• "Great spirits have always encountered violent opposition from mediocre minds." 
• Albert Einstein

2/5: BROKEN-

“There’s no question that confidence in government is shaky. Washington is “filled up with law firms that cover whole city blocks. Lobbying firms. And it’s all living off the influence of the government.”

2/2: Fiduciary Stockbroker Fraud Attorney Shepherd says “It is preposterous to even say that stockbrokers are not fiduciaries. The law (Investment Advisors Act of 1940) says that those who advise clients regarding securities are held to a fiduciary standard. Meanwhile, stockbrokers insist they are not just order takers – which people pay $8.00 to get online - but are instead ‘advisors,’ ‘financial consultants,’ etc. who can charge 10 to 100 times what online trades cost. Wall Street wants to make the big bucks, but not have any duties to their clients. It’s simple as that.”

2/2: American Airlines- 

American Airlines today announced that as part of its plan of reorganization, it wants to terminate its pension plans. The pensions are underfunded by about $10 billion, and Americans' retirees would lose at least $1 billion in benefits if the plans end. Under federal law, if a company in bankruptcy wants to end its pensions, it must demonstrate that doing so is the only way it can reorganize.

2/2: 403b Model Disclosure Fee Form

provides an easy and uniform tool for participants to make direct comparisions of their retirement plan options.

2/2:  Economics test

This is a terrific test. And it shows results in a number of ways. It indicates that the majority of Americans don't know what's going on. Is it any wonder politicians take such advantage of us?

It is an interesting and simple test, yet astonishing that so many people got less than half right. These results say that 80% of the (voting) public doesn't have a clue - and that's pretty scary.

There are no tricks here - just a simple test to see if you are current on your information. Test your knowledge with 13 questions, then be ready to shudder when you see how others did.

http://pewresearch.org/politicalquiz/quiz/index.php

2/2: China- The Chinese manufacturing sector has made a surprisingly strong start to the year, with domestic orders cushioning the impact of Europe’s debt woes, according to an official survey.

The purchasing managers’ index, an important gauge of factory growth, rose to 50.5 in January from 50.3 a month earlier. In remaining above 50, the PMI indicated an expansion in industrial activity that confounded forecasts for a decline.

2/2: Talk about dumbing down ethics

Ethics in Action 

Ethics in Action uses animated videos and a game-show theme to keep you involved and learning. Participate in an informative and engaging session that teaches the six learning objectives required by CFP Board for ethics training in 2012. 

2/2:  Look at the commissions

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2/2 Pay- George Osborne’s Treasury is grappling with an exodus of personnel as officials fume at low pay levels and high staff turnover, creating real operational difficulties with the Budget just seven seeks away

2/1: I think there will be a lot more Amazon fourth quarter sales fell short of market expectations and the group said it might make a loss in the first quarter, causing its shares to tumble almost 9 per cent in after-hours trading

2/1: Stripped- Sir Fred Goodwin, the former boss of Royal Bank of Scotland, is to be stripped of his knighthood, in a move David Cameron hopes will deflect ongoing public anger over high bonuses at the state-controlled bank

Not good enough.

Sterilization

2/1: These are the 10 most educated countries in the world.

10. Finland
> Pct. population with postsecondary education: 37%
> Avg. annual growth rate (1999 – 2009): 1.8% (3rd lowest)
> GDP per capita: $36,585 (14th highest)
> Pop. change (2000 – 2009): 3.15% (10th lowest)

Finland is a small country relative to the other OECD members. The share of its adult population with some sort of postsecondary education, however, is rather large. This select group is reaching the end of its expansion. From 1999 to 2009, the number of college-educated adults increased only 1.8% annually — the third-smallest amount among all OECD countries. Finland is also one of only two countries, the other being Korea, in which the fields of social sciences, business and law are not the most popular among students. In Finland, new entrants are most likely to study engineering, manufacturing and construction.

9. Australia
> Pct. population with postsecondary education: 37%
> Avg. annual growth rate (1999 – 2009): 3.3% (11th lowest)
> GDP per capita: $40,719 (6th highest)
> Pop. change (2000 – 2009): 14.63% (3rd highest)

Australia’s population grew 14.63% between 2000 and 2009. This is the third-largest increase among OECD countries. Its tertiary-educated adult population is increasing at the much less impressive annual rate of 3.3%. Australia also spends the sixth-least amount in public funds on education as a percentage of all expenditures. The country also draws large numbers of international students.

[More from 24/7 Wall St.: Ten Cities Crushed by the Global Recession]

8. United Kingdom
> Pct. population with postsecondary education: 37%
> Avg. annual growth rate (1999 – 2009): 4.0% (9th highest)
> GDP per capita: $35,504 (16th highest)
> Pop. change (2000 – 2009): 3.47% (13th lowest)

Unlike most of the countries with the highest percentage of educated adults, the UK’s educated group increased measurably — more than 4% between 1999 and 2009. Its entire population only grew 3.5% between 2000 and 2009. One aspect that the UK does share with a number of other countries on this list is relatively low public expenditure on education institutions as a percentage of all educational spending. As of 2008, 69.5% of spending came from public sources — the fourth-smallest amount among OECD countries.

7. Norway
> Pct. population with postsecondary education: 37%
> Avg. annual growth rate (1999 – 2009): N/A
> GDP per capita: $56,617 (2nd highest)
> Pop. change (2000 – 2009): 7.52% (14th highest)

Norway has the third-greatest expenditure on educational institutions as a percentage of GDP, at 7.3%. Roughly 23% of that is spent on tertiary education. In Norway, more than 60% of all tertiary graduates were in a bachelor’s program, well more than the U.S., which is close to the OECD average of 45%. The country is one of the wealthiest in the world. GDP per capita is $56,617, second only to Luxembourg in the OECD.

6. South Korea
> Pct. population with postsecondary education: 39%
> Avg. annual growth rate (1999 – 2009): 5.3% (5th highest)
> GDP per capita: $29,101 (13th lowest)
> Pop. change (2000 – 2009): 3.70% (14th lowest)

[More from 24/7 Wall St.: The Worst Product Flops of 2011]

Korea is another standout country for its recent increase in the percentage of its population that has a tertiary education. Graduates increased 5.3% between 1999 and 2009, the fifth-highest among OECD countries. Like the UK, this rate is greater than the country’s recent population growth. Korea is also one of only two countries — the other being Finland — in which the most popular fields of study are not social sciences, business and law. In Korea, new students choose to study education, humanities and arts at the greatest rates. Only 59.6% of expenditures on educational institutions come from public funds — the second-lowest rate.

5. New Zealand
> Pct. population with postsecondary education: 40%
> Avg. annual growth rate (1999 – 2009): 3.5% (14th lowest)
> GDP per capita: $29,871 (14th lowest)
> Pop. change (2000 – 2009): 11.88% (8th largest)

New Zealand is not a particularly wealthy country. GDP per capita is less than $30,000, and is the 14th lowest in the OECD. However, 40% of the population engages in tertiary education, the fifth-highest rate in the world. The country actually has a rapidly growing population, increasing 11.88% between 2000 and 2009. This was the eighth-largest increase in the OECD. Part of the reason for the high rate of tertiary graduates is the high output from secondary schools. More than 90% of residents graduate from secondary school.

4. United States
> Pct. population with postsecondary education: 41%
> Avg. annual growth rate (1999 – 2009): 1.4% (the lowest)
> GDP per capita: $46,588 (4th highest)
> Pop. change (2000 – 2009): 8.68% (12th highest)

The U.S. experienced a fairly large growth in population from 2000 to 2009. During the period, the population increased 8.68% — the 12th highest among OECD countries. Meanwhile, the rate at which the share of the population with a tertiary education is growing has slowed to an annual rate of 1.4% — the lowest among the 34 OECD countries. Just 71% of funding for educational institutions in the country comes from public funds, placing the U.S. sixth-lowest in this measure. Among OECD countries, the largest share of adults with a tertiary education live in the United States — 25.8%.

3. Japan
> Pct. population with postsecondary education: 44%
> Avg. annual growth rate (1999 – 2009): 3.2% (10th lowest)
> GDP per capita: $33,751 (17th lowest)
> Pop. change (2000 – 2009): 0.46% (6th lowest)

In Japan, 44% of the adult population has some form of tertiary education. The U.S. by comparison has a rate of 41%. Japan’s population increased just 0.46% between 2000 and 2009, the sixth-slowest growth rate in the OECD, and the slowest among our list of 10. Japan is tied with Finland for the third-highest upper-secondary graduation rate in the world, at 95%. It has the third-highest tertiary graduation rate in the world, but only spends the equivalent of 1.5% of GDP on tertiary education — the 17th lowest rate in the OECD.

[Also see: College Majors that are Popular]

2. Israel
> Pct. population with postsecondary education: 45%
> Avg. annual growth rate (1999 – 2009): N/A
> GDP per capita: $28,596 (12th lowest)
> Pop. change (2000 – 2009): 19.02% (the highest)

Although there is no data on the percentage of Israeli citizens with postsecondary education dating back to 1999, the numbers going back to 2002 show that growth is slowing dramatically compared to other countries. In fact, in 2006, 46% of adults ages 25 to 64 had a tertiary education. In 2007 this number fell to 44%. Only 78% of funds spent on educational institutions in Israel are public funds. The country is also only one of three — the other two being Ireland and Sweden — where expenditure on educational institutions as a proportion of GDP decreased from 2000 to 2008. Israel also had the largest increase in overall population, approximately 19% from 2000 to 2009.

1. Canada
> Pct. population with postsecondary education: 50%
> Avg. annual growth rate (1999 – 2009): 2.3% (5th lowest)
> GDP per capita: $39,070 (10th highest)
> Pop. change (2000 – 2009): 9.89% (10th highest)

In Canada, 50% of the adult population has completed tertiary education, easily the highest rate in the OECD. Each year, public and private expenditure on education amount to 2.5% of GDP, the fourth-highest rate in the world. Tertiary education spending accounts for 41% of total education spending in the country. In the U.S., the proportion is closer to 37%. In Israel, the rate is 22%. In Canada, nearly 25% of students have an immigrant background.


1/31: Japan- people aged 65 and older will make up nearly 40 percent of the population of Japan 50 years from now. Even more troubling, the country's population is expected to shrink by 30 percent, with birth rates showing little signs of improvement.

In the last few decades, Japan's social security budget has soared 15 percent, an increase of 1 trillion yen per year. 50 years ago, there were a dozen workers for every social security retiree. 50 years from now, there will just be one.

Complicating the issue, is Japan's dismal birthrate. Young workers have increasingly become reluctant to start families, because of financial concerns. Women are putting off marriage altogether, worried it could tie down their careers. On average, Japanese women have 1.4 children. That number is 1.9 for U.S. women

1/31: Here is the real 99% concern- FINRA said Wednesday that it fined Merrill Lynch $1 million for failing to arbitrate disputes tied to some of the $2.8 billion retention bonuses it paid to about 5,000-plus financial advisors after its January ’09 merger with Bank of America (BAC). The regulatory organization also said Merrill set up the program to circumvent FINRA’s requirements related to arbitration, leading one expert to criticize the size and timing of the ruling.


1/31  Better......................................:
1/31:

Report: U.S. May Never Get Back Its Investment in AIG
By Arthur D. Postal

A new report by a federal watchdog agency questions whether the U.S. government will be able to recover over the short term–if ever–the investment it has made in American International Group after it got into financial trouble in 2008.…

The report was also highly critical of AIG’s compensation policies, and the agency suggested that even after AIG exits the government aid programs, that its regulators should keep a close eye on its compensation policies.

 “Because companies generally have shown little or no appetite for reforming executive compensation practices, the economy remains at risk that compensation could play a material role in the event of a future crisis.”

Congressional Budget Office increased its estimated cost of the Troubled Asset Relief Program by $15 billion to $34 billion, due to a reduction in the market value of the investments in AIG and GM.

1/30: Correlation-

, the United States equity market is very highly correlated, both with other markets and internally. Late last year  the correlation of individual stocks within the S.& P. 500 “exploded to insane, never-seen-before levels, so that all stocks look and behave almost the same.” For old-fashioned stock picking, this is a nightmare, at least over the short term, since the nuances of any particular company are being overwhelmed by broader market forces.

The situation also makes it very hard to execute hedge fund strategies aimed at exploiting the differences between equity sectors — bets that utilities, for example, will outperform industrials. Such strategies require a higher degree of sophistication than many such traders can manage

What is an ordinary investor, one with no claims to financial sophistication, to do under these circumstances? The same thing he or she should do under most circumstances: maintain a well-balanced, diversified portfolio while trying not to worry too much about day-to-day market noise.

Of course, investors trying to save enough for retirement or for a house or for a child’s education need to assess the amount of risk they can bear and the amount of time that they can wait for a return on their assets. Right now, Mr. Applegate advises investors to “underweight” equities and to add some riskless ballast like cash and short-term Treasuries.

Long-term investing in the stock market requires some confidence “in the future economic health” of capitalism, Mr. Williams said, which may seem a tall order on some days. Still, he has been making such a bet in his own retirement account, “like just about everybody else,” and hopes that the unusual market movements of the last several years will ultimately abate.

“If you are trying to be sophisticated, be sure that you are being really sophisticated.

EFM- but do you even know how to properly allocate? Betcha don't. And then, who cares since if there is another recession, the equity section should lose another 40%+. What do you do then? 

1/29: Aliteracy: A threat to educational development  
Illiteracy had always been described as the bane to development, either at individual or societal level.
Hence, government over the years had continued to put several educational programmes to increase
the literacy rate of the people. However, the writer of this paper have identified aliteracy as the principal
problem of development; those who have the ability or proficiency to read and write lack the interest
and desire to do so any longer. This problem could be attributed to some modern technology which
seems to discourage the culture of “readers and writers” but encourage that of “listeners and
watchers”.
Many literate or educated people no longer see reading
and writing as a pleasure. This seems to be a general
problem. So many people prefer to sit back and watch
events on the screen rather than read about them on the
pages of the paper. In actual fact, with the increase in
technology, the prospect of spending leisure time or even
creating time to plough through books does not seem as
easy as it did in the past.
It should be noted that a lot is lost when people shun
reading and writing for listening and watching. Though
the later consume attention and demand logical
reasoning, it should be known that they help to develop
one’s mental ability: As adapted from Awake Magazines
of January, 1996, reading and writing widen and
stimulate imagination. One may create notions and
situations the way one desires while the motion – visuals
like the television do most of the thinking for one.
the modern world is fast shifting from a culture of ‘readers
and writers’ to ional that of ‘listeners and watchers’ and may
likely be shocked by the unpleasant consequences this
may bring. This trend away from the written word is more
than worrisome. People who have stopped reading base
their future decisions on what they used to know (residual
knowledge) If one does not read much, one really does
not know much.

1/29: 2002 National Literacy Survey

1/29: North Korean government labels cell phone users as war criminals
North Korea is one of the most closed-off countries in the world, and now its government is trying to limit information flow even more by threatening to punish cell phone users.

So this is how this should work.  People who text in cars are immedaitely deported to North Korea. Now let them text to their heart's content.

Problem solved.

1/29: Insurance: whether you are a trustee, agent/broker, CPA, banker or attorney, if you are responsible for a life insurance policy,  it is important to document that you are fulfilling your duty to investigate the “suitability of the product” in each client situation. While financial strength is important, Lee also identified 5 “dominant attributes/qualities” (factors) of suitability of permanent life insurance, 1.“Price”, 2.“Costs”, 3.“Likely Long Term Benefit”, 4.“Access to Cash Value”, 5.“Investment Risk”. These same factors of suitability are supported in our Veralytic Report as: 1. Financial Strength and Claims Paying Ability, 2. Cost Competitiveness, 3. Pricing Stability, 4. Policy Liquidity, 5. Historical Performance of Underlying Cash Value.

Both financial and insurance industry authorities consider comparing illustrations of hypothetical policy values to be “misleading” and “improper” respectively. Lee also reviewed various relevant case law including the Cochran case and observed the importance the Courts placed on including information from an “independent entity with no policy to sell or any other financial stake in the outcome” in suitability determinations.

1/29: but the 99% are still screwed-

Obama, vowed to  never again to let Wall Street "play by its own set of rules."

"So if you're a big bank or financial institution, you're no longer allowed to make risky bets with your customers' deposits," Obama said. "You're required to write out a 'living will' that details exactly how you'll pay the bills if you fail, because the rest of us aren't bailing you out ever again."

The Federal Deposit Insurance Corp. first proposed that big banks show how they would wind down operations if they failed in 2010. Last week, the FDIC approved the final "living will" rule requiring banks with at least $50 billion in assets to periodically submit plans outlining, in case they collapsed, how depositors would receive their funds promptly, how the institution could be broken up and how creditors' losses would be minimized

1/29: WORLD RECESSION???

The global economy is slowing sharply and is at far greater risk of recession than was thought just months ago, with Europe's debt crisis creating "fertile ground" for a rapid collapse, the International Monetary Fund warned Tuesday.

In a sobering trio of reports on growth, public debt and financial stability, the agency described global trade and investment as waning and depicted the world as perhaps one shock away from a serious downturn. The epicenter of the economic turmoil remains the euro zone, where political leaders have not committed the money needed to prop up weakened governments and banks, thereby threatening to create a cycle of "self-perpetuating pessimism" that could undermine the recovery, the IMF said.

Whether the trigger is a government default in Greece, a bank failure or some other traumatic event, "the world could be plunged into another recession," said Olivier Blanchard, the IMF's economic counselor. "The world recovery, which was weak in the first place, is in danger of stalling."

The agency's latest forecasts suggest that the process may be underway. Projected worldwide economic growth for 2012 was trimmed to 3.25 percent from the 4 percent rate projected in September. China and India, which have become major engines of global growth, are predicted to cool to around 8.2 percent and 7 percent, respectively. The IMF projects that the euro zone will fall into recession and contract by about 0.5 percent this year.

The U.S. economy's projected growth rate has been holding steady at 1.8 percent since September,

The IMF is one of several organizations offering downbeat assessments. The World Bank last week projected even slower worldwide growth, of just 2.5 percent, and it forecast a euro-zone recession.

In a separate study released Tuesday, the Institute of International Finance said that the flow of capital into developing nations dropped by nearly 20 percent last year - a worrisome decline that also occurred during the 2008 financial crisis.

1/29:

1. What drives the herding behavior of individual investors?

Date:	2011
By:	Maxime Merli (LARGE - Laboratoire de recherche en gestion et économie - Université de Strasbourg) Tristan Roger (CERAG - Centre d'études et de recherches appliquées à la gestion - CNRS : UMR5820 - Université Pierre Mendès-France - Grenoble II)
URL:	http://d.repec.org/n?u=RePEc:hal:journl:halshs-00658723&r=fmk
This article intends to provide answers concerning what drives individual investor herding behavior. Our empirical study uses transaction records of 87,373 French individual investors for the period 1999-2006. In a Örst part, we show - using both the traditional Lakonishok et al. (1992) and the more recent Frey et al. (2007) measures - that herding is prevalent and strong among French individual investors. We then show that herding is persistent: stocks on which investors concentrate their trades at time t are more likely to be the stocks on which investors herd at time t+1. In a second part, we focus on the motivations of individual herding behavior. We introduce an investor speciÖc measure of herding which allows us to track the persistence in herding of individual investors. Our results highlight that this behavior is ináuenced by investor-speciÖc characteristics. We also reveal the fact that individual herding beh avior is strongly and negatively linked with investorsíown past performance.

1/29:

New-home sales were worst ever in 2011

1/29: REcession: The Global Investment Committee of Morgan Stanley Smith Barney said in its January 2012 market commentary that it expects not just Europe, but the United States, to slip into recession.

Yes, I know we all read about how things are REALLY picking up. But underlying the optimism is a big financial mess

1/29:  A post I made about risk- Well, you know my comment about the inverted yield curve. My book clearly states that the future is unknown- but I sure did feel that, if not recessions, then at least extreme risks forthcoming. Was I right? Yes. Perfect in execution? No. Frankly that is impossible. But I did keep equity losses to around 15% overall and that is about the best I can do. Did I get back in at the perfect time? Not even close. I did not know when was the best time since it is risk that I follow, not returns. And certainly at the bottom of the slump, the risk was still enormous. Further, I was not about to use what had gone down and expecting those specific equities to be the top performers later on. Reminds me of the tech debacle. Lots of articles said to stay in or buy more of these at the bottom since tech had to come roaring back. Lots of investors still waiting.

The reason so many individual investors and 401k employees lost billions is that the advisers simply were not that good. The military always has a Plan B necessary for a retreat- that is part of logical planning. Advisers cannot solely plan for up markets. and to paraphrase, "Planners/adviser have an ethical responsibility to communicate the limitations of their models." But if one uses a software package by Mickey and Minnie, they will never see the inherent risks of the proposed allocations.  Or they don't care. They simply have not planned.

 the retirees from 2000 and 2008 have lost their retirement because they people they "trusted" were never that good. They will work till they are dead because of an industry that is just mainly lining their own pockets at the expense of the American consumer. 

There needs to be a major re education of advisers.  Never happen in my lifetime (though I am old)

1/29: Risk  Boston FED The heightened interest in risk management is the result of a number
of coincident secular trends. Globalization of trade and production have
increased financial and direct investment in volatile emerging markets. In
addition, in both developed and emerging economies, capital markets
have become more important as a means of allocating resources. As a
result, both banks and nonfinancial firms find that the number, type, and
extent of their exposures have increased significantly. Finally, a spate of
volatile financial innovations are simultaneously a source of risk and a
means to mitigate it.
But risk management has also attracted attention as a result of the
repeated and well-publicized failures associated with its implementation.
Despite the increased academic and professional attention paid to risk
management, frequent instances still occur when sophisticated investors
or firms experience sudden, unexpected, and devastating losses.

In cases such as  Long-Term Capital Management,
losses have been in the billions of dollars. In such cases the sophistication
of the risk management processes in place was clearly inadequate for the
level and type of risks assumed.
What is the source of these failures in risk management? Is it just
extreme bad luck, similar to being struck by lightning while out jogging?
If so, it is hard to conclude that the victims were negligent; nor do such
freakish outcomes say much about the desirability of either risk management
or regular exercise. On the other hand, if such failures occur because
of flaws in conceptual approaches or in the way these approaches are repeated.
This article discusses failures in risk management,
why they occur, and what can be done to reduce their
occurrence. Part I discusses the nature of risk and the
objectives of risk management. Part II argues that
intuitively attractive conceptual simplifications often
create significant errors in risk measurement. Part III
then describes failures in risk mitigation. Part IV
discusses implications, both for managers and for
regulators.

The article notes The possibility of catastrophic but
extremely low-probability
outcomes always exists. Firms can
never hold enough equity to
guarantee their solvency, but
they can estimate the amount
needed to reduce the probability
of insolvency to a socially
acceptable small number

That might be fine for institutions, but is farily useless for individuals who simply do not have the assets to insulate themselves from devastation. Further, they are generally clueless to risk. 

1/26: Not fair:

President Obama warned in his State of the Union address Tuesday that the nation's middle class is at risk because of growing economic inequality, and argued that the government must do more to preserve the basic American dream.

In a speech that is likely to set the theme of his 2012 re-election bid, Obama said "the basic American promise" that hard work can allow one to own a home and support a family are at risk if the government doesn't do more to balance the scale between the nation's rich and poor.

The poor are screwed without proper education. Ain't happenin'

1/26: Adviceq.com: There are two million financial advisors in the U.S

1/26: women outscore men in every area of aptitude tests except in abstract thought and aggressiveness. Women are about context; men are about direction and “what’s next.” It becomes destructive when one gender tries to “cut across the grain,” he argued, meaning when a man is denied a vision or where he wants to take an idea, and women are forced to drive an idea forward with which they might not feel comfortable. This leads to resentment. Mansfield closed this point by quoting Goethe, “Girls we love for what they are, young men for what they promise to be.”

1/26:  Wow- The US Federal Reserve predicted that interest rates will stay on hold at least through late 2014 in a dramatic extension to the period for which it expects to keep rates low.

The Fed’s previous forecast was of rates on hold until mid-2013. The statement acted as a significant easing in monetary policy by moving out market expectations of the first rise in interest rates and led to an immediate fall in bond yields.
The Fed evidently believes that a true recovery from the Great Recession and the global financial crisis is still years away

1/25: 15%   Buffet said Mitt Romney's U.S. tax rate of about 15 percent reflects poor laws rather than failings by the candidate for the Republican presidential nomination.

"It's the wrong policy to have,"  "He's not going to pay more than the law requires, and I don't fault him for that in the least. But I do fault a law that allows him and me earning enormous sums to pay overall federal taxes at a rate that's about half what the average person in my office pays."

Gingrich wants to have a 0% captial gains tax. Cannot work except for the very rich.

1/25: I agree- but tough to do- Investors cannot be counted on to make rational choices so regulators need to “step into their footprints” and limit or ban the sale of potentially harmful products, the head of the UK’s new consumer protection watchdog said

1/25: Planners???

According to survey findings from Cerulli Associates, only 30% of advisers are financial planners, but 59% perceive themselves as this practice type. Fifty-six percent are investment planners but only 22% consider themselves this practice type.

Cerulli identified this discrepancy during the production of its annual release of “Quantitative Update: Advisor Metrics,” a sourcebook for data and analysis on advisers’ practices that has been in circulation for seven years.

To obtain this data, Cerulli asked advisers via its annual survey to classify their practices based on their perception of the services they offer. Then Cerulli reviewed the actual services offered (data also garnered through surveys) and the client base of each adviser to determine which classification is most reflective of the adviser’s actual practice.

Many adviser practices offer some of the basic elements of financial planning, but focus their efforts nearly exclusively on asset accumulation strategies.

