Master Financial Education

E. F. Moody Jr.


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

Steven Winks

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

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

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

You must not believe everything you think

Stephan Thomas Vitas

Stephen Colbert

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

Risk of Loss and Risk of Loss 2

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


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

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


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

Uniform (Im)Prudent Investor Act- waaaaaaaaaaaaaaaaaay out of date

World Clock by

10/31: GDP good

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 3.5 percent in the third quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 4.6 percent.

BUT Greenspan says buy gold.

10/31: Working with dementia

Good stuff


10/31: not good

Over the last year, China has been on a strong economic mission to guide its economy out of its reliance on low cost manufacturing and exports and into a more domestic consumption-based model. The success of this transition is seen as key to maintaining the country’s growth rate, and in turn, the solvency of its huge networks of banks, trusts, and credit entities. New data has emerged on consumption, and while somewhat confusing, points out that China’s level of consumption is falling. Major retailers in China, including Unilever, Nestle, and Colgate-Palmolive, all saw their quarterly sales decline significantly, with Unilever seeing a 20% fall year on year. In total, the top 100 retailers in China have only seen their sales rise 0.1% this year, and for the third quarter, sales dropped significantly, reversing gains of the first and second quarters of 2014. However, Chinese government data, which many expect is heavily biased and manipulated, reported that through the third quarter, consumption spending grew 12% this year. Experts agree that if the figure continues to grow, it will be in the single digits, rather than the chunky 15% growth rates seen previously.

10/31: Bonds/Treasuries

Equity markets have largely recovered from the selloff two weeks ago, but bond yields are still very low, and according to industry analysts, Treasuries are seeing huge orders from funds. Many speculate that since Treasuries are infinitely more liquid than many credit products, funds are rotating heavily into them in advance of what they see as a high level of redemptions set to hit their businesses. Additionally, the undeniable wariness that the market selloff has put into investors seems to be leading many to close out equity positions and take gains, moving cash into safe sovereign bonds for a future they see as increasingly sluggish, with low growth and low inflation. The head of fixed income ETFs at Van Eck Global summed it up this way, saying “the more fund managers add Treasuries to their corporate bond portfolios, either as a hedge or as liquidity substitute, the more pressure we will see on [Treasury] yields to drop. That may be the reality of the next couple of months.”

10/31: dire

A Financial Times guest writer, Satyajit Das, who is a former banker and author, has written a very intriguing essay in today’s publication. Das argues that a complex mix of regulation, sovereign creditworthiness, and illiquidity are set to conspire to bring about a new crisis. Das makes a compelling case that as the new capital rules for banks have incentivized such firms to hold sovereign debt as collateral, banks have become overexposed to sovereigns. Das’ crisis map unfolds with the first step as a sovereign credit downgrade. Once this happens, banks will automatically take losses on their balance sheets and on their derivatives contracts (in the form of CVA scores) and will be forced to post more collateral, this time being compelled to hedge their sovereign exposure by shorting government bonds or currencies. The decreased creditworthiness of swaps will flow the system to all counterparties, forcing everyone to hedge, and thus both accelerating the decline of prices in sovereign bond markets, but also radiating into all asset classes, as the use of creative hedges grows alongside lower liquidity in some areas. All of these issues will be greatly exacerbated by herd behaviour, low credit liquidity due to regulations, and the huge similarity of risk models between financial institutions. Ultimately, the shocks will spread to the wider economy through higher borrowing costs, extremely tight credit, and weakness in investment and employment.

10/31:One in three. That's number of children in the United States living in poverty.

the share of U.S. children living in poverty has actually increased by 2 percentage points since 2008. Overall, 24.2 million U.S. children were living in poverty in 2012, reflecting an increase of 1.7 million children since 2008. "Of all newly poor children in the OECD and/or EU, about a third are in the United States,"

Finding Balance for the Caregiver
16 Stress Reducing Strategies

By Lisa Bailey 


When my husband Phil’s colorectal cancer returned in October of 2006, this time in the liver and lungs, I found myself stressed to the max.  With my full-time job as a kindergarten teacher, my commitment to my adult children and grandchildren, and keeping tabs on my teenage daughter, adding compassionate caregiving to my life’s work demands from me an incredibly difficult balancing act. 
The following sixteen coping strategies have helped me in my attempts to live a balanced life.  Because caregiving is such a universal task, faced by nearly all of us at one time or another, I hope you find these strategies helpful as well.

