Errold. F. Moody Jr.

click above for bio

Financial and Economic Daily Commentary 2018

Knowledge makes obsolete the inequities that ignorance and prejudice justify




USA Today- "This is a high-powered personal bookmark list that spans the spectrum of the truly useful."

FORBES- "You'll find some great information."

BUSINESS WEEK: "For an Expert, Click here"  

From an adviser: It is a daily read for me. Clearly biased towards the client.
Great perspectives and links to thought provoking material. Greatly appreciated

Investor/Investing Risk of Loss: Identify, Manage and Limit Investment
Risk of Loss on Mutual Funds and ETFs

Four Phase Process that will change the investment dichotomy for 75% of Middle and Lower Income investors overall and up to 90% for 401k Investors 

Losses limited to about 12% for recessions

Patent Pending

Morality, Sexism, Ethics, Corrupt Equilibrium

Critical reference to the limited fiduciary capabilities in the planning industry (and more) and why they may/will remain as such given sophomoric DOL rules and flaccid organizational enforcement. Specific commentary to sexism and ethical and moral lapses of society impacting women. Not the standard drivel

Analysis for investors and advisers. The economic changes from the Great Recession caused major adjustments in investing. One of the major issues is the flip flop of the correlations in bond funds versus equities  coupled with a truly lower return and an increased overall risk. It will take a lot more effort to provide adequate return for those in need and the discussion will address pros and cons particularly for retirement purpose Emphasis on risk, Click for full article. 

“It’s not the Fed’s job to stop people from losing money.”

A Detailed Timeline of the 2008 Financial Crisis


Revolutionary Method for Asset Allocation- Increase Returns, Reduce Risk

September 2018


October 2018

12/20: EFM- Most of what I include herein is a synopsis of articles I read on a daily basis. But when it comes to long term care and caregiving, I usually put the whole thing up so that certain readers will read what they may rarely see. After all, we are all going to get old, or you know somebody who is old, etc., and this might prepare them on many of the caregiving issues.  Further, you cannot do retirement planning without a recognition of what can happen and the associated costs.

12/20:Trump Withdraws U.S. Forces From Syria, Declaring ‘We Have Won Against ISIS’

The president overruled his military and diplomatic advisers, who warned against abandoning Kurdish allies and ceding influence in Syria to Russia and Iran.

This will cause 10,1000+ Kurds to die as Turkey will attempt extermination.

Russia gets traction for whatever additional incursions in  wherever.

Assad not only crossed the red line by Obama but is now takes all the sand due to Trump

This destabilizes the world much further.


Holidays with Dementia in the Family

When my grandmother was spirited away by dementia and no longer recognized me, I stopped visiting her in the nursing home.

I didn’t understand this at the time but now think that I just wanted to remember her baking lemon cream pies or waving at me as she rode around on her lawnmower cropping the lot next to her Indiana farmhouse.

I wish I could get another chance and do things better this time. Regret is hard to live with.

Psychologist Ann Kaiser Stearns views the holidays as a precious time of year to make elderly family members feel they are loved and included in the festivities.

“People respond for as long as they live to smiles, to touch, to music, to kindness, to sitting in the sun, to pumpkin pies,” Stearns, a professor of behavioral science, said in an interview.

“We just need to remember that all of that nourishes an elderly person to whatever degree they have impairments,” said Stearns, who also wrote “Redefining Age: A Caregiver’s Guide to Living Your Best Life.”

Stearns encourages people to make an extra effort to connect with a loved one over the holidays and provides some tips:

Be patient. Take the extra time to sit down with your parent, aunt, or uncle and talk to them. Encourage them to reminisce. “Don’t do something if you don’t have the time,” Stearns said.

Be present. If grandma doesn’t remember you or something that happened in the past, do not argue with her or ask, “Why don’t you remember?!” She advised that it’s better to say, “Remember grandma, it’s your granddaughter from Baltimore.” When an elderly person repeats or forgets, connect with them where they are now, even if it means going through the same conversation again.

Stir sweet memories. Stearns said that her friend’s father, a former minister, has Alzheimer’s but the friend brings him to church anyway. When Stearns’ parents were old, they used to sit happily watching the squirrels in their yard while her father smoked cigars. It’s important to repeat rituals that are uplifting and have always brought meaning to their lives.

