Master Financial Education

Financial and Economic Daily Commentary 2018
The  most intensive and extensive on the Web

E. F. Moody Jr.

click above for bio


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"  

World Statistical data
Market Quotes by TradingView

Courtesy of: Visual Capitalist

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.

Knowledge makes obsolete the inequities that ignorance and prejudice justify

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

 Target Date and Bond Funds

 Retirement Fiduciary Breach

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.”

Jay Powell- head of the Federal Reserve


5/21: Obesity

Individuals affected by obesity are at a higher risk of developing chronic health conditions such as heart disease, diabetes and cancer. A life insurer might demand higher rates from an applicant with a body mass index over 30, or, in some cases, reject the application.

But results from the CDC’s Behavioral Risk Factor Surveillance System (BRFSS) show that, even for adults in the top annual household income category included in the BRFSS data tables — the $50,000-and-over category — the 2016 obesity rate was over 20% in every state, and over 35% in two.


5/21: Did not indicate the insurance company. Assuming it is at least A rated, that's not a bad return for just two years. But check CDs anyway

2.62% Guaranteed for



TWO Year Surrender

Full AV at Death


(Fraternal Organization)

5/21: Tell me punk- do you feel lucky?

We believe we live in a meritocracy, where anyone with the gumption, grit, and determination can make it, no matter what obstacles lie in their way. But with income inequality at an all-time high in the US and most other developed countries, people are starting to question whether or not meritocracy exists at all. A 2015 Harvard Institute of Politics poll found that 48% of millennials believe the American dream is dead

what about those who are wealthy today? Did they really earn their place through the sweat of their brow, the cut of their jib, the brains in their head, and their unwavering determination? The answer is a definitive no. Rather than being gifted or special, the greatest determinant in acquiring vast wealth is merely being fortunate

Three professors took a computer model and fill it with aspects surrounding human talent. Then after feeding these into the machine, they showed it the ways in which people use those talents to advance themselves. Talent was defined as having intelligence, skills, a mindset for risk-taking, and so on.

After a 40-year period, researchers set about determining who were the most successful and what led them to become so. . Yet, the results could’ve been easily predicted. The computer spit out what’s known as the power law, or the 80:20 rule. A famous concept in economics, the power law says no matter what economy you look at, almost everywhere, 20% of the people own 80% of the wealth. What's more, luck was the single greatest determinant in wealth acquisition.

“The largely dominant meritocratic paradigm of highly competitive Western cultures, is rooted in the belief that success is due mainly, if not exclusively, to personal qualities such as talent, intelligence, skills, smartness, efforts, willfulness, hard work or risk-taking.” While the authors admit that we do portend some of a person’s success to luck, more often than not, we downplay the role external forces play, though they may be the most significant.

Researchers found that the vast majority of the top 20% aren’t the most talented. Rather, they’re exceedingly average. “Maximum success never coincides with the maximum talent, and vice-versa,”

the top 8 billionaires own more wealth than the bottom 3 some-odd billion people in the world. (EFM- 6 are in America)


5/20:  Instead of viewing the yield curve..................

If the core consumer price index moves above 2.25%, “then you’ve got to believe that the entire inflation narrative is going to change” for the Federal Reserve, said DoubleLine Capital CEO and Chief Investment Officer Jeffrey Gundlach ,

5/20: Artificial intelligence

The pink shaded items are relevant to investments.

A central aspect of AI is Integrated Reasoning, with the scope for Adaptation and Evolution. This means an AI can learn expert investment rationales and adapt or generalize them to future investment environments. This is analogous to generalized Knowledge Discovery of systematic rules, where an AI can scour very large databases, say Bloomberg or Factset, for investments that can lead to objective outcomes consistent with guiding rationales.

AI differs in almost every respect from the ubiquitous factor-driven investing of traditional quants that now accounts for around $1.5 trillion in total AUM.

While factor-driven investing views the world through a simplified, linear-constrained lens, AI can retain more information about the world to inform decisions. AI can integrate myriad perspectives into each investment decision through the Collective Behavior of different rules or models, synthesizing the most pertinent information to guide decision making.

Compared to a stylized and simple traditional quant strategy, AI has more in common with a human-driven, fundamental approach

The chart below visualizes how an AI strategy can select stocks based on a higher dimensional view of the world. (READ ARTICLE for specifics)

5/20:  Duration and convexity for bond risk

A coupon bond makes a series of payments over its life, and so fixed-income investors need a measure of the average maturity of the bond's promised cash flow to serve as a summary statistic of the effective maturity of the bond. Such investors also need a measure that can be used as a guide to the sensitivity of a bond to interest rate changes, since price sensitivity tends to increase with time to maturity.

Good detail- not easy

5/20 April was the 400 warmer than normal  month in a row

5/20: Most religious states

5/18: Nothing special here to be noted save for the fact that Japan is missing yet another target- just as it has for the last couple decades. I just cannot see including it in any rational allocation.

Japanese inflation is moving further away from the Bank of Japan's 2% target. Core inflation, which excludes fresh food, rose by just 0.7% in the year to April, down from the 0.9% print in March, Japanese government data showed.

5/18: How high will it go???