“Firms have encouraged their advisers to expand their advice relationships with clients; however, advisers tend to overestimate the degree to which they are involved in the planning process,” said Scott Smith, head of Cerulli’s intermediary practice. “The movement to extend advice services is likely being accelerated by turbulent markets, as advisers who base their value to investors on investment performance have suffered more than those with broad advice relationships.”

1/25: Another bites the dust-

PRUDENTIAL 

Suspends All California LTC Sales!

1/24: 8,000,000 Americans went through foreclosures

1/24: Houses- UK homeowners could face higher mortgage costs and find themselves at greater risk of foreclosure as early as next year because of an obscure clause in the bank capital directive being worked on by the European parliament

1/24: A number of insurance companeis are exiting the business- Lots of Variable annuities, which provide guaranteed incomes to customers regardless of market performance, have led to losses at Sun Life and bigger rival Manulife Financial Corp. (MFC) after equities plunged. Sun Life’s U.S. insurance unit had losses of C$569 million in the third quarter, and C$279 million in the first nine months of 2011.


1/23: Greece- Last-ditch talks on a Greek debt restructuring have taken an unexpected twist after official creditors demanded that private bondholders take additional losses following the country’s larger than expected economic contraction last year.

Officials from the European Commission, European Central Bank and International Monetary Fund called on Friday for a lower interest rate averaging 3.5 per cent on new bonds after private bondholders had already agreed on a 4 per cent coupon, according to people close to the discussions.

1/23: And more Greece- Private owners of Greek debt have made their “maximum” offer for the losses they are willing to accept, the bondholders’ lead negotiator has said, implying that any further demands could kill off a “voluntary” deal and trigger a default

1;23- Boglehead reply   Financial Planners do not do financial planning

I am going to change the focus somewhat- Financial Planners CANNOT do financial planning. Of course there are caveats, but the bulk of planners have woefully little knowledge. First, many brokers are using monikers as financial “whatever’, wealth manager etc., without effectively having any background at all. The fundamentals of investing have never been taught to a broker in any licensing preparation. And they have to understand insurance- which has been a monstrous undertaking. The CFP is ONE semester on money. If a simple designation is all one wants, be still my heart. As far as AUM- that is generally the major credential evidencing capability. Great marketing, little substance.

As to finding a planner- sure it is hard. But that is because the bulk of advice to find one is puerile at best. If you want an investment adviser ONLY, check out a CFA, You will still have a lot of work ahead of you because nary a one will do a formal risk of loss. You all talk about returns in numerical amounts but everything on risk is esoteric at best. Never accept a proposed return number of an allocation unless also addressed by the number for the potential risk of loss.

Further, if it was so easy and advisers were that competent- why do you think so much was lost in 2000 and 2008? Anyone taking upon investing themselves or through an adviser HAD to know the potential losses to be experienced in a difficult economy AND what the adviser was going to do about it. The problem should be obvious- you have major firms all over the U.S. promoting education for 401k employees (and more) through all types of RIAs et al and billions of dollars lost for them. Retirees and pre retirees will NEVER get back to where they were. Never.

You want a quiz for a planner?

1. A long time widow that needs income is going to get married at age 59. What are the implications for SS

2. Are correlations correlated? Better yet- is standard deviation, “risk”?

3. Describe a GLWB

4. What were the implications of the yield curve in 2000 and 2006.

5. What is the defacto life insurance of an ILIT.

Bottom line is this for a financial planner:

A degree in planning

minimum 10 years of experience

Fee services as RIA

Life Insurance license as required under law*
* If you are not legal, you have violated the relationship universally established under suitability rules and absolutely under fiduciary requirements. Do you want to use them?

Must have and be able to use a personal financial calculator. This will eliminate at least 85% to 95% of all advisers. These are rarely used since no broker or agent is required to learn how to use one and then most others simply rely on programed software from Toys R US that treats all individuals the same.

Here is another gem. The bulk of advisers universally ask you what risk you want. Wrong. THEY are supposed to determine the risk you need to take, not the other way around.

The element of trust is far overrated. Putting trust in those with such limited competence is folly indeed, but the consumer just loves the word and the fact that someone “cares”.

Lastly, if you are an investor choosing your own allocations because you think it easy- There is an investment that has returned 7.5% last year and 6% plus for many years prior with next to nil volatility (less than 2.5). Cheap fees, completely liquid, underlying assets are guaranteed from default. Return should hold up till early 2013- but then all bets are off. Tough to beat and on a risk adjusted return, this is one of the best deals going. So are you using it? If not why not. Is your adviser/planner? If not why not?

After all, this is easy, right?

1/22: FEMALES WILL PAY MORE � According to the Insured Retirement Institute, a healthy 65-year-old woman is likely to pay at least $417,000 in medical premiums and costs during her remaining lifetime, which is 13% more than a male counterpart. You can use $375,000 plus as a "rule of thumb" for both sexes.

1/22:  NINE MORE DOWNGRADES IN EUROPE - S&P downgraded the credit ratings of nine eurozone countries, stripping France and Austria of their coveted triple-A status, but not EU paymaster Germany, in a Black Friday the 13th for the troubled single currency area. "Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone." S&P cut the ratings of Italy, Spain, Portugal and Cyprus by two notches and the standings of France, Austria, Malta, Slovakia and Slovenia by one notch each. The move puts highly indebted Italy on the same BBB+ level as Kazakhstan and pushes Portugal into junk status. It put 14 eurozone states on negative outlook for a possible further downgrade, including France, Austria, and still triple-A-rated Finland, the Netherlands and Luxembourg.

1/22: WHAT FAMOUS PERSONALITY ARE YOU LIKE? - "Even if you don't know where your political affiliations fall, Politic-O-Matic knows! Answer a few questions about your feelings on religion, marriage, healthcare, the economy, taxes, the role of government, and more, and Politic-O-Matic will tell you which famous personality your political alliances most match." Contains 19 questions and takes about 5 minutes.

WHAT CANDIDATE ARE YOU LIKE? - Answer 11 questions and rank their importance to see which candidate is most like you. Takes about 5 minutes, but you could spend hours examining your answer and the candidate's positions.  Click here to begin

1/22: Germany: By suggesting its partners are less credit-worthy, S&P has underlined Germany’s lonely role as the anchor of stability for the eurozone

1/22: Australia- Australia's financial planning sector may suffer a blow to confidence in coming months with ASIC's Shadow Shop survey predicted to show significant levels of poor advice still exist across the industry.

The corporate regulator mentioned preliminary results from the survey, due for public release in March, in its supplementary submission to the inquiry into the Future of Financial Advice law reforms.

"ASIC is currently conducting a shadow shop of financial advice related to people retiring," the submission said.

"While the shadow shop is yet to be completed, the current indications are that we will be reporting a significant level of poor advice."

As well as revealing early details of its survey findings, ASIC also used its submission to address areas of concern regarding Australia's level of advice.

A key area of concern is conflicts of interests, such as those created by associations with product providers, ASIC said.

"While conflicts of interest are required to be disclosed to clients, this is generally not sufficient to counteract the clients' own understanding of the role of an adviser," it said.

"Disclosure is an important regulatory tool to help consumers understand what they are paying. However our experience has shown that it is a poor tool for helping consumers to understand the impact of a conflict of interest.

"Retail clients do not know how to discount the objectivity of the advice they are receiving based on the size of the conflicted remuneration disclosed."

To back its claims, ASIC quoted findings of last month's ANZ Survey of Adult Financial Literacy in Australia report.

"One recent survey found that of the respondents who had chosen a financial adviser, 40 per cent said they do not consider the possibility of conflict when their planner made investment recommendations," it said.

"We consider there is significant scope for the interests of advisers and their clients to be more closely aligned. We consider that disclosure alone is unlikely to achieve this. Disclosure may inform the client but it does not actually align the interests of the adviser and their client."

ANZ's Adult Financial Literacy in Australia survey found that 42 per cent of respondents would not trust financial professionals nor accept what they recommend, ASIC said.

Results from ASIC's 2006 Shadow Shopping survey found 16 per cent of the respondents said advice given clearly did not have a reasonable basis in some respect and a further 3 per cent said it probably did not have a reasonable basis based on the information ASIC received, the submission said.

"Despite this, of the advice by AFS licence representatives where ASIC judged the advice to clearly lack a reasonable basis, 85 per cent of retail clients were satisfied with the advice they received," it said

1/22: Financial advice

The expertise of nearly one-third of advisors who call themselves financial planners actually is limited to investments.

Cerulli Associates, Boston, published this startling finding in a January 19 report, “Cerulli Quantitative Update: Advisor Metrics. The annual report is based on proprietary surveys of more than 50 broker/dealers, 100 asset managers and 1,900 individual advisors.

Fifty-nine percent of the respondents surveyed describe themselves as financial planners, but only 30% actually practice financial planner, Cerulli reports. The differential is even more pronounced among advisors who label themselves investment planners (22%) versus those practice investment planning (56%).

“Firms have encouraged their advisors to expand their advice relationships with clients, [but] advisors tend to overstate the degree to which they are involved in the planning process,” says Cerulli Associate Director Scott Smith in a prepared statement of the report. “The movement to extend advice services is likely being accelerated by turbulent markets, as advisors who base their value to investments on investment performance have suffered more than those with broad advice relationships.

The Cerulli report notes a much smaller discrepancy between who report their practice as wealth management (11%) and are actually wealth managers (6%). No discrepancy is founded among money managers (9% versus 9%).

The report further notes that more advisors plan to offer clients either comprehensive or “modular” (issue-focused) financial planning next year.

Fifty percent of the respondents say they will offer comprehensive financial planning year as compared to this year. Similarly, 24% plan to offer modular planning in 2013 as compared to 20% currently.

efm- in actuality, about 95% cannot do financial planning since they are not properly licensed. A broker is actually unprepared to do investing. 

1/22: Karen Holden
Professor Emeritus of Public Affairs and Consumer Science
Robert M. La Follette
School of Public Affairs
1225 Observatory Drive
Madison, WI 53706

RE: Financial Planning Fiduciary Standards under Dodd Frank- and women

Dear Professor Holden,

I have read a recent article by Frontiers in Financial Literacy titled Women Crave More Information and decided to respond with my recent text identified above. It is the hard copy complement to two video courses approved by the State Bar of California for Continuing Legal Education:
Fiduciary Standards Dodd Frank: Investments
Fiduciary Standards Dodd Frank: Insurance and Annuities
I am not suggesting you read the entire text but the Foreword and the Chapter, Women versus Men on Page 238 are suggested.  Women definitely need more assistance but it generally cannot happen since it is the ADVISERS that are not knowledgeable or competent to educate women NOR men. The short chapter states that women are completely capable of solid decisions. However there are several reasons real life invalidates. Women do ask more questions and that will throw off the (generally) men advisers. No matter, neither men nor women advisers have been taught the fundamentals of investing. As such, even if certain questions might be answered, there is no reason to believe the answers are correct (described below). Further, a reply from M. Cindy Hounsell, President, Women's Institute for a Secure Retirement, identifies a major issue, “Just wanted to say thanks for sending the book -- read the women's piece and I agree completely. I say women are not confident about being confident”.
If they were truly taught real life, they would do much better with their investments. But the instruction for 401k is woefully inadequate. To wit,
Maybe the human resources system encourages men, or maybe men come in more aware of the importance of retirement saving. Perhaps one needs to make sure women make choices appropriately.
Men will state they know more and, in any case, are more aggressive in picking investments (nothing new here- male ego). But is it not men who set up the failure of 2008? Are they not the ones who made 401ks drop so precipitously with trying to build greater piles of money at the expense of the 99% ? Women need to make sure they make the right choices- but it cannot come from advisers even if they wanted to be known as fiduciaries. A unknowledgeable adviser cannot be a fiduciary.
Women in the focus groups argued that the information they receive may be inadequate, especially when they first become eligible to contribute. I don’t know whether this is due to a history of women being less educated about business affairs. But the women felt there were ways they could be encouraged to participate sooner after becoming eligible.
Well, the information IS inadequate. Flat rates returns have not existed, do not exist now and will not exist in the future. And the idea of displaying returns without the associated risk is a fraud. That is a good reason to be suspect of the advice. If done correctly and honestly, they would be far more receptive to investing- as well as recognizing the pitfalls. As Buffet said, the first rule of money is not to lose it. The second rule is rule 1.
“...we do know that women are more likely to be in a limited number of funds. This means they are probably less likely to have large losses but also were less likely to earn high returns when the stock market recovered, as it has a little bit.
There were two groups of women: one group was a little more aware and said, “We just quit looking at our accounts, because we knew we had to just keep our money where it was until the market recovered.” Women in the other group said, “I couldn’t stand it and I pulled my money out and went into the low-growth default funds.” Both groups said, “We wish that we had had more information about what to do.”

Therein is the absolute flaw in investing in the markets. If a recession should occur- and they can be forecasted (see inverted yield curve)- a stock portfolio is scheduled to lose 40% plus. 401k participants need to know what numerical risk (risk of loss) they are taking and the implications. The comment- they had to keep their money there- defines why 44% was lost in 2000 and 57% in 2008. Sure bonds offset some risk (but bonds got hurt in 2008) so what is the point overall? And why is the market preordained to recover in their working years- certainly when they are retired?  Because of backtested numbers from 100 years ago? That they changed assets after the fact is due to incompetent instruction by advisers who are woefully undertrained.
 
Women saw their funds as a way for them to secure their own retirement. If there’s an inherent reason for women having lower account balances, it’s not because they aren’t worried about their futures or think they are going to be taken care of. These women really did understand the importance of having a secure retirement, whether they are married or single. They really feel these are their accounts to manage but some of them just don’t know how to manage them. They admit it, and it’s been a process over time for them to come to that point.
Accounts can be managed effectively  But not with what has been offered to workers. As an example, is  any instruction now addressing why bond funds will almost assuredly start losing for a very long time starting around early 2013? If that is not taught- and I doubt any 401k material remotely mentions anything on that risk- then the whole element of asset allocation presented to workers is a fraud.
Anyway, the fundamentals of investing and insurance is covered in the text with a clear focus to addressing old and outdated theories and to looking forward to the future. If you have an questions or criticisms, please feel free to respond.

Very Truly,


Errold F. Moody Jr

1/22:  Ferri- My company was a sponsor of NAPFA for a couple of years until we realized that many, if not most, NAPFA members are financial planners by "certification", not by "occupation". They SAY they're financial planners to attract prospects, but their real intent is bringing in asset under management and charging asset management fees.

I brought this issue to the attention of NAPFA's president at the time. She had NO intention of addressing it despite my arguments of full disclosure and fiduciary duty.

1/22:

1. Reinforcement learning in professional basketball players

Date:	2011-12
By:	Tal Neiman Yonatan Loewenstein
URL:	http://d.repec.org/n?u=RePEc:huj:dispap:dp593&r=cbe
Reinforcement learning in complex natural environments is a challenging task because the agent should generalize from the outcomes of actions taken in one state of the world to future actions in different states of the world. The extent to which human experts find the proper level of generalization is unclear. Here we show, using the sequences of field goal attempts made by professional basketball players, that the outcome of even a single field goal attempt has a considerable effect on the rate of subsequent 3 point shot attempts, in line with standard models of reinforcement learning. However, this change in behaviour is associated with negative correlations between the outcomes of successive field goal attempts. These results indicate that despite years of experience and high motivation, professional players overgeneralize from the outcomes of their most recent actions, which leads to decreased performance.

1/22: In 2010, men reaching age 65 had an average additional life expectancy of
17.2 years, while woman reaching age 65 could expect to live an additional
19.9 years on average.
(Source: A Profile of Older Americans: 2010, U.S. Department of Health
and Human Services, February 2011)
 While estimates vary, a couple retiring at age 65 without private health
insurance from a former employer can expect to pay significant out-ofpocket
health care costs during their retirement years. Fidelity
Investments, for example, estimates that a 65-year-old couple retiring in
2011 needs about $230,000 to cover medical expenses in retirement, a
44% increase from the $160,000 first estimated for those retiring at age 65
in 2002. This estimate does not include costs of dental care, long-term
care or over-the-counter medicines.
(Source: 2011 Retiree Health Care Costs Estimate, Fidelity Investments)
 About one-third of individuals turning 65 in 2010 will need at least three
months of nursing home care, 24% more than a year, and 9% more than
five years.
(Source: What Is the Distribution of Lifetime Health Care Costs from Age
65?, Center for Retirement Research at Boston College, March
2010)
 The national average daily rate in 2011 for a private room in a nursing
home was $239, an increase of 4.4% from 2010.
(Source: 2011 MetLife Market Survey of Nursing Home, Assisted Living,
Adult Day Services, and Home Care Costs, October 2011)
 The average length of a nursing home stay is 835 days.
(Source: CDC Vital and Health Statistics, Series 13, No. 167, June 2009)
 At an average daily rate of $239, an average nursing home stay of 835
days currently costs almost $200,000.

1/19: And I want a bailout- The International Monetary Fund has asked its member countries for an extra $500bn to help fight what it says will be a $1tn global demand for bail-out loans over the next two years.

1/19: Much better



1/19: Returns??

Milliman’s Pension Funding Index showed that the 100 large defined benefit pension plans it tracks increased their pension deficit by $236.4 billion in 2011, as corporate pensions faced record underfunding.

In December alone, these pensions experienced a $59.7 billion decrease in pension funded status. The funded status decline for the month of December was primarily due to higher liabilities based on a decrease in corporate bond interest rates that are the benchmarks used to value pension liabilities. The funded status decline was partially offset by positive investment performance during December.

“If the Milliman 100 PFI companies were to achieve the expected 8 percent (as per the 2011 Pension Funding Study) median asset return for their pension plan portfolios and the current discount rate of 4.25 percent were to be maintained during years 2012 and 2013, we forecast the funded status of the surveyed plans would increase,” according to the study. “This would result in a projected pension deficit of $410 billion (funded ratio of 75.9 percent) by the end of 2012, and a projected pension deficit of $352 billion (funded ratio of 79.6 percent) by the end of 2013.”
1/19: Health care???  

Capsules: Alaska To Spend $200K A Year For Each High Risk Pool Member http://smtp01.kaiserhealthnews.org/t/27315/344028/27169/0/ 

Now on Kaiser Health News's blog, Phil Galewitz reports on spending in Alaska's high-risk insurance pool: "Alaska has long been known as one of the most expensive places to live in the United States. Those higher costs extend to health care services as well. A high risk pool set up under the federal health overhaul to help the uninsured who have pre-existing medical conditions expects to spend $10 million this year to cover about 50 members. That's about $200,000 per person" (1/17). Read this story or check out what else is on the blog.

"[Obesity prevalence] increased significantly over the 12-year period from 1999 through 2010 for men and for non-Hispanic black and Mexican American women, but did not change between 2003-2009 and 2010 for men or women

1/18: Obesity- 78 million Americans are obese. 13 million are young

U.S. Obesity Rates Unchanged
The prevalence of obesity in the United States seems to have plateaued, according to data released Tuesday. The numbers show 35.7% of U.S. adults and almost 17% of U.S. children and teens are obese. "There's been no change in the prevalence of obesity in recent years in children or adults," says Cynthia L Ogden, Ph.D, an epidemiologist with the CDC's National Center for Health Statistics and the leading author of the report. "But I think looking over the last decade, it's interesting to see how the prevalence of obesity in men has caught up with the prevalence of obesity in women

1/18: Jobs-Manufacturing employment has grown faster in the US than in any other leading developed economy since the start of the recovery, as productivity gains and subdued pay rises raise hopes for an American industrial renaissance

1/18: Do you see the problem???

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1/18: Even without a descent into a fresh crisis, economic forecasts are significantly lower than those in June 2011

1/18: Health care; I knew it was bad, but..............

Highlights In 2008, 1 percent of the population accounted for 20.2 percent of total health care expenditures and 20.0 percent of the population in the top 1 percent retained this ranking in 2009. The bottom half of the expenditure distribution accounted for 3.1 percent of spending in 2008; about three out of four individuals in the bottom 50 percent retained this ranking in 2009. Those who were in the top decile of spenders in both 2008 and 2009 differed by age, race/ethnicity, sex, health status, and insurance coverage (for those under 65) from those who were in the lower half in both years. Those in the bottom half of health care spenders were more likely to report excellent health status, while those in the top decile of spenders were more likely to be in fair or poor health relative to the overall population. While 15.5 percent of persons under age 65 were uninsured for all of 2009, the full-year uninsured comprised 25.9 percent of those in the bottom half of spenders for both 2008 and 2009. Only 3.6 percent of those under age 65 who remained in the top decile of spenders in both years were uninsured for all of 2009. Relative to the overall population, those who remained in the top decile of spenders were more likely to be in fair or poor health, elderly, female, non-Hispanic whites and those with public-only coverage. Those who remained in the bottom half of spenders were more likely to be in excellent health, children and young adults, men, Hispanics, and the uninsured.

Introduction Estimates of health care expenses for the U.S. civilian noninstitutionalized (community) population are critical to policymakers and others concerned with access to medical care and the cost and sources of payment for that care. In 2009, health care expenses among the U.S. community population totaled $1.26 trillion. Medical care expenses, however, are highly concentrated among a relatively small proportion of individuals in the community population. As reported previously in 1996, the top 1 percent of the U.S. population accounted for 28 percent of the total health care expenditures and the top 5 percent for more than half. More recent data have revealed that over time there has been some decrease in the extent of this concentration at the upper tail of the expenditure distribution (Yu and Ezzati-Rice, 2005). Using information from the Household Component of the Medical Expenditure Panel Survey (MEPS-HC) for 2008 and 2009, this report provides detailed estimates of the persistence in the level of health care expenditures over time. Studies that examine the persistence of high levels of expenditures over time are essential to help discern the factors most likely to drive health care spending and the characteristics of the individuals who incur them. The MEPS-HC data are particularly well suited for measuring trends in concentration and persistence. All differences between estimates discussed in the text are statistically significant at the 0.05 level unless otherwise noted.

Findings In 2008, 1 percent of the population accounted for 20.2 percent of total health care expenditures, and in 2009, the top 1 percent accounted for 21.8 percent of the total expenditures with an annual mean expenditure of $90,061. The lower 50 percent of the population ranked by their expenditures accounted for only 3.1 percent and 2.9 percent of the total for 2008 and 2009 respectively. Of those individuals ranked at the top 1 percent of the health care expenditure distribution in 2008, 20 percent maintained this ranking with respect to their 2009 health care expenditures (figure 1). In both 2008 and 2009, the top 5 percent of the population accounted for nearly 50 percent of health care expenditures. Among those individuals ranked in the top 5 percent of the health care expenditure distribution in 2008 (with a mean expenditure of $35,829), 38 percent retained this ranking with respect to their 2009 health care expenditures (figure 1). Similarly, the top 10 percent of the population accounted for 63.6 percent of overall health care expenditures in 2008 (with a mean expenditure of $23,992), and 44.8 percent of this subgroup retained this top decile ranking with respect to their 2009 health care expenditures. The data also indicate that a small percentage of the individuals in the top percentiles in 2008 had expenditures for only one year because they died, were institutionalized, or were otherwise ineligible for the survey in the subsequent year.

In both 2008 and 2009, the top 30 percent of the population accounted for nearly 89 percent of health care expenditures. Among those individuals ranked in the top 30 percent of the health care expenditure distribution in 2008, 63.1 percent retained this ranking with respect to their 2009 health care expenditures (figure 1). Furthermore, individuals ranked in the top half of the health care expenditure distribution in 2008 accounted for 97 percent of all health care expenditures. Among this population subgroup, 75.0 percent maintained this ranking in 2009. Alternatively, individuals ranked in the bottom half of the health care expenditure distribution accounted for only 3.1 percent of medical expenditures (with a mean expenditure of $232 in 2008). Similar to the experience of the top half of the population based on their medical expenditure rankings, 73.9 percent of those in the lower half of the expenditure distribution retained this classification in 2009. Given the high concentration of medical expenditures incurred by the top decile of the population ranked by health care spending (63.6 percent), identifying the characteristics of those individuals exhibiting significant reductions in health care spending in a subsequent year is also of interest. Among those ranked in the top decile in 2008 based on their high level of medical expenditures, 25.4 percent shifted to a ranking in the lower 75 percent of the expenditure distribution in 2009 (data not shown). Individuals ranked in the lower 75 percent of health care spending accounted for only 14.0 percent of all medical expenditures in 2009. Individuals who were between the ages of 45 and 64 and the elderly (65 and older) were disproportionately represented among the population that remained in the top decile of spenders for both 2008 and 2009. While the elderly represented 13.2 percent of the overall population, they represented 42.9 percent of those individuals who remained in the top decile of spenders (figure 2). For those individuals who remained in the lower half of the distribution based on health care expenditures over the two-year span, the elderly represented only 2.8 percent of the population. Alternatively, children (0–17) and young adults (18–29) were disproportionately represented among the population that remained in the bottom half of spenders (33.7 percent and 22.9 percent, respectively). In contrast, children and young adults represented only 3.4 percent and 3.1 percent, respectively, of those individuals who remained in the top decile of spenders. Individuals in the top decile ordered by medical expenditures in 2008 that shifted below the first quartile in 2009 were predominantly between the ages of 30–64. Individuals identified as Hispanic and black non-Hispanic single race were disproportionately represented among the population that remained in the lower half of the distribution based on health care spending. While Hispanics represented 16.0 percent of the overall population in 2009, they represented 24.5 percent of those individuals who remained in the bottom 50 percent of spenders (figure 3). For those individuals who remained in the top decile of spenders, Hispanics represented only 6.7 percent of the population. Individuals in the top decile ordered by medical expenditures in 2008 that shifted below the first quartile in 2009 were more likely to be non-Hispanic whites and other races (77.6 percent) relative to their representation in the overall population (67.2 percent). Individuals who remained in the top decile of spenders in 2008 and 2009 also differed significantly by sex, compared with those who remained in the lower half of the distribution ranked by medical care expenditures. While females represented 50.9 percent of the overall population, they represented 59.0 percent of those individuals who remained in the top decile of spenders (figure 4). For those individuals who remained in the lower half of the distribution based on health care expenditures over the two-year span, females represented only 41.6 percent of the population. Alternatively, males were disproportionately represented among the population that remained in the bottom half of spenders (58.4 percent). In contrast, males represented only 41.0 percent of those individuals who remained in the top decile of spenders. Individuals in the top decile ordered by medical expenditures in 2008 that shifted below the first quartile in 2009 were predominantly female (56.6 percent). Health status was a particularly salient factor that distinguished those individuals who remained in the top decile of spenders. Overall, 2.8 percent of the population was reported to be in poor health in 2009, and another 8.0 percent was classified in fair health (figure 5). In contrast, of those individuals who remained in the top decile of spenders, 23.9 percent were in poor health and another 29.6 percent were in fair health. Furthermore, for those individuals remaining in the bottom half of spenders, only 0.4 percent were reported to be in poor health and 4.3 percent in fair health. Individuals in excellent health were disproportionately represented among those who remained in the lower half of spenders both years (43.5 percent). Alternatively, for those individuals remaining in the top decile of spenders, only 6.1 percent were reported to be in excellent health and 13.2 percent in very good health. Individuals in the top decile ordered by medical expenditures in 2008 that shifted below the first quartile in 2009 were predominantly in excellent, very good or good health (24.8, 30.9, and 26.9 percent, respectively). Focusing on the under age 65 population, health insurance coverage status also distinguished individuals who remained in the top decile of spenders from their counterparts in the lower half of the distribution. Individuals who were uninsured for all of calendar year 2009 were disproportionately represented among the population that remained in the lower half of the distribution based on health care spending. While 15.5 percent of the overall population under age 65 was uninsured for all of 2009, the full-year uninsured comprised 25.9 percent of all individuals remaining in the bottom half of spenders (figure 6). Alternatively, only 3.6 percent of those under age 65 who remained in the top decile of spenders were uninsured. In addition, while 16.6 percent of the overall population under age 65 had public-only coverage for all of 2009, 31.0 percent of those who remained in the top decile of spenders had public-only coverage (figure 6). With respect to poverty status classifications, 36.2 percent of the overall population resided in families or single-person households with high incomes in 2009 (figure 7). A lower representation of high income individuals (26.5 percent) was observed among those who remained in the lower half of spenders in both 2008 to 2009.

