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The Organic Economy

one of the best articles I have seen in months today in WSJ on "the two economies" in Obama's head. He contends that , to the President, the private economy is not the real one but is instead an intellectual abstraction. Lack of a core understanding of what an organic economy is and what makes it tick seems to be central to the policy choices. Very good read.

Greek Default? Really?

Came across this piece written a few months back on Niall Ferguson's views on Greece. As he points out, over the past 200 years or so Greece has been in and out of default several times. This isn't a novel event. Yet most of the "explanations" today by the talking heads say fear of Greece defaulting (again) are to blame for the lackluster markets. Hmmm, really??

Large Scale Mortgage Refinancing Results

Some good,thoughtful analysis by CBO on the outcomes of large mortgage re-financing programs. It does not surprise me in the least that the analysis concludes that the benefits (gains) of such schemes by a few, roughly equal the losses for the many . We have tried 5 major programs in less than 3 years and still the housing markets continues downward. Maybe it is time to let the market clear and find a bottom so we can move forward .

Tax Policy History

A very interesting and brief piece on the history of soak the rich tax policies . As the author points out , most taxes start out reaching only a few then rapidly expand to reach most.

Classic John Bogle

A truly outstanding article by Jason Zweig in WSJ on the equity markets,buy and hold, diversification and even gold. Bogle is without peer in his steadfastness. As he says diversification is not just the first thing investors should think about, but also the 2nd and 3rd and 4th thing.

Conjour

An article in WSJ gets the award for great phrasing today. Writing about the jobs plan outlined last night by President Obama ,they use the words "the government conjurer". Basically this means the government is acting as a magician , creating something (jobs) out of thin air. Well done.

What Now? (Part Two)

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Because it's Tuesday

This brief article is a good example of what we call "Because it's Tuesday". That is, the explanation for short term price movements (noise) in the markets. In this piece, the writer says "investor anxiety" is the reason. Really? How do they know?

Job Creation

This is an excellent article by Caroline Baum on the role of government in job creation. As she states "the job of government is to provide an environment in which the private sector creates this (jobs)". Well put.

Debt & Savings

A very good summary of the debt issues facing those nearing retirement age. If anything, the percentages of folks in their 60's with substantial mortgage debt exceed those outlined in the article. 20 years ago almost none of our clients that age had mortgages, today it is the rule. As the article points out, this age group in general has too much debt and too little savings. Not much of a formula for an enjoyable retirement.

Hysteria and Hyperbole

This is a good example of the near hysteria of journalists "reporting" on the markets. The writer makes some good points but sets them within the context of the markets coming off the worst August in a decade (a good deal of volatility in both directions) and entering historically the worst month of the year. Why does any of that really matter except we need the volatility in order to accrue the long term returns. The "what to do now" syndrome seems to dominate the media at present much to the detriment of most investors.

Infrastructure Spending and Priorities

An interesting 2008 chart from NYT on infrastructure spending. Looks like $ is not the problem, politics is (big surprise). Economics centers around choices. When we make poor choices, resources are allocated improperly to one area to the detriment of another area.

Of Men and Markets

Professor Shiller provides an interesting perspective in this article. As he notes, despite the evidence to the contrary, many investors practice the "beauty contest" approach.

Bond and Gold Bubbles

David Malpass writes in WSJ today about the broad bond and gold bubbles. Think about this, Treasuries had the best month (of price gains-meaning yields falling) in over 3 years in the very month U.S. debt was downgraded. As Malpass points out, both gold and bonds have a "fear factor" component and this may account for a large portion of the current price movement.

An Unusual Economy?

Professor Sowell dispenses some wisdom on the economy and uncertainty. He quite correctly notes that the unknown costs of Obamacare are already sending chilling signals to businesses otherwise ready to hire.

State Finances

Barron's has a great cover article with a useful chart comparing the AAA and AA+ state finances. S.C. has the 5th highest Federal spending as a % of GDP at 24.9%. The range is 10.6% (Delaware) to 29.8% (Virginia). S.C. also is in the top handful in Medicaid spending as a % of outlays with 22%. The range here is even wider with Wyoming @ 7% and N.C. with 37%!

