer months and consumer confidence will have to
take a dive. They are going to be scared out of their wits. No
job and gas over $3 gallon. It should not approach $4 since OPEC would
kill any economy.
6/14: I wish they'd lose 9 billion on me: Fed Loses $9 Billion On
AIG: Report
WASHINGTON—The Federal Reserve Board suffered paper losses of
almost $9 billion, or 19% , in the first quarter of 2009 on risky securities it
took over from American International Group Inc. last year
6/14: The Pink Prescription: Facing Tomorrow's Challenges
Calls for Right-brain Thinking In a world where jobs can be sent
overseas, tasks can be automated and the feverish pace of technology can render
even last year's innovation obsolete, students will have to learn how to think
differently than their parents in order to survive and prosper, says Daniel H.
Pink, author of three bestselling books about the changing work environment. He
spoke at the recent Wharton Evolution of Learning Symposium. http://knowledge.wharton.upenn.edu/article/2255.cfm
6/14: So You Think Owning a Home Will Make You Happy? Don't
Be Too Sure Owning a home has long been viewed
as the cornerstone of the American Dream, the foundation for a happy family life
and long-term financial security. Now, a new research paper challenges that
conventional wisdom. Wharton's Grace Wong Bucchianeri, a professor of real
estate, says her research shows that while homeowners experience significant
joy, they also face more aggravation, spend less time with friends, and are even
heavier than renters living in comparable homes. http://knowledge.wharton.upenn.edu/article/2257.cfm
6/14: Warning: Big Financial Firms May Be Riskier Than They
Appear Large
financial institutions have failed with much higher frequency than is generally
perceived, says Andrew Kuritzkes, a partner at Oliver Wyman and head of the
management consulting firm's public policy practice in North America. In this
interview with Knowledge@Wharton, Kuritzkes suggests some new guidelines that
would greatly improve the financial system's ability to absorb the inevitable,
if individually unpredictable, shocks of big failures. http://knowledge.wharton.upenn.edu/article/2259.cfm
* "It is outrageous that the man running the City of Hope Cancer Research Hospital
-- Dr. Michael Friedman -- has been paid $590,000 to sit on the corporate board
of one of the largest cigarette retailers. I've written a bill to stop this from
ever happening again."
Stocks have
rebounded on Wall Street during the past two months. The pace of job losses
seems to be slowing down. Even quarterly reports from banks suggest that the
banking sector is slowly struggling back to its feet. Do these signs portend the
first indicators of an economic recovery? Not yet, according to experts at
Wharton and elsewhere, who insist that despite some of the hopeful data, the
recovery will be weaker and take longer to gain momentum than past slowdowns.
http://knowledge.wharton.upenn.edu/article/2261.cfm
6/14: Helping Family Members to Deal with a Fall Risk
1. by Steven Allred, MS,PT, and Jennifer Ellis, MS,PT
“I’ve fallen and I can’t get up!” How many
times have we heard comics deliver that line from a now-famous 1980s TV
commercial?
The truth is that a dangerous fall is no laughing matter. It’s a
real worry — for those who suffer from balance dysfunction and
for the family caregiver.
Just the fear of a parent, spouse or other loved one falling is enough
to give a caregiver chills. And the statistics bear that out. The
National Institutes of Health says that falls are the leading cause of
fatal and non-fatal injuries in people 65 and older. And The New
England Journal of Medicine reports that if you’re elderly and
are injured by a fall, there’s a good chance you’ll end up
in a skilled nursing facility, such as a nursing home.
Hip fractures alone are a serious problem. The American Academy of
Orthopaedic Surgeons has estimated that 90 percent of the 352,000 hip
fractures recorded in the U.S. each year are the result of a fall. Only
a quarter of hip fracture patients make a full recovery. About 40
percent will require nursing home care, half will need a cane or walker
and another quarter over age 50 will die within a year of the injury.
In fact, the rate of hip fractures begins to increase at age 50 and
doubles every five to six years. Women over 50 suffer such fractures at
two to three times the rate of men.
Fortunately, there are a series of steps that the caregiver and patient
can take to reduce the risk of dangerous falls and increase the safety
of maneuvering at home. If balance dysfunction appears to be an issue,
both should visit the family doctor for a discussion of the symptoms
and possible treatments.
A typical solution will be for the doctor to refer patients to a fall
prevention program. Today, there are both traditional and advanced
programs available on an outpatient basis and at home. Home therapy
programs can offer some distinct advantages over treatment at an
institution:
Patients who have balance problems or who have already fallen may not
be able to travel to a rehab facility, and it may be inconvenient or
impossible for the caregiver to provide transportation.
Home treatment allows the patient to progress in a familiar
environment, while institutional therapy can sometimes require a
patient to learn movements all over again when he or she gets back to
the house.
Home therapy allows a patient to remain among family and friends.
Home programs typically involve individual one-on-one therapy focused
on a speedy recovery, while institutional rehab may treat patients in a
group setting.
Those patients who still have an active career find it easier to work
at home and keep in touch with the office while they’re
recovering.
Traditional home fall prevention methods have typically involved
“gait training,” which is essentially teaching someone to
walk. The patient also gets general strengthening exercises and
instruction on how to use an assistive device, such as a cane or
walker. The challenge with these basic programs is that they sometimes
leave the patient coping with certain limitations when they could
actually achieve a higher level of mobility through more advanced
treatments.
To guide patients toward the most successful recovery, newer, more
advanced therapy programs have emerged to deal proactively with the
root causes of balance problems. The causes might involve vision, inner
ear or other balance-related issues. Sensation and coordination
problems could be factors. There might be pain or numbness in the feet.
A patient’s lack of strength or flexibility could be the cause.
Or a person’s living area and environment could reveal hazards
which increase the likelihood of falls.
These newer programs examine the potential causes through a detailed
evaluation. Working with the physician, specially trained therapists
then develop and launch treatment plans that are customized for each
patient. The success rate is high. Sponsoring home health organizations
have begun to document patient outcomes demonstrating the ability of
such programs to relieve pain, increase sensation and reduce the risk
of dangerous falls.
As part of any fall prevention program, a therapist can make
recommendations to the patient and caregiver about improving safety in
a home environment. The caregiver can follow through on these and other
possible recommendations:
Keep floors clear and reduce clutter.
Ensure that floors are clean and not waxed.
Use non-skid throw rugs.
Install handrails or grab bars in stairways or bathrooms.
Make sure the home is well lit.
Use a sturdy step stool or ladder to reach high places.
Excellent do-it-yourself fall prevention information can often be found
on Web sites of state or local health departments, and through local or
regional fall prevention coalitions.
Balance programs can help to change the lives of patients and allow
them to live more independently at home. A Florida woman resumed her
walking regimen and said that her life was worth living again. An
87-year-old pharmacist was able to return to work. Even a 100-year-old
Hurricane Katrina survivor was made mobile enough to return to
relatives in New Orleans. These new balance therapies can also help to
reduce stress for caregivers and help them sleep at night, knowing that
an older relative is safe from fall injuries that could send them to
the hospital – or worse.
The message is clear: there’s no reason for patients or their
caregivers to suffer from a fear of falling when solutions are just a
phone call away.
* Bragging may not bring happiness, but no man having caught a large fish goes
home through an alley.”
611: Never let them out??? of the 272,111 persons released from prison in 1994, an estimated 67.5% were
rearrested for a felony or serious misdemeanor within three years, 46.9% were
reconvicted and 25.4% resentenced to prison for a new crime.
6/10: Economic Recovery: Are Happy Days Here Again?
Stocks have
rebounded on Wall Street during the past two months. The pace of job losses
seems to be slowing down. Even quarterly reports from banks suggest that the
banking sector is slowly struggling back to its feet. Do these signs portend the
first indicators of an economic recovery? Not yet, according to experts at
Wharton and elsewhere, who insist that despite some of the hopeful data, the
recovery will be weaker and take longer to gain momentum than past slowdowns.
http://knowledge.wharton.upenn.edu/article/2261.cfm
6/10: So You Think Owning a Home Will Make You Happy? Don't
Be Too Sure Owning a home has long been viewed
as the cornerstone of the American Dream, the foundation for a happy family life
and long-term financial security. Now, a new research paper challenges that
conventional wisdom. Wharton's Grace Wong Bucchianeri, a professor of real
estate, says her research shows that while homeowners experience significant
joy, they also face more aggravation, spend less time with friends, and are even
heavier than renters living in comparable homes. http://knowledge.wharton.upenn.edu/article/2257.cfm
During the global financial turmoil of 2007
and 2008, no major derivative clearing house in the world encountered distress
while many banks were pushed to the brink and beyond. An important reason for
this is that derivative exchanges have avoided using value at risk, normal
distributions and linear correlations. This is an important lesson. The global
financial crisis has also taught us that in risk management, robustness is more
important than sophistication and that it is dangerous to use models that are
over calibrated to short time series of market prices. The paper applies these
lessons to the important exchange traded derivatives in India and recommends
major changes to the currentmargining systems to improve their robustness. It
also discusses directions in which global best practices in exchange risk
management could be improved to take advantage of recent advances in computing
power and finance theory. The paper argues that risk management should evolve
towards explicit models based on coherent risk measures (like expected
shortfall), fat tailed distributions and non linear dependence structures
(copulas).[
6/9: Not necessariluy unexpected: The recession has not prompted many people to change their behavior and start
saving more for retirement, according to a new survey by Charles
Schwab.