Give the elderly small tasks. Even if the relative with dementia isn’t fully engaged in the conversation or can no longer roast the turkey, he or she can do small tasks like setting the table or putting ornaments on the tree.

“Fiblets” are okay. “If granny says, ‘When is grandpa coming home,’ you don’t say he’s dead. You say, ‘I’m not sure but probably soon,’ and she’ll forget that.”

Now is not the time.  Siblings should not huddle in a corner to discuss who and how they will care for a parent who is developing dementia. “Elderly people sense when others are talking about them and they’re not included,” Stearns said. These conversations should have already taken place and included the parent.  If a conversation among siblings is necessary now, do it another time.

Treat elderly family members with respect.  “They will remember every kindness in their hearts, whether they remember it in their minds or not,” Stearns said.

12/19: Processing data

When it comes to our money, effective decision-making typically requires information, concentration and reflection. Not so long ago, the main scarcity was information—we lacked the data to make informed financial decisions. But now we are drowning in data. What we lack, instead, is the ability to properly process it. The price we pay for that may be subtle, but it’s hardly insignificant.

And asking people to remember a few extra numbers can short-circuit their self-control, making them much more likely to choose a slice of chocolate cake instead of a fruit salad. (EFM- asking me my name can do that)

Why is that? One likely possibility is that we run out of mental bandwidth when we try to remember several numbers and resist immediate gratification at the same time. As a result, we choose the cake, even if we’re supposed to be on a diet. More to the point of finance, we end up spending rather than saving.

12/19: The very poor and investing in women

 Most people who have yet to overcome extreme poverty are concentrated in a few countries in sub-Saharan Africa—places where climate change, violent conflict, and instability rob people of opportunity. These countries also tend to be places with extraordinarily young populations. Sub-Saharan Africa’s youth population is projected to go up by 50 percent in the next 30 years.

investments should focus on women and girls specifically, because healthy, economically empowered women are some of development’s best allies.

Here’s why. While health is important for everyone, a woman’s health is also inextricably linked to the health of the next generation. And while economic empowerment is important for everyone, the evidence suggests that when a woman has cash in her hand and decision-making power over how to spend it, she spends that money on different things than a man would.

Specifically, she spends more on her children’s health and education. In a household like hers, “human capital” isn’t an abstract concept; it’s the best way to position a child to break the cycle of poverty. For that reason, investing in women means investing in the people who invest in everyone else.The women and girls who live in the world’s poorest places aren’t necessarily waking up every day thinking about global poverty rates. But they are thinking about actions they can take to make life better for themselves and their family. If the number of people trapped in poverty continues to decline, these women will be a big reason why.

12/19: Long term care/home aides

You've made the decision to let an aide come into your home to assist. That was hard enough. Now you re getting apprehensive about what to expect when the aide arrives for work. If you don't have experience with in-home assistance, all sorts of "worst case scenarios" are whirling about in your head. And then there are the questions. What should you do if you don't like the aide?

How should you approach problems? Who supervises the aide? Assuming that you have hired an aide from a home health care agency, you can expect a lot of support in easing your anxieties. It is the agency's job to answer your questions in advance and resolve any issues that arise. The key to facilitating your satisfaction and comfort is good communication with the agency management and with your aide.

Here are a few tips for establishing positive relationships with your home health care professionals:

Be completely honest about your needs

Overcome any embarrassment or guilt associated with describing why you need help and what kind of help you need. Remember that you are dealing with professionals who have helped a variety of clients. They are experienced in meeting the needs of people just like you. Home Health Care professionals are prepared to deal with tough situations such as Alzheimer's, alcoholism, Parkinson's, strokes, incontinence and stressful family circumstances.

State your preferences from the start

The best way to get exactly what you want is to be specific. Give a detailed request to the agency so that the aide they send will meet your needs. Items to include are your household rules, such as "no smoking" or "kosher kitchen". Also express your daily routines and how to follow the, such as "up at 7 a.m.", "breakfast first, medicine second, shower last" , "I need privacy from 9 a.m. to 11 a.m.", "transportation to salon every Friday, using employee's car".