  1. Make all choices from a solid base of integrity. I try to make medical and personal choices from the base of my Christian faith, which helps free me from second-guessing myself.
  2. Be clear about today’s reality. Don’t imagine things are worse than they are.  Enjoy the good parts of today and don’t let worries for tomorrow take over your emotions and thoughts.
  3. Talk honestly to family and friends. Honest, frequent communication with close family and friends from the start of diagnosis is much easier than trying to play catch-up later. I discovered a wonderful, free Internet service at  which has allowed me to create a Web site to communicate regularly about Phil’s health. 
  4. Expect and prepare for tough talks.  Family and friends process the news about a serious illness at their own pace. They will not accept the reality of the illness on a schedule that meshes with yours. This means that sometimes family and friends will not understand the tension of your caregiving lifestyle, especially at first. This requires a difficult conversation about what the illness is, how it will be treated, and what kinds of side effects will be expected from the treatment and the disease itself. It is helpful to have a family conversation with the doctor present.This provides an opportunity for questions to be answered accurately.
  5. Learn the medical lingo.  It will help you as a caregiver and a medical advocate to learn the lingo surrounding your loved one’s illness. The Internet is a helpful resource, but you need to learn what Web sites can be trusted and what Web sites have a hidden agenda. I have included a list of trusted Web sites I have used for medical information.  However, even with a trusted Web site, don’t believe everything you read. Not all information will pertain to your loved one’s situation and you can worry yourself into a frenzy over some Internet information you have read.  Ask questions of the doctors and nurses. Check the accuracy of your information if you are at all troubled or in doubt.
  6. During treatment, pain or pain medication might do some talking.  Be aware that pain, stress and pain medications will release the patient from their social “filter” and they can and probably will say some interesting and difficult things at times.  Actually, caregivers do this, too, as stress lifts our social filters at unexpected times—forgive yourself as well when this happens. Listen and be compassionate as best you can. Children and teenagers will need help understanding the changes in their loved one’s personality, especially to know that the changes are not permanent. 
  7. Control what you can control. Lots of articles about stress-management advise letting go of control; however, I have found that being in control of some areas of my life has greatly reduced my stress. 
    1. Get help with housework—paid or unpaid.  Help with household chores has helped to make our home a cleaner refuge for Phil as he recovers and a sanctuary for me. 
    2. Get help with yard work—paid or unpaid.  Our backyard is our vacation destination this year; we eat most meals on the deck, enjoy the variety of birds that visit our birdfeeders, play cards, do art work and garden.  Help with yard work makes this vacation destination possible.
    3.  Prepare meals in advance and freeze them.  I do bulk cooking and freeze pre-prepared meals
    4. Keep bills and insurance paperwork organized so there are fewer financial surprises. Make necessary phone calls to insurance companies, and pay bills, or call to arrange payments, on time.
    5. Plan your work; then work your plan.  Be efficient at your outside job and in taking care of home stuff.  Don’t let things pile up. 
    6.  Do three things every evening before you go to bed—laundry, dishes and take out the garbage. The morning will be much more of a gift.
  8. Let go of what you cannot control. For me, this means “let go and let God.” I carry a scripture in my pocket from Jeremiah 29:11 which says, “For I know the plans I have for you,” declares the Lord, “plans to prosper you and not to harm you, plans to give you hope and a future.”  Cancer is what it is; I cannot change that, but I can and do trust God for our future.
  9. Nest.  Everyone, especially people who are recovering from illness or injury and their caregiver, needs a comfy chair—a place to relax and rejuvenate. Make a comfortable nest for your loved one and for yourself by adding afghans, pillows, fresh flowers, candles, books and great music to your comfy chair area. This is important to do both at your home and at the hospital should there be an extended stay there. 
  10. Make comfort food.  Think about what your patient is hungry for, and then consider the details—digestibility, comfort, correct textures, temperature and presentation.  A compassionate and informative book that I found helpful as I prepared food for Phil following chemotherapy and surgery is Laurel’s Kitchen Caring: Recipes for Everyday Home Caregiving, by Laurel Robertson, with Carol Lee Flinders and Brian Ruppenthal, R.D.  Laurel speaks with such love for both the patient and the caregiver and her encouraging voice revives my spirit for caregiving, especially in providing good nutrition for healing.
  11. Enjoy life today.  During my husband’s chemotherapy treatments, our world becomes pretty small.  We find that watching television is an important diversion, and we have become fans of shows we probably never would have discovered without some enforced downtime. We also play cards and Monopoly, put puzzles together and rent many movies.  I found a new interest in sewing, knitting and watercolor painting.  Phil, a drummer, has never stopped his daily drumming practice or working at his business from home.  We try to enjoy simple pleasures everyday.  We remember that Phil is a person with interests, not just a cancer patient.  And I, too, am a person with interests; not just a cancer patient’s caregiver.
  12. Journal for yourself.  There are so many ways to re-center yourself, but none works as well as journaling, in my opinion.  Even if you have never kept a journal, starting one now will help you clarify feelings, manage the stress and plan the work you need to do as caregiver. 
  13. Keep a vision for the future.  None of us comes here to stay; we know that.  But we also know that we can “grow until we go,” and we should.  One scripture that came right to mind when Phil was first diagnosed with a recurrence of cancer was “Where there is no vision, the people perish.” Proverbs. 29:18 KJV. We make plans for our future.
  14. Give.  While I have learned through Phil’s illness to receive the gifts of help, encouragement, prayer and love from other people, Phil and I continue to enjoy giving as part of our marriage. We enjoy praying for other people, talking to other patients in the waiting rooms, encouraging others as much as possible through conversations both in person, in email and through good, old-fashioned snail mail. Giving keeps us feeling emotionally and spiritually full and is always worth the effort.
  15. Take good care of yourself.  Eat good food, exercise a little, rest well and learn to say no to outside demands.  See your doctor and dentist for checkups. Get away from the house now and then—even if it is just to the laundromat to do the bulky wash. 
  16. Release yourself from expectations for perfection. As humans, we all experience finitude, our “feet of clay” when we do not have infinite energy, wisdom or capabilities to manage our lives. This is normal. Get through each day as best you can, and don’t dwell on mistakes.   



10/31 What problems do the elderly have  

1. Ending up with wet or soiled clothes.

This problem affected 43 percent of the study participants who needed help with going to the bathroom.

2. Getting stuck inside.

This problem affected 30 percent of the study participants who needed help with going out.

3. Having difficulty going to places in their own homes or buildings.

This problem affected 26 percent of the study participants who needed help with moving around their homes or buildings.

4. Making a mistake when taking medicine.

This problem affected 19.9 percent of the study participants who needed help with taking medication.

5.. Going without bathing, showering or cleaning.

This problem affected 12.9 percent of the study participants who needed help with bathing or cleaning.

6 Having to stay in bed is just the sixth most common bad outcome. That "adverse consequence" has affected 11.5 percent of the people who need help with getting out of bed.


My Sad, Sad & Happy, Happy Story

By Patsy Robertson


Today I hate my bipolar because I feel depressed and very sad. But it will not last. I will soon be happy again. I skipped one or two doses of my medication and that always throws me into a miserable sad depression. As I drove to my psychiatrist's office today to pick up my Eskalith & Concerta I became vividly aware that I thought about dying. But that will not last. I will soon be happy again!