1/18: 

"On the Selection of Arbitrators" 
CEPR Discussion Paper No. DP8724

GEOFFROY DE CLIPPEL, affiliation not provided to SSRN
Email: declippel@brown.edu
KFIR ELIAZ, Brown University
Email: Kfir_Eliaz@brown.edu
BRIAN G. KNIGHT, Brown University - Department of Economics, National Bureau of Economic Research (NBER)
Email: Brian_Knight@brown.edu

A key issue in arbitration, which resolves disputes among parties, involves the procedure for selecting an arbitrator. We take an implementation-theoretic approach and provide theoretical, empirical and experimental analyses of this problem. Our findings highlight the problems with current procedures and suggest that alternative procedures, which we propose, may be superior.

indicate how much of what they claim was awarded so there is little on which to gain a true success rate. Against that is the amount of attorney fees and other costs.  Note that over 70% of arbitration claims are settled before a decision is reached (though there are no statistics indicating who got what, why, or anything else at that point. One attorney noted that he gets between 50% to 60% of a claim in settlement, but I have no data to validate an average for the industry.)  When a case isn't clear-cut, arbitrators often "split the baby," giving the broker, perhaps, 60% of the responsibility for any losses and the investor the other 40%. Punitive damages are handed out infrequently- they are awarded in just 2% to 4% of all securities arbitration cases. (Punitive damages are generally awarded against the defendants for egregious actions)

1/17: UK- After leading the way in voluntary deficit reduction, the UK is now enduring a prolonged period of near-stagnation

1/17: Yep- Faltering performance from Goldman Sachs, Morgan Stanley, Citigroup and Bank of America could dent optimism over the pace of corporate recovery

1/17: Shadow banking: The shadow banking system is the infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge funds, money market funds and structured investment vehicles. Investment banks may conduct much of their business in the shadow banking system (SBS),

'Shadow banking' must be dragged into the harsh light of day and both it and global banks must be forced to serve the real economy, Mark Carney, head of the Financial Stability Board, has warned

1/17: 403b changes- When 403(b) plans were introduced in the 1950s, federal law restricted participants to insurance products. Congress later authorized mutual funds, but annuities remained popular because insurance agents make sales calls at schools much more frequently than mutual-fund providers, a 2009 Government Accountability Office report found. Annuities typically include minimum-income guarantees or other downside protections, plus a death benefit. While these features are valued by many teachers, they make the products pricier than low-cost mutual funds and reduce upside potential.

the current change is being driven by Internal Revenue Service rules that began taking effect in 2009 and that give plan sponsors administrative and compliance responsibilities for employees' 403(b) investments

Some three million elementary- and secondary-school employees across the U.S. had about $109 billion in 403(b)s as of 2010, according to estimates from consulting firms. The 403(b) category also includes some nonprofit, governmental and religious organizations, as well as colleges, though many of these other employers already are running their plans like 401(k)s, consultants say.

Low-cost insurer and fund firm TIAA-CREF, which has long dominated the higher-education sector, sought to stir the pot of change in elementary and secondary schools with a report in late 2010 that concluded an educator in a 403(b) that screens providers to hold down fees can potentially accumulate tens of thousands of dollars more in retirement wealth over a career than a colleague in a plan that doesn't screen and has high fees.

not all school officials are in favor of limiting choice, saying teachers like the financial advice that commissions make possible. Some support an effort under way by the American Society for Pension Professionals and Actuaries and the National Education Association, among others, to create a model disclosure form to allow apples-to-apples comparisons of products' costs and benefits.

In some cases, teachers say the changes are raising their costs instead of lowering them because the firms their districts hired to oversee the 403(b)s charge fees.

"I'm a big advocate of low fees, and the new regulations have caused an extra layer of fees," says Richard Nichols, a high-school teacher in suburban Chicago. But he says he understands the need for strengthened monitoring of 403(b)s because "I do not think a lot of the other teachers search out the low-cost providers."

1/17: Investors withdrew nearly $100 billion from actively managed stock funds. Some $45 billion, however, was shoveled into U.S.- and international-stock ETFs.

1/17: Millionaire- Fifty percent of the people in our country who are millionaires are millionaires for one year
1/16: Confidence- It seems that during such bad times even the most respectable newspapers somehow needed to write an upbeat story for the holidays. Confidence-building is part of our culture, and it helps to explain confidence swings.

During the Depression, George Gallup began to compute confidence indexes. But sharp improvements in confidence, as reported in 1938 by Gallup’s American Institute of Public Opinion, did not spell the Depression’s end. Eventually, consumer demand did come roaring back— after World War II, contrary to economists’ widespread fears that the Depression would resume after the war.

Professor Garon details an attitude that Americans, more than people in any other country, have usually had about spending: we tend to think it’s O.K. for people to go into debt to buy gadgets or take vacations. According to this view, such activity will stimulate everyone’s imaginations, and ensure a vibrant economy with plenty of fresh enterprises and innovations. Americans even tend to think that debt burdens may not be so bad — that people in debt work harder to pay it off, again keeping the economic engine humming. We are relatively forgiving of personal bankruptcies, too: they provide a fresh start to allow spending all over again.

1/16: Buy, buy, buy: the historical evidence shows stocks with lots of "buys" don't do better than the broad market, on average

Professional stock-pickers have had an image problem at least since a 1933 study by economist Alfred Cowles confirmed what the market crash of 1929 had amply demonstrated: Stock forecasters can't forecast with any accuracy.

A landmark paper published 16 years ago in the Journal of Finance offered some redemption for analyst recommendations. It divided returns into two components: an initial pop when a new recommendation is announced, and a gradual drift in the months that follow. The distinction matters because ordinary slow-poke investors can take advantage of drifts but not pops.

Two key findings: First, analyst recommendations are like dairy products in that it is best to use them quickly or not at all. Shares tend to drift in the direction of recommendation changes, but for weeks or months, not years.

Second, "sells" tend to be far more prescient than "buys." According to study author Kent Womack, a former Goldman Sachs executive who now teaches finance at the University of Toronto, analysts face little resistance to their "buy" recommendations but risk angering companies and investors with their "sells," so they tend to issue sell calls much more judiciously.

1/16: Dividend discount rate- 

To form their recommendations, analysts often begin with something called discounted-cash-flow analysis, which uses forecasts of revenues, margins and many other factors to determine a fair share price for investors to pay today. Some factors are difficult to measure (like riskiness), others are impossible to know (like distant growth rates) and subtle changes in the assumptions can produce sharply different results.

In other words, with a pinch here and a prod there, analysts can make the math say anything about a stock.
 
1/16: REverse pricing-

starting with the actual stock price rather than constructing a theoretical one. Mr. Koski's method involves calculating the number of widgets a company must sell to justify its current share price, called its required business performance, or RBP. The analyst uses the company's recent results as a guide in determining the probability it will achieve its RBP.

The RBP percentages change daily according to stock price. Mr. Koski points to Netflix as an example of a recent success. It had an RBP probability of below 5% last summer, when the stock price was over $280, but shares have since plunged below $100, and the stock recently had an RBP probability of nearly 90%.

An index that selects 100 stocks with the highest RBP probabilities, the Dow Jones RBP U.S. Large-Cap Core Index, has returned 10.8% a year in back-testing since 1998, versus 2.1% for its benchmark, the Dow Jones U.S. Large-Cap Total Stock Market Index.

1/15: Going Down: Nearly one third of Americans who were raised in the middle class dropped down the economic ladder as adults -- and that's before the Great Recession hit.

Marital status and educational attainment had a great bearing on whether people were able to remain in the middle class, Pew found. Race and gender were also factors.

Those who are divorced, widowed or separated are more likely to fall out of the middle class, particularly if they are women. And Americans who don't attend college are also more likely to slip.

One's foothold on the middle class is more secure if you are a white man. Thirty percent of white women and 38% of black men drop out of the middle class, while only 21% of white men do.

Long-term unemployment has devastated the ranks of the middle class, with many people losing their homes and forced to turn to food banks and government aid after they run through their savings. It takes nearly 41 weeks, on average, for the jobless to find new work. Also, the steep decline in home values has hurt many in the middle class.

Recovering from a huge drop in income is not easy, a separate Pew study found. Half of people who lost more than 25% of their income in 1994 had not recovered four years later. And a third did not regain their economic footing after 10 years.

1/15: HOW WOULD GASB PROPOSALS AFFECT STATE AND LOCAL PENSION REPORTING?
States and localities account for pensions in their financial statements according to standards laid out by the Governmental Accounting Standards Board (GASB). Under these standards, state and local plans generally follow an actuarial model and discount their liabilities by the long-term yield on the assets held in the pension fund, roughly 8 percent. Most economists contend that the discount rate should reflect the risk associated with the liabilities and, given that benefits are guaranteed under most state laws, the appropriate discount factor is closer to the riskless rate. The point is not that liabilities should be larger or smaller, but rather that the discount rate should reflect the nature of the liabilities; the characteristics of the assets backing the liabilities are irrelevant

Shows when many state pension may become insolvent

1/15:  But tell me- where can you have made about 7.5% in 2011 with extremely low volatility, pure liuqidity, assets guarantted from default, very very low fees and on and on.  Has been good even through 2000 and 2008 and should continue strongly into 2012 and maybe some of 2013. No guarantees but this is tough to beat. 

Mutual Funds Saw $9.24B In Withdrawals

(Bloomberg News) U.S. mutual funds lost $9.24 billion to withdrawals last week, the most in almost two months, as investors fled domestic and global stocks. Funds that invest in U.S. equities had $6.67 billion in redemptions and foreign-stock funds lost $2.96 billion in the week ended Nov. 30, the Washington-based Investment Company Institute said today in an e-mailed statement. The redemptions from stock funds were the most since the week ended Aug. 10, when investors pulled $29.7 billion. Industrywide withdrawals were the heaviest since the week ended Oct. 5, the trade group’s data show. The Standard & Poor’s 500 Index dipped to a close as low as 1,158.67, then rallied 7.6 percent over three days to finish at 1,246.96 on Nov. 30 as the Federal Reserve and five other central banks reduced the cost of dollar funding. Investors have pulled money from equity funds for seven straight months, according to ICI data, driven by concerns about Europe’s debt crisis and slowing economic growth around the world. The bulk of the redemptions have come in funds that buy U.S. stocks. Bond funds attracted $1.16 billion in the latest week. Taxable-bond funds got deposits of $709 million while municipal- bond funds won $449 million

1/15:

"Scattered Trust - Did the 2007-08 Financial Crisis Change Risk Perceptions?" 
CEPR Discussion Paper No. DP8714

ROLAND FÜSS, European Business School (EBS) Wiesbaden, Germany - Department of Finance, Accounting and Real Estate
Email: roland.fuess@ebs.edu
THOMAS GEHRIG, University of Vienna - Faculty of Business, Economics, and Statistics, Centre for Economic Policy Research (CEPR), Vienna Graduate School of Finance (VGSF)
Email: thomas.gehrig@univie.ac.at
PHILIPP B. RINDLER, European Business School (EBS) Wiesbaden, Germany
Email: philipp.rindler@ebs.edu

The paper investigates whether the financial crisis did affect risk perceptions, and, hence, change structural parameters. By decomposing credit spreads of US corporate bonds into the contributions by credit, equity, and liquidity risk factors as well as structural change, the relative contribution of the change in risk perceptions can be measured. We show that this increase is mostly due to aversion to default risk for high-yield bonds. For low-yield bonds, the increase is mostly due to liquidity related factors. By means of counterfactual analysis we find that the financial crisis shifted the distribution of bond spreads almost uniformly. This evidence is consistent with changing risk perceptions as predicted by theories of ambiguity aversion or social learning in the case of rare events.

1/15: Europe: Talks over Greece’s debt restructuring collapsed on Friday, an unexpected breakdown that makes it increasingly likely Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt.
In a statement, lead negotiators for Greek bondholders said that the latest offer made by Athens “has not produced a constructive consolidated response” from “all parties” – a clear reference to International Monetary Fund conclusions that bondholder losses must be increased significantly or a second Greek bail-out would have to be bigger than the agreed €130bn.

1/15: Downgrade- The eurozone debt crisis returned with a vengeance on Friday as Standard & Poor’s, the credit rating agency, downgraded France and Austria, two of the currency zone’s six triple A creditors, as well as other nations not in the top tier

1/15: Nurse reveals the top 5 regrets people make on their deathbed

For many years I worked in palliative care. My patients were those who had gone home to die. Some incredibly special times were shared. I was with them for the last three to twelve weeks of their lives. People grow a lot when they are faced with their own mortality.
I learnt never to underestimate someone’s capacity for growth. Some changes were phenomenal. Each experienced a variety of emotions, as expected, denial, fear, anger, remorse, more denial and eventually acceptance. Every single patient found their peace before they departed though, every one of them.

When questioned about any regrets they had or anything they would do differently, common themes surfaced again and again. Here are the most common five:

1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
This was the most common regret of all. When people realize that their life is almost over and look back clearly on it, it is easy to see how many dreams have gone unfulfilled. Most people had not honoured even a half of their dreams and had to die knowing that it was due to choices they had made, or not made.

It is very important to try and honour at least some of your dreams along the way. From the moment that you lose your health, it is too late. Health brings a freedom very few realise, until they no longer have it.

2. I wish I didn’t work so hard.
This came from every male patient that I nursed. They missed their children’s youth and their partner’s companionship. Women also spoke of this regret. But as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence.

By simplifying your lifestyle and making conscious choices along the way, it is possible to not need the income that you think you do. And by creating more space in your life, you become happier and more open to new opportunities, ones more suited to your new lifestyle.

3. I wish I’d had the courage to express my feelings.
Many people suppressed their feelings in order to keep peace with others. As a result, they settled for a mediocre existence and never
became who they were truly capable of becoming. Many developed illnesses relating to the bitterness and resentment they carried as a
result.

We cannot control the reactions of others. However, although people may initially react when you change the way you are by speaking honestly, in the end it raises the relationship to a whole new and healthier level. Either that or it releases the unhealthy relationship from your life. Either way, you win.

4. I wish I had stayed in touch with my friends.
Often they would not truly realise the full benefits of old friends until their dying weeks and it was not always possible to track them down. Many had become so caught up in their own lives that they had let golden friendships slip by over the years. There were many deep regrets about not giving friendships the time and effort that they deserved. Everyone misses their friends when they are dying.

It is common for anyone in a busy lifestyle to let friendships slip. But when you are faced with your approaching death, the physical
details of life fall away. People do want to get their financial affairs in order if possible. But it is not money or status that holds the true importance for them. They want to get things in order more for the benefit of those they love. Usually though, they are too ill and weary to ever manage this task. It is all comes down to love and relationships in the end.
That is all that remains in the final weeks, love and relationships.

5. I wish that I had let myself be happier.
This is a surprisingly common one. Many did not realise until the end that happiness is a choice. They had stayed stuck in old patterns and habits. The so-called ‘comfort’ of familiarity overflowed into their emotions, as well as their physical lives. Fear of change had them pretending to others, and to their selves, that they were content. When deep within, they longed to laugh properly and have silliness in their life again. When you are on your deathbed, what others think of you is a long way from your mind. How wonderful to be able to let go and smile again, long before you are dying.

Life is a choice. It is YOUR life. Choose consciously, choose wisely, choose honestly. Choose happiness.



1/15: Women- Thirty-seven percent of women polled rely on friends and family for retirement planning advice

The survey found that younger women — 58 percent of those in their 20s — tend to rely more on friends and family for financial advice than their older sisters.

Women in their 60s — 44 percent — are most likely to seek advice from a financial planner or broker

8 percent of women polled strongly agree they are saving enough for retirement; 33 percent strongly disagree.

— 8 percent are very confident of attaining a comfortable retirement; 21 percent not at all confident.

— And 8 percent talk frequently about finances with friends and family; 30 percent never do.

That 8 percent must be all the same people who have a handle on their finances

1/11: Capitalism- Greedy bankers, overpaid executives, anaemic growth, stubbornly high unemployment – these are just a few of the things that have lately driven protesters on to the streets and caused the wider public in the developed world to become disgruntled about capitalism. The system, in all its different varieties, is widely perceived to be failing to deliver.

At the heart of the problem is widening inequality. In a recent study, the Paris-based Organisation for Economic Co-operation and Development, the club of developed nations, declared that the wealthiest Americans “have collected the bulk of the past three decades’ income gains”. Much the same is true of the UK. In both cases, most of the spoils have gone to finance professionals and top executives.

As Stewart Lansley, author of a recent book on inequality*, puts it, the modern economy appears to consist of two tracks: a fast one for the super-rich and a stalled one for everyone else. Those in the slow lane enjoyed rising living standards before 2007, despite stagnant real incomes, thanks to increased borrowing on the security of their homes. Since the crisis, however, American and British homeowners have faced a long and deep squeeze on real living standards, while struggling to service an unprecedented level of indebtedness. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/fb95b4fe-3863-11e1-9d07-00144feabdc0.html#ixzz1j08sAvSQ

At the heart of the problem is widening inequality. In a recent study, the Paris-based Organisation for Economic Co-operation and Development, the club of developed nations, declared that the wealthiest Americans “have collected the bulk of the past three decades’ income gains”. Much the same is true of the UK. In both cases, most of the spoils have gone to finance professionals and top executives.

As Stewart Lansley, author of a recent book on inequality*, puts it, the modern economy appears to consist of two tracks: a fast one for the super-rich and a stalled one for everyone else. Those in the slow lane enjoyed rising living standards before 2007, despite stagnant real incomes, thanks to increased borrowing on the security of their homes. Since the crisis, however, American and British homeowners have faced a long and deep squeeze on real living standards, while struggling to service an unprecedented level of indebtedness.

1/10: Basel rejects delay to liquidity buffers

The top central bankers and regulators from 27 major economies firmly rejected industry pleas for a delay or substantial rewrite of the controversial planned “liquidity coverage ratio” that will require banks to hold buffers against a 30-day market crisis. Part of the “Basel III” reform package designed to prevent a repeat of the 2008 financial crisis, the LCR has come in for heavy criticism from bankers who say it will constrain lending, harm economic growth and make the banking system vulnerable to sovereign woes.

1/9:  Forward Looking????

Morningstar’s analyst ratings committee reviews the rankings to make sure the pillar criteria are properly applied. Funds earning the three medals, Morningstar said, are regarded as having “sustainable advantages” that position them favorably for at least five years of market swings. (Does any reader believe that??? Five years???)  Not a chance 

Morningstar cautioned that the system was “not designed to be a market call on an asset class or a prediction of short-term performance,” and that a high ranking for a particular fund did not mean that it was necessarily suitable for every investor. (Talk about a caveat) 

Five years of market swings? How has that worked for 401k employees and retirees?

1/10: I cannot make this up- Police arrest man named Beezow Doo-Doo Zopittybop-Bop-Bop

1/9: 

Smallest S&P 500 Gain Since '05 Seen By Wall Street Strategists

Forecasters at securities firms are more conservative on U.S. stocks than any time in seven years, predicting the S&P 500 Index will rise 7.2 percent in 2012 as budget deficits around the world limit gains.

1/8: Statistics and Cognitive impairment: Americans vastly overestimate the percentage of fellow residents who are foreign-born, by more than a factor of two, and the percentage who are in the country illegally, by a factor of six or seven. They overestimate spending on foreign aid by a factor of 25, according to a 2010 survey. And more than two-thirds of those who responded to a 2010 Zogby online poll underestimated the part of the federal budget that goes to Social Security or Medicare and Medicaid.

"It's pretty apparent that Americans routinely don't know objective facts about the government,"

"Numbers are hard," says Ellen Peters, a psychologist at Ohio State University. "They're difficult to evaluate and remember because they're abstract symbols," and their meaning shifts depending on the context. And absorbing policy numbers may not be worth the effort: "People are more likely to remember numbers accurately when that information is more valuable to them,"

Correcting misconceptions may not change peoples' beliefs about the underlying issues, according to several studies for which researchers tested the effect of supplying the right numbers. That finding is corroborated by psychological research suggesting that people struggle to identify their reasons for forming opinions, instead supplying ex post facto rationalizations—such as faulty numbers.
 This undermines the notion of rational choice, but also weakens any case these findings might support for a poll quiz or mandatory civics education: The truth may not change the outcome.

When researchers provide study respondents with corrected figures and ask them to re-evaluate their opinion on issues, there generally isn't a big shift. And any lasting effects—when study participants returned to their usual media diet and peer group—likely would be even slighter.
"We found that people resisted any attempts to give them accurate information," says James Kuklinski, a political scientist at the University of Illinois.
He and colleagues asked Illinois residents for their opinions and factual beliefs on welfare. More than 60% supplied an estimate of the percentage of U.S. families on welfare that was more than double the correct proportion, among other misfires. Those most misinformed were most confident in their estimates, according to the 2000 paper. And a subgroup supplied with the right numbers didn't change their views in a meaningful way.

A recent immigration study confirmed the finding. Political scientists John Sides of George Washington University and Jack Citrin of the University of California, Berkeley, hypothesized in a working paper that supplying Americans, who typically overestimate the number of immigrants and illegal immigrants among them, with correct numbers would reduce the perceived threat of immigration and change their views. Instead, getting the right number reinforced their views, and even increased their support for letting fewer immigrants into the U.S.

1/8: Risk tolerance????

“Investors should not let the economic climate affect their risk tolerance,” Yao said. “Taking more risks during an economic rise and fewer risks during a downturn amounts to buying high and selling low. That is a very counter-productive strategy.”

Yao says it is important for investors and financial planners to understand risk tolerance and how it affects their investments.

“The duty of financial planners is to recommend appropriate investment portfolios based on client financial risk tolerance,” Yao said. “A good understanding of their clients’ attitude toward risk and how and why such attitudes change is critical. HOW??????
Concern exists that the United States will continue to experience a turbulent economy for some time to come. Unnecessary losses may occur if an individual’s investment portfolio mismatches his or her risk tolerance, leading to inappropriate portfolio allocation decisions. Client education on financial risk is important so that a client can align personal investment goals with the ability to tolerate market fluctuations.”

the only way to do risk tolerance is the risk of loss. It is the only realistic statistical effort towards loss.


1/8:  From a Canada blog

“We saved,” one retiree told me in an e-mail response to a recent column that said inadequate retirement savings are going to spur demand for reverse mortgages. “The market made sure it was not enough.”

But it’s not just the markets, this reader said. “No, indeed, where the blame should be firmly planted [is] at financial professionals and their ignorance of the market trend.”

If a broker is not taught the fundamentals of investing, there are no advisors wirth mentioning. As to their ignorance- it's beyond that. They have never known of the inverted yield curve nor much of what economics they need to know. Certainly no application.  

An adviser has to read some parts of Investments by Bodie Kane and Marcus, most of Peter Bernstein and the MisBehavios of Markets by Mandelbrot.  No read?? No good.

And- . “I think there’s an incredible absence of good, honest advice,” she said in an interview. “I see so many people – educated people, professional-class people – who have resources and they’re spinning their wheels going from one adviser to the next.”

A lot of the anger out there has to be linked to the market ups and downs we’ve been subjected to since summer, 2007. But it’s starting to appear as if there’s more to this than a sense of frustration with undependable stocks and low interest rates. Trust in the entire investment industry has been worn down. A lot of what was said and sold to investors hasn’t worked.

1/8: Monetary Trends  (FED)

1/5: Nursing Home Abuse Blog

1/5 Payday???????
  