Give feedback to the agency on a timely basis

"Nip it in the bud," is good advice. Most problems start out small and can be best resolved when addressed promptly. If you are experiencing a problem with the aide, call the agency. This benefits you in two ways: you do not have to be involved in reprimanding the aide, and it prompts the agency to diplomatically resolve the problem. Employee supervision is the responsibility of the agency. If the problem cannot be resolved to your satisfaction, request the agency send a different aide. The agency will handle the hiring and firing for you.

If you start off with honesty and communication, having a home health care aide will be a successful and beneficial experience.


SEC's Clayton: Advisers can circumvent fiduciary duty

Advisers can get around the fiduciary duty that requires them to put clients' interests above their own if exceptions are written into client agreements, Securities and Exchange Commission Chairman Jay Clayton told the Senate banking committee. "This is something that we want people to understand," he said. (EFM_ that's funny)

EFM- Everyone knows few people read material presented for annuities, life insurance, mutual funds and about everything else. If the industry is allowed to do it, it will worsen the bad reputation it already has.

12/19: This is a significant bargaining chip by the Chinese

China reportedly offers to slash tariffs on US-made cars

China is willing to lower tariffs on cars and auto parts imported from the US to 15% from 40%, a source familiar with high-level talks says. China reportedly has not provided the US documentation about the reduction or information about timing of the change.


Dirty air: how India became the most polluted country on earth


With the situation worse than in China, Modi’s government is struggling to combat the problem

When a physician started practising 30 years ago, some 80 to 90 per cent of his lung cancer patients were smokers, mostly men, aged typically in their 50s or 60s.

But in the past six years, half of Dr Kumar’s lung cancer patients have been non-smokers, about 40 per cent of them women. Patients are younger too, with 8 per cent in their 30s and 40s.

Marimekko chart showing population of selected countries affected by PM2.5 pollution. India is worst-affected with 99.3% of its population breathing air over the safe limit set by the World Health Organisation

Bubble chart showing population density against average PM2.5 pollution level by country. The circles are sized by population. The pollution level in the majority of Asian countries is multiple times above the safe limit set by the WHO, affecting 4.5 billion people or 60 per cent of the world’s population. The data only takes into account areas where there is at least 1 person per sq km, this avoids skewing the data for those countries that have vast unpopulated regions like China and Russia

Map and charts showing India’s air quality is now far worse than China’s ever was. Although both countries have a similar number of people breathing air above the safe limit, India has far more people living in heavily polluted areas. A staggering 140 million people alone breathe air 10 times or more over the WHO safe limit. That is more than the population of the UK and France combined

Map and chart showing the ten most polluted cities in the world are all in northern India. Map showing how the Himalayas form a natural barrier to the north of India, making it difficult for the pollution to disperse into southern China

12/18: S&P 500 down 15% from 2935


EFM- Look how bad Germany is. Part of it is due to the fact that Merkel will no longer lead Germany. How much? Am not willing to guess right now.

12:18: GDP projections- almost all are going down

EFM- look at U.S. going to UNDER 2%. The UK shows an increase but Brexit is a wild card. I gave up on Japan over two decades ago so their reduction is part of an ongoing mess that cannot be addressed properly due to all the elderly that will need assistance. Don't have much to say on Russia- might be politics that determines what they are capable of doing. As far as Brazil is concerned, I won't deal with South America at all. Far too much drugs and graft all over.

12/18: FINRA review of broker dealers and reps
“FINRA observed situations where registered representatives did not adequately consider the customer’s financial situation and needs, investment experience, risk tolerance, time horizon, investment objectives, liquidity needs and other investment profile factors when making recommendations; in others, they failed to take into account the cumulative fees, sales charges or commissions,”

I'll just pick 2 items where FINRA AND the B/Ds are pretty much out to lunch. First is investment experience. No way that the simple passing of time means much. Basically if you do not know the definition of diversification, you are not an investor. And no, it is not a simple 'don't put all your eggs in one basket'. The other is risk. Since risk is not identified by how much you could lose- at least in a recession- than either the investor, his/her advisor or both are incompetent

12/18: When you are too old to drive

 teenagers have the dubious honor of being the age-based group that causes the most crashes on American roads and highways.