I was diagnosed with Major Depression/Bipolar & ADD in 1994 when I checked myself into the hospital for a week. I was broken mentally & physically unable to work or get out of the bed for that matter.

This was not the first time I had been treated for depression in my life. The first time I was a young mother under a great deal of stress from an abusive husband. I was first hospitalized for two weeks and then one week shortly after my coming home the first time. I was not given medication. A beautiful young mother was my room mate. She got to go home on a weekend pass to see how she would cope at home. She never returned because she killed herself. This left a very strong impression on me. I decided then that I would run to my doctor anytime I felt the same feeling of depression coming on.

That seemed to work until around 1985 when a traumatic episode between my [new] husband, my daughter & I happened. I went to a psychiatrist for help because I recognized the exact same feelings I had when I was in the hospital. The feeling of hopelessness & darkness. My psychiatrist was the first to tell me about anti-depressants and how it would be trial & error to discover the right medication for me. I was very pleased to know he understood my depression. I began taking Desyrel & still it every night before going to sleep.

My father died in 1993, my mother moved in six months later. My daughter-in-law had a mastectomy at seven months pregnant when diagnosed with breast cancer. I was five years breast cancer free at the time. My grand son was delivered c-section & almost died when his lungs collapsed. My husband lost his "big important corporate job" after surviving 3 buy-outs. He & my mother freaked out because their lives were not going as planned. Everything began falling apart, I thought I was going crazy - it seemed everything was my fault. Oh! My middle child came to us for help with a "crank" addiction.

I knew I needed help. I found a physiatrist & therapist that I really liked.  I began taking an additional anti-depressant. I worked very hard at being strong. I wanted to keep everyone & myself happy. I loved my job. But it was getting harder to pretend everything was OK. I was a special events coordinator at a country club. I directed PGA golf tournaments, tennis tournaments, weddings, golf outings, holiday parties for the club members and booked corporate meetings & golf outings. I worked with a lot of celebrities & the press. I had to get well. I could not allow anyone to know how sick I was. The mental began making me physically ill. I could barely walk at times. I had sores on my head & in my mouth. I was broken physically & emotionally.  

When I wasn't at work, I was in bed. I would rest or sleep until it was time to go back to work. I became a work-a-holic because it was fun until I couldn't figure out what to do next. I always had 10-12 event files on my desk. I could not figure out which file to open first. I became so overwhelmed that I would take a walk around the club house. I would visit the pro-shop & the dish washers - anyone I could find to talk to early in the morning. Then I would go back to my desk & try it again. I actually fired my assistant because she made a mistake. This is something I am ashamed of. I was trying to protect myself because she had to be better at my job than I was in order to protect me. She was a wonderful person but I would never have fired her under normal circumstances. I was not operating with a normal mind & I knew it. But I thought it would go away. I couldn't loose my job.

My boss brought the food & beverage manager into the office to assist me. I knew I wasn't fooling anyone. I had always been super on the job and I could barely function on the job now.

My boss called me into his office one day & very kindly suggested I needed help. He gave me the name & phone number of an intake counselor at a wonderful facility here in Atlanta. I went right away and this was the beginning of some very scary times for me but after ten years I am doing better than I ever dreamed I would or could.

The most difficult part for me was how my family responded to my "mental illness" to  my "depression" to my "Bipolar" and I've never told them about ADD! ha! There is nothing funny about what I have been through or what I have to do now but I have found a sense of humor is necessary for me.

My oldest son told me that depression is not a medical illness while his wife said "yes, it is." My daughter called me "Elvis" because of all the meds I was taking. She will never know how much I would like to dump the meds. It is work to keep your medication organized & refilled. Then you have to remember to take it at a certain time each day & usually with food. Most people don't understand how important anti-depressants are to me.

Every single time I decide to skip a pill or run out of a prescription & skip a pill I find myself thinking about dying. I want to die. Then I remind myself that it is skipping the meds that cause me to feel this way. I am convinced 100% that if I stopped taking my meds I would want to or try to kill myself. I don't want to die, I want to live! I am beginning to feel so much better now. I am not going back where I was. I am not ashamed nor do I feel weak for taking my meds. I feel smart, I feel like I am enabling myself to attend my grand children's graduations & weddings. What would they think if I gave up? That keeps me going to my shrink more than anything on this earth.

It is very difficult being bipolar. I have to take Concerta now to "wake me up" because the Eskalith makes me so flat. But by sticking to the regiment I am beginning to reap some real benefits. I have a group of ladies in my home every Thursday night for a Bible study. I hadn't entertained in my home since 1998! They are new friends and they accept me just the way I am & I them too! It is so wonderful.

I began writing a book in 1982. I am now writing again. With this "Bipolar/ADD mind" of mine it is a challenge! But I don't care if I never get it done, I am so happy I am writing again. I did put the book together in a large binder. That is a major achievement for me. There are days that I look back over the last one to three days and it seems I floated through them. I do get tired when I have a string of mania days. I was mania most of my life now that I look back on it but without the drops. The drops are painful I think because I try to analyze them too much. But I have to remind myself even as I write this that the drops usually come when I miss my medication. In a perfect world they would make it easier to get the medications. There are such tight restrictions on Concerta for example that I have to drive all the way to my doctor's office to get a new prescription every 30 days. This should be easy, but for me it is not very easy. My daughter is allowed to pick it up, but sometimes I forget to give her & my doc enough notice.

If not for the researchers, the doctors & the trials I would have no hope. I am able to live a good life again because I have fought hard to keep my mind and I seek out good psychiatrists to help me. I am fortunate because I have a family doctor who insists I go to my shrink for my psychiatrist medications. It is not easy. It is very hard battle but it is a fight worth fighting.