About 1m take out payday loans

Shelter, which commissioned a YouGov survey on payday loans, said the “shocking” findings revealed the spiral of debt people were falling into http://link.ft.com/r/DHGUVV/B5JLJL/MS164/625KHC/C4JCHP/CM/h?a1=2012&a2=1&a3=4

1/4: England: The coming year will rival 2009 for economic weakness as output is hit by the continuing debt crisis in the eurozone, according to a large majority of economists polled by the Financial Times.

In a survey of 83 economists, including 11 former members of the Bank of England’s monetary policy committee, three times more respondents thought the economic outlook would deteriorate than thought it would improve in 2012

the UK’s predicament is a “choice between extended misery if the euro survives and catastrophe if it doesn’t”.
1/3:

Economists see bleak year ahead

http://link.ft.com/r/6NPSBB/YBMW6A/DW9P0/L9NFSG/KQLVRW/6C/h?a1=2012&a2=1&a3=3

Yep

1/2:

Europeân leaders warn of tough 2012

Europe’s leaders warned 2012 was likely to be tougher than 2011, when spiralling borrowing costs forced political change in Italy and Spain and threatened the survival of the euro

That means that the U.S. should expereince MORE volatility than 2011. May indicate yet another further slowdown. And the election?????? Who knows.

1/1: I agree: Grantham noted that the U.S. has become fundamentally uncompetitive because of “depleted infrastructure,” ineffective education and ineffective governance when it comes to tackling long-term issues.

1/1: My comment on who will oversee advisors
As most may be aware, I do not accept most comments from the FPA, NAPFA and dropped my CFP last year due to the continuing breach of fiduciary duty by the CFP Board. NAPFA has never adhered to fiduciary standards and on and on. I find it disingenuous to hear about ethics and duty from those that actively violate the laws and the intent of fiduciary.
1. The SEC under Schaprio is a fraud when any comments about consumer protection is offered. NASAA is ????? All I see are a bunch of attorneys with very limited background to the real life product applications. I doubt there is nary a one who knows what diversification (by the numbers) is. Standard deviation as presented by literally any advisor is an insult. It is not risk, never has been, never will be.
My point- dally around the SEC, separate SRO etc., and you still miss the point. There are no retail brokers left in the U,.S. Every one is a financial "whatever" completely miscommunicating their ability to consumers. RIAs generally took a series 7 background, filled out a form and, bingo, charged fees and tried to get the biggest sandpile of AUM.
Then what? They all universally sat around in 2000 and 2008 with buy and hold and let hundreds of thousands of retirees suffer. I won't bore readers with continued commentary but suffice to say, the problem within the industry is that no one has been taught anything- certainly real life fundamentals of investing. Sure there are some bright people here, but I have effectively taught all the licensing courses and there is not a broker who was taught the fundamentals of investing. And there is not now.
A financial "whatever" also has to know far more than investments- insurance and annuities. Hardly any of these 'whatevers' are licensed so they spew out rubbish. Think NAPFA. If you are not licensed but say you are exceptionally competent- well, there is a breach of duty. And please don't say "we refer" blah, blah. Either you have committed yourself to the higher knowledge base or you have not.
 So now FINRA wants to oversee what they are clueless to. Or the SEC. Waste of money. 
A separate SRO? Who will staff that? Not a clue. Certainly none of the 40 in the room with Veres. If you do not demand a fiduciary of yourself and also demand it of the others around you, there is not much to say.
We are in a financial  mess. We do not have knowledgable advisors. Until that changes with significant education mandated by the SEC et al, we are mired in a vicious circle of an industry that will not- and cannot- become a profession.

Errold F. Moody Jr.
Financial Planning Fiduciary Standards under Dodd Frank
November 2011.


1/1: My letter to Hilda Solis on Fiduciary Duty. Will not gather one iota of repsonse. The initial proposal would have put fairly strict rules for fiduciares dealing with IRAs.

But the Financial Services Institute Inc., which lobbies for investment advisors and smaller broker-dealers  argued that the strict rule would have forced smaller broker-dealers to withdraw from the retirement market.

It asks that the revised rule be:

-- Narrowly drafted to address well-defined and documented concerns;

-- Preserves the access of IRA owners and plan participants to investment services delivered by qualified financial professionals using whatever business model best fits the investor's objectives; and

-- Ensure that companies can receive the investment information they need to establish plans and offer sound investment options to their employees.

My letter: December 26, 2011

Hilda L. Solis
U.S. Department of Labor
200 Constitution Ave., NW
Washington, DC 20210

RE: The 99% and Financial Planning Fiduciary Standards under Dodd Frank

Dear Ms. Solis,

As you are essentially responsible for the oversight of ERISA, I believe you will find the insight of my recent book the essence to redirect adviser responsibility to consumers.(This text is the hard copy complement to two video courses approved by the State Bar of California for Continuing Legal Education
Fiduciary Standards Dodd Frank: Investments
Fiduciary Standards Dodd Frank: Insurance and Annuities)
ERISA, as does Dodd Frank, reflects the necessity for fiduciary duty. Unfortunately, non of the simplistic demands/requests/laws will make it work. The debacles of 2000 and 2008 reflect a nil understanding of risk and left hundreds of thousands of retirees/pre retirees in a financial morass for which they will never recover. And given the current and projected economics, the simplistic positions of buy and hold, rebalancing et al will cause the same thing to happen to younger employees over and over again. The DOL may not cover all 99% of consumers, but it’s failing grade with 401k employees and more does the same thing.
Per the DOL: 
..... while a fiduciary may have relief from liability for the specific investment allocations made by participants or automatic investments, the fiduciary retains the responsibility for selecting and monitoring the investment alternatives that are made available under the plan.
Is it a valid assumption to say a ‘fiduciary’, in name only, has a clue to selecting and monitoring?
No.
Please see my chapter on Illiteracy and Aliteracy. As well as “How do Financial Literacy and Financial Behavior Vary by State?” at http://www.usfinancialcapability.org/download/FinLit_By_State_EBRI.pdf. A sample question for anyone from the financial literacy ‘quiz’ is “Buying a single company's stock usually provides a safer return than a stock mutual fund.” All states failed the question. And while a ‘fiduciary’ can answer that question, the essence is irrelevant to the real world of diversification
The question and answer says nothing a to how many stocks are needed to have the same risk as the market (see diversification chapter).  Fiduciaries are not taught this so where are they helping the employee (99%)? Failing the question and then failing the American public in teaching the reality of risk is a breach of fiduciary duty- right to the core of responsibility by the DOL. Diversification has never been taught to brokers. Nor is it even in the mandatory curriculum for CFPs.  It must be presented to employees. And yet the rules say that a fiduciary has relief from liability made by participants. A fiduciary KNOWS that the public is so bereft of an understanding of the fundamentals of investing as to make massive errors in judgement.  Don’t they? A fiduciary must know diversification in order to have any claim to acting as a fiduciary. But they do not.
If you do not know diversification, you cannot get to risk. If you cannot get to risk, you cannot get to suitability. You sure have failed any type of fiduciary responsibility.
Look at this question- “If interest rates rise, what will typically happen to bond prices?” All states came in at 37% correct or less. A basic bond question that MUST be understood by any and ALL 401k employees. They are obviously clueless. But a named ‘fiduciary’ can escape liability since they are effectively removed from the participants selection. Totally absurd- unless, I suppose, the definition of a fiduciary is the word only that does not have to be backed up by reality.  But the reality is that financial advisers, including RIAs who essentially use the Series 7 license to validate becoming a fee adviser, are not taught the fundamentals of investing nor, more importantly, the real life implications. No wonder the financial system for the 99% failed so miserably. The fiduciaries used for training were- and are- inept.

A fiduciary can also hire a service provider or providers to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions selected. If an employer appoints an investment manager that is a bank, insurance company, or registered investment adviser, the employer is responsible for the selection of the manager, but is not liable for the individual investment decisions of that manager. However, an employer is required to monitor the manager periodically to assure that it is handling the plan’s investments prudently and in accordance with the appointment.

First of all, how does an employer select a manager. An employer has no criteria or which to base a valid decision. Is it solely returns? What about risk? Well it cannot be since risk is not taught to the industry. Is it MPT- well past its prime. Use of correlation? Standard Deviation? Just what?   Is the handling of the investments merely providing quarterly statements? I am clueless in that if risk is not taught to employees there has to be improper handling. Yet never heard a word on this after 2000 or 2008. Why not?  Every allocation has a numerical risk of loss that identifies just how bad things can get. But only returns are ever shown. Not simply illogical- a failure of those in knowledge and education.   

Information about the quality of the firm’s services: the identity, experience, and qualifications of professionals who will be handling the plan’s account; any recent litigation or enforcement action that has been taken against the firm; and the firm’s experience or performance record; A description of business practices: how plan assets will be invested if the firm will manage plan investments or how participant investment directions will be handled; the proposed fee structure; and whether the firm has fiduciary liability insurance
ERISA, the DOL, SEC et all talk about professionals as indicated above. And just what does that mean in real life? The term “professional” is essentially a moniker for those with extremely limited background in the financial area. Certainly there are a few, but the bulk of RIA advisers/professionals come from the securities side of investing where the bulk of the knowledge base is a one week course of the series 7 where the fundamentals of investing are not taught. There is no insight to asset allocation. There cannot be since there is nothing on correlation. Or the inverted yield curve, There is no mandatory continuing education for RIAs. And while the comments address litigation etc., where is the knowledge to really address performance record? Would it not be true that the losses sustained in 2000 and 2008 by, in particular, 401k employees was a major fault of the professional? Sure is. Pundits may say that there is no way a ‘professional’ was at fault- they did do their job(?) by their instruction of asset allocation.
No they did not. They had a duty to address risk. They had a mandatory obligation to state the exposure of employee allocations and what they would do- if anything- in limiting the losses due to a severe downturn. After all, the recessions WERE known beforehand (see inverted yield curve and year to year real GDP%). It was also known that the correlations would all move together when such occurred and that all equity positions would lose an average of 40%+. But if that is not taught- and it is not due to the sophomoric licensing and testing requirements- then you can have trillions of dollars lost and the professionals can simply say it was an aberration.
Wrong. It is a statistical probability. Further, there is a 85%+ probability that we will have one recession over the next decade which will produce another 40% equity loss. And a 50% chance of two recessions. 
The fault of such trivialization lays at the feet of the SEC and its continuing refusal to instruct. But it also lays at the DOL, NASAA, State regulators, and more with their inept staff that has- and remains- clueless to the real world of risk. It is also clear that the UPIA needs a revision to the real world as well- as I have identified as a chapter.
Obviously I do understand the need for long term investing. But the failure of current instruction is that they do not tell the employee they will lose about 50% of their investment once or twice a decade. This is a new world order where massive losses have been and will continue to be sustained. It is true that employees and the 99% will do the wrong thing at the wrong time- changing investments at the very lowest prices. But why are all the ‘professionals’ not even bothering to instruct them as to what to do and when?
Nothing will change without an absolute change in ‘professional’ competence which is not possible with the current legalese that refuses to address what background is mandatory before one can offer fiduciary services.
I am fully aware that my book treads on a lot of egos in a lot of departments in a lot of states in a lot of ......
But there comes a time when the regulatory entities have to stand up and formally recognize that what worked(?) in the past simply existed as long as one kicked the can long enough. When it could go no further, real life took over. Sure there was a breakdown by banks and other corporate entities. Maybe that will get better- at least the FED is trying.
But the 99% and all employees will continue to be victimized by an industry and regulatory entities that have, at least so far, addressed fiduciary only as a word.
Hopefully, you will find the validity of my statements in the book and a recognition that a wholesale revision of industry knowledge and competency is needed NOW.

Very Truly,


Errold F. Moody Jr.

1/1: Financial Planner vs Investment Adviser

A few decades ago, there was confusion with what sales and marketing are. People thought they are one and the same. But it is to be understood that sales is just an important ingredient of the functions of marketing. Sales lies in persuading and convincing a person to buy a product that is suitable. Marketing involves all the activities right from the conception of the product, to branding, advertising and retailing. It is an all pervasive function from the product being ready to reach the market and ultimately to being sold to the customer.

Today here prevails a similar confusion with who is an investment advisor and who is the financial planner. It is quite common to find these terms used interchangeably, but it is necessary to understand that an investment advisor and a financial planner have the similar and vast differences as between sales and marketing.

Why is this confusion?

There is a real confusion among the investors regarding who a financial planner is and who is an investment advisor. These terms are used very loosely, so it is necessary that one understands the function of each of these professionals and approach the right people.

The main confusion in these terminologies arises out of a person’s own perception. This arises due to most professionals offering financial services like insurance advisors, mutual fund distributors and stock brokers calling themselves financial planners. This term has been used very loosely by many to suit their own convenience and image. This is more like a compounder professing to be a doctor, when he/she knows purely only about the medicine that one has to dispense. A compounder will not have the expertise to diagnose the disease that needs to be treated.

Who is the Financial Planner?

Financial planner is involved in planning all the finances of a person. His job includes drawing up an appropriate plan that covers all financial needs and goals in the short, medium and long run. Such a planner is like an architect of a building and helps to analyze and draw a complete map of how his or her client’s finances need to be planned. It includes considering the need for liquidity, cash management for various needs, goals planning and feasibility, long term cash flow, estate planning and risk management.

Who is an Investment Advisor?

In contrast an investment advisory/advisor is a person or group that helps his client to decide on the financial products that he or she should invest in. Such an advisor understands what his or her client actually wants after communicating with him or her and understanding the need. An investment advisor makes a thorough analysis of the various securities before doing so.

Hence investment advisory is just one of the ingredients of financial planning.

1/1 Not a good omen :

1/1: How Investors Select Financial Advisors

57% of investors use a subjective approach that is based on the following criteria:

Brand names	48% say they ‘feel’ safer when the company name is well known; a substantial drop from the 62% of a few years ago. This percentage has eroded as more major brand names (Goldman Sachs, Citigroup, Bank of America) have paid big fines for cheating investors.
Likeability	29% select the advisor they like the best. Personalities are major factors. Why? People trust people they like.
Fund Performance	11% believe the performance of mutual funds, ETFs, and hedge funds constitute an advisor track record. These investors do not ask for proof that the investments were selected before the performance occurred
References	9% say references are important. Investors also say they know advisors do not provide bad references. However, some investors believe references are substitutes for track records.
Sales Pitches	17% believe the claims in sales pitches are real because advisors are required by law to tell the truth. Regulators have no control over verbal information and lower quality advisors know it.
Commissions	54% do not believe commissions are an out-of-pocket expense. Advisors tell them product companies pay commissions and the expense is not passed through to investors in the form of higher fees.
Written information	4% require any form of written information and lower quality advisors do not volunteer documentation.

31% of investors use an objective approach that is based on the following criteria:

Experience	82% make years of experience their most important criteria.
College degree	53% believe college degrees are important as long as the degrees have some financial relevance
Certifications	44% believe certifications are important. However, 84% admit they do not know a good certification (CFA®, CFP®, CIMA®, CPA/PFS®) from a bad one.
Compliance record	95% say a clean compliance record is important. However, only 4% say they check compliance records before selecting an advisor.
Fees	61% believe fees are the appropriate way to pay for financial advice. However, 83% said the compensation of advisors is very confusing and they are not sure what they get in return.
Documentation	Only 21% require some form of documentation for the above information

10% of investors acknowledge they do not have a process. The majority of these investors select advisors based on the recommendations of someone they trust to provide a quality referral (CPA, attorney, friend, family member, associate). They assume the referral source has personal knowledge of the advisors’ competence, ethics, and results.

Subjectivity benefits advisors with the best sales skills. Objectivity benefits advisors with the best credentials, ethics, business practices and services. These differences are like night and day, but they are blurred by the sales skills of advisors.

• The advisor with the best personality and sales skills wins in subjective selection processes
• The advisor with the best sales skills also has a major advantage in objective selection processes

Why? There are four primary reasons:

1. All advisors claim to be ethical, financial experts whether it is true or not
2. Very few advisors provide any type of proof that they are real experts
3. Even fewer investors know how to determine the quality of advisors which is why such a high percentage use no process or a subjective process
4. Investors do not research advisors before they select them

High quality advisors should provide proof they are trustworthy financial experts. If they do not provide proof they are asking investors to select them based on sales claims, just like their lower quality competitors. When used properly, proof is a differentiating characteristic. This solves a major problem for higher quality advisors who say “differentiation” is their second biggest marketing challenge. Number one is a continuous flow of new qualified prospects every month.

1/1: Are things really getting better???



Doesn't really look like it.


1/1:

Optimism over US economy but danger lurks

Hopes are rising on growth and jobs, yet the EU debt crisis and housing are worries http://link.ft.com/r/BLH300/XH7VV3/2OMYP/30Z6QY/97QJM3/36/h?a1=2011&a2=12&a3=29

1/1: 

Unemployment Insurance Weekly Claims Report [12/29/2011]

 

In the week ending December 24, the advance figure for seasonally adjusted initial claims was 381,000, an increase of 15,000 from the previous week's revised figure of 366,000. The 4-week moving average was 375,000, a decrease of 5,750 from the previous week's revised average of 380,750.

1/1: Strook & Strook & Lavin:
Becoming a fiduciary of a Plan carries with it substantial duties, including those of prudence, loyalty, diversification of plan assets, and compliance with a Plan’s governing documents. In addition, fiduciaries of Plans are subject to broad anti-self dealing provisions. For example, a broker that seeks to provide products and services to a Plan on a commission basis generally could not do so if the broker were deemed to be a fiduciary with respect to the Plan’s assets. Further, most of the exemptions from ERISA and the Code’s prohibited transaction rules that counterparties rely upon to conduct ordinary course business with Plans require that the service provider or counterparty not be a fiduciary. Consequences of a violation of these prohibited transaction rules can result in rescission, excise taxes, restoration of losses and other penalties. It is not surprising that service providers would seek to be deemed to be fiduciaries by design and not by circumstance.2

1/1: Insurance  

“the life and annuity insurance industry will be challenged to find ways to manage both capital and risk in an economically and politically uncertain year, while continuing to lay the groundwork for future growth.”

"Pressures such as low interest rates, volatile equities markets, and a political and regulatory environment in flux will continue to impact the industry, making it difficult for insurers to boost earnings,

1/1

12/29:

12/29:  Way out of whack

 

12:28 HOME PRICES ARE STILL GOING DOWN. Total prices are now down over 32%. 

12/28: New SEC rule drops home value from net-worth calculation
The Securities and Exchange Commission on Wednesday adopted a rule that prohibits investors' home values from being tallied as part of their net worth for the purpose of determining whether they are "accredited investors."

12/28: A "sinking" fat ferry

A ferry had a maximum capacity of 2000 and an individual wieght of 160 pounds each. But now the average weight grew to 185 pounds and the maximum number dropped to 1750.  So the costs goes up.

12/27: Sounds awfully good: 

When your life cases are issued up to Table 3, turn to Aviva's Table Reduction Program!

Don't lose rated cases because of table ratings.
There is an easier way when you submit the case with Aviva:

• Cases rated to Table 3 are automatically issued standard
• Face amounts up to $10 million are eligible
• Issue ages 20-70

Available on Aviva's Universal Life and Indexed Life including the Survivor UL

Do you know how to figure out if any good?

12/27:  

CFOs Less Optimistic About Economy, Survey Says

Financial executives at U.S. companies remain concerned about the current economy and are less confident about economic growth in 2012

I not not expect a good summer.
12/25:

1. International Diversification During the Financial Crisis: A Blessing for Equity Investors?

Date:	2011-12
By:	Robert Vermeulen
URL:	http://d.repec.org/n?u=RePEc:dnb:dnbwpp:324&r=rmg
This paper empirically investigates international equity investors’ foreign portfolios before and during the financial crisis by estimating a gravity model for 22 source and 42 destination countries. The results show that international stock market diversification provides large gains during the financial crisis. This is remarkable because of large stock market correlations. During the financial crisis investors have larger positions in foreign stock markets which are relatively less correlated with the domestic market. However, this relationship is not present before the crisis. Results at the country level show that aggregate portfolio volatility is lower and returns are higher for investors from low home biased source countries during the financial crisis. This result implies that global equity diversification has an important positive effect on stabilizing a country’s aggregate equity wealth, especially during per iods of stock market stress.

12/25: Yields on Selected SEcurities

12/25: Retirement????  

Year-End Reality Check: 71% of Americans Don't Have a Retirement Plan
The population may be aging, but that hasn’t gotten a lot of Americans to plan for retirement. About 71% of Americans lack a formal investment plan to help them reach their retirement goals, according to one study.

12/25: Countrywide/BofA $335 million dollar fine. If you stolde $3,000 you at least be put up before a judge. If you stole $30,000, $300,000, $3,000,000 you'd serve some time in jail. But screw people so badly that a fine is instituted over $300,000,000 and you can go scott free.  

12/25:  My letter to Phyllis Borzi of the DOL regarding the insipid glossary  for 401k employees

December 22, 2011

Phyllis Borzi
Department of Labor
200 Constitution Ave, NW, Ste S-2524.
Washington, DC 20210

RE: ICI Glossary

Dear Ms. Borzi,


Please do not let this travesty into corporations and employees. I don’t care who did it- it is a nothingless, useless and, in many cases, simply wrong waste of paper.

Illiteracy is a massive problem in America. Financial literacy is failure. And this piece of fluff is not going to help anyone.

These definitions won’t help anyone figure out what to do- there is no real life explanation. Some of it is wrong- probably designed that way so the powers to be in the industry won’t get offended.

Let’s take diversification- it is NOT the same as asset allocation.

Asset allocation is the addition of various types of investments in a portfolio to reduce risk overall without supposedly altering the potential gain. But if the economy or market hits a bad patch, everything tends to bad at the same time (2000. 2008).

If that is not mentioned, it is a fraud upon the reader since it is a fact of investing that caused them all to lose so much money. We are in this retirement debacle (and pension as well) due to sophomoric definitions that offer no insight at all. And does anyone really think the definition will be altered by the corporation to include real life adjustment? By whom? Not a chance.

Equity Fund: A fund that invests primarily in equities. 

Boy, I wonder how the ICI, Sparks Institute, ASPPA, ACLI,  et al thought of that one. Must have been some committee meeting.

Aggressive: An investment approach that accepts above-average risk of loss in return for potentially above-average investment returns.

Tell me- what is the potential numerical risk of loss? 30%? 50%, 70%. There is no universal definition for aggressive. But since my book indicates how to do an actual risk of loss, the reader needs to know it is pushing 70%. Is it not the “fiduciary” thing to do but to indicate just how bad it can get?

Conservative: An investment approach that accepts lower rewards in return for potentially lower risks.

So what is that risk of loss? I cannot even guess since the internal allocation needs to be defined. Lower rewards and lower risk are esoteric terms at this point and do next to nothing to help the employee.

Front-end Load: A sales charge on mutual funds or annuities assessed at the time of purchase to cover selling costs.

Is it not the responsible thing to do to indicate just what range of commissions are being applied to the various products? Sure it is. Anything less is deceptive at best. The consumer/employee has a right to know something beyond this useless tidbit. Is the corporation going to tell them? Not a chance. We all know that.

Management Fee: A fee or charge paid to an investment manager for its services.

And no numbers at all. Should not the employee know the range of fees- certainly in comparison to index opportunities? That is what a fiduciary is supposed to do.

Passive Management: The process or approach to operating or managing a fund in a passive or
non-active manner, typically with the goal of mirroring an index. These funds are often referred
to as index funds and differ from investment funds that are actively managed. The operating  fees can be just 25% of actively managed funds.

Why isn’t something like that introduced? After all, that is a key focus in investing.

Portfolio Turnover Rate: A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.

Why aren’t the numbers between actively managed and index funds shown? What about the tax implications?

Return: The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.

Yes, I know that some of this goes to the most financially illiterate. But they will stay that way with tripe like this. Sure it requires an additional (minimal) effort to offer real life examples, but they need to be included. And this is not a re-invention of the wheel.

Yield: The value of interest or dividend payments from an investment, usually stated as a percentage of the investment price.

Show them how it works. It’s easy. But by itself, it will mean little. And forgotten quicker. 

I don’t care that all these entities got together to work out a simple glossary. They micromanaged the material to drivel. Probably took multiple meetings to figure out how to say nothing. Admittedly, it’s not that it is all useless but it is NOT going to help those employees that really want to learn and to understand. If you tell them, they can learn. If this nonsense is offered, they will remain functionally financially illiterate at the whim of an industry that would prefer nil direction so that they can still sell “stuff”.

As an additional element, the dictionary must include annuity definitions. These are being offered to employees and must be examined and defined adequately. The products are proliferating exponentially and will impact every potential retiree.

I have spent most of my lifetime trying to get solid information to the public so they won’t get screwed. The type of info being provided by the authors is little more than a way of maintaining the (irresponsible)  status quo.

Feel free to have anyone in your office call to discuss further. But do not allow this pointless mess to be disseminated to the public.  It is a clear breach of fiduciary duty.


12/25: College search engine  

12/22:

1. Can portfolio diversification increase systemic risk? evidence from the U.S and European mutual funds market

Date:	2011-11-30
By:	Dicembrino, Claudio Scandizzo, Pasquale Lucio
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:33715&r=rmg
This paper tests the hypothesis that portfolio diversification can increase the threat of systemic financial risk. The paper provides first a theoretical rationale for the possibility that systemic risk may be increased by the proliferation of financial instruments that lead operators to hold increasingly similar portfolios. Secondly, the paper tests the hypothesis that diversification may result in increasing systematic risk, by analyzing the portfolio dynamics of some of the major world open funds.

12/22:

1. Poverty and Aspirations Failure

Date:	2011
By:	Dalton, P.S. Ghosal, S. (Tilburg University, Center for Economic Research)
URL:	http://d.repec.org/n?u=RePEc:dgr:kubcen:2011124&r=cbe
We develop a theoretical framework to study the psychology of poverty and 'aspirations failure'. In our framework, the rich and the poor share the same preferences - and also a behavioral bias in setting aspirations. Greater downside risks imposed by poverty exacerbates the effects of this behavioral bias: the poor are more susceptible to both an aspirations failure and pessimism about the likelihood of achieving success. Poverty limits the set of people whose life experiences the poor consider relevant for forming their own beliefs and aspirations. Mitigating behavioral poverty traps require policies which go beyond reducing material deprivation.