The danger for older adults is that when they are involved in an accident, they face a much higher risk of being seriously injured or killed. According to the CDC: Involvement in fatal crashes, per mile traveled, begins increasing among drivers age 70‒74, and is highest among drivers ages 85 and older.

No. 6: The driver suffers from medical conditions that may impact his or her ability to safely navigate a vehicle.

No. 5: The driver takes medication that may impair response and reaction time.

No. 4: The driver suffers from recognizable cognitive decline.

No. 3: Local roads and signs need to be upgraded.

No. 2: The driver’s vehicle needs to be replaced.

No. 1: There’s no real reason to drive.

A car rolls past a wooden sculpture on Ted Pelkey's front lawn, in Westford, Vt. on Dec. 13, 2018. Pelkey, who is in an ongoing dispute with the town over plans to move his truck repair and recycling business to his property, paid to have the sculpture created to send a message to the town.

Yes, it's real. In Vermont. It's a salute by a man who is fed up with his town's politics and politicians

Actually the hand was carved from the trunk of a tree- which probably was equally pissed on the whole idea anyway

And all done just in time for Christmas viewing

12/17: Bull and Bearish

12/17: Yield curve- Mauldin

The inversion reflects the difference between the 1 year and 10 years Treasury

The light gray line is the yield curve two years ago, the medium gray is one year ago, and the blue is now. You can see the curve went from very steep to much less so in this period. That is what we mean by “flattening.”

U.S. Treasury Yield Curve


As of 12/13/2018

1-month yield 2.36%
1-year yield 2.69%
2-year yield 2.75%
10-year yield 2.91%
30-year yield 3.16%

12/17: A review of annuities

This is just a sample showing some further leads to check

Annuity Insights,” comes from Fisher Investments. They don’t like annuities very much over there, and make money managing other kinds of investments.

The other two come from academics I’ve spoken to who do think certain annuities are worth considering, and both have other jobs that could earn them more money if more people buy annuities.

The first, “Fixed Index Annuities: Consider the Alternative,” by a Yale professor, Roger G. Ibbotson, explains how some index annuities could help people in a rising interest rate environment. He is chairman of an investment firm that could receive compensation for licensing rights to indexes that annuity firms might use.

The second, “Annuity Fables: Some Observations From an Ivory Tower,” appeared in the Journal of Financial Planning and was written by Moshe A. Milevsky of York University in Toronto. It is more of an omnibus piece about the mean things people often say about annuities and whether they are true. Professor Milevsky has a variety of consulting engagements related to the products.


12/17: Boys need access to better mental health care

Mental health has become a crisis among America’s youth, and experts say the unique challenges and needs of young men are not receiving enough attention. Doctors, teachers and family members may not recognize the symptoms of depression, which in men can include anger, irritability and aggressiveness, according to the National Institute of Mental Health. Men are also less likely than women to “recognize, talk about and seek treatment” for depression, which is sometimes stereotyped as a women’s problem, the agency said.

While teenage girls attempt suicide more often than teenage boys, according to the American Foundation for Suicide Prevention, boys are more likely to die by suicide. Suicide rates for teenage boys and girls rose steadily from 2007 to 2015. In 2015, there were 1,537 suicides documented for boys ages 15 to 19 and 524 for girls, according for the Centers for Disease Control and Prevention.

12/17: China

The economy there has slowed sharply in what many are calling the worst downturn since the global financial crisis in 2008.

EFM: From the New York Times. I knew it was slowing but this is the first time I have seen, 'worst downturn'. That might get them to accept an agreement of tariffs- something that I did not  think they would do.

But does this reduce the military aggression in the South China sea or in Antarctic? I doubt it.

12/16:Khashoggi and Yemen

       Image result for khashoggi picture

The death of Khashoggi finally put a light on all the deaths and starvation in Yemen by Saudi Arabia. The conflict between a Saudi-led coalition supporting the Yemeni government and Iran-aligned rebels has killed at least 10,000 people and pushed 14 million more to the brink of famine. Finally the U.S. is doing something to reign in the Crown Prince (more will come from the House after January 1st). Khashoggi's death would have been an 'unfortunate blip' on the psyche of the world's politicians (mostly Trump) but the news outlets did not let it pass. Thousands upon thousands will be saved. We must stand up for what is right- but it has bothered me that we and the world did not seem to care that much till Khashoggi.