The quarterly survey found that many Americans are neither
financially nor emotionally ready for retirement, even as they approach their
retirement years. Almost four in 10 Americans (39 percent) are not currently
saving for retirement and, despite market losses, six in 10 Americans (62
percent) have not adjusted their thinking about what age they will retire –
nearly unchanged from Schwab’s first quarterly retirement pulse survey in
September 2008, months before the recession was officially
declared.
Survey respondents estimate they will need just over $1.2
million to comfortably retire, yet those currently saving for retirement have
put away an average of $194,000. Despite this awareness, 41 percent of Americans
feel positively about their retirement preparedness and another 22 percent feel
indifferent.
* "Any man worth his salt will stick up for what he
believes right, but it takes a slightly better man to acknowledge instantly and
without reservation that he is in error." Andrew Jackson
(I, personally, have never made a mistake)
6/9: Home prices: Robert Shiller,said home prices
may “continue to fall, or stagnate” in 2010 and 2011. The S&P/Case Shiller
index of 20 major cities showed median home
prices were down 32 percent in March from their peak in July 2006.
Shiller noted that U.S. home prices didn’t begin moving up, “even
incrementally,” until six years after the end of the prior housing boom in
1990-91. Home prices in Japan fell every year for 15 years after the 1991
bursting of Japan’s real estate bubble
6/8: You can always get insurance
Do you need a quote for your special risk client such as
Cancer, Diabetes, or Heart Attack? Click on the impairment below – e-mail or fax
the information to 831-476-1008
You will have a competitive quote in 48 hours or less –
Client signature not required.
*The hope was that with diversification, the stock market would be less likely
to collapse, although Mr. Bernstein worried that a collapse could occur. He was
an advocate of more market regulation to prevent one. But he also argued that
the wealth and entrepreneurial energy generated by a rising stock market were
worth the risk.
He made that point in 2005 in a semimonthly newsletter that he published for
many years. Five days before his death, he republished the article in the same
newsletter, Economics and Portfolio Strategy, adding a prologue in which he
said, “With hindsight, most readers today would find our position in 2005 to
have been a prescription for tragedy.”
Peter Bernstein died Friday
6/7: The CBOE Volatility Index® (VIX®) is a key measure of
market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction
in 1993, VIX has been considered by many to be the world's premier barometer of
investor sentiment and market volatility.
* “Our default reflex is that the world knows what it is doing, and that is
extravagant nonsense” Jeremy Grantham
While President Barack Obama addressed masterfully the
conflicting pressures the US faces in the region, he will find translating them
into coherent policies far more challenging, if not impossible. http://link.ft.com/r/LVA6WW/G07GS/5VWQL/VY1E5/EOOGQ/LE/h
6/7: Convexity Unfortunately, duration, used as a measure of interest rate
sensitivity has limitations. The statistic calculates a linear
relationship between price and yield changes in bonds. In reality, the
relationship between the changes in price and yield is convex. In Figure 1, the
curved line represents the change in prices given a change in yields. The
straight line, tangent to the curve, represents the estimated change in price
via the duration statistic. The shaded area shows the difference between the
duration estimate and the actual price movement. As indicated, the larger the
change in interest rates, the larger the error in estimating the price change of
the bond.
6/7: Multiple Sclerosis: Getting and Managing
Health Care Needs
1. By Grace Curry
If you are caregiving to a friend or relative with Multiple Sclerosis,
you already know how difficult it can be to manage that care. Services
once covered by health care insurance no longer are available. Managed
care and increased benefit cutbacks in both private and federal health
care agencies have made getting quality care difficult. It is not just
the person with Multiple Sclerosis who is affected by this. Many others
dealing with various diseases and disabilities have found trying to
obtain adequate care, a very frustrating concern. As caregivers, we see
the responsibility to ensure quality care is provided to our loved one
falling more and more of on our shoulders.
We are learning through trial and error that what you see is not always
what you get in relation to satisfying health care needs. We have also
been “managing” the care of our family member, or
significant other, for a long time. We are experts. We have learned it
behooves us to be proactive in the health care planning, implementation
and delivery of that care. It is not always easy to know just where to
begin or how to know if what we are doing is the right thing to do.
In order to begin, it is beneficial to learn all you can about the
disease and how it’s progression can affect your loved
one’s ability to function independently. This information can be
found anywhere. It is best to start with the primary health care
provider who is following the person with MS. They can help you with a
prognosis for the future and perhaps recommend resources available in
your community to assist you. Other resources include the Internet,
public library, care consultant specialist and magazines such as
Today’s Caregiver Magazine that target caregivers and their
specific needs.
Next you need to become aware of the specific needs of the person you
care for. These needs should encompass every aspect of daily living and
not just those specific to the disease.
Here are some of the problem areas caregivers need to consider when
planning care. In doing this it is helpful to consider each area listed
and keep a record of the personal needs of your loved one. This will
help you to track of the progress in rehabilitation or help to show
what problems need to be addressed.
General Health
It is a good idea to make sure that they have a physical exam every
year. This should include routine screening exams for cancer. For women
this would include mammograms, and pap smears and in men prostrate and
rectal exam. Dealing with problems that MS can bring will be easier if
general well being is maintained. Evaluation of neuromuscular and
musculoskeletal function should also be a part of the yearly exam.
At this time it is also a good idea to have a checklist that you can
show the doctor that documents the different levels of functioning and
how they have improved or declined since the last check up.
Neuromuscular checklist includes: complaints of pain and spasticity.
Musculoskeletal function should include monitoring impairment in range of motion to all extremities, including the joints.
Psychological functioning also needs to be monitored. This is an area
that is often avoided because many people get embarrassed talking about
it. Yet, problems with emotional issues are not uncommon in people with
MS, and periodic evaluations by a psychologist can help to prevent
serious complications from developing.
More Specific Areas to Monitor
While it is good to have yearly checkups, or as frequent as your doctor
feels is necessary, there are some areas that need to be monitored
routinely to help ensure proper management of your loved one with MS
and their care. Let’s take a brief look at some of these areas
here. You will find a more comprehensive checklist accompanying this
article that you can copy and use to help monitor all these areas. Keep
copies of the list to use as comparison and to show your health care
provider on routine checkups.
Activities of Daily living:
How much assistance is required for your family member to eat, dress,
cook, clean, perform personal hygiene and any other necessary
functions? In many cases an occupational therapist can help with these
areas and it is advisable to get a consultation for an initial
evaluation and periodic updates.
Mobility:
What limitations does the person with MS have? Can they get around the
house and the community without difficulty? Is driving a car an issue
at this time? Again in many instances a consult to a physical therapist
will help in this evaluation initially and provide recommendations for
any adaptive equipment determined to be helpful in their situation.
Braces, canes, mobility devices such as scooters or wheel chairs can go
a long way towards maintaining independent functioning. The more the
person with MS can do for themselves, the easier your role of caregiver
will be.
Bowel and Bladder Function:
Problems in these areas are common in people with MS. Monitor any
changes in bowel and bladder function. Also you need to consider if
your loved one is able to attend to their own bowel and bladder
functioning. Physical limitations can cause problems in completing
bowel or bladder routines, and perhaps something as simple as a button
or a zipper is the cause of the problem and this can be remedied by
using elastic waistbands or velcro closures. Constipation and frequent
bladder infections can be very frustrating and so setting up a program
to maintain regularity can often improve the level of functioning by
helping to keep your loved one continent and regular.
Skin Integrity:
Has a loss of sensation occurred? This can lead to problems because we
change or shift positions based on our comfort level. We sense pressure
to the sitting area and move. If the person with MS has lost sensation
there is no warning of discomfort to change position. This can lead to
skin break down. Spending long periods in a wheelchair or long periods
of immobility will cause problems. It is advisable to make the physical
therapist aware of any difficulties and request recommendations for
proper cushions or other pressure reducing appliances to help reduce
the chance of impaired skin integrity.
When you made your list, and noted your initial assessments, you will
soon see where problems areas currently exist, or may become a problem
in the future. Next you will need to determine which items on your list
are of greatest importance. Prioritize the list. In many cases you will
not be able to take care of everything on the list initially.
Realistically there is just not enough time for your health care
provider to address each separate issue at one time. However letting
the doctor know you are monitoring all these areas will go a long way
to showing him or her that you are being proactive in the health care
planning of those in your care.
It is possible that your health care provider may not take you
seriously or may dismiss some of your concerns as minor, or seem
unwilling to listen to you. They may feel overwhelmed by all your
concerns, and feel at a loss to help you. Personally, I have found that
in some cases the health care provider is not exactly responsive to my
needs because some physicians still feel they are the ones to make the
assessments and get defensive when I would question recommendations or
request specific options. Not all doctors continue to have this
outlook. It is important to realize that you and your loved one do not
need to maintain the services of any health care professional if they
are not providing what you need. Remember health care providers should
be doing just that. Providing for health care. Anything less gives you
the right to select another provider. This is one of the more
unpleasant responsibilities of a caregiver, knowing when it is time to
look for a new health care provider.