12/22:

1. Household finances and the 'Big Five' personality traits

Date:	2011-12
By:	Sarah Brown Karl Taylor (Department of Economics, The University of Sheffield)
URL:	http://d.repec.org/n?u=RePEc:shf:wpaper:2011025&r=cbe
We explore the relationship between household finances and personality traits from an empirical perspective. Specifically, using individual level data drawn from the British Household Panel Survey, we analyse the influence of personality traits on financial decision-making at the individual level focusing on decisions regarding unsecured debt acquisition and financial assets. Personality traits are classified according to the ‘Big Five’ taxonomy: openness to experience, conscientiousness, extraversion, agreeableness and neuroticism. We find that certain personality traits such as extraversion and openness to experience exert relatively large influences on household finances in terms of the levels of debt and assets held. In contrast, personality traits such as conscientiousness and neuroticism appear to be unimportant in influencing levels of unsecured debt and financial asset holding. Our findings also suggest that p ersonality traits have different effects across the various types of debt and assets held. For example, openness to experience does not appear to influence the probability of having national savings but is found to increase the probability of holding stocks and shares, a relatively risky financial asset.
Keywords:	big five personality traits, financial assets, unsecured debt
JEL:	C24

2. Economic literacy and inflation expectations: evidence from a laboratory experiment

Date:	2011
By:	Mary A. Burke Michael Manz
URL:	http://d.repec.org/n?u=RePEc:fip:fedbpp:11-8&r=cbe
We present new experimental evidence on heterogeneity in the formation of inflation expectations and relate the variation to economic literacy and demographics. The experimental design allows us to investigate two channels through which expectations-formation may vary across individuals: (1) the choice of information and (2) the use of given information. Subjects who are more economically literate perform better along both dimensions—they choose more-relevant information and make better use of given information. Compared with survey data on inflation expectations, fewer demographic factors are associated with variation in inflation expectations, and economic literacy in most cases accounts for demographic variation in expectations.

12/21:

"Do Mood Swings Drive Business Cycles and is it Rational?" 
NBER Working Paper No. w17651

PAUL BEAUDRY, University of British Columbia (UBC) - Department of Economics, National Bureau of Economic Research (NBER)
Email: beaudry@econ.ubc.ca
DEOKWOO NAM, affiliation not provided to SSRN
Email: dnam@wisc.edu
JIAN WANG, Federal Reserve Bank of Dallas
Email: jian.wang@dal.frb.org

This paper provides new evidence in support of the idea that bouts of optimism and pessimism drive much of US business cycles. In particular, we begin by using sign-restriction based identification schemes to isolate innovations in optimism or pessimism and we document the extent to which such episodes explain macroeconomic fluctuations. We then examine the link between these identified mood shocks and subsequent developments in fundamentals using alternative identification schemes (i.e., variants of the maximum forecast error variance approach). We find that there is a very close link between the two, suggesting that agents' feelings of optimism and pessimism are at least partially rational as total factor productivity (TFP) is observed to rise 8-10 quarters after an initial bout of optimism. While this later finding is consistent with some previous findings in the news shock literature, we cannot rule out that such episodes reflect self-fulfilling beliefs. Overall, we argue that mood swings account for over 50% of business cycle fluctuations in hours and output.

12/21: 401k Glossary
Diversification: The practice of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment.
Joke- if you do  not have the numbers for diversification, it means effectively nothing.

There are no definitions on standard deviation- which is in every mutual fund prospectus.

No wonder losses will continue.  But this is considered adequate/proper for employees. True in a way that they do not know much to begin with so who cares? 

12/21: Speical Needs Calculator

12/21: Is Canada ahead of us.?  

Canada’s Finance Minister Jim Flaherty announced that the Canadian government intends to introduce legislation that would prohibit banks from selling financial products that function like annuities.

“Since taking office, this government has taken steps to clarify the separation of banking and insurance activities,” said Flaherty in a statement released by the Department of Finance. “This will ensure that the business of insurance continues to be subject to the appropriate rules and regulations.”

The statement goes on to say that life annuity products fall under the same regulatory charter as insurance companies. Furthermore, under current Canadian law, banks are banned from promoting or selling life annuities, which are considered insurance products.

Yet, according to the Department of Finance, in recent years, some banks “have introduced products that perform the same or similar functions as life annuities.” Such products are not subject to the same regulations as those sold by insurance companies, noted the government agency.

The legislative amendments will be proposed “as soon as possible,” according to the statement. Any new laws would permit the grandfathering of existing products, subject to contract terms and conditions.

12/20:

"The Geography of Financial Literacy" 
RAND Working Paper Series No. WR-893-SSA

CHRISTOPHER B. BUMCROT, Applied Research & Consulting LLC
Email: chris.bumcrot@FinancialLiteracyGroup.com
JUDY LIN, affiliation not provided to SSRN
Email: linyanhua@hotmail.com
ANNAMARIA LUSARDI, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
Email: annamaria.lusardi@dartmouth.edu

This report explores how well equipped today’s households are to make complex financial decisions in the face of often high-cost and high-risk financial instruments. Specifically it focuses on financial literacy. Most importantly, it describes the geography of financial literacy, i.e., how financial literacy is distributed across the fifty US states. It describes the correlation of financial literacy and some important aggregate variables, such as state-level poverty rates. Finally, it examines how much differences in financial literacy can be explained by states’ demographic and economic characteristics. To assess financial literacy, five questions were added to the 2009 Financial Capability Study, covering fundamental concepts of economics and finance encountered in everyday life: simple calculations about interest rates and inflation, the workings of risk diversification, the relationship between bond prices and interest rates, and the relationship between interest payments and maturity in mortgages. An index of financial literacy was constructed based on the number of correct answers provided by each respondent to the five financial literacy questions. The financial literacy index reveals wide variation in financial literacy across states. Much of the variation is attributable to differences in the demographic make-up of the states; however, a handful of states have either higher or lower levels of financial literacy than is explained by demographics alone. Also, there is a significant correlation between the financial literacy of a state and that state’s poverty level. The findings indicate directions for policy makers and practitioners interested in targeting areas where financial literacy is low.

12/20: 10%????- Do you know how many times the stock market has actually returned between 9% and 11% since 1945? Just once! (That was in 1993, in case you want to impress your friends.) In all other years, the returns on stocks were either higher or lower--sometimes a lot lower.

12/19: LTC"

Coverage is perceived as expensive, which can be true; however, according to the American Association for Long-Term Care Insurance (AALTCI), the average cost of a policy for a couple aged 55 would be $2,350 combined, for a benefit package that would immediately be worth $338,000 and that would grow to $821,000 at age 85.

Other reasons for not purchasing coverage are perhaps more interesting. HHS issued its findings in a study titled “A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program.” Among men in particular the perception is that they will not need it—a perception not borne out by statistics. Another attitude was that if a policy didn’t pay for everything, it wasn’t worth having. That last is a logical disconnect between LTC insurance and other forms of insurance, none of which cover everything.

40% of people after age 65 will need two years or more of care


12/19: IRS home

12/18: Canada CFP marketing: “In an unregulated environment where anyone can call himself a financial planner without possessing any qualifications, Canadians are not protected from unqualified, unethical individuals.”  “The CFP marks indicate that the practitioner is held to the highest standards of professional and ethical conduct, and is accountable to professional oversight.”

Not true. Read my book.

12/18: Reply to Schapiro's "fidiuciary light"
This is a travesty overall. But a little history might help to validate my comments. STA 73rd Annual Conference & Business Meeting
The Phoenician, Scottsdale, AZ
October 12, 2006

Mary Schapiro, Chairman and CEO, NASD

“I'll close with a few words about a different, but related, subject—one that will surely shape the role of regulators well into this century—investor education as investor protection. I believe very strongly that the people best able to protect investors from mistakes, misunderstandings, deception or outright fraud are the investors themselves—if they are knowledgeable about investing and the markets. I cannot overstate the importance of this, particularly given that we're facing a looming crisis—the impending retirements of millions of baby-boomers, many of whom are financially ill-prepared to stop working.

Making matters worse is that Americans, by and large, are not particularly well-schooled in how to manage their own finances, nor do young adults enter the workforce with even a basic appreciation of the importance of starting to save and invest for retirement early.

Then there is the fact that there is a dizzying array of products being invented and marketed to investors, leaving them confused and perhaps even paralyzed in making decisions. The complexity of many new products—with elements of insurance, options, interest rate, commodity or real estate exposure, to name just a few twists—makes understanding their risks through different economic cycles a challenge, and deciding how they fit into a diversified portfolio even more daunting. Many investors feel they are simply not capable of understanding, so they toss the dice and buy an expensive, complex product they don't understand, or they give up in frustration and don't invest at all.”
Here we have the Chairman of the NASD who had already stated to me that the “NASD was a procedural entity, not a substantiative one” (meaning they would not endorse formal real life training for brokers, attorneys and arbitrators) is now possibly advocating a simplistic exemption for commissionable products from brokers who are not trained in the “many new products—with elements of insurance, options, interest rate, commodity or real estate exposure, to name just a few twists” and “makes understanding their risks through different economic cycles a challenge, and deciding how they fit into a diversified portfolio.....” They are not even trained in the old products. The fact is that the fundamentals of investing have NEVER been taught to a broker. And since I probably am the only person commenting who has ever taught the licensing courses, I unequivocally state that the elements of correlation, standard deviation, risk and more are not addressed in the licensing manuals simply because they are not tested. But to have the SEC et al  suggest by fact or inference that the “that the people best able to protect investors from mistakes, misunderstandings, deception or outright fraud are the investors themselves—if they are knowledgeable about investing and the markets” without any effort or interest in training the industry first and foremost is an outright fraud.
Schapiro has to have knowledge of how a product works- even basic mutual funds. She does not. However she is saying that, even in view of the harsh reality of consumer financial illiteracy- and aliteracy- that the consumer are best able to protect themselves- how? The NASD et al have provided nothing out there except the constant drivel of buying stocks, or buy and hold leads to nirvana et al. All with an industry she has lorded over that has continually failed to train agents on the fundamentals of  investing, nevermind the exponential increase in products and an volatile international economy- as identified above-is folly indeed.  A simplistic caveat on the SEC or FINRA website to check a broker’s background are so removed from reality as to be laughable.
Somewhere, the line has been crossed as to who should be protected.  The remote inference that the public will EVER have even a rudimentary understanding of risk is so far beyond rational thought as to be completely excluded. Financial literacy has less than a Grade F for decades and the increasing complexity demands an effort by the regulatory bodies to protect the most vulnerable.   
So how has that turned out? 
For the youngest, the industry continues to promote- with the national and state regulators blessings- the insidious stock market game to our children. A virtual $100,000 game of gambling as quickly as possible to see which group of children can beat the others in buying and selling stocks and mutual funds over a few week period.  For high grades and bragging rights. A name in the paper that they beat everyone else in an endorsed Casino game through our schools. Oh yeah- that will work well when they get older. .
The 401k instruction that uses flat rates of returns that have never existed in this world. Millions of retirees relegated to financial ruin because the SEC refuses to provide the education to advisers for real world applications. Of course the state regulators, NASAA, DOL, SIFMA et al- are also complicit. Not a one addresses fiduciary other than as a word. Not a one knows correct diversification.   

Schapiro is getting millions of dollars to run an organization to protect consumers and we are ending up with shallow, flatulent gibberish on business neutrality. A bunch of hackneyed tripe to appease the industry (SIFMA) and ultimately screw the unsuspecting public,  

But this comment does really not have to go further in its description since effectively every article in every publication on fiduciary states the word ‘brokers’. There are NO retail brokers left in the United States for at least the last 15 years. No one identifies themselves as a’ broker’ or ‘registered representative’.  Go into any Merrill stable, BofA. Wells Fargo- no matter the B/D, the monikers of financial planner, retirement specialist, wealth manager all allude to a background and competency that has never existed with a Series 7 et al. To suggest that those who are cavalierly committing a breach on the public should be given free rein under suitability (or fiduciary) standards in providing products they cannot understand to the public that is financially illiterate is inconceivable. Once any entity infers a competency in excess of background, it should be stopped. But the continuation of proprietary products and commissions will just be fine by the SEC who is what?- Going to be the organization overseeing fiduciaries?
Clark,  Chris Caruso and a paltry few others have lamented on this vile fraud by Schapiro and her cohorts. But if anyone who had read her speeches over the past decade should have expected this insult to us all. 

This is not going to turn out well.

Errold F. Moody Jr
PhD MSFP MBA LLB BSCE
Life and Disability Insurance Analyst
Registered Investment Adviser

Author- Financial Planning Fiduciary Standards under Dodd Frank

12/18: Western Consumer Price Index Card

12/18: From England- . 

“Officialdom might call them ‘families with multiple disadvantages’. Some in the press might call them ‘neighbours from hell’. Whatever you call them, we’ve known for years that a relatively small number of families are the source of a large proportion of the problems in society.”

12/18: From England- sound familiar?

it was “extraordinary” that in the last year the average earnings of FTSE 100 directors had risen by 49 per cent – “even as many of these companies faced difficult times”.

OWS  has plenty to complain about no matter the country
 
12/18: Care- President Obama announced new rules proposed by the Labor Department that would provide wage protections for in-home care workers. "The nearly 2 million in-home care workers across the country should not have to wait a moment longer for a fair wage," said President Obama. "Today's action will ensure that these men and women get paid fairly for a service that a growing number of older Americans couldn't live without." Currently, workers classified as "companions" are exempt from the Fair Labor Standards Act's minimum wage and overtime pay requirements. When established in 1974, the exemptions were meant to apply to babysitters and companions for the elderly, not workers whose vocation was in-home care service

12/18: Kahneman-

Amos and I once rigged a wheel of fortune. It was marked from 0 to 100, but we had it built so that it would stop only at 10 or 65 One of us would stand in front of a small group, spin the wheel, and ask them to write down the number on which the wheel stopped, which of course was either 10 or 65. We then asked them two questions:

Is the percentage of African nations among UN members larger or smaller than the number you just wrote?

What is your best guess of the percentage of African nations in the UN?

The spin of a wheel of fortune had nothing to do with the question and should have had no influence over the answer, but it did. “The average estimate of those who saw 10 and 65 were 25% and 45 respectively.”

This is known as “the anchoring effect,” of which Kahneman explains in his book, “We were not the first to observe the effects of anchors, but our experiment was the first demonstration of its absurdity.” It’s unsettling to know that your judgment can be so heavily influenced by some random number and disturbing to realize it is probably happening all the time. The anchoring effect turns out to explain all sorts of strange phenomenon in the world around us—why, for instance, when German judges, before mock-sentencing a shoplifter, were asked to roll a pair of dice rigged to come up either three or nine, those who rolled nine said on average eight months, while those who rolled three said five months.

12/18: State     Fitch     Moody's     S&P     State     Fitch     Moody's     S&P      
Alabama         AA+     Aa1     AA              Montana     AA+     Aa1     AA     
Alaska            AA+     Aaa     AA+            Nebraska               AAA      
Arizona          Aa3     AA-                          Nevada     AA+     Aa2     AA     
Arkansas          Aa1     AA                         New Hampshire     AA+     Aa1     AA      
California         A-     A1     A-                    New Jersey     AA-     Aa3     AA-     
Colorado          Aa1     AA                         New Mexico          Aaa     AA+      
Connecticut     AA     Aa2     AA                New York     AA     Aa2     AA     
Delaware        AAA     Aaa     AAA           North Carolina     AAA     Aaa     AAA      
D.C.              AA-     Aa2     A+                North Dakota          Aa2     AA+      
Florida          AAA     Aa1     AAA            Ohio     AA+     Aa1     AA+      
Georgia        AAA     Aaa     AAA             Oklahoma     AA+     Aa2     AA+     
Hawaii          AA+     Aa2     AA               Oregon     AA+     Aa1     AA+      
Idaho            AA (Lease)          AA            Pennsylvania     AA+     Aa1     AA      
Illinois           A     A1     A+                      Puerto Rico     BBB+     A3     BBB      
Indiana        AA+ (Lease)     Aaa     AAA   Rhode Island     AA     Aa2     AA      
Iowa          AAA (Implied GO)  Aaa  AAA     South Carolina     AAA     Aaa     AA+      
Kansas       AA (Lease)     Aa1     AA+     South Dakota     AA (Lease)          AA+      
Kentucky     AA- (Lease)     Aa2     AA-   Tennessee     AAA     Aaa     AA+      
Louisiana     AA     Aa2     AA                   Texas     AAA     Aaa     AA+     
Maine         AA+     Aa2     AA                  Utah     AAA     Aaa     AAA      
Maryland     AAA     Aaa     AAA              Vermont     AAA     Aaa     AA+     
Mass          AA+     Aa1     AA                 Virginia     AAA     Aaa     AAA      
Michigan       AA-     Aa2     AA-             Washington     AA+     Aa1     AA+      
Minnesota     AAA     Aa1     AAA           West Virginia     AA     Aa2     AA      
Mississippi     AA+     Aa2     AA            Wisconsin     AA     Aa2     AA     
Missouri       AAA     Aaa     AAA           Wyoming               AA+      


12/18: Trust- The phrase “Trust, but Verify” is most often heard in politics, but it can also be applied to your trusted advisors. Trust is best built when the leap of faith between what is known and what is unknown is as small as possible. Clients hire advisors for experience and knowledge in areas they do not have. When CPAs, tax attorneys and/or trust officers need information about the pricing, performance and suitability of their client’s life insurance, the most common source of “research” has been to ask some number of “trusted” agents/brokers for their best recommendations of a suitable product for their client.

12/18: the poor- a record number of Americans — nearly 1 in 2 — have fallen into poverty or are scraping by on earnings that classify them as low income.

Mayors in 29 cities say more than 1 in 4 people needing emergency food assistance did not receive it. Many middle-class Americans are dropping below the low-income threshold — roughly $45,000 for a family of four — because of pay cuts, a forced reduction of work hours or a spouse losing a job. Housing and child-care costs are consuming up to half of a family's income.

States in the South and West had the highest shares of low-income families, including Arizona, New Mexico and South Carolina, which have scaled back or eliminated aid programs for the needy. By raw numbers, such families were most numerous in California and Texas, each with more than 1 million.

About 97.3 million Americans fall into a low-income category, commonly defined as those earning between 100 and 199 percent of the poverty level, based on a new supplemental measure by the Census Bureau that is designed to provide a fuller picture of poverty. Together with the 49.1 million who fall below the poverty line and are counted as poor, they number 146.4 million, or 48 percent of the U.S. population. That's up by 4 million from 2009, the earliest numbers for the newly developed poverty measure.

Broken down by age, children were most likely to be poor or low-income — about 57 percent — followed by seniors over 65. By race and ethnicity, Hispanics topped the list at 73 percent, followed by blacks, Asians and non-Hispanic whites.

Even by traditional measures, many working families are hurting.

Following the recession that began in late 2007, the share of working families who are low income has risen for three straight years to 31.2 percent, or 10.2 million. That proportion is the highest in at least a decade, up from 27 percent in 2002, according to a new analysis by the Working Poor Families Project and the Population Reference Bureau, a nonprofit research group based in Washington.

Among low-income families, about one-third were considered poor while the remainder — 6.9 million — earned income just above the poverty line. Many states phase out eligibility for food stamps, Medicaid, tax credit and other government aid programs for low-income Americans as they approach 200 percent of the poverty level.

The majority of low-income families — 62 percent — spent more than one-third of their earnings on housing, surpassing a common guideline for what is considered affordable. By some census surveys, child-care costs consume close to another one-fifth.

Paychecks for low-income families are shrinking. The inflation-adjusted average earnings for the bottom 20 percent of families have fallen from $16,788 in 1979 to just under $15,000, and earnings for the next 20 percent have remained flat at $37,000. In contrast, higher-income brackets had significant wage growth since 1979, with earnings for the top 5 percent of families climbing 64 percent to more than $313,000.

12/15:

12/15:

1. Asymmetric perception of gains vs non-losses and losses vs non-gains: The causal role of regulatory focus

Date:	2011-11
By:	Simona Sacchi Luca Stanca
URL:	http://d.repec.org/n?u=RePEc:mib:wpaper:214&r=cbe
Recent studies show that, while losses loom larger than equivalent non-gains, gains loom larger than equivalent non-losses. This finding, at odds with the loss aversion principle, has been interpreted within the framework of regulatory focus theory. In this study, we explore the causal effect of regulatory focus on the asymmetric perception of gains vs non-losses and losses vs non-gains. We examine the perceived effects of both hypothetical and actual changes in monetary wealth, while orthogonally manipulating framing, valence, and regulatory focus. We find a significant interaction between the three factors. The gain vs non-loss asymmetry in perceived satisfaction is stronger in promotion focus, while the loss vs non-gain asymmetry in perceived dissatisfaction is stronger in prevention focus. The results suggest that the effects of incentives framed in terms of (non)gains and (non)losses, depend on their congruence with the individual’s motivational state.

12/15: Food- we're paying the most ever for food, 68 percent higher than five years ago.


12/15: Cognition- human beings are best understood as being risk-averse when making a decision that offers hope of a gain but risk-seeking when making a decision that will lead to a certain loss. In a stroke they provided a framework to understand all sorts of human behavior that economists, athletic coaches, and other “experts” have trouble explaining: why people who play the lottery also buy insurance; why people are less likely to sell their houses and their stock portfolios in falling markets; why, most sensationally, professional golfers become better putters when they’re trying to save par (avoid losing a stroke) than when they’re trying to make a birdie (and gain a stroke).

12/12: Fund expenses

studies by Bogle and other researchers do not provide a clear picture of how typical investors actually fare. The problem is that many active funds are tiny and serve few investors. The funds are small—and likely to stay that way—because they have high fees and poor returns. At the other end of the size spectrum are big funds that attract investors by maintaining low fees and competitive returns. While the small funds only serve a limited number of investors, the academic studies give equal weight to all funds—regardless of their size. The academic approach produces a distorted picture, says Rekenthaler. “It doesn’t matter what percentage of funds trail the index,” says Rekenthaler. “What matters most is how the big funds do. That’s where most of the money is.”

To appreciate Rekenthaler’s argument, consider the 349 large blend funds with 10-year records that are tracked by Morningstar. During the decade that ended in October 2011, 56 percent of the funds trailed the S&P 500. By that measure, the active funds appear to have failed their investors. But many of the worst funds harmed only a few shareholders. Among the losers was Saratoga Large Capitalization Value (SLCVX), which charges an annual expense ratio of 2.6 percent and lagged the S&P 500 by 4.9 percentage points annually. While the record was abysmal, the damage was small because the fund only has $17 million in assets. At the other of the spectrum is Hartford Capital Appreciation (HIACX), which has $8.6 billion in assets. Hartford topped the S&P 500 by 3.5 percentage points annually and has an expense ratio of 0.67 percent. Tiny funds are not a rarity. Of the large blend funds, 25 percent have less than $70 million in assets. Together those small funds hold total assets that are less than those of each of the 25 biggest funds.

investors are increasingly moving to low-cost funds. The shift was documented in a study by the ICI that looks at asset-weighted expenses as well as equal-weighted figures. In 1996, the simple average expense ratio was 1.55 percent, and the figure declined to 1.45 percent by 2010

The ICI says that the movement into low-cost funds has been accelerating. During the period from 2000 to 2010, funds with expense ratios in the cheapest quartile attracted 82 percent of all net new cash inflows. The pattern is particularly pronounced for index funds, where investors have learned to shop for bargains. According to the ICI, index funds in the cheapest quartile attracted 86 percent of assets. Of S&P 500 funds, 63 percent of assets were in funds that have expense ratios of 0.10 percent or less. Only 15 percent of assets were in funds with expense ratios of 0.20 percent or more.

Does the data prove that funds investors have become geniuses? Hardly. The numbers indicate that when they are choosing from among the many funds on the market, investors tend to pick the right ones. But investors display remarkably bad timing for their purchases and sales. Studies by research firm Dalbar have shown that over the past two decades, fund investors have typically bought at market peaks and sold at troughs.