12/16: Debt down a bit


12/16: The Business Cycle Approach to Equity Sector Investing

White paper by Fidelity.

So you should use this  for allocation particularly during recessionary periods. Nope too much risk and too low on returns.

12/16: Correlation Myths In Portfolio Construction

Good overview by Alan Roth

Will they help in designing a good allocation with returns probably greater than the market and with 75% less risk during recessions? Nope

12/16: Mental issues in children

the percentage of children ages 5 to 17 who were hospitalized for suicidal thoughts or actions more than doubled from 2008 to 2015. 

data on suicidal or self-harm diagnoses from 32 children’s hospitals across the United States found 118,363 instances from 2008 to 2015. Accounting for 59,631 (50.4 percent) of the incidents were 15- to 17-year-olds. Twelve- to 14-year-olds accounted for 43,682 (36.9 percent) of them, while 5- to 11-year-olds accounted for 15,050 (12.7 percent).

Over time, the percentage of young patients hospitalized for suicidal thoughts, rather than other ailments, more than doubled. In 2008, 0.67 percent of patients were admitted with suicidal thoughts or self-harming behavior. By 2015, that percentage had increased to 1.79 percent.

12/16: Pimco Sees 'Flashing Orange' US Recession Signal

Chance of U.S. downturn 30% in next 12 months, a nine-year high, says the bond giant, which oversees $1.7 trillion.

EFM- I figured a recession in 2019 while most thought 2020. I also thought  no more than 3 interest raises in 2018. But looks the FED may raise again this month. That makes me think about the inverted yield curve

12/16:  Hold on- I got a call

The mere presence of a smartphone seemed to reduce the quality of conversations in one study. Another study found a link between having a smartphone within sight, even if turned off, with lower scores on tests of short-term memory and problem solving.

"The effect is biggest for people who rely on their phones the most," . "The more you give it control over different things — social connections, news, work, etc. — the more you are going to be attracted to this device."

smartphones can inhibit people from offering help to strangers on the street, reduce how much we smile at unfamiliar faces in a waiting room and even lessen our trust of strangers, neighbors and people of other religions or nationalities. (EFM- depends on whether they have a nicer phone than me. True now after I tried to get a couple Apple phones to learn how to swim. I now use two cans and a string)

"People don't talk about or realize that we actually get quite a lot from casual social interactions. "Even when phones are at their most useful — such as when we're bored to death in the waiting room — there might be other things we're missing out on."

Perhaps not surprisingly, researchers have also begun to link weakened social skills, including the inability to read emotions or initiate casual conversations, to smartphone use.

The more tethered we are to our phones, the harder it is to think deeply, attentively and conceptually-

 not to mention remember basic information.

12/16: Pimco Sees 'Flashing Orange' US Recession Signal

Chance of U.S. downturn 30% in next 12 months, a nine-year high, says the bond giant, which oversees $1.7 trillion

EFM- I figured a recession in 2019- most indicated 2020. I figured 3 rate increase this year. But it looks like the FED will raise rates in December for the fourth.

12/16:  The ECB formally ended its three-year, €2.6T monetary stimulus scheme, while cutting its economic growth forecasts. "It's a climate of great uncertainty,” ECB President Mario Draghi said at a press conference. The ECB also confirmed it would keep its key interest rates - which include a minus 0.4% rate on bank deposits held at the central bank - unchanged at least through the summer of 2019.

EFM-we did ours some time ago as is noted by the increase in rates last year. The ECB is (relatively) late and their economies are stalking; 

12/16: Warning for Seafood Lovers: Climate Change Could Crash These Important Fisheries
Atlantic and polar cod face a double whammy as the planet warms: rising ocean temperatures and acidification could cut reproduction by nearly two-thirds,

12/16: #metoo

The survey of 681 female and male IT professionals from U.S. companies across a broad range of industries was conducted in August 2018. Nearly one-third (31%) of the professionals surveyed said their organization provides career development programs for women after they have been hired, and 29% of respondents reported that their company offers programs to support recruiting and hiring women in technology. In addition, 43% of the women surveyed said that the attention paid to gender equality in the workplace in the wake of the #MeToo movement has been making the technology industry more welcoming to women