The Coming Fannie/Freddie Boondoggle

A brief, concise summary of a really bad idea . Maybe it won't actually happen but several trial balloons were sent last week so it looks likely. More intervention won't help housing finance.

Unintended Consequences (again)

Ezra Klein has an insightful piece about state Medicare cost containment . Just because we think bidding contracts saves money does not make it so.

A Formula for Growth

A sensible article on how to (partially) grow our way out of the fiscal mess in the U.S. Will take an about face in direction but he makes a plausible case. Good reading.

The Rescue that Missed Main Street

Gretchen Morgenson has a very good article in NYT today on the some of the slimy details of the 2008 crisis-era bailouts. The title aptly describes what follows per the new disclosures made public just last week. Late in the article she quotes Professor Edward Kane who says "bailing out firms indiscriminately hampered rather than promoted the economic recovery". That about sums it up.

The Broken Window Fallacy

Professor Art Carden has a great article simply explaining the Broken Window Fallacy . We will likely hear many who adhere to this fallacy spout their inaccurate conclusions in the days ahead as we enter the post Hurricane Irene period. 19th century philosopher/economics writer Frederic Bastiat wrote of this and the unintended consequences that follow this line of thinking.

The Power of Perspective

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Higher Inflation the Answer?

A good straightforward articleon why inflation won't cure our present problems. As he states, lack of confidence and uncertainty about government policies are the primary culprit.

Big Banks Undercapitalized?

So says seasoned observer Barry Ritholtz in this piece. He may well be right. The point he makes toward the end is particularly good. Banks may skate by for now but are they strong enough for the next downturn?

Sounds about Right

The markets may indeed be looking for too much from the Federal Reserve Chairman . No one can engineer the economy or the markets anymore-they simply are too large and too far flung. We should not expect this but I suspect many are hoping for another "sugar high". This article helps explain the issue.

3 Myths about Capitalism

Professor Jeff Miron of Harvard has an excellent 3 minute video on Capitalism. He explains what capitalism does (benefits consumers and rewards those who are productive) and what it doesn't do . His final point about capitalism being blamed for the 2008 financial crisis is worth an extra view. More likely that large subsidized risks created by government were responsible than unbridled capitalism (which as he explains we don't have anyhow given large government interventions ). Very well done indeed.

The VAT-in our future?

The oft mentioned Value Added Tax is the topic of this article today from the WSJ. While the VAT bears similarity to a national sales tax, the latter is a tax on consumption and the former a tax on output. In essence this taxes the producers . The history of the VAT suggests that it starts out as a very small % and increases over time. In most locales it replaces the income tax but we may see a VAT on top of ,not instead of, income tax. As the author indicates, likely a way to fuel ever larger government.

Impediments to Personal Wealth Creation

A very good read on the variety of impediments to creating wealth today. I got a kick out of the first parenthetical one which concerns "misreading" the stock market. We all know (right?) , that the markets cannot be read with any certitude anyway . As a colleague used to say "you have to be in (the market), to be in (to accrue the returns).

Sanguine Housing Stats

This AP piece summarizes a series of lousy housing stats . Through a variety of interventions by the government, housing prices have been artificially propped up and have not been able to find a true bottom. That likely would have occurred by now but the tinkering has prolonged the downward trend.

More on Capital Investment

The mantra about companies unwillingness to invest and hire is now widely accepted but mostly untrue. This is a good article highlighting a handful of recent capital investments and mergers with some dividends thrown in as well. New hiring often is a very late sign of recovery and we probably are not there yet.

A Good Response to Buffett

Billionaire investor Warren Buffett made news last week penning a couple op-ed pieces calling for higher taxes on the wealthy. Today brings an well reasoned response from a former industry titan that likely has paid a handsome sum of taxes over the years. The personal pronoun "my" in the article heading is key- he created the income and it belongs to him first and the government claim for taxes flows from that. This is opposite of the common parlance where the government assumes all resources start out in their pocket .