12/11:From Drinker Biddle. This is a quiz. Read to the end and tell me what is wrong

There is a growing concern about the quality of participant investing in 401(k) and 403(b)
plans... since that is one of the critical factors in determining whether participants will
accumulate adequate benefits at retirement. For example, industry studies show that many
participants are invested too aggressively or too conservatively, rather than having balanced
portfolios that lie between those extremes. If a participant is invested too conservatively, then
his or her account will probably not grow at a rate needed to provide adequate benefits. On the
other hand, if a participant is invested too aggressively, the account may suffer severe losses in
the years preceding retirement.
Because of concerns about participant investing, the Pension Protection Act of 2006
included a provision that would permit providers and advisers to give potentially conflicted
investment advice, if appropriate safeguards were in place. After a couple of false starts, the
U.S. Department of Labor (DOL) recently issued a final regulation that more fully describes
the safeguards. As a result, plan sponsors, and their plan committees, now have more
opportunities to provide investment advice services to their participants. The purpose of this
Alert is to discuss the key decision-points for plan sponsors.
If a plan sponsor wants to make investment advice available to participants, the plan sponsor,
acting in its fiduciary capacity, needs to make certain practical and legal decisions. (Since many
plan sponsors assign these fiduciary responsibilities to plan committees, this Alert refers to the
plan committee as the responsible fiduciary.) Those decisions include:
1. Discretionary versus non-discretionary
There are two basic forms of investment advice for participants. One is nondiscretionary
investment advice. In that scenario, the fiduciary adviser makes
investment recommendations to the participant, but only the participant can actually
implement the recommendations. The other form is discretionary advice, which is
sometimes called investment management. In that case, the participant hires the
investment manager to make decisions about the investment of the account and
implement those decisions. In other words, the investment adviser actually manages
the account, as opposed to making recommendations to the participant and relying
on the participant to implement the advice – or not.
Both forms of fiduciary advice are common. However, in recent years,
discretionary investment management has become increasingly more popular,
because of evidence that, while investment recommendations to participants are
generally helpful, many participants do not implement the advice. (Note that the
new DOL regulation does not apply to discretionary investment management.)
2. Conflicted advice versus non-conflicted advice
If the plan committee decides to use discretionary investment management,
then there is no need to consider this issue. That is because, unless there is
an applicable DOL class or individual exemption, investment management
services can only be provided by non-conflicted advisers. (For purposes of
this Alert, “conflicted” advice means that the adviser can, directly or indirectly,
increase its compensation based on the recommendations that are made. For
example, if a recordkeeper has affiliated mutual funds, and the recordkeeper
provides advice to participants to invest in those affiliated funds, the advice
is “conflicted,” because an affiliate would make more money to the extent the
participants follow the advice. Similarly, if a fiduciary adviser recommends
investments that pay a higher commission to the adviser or an affiliate, but could
have recommended investments that pay a lower commission, the advice is
considered “conflicted.”)
On the other hand, if the fiduciary adviser does not have any affiliated mutual
funds or other products, or cannot cause itself or an affiliate to make more
money by virtue of the advice, then the advisory firm is a “pure” level fee
provider. That is, it is not conflicted because it does not have the potential to
increase the income for itself or its affiliates, and the conditions imposed by the
regulation do not apply.
Assuming that the plan committee has decided it wants to offer nondiscretionary
investment advice, the committee needs to decide whether to limit
the providers to those that do not have any conflicts or whether to consider
advisers that do have conflicts. While, at first blush, it might seem that most
committees would select non-conflicted advisers, there may be advantages to
selecting conflicted providers under the following circumstances:
‚‚ The fee for the advice may be lower.
‚‚ The committee may, upon review of the conditions that apply to the
conflicted adviser, decide that the restrictions are adequate to overcome any
potential for the adviser to make recommendations that are imprudent or
inappropriate.
We will discuss some of those conditions later in this Alert. However, at this
point, we should point out that the conditions in the DOL regulation are specific
and detailed. As a result, plan committees should have their ERISA counsel
review the fiduciary investment program being offered by the adviser or provider
to make sure that the conditions of the prohibited transaction exemption are
satisfied. If they are not, the plan will have entered into a prohibited transaction.

My question is simply, who are the advisers? Calling an adviser who has no formal training a fiduciary is the problem. The issue really is not conflicted et al, it's whether it is any good to begin with. There are no knowledge standards to be a fiduciary. That is why so many retirees got screwed and will be screwed again.


12/11: We sure love stuff

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total October exports of $179.2 billion and imports of $222.6 billion resulted in a goods and services deficit of $43.5 billion, down from $44.2 billion in September, revised.  October exports were $1.5 billion less than September exports of $180.6 billion.  October imports were $2.2 billion less than September imports of $224.8 billion.

12/8: There are investments that have very small volatility, returned close to 7% this year, may do so till mid 2013, are completely liquid and sold by a number of mutual funds.
What is it?

12/8: Inflation is low- Have you noticed the price of pork chops, ground beef and other food items have jumped in the supermarket? No wonder, one report says we're paying the most ever for food, 68 percent higher than five years ago.

12/7: Finally, after all these years, Morningtar says something about fat tails- 

Recent history tells us that it is unwise to discount the possibility of extreme events. Since 1926, 3-sigma losses - losses greater than 3 standard deviations from the mean - have occurred 8 times more frequently than is predicted by a normal distribution. Tail risk is real, and the real world doesn't fit neatly into a bell curve.

12/6: Pressure from B-Ds, economic studies stall fiduciary rule
A small but vocal faction of broker-dealers has effectively "paralyzed" the Securities and Exchange Commission's push to develop a new fiduciary rule, says Consumer Federation of America investor-protection chief Barbara Roper. Threats of legal challenges, along with pressure from lawmakers to conduct a more rigorous cost-benefit analysis of the rule, are holding up the rule, she said. Meanwhile, some industry experts said they expect the rule in early 2012.

12/4:  designations-

The use of these misleading designations has become so widespread that now the brokerage industry's largest regulator has issued a warning regarding their use. The group has also released the results of a survey of 157 of its member firms, revealing that most firms allow their advisors to use senior designations and that more than a quarter of these firms allow any designation at all. For example, more than a third have advisors who are using the "certified senior advisor" designation, which involves little more than attending a three-and-a-half-day seminar and does not require a high school diploma.

“In certain instances, senior designations approved by firms or widely used by registered persons did not require rigorous qualification standards,” the Financial Industry Regulatory Authority Inc. (FINRA) dryly notes in its warning, Regulatory Notice 11-52.

FINRA's survey found that 68 percent of firms allow the use of senior designations. A majority of firms (66 percent) that permit the use of senior designations require approval and verification of credentials before they are used, but 23 percent of firms require prior approval but do not verify the credentials. That leaves 11 percent of firms that do not require either approval or verification of credentials.

FINRA suggests that its member firms may want to put in place procedures that would permit their financial advisors to use only those senior designations "that instill substantive knowledge to better serve and protect senior investors."

Credentials like "certified senior adviser," "certified retirement counselor," "registered financial gerontologist," and "certified retirement financial adviser" imply expertise with senior and retirement investing, but they take only a few days to earn. Insurance companies often use graduates of these programs to sell insurance contracts to seniors--in particular deferred annuity contracts, which may not be in the best interest of the senior

The report goes on to say- If you are looking for qualified financial advice, look for a "certified financial planner," "chartered financial consultant," or a "master of science in financial services (MSFS)." These programs actually involve years of study and require a college degree

False. The CFP program now does require a college degree- but it can be in anything- wax propogation- with no relevance to finance at all. Those with the designations years ago without degrees are simply grandfathered in. The CFP designation is ONE semester on money andmay be had in about 6 to 9 months.

12/4: Return variations since 1900

You can read an enitre book on Monte Carlo Simulation- tond of charts and projectsions. All effectively based on history of numbers from 1900. I did not live then, I am not going back there. I am here and now trying to go forward in a totally uinque economy.


12/4: Illuminating

1. Riding the Yield Curve: A Spanning Analysis

Date:	2011-11-01
By:	Galvani, Valentina (University of Alberta, Department of Economics) Landon, Stuart (University of Alberta, Department of Economics)
URL:	http://d.repec.org/n?u=RePEc:ris:albaec:2011_019&r=fmk
The average return on long-term bonds exceeds the return on short-term bills by a large amount over short investment horizons. A riding-the-yield-curve investment strategy takes advantage of the higher returns on longer term bonds. This strategy involves the purchase of bonds with maturities longer than the investment horizon and the sale of these bonds, before they mature, at the end of the investment horizon. Most of the literature that evaluates this strategy compares only ex post average returns or Sharpe ratios. In this paper, we use spanning tests to provide formal statistical evidence on the benefits of investing in long bonds when the investment horizon is short. The results for both the US and Canada indicate that an investor with a short horizon is better off investing in short-term debt instruments than long-term bonds.

12/1: This is why some people should not breed- From a reader, "I recently chatted with a retired co-worker and friend. He worked for 33 years for the local government and accumulated $990k in pension benefits which he took lump sum on the advice of another co-worker who recently quit to become a financial planner. My friend doesn't know how his money is invested, how much he is paying in fees or how much asset allocation discretion the financial planner has over his portfolio. She told him he can take out 7% a year for income and he is doing it."
1. Nothing like $990,000 idiots.

This was from a previous post. Somebody buying a car for $45,000 would look on line, get quotes, check ratings and more. But $990,000 doesn't even require common sense.



11/29: This ain't gonna fix it.  A huge boost to sales that we should not have bought and all of a sudden Europe is going to cure its problems as well.

Wonderful days ahead. .

11/28: Fat-

About 34% of U.S. adults are obese, compared with an average adult obesity rate of 17% for all OECD countries. In the next weightiest country, Mexico, about 30% of adults are obese.

But other OECD countries are starting to catch up: The overall OECD obesity rate increased to 17% in 2009, the latest year for which figures are available, up from 13% in 2000 and 9% in 1990.

11/18: Smoking:

Healthways Inc., Nashville, Tenn. (Nasdaq:HWAY), has found that U.S. residents who still smoke are often more addicted to smoking than they are to the food they need to stay alive.

Only 21% of U.S. residents still smoke, according to results of a poll commissioned by Healthways, but about 35% of the 20% of U.S. residents who did not have enough money to buy food within the past 12 months are smokers.

Only 14% of U.S. residents who can always afford to buy food are smokers.

11/27:

Tuition Jumps 8.3% Doubling Inflation

Tuition and fees at U.S. public universities soared 8.3 percent this year, twice the rate of inflation, to an average $8,244, a College Board report found. Nonprofit private college costs rose 4.5 percent to $28,500.

11/27:

1. Wishful Thinking

Date:	2011-11
By:	Guy Mayraz
URL:	http://d.repec.org/n?u=RePEc:cep:cepdps:dp1092&r=cbe
An experiment tested whether and in what circumstances people are more likely to believe an event simply because it makes them better off. Subjects observed a financial asset's historical price chart, and received both an accuracy bonus for predicting the price at some future point, and an unconditional award that was either increasing or decreasing in this price. Despite incentives for hedging, subjects gaining from high prices made significantly higher predictions than those gaining from low prices. The magnitude of the bias was smaller in charts with less subjective uncertainty, but was independent of the amount paid for accurate predictions.

* "It's too bad that stupidity isn't more painful."

Anton Szandor LaVey

11/27:  Really bad news 

Eurocoin declines again in November 

·       In November Eurocoin declined for the sixth consecutive month, to -0.20% from -0.13% in October.

·       As in recent months, the fall reflects the further deterioration of most of the variables that are included in the indicator.

11/24:

• Assisted Living History – The Evolution of Assisted Living Facilities

11/24: The following are states without a MCLE requirement. Attorneys in these states can still purchase any course that they would like for their own use:

ALASKA, CONNECTICUT, HAWAII, ILLINOIS, MASSACHUSETTS, MAINE, MARYLAND, MICHIGAN, NEBRASKA, NEW JERSEY, SOUTH DAKOTA, WASHINGTON D.C.

11/23:

8.25% Interest Rate* First Year Rate Only Palladium® Century 7 Annuitization not required 10% Surrender charge-free withdrawals (even in first year) Greater of accumulation value or surrender value at death Higher issue ages Longer maturity periods (100 - 107) 7% rate enhancement on additional premiums in first year for 12 months Asset trails available   I want to know more!

*First Year declared rate is 1.25% with a 7% rate enhancement Form: SPDA 04-NQ, PQ IMG9532 | S.A/L.SC.B/PR.H  |

Do these teaser rates work?? Absolutely!!!! People who know nothing about numbers love thsese.  Very successful marketing.

11/23: GDP

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.3 percent.

The problem is that the inability of the super schmucks (committee) is apt to drop that as much as one full percent


11/23: Disability

• According to a study by the Social Security Administration, 1 in 4 of today’s twenty-year-olds will become disabled before they retire.
• 12% of Americans are classified as disabled, while only 5% of Americans are eligible to receive Social Security Disability Insurance (SSDI) benefits.
• 65% of initial SSDI claim applicants were denied in 2009.
• From 2008 to 2009, SSDI recipients increased by 21%. The main factors contributing to this increase were the poor economy, high unemployment rates and America’s aging working population.
• The average long-term disability claim duration is 31.2 months.
• More than 1 in 5 workers will be disabled for 5 years or more during their working careers.
• Approximately 95% of disabilities are caused by illnesses as opposed to accidents.
• 60% of adult Americans have no savings earmarked for emergencies.

11/23: SEC
Barbara Murphy
Secretary
100 F. St. NE
Washington, DC
20549-1090

RE: Fiduciary Standards under Dodd Frank

Dear Ms. Murphy,

I have included my new book which is very critical of the Dodd Frank initiative at the consumer level- not because it would not make a big difference for the consumer if implemented correctly, but it simply cannot work with untrained brokers, agents and financial planners.

The fundamentals of investing have never been taught to a broker. They do not even know diversification. Correlation, standard deviation, asset allocation and much more are not touched upon for licensing and, without that, there is nothing further to prevent wholesale slaughter of the consumer. And that is what we have seen this past decade. CFPs, FPAs, CPAs etc. are effectively no better since none have been taught the risk that consumers are taking given the allocations presented.

Almost universally, every allocation is preprogrammed by computer software that uses a flat rate of return. Flat rates of return have never existed, do not now nor will in the future. Such sophomoric handling of risk by effectively negating potential losses in the portfolio is the major reason so many 401k/retirees were caught in the maelstrom of 2000 and 2008. The proverbial ‘buy and hold”, “Dollar cost averaging”, standard ‘rebalancing’ as practiced by almost planners and accepted by journalists et al has caused current investing participants to question the knowledge base of their advisors. Rightfully so. I repeat- the fundamentals of investing have never been taught to brokers. And since RIAs have transferred to fee advice merely, in almost all cases, by using the Series 7 license as evidence of competency, this travesty will continue. You simply cannot have the untrained and unknowledgeable bent on getting as much AUM as possible held to a level of a fiduciary. They simply don’t know what they don’t know.

As for insurance, agents will be held to a fiduciary level simply because they hold themselves as financial ‘whatevers’ that clearly indicates their ability to perform all financial issues (investments)- as is the same with brokers and their inference to covering insurance and annuities.
But insurance is an absolute minefield of exponentially increasing products covering indexed life and guaranteed annuities such as the GWLB and much more. The training here is even worse and the ability to ferret out what is going on (as might be applicable with Morningstar) is simply not available.
Then there is the farce of the efforts towards financial literacy for our children (actually anyone). The STG- stock market game- hands out $100,000 of virtual money to kids to trade as much as possible to beat another group of kids so they can get “bragging rights”, higher grades and possibly their name in the paper. This has to stop. It is gambling pure and simple. But it has been promoted for decades and hundreds of thousands of children will now grow with no true understanding of how the real world works. And their 401ks will be useless to cover retirement. 

The key to investing is a firm grasp of risk- specifically the risk of loss. It is not perfect, but a numerical position to consumers on how much their personal allocation can lose in a downturn would radically change their thought process and what to demand of their advisers. Of course, the adviser would have to know the issue as well. That is why the pundits of Dodd Frank are correct. It will cost money. And it will take time. And it certainly would negate a lot of unnecessary sales.

Here is the definitive work on why the education to advisers and consumers must change.
I realize some of this will not dovetail with the SEC position for an increased minimum knowledge base- which I have addressed repeatedly to Mary Schapiro. But I believe you will find the material not only interesting but thought provoking and perhaps present the clear effort needed for true fiduciary duty by all.

Very Truly,


Errold F. Moody Jr.

11/22: FINRA

What is a life settlement? In a “life settlement” transaction, a life insurance policy owner sells his or her policy to an investor in exchange for a lump sum payment. The amount of the payment from the investor to the policy owner is generally less than the death benefit on the policy, but more than its cash surrender value. The dollar amount offered by the investor usually takes into account the insured’s life expectancy (age and health) and the terms and conditions of the insurance policy.

Why would a policy owner wish to sell a life insurance policy? Due to changed family or other circumstances, a life insurance policy owner may no longer need the insurance provided by the policy. A spouse may have died, children may have grown up, or a company with life insurance on a key officer may have been sold or gone out of business. Other policy owners may have difficulty making premium payments or simply need cash. In such circumstances, many policy owners surrender their policies or let their policies lapse by ceasing to make premium payments. Selling a policy to an investor may be another alternative. Such sales may be made through life settlement brokers who charge commissions.

How does a life settlement take place and who are the parties involved? A policy owner may discuss a possible settlement with his or her insurance agent or financial adviser, who then contacts a life settlement broker. In some cases, the policy owner may be solicited directly by a life settlement broker. Life settlement brokers may also be life insurance agents or securities brokers. Depending on the requirements of the states in which they do business, life settlement brokers may be licensed.

The life settlement broker obtains the insured’s authorization to release medical records and forwards the policy owner’s application and medical information to one or more companies known as life settlement providers. Many, but not all, states regulate life settlement providers, who also charge a commission.

The life settlement provider obtains life expectancy estimates on the insured and bids on the application. Life expectancy underwriters (who are not the insured’s personal physician) evaluate the risk of mortality of the insured based on his or her personal characteristics. If the life settlement provider’s bid is accepted, the provider may add that policy to a large group of policies, interests in which may be offered to investors. Institutional investors analyze the information provided by the life settlement provider, often obtaining their own life expectancy estimates. Retail investors, on the other hand, may have to rely on life settlement personnel or other investment professionals to assess the advantages and disadvantages of the transaction. In either case, the investor makes a cash payment to the policy owner or policy owners and continues to pay premiums necessary to keep the policy or policies in effect. Upon the insured’s death, the investor receives the death benefit.

Considerations for investors in life settlements. Before investing in a life settlement, investors may wish to keep the following points in mind.

• The return on a life settlement depends on the insured’s life expectancy and the date of the insured’s death. As a result, the accuracy of a life expectancy estimate is essential. If the insured dies before his or her estimated life expectancy, the investor may receive a higher return. If the insured lives longer than expected, the investor’s return will be lower. If the insured lives long enough or if life expectancy is miscalculated, additional premiums may need to be paid and the cost of the investment could be greater than anticipated.
  • In response to investors’ concerns about the uncertainty of life expectancy estimates, some companies have incorporated purported life expectancy guarantee bonds into their offerings. These companies claim that if the insured does not die by the life expectancy date, they will pay investors the amount they would have received had the insured died by that date. Investors should be aware that the Commission has recently brought enforcement action against a company alleging that it made fraudulent claims about these bonds.
• Under certain circumstances, the investor may not receive the death benefit. For example, the life insurance company that issued the policy may refuse to pay out the death benefit if it believes the policy was sold under fraudulent circumstances. In addition, the heirs of the insured may challenge the life settlement or the insurance company may go out of business.
• The competence of a life expectancy underwriter and the accuracy of the life expectancy estimate are critical to the return on a life settlement. For the most part, life expectancy underwriters are not licensed or registered by state insurance regulators, and information about the methodologies and review procedures that life expectancy underwriters use is not generally disclosed.
• Life settlements can give rise to privacy issues. Insured individuals generally wish to keep their medical records and personal information confidential. Investors, on the other hand, want access to the insured’s medical and other personal information to assess the advisability of their investment and to monitor it on a continuing basis.

11/22:

12 Year

5% Premium Bonus

1% Fixed Strategy Bonus in 1 year

5.75% cap on annual point to point

3.5% cap on monthly point to point

6% cap on monthly avg.

2% Fixed Strategy

6.5% commission to age 75

 

10 year

7.25% cap on annual point to point

3.75% cap on monthly point to point

7.25% cap on monthly avg.

4% Fixed Strategy

6.5% commission to age 75

 

8 Year

2% Premium Bonus

1% Bonus to Fixed Strategy in 1 year

6.25% cap on annual point to point

3.5% cap on monthly point to point

6.25% cap on monthly avg.

2.25% fixed strategy

5% commission to age 75

 

Income Riders (Available on all index annuities, not all states)

Guaranteed Lifetime Withdrawal Benefit Rider: 7% rollup for 10 years, Fee is 60 bps.

Enhanced Guaranteed Lifetime Withdrawal Benefit Rider:

1% Immediate Bonus to income base

7% rollup for 10 years

Fee 90 bps

Enhanced Benefit will increase withdrawal amount by 50% if client is unable to perform 2 of 6 activities of daily living.

Spousal continuation if owner dies prior to receiving payments.

11/22:  

"The Social Cost of Near-Rational Investment" 
AFA 2012 Chicago Meetings Paper

TAREK ALEXANDER HASSAN, University of Chicago - Booth School of Business
Email: tarek.hassan@chicagobooth.edu
THOMAS M. MERTENS, New York University (NYU) - Department of Finance
Email: mertens@stern.nyu.edu

We show that the stock market may fail to aggregate information even if it appears to be efficient and that the resulting decrease in the information content of stock prices may drastically reduce welfare. We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors around their optimal investment policies. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When stock prices reflect less information, the volatility of stock returns rises. The increase in volatility makes holding stocks unattractive, distorts the long-run level of capital accumulation, and causes costly (first-order) distortions in the long-run level of consumption.

11/20: Yields  



11/20:  Alzheimers- 5.7 million now- 16 million by 2040.
We cannot even afford what we are dong now. There is no way to cover these costs.

11/20:  Great idea but 80 is a long time- According to the annual Retirement Survey from Wells Fargo & Company, one-quarter of Americans view work as something they will need to continue to do until they are at least 80 because they do not have enough savings to live comfortably in retirement. Although the average expected retirement age is 64, the survey results show 76% of Americans feel it is more important to have a specific amount of money saved before retiring, regardless of age. This suggests that many accept they may need to work after their ideal retirement age in order to live comfortably in retirement

11/17:

"Political Climate, Optimism, and Investment Decisions" 
AFA 2012 Chicago Meetings Paper

YOSEF BONAPARTE, Claremont McKenna College, Claremont Colleges - Robert Day School of Economics and Finance
Email: Yosef.Bonaparte@claremontmckenna.edu
ALOK KUMAR, University of Miami - School of Business Administration
Email: akumar@miami.edu
JEREMY K. PAGE, University of Texas at Austin - Department of Finance
Email: jeremy.page@phd.mccombs.utexas.edu

We show that people's optimism towards financial markets and the macroeconomy is dynamically influenced by their political affiliation and the existing political climate. Individuals become more optimistic and perceive the markets to be less risky and more undervalued when their own party is in power. These shifts in perceptions of risk and reward affect investors' portfolio decisions. Specifically, when the political climate is aligned with their political identity, investors overweight stocks with higher systematic risk and exhibit a stronger preference for high market beta, small-cap, and value stocks. Those investors also trade less frequently. In contrast, when the opposite party is in power and the perceived uncertainty levels are high, investors exhibit stronger behavioral biases and make worse investment decisions. They tilt their portfolios more toward familiar local stocks and also appear more overconfident, as they trade more actively but experience worse performance. Further, due to their amplified behavioral biases, investors make worse mutual fund decisions and pick funds with higher expense ratios. Overall, investors improve their raw portfolio performance when their own party is in power, but the improvement in risk-adjusted performance is economically small.

11/16:

A new survey by Yahoo! Finance shows Americans have a disturbing lack of hope and a frightening lack of retirement planning.

Among the highlights of the poll:

-- 41% of Americans say the 'American Dream' has been lost.

-- 37% of adults have NO retirement savings and 38% plan to live off Social Security.

-- 63% of Americans believe the economy is getting worse, including 72% of those over the age of 55.

11/15:

"The Dark Side of Trading" 
Emory Law and Economics Research Paper No. 11-95
Emory Public Law Research Paper No. 11-143
AFA 2012 Chicago Meetings Paper

ILIA D. DICHEV, Emory University - Goizueta Business School
Email: idichev@emory.edu
KELLY HUANG, University of Alabama - School of Accountancy
Email: xiaochuanhuang@hotmail.com
DEXIN ZHOU, Emory University - Department of Finance
Email: dexin_zhou@bus.emory.edu

This study investigates the effect of high trading volume on observed stock volatility. The motivation is that volumes of U.S. trading have increased more than 30-fold over the last 50 years, truly transforming the marketplace. Given existing work that links volume and volatility as simultaneously driven by fundamental information, we are specifically interested in the effect of increased trading controlling for such information. We investigate a number of settings, including a mix of natural experiments (exchange switches, S&P 500 changes, dual-class shares), the aggregate time-series of U.S. stocks since 1926, and the cross-section of U.S. stocks during the last 20 years. Our main finding is that, controlling for other factors, there is a reliable and economically substantial positive relation between volume of trading and stock volatility. The conclusion is that stock trading produces its own volatility above and beyond that based on fundamentals.

11/14: Illiteracy
As a society we have moved to the point where most people are fairly literate, they can read basic information, around a third grade level.

Studies are finding that students decreasingly read the course material and lack critical thinking skills. Students come to class after skimming through the texts without spending time to understand what is in the book. This is scary to some people because these same college students are hired into professional areas and given salaries to do jobs that could potentially affect the state the economy and quality of services in companies

It is said that 90 million Americans over the age of 16 lack reading and writing skills needed for employment!
One third of high school graduates, and 42 percent of college graduates never read a book for the rest of their lives. 80 percent of American families did not buy a book last year, and the ones that did mostly were over the age of 65. The National Adult Literacy Survey found that 71 percent of college graduates are unable to read proficiently. 90 million Americans possess only rudimentary literacy skills.
The Organization for Economic Cooperation and development said that 50 percent of the work force in the United States is not literate enough to work in a modern economy. The American Booksellers Association stated, "Unfortunately, reading may therefore someday be engaged in by a small minority of people who are regarded as eccentrics by their fellow citizens." The U.S. Secretary of Education says "The vast majority of Americans do not know they do not have the skills to earn a living in our increasingly technological society." Many adults cannot read the material on their prescription medicines, economic news reported in the newspapers, financial information, or new legislation.

11/13: Retirement Revisited: It's Truly Worse Than You Think
"In our example, the 4.4% assumed investment rate of return would produce a terminal valuation (investment value at retirement) of 40% of the terminal retirement savings that the currently assumed rate of 8.1%. This could be the difference between the ability to retire comfortably and not retiring at all."

11/13: 2010 PBGC Annual Exposure Report (PDF)
"Due to the deterioration in two large multiemployer plans, the projections show a 6.2 percent chance that the multiemployer program will be insolvent by 2020, and a 29.2 percent chance that it will be insolvent by 2030. . . . [N]one project that PBGC's single-employer program will run out of money within the next 10 years.