The Assistant Secretary for Planning and Evaluation (ASPE) is the principal advisor to the Secretary of the U.S. Department of Health and Human Services on policy development, and is responsible for major activities in policy coordination, legislation development, strategic planning, policy research, evaluation, and economic analysis.

10/30: Once in awhile humans do good

The Espanola giant tortoises, a species that can live for over 100 years, had numbered in the thousands but dropped to 15 by 1960 due to human exploitation, the study said. Between 1963 and 1974, conservationists brought the 12 female and three male surviving giant tortoises into captivity. Over 1,500 of their offspring have since been released onto the island, and the species’ survival no longer requires human intervention.

10/30: I have been saying this for years

some of the most supposedly financially knowledgeable people -- mutual-fund managers -- don't make better financial decisions than other people, according to anew study by Michigan State and Notre Dame researchers, as reported in The Atlantic.

It's the latest evidence that a years-long campaign to help normal Americans achieve "financial literacy" is ineffective at best and misguided at worst. As the Atlantic notes,expert stock-pickers in finance and forecasters in other fields have been derided for decades as no better than dart-throwing monkeys.

When it comes to getting ordinary people to know more about finance, however, the consensus has been that this time it’s different. On the surface, it’s a well-intentioned and uncontroversial mission: Helping people help themselves by making better decisions. And there's plenty of evidence that people have a scary lack of financial knowledge: One study found that just a third of Americans would correctly answer three simple financial questions.

And those questions are models of transparency compared with the opaque language consumers often face when making even the simplest financial decisions. The goal of making people financially literate seems to imply that it's the individual’s responsibility to safely navigate what is often intentionally inscrutable financial language.

The same companies who create the problem of financial products Americans can’t understand push financial literacy as the solution. For instance, Bank of America thinks the key is an online course. The financial industry’s self-regulatory organization has an entire foundation devoted to investor education.

But financial literacy in this gauzy, generalized form simply doesn’t work. The Cleveland Fed found no “conclusive support that any benefit at all exists” from financial education as it is currently taught. Shocking no one who has been to high school, one study showed that taking a financial literacy class in high school does nothing to improve financial literacy.

And a study by researchers at the Brookings Institution could not find “strong evidence that financial literacy efforts have had positive and substantial impacts."

In a 2011 presentation titled “The Financial Education Fallacy,” Lauren Willis, a professor at Loyola Law School, shot down the idea that “ordinary consumers would have made better mortgage choices and would have accumulated sufficient precautionary savings to weather the recession" if they'd just been financially educated. Straightforward consumer protections, like putting limits on how many single stocks people can own in retirement accounts, are most effective. Financial education is no substitute for financial regulation, she argues.

There is evidence that giving people specific information about a specific product (say, about credit card debt for people who are interested in applying for a credit card)works better. It’s not easy, given the mountain of details involved. But single-serving consumer information is likely to be far more helpful than vague goals of getting Americans to solve their own financial problems by thinking them through.

Personal finance author Helaine Olen has called financial literacy “both a failure and a sham.” This conclusion deserves to be widely accepted.

When mutual-fund managers are making dumb decisions, it’s time to admit that making average Americans generally more financially literate is not a useful goal. Starting with clear-cut consumer protections and unbiased information about specific financial products is far more helpful.

Uniform (Im)Prudent Investor Act- way out of date

For the very few that will read five pages, take a gander at commentary on why this rule is antiquated.  It is a very sophomoric regulation that is open to serious errors in interpretation primarily since those rendering an opinion are clueless to the real life fundamentals of investing.
I don't care if they are from the industry, government, are litigants, judges, the Tooth Fairy, et al. One of the most obvious missteps is the continuing lack of specificity to RISK, If you cannot get that right (and they can't since risk of loss is not taught) then the entire review of prudence is highly suspect

10/29: Good Times economic commentary but shows the many different commentaries by economists

"We need more time to evaluate whether we should be doing any updating. And I would say the financial market movements have not been triggered by very many real economic indicators.”
Boston Federal Reserve President

The real art of conversation is not only to say the right thing in the right place but to leave unsaid the wrong thing at the tempting moment."

-- Lady Dorothy Nevill,

10/29: Must be bad overseas if Sweden is doing it"

Sweden’s central bank cut interest rates to zero – a record low – as it stepped up its increasingly desperate fight against deflation.

10/29: Just an example

10/29: Slowing a lot overseas, including china.

The economic situation in Europe has deteriorated, the unemployment rate in the US has fallen below 6%, and the Fed looks poised to conclude its quantitative easing program this week.

Volatility has returned to markets, with the S&P 500 recently declining more than 9% before sharply rebounding, while the bond market had one of its most volatile days in history as the US 10-year yield fell 37 basis points in just a few hours. 

And in the background of all of this is the declining price of oil, which on Monday fell below $80 a barrel for the first time in over two years, and a Russian economy that is looking at a dramatically depreciating ruble. 

EFM- U.S. fracking has hurt a number of oil exporters and that will destabilize many foreign countries that have little to fall back on. U.S. consumers are seeing the benefits but we could end up on the downside as our exports will drop. Another recession? Don't know but a major correction is now quite possible. again, as an investor one must accept a 10% to 15% drop in the market. But it starting to get dicey as regards DCAD noted above. If you have not viewed that video yet, I sure would take a look now. .

10/28: Housing

1. In 2013, the average size of new houses built increased to an all-time high of 2,679 square feet (see blue line in top chart), and the median size new home set a new record of 2,491 square feet (see red line in chart). Over the last 40 years, the average home has increased in size by more than 1,000 square feet, from an average size of 1,660 square feet in 1973 (earliest year available from Census) to 2,679 square feet last year. Likewise, the median-size home has increased in size by almost 1,000 square feet, from 1,525 square feet in 1973 to 2,491 last year. In percentage terms, the average home size has increased by 61.4% since 1973, while the median home size increased by 63.3%.