If you find you are having a problem communicating with a provider, or
are seeking the help of an outside agency such as a consumer advocate
agency or customer service organization, be sure to make all your
requests in writing and keep copies of everything. Hopefully you will
not have to go through this, however it is better to be prepared just
in case you need the information at some later date. Frequently the
heart of the problem lies more with the managed care system or
insurance company than it does with the doctor. Many of the doctors I
speak with tell me how frustrated they get when they are prevented from
follow through due to some restriction placed on them. Keeping positive
lines of communication open with your health care provider may prevent
some of these problems. In the end it falls to the caregivers to
continue to be an advocate to those in their care. Demonstrate your
resolve to get the best quality care for your loved one through
patience and facts. You will not make it a perfect world, but you will
be better equipped to deal with the challenges that need to be faced
for years to come.
Details of the Treasury's toxic asset plan are in doubt
after the Federal Deposit Insurance Corporation said it was suspending a test
run of the legacy loans programme
6/4:
Revenue Ruling 2009-13
In Situation 1 of Revenue Ruling 2009-13, the individual surrenders a policy
with a cash value of $78,000 in which prior premiums totaled $64,000. In this
circumstance, he or she will recognize income equal to the difference of the
cash value and the investment in the contract. Investment in the contract will
be the total amount of premiums paid. Therefore, the individual will recognize
income of $14,000. This income will be taxed at the ordinary income tax rates.
In Situation 2, the individual sells the policy to a third party, in a life
settlement transaction, for $80,000. In this case, the income is measured by
comparing the sale proceeds to basis in the contract. Basis must be reduced by
“that portion of the premium paid for the contract that was expended for the
provision of insurance before the sale.” Therefore, total premiums of $64,000
are reduced by the cost of insurance, which in this example is $10,000.
The individual will recognize income of $26,000, which is equal to the
difference of the sale proceeds and basis. This income is characterized as
ordinary income to the extent the cash value exceeds total premiums ($14,000).
The balance ($12,000) will be treated as a capital gain.
Situation 3 involves the sale of a level-term policy in a life-settlement
transaction for $20,000. The individual paid monthly premiums totaling $45,000
prior to the sale. Basis is determined in the same fashion as Situation 2. In
the case of term insurance in this example, “absent other proof, the cost of the
insurance … is presumed to equal the monthly premium under the contract, or
$500.” Therefore, basis equals zero or a modest amount equal to the prepaid
premium. In Situation 3, basis was deemed to be $250, representing the prepaid
premium for the half of the month that had not expired.
The difference between the sale price and basis is a capital gain. Therefore,
the individual would report a capital gain of $19,750. Since the policy was held
more than 12 months, the gain is long term.
Revenue Ruling 2009-14
Ruling 2009-14 addresses the income-tax consequences to the purchaser of a
term life insurance policy upon later maturity of the contract or sale. If the
purchaser collects the death benefit from the policy (i.e., the policy matures),
ordinary income is recognized to the extent the death benefit exceeds basis.
Basis will include the purchase price of the policy as well as subsequent
premium payments.
Normally death benefits are not taxable; however, the purchaser of a policy
in a life-settlement transaction generally will be deemed to be a party of a
“transfer for value.” Thus, the proceeds, less basis, will be taxable. If the
purchaser sold the policy prior to maturity, the sale price in excess of basis
would be treated as a capital gain (Situation 2 of Ruling 2009-14).
6/3 The first graph shows the S&P 500 since 1990.
The dashed line is the
closing price June 1
The S&P 500 is up almost 40% from the bottom
(267 points), and still off almost 40% from the peak (622 points below the
max).
That equates to a 1.25% annualized return over 19 years Not including dividends) .
:
6/3:
6/3: ECONOMY
SINKS AGAIN - The economy sank at a 5.7% pace as the brute force of the
recession carried over into the start of the year. However, many analysts
believe activity isn't shrinking nearly as much now as the downturn flashes
signs of letting up. It marked the second straight quarter where the economy
took a huge tumble. At the end of last year, the economy shrank at a staggering
6.3% pace, the most in a quarter-century.
6/3: MORTGAGE DELINQUENCIES UP - Mortgage
delinquencies and foreclosures increased to record levels not seen since 1972
and home-loan rates jumped as the government's effort to fix the housing slump
lost momentum. The administration's efforts to keep homeowners current on
mortgages by allowing them to refinance or sell to buyers enticed by affordable
terms is apparently being undermined by job losses. "If people don't have a
paycheck, they can't support a mortgage. The longer the recession lasts the more
people run through their savings reserves. One in every eight Americans is now
late on a payment or already in foreclosure.
6/3: HOME SALES - New home sales fell 34%
since April 2008. However existing home sales rose 2.9% as foreclosure auctions
enticed bargain hunters. The median price slumped 15% from a year earlier, the
second-biggest drop on record, and distressed properties accounted for 45% of
all sales. "We clearly haven't hit the top yet in terms of delinquencies or the
bottom of the housing market."
6/3: BLAME GAME...MBAs? – Many are pointing
toward MBAs and the business schools from which they graduated as major culprits
in the current financial crisis and it is easy to see why. Many of the players
in high finance are graduates of the likes of NYU Stern School of Business and
Harvard Business School and other Ivy League business schools. These young
executives learned in the 1970s that a fortune could be made by boosting
shareholder returns in the short-term and became exceedingly rich doing so.
Unfortunately, these actions would ultimately destroy their companies and deal a
body blow to the world economy. Whether, and to what extent, the nation's
business schools laid the groundwork for the economic crisis is a serious topic
for educators to ponder.
6/3: 2009 HSA LIMITS - Unless changed by
possible health care legislation, the deductible contributions to health savings
accounts will increase to $6,150 for family coverage in 2010 (up from $5,950 in
2009) and to $3,050 for individual coverage (up from $3,000 in 2009). The 2010
minimum high-deductible health plan deductible amount increases to $2,400 for
families and $1,200 for individuals, up from $2,300 and $1,150 in 2009.
Finally, the cap on out-of-pocket costs in 2010 increases to $11,900 for
families and $5,950 for individuals, up from $11,600 and $5,800 this year
6/3: EARLY SOCIAL SECURITY - The Social
Security Administration had been expecting a 15% increase in applications this
year due to aging baby boomers. Instead, they're seeing a 25% increase and
speculation is that the increase has been caused by the recession. Laid-off
workers may be signing up for Social Security beginning at age 62 as an
immediate source of income. Unfortunately, while the income is immediate, the
reduction in their benefits will last a lifetime.
Crude oil and gold prices soared on Monday as the weakness
of the US dollar, which hit a five-month low against the euro, and signs that
the worst of the economic crisis, particularly in Asia, is behind, prompted
investors to buy commodities
6/2: Disability: According to the U.S. Census Bureau, over 54
million Americans, or 19 percent of the population are considered
disabled.
6/2: Giving: the U.S. Bureau of Labor Statistics' latest survey of consumer expenditure
found that the poorest fifth of America's households contributed an average of
4.3 percent of their incomes to charities in 2007. The richest fifth gave at
less than half that rate, 2.1 percent.
One-third of San Francisco-area nonprofit groups are worried they may have to
shut down in the next year, and 34 percent say they have no more than two
months’ worth of operating funds in reserve, according to a survey by the
regional United Way. Nearly two-thirds of the 391 respondents to the
organization’s 2009 Nonprofit Pulse Survey said demand for their services was
increasing. Twenty-three percent have had to reduce services, while 26 percent
said they have collaborated in the past six months with another charity.
6/2:
Split Decision on FLP Discounts
In Estate of Valeria M. Miller v. Commissioner; T.C. Memo. 2009-119; No.
5207-07 (27 May 2009), the Tax Court determined that FLP discounts would be
permitted for initial contributions, but would be denied for deathbed
additions.
Decedent Valeria Miller was married to her husband Mr. Miller in 1938. They
had four children -- Virgil G., Gordon, Donald and Marcia. Mr. Miller was an
architect who retired in 1974 at age 60. He spent the next 26 years managing his
portfolio using a personally-developed method of charting stocks.
When he passed away in 2000, the securities were worth nearly $7 million. Mr.
Miller created a QTIP for decedent Valeria Miller and the balance of his
securities were transferred to her revocable trust.
In 1994, decedent Valeria Miller created an irrevocable life insurance trust.
It was funded with annual exclusion gifts through Crummey powers, and purchased
policies that paid approximately $2.75 million to her children when she passed
away. In 2001, Mrs. Miller created the Miller Family Limited Partnership (MFLP).
She was age 86 and in good health at the time. The partnership was signed on
March 6, 2002 and funded in May 2002 with approximately 77% of her estate. Of
the 1,000 units that were issued, she gave 20 units to each of the four children
and retained 920 units.
Son Virgil G. Miller managed the stock portfolio using the charting method
taught by his father. He devoted approximately 40 hours per week to that
management effort.
In May 2003, Mrs. Miller was recovering from a broken hip and had congestive
heart failure. Just prior to her death on May 28, 2003, most of the securities
in her brokerage accounts were transferred to MFLP.
The estate filed Form 706 and the IRS issued a deficiency of $1,019,399.
There were two issues to determine. First, the estate claimed that the QTIP
trust was not needed by Mrs. Miller and therefore was not taxable in her estate.