Buy the Market for "Free"

Professor Jeremy Siegel and Jeremy Schwartz have an outstanding article today in the WSJ . The crux of the article concerns the negative real interest rate issue and how that likely plays out with bonds . This leads to the case for stocks using the dividend yields as a starting point. With dividends providing about the same return as a 10 year Treasury , you can currently buy the future growth and appreciation for "free" . This doesn't happen often.

The New Retirement Plan...Don't Retire

A good summary of an article on retirement planning re-visited. Note that those surveyed estimate a retirement need of $600k (likely far too low) BUT only 30% have more than $100k in retirement savings. Little or no savings= little or no retirement. Amazing how that works. The hyper-damaging fallacy of the huge intra-generational wealth transfer that has largely not happened , was the hoped for retirement plan of many older boomers reaching their mid 60's now.

Student Loans= Huge Economic Drag

There have been a flurry of articles lately on the pernicious growth in student loans. This is a good one from Atlantic . Growing at double digit percentages per year, the aggregate amount will soon top all mortgage and credit card debt combined. Colleges and universities have taken advantage (shall we shall manipulated) of the relative availability of student loan $ and keep pushing costs higher by multiples of the inflation rate. That will likely end soon. Graduates are mostly unemployed or underemployed and are having significant problems paying the out-sized debt. From a larger (macro) economic view this represents a drag on economic growth as household formation , house purchases, car purchases etc. are deferred.

Economics= Natural Law

Steve Moore of the WSJ penned a very good article on Americans and Economics yesterday. He makes some powerful points including how many of the current macroeconomic theories simply defy common sense. I would go further and say they violate natural law. That is, human nature is immutable and you can only manipulate or exploit the natural tendencies for so long.

Investing= Faith

Carl Richards and his Sharpie have done it again. Investing is essentially built on faith . There are no future facts. No one can prove that investing in stocks will work better than not investing in stocks. We only have the substantial weight of history to lead us .

The Truth about Actively Managed Mutual Funds

This is an excellent commentary on an article over the weekend in NYT on the futility of seeking to out-select stocks. Most mutual funds think they can do this but over and over and over it is proven they can't except by luck. Luck isn't predictive- costs are and the costs of active management reduce returns to investors.

Time to Panic? Just the Opposite

Love the title and content of this piece in WSJ today by Dave Kansas. Indeed, while the stock market is about 10% off recent highs, it is about 70% higher than the March 2009 lows. The answer to the constant media admonition of "what should you do today?" is a resounding "the same thing you did yesterday, which is invest for some purpose in the future".

Social Security Birthday

This date in 1935 marks the origin of Social Security. This is a summary of the history. I was interested to learn the first monthly beneficiary paid in $24.75 and received almost $23k during her lifetime. Perhaps that should have been a hint of things to come.

Investor Biases

Another good article in The Motley Fool on 3 of the most prevalent biases impacting many investors today. None of us can control the day to day market movements BUT we CAN control our behavior. How we react (or don't react) to the lemmings falling over one another. More long term strategy- purposeful portfolios and less emphasis on the short term tactics and products pushed by those whose interests often conflict with ours.

Don't Panic Word CLoud

Love this compilation of several advisors' "Don't Panic" letters this week as word clouds. While we are on the topic- there is really no way to model panic since it involves such extreme emotional intensity. As one money manager said earlier, "you need to decide if you are a trader or if you are an investor". Indeed.

Fascilitating Financial Health

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Mr. Markets

A funny and all too true "interview" with Mr. Markets in Forbes. Lots of good there . Enjoy!

What Doesn't Work

Steve Malanga has a good article on our inability to cut anything from the federal budget including programs that clearly don't meet their original objectives. He is an expert primarily on state and local government finance and the same mostly applies to those levels of government as well.

What Now?

Stock markets throughout the world were rocked on Monday, reacting to the downgrade of sovereign debt of the U.S. by Standard and Poors. A step back for a broader perspective seems in order.

First, the downgrade of our debt is a reflection of the disturbing fiscal trends in the U.S. and is not an economic event per se. Second, this is not September 2008. With all our faults, the financial system is stronger now . Third, remember that the U.S. equity market is up almost 70% from the March 2009 low.