2. Meanwhile, the average household size has been declining, from 3.01 persons per household on average in 1973 to a new record low of 2.54 persons per household last year, a reduction of almost one-half person per household over the last 40 years (see brown line in top chart).

With the average new house in the US getter larger in size at the same time that American households are getting smaller, the square footage of living space per person in a new home has increased from 506.6 to 980.7 square feet using the median size home, and from 551.5 to 1,054.7 square feet using the average size home. In percentage terms, that’s a 93.6% increase using the median home size and a 91.2% increase using the average home size. In either case, the average amount of living space per person in a new home has almost doubled in just the last forty years – that’s pretty amazing.

3. What about the cost of new homes over the last 40 years? On a per square foot basis using median home prices and median square footage, the inflation-adjusted price of new homes has been relatively stable since 1973 in a range between about $105 and $125 per square foot (see bottom chart above). And the price of just under $106 per square foot for new homes in 2013 was almost 16 below the peak of $125.50 per square foot for a new home in 2004, and also below the cost per square foot in every year during the 1970s and 1980s, and below every year of the 1990s except 1992 and 1993.

10/26: Skin in the game

One of the main aims of the current round of US financial regulations was to ensure that banks had “skin in the game” as it concerned loan risk. Regulators believe that the overwhelming levels of securitization which occurred leading up to the Crisis made banks highly complacent above giving out loans, as they stood to lose little if they defaulted. The Dodd-Frank act sought to correct his by forcing lenders to hold at least 5% of the risk of a loan on their balance sheets. However, a small loophole, which provided that super safe mortgages did not need any part held by banks, has blossomed and overgrown the intent of the law. According to Barney Frank, the architect of the Dodd-Frank Act, the US’ most comprehensive set of financial reforms for several decades, “the loophole has eaten the rule, and there is no residential mortgage risk retention.” This means that despite years of regulations, there is virtually no system in place to contain explosive securitization levels and rampant over-lending besides the wisdom of mortgage-backed securities buyers, who have shown little restraint in the past.


10/23: Not a good sign with china

Chinese real estate figures have just hit the tape, and the results are very poor. Prices fell for the sixth straight month, and overall, prices dropped in 69 out of 70 major markets. The country is currently suffering from chronic oversupply, and reticence by buyers. Chinese property has been falling for several months, but the market was hoping for some turnaround in these figures, as the government has been continually reducing lending and borrowing requirements in an effort to boost the sector. Most startlingly of all, the figures were accompanied by data on real estate investment which showed that, astoundingly, investment in new property capacity expanded 12.5% in the first three quarters of this year, meaning builders are pouring more and more money into the sector despite the dire outlook. Agents in the country say that they have been disappointed by what has been a very weak pick up in demand on the back of the government easing lending and borrowing rules.


With commodity prices falling this far and fast, maybe it does bode well for consumer economics.

Across a wide range of commodities, prices are falling and sometimes falling fast. The Bloomberg commodity index – which acts as a benchmark for commodity investments – fell to its lowest level in five years this week. Prices are being pushed down by the increasing supply of most commodities and a weakening global economy, including a slowing China, the world’s largest consumer for many of these raw materials. Whether it is oil, corn, iron ore, coal, cotton or copper, prices are falling quickly.

The world has seen several rounds of quantitative easing (QE) over the last six years in the US, UK, and Japan, mostly with little to moderate success, but the most effective round yet might be just beginning. The global decline in commodities markets globally, which has seen prices drop in nearly every market from food, to metal, to energy, will have a hugely positive effect on nearly all consumers, no matter their geography or economic power. Significantly lower commodities costs, as we are seeing now, put real money back in the pockets of consumers, and free up disposable income which can be out into other areas. The IMF estimates that the declines we have seen so far will automatically boost GDP by 0.5% globally, and if sentiment grows, could raise this figure to 1.2% growth. According to economists, the current price falls mean that 1% of the world’s GDP flow back to consumers from commodities producers, and generally, half of this money will be spent. This means that roughly $320 bn will flow back into other areas of the economy, boosting growth. Such price drops will affect countries differently, with big producers like the US, Brazil, Russia, and Saudi Arabia seeing the least benefits. Net importers gain the most, though, in the case of the US, lower oil prices could lead to much larger consumer spending, which might be a net positive.

10/26: Read this article on risk and the comments

Here is my reply


Yes I do have a better way. It is direct, non emotional and, in my mind, easy to communicate. I will only consider those 50/55 and older at this point and only for the middle class. Yes the very rich can use the fundamentals but the assets of a business et al are too messy for this review. Most of the time what I am suggesting is for those that will not have a taxable estate.

First and foremost a very detailed budget needs to be done. I have one of the most detailed ones for middle class-  I have not liked what I have seen so far with standard questionnaires. There are two sections. One for those not yet retired and next to it is the estimated while retired. Each section  is reviewed with the client to reflect areas that may be questionable. (Health care costs are tough.) You can get involved with innumerable numbers after that- inflation, returns, time etc. to figure out what the “lump sum” will be needed at retirement. N (time)  reflects their actuarial lifetime plus a fudge factor. (Minimum 5 years). The return, i, may offered with two or three estimates. Inflation is done about the same.  And with a HP12c or similar, you can determine a few scenarios of present value for the client. The idea of doing tons of these strains credulity- stay focused to being conservative or middle of the road. Also one should be aware that when looking out 30 years or so the current analysis is fraught with divorce, illness, and so many other factors where it makes the numbers game intrinsically flawed.