Second, the estate claimed 35% discounts for lack of marketability on the MFLP
contributions in May of 2002 and May of 2003.
The IRS opposed both claims and noted that the QTIP qualified for a marital
deduction in Mr. Miller's estate. Therefore, it is taxable in the estate of Mrs.
Miller. Furthermore, the Service claimed that the MFLP discounts were not valid
under Sec. 2036.
The Tax Court reviewed facts and law and determined that the QTIP was taxable
in the estate of Mrs. Miller. The determining factor was the asset
"availability," not the need of Mrs. Miller. Because QTIP assets were
available, they are taxable in her estate.
Second, the Court determined that the 2002 transfers to MFLP were a valid
exercise of the right to continue the 26 year investment strategy of Mr. Miller.
This was an active (as opposed to the inactive management strategies that had
not been upheld in other cases) management process with 40 hours per week
expended by Virgil G. Miller. In addition, Mrs. Miller retained over $1 million
in securities outside the MFLP, an amount sufficient to provide for her other
needs. Therefore, the 35% discount was permitted.
However, the Court determined that the deathbed MFLP additions were simply a
tax avoidance device with "no significant nontax purpose." Therefore, the
discounts were not permitted on the deathbed transfers.
During the global financial turmoil of 2007
and 2008, no major derivative clearing house in the world encountered distress
while many banks were pushed to the brink and beyond. An important reason for
this is that derivative exchanges have avoided using value at risk, normal
distributions and linear correlations. This is an important lesson. The global
financial crisis has also taught us that in risk management, robustness is more
important than sophistication and that it is dangerous to use models that are
over calibrated to short time series of market prices. The paper applies these
lessons to the important exchange traded derivatives in India and recommends
major changes to the currentmargining systems to improve their robustness. It
also discusses directions in which global best practices in exchange risk
management could be improved to take advantage of recent advances in computing
power and finance theory. The paper argues that risk management should evolve
towards explicit models based on coherent risk measures (like expected
shortfall), fat tailed distributions and non linear dependence structures
Although the relationship between religion
and economic development on the macro-level has been investigated, it is less
clear how religious background influences economic attitudes and financial
decision-making on the level of the individual or household, the micro-level. We
use panel data from the extensive DNB Household Survey, covering the period from
1995 to 2008, to investigate whether – and through which channel – religious
denomination affects household finance in the Netherlands. We find evidence
that, in general, religious households care more about saving, are more
risk-averse, consider themselves more trusting, have a more external locus of
control, and have a stronger bequest motive. Furthermore, Catholics and
Protestants have longer planning horizons, and Protestants and Evangelicals seem
to have a greater sense of individual financial responsibility. Most of these
factors matter for household financial decision-making, albeit to differing
degrees. Using our religion variables as instruments for economic attitudes (and
controlling for demographic and background risk characteristics), we demonstrate
that the above-mentioned differences in economic beliefs and preferences explain
the higher propensity to save by religious households in general and the lower
investments in risky assets by Catholic households.
6/1: Volatility index: (Times)
Last week, the VIX, as the index is commonly called, fell below 30 for the
first time since September, about the time that the collapse of Lehman
Brothers set off a wave of panic in the financial markets.
The VIX reached 50 earlier this year and hit 80 last fall.
History shows that rallies that emerge from the depths of bear markets are
almost always followed by a “retesting” of those market lows.
Sometimes, the retests can be mild. For example, after the recovery rally
that took place at the end of the 1982 bear market, the S.& P. 500-stock
index fell about 4 percent.
But retests can also be frightening. After stocks rallied in October 2002,
the S.& P. 500 suffered another scare that pushed stock prices lower by 15
percent.
“If we’re going to go through a retest that could be as severe as a correction —
a 10 percent to 20 percent decline — I would tend to think that panic will
return,”
6/1: Vehicle Miles driven in March
The first graph shows the annual
change in the rolling 12 month average of U.S. vehicles miles driven.
Note: the rolling 12 month average is used to remove noise and
seasonality.
By this measure, vehicle miles driven are off 3.3%
Year-over-year (YoY); the decline in miles driven was worse than during the
early '70s and 1979-1980 oil crisis. However miles driven - compared to the same
month of 2008 - has only been off about 1% for the last couple months.
6/1:
6/1: Unemployment Claims
This graph shows weekly claims and continued
claims since 1971.
Continued claims are now at 6.79 million - an all time
record. This is 5.1% of covered employment.
Note: continued claims
peaked at 5.4% of covered employment in 1982 and 7.0% in 1975. So this isn't a
record as a percent of covered employment.
6/1: This graph shows Capacity Utilization. This series is at another record low (the
series starts in 1967).
The Federal Reserve reported
that "Industrial production decreased 0.5 percent in April after having
fallen 1.7 percent in March. Production in manufacturing declined 0.3
percent in April and was 16.0 percent below its recent peak in December
2007. The decreases in manufacturing in April remained broadly based
across industries."
6/1: Although containers tell us nothing about value, container traffic does give us
an idea of the volume of goods being exported and imported.
Inbound
traffic was 21.5% below April 2008.
Outbound traffic was 18.3% below
April 2008.
There has been some slight recovery in exports the last two
months (the year-over-year comparison was off 30% from December through
February). But this is the 2nd worst YoY comparison for imports - only February
was worse, and that might have been related to the Chinese New Year. So imports
from Asia appear especially weak.
In a world of more
regulation, private-sector deleveraging and less consumption, "it's hard for
[Pimco] to imagine" the Dow Jones Industrial Average climbing back to
14,000 or home prices returning to 2006 levels.
"Growth will be stunted," "It will be a different type of world and
we have to get used to that."
The U.S. economy will grow at between 1% and 2% a year rather than 2% to 3% a
year for the next three to five years at least. "That will make a
significant difference for corporate profit growth,"
Moreover, unemployment will hover around 7% to 8% rather than the recently
typical 4% to 5%, he added, and the higher rate would be around "for a long time
to come."
5/31:
Interest Rates Remain the Same for the
Third Quarter of 2009
WASHINGTON — The Internal Revenue Service today announced that interest rates
for the calendar quarter beginning July 1, 2009, will remain the same. The rates
will be:
four (4) percent for overpayments [three (3) percent in the case of a
corporation];
four (4) percent for underpayments;
six (6) percent for large corporate underpayments; and
one and one-half (1.5) percent for the portion of a corporate overpayment
exceeding $10,000.
5/31: Total mortgage delinquencies rose slightly in April to 8.1%, according to a monthly report published by Lender Processing
Services (LPS: 28.35 -0.35%). The figure
represents a 2.8% increase from March and is up 43% from the same time last
year.
April redefault (recidivism) rates among modified mortgages. Modifications
involving a reduction in the unpaid principal balance experience a 25% lower
recidivism rate six months after modification.
Seven states — Delaware, Maine, New Mexico, North Carolina, North Dakota, New
York and Washington — experienced an increase in foreclosure starts. Foreclosure
starts in New York, which represents 4.5% of all loans in the US, increased by
12.5%. Nationwide, foreclosure starts have increased by 35% in the last 12
months,
5/31: Paying the uninsured: Health insurance premiums for an average family are $1,000 a year higher because
of costs of health care for the uninsured,
And private coverage for the average individual costs an extra $370 a year
because of the cost-shifting, which happens when someone without medical
insurance gets care at an emergency room or elsewhere and then doesn't pay.
in 2008, uninsured people received $116 billion in health care from hospitals,
doctors and other providers. The uninsured paid 37 percent of that amount out of
their own pockets, and government programs and charities covered another 26
percent.
That left about $43 billion unpaid, and that sum made its way into premiums
charged by private insurance companies to businesses and individuals
5/31: Piss on this:
A contractor for the IRS has been charged with repeatedly urinating in a freight
elevator in the IRS’s office building in Detroit, causing an unpleasant
aroma. (Ya think??)
“Hicks denied having any medical conditions
that would cause him to commit such an offense,” “He stated that he did it because he felt he could
get away with it.”
(Admit it, you would like to do it to to the IRS)
5/31:
Corporate bond yields to decrease and spreads to tighten.
Corporate bond spreads as compared with government bonds are the highest since
1932, according to Moody's. In other words, when you see these crazy yields on
bonds, it is because prices are low and because demand isn't there to snap them
up. When yields are this high, it is more difficult for companies to survive,
because they can't beat their cost of capital to become profitable at those
levels. However, as investors move into the market, they will create demand and
drive up prices while driving down yields. This in turn will allow companies to
borrow money at cheaper prices and enable them to grow their earnings and
profits.
Municipal bond yields to decrease and spreads to tighten.
Municipal markets have essentially collapsed during the past year, with the
Lehman Brothers bankruptcy sending the market into a tailspin. Many managers
find the municipal bond market to be attractively valued, as the traditional
yield relationship has been turned on its head. Typically, municipal yields are
80%-95% of Treasury bonds, and now some municipals bonds are yielding 150% of
Treasuries. This relationship needs to normalize, as it will indicate investors'
ability to tolerate some risk. To illustrate this point, I show my clients a
chart that tracks the spreads for the past 10 years and demonstrates the
reversal in yields.