11/13:

"A Transparency Standard for Derivatives" 
NBER Working Paper No. w17558

VIRAL V. ACHARYA, New York University - Leonard N. Stern School of Business, Centre for Economic Policy Research (CEPR), National Bureau of Economic Research (NBER)
Email: VACHARYA@STERN.NYU.EDU

Derivatives exposures across large financial institutions often contribute to – if not necessarily create – systemic risk. Current reporting standards for derivatives exposures are nevertheless inadequate for assessing these systemic risk contributions. In this paper, I explain how a transparency standard, in contrast to the current standard, would facilitate such risk analysis. I also demonstrate that such a standard is implementable by providing examples of existing disclosures from large dealer firms in their quarterly filings. These disclosures often contain useful firm-level data on derivatives, but due to a lack of standardization, they cannot be aggregated to assess the risk to the system. I highlight the important contribution that reporting the “margin coverage ratio” (MCR), namely the ratio of a derivatives dealer’s cash (or liquidity, more broadly) to its contingent collateral or margin calls in case of a significant downgrade of its credit quality, could make toward assessing systemic risk contributions.

11/13: Risk

After countless new rules designed to make Wall Street safer, it's come to this: Another securities firm has collapsed from risky, poorly disclosed bets.

Not enough, in other words, has changed since the U.S. financial system nearly toppled three years ago.

The bankruptcy filing last week by MF Global Holdings Ltd. didn't freeze lending and panic investors around the world, as Lehman Brothers' did in 2008. But the rapid fall of the firm run by former New Jersey Gov. Jon Corzine shows risky behavior persists, despite a vast regulatory overhaul.

Financial companies are making risky bets with borrowed money and hiding them off their balance sheets. In MF Global's case, scant disclosure made it harder for people to see the danger until it was too late.

- Those bets are being made with their own money, but threatening customers and trading partners. Dodd-Frank, the Wall Street overhaul passed last year, focused on big, complex financial companies whose failure could topple other firms. The law bans these "systemically important" companies from making such bets with their own money, called proprietary trading. But it does little about smaller financial firms like MF Global.

- Many financial companies operate without coordinated oversight by regulators. MF Global was watched over by several regulators. But no one was in charge of coordinating them. Financial companies, aside from the biggest, face the same patchwork oversight that failed to stop risky bets before the financial crisis.

The bust of MF Global itself is not an indictment of the new rules. Dodd-Frank wasn't designed to prevent all financial failures. In fact, some failures can be healthy if they discourage investors from taking on excessive risk.

But MF Global's collapse brought heavy costs. It caused millions in losses for investors. It threw commodity markets into disarray. And it left customers confused and angry because $593 million of their money is missing.

Global regulators to subject 29 banks to stricter regulations

The international body charged with heading off risks to the global financial system on Friday listed 29 banks, including Bank of America, that will face stricter regulation and capital requirements under new measures adopted by world leaders meeting in France....The list released by the Basel, Switzerland-based Financial Stability Board (FSB)

11/13: Euro-

Australian central bank warns euro crisis could spur 'deep recession'
The Reserve Bank of Australia (RBA), the central bank, has lowered its inflation outlook and warned Australia's economy could be dragged down by Europe's sovereign debt crisis. ...The RBA expects underlying inflation to be around 2.5 per cent in 2012, half a percentage ...

•

Italy's Berlusconi to step down after reforms pass Even a politician with the survival skills of Silvio Berlusconi proved, in the end, to be no match for the power of global financial markets....The beleaguered Italian prime minister bowed to the reality of international pressure and withering domestic support Tuesday, promising to resign once Parliament passes a reform package ... >>Read the Full Story Share this Article on:

 

•

EU warns faltering growth may herald new recession European Economics commissioner Olli Rehn warned of a "new recession" in Europe as his twice-yearly forecast found that growth in the EU has stalled....While the commission revised its forecast for Irish growth this year upwards to 1.1 per cent of gross domestic product, it reduced its growth forecast for 2012 ... >>Read the Full Story Share this Article on:

 

•

APEC ministers press Europe to act fast Asia Pacific countries have pressed Europe to act more forcefully to quell its debt crisis, setting the tone for a summit overshadowed by growing alarm over the fallout from eurozone upheaval. ...The 19th Informal Leadership Meeting of the Asia-Pacific Economic Co-operation (APEC), scheduled to take place in Hawaii on ... >>Read the Full Story Share this Article on:

11/13: Motivated bias—the tendency to believe what’s convenient to believe

11/13: Still bad news



11/10:  Read it and weep  
'Collapse of Confidence': The European Crisis Grows
Financial markets have shown no sign of calming down following Italian Prime Minister Silvio Berlusconi's announcement on Tuesday that he would resign once a series of austerity measures are passed by the Italian parliament. The big risk for Italy – and for the world financial system -- is that it falls “over the cliff” before efforts to right the ship can be worked out, experts at Wharton say. In this special report, Knowledge@Wharton offers insights on the latest developments in Italy, the reasons why the European debt crisis has become so acute, and what it would take to bring about a possible recovery.
http://knowledge.wharton.upenn.edu/article/2873.cfm

Italy (and the Global Economy): An End to La Dolce Vita?
Can Europe's politicians find a way out of a debt disaster and avoid another global financial meltdown before markets overrun them? Fears are growing that viable solutions are increasingly elusive.
http://knlg.net/tmaoQO

(Video)
The Euro Zone of Denial Hits the Wall
The eurozone's efforts to fence in Greece's debt problems have consistently lagged events. And now Italy's financial crisis has entered high gear, despite Prime Minister Silvio Berlusconi's pledge to resign. Another big worry: Creditors could lose all confidence in Europe's ability to fix these problems, leading to a collapse in Europe's banking system and other parts of the global economy. Knowledge@Wharton spoke with Wharton finance professor Franklin Allen and Wharton management professor Mauro Guillen about barriers to long-term solutions and the cultural differences that always lie under the surface.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2867

Will the U.S. and Europe Rise Again -- or Sink Together?
In today's highly interconnected global economy, problems in one country often lead to difficulties in another. The United States and Europe are experiencing that reality up close as leaders try to deal with debt problems, investment-shy business sectors and seemingly intractable unemployment. At a recent presentation attended by Wharton board members, professors Franklin Allen, Richard Marston and Kent Smetters warned that a true recovery for either region will take time, and that conditions could get worse before they get better.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2866


11/8: 

IMPAIRED RISK

You have probably found that clients with significant health problems such as heart disease, cancer, diabetes or hepatitis are difficult or impossible to insure. Similarly, previous lifestyle issues such as drug or alcohol use have created underwriting problems for you and your clients.

Recently, some insurance companies have been more competitive in offering insurance to the “impaired risks”, by evaluating each case on an individual basis, looking at the outcomes of the most current treatments and improved mortality. These cases may be more complex to process, but successful offers are possible, and you can fulfill your clients’ needs.

11/8:

"Weathering the Financial Crisis: Good Policy or Good Luck?" 
BIS Working Paper No. 351

STEPHEN G. CECCHETTI, Bank for International Settlements (BIS) - Monetary and Economic Department, Centre for Economic Policy Research (CEPR), National Bureau of Economic Research (NBER)
Email: stephen.cecchetti@bis.org
MICHAEL KING, affiliation not provided to SSRN
Email: mikek@lawofficesrma.com
JAMES YETMAN, Bank for International Settlements (BIS)
Email: james.yetman@bis.org

The macroeconomic performance of individual countries varied markedly during the 2007-09 global financial crisis. While China's growth never dipped below 6% and Australia's worst quarter was no growth, the economies of Japan, Mexico and the United Kingdom suffered annualized GDP contractions of 5-10% per quarter for five to seven quarters in a row. We exploit this cross-country variation to examine whether a country's macroeconomic performance over this period was the result of pre-crisis policy decisions or just good luck. The answer is a bit of both. Better-performing economies featured a better-capitalized banking sector, lower loan-to-deposit ratios, a current account surplus, high foreign exchange reserves and low levels and growth rates of private sector credit-to-GDP. In other words, sound policy decisions and institutions reduced their vulnerability to the financial crisis. But these economies also featured a low level of financial openness and less exposure to US creditors, suggesting that good luck played a part.

11/7: Newbies-  an estimated 53% of CFP professionals have been certified in just the last five years, with almost 10% certified in past year.

Yep, a minuscule  and lots of experience to help consumers. 

11/7: The Complete Guide to ETF Taxation

Complete Guide as PDF

MAXIMUM TAX RATE
STRUCTURE	Long-Term	Short-Term
Open End ('40 Act)	15%	35%
UIT ('40 Act)	15%	35%
Grantor Trust ('33 Act)	15%	35%
Limited Partnership ('33 Act)	N/A	N/A
ETN ('33 Act)	15%	35%

11/7: Oy! I am almost dumb as a post-

The scores on a test measuring knowledge of investments, insurance, credit and money basics fell about 2% each year starting after age 60, falling from about 59% correct for those in their 60s to a dismal 30% for those 80 and older, according to Michael Finke, an associate professor at Texas Tech University and a co-author of the study.

Here's what's worse: Our confidence in our financial decision-making abilities rises with age. We are not older and wiser. Rather, we are older, less smart and overconfident.

This notion of confidence rising while financial literacy is falling spells trouble for that group of Americans that now represents more than 12% of the population and controls half of all the financial wealth in America

Mr. Finke and his team noticed that financial literacy peaks in the late 40s, and that there was a statistically strong and consistent decline in financial literacy among older respondents.

11/7:The number of certified financial planners worldwide will hit the 140,000 mark by year end, including 64,000 CFPs in the U.S.,

11/7: Volatility=

The index closed at 1,260.34 on Aug. 3 and was at 1,237.90 on Wednesday of this week, for a net decline of 22.44 points, or 1.8 percent. But during that period, the total move of the index was more than 1,392 points, as it rose more than 684 points on good days and fell more than 707 points on bad days. That meant that the index traveled nearly 1,370 points more than it had to and that the excess volatility figure was 109 percent, the highest figure since 2009.

There were several violent swings of excess volatility during the Great Depression, but from 1940 through 1987 the figure never got as high as 100 percent. In early 1988, the excess volatility index peaked at 116 percent, largely because of the Oct. 19, 1987, crash, which caused a one-day drop of more than 20 percent in the index but proved to have little lasting economic impact.

The next time the index topped 100 percent was in late 2002, as the market was reaching its lows after the collapse of the technology stock bubble in 2000 and 2001. Then in 2008 and 2009, it climbed to new post-Depression peaks as share prices approached a low after the credit crisis led to a deep recession.

11/6: SELL!!! Mike Mayo- The proportion of sell ratings on Wall Street remains under 5%, even today, despite the fact that any first-year MBA student can tell you that 95% of the stocks cannot be winners.
In decades past, the ratio of buy ratings to sell ratings had not been this lopsided, and in theory it should be roughly 50-50. That seems right, doesn't it? Some stocks go up, some go down, because of the overall market direction or competitive threats or issues specific to each company. In the late 1990s, though, the ratio was 100 buys or more for every sell. Merrill Lynch had buy ratings on 940 stocks and sell ratings on just 7. Salomon Smith Barney: 856 buy ratings, 4 sells. Morgan Stanley Dean Witter: 670 buys and exactly 0 sells.

When Mayo was told his access to managers was being limited- he  was told that the most efficient use of management's time was for the executives to generate money for the firm instead of talking to the 20 or so analysts covering the company. An analyst like me would simply have to be patient. While I could live with this—to a degree—the gatekeeper added one more point: A consideration in granting analysts meetings with management of Goldman Sachs was the analyst's standing, influence and knowledge. "In other words," the gatekeeper added, "we evaluate you."

Mayo adds-

To fix the banking sector, should we rely more on government regulation and oversight or let the market figure it out? Tougher rules or more capitalism? Right now, we have the worst of both worlds. We have a purportedly capitalistic system with a lot of rules that are not strictly enforced, and when things go wrong, the government steps in to protect banks from the market consequences of their own worst decisions. To me, that's not capitalism.

It's easy to understand the appeal of certain regulation. If we'd had the right oversight in place, we would have limited the degree of the financial crisis, which included bailouts measured in hundreds of billions of dollars and millions of people losing their homes due to foreclosures. But we also would have sacrificed innovations in credit and a vibrant financial sector.

Moreover, the real problem with regulation is that it often doesn't work very well, in part because it's always considering problems in the rearview mirror. The financial system today is almost dizzyingly complex and moving at light speed, and new rules tend to address fairly precise things, like banning specific types of securities or deals.

The more effective solution would come from letting market forces work. That doesn't mean no rules at all—a banking system like the Wild West, with blood on the floor and consumers being routinely swindled. We need a cultural, perhaps generational, change that compels companies to better apply accounting rules based on economic substance versus surface presentation.

A better version of capitalism also means a reduction in the clout of big banks. All of the third-party entities that oversee them need sufficient latitude to serve as a true check and balance. My peer group, the army of 5,000 sell-side Wall Street analysts, can help lead the way to provide scrutiny over the markets. Doing this involves a culture change to ensure that analysts can act with sufficient intellectual curiosity and independence to critically analyze public companies that control so much of our economy.

11/6: CFPs- On average most certified financial planners around the world are middle aged, between the ages of 35 and 44, according to the FPSB survey. In contrast, in China, the majority of certified financial planners are between 25 and 34 years old.
11/6/ The populist “Occupy Wall Street” movement is putting responsibility for today’s problems on the demonized 1% of U.S. wage earners. In breaking down the statistics, according to CNN, the income floor of the 1%’ers was an annual income of $343,927. 

According to the Congressional Budget Office (CBO), incomes for the wealthiest 1% of Americans nearly tripled from 1979 to2007, far outpacing income growth for all other groups. The CBO stated that “for the 1% of the population with the highest income, average real after-tax household income grew by 275% between 1979 and 2007.”

11/6:

"The Composition and Draw-Down of Wealth in Retirement" 
NBER Working Paper No. w17536

JAMES M. POTERBA, Massachusetts Institute of Technology (MIT) - Department of Economics, National Bureau of Economic Research (NBER)
Email: poterba@mit.edu
STEVEN F. VENTI, Dartmouth College - Department of Economics, National Bureau of Economic Research (NBER)
Email: Steven.F.Venti@dartmouth.edu
DAVID A. WISE, National Bureau of Economic Research (NBER), Harvard University - Harvard Kennedy School (HKS)
Email: dwise@nber.org

This paper presents evidence on the resources available to households as they enter retirement. It draws heavily on data collected by the Health and Retirement Study and calculates the "potential additional annuity income" that households could purchase, given their holdings of non-annuitized financial assets at the start of retirement. Even if households used all of their financial assets inside and outside personal retirement accounts to purchase a life annuity, only 47 percent of households between the ages of 65 and 69 in 2008 could increase their life-contingent income by more than $5,000 per year. At the upper end of the wealth distribution, however, a substantial number of households could make large annuity purchases. The paper also considers the role of housing equity in the portfolios of retirement-age households, and explores the extent to which households draw down housing equity and financial assets as they age. Many households appear to treat housing equity and non-annuitized financial assets as “precautionary savings,” tending to draw them down only when they experience a shock such as the death of a spouse or a period of substantial medical outlays. Because home equity is often conserved until very late in life, for many households it may provide some insurance against the risk of living longer than expected.

11/6:

1. Role Reversal in Global Finance

Date:	2011-10
By:	Prasad, Eswar (Cornell University)
URL:	http://d.repec.org/n?u=RePEc:iza:izadps:dp6032&r=fmk
I document that emerging markets have cast off their "original sin" – their external liabilities are no longer dominated by foreign-currency debt and have instead shifted sharply towards direct investment and portfolio equity. Their external assets are increasingly concentrated in foreign exchange reserves held in advanced economy government bonds. Given the enormous and rising public debt burdens of reserve currency economies, this means that the long-term risk on emerging markets' external balance sheets is shifting to the asset side. However, emerging markets continue to look for more insurance against balance of payments crises, even as self-insurance through reserve accumulation itself becomes riskier. I propose a mechanism for global liquidity insurance that would meet emerging markets' demand for insurance with fewer domestic policy distortions while facilitating a quicker adjustment of global imbalances. I also argue that emerging markets have become less dependent on foreign finance and more resilient to capital flow volatility. The main risk that increasing financial openness poses for these economies is that capital flows exacerbate vulnerabilities arising from weak domestic policies and institutions.
Keywords:	emerging markets, international investment positions, structure of external assets and liabilities, foreign exchange reserves, global liquidity insurance
JEL:	F3

2. A Quantum-like Approach to the Stock Market

Date:	2011-10
By:	Diederik Aerts Bart D'Hooghe Sandro Sozzo
URL:	http://d.repec.org/n?u=RePEc:arx:papers:1110.5350&r=fmk
Modern approaches to stock pricing in quantitative finance are typically founded on the 'Black-Scholes model' and the underlying 'random walk hypothesis'. Empirical data indicate that this hypothesis works well in stable situations but, in abrupt transitions such as during an economical crisis, the random walk model fails and alternative descriptions are needed. For this reason, several proposals have been recently forwarded which are based on the formalism of quantum mechanics. In this paper we apply the 'SCoP formalism', elaborated to provide an operational foundation of quantum mechanics, to the stock market. We argue that a stock market is an intrinsically contextual system where agents' decisions globally influence the market system and stocks prices, determining a nonclassical behavior. More specifically, we maintain that a given stock does not generally have a definite value, e.g., a price, but its value is actuali zed as a consequence of the contextual interactions in the trading process. This contextual influence is responsible of the non-Kolmogorovian quantum-like behavior of the market at a statistical level. Then, we propose a 'sphere model' within our 'hidden measurement formalism' that describes a buying/selling process of a stock and shows that it is intuitively reasonable to assume that the stock has not a definite price until it is traded. This result is relevant in our opinion since it provides a theoretical support to the use of quantum models in finance.

11/3: Intentionally Defective Irrevocable Trust-

11/3: Yep, we sure could use a "super committee:"

Little sign of progress has been seen in negotiations since last week when Democrats and Republicans swapped opening positions. The Democratic plan of about $3 trillion in deficit-reduction coupled tax increases with spending cuts. Republicans, meanwhile offered a $2.2 trillion over 10 years that focused heavily on spending cuts and claimed revenues largely through a tax overhaul that they said would boost economic growth.

Sources familiar with the discussions gave the six Republicans and six Democrats on the panel less than a 50-50 chance of reaching agreement because of an impasse over taxes.

11/3:

"Tall Claims: Mortality Selection and the Height of Children" 
World Bank Policy Research Working Paper No. 5846

HAROLD ALDERMAN, World Bank - Development Research Group (DECRG)
Email: halderman@worldbank.org
MICHAEL LOKSHIN, World Bank - Development Research Group (DECRG)
Email: mlokshin@worldbank.org
SERGIY RADYAKIN, World Bank
Email: sradyakin@worldbank.org

Data from three rounds of nationally representative health surveys in India are used to assess the impact of selective mortality on children’s anthropometrics. The nutritional status of the child population was simulated under the counterfactual scenario that all children who died in the first three years of life were alive at the time of measurement. The simulations demonstrate that the difference in anthropometrics due to selective mortality would be large only if there were very large differences in anthropometrics between the children who died and those who survived. Differences of this size are not substantiated by the research on the degree of association between mortality and malnutrition. The study shows that although mortality risk is higher among malnourished children, selective mortality has only a minor impact on the measured nutritional status of children or on that status distinguished by gender.

11/3:

"A Model of Mortgage Default" 
NBER Working Paper No. w17516

JOHN Y. CAMPBELL, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)
Email: john_campbell@harvard.edu
JOÃO F. COCCO, London Business School, Centre for Economic Policy Research (CEPR)
Email: jcocco@london.edu

This paper solves a dynamic model of a household's decision to default on its mortgage, taking into account labor income, house price, inflation, and interest rate risk. Mortgage default is triggered by negative home equity, which results from declining house prices in a low inflation environment with large mortgage balances outstanding. Not all households with negative home equity default, however. The level of negative home equity that triggers default depends on the extent to which households are borrowing constrained. High loan-to-value ratios at mortgage origination increase the probability of negative home equity. High loan-to-income ratios also increase the probability of default by tightening borrowing constraints. Comparing mortgage types, adjustable-rate mortgage defaults occur when nominal interest rates increase and are substantially affected by idiosyncratic shocks to labor income. Fixed-rate mortgages default when interest rates and inflation are low, and create a higher probability of a default wave with a large number of defaults. Interest-only mortgages trade off an increased probability of negative home equity against a relaxation of borrowing constraints, but overall have the highest probability of a default wave.

11/2: Well, I don't have it- Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the company's operations as it filed for bankruptcy on Monday

regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse. If that was the case, it could violate a fundamental tenet of Wall Street regulation: Customers' funds must be kept separate from company money.

11/2:

1. Behavioural Economics: Classical and Modern

Date:	2011
By:	Selda (Ying Fang) Kao K. Vela Velupillai
URL:	http://d.repec.org/n?u=RePEc:trn:utwpas:1126&r=cbe
In this paper, the origins and development of behavioural economics, beginning with the pioneering works of Herbert Simon (1953) and Ward Edwards (1954), is traced, described and (critically) discussed, in some detail. Two kinds of behavioural economics – classical and modern – are attributed, respectively, to the two pioneers. The mathematical foundations of classical behavioural economics is identified, largely, to be in the theory of computation and computational complexity; the corresponding mathematical basis for modern behavioural economics is, on the other hand, claimed to be a notion of subjective probability (at least at its origins in the works of Ward Edwards). The economic theories of behavior, challenging various aspects of 'orthodox' theory, were decisively influenced by these two mathematical underpinnings of the two theories

11/2: 

"Are Stock and Housing Returns Complements or Substitutes? Evidence from OECD Countries" 
CESifo Working Paper Series No. 3621

GUGLIELMO MARIA CAPORALE, Centre for Empirical Finance, Brunel University
Email: Maria.Caporale@brunel.ac.uk
RICARDO MAGALHAES SOUSA, University of Minho, Economic Policies Research Unit (NIPE), London School of Economics & Political Science (LSE) - Financial Markets Group, London School of Economics
Email: r.j.sousa@lse.ac.uk

In this paper we use a representative consumer model to analyse the equilibrium relation between the transitory deviations from the common trend among consumption, aggregate wealth, and labour income, cay, and focus on the implications for both stock returns and housing returns. The evidence based on data for 15 OECD countries shows that when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding housing returns, if housing assets are seen as complements to stocks, then investors react in the same way, but if they are instead treated as substitutes consumption will be temporarily reduced.

11/2:

1. When Kahneman meets Manski: making sense of individual expectations on equity returns

Date:	2011
By:	Fabian Gouret (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) Guillaume Hollard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
URL:	http://d.repec.org/n?u=RePEc:hal:cesptp:hal-00633561&r=cbe
To understand how decisions to invest in stocks are taken, economists need to elicit expectations relative to expected risk-return trade-off. One of the few surveys which have included such questions is the Survey of Economic Expectations in 1999-2001. Using this survey, Dominitz and Manski find an important heterogeneity across respondents that can hardly be accounted for by simple models of expectations formation. This paper claims that much of the heterogeneity derives from pathologies affecting respondents. Adapting a principle of dual-reasoning borrowed from Kahneman, we classify respondents according to their sensitivity to these pathologies, and find a strong homogeneity across the less sensitive respondents. We then sketch a model of expectation formation

11/2: Gross-

“If (1) globalization is precluding the hiring of domestic labor due to cheaper alternatives in developing countries, then rock-bottom yields can do little to change the minds of corporate decision makers. If (2) technological innovation is destroying retail book and record stores, as well as theaters and retail shopping centers nationwide due to online retailers, then what do low cap rates matter to Macy’s or Walmart in terms of future store expansion? If (3) U.S. and Euroland boomers are beginning to retire or at least plan more seriously for retirement, why will lower interest rates cause them to spend more?”

While developed world economic policy is not generating real growth, Gross say it has “managed to produce disproportionately large inflation. The fund manager thus warns bond investors to “avoid longer dated issues,” sticking with one-10 year maturities instead. He says “both earnings and bond yields near historic lows as a result of a lack of real growth in developed economies” and doesn’t expect returns “above 5% in bonds or equities.”

11:/2:  Funds/ETFs

In 2001, the report says, index mutual funds totaled $341 billion compared to only $83 billion in exchanged-traded funds. By 2007, the gap narrowed as index mutual fund assets grew to $809 billion and ETF assets jumped to $588 billion. By August, both index mutual funds and ETFs hovered around $1 trillion.

The report adds that large-cap stock mutual funds and ETFs now account for more than 46% of “core funds,” which exclude municipal bond, balanced, target-date and money market funds. (Core taxable bond ETFs and mutual funds exclude bank loan, high yield, emerging markets bond, world bond, multisector bond funds.)

Among the report’s other findings:

• Mutual fund assets hit a 2011 low in September at $7.4 trillion, but flows into mutual funds turned positive during the month after three consecutive months of outflows.

• Taxable bond funds garnered top flows among mutual funds in September, attracting $3.5 billion.

• Intermediate-term bond led mutual fund flows in September with just under $3 billion while world bond funds led year-to-date flows at 22.7 billion).

• ETF assets decreased by 8.7% in September, the worst month since February 2009 when they lost 8.8%.

• Taxable bonds garnered top flows among the ETF asset classes with just more than $5 billion in September, and displaced U.S. stock as the top asset class for YTD flows ($27.9 billion vs. $22.0 billion, respectively).

11/1:  Home prices-

According to Fiserv (FISV - News), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Earlier this month, RealtyTrac reported the first quarterly increase in foreclosure filings in three quarters. Even more discouraging: new default notices were up 14%.

Naples, Fla., for example, is expected to take the biggest hit of any metro area, a price drop of another 18.9% by the end of next June, according to Fiserv. Home prices in the area have already fallen 61% from the peak.