The client does NOT pick what they want to do, has done before or hoped to do in the future. The planner has to do the analysis since only they have the skills and knowledge (chuckle). Want to impress? Do a couple on the HP in front of the client. If you are solely dependent on a software program to do the basics, you will not be able to do a formal risk of loss addressed below. (Why? There are no software programs to do risk of loss. )

Anyway, compare the PV with the asset base available and, voila, you now may not need to invest anything since there is enough assets already. Or the retiree needs to take a LITTLE risk. That may be attainable. A shortage? Well the best thing to do is have them reduce the budget. If not,  one can increase the return (perhaps) by taking more risk. But the budget determines the risk, not the questionnaire. 

In any case, no budget? No client. 

Now to the fun part. Let’s just look at risk. And assume we are just looking at the client questionnaire to see the risk comfort zone identified by the consumer. There is nothing in the industry set as a standard mainly because 1) they are stupid or 2) they know that the number computed might scare consumers into just buying CDs or doing nothing. But you can still do the job through direct comparisons. This is somewhat simplistic due to the obvious constraints but let’s say the consumer decides they do not want to lose anything. End game since you do not have an investor. How about a conservative entity. In such regard any investor should accept a 10% to 15% loss in equities since that is the amount of a normal market correction. If they cannot handle that, no investor. So maybe a conservative investor has to be willing to take a 20% to 25% hit.  Moderate risk= probably something close to 30% to 40%  drawdown. Aggressive is probably closer to 40% to 60%. Speculative is up to 80% and is reflective of the dotcom mania.  (I am not using any outliers on a standard deviation curve). This is just equities since the bonds will have a lower standard deviation to determine overall risk, but they may also be losing money every year for quite some time. So you lower the overall risk but have a negative return? Illogical but I leave that for another time.    
Does that sound reasonable/? Then what’s next? Just figuring out what might happen to the portfolio/allocation with a major economic bust.

As a note, standard deviation/volatility is NOT risk ipso facto. They are one of many risks that will occur but I use this to do the comparables. 

Let’s say you will invest for 9 years. Say the standard deviation of the equity section of the portfolio is 30% (use historical SD, not current (still too low). As another note, I do not like to use historical numbers if I can avoid them, but I have no choice here. The SD drops by the square root of the number of years. 30/3= 9%. So over time, the SD goes down. DO NOT USE THIS TO EXPRESS RISK OVER TIME.

What about if something went wrong and you did nothing? Take 1 minus SD for the number of years to the power of the number of years, (9). That represents how much money is LEFT at the end of that period. You can do the numbers for 15 years or so but I think the variables are far too unsettled  and it’s not worth the bother.  Go ahead and do the S&P 500 for 5 years with an initial SD of 20%. You will end up with 63% as what would be left. That is 37% lower than what you expected. (I cannot go into detail for every issue or interpretation here.) Then look at the equity losses for 2000. 44%. Look at the losses for 2008 top to bottom. 57%. In short, using the S&P 500 for 100% of the portfolio can result in a 50% loss  calculated/anticipated at the end of the period. Is that conservative?? Not even close. So maybe you use only 25% of the portfolio for equities. Well it sure could /would be a lot better depending on the risk of the other assets. (As I said, it will take more that I have time for here to address those.)

Is that the end? Not even close.

If it was necessary to use 100% equities to make a retirement, et al., could the retiree take a 50% hit because that is essentially what the industry says you HAVE to since the industry does allow any leeway to just sitting there. And therein is the fallacy/fraud/ineptness with such rule of thumb. Just look at the devastation in 2000 and 2008. No way were retirees could do that in the past messes nor certainly could they so it with this next mess. Right now advisers are trying all sorts of gimmicks to correct their incompetence by adding non correlated (supposedly) assets. This is a discussion in itself but recognize this per Professor Diebold of Wharton School, “The dirty little secret of diversification  is that the only thing that goes up in a down market is correlations” And from Taleb  Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south.  "Anything that relies on correlation is charlatanism."  . 

If you are not going to try to alter those losses, then the investor/401k participant has to be told that their $100,000 account will lose $50,000. You now have  changed the game of investing by informing the investor of the potential loss but also by stating or inferring that you are going to simply rely on past statistics of “the market always comes back”.  You are going to do nothing.
(As regards rebalancing see Michael Edesess)

In short, you now know what to do. You can determine the allocation that a consumer must take for retirement (or other) and explain simply what exposure there is. Due to this economy I tend to use rough numbers for one year since 1) I feel that a mess is not that far off and 2) as stated, going out 15 or 30 years just seems ludicrous.

Risk questionnaires should use a risk of loss similar to that above. Then we all talk the same language. The numerical risk of loss is done in more detail in two videos at These were not made with CE credit in mind so view accordingly

Is that all? No because there are ways to limit the losses unemotionally and objectively but that is another review altogether. But even more important for retirement success.

10/26: Doesn't seem to be working though

Russia’s rouble plumbed new depths against the dollar on Thursday after reports that the country’s biggest oil company made a request for more than Rbs2tn of state cash that could add to the already acute pressures on the currency.

10/26: All fall down

 In the face of near deflation, and widespread recession, Eurozone ETF’s listed in the US have just seen their largest outflows on record. According to Markit, just this month, Eurozone ETFs have seen outflows of over $3 bn, compared with net outflows of $2.2 bn in August, which were already the largest to ever occur since the ETFs’ creation a decade ago (the worst times of the Eurozone debt crisis included). Part of the issue is the weaker Euro, which led investors away, but much of it was simply worries over growth. Interestingly, despite its strong growth, the UK has not been able to escape outflows either, and British ETFs saw $700m declines. Likewise, European equity funds have seen major withdrawals recently, with $5.7 bn flowing out just last week.

Yet the US is better with its fabricated economy.


Retirement Plan Deferral Limit Increases in 2015

October 23, 2014 ( - The Internal Revenue Service (IRS) announced cost of living adjustments affecting dollar limitations for pension plans, 401(k)s and other retirement-related items for tax year 2015.

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 $17,500 to $18,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.