5/28: Usually a steep yield curve precedes a period of decent growth, but several
analysts suggest the current ten year sell-off is due to concerns about
increased Treasury issuance to finance the deficit. Whatever the reason, this is
a challenge for the Fed to keep mortgage rates low.
Note January 2006 and 2006 and certainly the tiems previous. When you
have inverted yield curves you invariably have recessions. You
certainly have huge increases in investment risk. Want to stay with a
buy and hold? Fine, but you better live for a long time before you
might see your value return. And if you are retired, you may be dead by
then.
VIRUS WARNING If you get an email titled "nude
photos of Sarah Palin," don't open it. It could contain a virus. If you
get an email titled "nude photos of Nancy Pelosi," don't open it. It could
contain nude photos of Nancy Pelosi.
(Tacky but funny)
5/28: FDIC:
At the end of the first quarter there were 305 'problem institutions' with a
total of $220.0 billion in assets, up from 252 institutions and $159.4 billion
in assets at the end of 2008. At the end of the quarter, the Deposit insurance
fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7%
in the quarter alone.
The first graph (from http://www.calculatedriskblog.com/) shows the steep drop in the
coverage ratio. Just a year ago, the fund was equal to 1.01% of covered
deposits. The current level is its lowest since the first quarter of 1993, when
we were digging out from the S&L fiasco.
To bring the fund up to a more normal 1.2% of insured assets would require
$44.8 billion, not counting the losses that the fund has incurred so far in the
second quarter, or any subsequent losses. That would be a pretty hefty tax for
the banks to pay. Still, fairness demands that it be paid by the banks, not by
the general taxpayer.
During the quarter, 21 banks with $9.5 billion of assets failed, at an estimated
cost to the fund of $2.2 billion. In the 12 months to 3/31/09 there have been 44
failures with $381.4 billion in assets at a total cost to the fund of $20.1
billion.
:
5/27: Geithner
says AIG Bailout 'Complicated'
Treasury secretary, testifying before
the Senate, said bailing out the troubled insurance giant "proved much more
complicated, much more risk than people thought"...
EFM- but what's the problem?? they already knew that AIG was
illustrating products showing a 17.53% return annually for the next 25
years................. .
5/27: Retirement concerns-
more than half of adults in the US, France, Italy and Spain saying they are more
concerned about this than they were one year earlier.
The most worried are in the US where 59 per cent of those
surveyed said they were more concerned about income security in old age.
In the US, pensions are more likely to be the result of investments in shares
but plunging stock markets have left a huge hole in retirement accounts.
The survey also found a uniformly high percentage of those seeking greater
security for their income in retirement, with those in the UK, US, France,
Italy, Spain and Germany saying they prefer using part of their pension fund to
buy a secure income rather than gamble on higher investment returns later on.
the percentage of those U.S. employed beyond 65 has increased from 12.5 per cent in
2000 to 15.5 per cent in 2007
In Italy, however, which also appears to favour extended working, the rate of
older workers is almost unchanged since the start of the decade at 3.2 per
cent.
5/27: “The Persistent Effects of a False News Shock,”
In September 2008, a
six-year-old article about the 2002 bankruptcy of United Airlines’ parent
company resurfaced on the Internet and was mistakenly believed to be reporting a
new bankruptcy filing by the company. This episode caused the parent company’s
stock price to drop by as much as 76 percent in just a few minutes, before
NASDAQ halted trading. After the “news” had been identified as false, the stock
price rebounded, but still ended the day 11.2 percent below the previous close.
The authors use this natural experiment and a simple asset-pricing model to
study the aftermath of this false news shock. Carvalho, Klagge, and Moench find
that, after three trading sessions, the company’s stock was still trading below
the two-standard-deviation confidence band implied by the model and that it
returned to within one standard deviation only during the sixth trading session.
On the seventh day after the episode, the stock was trading at exactly the level
predicted by the asset-pricing model. The authors also document that the false
news shock had a persistent effect on the stock prices of other major airline
companies.
5/26: I want one of these women: High-income women are the main drivers of philanthropy in their households,
according to research released today by the Fidelity Charitable Gift Fund, a
charitable-donor-advised-fund program established by Fidelity Investments.
Charitable giving is often a joint decision, but when there is a prime decision
maker identified, it is more likely to be a woman. A full 92% of men said that
their spouse is the primary influence regarding giving, compared with 84% of
women who said the same. The study involved a random sample of 1,003 adults
who donated at least $1,000 in 2007.
5/26: No wrongdoing and no money anyway: As part of a sweeping nationwide crackdown on "fake charities," the Federal
Trade Commission and state officials took actions that forced dozens of groups
to shut down or stop making false appeals in the name of police, firefighters
and veterans. Among the groups singled out by the FTC as sham nonprofit
organizations were three fundraising groups from Santa Ana. The government said
the groups raised $19 million from 2005 to 2008 but turned over only 5% of the
money to legitimate charities. Most of the money raised by the Santa Ana groups
instead went to telemarketers contracted to make solicitation calls and into the
pockets of company executives and staff members, the agency said, and for
outings, such as trips to Hawaii and Las Vegas.
The groups -- the
American Veterans Relief Foundation, the Coalition of Police and Sheriffs and
the Disabled Firefighters Fund, all located at the same address -- agreed to a
settlement in which they did not acknowledge wrongdoing. They were fined $19
million, but the FTC waived the penalty because of inability to pay.
5/26: The non profits are caught as well: Buffeted earlier this year by the outcry over its plans to raise money by
closing its art museum and selling the collection, Brandeis
University said this week that it would suspend payments to the
retirement accounts of faculty and staff members starting in July. While
universities across the country have taken a wide range of actions to confront
their financial problems, including layoffs and the suspension of capital
projects, freezing contributions to retirement accounts is rare. Financially
troubled corporations have been taking such action, but faculty and staff
members at colleges and universities have traditionally enjoyed stable, and
generous, benefits — and expect no less. “There is this perception that the
nonprofit world is maybe a gentler, kinder world than corporate,” said Roland
King, vice president for public affairs at the National Association of
Independent Colleges and Universities. “So some people seem to perceive this as
a breach of faith, especially since many people go into nonprofit work at less
salary, because the benefits are so good. But we are absolutely at a point in
this economy where these sort of things have to be on the table.”
5/26: Expensive health care: Between 1999 and 2008, the typical family paid a premium increase of 117%.
During the same decade, health care costs for employers increased by 119%
With the substantial increase in costs, the Medicare Hospital Insurance (HI)
Trust Fund is now projected to be exhausted in 2017. By 2018, the share of the
economy devoted to health care could reach 20%.
5/26: Health Care Tax Subsidies
Through various deductions and credits,
the federal government subsidize health care, reduces taxes on capital gains,
pays for part of the cost of IRAs and other retirement plans and assists
homeowners through mortgage interest deductions. Of these major federal tax
subsidies, health care in 2008 costs total $194.2 billion. It was the largest of
the federal tax subsidies.
The federal health care tax subsidies are as
follows:
Federal Health Care Subsidies
$ Billions
Employer-Sponsored Health Care
$132.7
Medicare Tax-Free Payments
40.6
Income Tax Deduction Over 7.5% of AGI
10.7
Self-Employed Health Care Deduction
5.2
Other Health Care Benefits
5.0
Total Health Care Tax Subsidies
$194.2
The potential tax increases to pay for healthcare reform may include the
following:
1. Employer Health Care Exclusion -- The exclusion
could be capped or phased-out for higher-income employees. For higher-income
persons, part of their medical premium will be taxable, even though paid by the
employer.
2. Income Tax Deduction -- The 7.5% floor could be
raised to a substantially higher level and reduce the value of the
deduction.
3. HSAs and FSAs -- The health savings account (HSA) or
flexible spending arrangement (FSA) could have reduced contribution limits. FSA
fund distributions could be limited to qualified itemized medical
deductions.
4. Medicare -- All state and local employees may be
required to participate.
5. Alcohol Tax - An increased and uniform
national tax may apply to alcohol.
6. Soft Drink Tax -- A new tax
may be levied on sugar-enhanced beverages.
7. Top Brackets
Increase -- The current top 35% and 33% brackets may rise to 39.6 % and
36%.
8. Itemized Deduction Limits -- Higher income individuals may
have a 3% floor on deductions and would also lose their personal
exemptions.
9. Capital Gains Tax Increase -- The 15% capital gains
tax rate may be increased to 20%.
10. Estate Tax -- Retained with
$3.5 million exemption and 45% rate.
11. Estate Tax Discounts --
Valuation discounts reduced or eliminated.
12. Grantor Retained
Annuity Trusts -- GRATs limited to ten years or longer.
Almenberg, Johan (Dept. of Economic Statistics, Stockholm School of
Economics)
Karapetyan, Artashes (Empirical Institute of Economics and SFI,
University of Zürich)
We use a survey to identify a consumer bias
with regard to different sources of debt-financing. Less salient debt may
generate psychological benefits. This should be weighed against the possible
economic costs of a sub-optimal capital structure, but low levels of financial
literacy make it unlikely that all households perceive the full economic costs.
As a result there is a bias in favour of less salient debt. In a market with
limited scope for arbitrage this consumer bias is likely to generate
inefficiencies. We examine such a market in both theory and practice. The
predictions of our model are given strong support by market data.