Other cities expected to be hit hard include the not-so-lucky Las Vegas, which is expected to see home prices fall another 15.9% for a total loss of 66%; Riverside, Calif., is projected to fall another 14.8% (for a total decline of 61%); Miami is expected to decline by 13.2% (total loss: 57%), and Salinas, Calif. could drop by another 13% (for a total loss of 66%).

Fort Lauderdale, Fla.'s forecast is for a 9.2% drop through next June and another 6.7% the 12 months after that. Its neighbor, Miami, will endure 13.5% and 5.2% declines, respectively

11/1: Insurance and CPAs- studies  indicated 52.6 percent of clients said they would prefer to purchase insurance through their CPA.

Stupid, but understood,  Why? What does a CPA know about insurance?????

11/1: Optimism (Kahneman) More often than not, risk-takers underestimate the odds they face and, because they misread the risks, optimistic entrepreneurs often believe they are prudent, even when they are not. Their confidence sustains a positive mood that helps them obtain resources from others, raise the morale of their employees and enhance their prospects of prevailing. When action is needed, optimism, even of the mildly delusional variety, may be a good thing.

An optimistic temperament encourages persistence in the face of obstacles. But this persistence can be costly. A series of studies by Thomas Astebro shed light on what happens when optimists get bad news. (His data came from Canada’s Inventor’s Assistance Program -- which provides inventors with objective assessments of the commercial prospects of their ideas. The forecasts of failure in this program are remarkably accurate.)

In Astebro’s studies, discouraging news led about half of the inventors to quit after receiving a grade that unequivocally predicted failure. However, 47 percent of them continued development efforts even after being told that their project was hopeless, and on average these individuals doubled their initial losses before giving up.

Significantly, persistence after discouraging advice was relatively common among inventors who had a high score on a personality measure of optimism. This evidence suggests that optimism is widespread, stubborn and costly.

11/1: CEOs- Kahneman-The economists Ulrike Malmendier and Geoffrey Tate identified optimistic chief executive officers by the amount of company stock that they owned personally and observed that highly optimistic leaders took excessive risks. They assumed debt rather than issue equity and were more likely to “overpay for target companies and undertake value-destroying mergers.” Remarkably, the stock of the acquiring company suffered substantially more in mergers if the CEO was overly optimistic by the authors’ measure. The market is apparently able to identify overconfident CEOs.

This observation exonerates the CEOs from one accusation even as it convicts them of another: The leaders of enterprises who make unsound bets don’t do so because they are betting with other people’s money. On the contrary, they take greater risks when they personally have more at stake. The damage caused by overconfident CEOs is compounded when the business press anoints them as celebrities; the evidence indicates that prestigious awards to the CEO are costly to stockholders.

The authors write, “We find that firms with award-winning CEOs subsequently underperform, in terms both of stock and of operating performance. At the same time, as CEO compensation increases, CEOs spend more time on activities such as writing books and sitting on outside boards, and they are more likely to engage in earnings management.”

I have had several occasions to ask founders and participants in innovative startups this question: To what extent will the outcome of your effort depend on what you do in your company? The answer comes quickly, and in my small sample it has never been less than 80 percent. Even when they are not sure they will succeed, these bold people think their fate is almost entirely in their own hands. They know less about their competitors and find it natural to imagine a future in which the competition plays little part.

11/1: Pretended knowledge (Kahneman) Organizations that take the word of overconfident experts can expect costly consequences. A Duke University study of chief financial officers showed that those who were most confident and optimistic about how the Standard & Poor’s index would perform over the following year were also overconfident and optimistic about the prospects of their own companies, which went on to take more risks than others.

As Nassim Taleb, the author of The Black Swan, has argued, inadequate appreciation of the uncertainty of the environment inevitably leads economic agents to take risks they should avoid. However, optimism is highly valued; people and companies reward the providers of misleading information more than they reward truth tellers. An unbiased appreciation of uncertainty is a cornerstone of rationality -- but it isn’t what organizations want. Extreme uncertainty is paralyzing under dangerous circumstances, and the admission that one is merely guessing is especially unacceptable when the stakes are high. Acting on pretended knowledge is often the preferred approach.

11/1: Overconfidence (Kahneman) Overconfidence also appears to be endemic in medicine. A study of patients who died in the intensive-care unit compared autopsy results with the diagnoses that physicians had provided while the patients were still alive. Physicians also reported their confidence. The result: “Clinicians who were ‘completely certain’ of the diagnosis ante-mortem were wrong 40 percent of the time.” Here again, experts’ overconfidence is encouraged by their clients. As the researchers noted, “Generally, it is considered a weakness and a sign of vulnerability for clinicians to appear unsure.”

According to Martin Seligman, the founder of positive psychology, an “optimistic explanation style” contributes to resilience by defending one’s self-image. In essence, the optimistic style involves taking credit for successes but little blame for failures.


11/1:

• The value of each personal and dependent exemption available to most taxpayers is $3,800, up $100 from 2011.
• For the nearly two out of three taxpayers who take the standard deduction rather than itemize their deductions, the new standard deduction is $11,900 for married couples filing a joint return, $5,950 for singles and married individuals filing separately, and $8,700 for heads of household—up $300, $150 and $200, respectively.
• Tax-bracket thresholds increase for each filing status. For example, the taxable-income threshold separating the 15% bracket from the 25% bracket for a married couple filing a joint return is $70,700, up $1,700 from 2011.
• For the estate of any taxpayer who dies during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5 million for 2011. If the executor employs the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up $20,000 from 2011. The annual exclusion for gifts remains at $13,000.

Credits, deductions and related phase outs also are set to expand for tax year 2012:

• The maximum earned income tax credit (EITC) for low- and moderate-income workers and working families rises to $5,891, and the maximum income limit for the EITC rises to $50,270.
• The foreign earned income deduction rises to $95,100.
• The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers and $52,000 for single filers and heads of household.
• Annual deductible amounts for Medical Savings Accounts increase to these amounts: Minimum $2,100 (self) and $4,200 (family); maximum $3,150 (self) and $6,300 (family); maximum out-of-pocket $4,200 (self) and $7,650 (family).
• The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000. For single taxpayers, the phase out ranges stay at the 2011 levels.

11/1: Gretchen Morgensen (NY Times)

This is just being  printed. See the Table of Contents and the Foreword. I think the disgrace is even more pronounced (if possible) with the industry  that has and is continuing to shirk its fiduciary responsibility to the consumer. And there never was a suitability standard.
I think you will agree and I think you will enjoy the material

Thanks

EFmoody.com/contents.pdf
EFMoody.com/Forewrod.pdf

If you would like a copy, please send a mailing address.

Errold Moody
PhD MSFP MBA LLB BSCE
Life and Disability Insurance Analyst
Registered Investment Adviser

We'll see what happens

11/1: Annuities have grown so complex that advisors don't want to take time to wade through a 200-page prospectus to track down the "gotchas.

So if it isn't them, is it the consumer????

11/2: Obesity= 

Family-law practitioners and legal experts say mothers and fathers in custody lawsuits are increasingly hurling accusations at each other about the nutrition and obesity of their children, largely in attempts to persuade judges that their kids are getting less-than-optimal care in the hands of ex- and soon-to-be-ex-spouses.

"Typically, one parent is accusing the other of putting a child at risk of developing diabetes or heart disease—or saying that the child is miserable because he's getting made fun of at school."

Mr. Merel said that "if one side is scratching to find something wrong with the other person, the courts might not give it the same weight. If all things are equal but one person only feeds fatty foods and the children have weight problems, I think it can become an important distinguishing factor."

10/31: I keep reading about all these financial planning entities and advisors talking about what to invest in for the long haul, how to plan for income- yet not a one ever contemplaters the odds of a 50% loss in equities once or twice a decade. Nor wwa happening with bond funds before Bernanke held rates low or what will happen after 2013.

And another gem from BofA-   

Also as part of the service, Bank of America is creating "Platinum Privileges" for preferred customers who maintain $50,000 or more in deposit balances with the bank or in investment balances with Merrill Edge. Tested in three states, it will be expanded to nine more, mostly on the East Coast.

These customers will have access to a dedicated service center with direct telephone access to a team of specialists. They will also get preferred pricing on money market accounts, CDs and IRAs, and have discount or fee waivers for standard banking products and annual fee rebates for "Privileges" credit cards and exclusive home loan benefits

I'd love to know the background of the specialists- I think I can guess. 

10/31: DOL
, the Labor Department's Employee Benefits Security Administration is granting a limited exemption for advisors to offer fiduciary advice to participants of a plan from which the advisor receives additional fees.

The rules follow from the Employee Retirement and Income Security Act (ERISA) and Internal Revenue Code, which authorize the Labor Department to carve out exemptions to the prohibitions against offering advice to investors in situations where the advisors might have a conflict of interest.

"Given the rise in participation in 401(k)-type plans and IRAs, the retirement security of millions of America's workers increasingly depends on their investment decisions," EBSA Assistant Secretary Phyllis Borzi said in a statement Monday. "This rule will make high-quality fiduciary investment advice more accessible, while providing important safeguards to minimize potential conflicts of interest."

Those safeguards include provisions that the investment advice must emanate from a computer model certified by a third party as unbiased. Alternatively, advisors could qualify for the exemption if they are compensated on a "level-fee" basis whereby fees remain constant irrespective of the investments they select. Advisors would also be subject to other conditions to qualify for the exemption, and submit to annual audits and disclose details of their fees.

Perhaps unbiased, but certainly wrong because they will not address risk. Retruns will be a gage of past history. That will not work. 

10/31: 

Tuition Jumps 8.3% Doubling Inflation

Tuition and fees at U.S. public universities soared 8.3 percent this year, twice the rate of inflation, to an average $8,244, a College Board report found. Nonprofit private college costs rose 4.5 percent to $28,500.

10/30:  On the Dole-

A record 49 percent of Americans live in a household where someone receives at least one type of government benefit, according to the U.S. Census Bureau. And 63 percent of all federal spending this year will consist of checks written to individuals for which the government receives currently no services, the White House budget office estimates. That’s up from 46 percent in 1975 and 18 percent in 1940.

Those figures will climb in coming years. The 75 millionbaby boomers have only begun their long march into retirement, while President Barack Obama’s health-care overhaul will extend insurance coverage to more than 30 million additional people.

The census figure showing 49 percent of Americans, or about 147 million people, live in households where someone gets a federal benefit

The number of Americans receiving food stamps alone is up72 percent over the past five years, to a record 45.3 million. Their annual cost, projected this year to reach $80 billion, tops the yearly budgets of most federal agencies.

Another cost-driver is the wars in Iraq and Afghanistan. Even with the Iraq conflict winding down -- Obama said last week all U.S. troops will be home by the end of the year -- the more than 2 million Americans who have served in one of the theaters have begun claiming promised health-care and education benefits.

Those medical bills could reach $55 billion over the next decade, according to the Congressional Budget Office. The number claiming education benefits is up almost 60 percent since 2009, according to the Department of Veterans Affairs

The eldest baby boomers became eligible this year for Medicare, three years after beginning to receive Social Security checks. Though much of the debate over the programs’ finances has focused on what to do about spiraling health-care costs, the CBO said the main challenge over the next 25 years will be the number of people claiming benefits.

“Of the two factors, aging is the more important,” the CBO said in a June report. With 10,000 Americans turning 62 every day, the ranks of Social Security recipients are projected to almost double to 97 million by 2035.

Congress also has repeatedly expanded benefits in recent years, adding to the ranks of potential losers in any deficit-reduction deal.

A 2010 law eased eligibility standards for Pell college tuition grants, one reason the number of recipients is up about 70 percent in five years to a projected 9.4 million this year. The increase in veterans claiming education benefits is partly driven by a 2008 “Post-9/11 G.I. Bill” that expanded assistance to cover the entire cost of a college education, including tuition, housing and books.

10/30:

Fidelity Independent Adviser Model Performance

Model Portfolios (Net of Fees)	YTD (%)*	1 Year (%)*	3 Year (%)*	5 Year (%)*	Annualized Since Inception (%)*
Fidelity Select	-14.65	-1.08	1.76	0.48	7.22
Fidelity Growth	-17.66	-6.98	-1.33	-2.35	5.19
Fidelity Growth & Income	-9.80	-3.08	0.03	-1.76	5.90
Fidelity International	-23.68	-16.18	-1.36	-2.24	5.46
Fidelity Retirement Income	-1.86	0.46	5.80	2.41	4.18
NTF Sector	-11.96	0.28	-1.05	-5.87	1.42
NTF Growth	-19.24	-10.46	-2.94	-5.00	0.75
NTF Growth & Income	-12.70	-5.54	0.54	-1.94	2.73
Tax Efficient	-9.75	-3.00	-1.67	-3.14	3.23
Dow	-5.74	1.16	0.19	-1.35	5.28
S&P 500	-10.04	-0.86	-1.01	-3.27	4.22

Looks real good  doesn't it?

10/30: These are soooooooooooo easy to understand

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Enhanced Guaranteed Lifetime Withdrawal Benefit Rider:

1% Immediate Bonus to income base

7% rollup for 10 years

Fee 90 bps

Enhanced Benefit will increase withdrawal amount by 50% if client is unable to perform 2 of 6 activities of daily living.

Spousal continuation if owner dies prior to receiving payments.

10/27:

"General Education, Vocational Education, and Labor-Market Outcomes Over the Life-Cycle" 
NBER Working Paper No. w17504

ERIC A. HANUSHEK, Stanford University - Hoover Institution on War, Revolution and Peace, National Bureau of Economic Research (NBER), CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: hanushek@hoover.stanford.edu
LUDGER WOESSMANN, Ifo Institute for Economic Research, Institute for the Study of Labor (IZA), CESifo (Center for Economic Studies and Ifo Institute for Economic Research), University of Munich - Ifo Institute for Economic Research
Email: woessmann@ifo.de
LEI ZHANG, Tsinghua Univesrsity
Email: zlei89@gmail.com

Policy debates about the balance of vocational and general education programs focus on the school-to-work transition. But with rapid technological change, gains in youth employment from vocational education may be offset by less adaptability and thus diminished employment later in life. To test our main hypothesis that any relative labor-market advantage of vocational education decreases with age, we employ a difference-in-differences approach that compares employment rates across different ages for people with general and vocational education. Using micro data for 18 countries from the International Adult Literacy Survey, we find strong support for the existence of such a trade-off, which is most pronounced in countries emphasizing apprenticeship programs. Results are robust to accounting for ability patterns and to propensity-score matching.

10/27: Sell the sizle, not the steak-

1. Do consumers prefer offers that are easy to compare? An experimental investigation

Date:	2011-10-12
By:	Paolo Crosetto (Max Planck Institute for Economics, Jena) Alexia Gaudeul (Graduate School "Human Behavior in Social and Economic Change" (GSBC), Friedrich Schiller University, Jena)
URL:	http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-044&r=cbe
Consumers make mistakes when facing complex purchasing decision problems but if at least some consumers choose only among offers that are easy to compare with others then firms will adopt common ways to present their offers and thus make choice easier (Gaudeul and Sugden, 2011). We design an original experiment to identify consumers' choice heuristics in the lab. Subjects are presented with menus of offers and do appear to favour offers that are easy to compare with others in the menu. While not all subjects do so, this is enough to deter firms from introducing spurious complexity in the way they present products.

10/27: More indexing:

The multiple index crediting method is a simple enough concept — offer a choice of two or more indexes on a single crediting method during a term. (Terms currently range from 1 to 5 years. This is when the potential indexed gains will be credited.) The multiple index method can then take one of two approaches:

• Weighting method — Apply a stated percentage weighting to each index offered on the crediting method over the term. Potential indexed gains will be credited based on those weightings at the end of the period, based on the performance of each index.
  
  For example, an insurance carrier offers indexes A, B and C on a monthly averaging multiple index crediting method. Index A will receive a weighting over a three-year period of 40 percent; Index B will receive a weighting of 35 percent; Index C will receive a weighting of 25 percent. The carrier then applies a participation rate or cap to any potential indexed gains at the end of the term.
  
  
• Rainbow method — Perform a lookback over the period, crediting a specified percentage based on the performance of the better-performing indexes. For example, an insurance carrier offers indexes A, B and C on an annual point-to-point multiple index crediting method. The best performing index over the one-year period gets 75 percent weighting in the crediting calculation; the next-best performing index gets 25 percent weighting; and the least-best performing index gets zero credit. The carrier then applies a participation rate or cap to any potential indexed gains at the end of the term.

The Dow Jones Euro Stoxx 50, Hang Seng, MSCI EM and MSCI EAFE all bring an international flavor to the market. Plus, the Dow Jones UBS Commodity Index was recently introduced on a multiple index method, the first time that a commodities index has been offered on an indexed UL.

Which index will be next? It’s hard to say. However, the appeal of the indexed life insurance product has never been stronger.

Naysayers who have argued about lack of diversification in the product line may now have difficulty finding an argument not to sell these fixed products. Producers who have longed for a benchmark other than the standard domestic indexes now have a choice of 17 different carriers with which to place their business. Put it all together and it translates to a striking argument for IUL, an innovative trend in the indexed life insurance market and a new way to make indexed crediting sound sexy.

Note- the Stoxx is not normally liseted anymore since it has done so bad.

10/27: L:TC Met Life

national average rates for a private nursing home room increased 4.4% to $239 daily or $87,235 annually, in 2011. Assisted living base rates rose by 5.6% to $3,477 monthly or $41,724 annually.

Adult day services went up by 4.5% to $70 per day, the report says. Home health aides and homemaker/companion service rates were unchanged at $21 and $19 per hour, respectively.

The highest average daily rates for nursing homes continue to be in Alaska, where rates decreased slightly to $655 for a private room compared to $687 in 2010, the survey observes. Costs were lowest in Louisiana, outside the Baton Rouge and Shreveport Metropolitan Statistical Areas (MSA), at an average of $141 per day for a private room.

For assisted living, the Washington, D.C. area had the highest average monthly base rate at $5,757, a 10% increase from last year. Arkansas, outside of the Little Rock MSA, had the lowest average monthly rate of $2,156, also an increase.

John Hancock-

John Hancock calculated a 9-year average based on a comparison of data gathered from providers across the country for surveys conducted in 2002, 2005, 2008, and 2011. The 9-year average annual increases in the cost of care, the company says, closely track the long-term average annual rate of inflation, which is 4.1%.

Among the report's findings:

--The 2011 average cost of a private nursing home room ($235 a day/ $85,775 annually) has risen an average 3.5% per year.

--The 2011 average cost of a semi-private nursing home room ($207 a day/ $75,555 annually) has risen an average 3.2% per year.

--The 2011 average cost for a month in an assisted living facility ($3,270 a month/ $39,240 annually) has risen an average 3.4% per year.

--The 2011 average cost for a home health aide ($20 hourly/$37,440 annually) has risen an average 1.3 percent per year.

The survey reveals that the national average annual cost of care in the U.S. to be $85,775 for a private room in a nursing home; $75,555 for a semi-private room in a nursing home; and $39,240 for an assisted living facility.

The average cost of care received at home was approximately $20 per hour, the report says.

10/27:

Which one do you want???


10/27:

Of the 16 professional sports we research & cover, here’s what we’ve learned about the plight of the professional athlete in the first 5 years of retirement:

• 78% of former football players have gone bankrupt or are under financial stress because of joblessness or divorce
• 60% of former basketball players are broke
• 60% to 78% of baseball players (various sources state) are broke (similar outcomes in many of the 13 other sports we cover)
• Of the top agents, who manage +95% of the athletes in the 16 sports we cover, they manage roughly 4 to 5 clients each at a given time
  

10/26: Odean-  investors “seek to minimize the emotional experience of investing as much as they can,

Odean observed U.S. investors who went out into the market and bought a stock that they had owned in the past, but sold at a certain point in time. The results of the empirical study showed that investors bought a stock they’d owned before only if they made money on it the first time they owned it and only if the stock’s price had gone down since they bought it.

Regret is also a key factor in what Odean calls the “disposition effect.” His research through the years has shown that investors are more disposed toward selling stocks that have made money, while holding onto those that are poor performers. Even though the results of this can be counterintuitive and even detrimental to a stock portfolio, the overriding reason has to do with managing their emotions vis-à-vis the stocks they own, in particular the regret at owning stocks that are poor performers.

“But looking at the performance of stocks that people sold and bought over a year, we found that the stock they bought tended to underperform the ones that they just sold, and in addition, they are paying commissions and spreads. Overconfidence, then, leads to more trading and earning less.”

Men are particularly prone to overconfidence, Odean says, and while both the male and female active traders in his study lost more in the stock market than their buy-and-hold investor peers, men proved to be the greatest underperformers.

Why are people buying stocks? Illogical

10/25: STOLI:

The war between life insurance carriers and STOLI promoters is in full force, and the tide may be turning in the carriers’ favor. In the latest battle, the Delaware Supreme Court reached a ruling on Sept. 20 in the case of Lincoln National Life Insurance Co. v. Schlanger that could dramatically affect stranger-originated life insurance (STOLI) schemes across the country.

The Facts

In the Lincoln case, the policy at issue was a $6 million face-value policy issued by Lincoln on Joseph Schlanger’s life and owned by the Joseph Schlanger 2006 Insurance Trust.

Schlanger died just over two years after the policy was issued. The life insurance trust sought to collect the death benefit from Lincoln shortly thereafter. Lincoln sued in Delaware state court asking the court to find that the policy was void for lack of an insurable interest.

Lincoln claimed that the policy was never intended for legitimate insurance needs and that it was intended by the insured to be transferred to GIII, a private investing firm, using a multi-layer trust scheme to hide the true nature of the transaction from the carrier.

The Court’s Decision

The Delaware Supreme Court answered the following question in its ruling: “Can a life insurer contest the validity of a life insurance policy based on a lack of insurable interest after expiration of the two year contestability period set out in the policy?”

The policy at issue has an incontestability clause that, as required by Delaware law, limited the insurance company’s right to contest the validity of the policy to the two years immediately after the policy was issued.

The carriers argued that a policy issued without an insurable interest is void when it is issued because it amounts to a “wager on human life.” Because the contestability period is specified in the policy’s incontestability clause, it is a part of the policy. If the policy is void from issuance, no policy exists and thus the incontestability clause is never operative.

The defendant investors argued that the plain meaning of the state insurance statute and the clause in the contract was that the carrier was prohibited from contesting of the policy’s validity after the period expires.

The court agreed with the carriers’ argument, noting that the Delaware legislature had chosen to implement the contestability period as a mandatory contractual provision instead of a direct statutory prohibition on carrier challenges after the period is over. The court held that carriers are not limited by the contestability period when they challenge a policy for lack of an insurable interest

10/24:

The most recent Reuters/University of Michigan consumer sentiment survey, released on Oct. 14 showed that the mood of households continued to worsen in mid-October, even as the stock market showed new signs of life.

“Consumer confidence is inching itself deeper into the recession zone,”

10/24:

Bank’s Collapse in Europe Points to Global Risks

By GRETCHEN MORGENSON and LOUISE STORY

As much as American financial institutions have sought to minimize damage from Europe’s problems, the rescue of Dexia shows that there may be risks that are less known.

-
10/23: Just fine- The North American Securities Administrators Association (NASAA) released findings of a report on Oct. 19 that found a 51% increase in the number of enforcement actions by state securities regulators in 2010, which led to a nearly 200% increase from the previous year in the amount of money ordered returned to investors.

10/23:

Asian markets await eurozone rescue plan

http://link.ft.com/r/NA70KK/U162T9/XHV4J/L995XC/DWERT5/CM/h?a1=2011&a2=10&a3=21

Euro falls as hopes fade of swift debt fix

http://link.ft.com/r/NA70KK/U162T9/XHV4J/L995XC/624YFY/CM/h?a1=2011&a2=10&a3=21

10/23:

The Internal Revenue Service (IRS) announced cost of living adjustments (COLAs) affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012.

In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

Highlights of the COLAs included:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

• The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

For full details on the pension plan limitations for 2012, visit http://www.irs.gov/newsroom/article/0,,id=248482,00.html.

10/23: Americans’ Retirement Confidence Falls to Four-Year Low: Survey
American workers are becoming more and more pessimistic about their retirement prospects, according to a new survey by Sun Life Financial, but those who have invested in annuities or hold long-term care insurance are decidedly more confident.

10/23:

"Knowledge is Power - A Theory of Information, Income, and Welfare Spending" 
CESifo Working Paper Series No. 3613

JO THORI LIND, University of Oslo - Department of Economics, CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Email: j.t.lind@econ.uio.no
DOMINIC ROHNER, University of Zurich
Email: dr296@econ.cam.ac.uk

No voters cast their votes based on perfect information, but better educated and richer voters are on average better informed than others. We develop a model where the voting mistakes resulting from low political knowledge reduce the weight of poor voters, and cause parties to choose political platforms that are better aligned with the preferences of rich voters. In US election survey data, we find that income is more important in affecting voting behavior for more informed voters than for less informed voters, as predicted by the model. Further, in a panel of US states we find that when there is a strong correlation between income and political information, Congress representatives vote more conservatively, which is also in line with our theory.

10/20: This is stupid-

Tune Out Negative News, Consumer Advocate Says
Tune out. That’s essentially the message from Eleanor Blayney, consumer advocate with the Certified Financial Planner Board of Standards.

Sure I realize that irrational elements can start with something negative- and death, pestulence, finanical losses, job  losses and more are not bright and happy thoughts. But they are real life and to exclude them is ludicrous. They will- and MUST- be made part of the decisionmaking process. That is why the simplistic 'buy and hold' is based on "happy thoughts'- and led millions of retirees to              no place.

10/19:

1. Loss-Based Risk Measures

Date:	2011
By:	Rama Cont (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - CNRS : UMR7599 - Université Pierre et Marie Curie - Paris VI - Université Paris Diderot - P