12/16: Eating out

The reality is that we’re spending thousands dining out: Government data shows that in 2017 American spent more than $3,300 a year on dining out — a 6.7% increase just from the year prior

On days when Americans eat out, they scarf an average of 200 more calories than when they eat at home.

nearly three in four Americans are now either overweight or obese, according to the CDC. And that’s costly: “The medical cost for people who have obesity was $1,429 higher than those of normal weight,


The Oil Industry’s Covert Campaign to Rewrite American Car Emissions Rules

Energy giants and conservative groups have been aggressively pushing Trump’s rollback of fuel efficiency rules for automobiles, a Times investigation found.

EFM- this will not end well for the world

12/13: Inverted Yield Curve


U.S. Debt Up Almost 10% Since Trump Took Office

The federal debt has grown by $1.9 trillion in the past two years and is now at a record high.

EFM- This is going to blow up in our face. You cannot have mounting debt and a properly working country.


Climate change was behind 15 weather disasters in 2017

Scientific analyses of extreme weather events across six continents and two oceans found nearly all were exacerbated by climate change — and that at least one heat wave would have been "virtually impossible" without humans' impact on the planet.

EFM- Yes I know I harp on this and that my commentary means little in the scale of the politics involved. But since I have done so much fishing in so many states, I have become acutely aware of the weather and nature. From a completely different weather pattern in the San Francisco Bay over 15 years to no bugs in old growth Florida, it's a pity to see the changes that are needed and the lack of consumer and political involvement. 

Admittedly the costs will be enormous but they are necessary to offset the decline of the human race over the next 30 years.

12/12: The Behavioral Economics Guide 2018

Introduction by Robert Cialdini

Why the World Is Turning to Behavioral Science

Part 1 – Editorial by Robert Metcalfe

Behavioral Economics: Under the Microscope

Part 2 – Applications

Behavioral Science in Practice

Part 3 – Resources
  • Selected Behavioral Science Concepts
  • Postgraduate Programs
  • TED/TEDx Talks
  • Scholarly Journals
  • Author Profiles
  • Contributing Organizations

12/12: 95 percent of the Arctic’s oldest ice has been lost in just three decades

“While there is so much focus on the drama in the OPEC cartel, the real historic news that went unnoticed was that the

United States last week exported more crude oil and fuel than it imported for the first time on record,”

12/11: U.N. Climate Conference

As negotiators from around the world gathered in Poland to discuss how to lower carbon emissions, the Trump Administration unveiled two schemes promoting fossil fuels.

 “It is hard to comprehend why we are collectively still moving too slowly—and even in the wrong direction.”
United Nations’ Secretary-General

a report from an international team of scientists warned that the planet was closer to dangerous warming than had previously been believed, and that a critical threshold could be crossed within a matter of years. To avoid this, a rapid and total overhaul of global energy systems would be needed. Such a transformation, the team observed, has “no documented historical precedent.”

the Trump Administration basically flipped off negotiators in Poland by unveiling not one but two new schemes for promoting fossil-fuel use. The first was a proposed rollback of an Obama-era rule that effectively blocked new construction of coal-fired power plants.  The second was a plan to open some nine million acres of public lands in Western states to oil and gas drilling by sweeping aside protections for the greater sage grouse. Environmentalists—justifiably—labelled this move a “giveaway” to the fossil-fuel industry. As the Times noted, it would “open more land to drilling than any other step the administration has taken.”

researchers at the University of East Anglia and a group called the Global Carbon Project announced that emissions are again on the rise. Worldwide, they are expected to have increased by almost three per cent in 2018, to more than forty billion tons. In the United States, emissions rose by about 2.5 per cent, following a decade of decline.

EFM- If you have followed my climate commentary for the past few years you will note that I do not believe civilization will do anything before it is too late. It's not just climate- 1.5 billion more people by 2050, at least one pandemic, massive loss of agricultural land, far too little water, extreme food shortages- if any at all, extreme pollution of what is left, fisheries depleted, trees dying by the millions each year.....

Those 20 years old today will find a shorter lifespan in 2030 of maybe just a few years but by 2050, the entire world will have much shorter lifespans and certain countries will no longer exist due to heat, lack of water, higher sea water encroaching worldwide ..... The degradation will be so severe that the human being may move to non existence.