5/26: I stampeded a herd of cattle. I fish on a cattle ranch in
Sacramento. Came upon about 40 cattle in a field when I was
walking to a pond. And they just took off in full gallop. Not a day I
am soon to forget.
The first question to ask yourself
when you listen to one of these supremely confident forecasts is how does the
forecaster get paid? Some conflicts of interest are pretty clear. A car salesman
is not likely to volunteer all the recalls and known defects for the model
you're asking about. But you know that when you step into the showroom, and you
take appropriate steps to balance the pleasant patter with your own research
from independent sources.
For some reason, consumers who
will dicker for the last $50 off the price of a new car don’t think twice about
following the advice of a stranger on TV — or worse, turning over their life
savings to a “financial adviser” based on nothing more than a magazine ad or
referral from a friend. Investors turned their hard-earned retirement savings
over to money managers who, on average, don’t even keep up with the return of
stock market indices. Home buyers signed dozens of pages of imponderable
mortgage documents based on little more than a real estate agent or mortgage
broker’s soothing reassurance that home prices “never go down.”
5/24: 401k: Charles Schwab has released data showing that a significant number of 401(k)
assets held by workers who leave their jobs have been left behind in former
employers' plans.
43% of assets held by 401(k) participants who left their jobs in the first
quarter of 2008 had not been moved a year later.Of those that did
take a distribution, 75% were rolled over into IRAs, 14% were cashed out, 7%
were rolled into a new employer's plan, and 4% were taken in other forms of
distributions
5/24: How the mighty have fallen:
Past NAPFA President Charged In Kickback
Scheme
A former president of the National Association of Personal Financial
Advisors has been charged with taking kickbacks from unregistered
investment pools in which his Wisconsin advisory firm placed $102 million in
client assets.
James Putman, founder, majority owner and CEO of Wealth Management LLC
in Appleton, Wisc, and Simone Fevola, the firm's former president, a minority
owner and chief investment officer, each accepted $1.24 million in undisclosed
payments derived from investments made by the unregistered investment pools,
according to a civil complaint filed by the Securities and Exchange Commission.
Putman could not be reached for
comment on the charges by press time.
of the National Association
of Personal Financial Advisors (NAPFA) in 1996-1997 and is cofounder and first
president of the Northeast Wisconsin Chapter of the International Association
for Financial Planning, now the Financial Planning Association. He
adds that the firm has been named among the “100 Great Financial Planners” by
Mutual Funds magazine, one of the “250 Best Financial Advisers” by
Worth magazine, and one of the “150 Best Financial Advisers for
Doctors” by Medical Economics magazine
Do you notice what is really going on? The comments about being a
financial planner are immediately usurped by how much money he has in
control. Betcha- like most NAPFA members and CFPs- the financial
planning is nothing more than a marketing gimmick to see how much
assets they can gather under management. A CFP is NOT viable as a money
manager. They do not have the background. Period
5/24: Unemployment: The number of people who are continuing to receive jobless benefits
rose to nearly 6.7 million from about 6.6 million, according to the Labor
Department.That's the highest total on records dating to 1967, and
the 16th straight weekly record.New jobless claims fell to a
seasonally adjusted 631,000 last week, down from a revised figure of 643,000 the
week before.
Unemployment may not peak until about a year from now. .5/24: How the mighty have fallen
The dollar dropped to a five-month low against a basket of
currencies as fears over the US debt position grew in the wake of a downgrade to
the outlook for the UK
Feeling better about the economy yet???
5/24: Eating Habits: Suggestions When Feeding Your Elderly Loved Ones . by Ryan Mackey
Alleviate any diversions when eating, and be basic with your meals:
Use only utensils that are needed.
Have cups with lids to avoid a mess if spilled.
If possible, use bowls instead of plates.
Provide food that can easily be eaten. Serve food that is already cut, cooled, and easily recognizable to the person.
Caring for those with swallowing or chewing problems:
Use simple spoken commands to help them realize when to swallow and when to chew.
Do not serve food that breaks apart easily or foods that tend to be messy..
Serve food in small amounts, and make sure food is cut up so they can chew and swallow without much effort.
Allow them a moment to swallow and then prepare for their next bite.
Check to see that food is not too hot for them, and have it moistened if possible..
Caring for those who eat too much or too little:
Allow for healthy snacks throughout the day to offset eating at just mealtime.
Ensure the person receives enough exercise to justify their food intake.
Serve foods that the person likes best to keep up their appetite.
Think about your style of cooking. Does it supply the proper nutrition and is easy to digest
* The first
testicular guard "Cup" was used in Hockey in 1874 and the first helmet was used
in 1928. It took 54 years for men to realize that
the brain is also important.
5/24
1031’s R.I.P.
By Tim Berry, JD
I’m sure many of you have heard of a “1031”.
It’s a section of the tax code that says if you move your property to a 3rd
party, and they, not you, receive the funds from the sale of the property, you
can defer the gain if you use those funds to purchase a “like kind” property in
a short time period.
My buddy talked to an elderly couple and told them
about the benefits of a 1031, and asked them to use the company he worked for to
do the exchange. They agreed, and the exchange company sold the property for
$1.5 million, and the couple went to work finding a replacement property.
A tragic event happened along the way. My buddy’s
employer went belly up. . . bankrupt. . . kaput.
No problem, everyone thought; the elderly couple’s
$1.5 million was in a segregated account that would be theirs even if the 1031
company went bankrupt.
Do you think I would be writing this if the money had
been protected? Nope. Their $1.5 million, their retirement nest egg, their real
estate holdings they built up over their lives, has pretty much disappeared into
thin air to support all the attorneys’ billing on the company’s bankruptcy
case.
Think of the havoc this has just wreaked upon the
lives involved.
The elderly couple are now financially devastated.
This was the asset that was going to support them for the rest of their lives.
This was the inheritance they wanted to pass down to the kids and the grandkids.
Now it’s a massive liability.
How did this turn into a liability? Think about it.
Since the $1.5 million has disappeared, they no longer have that money to
reinvest in real estate. Since they aren’t going to reinvest in real estate,
that means they aren’t going to be able to meet the requirements of section
1031. Since they can’t meet the requirements of section 1031, that means they
aren’t going to be able to defer taxes on about $1 million dollars of gain.
They live in the People’s Republic of California.
Between federal taxes and taxes owed to the People’s Republic, they are going to
have a tax liability of about $250,000 and absolutely nothing to show for it.
My buddy in the meantime is emotionally devastated
that he caused such destruction. Not only that, but the couple is now in the
process of suing both him and his employer, saying that he should have known
that corporate headquarters was experiencing problems. Chances are, he is going
to lose his home and savings, all because he talked to a couple about a fairly
mundane transaction.
Sure, some of you may be saying that everyone got
what they deserved. When you deal with rinky-dink outfits you are going to have
to pay the price.
What if I told you that this exact same scenario is
playing out with a billion dollar firm--LandAmerica?
At one point, LandAmerica, along with four other
companies, controlled 93% of the $14 billion dollar title insurance market. You
would think nothing bad could happen with them, wouldn’t you? You would think
that a company that large would have their paperwork correct, wouldn’t you? In
short, you would think that you would be safe using a billion dollar entity to
do a relatively simple tax transaction, wouldn’t you?
You would be wrong.
In November of 2008, LandAmerica declared bankruptcy.
At the time, about 450 people were running 1031 exchanges through their 1031
entity. The total value of those exchanges was close to half a billion dollars.
LandAmerica was holding on to $450 million in client’s assets to facilitate
tax-free exchanges. $450 million!
Since LandAmerica was a billion dollar company, and
LandAmerica put their client’s interests first, some of the $450 million was
held in separate, segregated accounts. Here’s the rub. Recently a bankruptcy
judge decided it was irrelevant if the accounts were segregated. The judge
decided the $450 million could not be considered client’s funds; instead the
$450 million was to be considered LandAmerica’s assets.
The clients would now simply become creditors of
LandAmerica.
In the meantime, one source estimates attorneys are
billing about $100K a day. I don’t think there is going to be much left of this
bankruptcy estate to compensate the victims.
About 450 financial lives have just been devastated.
Just imagine how you would feel if your retirement
nest egg you had built up over the years vanished simply because some company
didn’t have the right paperwork.
The moral of the story: If you are going to enter
into a 1031 exchange, don’t just use a facilitator, accommodator, or whatever
titles a company wants to go by. Make sure your funds are held in a trust. Under
the tax code regulations, instead of using an accommodator you can use a
qualified trust. DON’T USE AN ACCOMMODATOR who puts your funds in a general
account or segregated accounts.
5/21: PBGC: the government agency that insures the pensions of 44 million Americans has
amassed a record $33.5 billion deficit — triple what it was just six months ago.
the agency’s deficit swelled from $11.1 billion at the end of its fiscal year on
Sept. 30 to its highest level in the agency’s 35-year history.
Nine of the 10 largest pension plan terminations in its history, including
United Airlines, Bethlehem Steel and Kaiser Aluminum, have occurred since 2001.
Time for another bailout
5/21: Actually, look for 10% unemployment:
Under the Fed's new projections, the economy will shrink this year between
1.3 and 2 percent. The old forecast said the economy could contract between 0.5
and 1.3 percent.