We like things to make sense-to square- with our version of reality. Sometimes they don't. No one knows what will happen today or next week. If we are investing for purposes years into the future then we should act accordingly. We are far more concerned with long term financial planning outcomes than short term investment returns.

Markets do what they do...they fluctuate. Sometimes they overshoot but in the end they are driven by the profits and prospects of the underlying companies. The grand majority of firms have beaten their profit estimates recently despite the tepid economic environment. These factors will have far more to do with stock returns next year and the year after that than our present turmoil.

Remain focused on your longer term objectives and less on the minute to minute gyrations of the markets or the political pundits. Thinking that you can get out of the market and then back in at the "right time" is the amplification of our media drenched mindset. Trying to to this is a fools game. Remember, you haven't "lost" anything until and unless you actually sell. If you have been in since the March 09 bottom you have profited nicely. There will be more ahead.

Good Advice From Professor Malkiel

Professor Burton Malkiel wrote a timely piece this weekend on the investor response to the market tumult. He rightly says no one can predict what may happen today or this week but despite the headwinds higher stock prices are likely in the future. Late in the piece he says "no one has ever become rich by being a long term bear on the fortunes of the U.S." Indeed.

Capitalism and the Welfare State

A good perspective from across the pond . Europe has been trying (with little success) for almost 50 years to engineer a giant transfer of wealth . We have been moving in that direction as well and now it has reached a crucial tipping point. The author makes some excellent points and as she says "we can't go on as we were".

Great Chart Tells the Tale

Saw this excellent graph detailing spending as % of GDP. Sometimes pictures (charts/graphs) tell the story better than words. We can either shrink the numerator or grow the denominator.

The Essence of the Problem

A very simple and clear depiction of the recent debt deal. A deal that claims to "cut" but actually increases the debt by $7 trillion over 10 years . No big surprise by the S&P downgrade given the unwillingness of the political class to square their policies with basic economics.

Chill and Be Thankful for Volatility

Good advice from The Motley Fool. After a big down day with wave upon wave of selling it is appropriate to remind ourselves that this very volatility is why the premium long term returns exist.

Good Perspective on Markets

A salient piece for the rough market seas today. He is right- wide majority of firms besting earnings estimates so ultimately that will filter into prices. Investing is by definition different than speculation (which is a very low odds game). Ignore the noise and stay focused on the purpose for the portfolio.

Out Year Fantasies

Bill Gross has some salient thoughts on how to really make progress towards avoiding financial calamity and it has nothing to do with what is taking place in D.C. today. Out year fantasies versus current year realities. The extrapolation of future liabilities is truly staggering.

Compound Interest

Sharpie penmaster Carl Richards has a great visual on the ravaging impact of compound interest in the context of the federal debt as well as our our personal debt. I love the quote late in the piece about interest never sleeping. Debt restrains flexibility on every level. Today is the long awaited day the government hits the debt limit . The hard decisions we are failing to make today will likely be revisited upon us in larger ,more distasteful form in the not too distant future.

Home Ownership Rates

A good break from the debt stuff with a great chart on the decline in home ownership rates since 2004. Shows how difficult it is for government policy to project longer term outcomes.

Failure to Panic

An interesting take on the tactics being employed in the debt debacle in D.C. It appears Sen Rubio was right- the deal all along was going to be a big ball of nothing. No "real cuts" in near term in exchange for largest debt ceiling increase ever and largely symbolic vote on BBA. The rating agencies will likely be unimpressed which is really the bigger issue.

The Three Pillars

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A Reasoned Approach

This is one of the better articles on the debt deal I have seen. The author is the head of PIMCO- the large bond manager so he has some credibility on these issues. The final paragraph sums up nicely.

Hearing Bad News? Ignore it

The picture atop this article tells the tale. With all of the varied possibilities for what might or might not happen this week and next, it is important to maintain perspective.

Crisis of the Old Order

Robert Samuelson has an excellent article on what is holding back our recovery. The crisis of the old order (welfare state/economic growth/global trade) is a stumbling block not just for the U.S. but most of the world. We have a higher % of people turning 65 in the next couple decades which translates into even greater concern about the sustainability of the welfare state structure.