Effective January 1, 2015, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $210,000. For a participant who separated from service before January 1, 2015, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2014, by 1.0178.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2015 from $52,000 to $53,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $260,000 to $265,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period is increased from $1,050,000 to $1,070,000, while the dollar amount used to determine the lengthening of the five-year distribution period remains unchanged at $210,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $115,000 to $120,000.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,084,000 to $1,101,000.

10/26: Fraud

  • Ten percent of older individuals experiencing cognitive decline said they had recently experienced fraud.
  • As cognitive difficulties increase, this study confirms that seniors were more likely to have been victimized.
  • Confirming a finding reported in a previous blog post, over-confident older people were more vulnerable to fraud.
  • Fraud victims in self-assessments also report that they’ve become slightly more likely over time to take on risks, which also makes them more vulnerable to fraud.
  • But people who’ve managed to avoid fraud have less tolerance for fraud than they once did

10/23: Good for Them

A new survey of baby boomers, from those in their late fifties and above has shown some very interesting and relevant insights into how they handle their wealth. Opposed to generations before, 71% of those aged over 60 say that they intend to spend nearly all their wealth and leave little or none to the next generation. This fact runs contrary to generations of people who were keen on devising long-term plans to preserve and grow their family’s wealth. In their lifetime, the baby boomers have benefitted from vast wealth gains flowing from a long-term housing boom, massive privatization, and a water tight pension system. Even though they are getting older and retiring, politicians are still very focused on their attention as they both command huge amounts of capital—good for campaign contributions—and are very active in polls—85% of boomers vote regularly.

10/23  Is QE light like the CFP light

After many months of announcements and discussion, the European Central Bank has finally launched its QE-light campaign with targeted purchases of Eurozone covered bonds and asset-backed securities. The bond-buying began on Monday, but quantities are unknown. The ECB says it will announce how much it has bought in the previous week every Monday as long as the programme is running. The exact bonds already purchased are unclear, however, “purchases included at least two Spanish issues, one German and one French”, and were supposedly with durations of two to six years. They are thought to have been bought from BNP Paribas and Societe Generale. The ECB announced the programme last month as a means to combat recession and disinflation. Markets, however, are convinced that the measures will not be enough to boost the Eurozone’s economy, and many are calling for full scale quantitative easing.


The Art of Compassionate Communication for Elder Caregivers

By: Jill Sarah Moscowitz


“No one can ever be fully prepared for the challenges of care-giving. The tasks and responsibilities involved can be demanding, even more so when caregivers themselves are frail, have been thrust into their role unexpectedly or reluctantly, or must care for someone who is uncooperative or combative.” - The Merck Manual of Health and Healing

Caregivers can face overwhelming physical, financial, and emotional demands as a function of their service. In the face of these challenges, communication can sometimes be difficult. This article presents techniques for compassionate communication, as well as ideas for caregiver self-care and empowerment.

Communication is a process that allows a cyclical exchange of information through speaking and listening. However, as we all know, communicating is not as simple as that. Effective communication requires clarity from the person who is speaking and openness and attention from the person who is listening. This takes great commitment.

And to be compassionate, the communication should touch the heart. Compassionate communication can be understood through a breathing exercise. Put a hand on your heart; this is the center of compassionate communications. Notice your state of well-being. Imagine your whole being is entirely cared for. Take a breath in, and imagine this as a listening breath. Allow the breath to be touched by your heart, to be oxygenated and returned out. As you breathe out, imagine this as a speaking breath. And so is the cycle of breath and communication – incoming breath – touched by heart – and out going breath.

Compassionate communication includes:


2.Speaking with Clarity

3.Listening with Openness and Attention.

1. Awareness

Compassionate communication begins with an awareness of your own well being because when we focus on our well-being we create a space for the well-being of others around us. We create a space for authentic listening and speaking.

Identify Needs and Values. To create a dialogue of compassion, become familiar with your needs, values, expectations, and motivations. How did the role of caregiver come to you? Was it out of choice, obligation or circumstance? Does this role fulfill an underlying need or value to give or to feel appreciated? What other needs or values may be present for you? Perhaps there may be the need or value for connection, sense of purpose, or financial security. Marshall B. Rosenberg, Ph.D. describes a list of “universal needs and values” that all humans share. To become familiar with this list visit

Options for Meeting Needs and Values. Once you’ve identified some of your core needs and values, you can evaluate how you might have these needs met. It’s possible that your needs are met through care giving. It’s possible that you hope or expect these needs to be met through care giving, but they are not. Clarify for yourself what your expectations and motivations are and then determine what is realistic for this relationship. Use the “here and now” in your determination, rather than remembering how things were at one time or how you wish things to be. Consider all of the ways your needs and values can be met, including but not limited to this relationship.

 2. Speaking with Clarity

We all have many years of experience in speaking, but may not have skills in expressing ourselves with clarity. Here are some suggestions:

Use “I” statements. Probably the easiest tip for compassionate communications is to use “I” statements. These statements begin with the word “I” and they clearly express something about our own view, not something about the other person. For example “I am finding it hard to believe what you are saying” Notice the difference between the “I” statement and the following “You” statement. “You are lying!” When we start sentences with the word “You” we tend to put the other person on the defensive.

Use observations, not evaluations. An observation is a statement of fact, similar to what might be recorded on a video camera. For example, the statement “Aunt Ann has been talking on the phone for one hour”. An evaluation is a statement of fact with an added value (a judgment of good or bad). The statement “Aunt Ann talks too much on the phone” is an evaluation.

Speak Authentically. There are times when we choose to protect those we love from the truth about our feelings. We are the best judges of the impact of such non-disclosures. It’s possible that when we choose not to share our feelings, an opportunity for distance not closeness is created. Although it may feel very risky, the loving and heart-centered sharing of your feelings may be a beginning to more open communications. Sharing of feelings could begin with a sentence like “When you said [insert the Observation], I felt [insert the feeling].” See Marshall B. Rosenberg, Ph.D, ( for more tools for authentic speaking.