We have, no later than 2025, to almost completely change the way not only we live, but the entire world. We will do it? I say no.

12/11: Going up???


EFM- Too much bad news going on in Washington that I think it will allow the market to go up- at least that much. But if people REALLY spend for Christmas, who knows?


Financial Stability Report

A stable financial system, when hit by adverse events, or “shocks,” continues to meet the demands of households and businesses for financial services, such as credit provision and payment services. In contrast, in an unstable system, these same shocks are likely to have much larger effects, disrupting the flow of credit and leading to declines in employment and economic activity. Consistent with this view of financial stability, the Federal Reserve Board’s monitoring framework distinguishes between shocks to and vulnerabilities of the financial system.

Shocks, such as sudden changes to financial or economic conditions, are typically surprises and are inherently difficult to predict. Vulnerabilities tend to build up over time and are the aspects of the financial system that are most expected to cause widespread problems in times of stress. As a result, the framework focuses primarily on monitoring vulnerabilities and emphasizes four broad categories based on research. 2

1. Elevated valuation pressures are signaled by asset prices that are high relative to economic fundamentals or historical norms and are often driven by an increased willingness of investors to take on risk. As such, elevated valuation pressures imply a greater possibility of outsized drops in asset prices.

2. Excessive borrowing by businesses and households leaves them vulnerable to distress if their incomes decline or the assets they own fall in value. In the event of such shocks, businesses and households with high debt burdens may need to cut back spending sharply, affecting the overall level of economic activity. Moreover, when businesses and households cannot make payments on their loans, financial institutions and investors incur losses

3, Excessive leverage within the financial sector increases the risk that financial institutions will not have the ability to absorb even modest losses when hit by adverse shocks. In those situations, institutions will be forced to cut back lending, sell their assets, or, in extreme cases, shut down. Such responses can lead to credit crunches in which access to credit for households and businesses is substantially impaired.

4. Funding risks expose the financial system to the possibility that investors will “run” by withdrawing their funds from a particular institution or sector. Many financial institutions raise funds from the public with a commitment to return their investors’ money on short notice, but those institutions then invest much of the funds in illiquid assets that are hard to sell quickly or in assets that have a long maturity. This liquidity and maturity transformation can create an incentive for investors to withdraw funds quickly in adverse situations. Facing a run, financial institutions may need to sell assets quickly at “fire sale” prices, thereby incurring substantial losses and potentially even becoming insolvent. Historians and economists often refer to widespread investor runs as “financial panics.”

12/11: Inverted yield curve. So close---so very, very close

FRED® Series WGS10YR: 10-Year Treasury Constant Maturity Rate, %, W, NSA

FRED® Series WGS1YR: 1-Year Treasury Constant Maturity Rate, %, W, NSA

12/11: READ!!!!!!!





Economics and conventional investment theory assumes that people are rational while markets are efficient, but people often think and act irrationally, and financial markets rarely follow textbook models of efficiency. Whereas behavioral finance uses knowledge from psychological studies in context of decision making in comparison to the so called predictable models popular in standard finance. Most oftenly investor behavior diverges from logics and rationality as investors are victim of numerous behavioral errors that intervene while they form up investment decision. Decison making is complicated due to the intervention of emotional attachments & avoidances, cognitive errors, and personality traits of decision makers. In developing country like Pakistan where the environment is unstable due to factors like security threats, terrorism, inflation, energy crises and are affecting the thinking pattern of people and the ratio of educated entrepreneur is very less, decisions are based on gut feelings, there is a need to study the impact of self-control, self-attribution along with cognitive dissonance and confirmation bias on investment decision and the current aimed to do so. The present study collected primary data through questionnaire from stock and bond investors. Significant positive relationship is found between the study biases and their impact on investment decisions of investors. Almost all the subjects were found to be the victims of confirmation bias, self-control bias, self-attribution & cognitive dissonance bias. Financial advisors are recommended to be first trained and then consulted for the detection & moderation of these biases before making investment decisions.


Behavioral Finance, confirmation bias, self-control bias, self-attribution, cognitive dissonance bias, financial advisors, investment decisions.