Neon Swans

An outstanding article outlining the issue of the unknown before us and what (if anything) to do. Most of those quoted in the article advise doing nothing . Even if you wanted to react in some way no way to know if that would be helpful even in the short run.

What We Do and Don't Do

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Consumers relying on credit cards

This article briefly outlines how consumers are increasingly relying on credit cards for basic expenses such as food and fuel. This is not a good trend. Consumers on average are not paying down debt and this limits their flexibility going forward.

"Free Advice" Unraveled

Clark Howard does a great job in this article describing the fallacies surrounded so called "free advice" from brokers and others that often turns out to be costly indeed. His depiction of some of the popular financial products such as variable annuities is also good.

Debt Kills Growth

Saw this piece yesterday in NYT on the impact of debt levels on economic growth . It indeed appears that we are in the midst of a very,very slow climb and some elements of the economy will never be the same. We need clarity of vision but that is not to be found.

Whole Brain Investing

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How an Economy Grows

An outstanding piece today in WSJ with the thoughts of Professor Robert Lucas of University of Chicago on how economies grow. He talks about the European model and how the carrying cost of their debt/governmental structures has detrimentally impacted their growth rates the past 40 years or so. The U.S. is close to the tipping point towards that model at present . Reduced output (or "work effort" as Lucas puts it) is not a good result.

Housing Utility vs. Investment

The tone of this article is a bit sour but nonetheless on point for the main. Towards the end he touches what might be the real issue- the utility of housing versus housing as an investment. Despite perceptions to the contrary, residential housing has over time been a reasonable storehouse of value but not great. Perhaps the rate of inflation +/- 1% per year. Even so, the utility derived from the house accounts a good amount of psychic income.

Retirement Perspectives Differ

This is a great short article on retirement perspectives and how they differ substantially between spouses. Where to retire differs as much as when. The survey says 58% work with a financial advisor but only 1 spouse participates. We see this as well and it can become a huge issue compounding problems over time. Happy 4th America !

The Real Risks in Investing

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Total Consumer Debt Still Too High

A good piece today on all types of debt . While the emphasis is more on government debt, the point is made that consumers have not reduced their aggregate debt levels over the past few years (despite many reports that say otherwise). Credit card debt relative to incomes is slightly down (but incomes are slightly up) . Mortgage debt is essentially unchanged from the level 4 years ago but home equity is down by more than one-third. The premise of the article is correct- this level of debt overhang hinders flexibility and recovery.

Strategized Index Funds??

Saw this interesting article on many index funds that are "upgrading" by "strategizing" their portfolios. The article says more than 20% of stock index funds have annual expenses greater than the average for actively managed stock funds of 1.36%/yr.Wow!

Lose the News

This is a great article the outlines the dangers of investing based on the news of the day. The 2nd point he makes is crucial- the vast majority of the news is irrelevant to you and your financial future. The charts showing "Media Market Timing" from the 1970's forward are rich.

Envisioning Your Financial Future

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Markets and Months

This is a quite good piece from the WSJ on the old adage (the history of which is explained) about selling in May. Actually, the stock market is driven over time by earnings which continue to be good. The 3rd year of a new president usually average around 13% return . We will see.

Housing-Time to Buy?

This is a great article on the background and outlook for residential housing. As the author states, who would have believed 5 years ago we would still be mired in a downward trending real estate market? Yet- here we are. The prices in many locales may have finally cleared so that a bottom can form. Affordability is certainly higher now and the demographic trends,on both ends (household formations and baby boomers downsizing) are positive.

Perception vs. Reality

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Bright Spots Yes,but not Very Bright

A good quick 1-5 overview of several key economic indicators that are good but just not great. Corporate profits, housing affordability ,household wealth etc. all point in the right direction but remain fragile.

Controlling Behavior and Tradeoffs

This is a long but good article on how our internal wiring may work against us as we try to make rational/good financial decisions. Scroll down to next to last paragraph where he speaks of tradeoffs . Good stuff.