The unemployment rate may rise as high as 9.6 percent, higher than the old
forecast of 8.8 percent. The jobless rate bolted to 8.9 percent in April, the
highest in a quarter-century.
Japan's economy shrank a record 4.0 per cent in the first
quarter as companies slashed investment and exports but economists see a return
to modest growth in coming quarters even as the longer-term outlook remains
murky
Get it just as cheap as a foreclosure
5/20: Don't get sick: Milliman, Inc. announced that average total medical spending for its "typical
American family of four" reached $16,771, an increase of $1,162.While cost trends are decelerating for the third-straight year, the total
dollar increase is the highest since 2006 - 7.4%, Milliman said. The
Milliman Medical Index (MMI) tracks the
changes in average yearly health care costs when the family of four is covered
by an employer sponsored preferred provider organization (PPO).Of
the total medical cost for Milliman's family of four, the employer pays about
59%, while the employee pays 24% in payroll deductions and 17% in out-of-pocket
costs
5/20: S&P Earnings
“While the stock market is up sharply since early March, the economy as well as
corporate earnings continue to suffer. Today’s chart helps provide some
perspective as to the magnitude of the current economic decline. Today’s chart
illustrates that 12-month, as-reported S&P 500 earnings have declined over
90% over the past 20 months (with over 90% of S&P 500 companies having
reported for Q1 2009), making this by far the largest decline on record (the
data goes back to 1936). In fact, real earnings have dropped to a record low and
if current estimates hold, Q3 2009 will see the first 12-month period during
which S&P 500 earnings are negative.”
5/20: US oil prices regain $60 a barrel level
May 19 2009 11:09
US crude oil prices regained the $60 a barrel level while
base metals, agricultural and soft commodities all made gains on hopes for a
more rapid recovery in the global economy
5/20: German investor confidence at 3-year
high
May 19 2009 11:06
German analyst and investor morale rose to its highest
level in nearly three years in May, reinforcing expectations that the worst of
the slump is over for Europe's largest economy
I will probably wait till August to see if the "other shoe will drop".
My computer broke so I went to this sale.
I beat up the three women next to me to get the best one.
That old broad on the end was tough.
(That's my mother)
5/18: CPI: On a seasonally adjusted basis, the CPI-U was unchanged in
April after falling 0.1 percent in March. The index for all items
less food and energy increased 0.3 percent in April after increasing
0.2 percent in March.
I am not sure I believe that. A lot of the food products I buy may not
cost any more, but I get less. 16 ounces is now down to 12. Soda at Wal
Mart went from 58 cents to 78 cents in 1.5 years.
We study herd behavior in a laboratory
fnancial market with financial market professionals. An important novelty of
the experi- mental design is the use of a strategy-like method. This allows us
to detect herd behavior directly by observing subjects?decisions for all
realizations of their private signal. In the paper, we compare two treatments -
one in which the price adjusts to the order ?ow in such a way that herding
should never occur, and one in which the presence of event uncertainty makes
herding possible. In the first treatment, traders herd seldom, in accordance with
both the theory and previous experimental evidence on student subjects. A
proportion of traders, however, engage in contrarianism, something not accounted
for by the theory. In the second treatment, on the one hand, the proportion of
herding decisions increases, but not as much as the theory would suggest; on
the other hand, contrarianism disappears altogether. In both treatments, in
contrast with what theory predicts, subjects sometimes prefer to abstain from
trading, which affects the process of price discovery
negatively.
We use weekly survey data on short-term and
medium-term sentiment of German investors to estimate the parameters of a
stochastic model of opinion dynamics. The bivariate nature of our data set also
allows us to explore the interaction between the two hypothesized opinion
formation processes, while consideration of the simultaneous weekly changes of
the stock index DAX enables us to study the influence of sentiment on returns
within a behavioral model of boundedly rational traders. Technically, we extend
the maximum likelihood framework for parameter estimation in agent-based models
introduced by Lux (2009a) by generalizing it to bivariate and trivariate
settings. As it turns out, short-term sentiment is governed by strong social
interaction with abrupt changes of direction while medium-term sentiment is a
slowly moving process with more moderate social interaction. The trivariate
model can potentially predict stock returns out-of-sample on the base of
medium-run sentiment at least if an apparently spurious influence from short-run
sentiment is discarded
Keywords:
Opinion formation, social interaction, investor sentiment
5/17:
U.S. MORBIDITY
AND MORTALITY UPDATE
Notifiable
Diseases and Reported Deaths
check out all the deaths and impress your neighbors, kids, mother in law.
5/17: News Release
Finra chief Richard Ketchum is as moronic as SEC chairman Mary Shapiro
Shapiro did all she could before becoming head of the SEC to avoid any
fiduciary duty for brokers or firms. Actually, she did about everything
she could to stop any broker from knowing anything. I know
because I tried for years to get basic investments courses to be
required for brokers. Repeated ad finitum, no broker has ever been
taught the fundamentals of investing (alpha, beta, diversification,
standard deviation, correlation and more). There is nothing on risk.
Just in case you missed that, there is nothing on risk. No wonder the
messes of 2000 and 2008 occurred. Most all advisers are borderline
incompetent and the overseers were asleep at the wheel.
Shapiro also stated that FINRA was a procedural entity, not a
substantiative one and not even arbitrators could be taught
anything. NASD/FINRA said in the 90's that the brokerage firms
would never allow proper instruction since it would slow sales (true).
So much for protecting consumers.
Ketchum is the current chairman and chief executive of the Financial
Industry Regulatory Authority Inc. and is calling for bringing
investment advisers under a self-regulatory organization in order to
leverage the ability of the Securities and Exchange Commission to
supervise advisory firms. He is now calling for all advisers to adhere
to a fiduciary standard.
So, who or what is a fiduciary? In the shortest form, “A
fiduciary owes an obligation to carry out the responsibilities with the
utmost degree of "good faith, honesty, integrity, loyalty and undivided
service of the beneficiaries interest."
Isn’t that wonderful? Don’t you feel all warm and fuzzy? Is your cat purring? Unfortunately it is all a bad joke.
Admittedly, the definition of fiduciary does contain some valid issues
but it misses the most critical. Knowledge. Your mother can provide all
the elements listed above but you would be dumber than a rock to have
her do brain surgery on your daughter. Even your turtle. Doesn’t
it seem like the height of hypocrisy to demand the highest duty to
consumers when the agents have little comprehension of the fundamentals
of investing. Want simple proof? No broker has ever been taught how to
use a financial calculator. Over 600,000 ‘fiduciaries’ and
none can do a present or future value.
Heed this- Never , NEVER, NEVER GIVE MONEY TO ANYONE UNLESS THEY
HAVE AND CAN EFFECTIVELY UTILIZE AN HP 12C CALCULATOR OR SIMILAR
If you or your adviser does not have and cannot use a financial
calculator, then he/she does not understand money. You are committing
financial/economic suicide when you entrust money to someone who
doesn't know how it works.
Pundits will say that personal capability is not necessary. They have a
computer and financial software to do the work. As the church lady used
to say, “well, isn’t that special”. In a recent case
against UBS and a CFP, this is what they ‘computed’.
The investors could get a $377,000 after tax return on an asset base of
$2,140,000 each year for the next 25 years. This represents returns far
above Madoff!!! All completely ‘acceptable’ simply because
it came out of a computer and ‘that it must be right’. Just
plain terrible but nobody checked any of the numbers.
Want more absurdity about duty? AIG was picking up billions in bailout
funds while at the same time- with complete acceptance by the SEC,
FINRA and all 50 states- it was legally illustrating to consumers
through backtesting that it was possible to get 17.53% return each year
for at least the next 50 years. Another Madoff and nobody has blinked
an eye.
Ketchum notes that Finra would need to add investment advisory
expertise to its staff to oversee the advisory industry. Well, they can
also add the Silver Surfer for all I care since, as stated over and
over, advisers/brokers et al are not taught risk. And they are going to
sit around with a bunch of attorneys discussing what? Golf scores?
Whatever it is, it is not going to be how to make the industry better
(knowledgeable) through education since they don’t have anyone
that could teach it anyway. Shapiro had made it very, very clear
that FINRA would not make any attempt to educate and Ketchum is
going to be no better.
There has been billions of dollars lost through the complete ineptness,
stupidity and gross incompetence of the securities regulators. The SEC
is a lost cause under Shapiro. Yes, you will see more
‘investigations’ but what can you expect in the end when
the regulators cannot do basic financial calculations.
Ketchum wants to introduce a fiduciary duty to advisers where 95%+ have
never been taught the fundamentals of investing. Most cannot spell
fiudcari.
The economics profession appears to have been unaware of the long build-up to
the current worldwide financial crisis and to have significantly underestimated
its dimensions once it started to unfold," they write. "In our view, this lack
of understanding is due to a misallocation of research efforts in economics. We
trace the deeper roots of this failure to the profession's insistence on
constructing models that, by design, disregard the key elements driving outcomes
in real world markets."
The paper, generally referred to as the Dahlem report, condemns a growing
reliance over the past three decades on mathematical models that improperly
assume markets and economies are inherently stable, and which disregard
influences like differences in the way various economic players make decisions,
revise their forecasting methods and are influenced by social factors. Standard
analysis also failed, in part, because of the widespread use of new financial
products that were poorly understood, and because economists did not firmly
grasp the workings of the increasingly interconnected global financial system,
the authors say.