Know many realities exist. If a group of five people go to the same movie and each is asked the question “what happened in the movie”, we would get five each different stories. Each person’s story is based on the unique backdrop of each person’s perceptions. Many times our perceptions are based on our values or experiences. Remember, your reality belongs to you. Another person’s reality belongs to them. Neither reality is “right” or “wrong.” We simply perceive and interpret things based on our own values.

3. Listening with Openness and Attention

Many communication breakdowns occur because of difficulties in listening.

Waiting is not Listening. So often in our conversations we are “waiting to speak” while the other person is talking. We are formulating our ideas in response to what is being said. We become engaged in our own thoughts and their importance. Anxiously waiting for the other person to stop talking, we find that we are not listening.

Avoid Unspoken Stories. Another pitfall in listening is when we interpret rather than listen. While the other person is speaking, we create a story about what is being said. For example, a simple statement like “I think you look very nice today” can be incorrectly interpreted to mean, “Today, unlike any other day, you look very nice.” So, you can see how easy it is to create your own a story about someone’s communication.

Active Listening. Listening is truly an art. It is a skill that can be acquired. One way to practice this skill is through active listening. Active listening is a technique in which the person listening re-states his or her understanding of what the speaker has said, before introducing their response to what has been said. For example; “What I heard you say is …,” followed by “Does that sound about right?

Reframe Hostile or Difficult Communications. It’s possible that the person you are caring for may speak to you in anger. It may be helpful to consider that their anger may be due to their own frustrations, and not about you. For example, “You are no good! You never help me!” This statement might be reframed: “What I hear you saying is that you are wanting help and it feels like I am not helping now. Is that what you meant to say?” In hostile or difficult communications, it is sometimes helpful to involve a third neutral person to help with this type of communication.

At the very heart of compassionate communication is our desire to be collaborative in our communications – to hold a balance between our needs and the needs of the other. This is particularly important for caregivers who are so often looking after the needs of the other.

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

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

10/21: The Entire US Economy Depicted In Emoji

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

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

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

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

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

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

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

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

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

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


What is global market turbulence telling us?


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

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

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

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

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


10/19: For the first time

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


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

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

Very concise and interesting

10/19: We are sooooooooooo stupid

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


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

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

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

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

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

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

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

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

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

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

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

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

10/19: Lower net worth


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


10/19: Very bad Greece and possible contagion

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

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


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


10/16: Ruble Rubble

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

10/15: Big data explained

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

10:15:  China's problem (oxfwd_

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

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


10/15: US oil exports

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

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

10/15: Key Person Disability Insurance

10/15: Business Overhead Insurance

10/15: Buy-Sell Disability Insurance

10:15 Active versus passive

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

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

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

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

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

Special Needs Children Turning 18 Years Old

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


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

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

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

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


10/14: Global Economy DOWN

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

FT Interactive – Tiger Index

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

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

10/14: Probabilities (Kahneman)

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

10/14: Active Management

Dougal Williams, CFA11 Oct 2014 21:23

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

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

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

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

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

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

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

10/14: Planners suck

How Long will I Live

Simple 8 question form.

Married men live longer than single men

But married men are more willing to die

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

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

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

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

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

10/12: Life settlement

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

Option 1. Cash offer of $325,000

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

Michael Edesess on stocks for the long run

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

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

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

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

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

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

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

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

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

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

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

Bon Apetit.

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


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

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

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

10/12: Oil prices

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

10/12: oxwfd

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

10/12: Much worse than I thought

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

Humankind may become extinct (Elon MUSK)

advanced artificial intelligence could spell the end of humanity.

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

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

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

FRED Series DGS7: 7-Year Treasury Constant Maturity Rate

10/12: Curses!

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

10/12: Never heard of it- Famesane

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

Accredited Investor definitions changed

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

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

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

10/9: Equity returns over the long run

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

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

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

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

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

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

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

EFM: Here is Michael Edesess graph of an irrational investor 

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

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


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


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

I had to have a drink after that.

10/9" Confidence?? 

10/9: Very interesting

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


Chapter 1: Investor Behavior: An Overview

H. Kent Baker

American University - Kogod School of Business

Victor Ricciardi

Goucher College - Department of Business Management

January 25, 2014

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

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

Acid reflux

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

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

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

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

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

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

10/9: Americans are soooooooooooo smart

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


10/8: Here we go again

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


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

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

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




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

FT Interactive – Tiger Index

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

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

10/7 OIL PRICES STABLE (Roubini)

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

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

10/6 :

  1. The imprecision of volatility indexes




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


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


Implied volatility, volatility index, imprecision


G12 G13 G17

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




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


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



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


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


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


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


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


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


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


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


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




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


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

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




Joscha Beckmann
Theo Berger
Robert Czudaj


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

10/5: John Mauldin

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

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

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

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

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

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

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

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

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

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

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

From a trust administrator on EUIL

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

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

10/5: Oh yeah, this is news

Ashton Kutcher, Mila Kunis Reveal Newborn Daughter's Name


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

10/5: More on accredited

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

10/5: People

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



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

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

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

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

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

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


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

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

10/2: Still unemployed

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

Student Debts Are Costing Housing $83B/Year

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

Dismal economics

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

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

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

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

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

9/30: Far too much debt

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

Revisions to accredited investor.

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

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

9/29: Income changes


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


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


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


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

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


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

1. Pneumonia and influenza

2. Tuberculosis

3. Diarrhea

4. Heart disease

5. Stroke


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


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


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

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

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


From Boston College Retirement Center

Excellent article on retirement from Yahoo 

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

9/28  big difference


9/25" Active versus passive

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

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

The Power and Limitations of Monte Carlo Simulations

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

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

9/25: Disability

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

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


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


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

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

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

9/24: Huge increase