Financial Balance

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Long Term Housing View

Saw this interesting view on long term housing trends. A good systematic approach looking at demographics and household formations. Hope this proves right. Many asset markets overcorrect so this could be a good perspective.

The Role of Business in Society

I saw this excellent commencement address from Carl Schramm to business graduates at Pepperdine University. He builds the case for creating new businesses as a noble public service. As he says "government and non-profits are not self sustaining. They must rely on the underlying wealth created by business". Very well done !

An Educated Perspective

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Inflation Reality

Professor Niall Ferguson authored an excellent article in Newsweek on realistic inflation computations versus the official estimates. As he points out, the rules behind the calculations have changed or "been improved" 2 dozen times since 1978. If current inflation were calculated using the 1978 methodology it would be...10%!! Simply move the decimal point on "core " inflation one place to the right and you have the real number.

Annuities...NOT!

The potent promises from annuities pull many unwitting victims into their fold. A good article ran today on the problems with annuities. On a macro level, what do you think the insurance company is doing with the you that you can't? On a micro level, the horrendous costs usually including surrender charges for many years , make them a non-starter for most investors.

Does the News Really Matter?

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The Hidden Costs of Regulation

This article estimates the total cost of government regulation at $1.75Trillion/year. That is about 12% of the GDP of the U.S. and about double the federal income tax revenue. I am surprised that this is not written about more often. Federal,State,county,city...it all adds up to a huge burden on job creators .

Too Big to Solve,Too Big to Fail

An excellent article that provides a quick overview of the fiscal problems facing our country. The author points out that this demands the type leadership we might see only rarely and it has not yet come to the fore. I keep thinking we can change the trajectory ourselves and solve the problems over some period of time ourselves...OR the bond market will solve it for us in a matter of days.

Retirement Place

This is a good overview of issues surrounding the decision of the place where you want to retire. Some couples are in harmony on where and other many miles apart as the article discusses. Since housing and other costs vary substantially from one place to another this has material impact on retirement planning .

History Lessons Revisited

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Job Creators versus Big Business

This article highlights the growing gulf between small business and large business today. The grand majority of new jobs come from small businesses. Large multi-nationals are more interested in carving out special tax treatments that impact them, tax expenditures and overall rent seeking (manipulation of the political environment for economic gain). Interesting to see this laid bare in the current debate.

Case Study - Real Estate

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Bond Market Discipline

The bond market is our country's banker . This piece by bond manager Bill Gross is spot on. Look particularly at the 3rd bullet point at the top of the article. He argues that unless entitlements are substantially reformed the U.S. will default but not in the conventional way. When the largest bond manager in the country is dumping U.S. debt you know the party is almost over.

Market Focused Vs Goal Focused

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U.S. near insolvency..but can solve

Federal Reserve Board member and Dallas Fed President Richard Fisher renders a strong assessment of U.S. perils and solutions. He makes the clear case that we are on a path to insolvency but has confidence that we can take the right steps to avoid this outcome. Hope so.

Low Taxes,Stable Money

I saw this excellent thought provoking article on how governments have previously successfully pared down debt . Roughly opposite formula of what we are following here in the U.S. The object is to create an environment for capitalism to thrive. A very good read.

Foundational Economics

This is a good description of the differing views of economics . The past couple years , well really the past half dozen or more have been dominated by so-called Keynesians . Lord Keynes would likely be non-plussed since he believed that indeed fiscal stimulus and deficit spending from time to time was good. We have taken that to mean all the time which even he did not profess. Enjoy!

Good Advice- Don't Panic

Some good advice on markets and panics. For the main, it pays to stay the course. Some interesting times indeed but our focus should be on our long term goals and how we get there. You have to be in (the market) to be in (to achieve market returns).

Customers and Clients- there is a Difference

A pretty good article in the WSJ describing some of the differences between advisers and brokers. Interestingly the writer using the words "selling us investment products" in the entry sentence which to me already indicates a broker versus an adviser. We often tell our clients that brokerage firms have no clients...they only have customers. Webster's says a client is "one under the protection of another". That is a long way from what customers get from sales organizations . As the article says, the distinction is "more than academic".