One result of this, argues Winter, who is not one of the authors but agrees
with much of what they say, is to build into models an assumption that all
market participants -- bankers, lenders, borrowers and consumers -- behave
rationally at all times, as if they were economists making the most financially
favorable choices. Clearly, he says, rational behavior is not that dependable,
or else people would not do self-destructive things like taking out mortgages
they could not afford, a key factor in the financial crisis. Nor would
completely rational executives at financial firms invest in securities backed by
those risky mortgages, which they did.
By relying so heavily on the view of humans as rational, the paper's authors
argue, economists ignore evidence of irrational behavior that is well documented
in other disciplines like psychology and sociology. Even if an individual does
act rationally, economists are wrong to assume that large groups of people will
react to given conditions as an individual would, because they often do not.
"Economic modeling has to be compatible with insights from other branches of
science on human behavior," they write. "It is highly problematic to insist on a
specific view of humans in economic settings that is irreconcilable with
evidence."
The authors say economists badly underestimated the risks of new types of
derivatives, which are financial instruments whose value fluctuates, often to
extremes, according to the changing values of underlying securities. Traditional
derivatives such as stock options and commodities futures are well understood.
But exotic derivatives devised in recent years, including securities built upon
pools of mortgages, turned out to be poorly understood, the authors say. Credit
default swaps, a form of derivative used to insure against a borrower's failure
to repay a loan, played a key role in the collapse of American International
Group.
5/14: ING Grope NV, the Dutch bank and insurer, reported $1.08 billion net loss for the first quarter, blaming falling asset prices,
the weak performance of insurance contracts, and charges for restructuring its
business.
How about they were simply stupid.
5/13: Cannot be fiduciaries: The law of ERISA has always provided that
qualified retirement plans such as 401(k) plans should ideally be run
by professional fiduciaries,
not by plan sponsor executives with little (or no) experience (much
less time or interest) in such matters. Many sections of ERISA that
grant fiduciary delegating authority, in fact, attest to this, as does
case law.
1. Plan sponsors that choose to delegate their responsibilities and
liabilities to a professional named fiduciary can, in effect, get out
of the retirement plan business and be free to concentrate fully on
their business so they can stay in business during these troubled times
instead of worrying about fiduciary risks they are neither prepared nor
trained to manage. Sponsors never need worry about somehow "losing
control" of their plan, since ERISA requires them to always retain the
residual fiduciary responsibility to ensure that those to whom they
have delegated authority are--and remain--prudent delegatees. In short,
plan sponsors always have the power to "pull the plug" on such
delegatees.
EFM: The point is that you can't be a fiduciary if you do not have a
background in risk. Brokers don't. CFPs don't. And so on. A sponsor can
supposedly be removed from any liability by using almost any adv iser
classified as an RIA. Which, for all intents and purposes, means
nothing.
5/13: SS and Medicare-
The financial health of Social Security and Medicare, the
government's two biggest benefit programs, worsened in the past year because of
the severe recession. Trustees of the two programs said today that
Social Security will start paying out more in benefits than it collects in taxes
in 2016, one year sooner than projected last year, and the giant trust fund will
be depleted by 2037, four years sooner.
The trustees said Medicare was in even worse shape. They said that the trust
fund for hospital expenses will pay out more in benefits than it collects this
year and will be insolvent by 2017, two years earlier than the date projected in
last year's report.
5/12: In-house fraud cases
surge
May 10 2009 23:30
Fraud committed against companies by their own employees
has surged this year, new data suggest, providing fresh evidence that the
recession is fuelling a rise in crime
5/12: Public sector workers start to feel the
pain
May 11 2009 00:24
The jobs market will continue to shrink over the next three
months, according to a survey of more than 500 employers that suggests the
public sector is starting to suffer
5/12: Insurance: 1. Surrender of an Insurance Contract. Taxpayer acquires a permanent insurance
contract and pays $64,000 in premiums over eight years. At that point, taxpayer
surrenders the policy to insurer for $78,000 in cash. Because the taxpayer has a
$64,000 investment in the contract and received $78,000, under Sec. 72(e)(5)(A),
the $14,000 excess is taxable as ordinary income.
2. Sale of Policy to
Third Party. With the same taxpayer who had the permanent contract, he or she
sells it to a third party for $80,000. Under Sec. 1001(d), the basis of $64,000
is reduced by $10,000 of insurance value and the taxpayer has gain of $26,000.
The same $14,000 increase in cash value on the insurance is ordinary income and
the balance of $12,000 is long-term capital gain.
3. Sale of Term Policy.
Taxpayer purchased a 15 year term policy and made payments of $45,000 over eight
years. The insurance cost during that time is $44,750. Taxpayer sells to third
party for $20,000. The basis is reduced by cost of insurance from $45,000 to
$250. Taxpayer has a long-term capital gain of $19,750 because the gain is not a
"substitute for ordinary income."
Under Rev. Rul. 2009-14, there are
three tax scenarios for buyers. One is a buyer of a term policy, the second is
the buyer who resells the policy and the third is a foreign corporation
purchaser.
1. Buyer of a 15 Year Term Policy. The purchaser is a U.S.
investor who buys a policy for $20,000 and makes premium payments of $9,000. The
insured passes away 18 months later and the insurance company pays $100,000 to
buyer. The buyer recognizes $100,000 of income less $29,000 of basis. Because
the funds are received under an insurance contract, the death benefit of $71,000
is ordinary income.
2. Buyer Who Resells Policy. In the second situation,
the purchaser buys the term policy for $20,000, pays $9,000 in premiums and
sells the policy for $30,000. Because this is a "contract solely with the view
to profit," there is no reduction in basis for the insurance value. Purchaser
holds a capital asset and reports $1,000 of long-term capital gain.
3.
Foreign Corporation Buyer. The scenario is similar to the first buyer scenario
with a purchase of a 15 year term policy for $20,000 and premium payments of
$9,000. Eighteen months later the insured passes away and the insurance company
makes payment of $100,000 to the foreign corporation. Under Sec. 861(a), the
$71,000 payment in excess of basis is taxable to the foreign corporation as
income from United States source.
5/12: Giving: While most foundations plan to decrease their giving in 2009, many are
responding to the recession by providing grants to help poor families and others
hit hard by the tough economic times, according to a new survey. The Council on
Foundations surveyed 430 foundations in March and found that 62 percent expect
to reduce their grant making this year. Almost half of the respondents said they
will decrease their giving budgets by more than 10 percent.
In
response to the economic downturn, most foundations — 92 percent — are focusing
on assisting low-income people, the unemployed, and others. Of that group, 31
percent said they are increasing support for so-called basic needs — fighting
hunger, providing emergency shelter, paying utility bills, and creating jobs —
and 6 percent said they have started to support such causes for the first
time. The council also said that 60 percent of foundations reported that they
are trimming their operating budgets for 2009. For example, 45 percent aren’t
providing salary increases to their staff members this year, 27 percent have
frozen hiring, 16 percent have eliminated unfilled job positions, and 6 percent
laid off employees.
5/12:
Rev. Rulings 2009-13 and 2009-14 –
Income Tax Consequences of Surrender and Sale of Life Insurance
Contract - In two revenue rulings, the IRS
detailed the income tax consequences of
1. the surrender of a life insurance policy by the insured for its cash
surrender value,
2. the sale of a cash value life insurance policy by the insured to an
unrelated third-party for a cash payment,
3. the sale of a term life insurance policy by the insured to an unrelated
third party for a cash payment,
4. the receipt of death benefits by a third-party who purchases an
insurance policy from the insured,
5. the resale of a life insurance policy by the third-party who bought it
from the insured, and
6. the receipt of death benefits by a foreign third-party who purchases
from a U.S. insured an insurance policy issued by a U.S. insurer.
5/12: Has risk subsided??: Merrill's economist David Rosenberg
Risk is much higher now than it was 18
weeks ago. The nine-week S&P 500 surge from 666 at the March lows
to 920 as of yesterday has all but retraced the prior nine-week decline from the
2009 peak of 945 on January 6 to the lows on March 9. We believe it is
appropriate to put the last nine weeks in the perspective of the previous nine
weeks. To the casual observer, it really looks like nothing at all has happened
this year, with the market relatively unchanged. But something very big has
happened because the risk in the market, in
our view, is much higher than it was the last time we were close to current
market prices back in early January, for the simple reason that we believe
professional investors have covered their shorts, lifted their hedges and
lowered their cash positions in favor of being long the market.
Employment, output, income, sales still in
a downtrend. Considering what transpired from an economic standpoint,
the decline in the first nine weeks of the year was rather appropriate in the
midst of the worst three-quarter performance the economy has turned in roughly
70 years. The rally of the past nine weeks appears to be rooted in green shoots.
While it may be the case that the pace of
economic decline is no longer as negative as it was at the peak of the
post-Lehman credit contraction, the reality is that employment, output, organic
personal income and retail sales are still in a fundamental downtrend.
Need to see an improvement in the first
derivative. We have evidence that the consumer, after a first-quarter
up-tick that was front- loaded into January, is relapsing in the current quarter
despite the tax relief (didn’t we see this movie last year?). Not until
improvement in the second derivative morphs