Solving the New Retirement Reality

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Government has Peaked

Ran across this excellent article that provides international perspective to the issue of government largesse. Revolves around a written a couple decades ago by historian Martin van Creveld titled the Rise and Decline of the State. One quote "the amazing ability of government to aggravate the social problems it was designed to cure."

The Future of America

Respected historian (and Brit) Paul Johnson on the future of America. A very interesting perspective ,particularly about when the avalanche of deficit spending began. Well worth the read.

Enterprise versus Greed

An excellent article on the distinction between enterprise and greed. Often in common parlance these terms are used interchangeably but that is incorrect. As the author states at the end of the piece, Gordon Gekko in his infamous diatribe about greed really should have been about enterprise. Enterprise and innovation create value . That is our future.

Is the "New Normal" New?

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Good Economics Revealed

This is a very direct ,hard hitting article on the costs of our collective lack of political will to solve the main economic problems . 1 in 6 Americans receive Social Security ; 1 in 7 Medicare; 1 in 5 Medicaid. Not crafting long term solutions will impact investment returns in the future.

Those with Guns and Those who Dig

Professor Niall Ferguson has a creative idea for solving the U.S. debt spiral...sell assets. We have hundreds of billions of non-defense assets that could be sold to reduce our debt. As he says, so far there is a palpable lack of political will to really do much except at the margins and that won't be near enough.

Don't Fight the Fed

Good article from Larry Kudlow on Federal Reserve actions and the stock market. As he points out, input prices are certainly increasing faster than final prices which means lower margins/profits. At some point this will rear its ugly head.

Investors on the Move

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Housing Bubbles

This is a great read on the rarity of housing bubbles . We have been and continue to be in one of those at present although many homeowners still seem to have outsized appreciation as their goal. Professor Shiller makes a good point in the last full paragraph about the danger of viewing a house as an investment. If you protect purchasing power (keep up with inflation) , that should be counted as a victory since you will have enjoyed the utility of the house essentially for no cost.

Choices and Consequences

An excellent analysis of the real choices and their concomitant costs facing the U.S. on budgetary matters. The article ends with a quote basically saying it appears no one will want to make these choices ...until they are forced . The bond vigilantes can appear at any time and they will essentially make the choices for us.

Choices Choices

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Losing Control

Social Security (one part of the 3 part sinkhole we are facing) may run deficits starting THIS year, not 4 or 5 years from now as many had projected. Moreover, SS will be totally broke in 2037 according to the analysis. This boils down to control- we still have control over how to deal with (or not deal with ) these problems. Fairly soon that control will reside in others hands.

Muddled Debt Math

I keep thinking about the ways folks understand numbers and the basic math behind them. The interest on the federal debt in 2010 totaled $413 billion! None of the proposals being floated presently (even the most aggressive by our own Sen Demint)come anywhere close to that figure. During the last 3 months alone the interest has been $197billion. Remember, the costs are at historically low interest levels. If the rates rise to "normal " levels, the interest charges rise exponentially. To actually "cut" spending enough to reduce the deficit you likely need more than a half TRILLION a year reduction in spending. Not sure anyone has that in mind.

Muni Bonds...then and now

Once upon a time we recommended individual tax free municipal bonds to clients. We gradually ceased doing so for several reasons. First, as this article points out, it is nearly impossible to obtain any reasonably accurate or timely financial statements from most of these entities. On top of that, the tendency over the past decade or more to "insure" bonds so that everything has the highest rating (even though the insurance has now mostly disappeared ). Finally, the lack of transparency on commissions/mark-ups make for a difficult trading environment tilted in favor of the brokers.

Crony "Capitalists"

This is a good article discussing the crony "capitalists" rummaging through our economy . I put "capitalists" in quotes because they destroy instead of create capital. It becomes difficult to determine where government ends and big business begins.

Health and Wealth

Health and Wealth are closely related. The language used in each area is somewhat unique and both areas suffer from the immediacy/pill popper syndrome. That is, we want a pill to ease the pain not a strategy to change longer term behavior. The key to each is having a trusted physician/advisor . Well, several studies that have come out since the passage of the Healthcare law estimate a physician shortage of up to 130,000 by 2025. This is a problem that can't be solved overnight given the 8-10 year schooling/training period for physicians. Big, big trouble ahead if we don't act quickly to reverse the trend.

Underwater Residential Real Estate

One of the confounding narratives many folks cling to today is that real estate somehow transcends the universal laws of economics (or maybe even physics for that matter). Despite glimmers of light in certain markets, overall somewhere between 1 in 5 and 1 in 4 houses with mortgages are worth less than those mortgages. I was surprised to learn that around 50 million homes in the U.S. are subject to a mortgage. If home prices continue downward (as appears likely in many/most locales), these ratios change exponentially to the downside. We could well be looking at 1 in 3 or 1 in 2 underwater. Not good.

Financial Self Defense

We have linked a resource to the right of this posting aimed at educating financial services consumers on what NOT to do. The headlines almost every day have a story about someone who has made the mistake of using a salesperson rather than an advisor. In essence, if they spend most of the time with you pitching specific products or investments (the how instead of the what), then you have a salesperson , not an advisor.

How Jobs are Actually Created

An excellent article on the messy manner in which jobs are created and the difference between large and small businesses. The author has a great line midway in the piece "net new jobs are created only by entrepreneurs who start businesses that earn profits". That is correct indeed. No profits equals no jobs.

Savers and Spenders

An interesting article on the debt ceiling , As we see with clients , savers are always savers (regardless of income levels) and spenders always find a way to spend all they have and some more. Our attitude seems to mimic the pre-conversion St. Augustine roughly paraphrased "Lord make me Holy but just not yet". We have to start now.

Dodd Frank Law

A good piece, if a bit long, on the consequenses, some intended and many not of the Dodd Frank law. Already we have seen credit disappear among lower income consumers pushing them to loan sharks. Banks have raised monthly fees, etc. and the real time bomb that resides in Fannie and Freddie continues merrily along.

Market is "Efficient Enough"

Saw this 6 minute clip with Professor Burton Malkiel which is excellent. He has just released the 10th edition of his book Random Walk which largely refutes the notion that investors can out select with consistency. About 5 minutes into the clip he says the markets are "efficient enough" to make them unbeatable. That is spot on and swipes at those who say the markets are not perfectly efficient. They don't have to be.

Debt Picture

a great graphic showing federal debt and the steeply sloped trend line . The article provides good perspective from the other side of the pond. It won't be solved by even large cuts to "discretionary" spending but rather the big three : SS/Medicare/Medicaid will have to be structurally changed in order to reverse the trend.

State Budget Woes

While much focus is on the federal budget, most state budgets are ,if it is possible, in worse condition. This is a great article on the budget gimmicks employed by states to mask over the depth of the problems. I have been following the author, Steven Malanga , for awhile and he is sound in his understanding of state finances. 2011 truly looks like one where we will witness states as "laboratories of democracy" with differing approaches to solving a common dilemma.

Rent Seeking

This term may not be familiar to many but this is a serious and potentially destructive force at work in our economy. This article on the new White House economic advisor describes the activity. In essence, for a couple decades or more we have had a revolving door between government and big banks. Far from being benign, it creates a moral hazard. It extracts money (rents) from the economy via out sized payments to former/future government officials without any corresponding increase in productivity/wealth creation. It amounts to exploitation of the political system for income (rents) . The term rent seeking traces back to Adam Smith as he described components of income : wages; profits; and rents. This is something of a shadow economic system that no one really talks about.

Thomas Sowell on Housing Crisis

Professor Sowell describes with clarity why the continuing government interventions into housing likely make the problem worse. We continually hear about the large number of homeowners "underwater" on their mortgages (current value is less than the mortgage). Unless someone needs to sell the current value is not relevant. Much like a 30 year old saying they have "lost money" in their 401-k (value less than cumulative contributions). Unless they plan to retire next week the current value matters little. Mortgage rates may rise and prices fall further still before the housing crisis ends.