Both oil and gasoline prices have continued to rally this week, with Brent breaking, albeit briefly, the psychologically important $80 mark and gasoline prices moving towards $3 as driving season approaches

Friday, May 18th 2018

Oil prices took a breather on Friday, with Brent sitting just shy of $80 per barrel. The Venezuelan election on Sunday could be the next near-term catalyst for the oil market.

5/18: Fur babies-

A new survey of 1,519 millennials shows just how important pets are to their lives, and just how much that love impacts their wallets. Of those surveyed, 72 percent own pets, most of whom (67 percent) warmly consider these pets as their “fur babies.”

5/18: Ebola: A World Health Organization official called the first urban case in the Congo “a game changer.”

EFM- I have been waiting for an epidemic for several years now. It will be on a global scale and kill over a 100 million. Outrageous?? Read Bill Gates commentary on same 


Incentives to Delay Retirement Benefit Both Employers and Employees
According to the U.S. Bureau of Labor Statistics, one-third of the U.S. labor force is 50 or older. As more employees begin to reach the traditional retirement age, employers need to examine their policies and procedures to address the potential loss of talented and experienced workers.
Encouraging employees to delay retirement not only improves their financial security in retirement but it also keeps experienced and productive employees on the job. While 4 in 10 current workers expect to work in retirement, current retirees are not showing a desire to work for pay. Only 17 percent of retirees are still working for pay, and only 13 percent of retirees not currently doing so say it’s possible they will return to work. LIMRA Secure Retirement Institute (LIMRA SRI) research shows that if employers start using incentives, more employees are likely to stay working. Working longer can have significant financial benefits, retirement delays of as little as 3-6 months have the same impact on standards of living in retirement as saving an additional 1 percentage point of income over 30 years1.
The study, Selecting the Right Carrots: How Employers Can Incent Employees to Delay Retirement, highlights flexible hours, part-time or consulting-based employment, flexible location and financial rewards top employees’ list of desired incentives to delay retirement. LIMRA SRI finds that on average, workers who receive all of their desired incentives say they would work an additional 14 years.   (EFM- sounds hard to believe)
Allowing employees the flexibility to work outside of the office is the most valued and could result in those employees working an additional 15 year, on average. The next most valued incentives are having flexible hours and getting financial rewards. Employees who can have flexible work hours or financial incentives to work longer are likely to work an additional 13 year, on average. Allowing employees to drop to part-time or work as a consultant, on average, adds an additional 12 working years to the employee’s commitment to the company.

5/18: Long term care policies

Mass Mutual to hike some LTC premiums by 77%
By InvestmentNews
Some 54,000 holders of long-term care insurance policies issued by Mass Mutual Life Insurance face premium hikes of about 77%, according to a request the carrier has made to state regulators asking for the increase.

5/18: Advising for a correction

More than three-fourths (83%) of RIAs and fee-based advisors said that their clients are concerned about a correction.

The vast majority (87%) have prepared clients’ portfolios for a correction—with top three solutions including holding more cash (53%), buying more international stocks (24%), and using more liquid alternatives (24%).

While focused on the importance of a long-term plan, RIAs and fee-based advisors say they will remain nimble in response to a market correction:
– 45% would manage portfolios more actively versus passively
– 45% would invest portfolios more aggressively versus conservatively
– 59% would increase equity exposure

Likewise, more than two-thirds (67%) say that now is a good time to invest in the market—with more than half (51%) saying stocks are appropriately valued, while more than one-third (36%) believe stocks are still overvalued.

EFM- The above is really not applicable for average investors since few would have additional funds to invest. They are already strapped. And I bet the majority of the liquid assets have no track record

5/17: In the UK, the minimum contribution to auto-enrolled defined contribution plans will reach 8% in April 2019, including a 3% mandatory employer contribution.

Since auto-enrollment started in 2012, pension participation in the UK has reached record high levels. Auto-enrollment had brought 9.5 million people into pensions, according to the UK’s Office for National Statistics. As of 2017, nearly three-quarters of employees (73%) “had an active workplace pension scheme,” up from less than 47% in 2012,
“As of yet there appears to be no clear plan to increase them further beyond 8%. Even at this level, for many people, it will not deliver a meaningful pension income at retirement and will call into question the validity of the policy and consumer appreciation of it,”

5/17: Looking good

5/17: $100 per barrel?? Probably

Analysts believe the Iran story puts oil on a $100 per barrel trajectory by next year

What does that do to inflation? Wouldn't that increase absorb"all" the tax benefits the new tax law provided. Would The FED keep raising rates?? (doubtful)

5/17: Venezuela

Venezuela’s autocratic president, Nicolás Maduro, is widely expected to win another term Sunday in a country that is fast becoming a failed state. The economy, public services, security and health care have all but collapsed in Venezuela, where the currency is so worthless that you could wallpaper a building with bills for less than the cost of paint.

EFM- I gave up on anything South America decades ago. If it isn't this country, it's another one (Columbia strike a bell?). Far too difficult for investing. Or living..................

5/17: Dumb luck and inefficiency

Economics is obsessed with a very narrow definition of efficiency, beyond which it can see no other virtues.

But this efficiency obsession also leads conservatives to defend free market capitalism on fallacious grounds. In truth free markets are not really efficient at all.

The missing metric here is semi-random variation. Truly free markets trade efficiency for a costly process of market-tested innovation heavily reliant on dumb luck. The reason this inefficient process is necessary is that, though we pretend otherwise, no one knows anything about anything: most of the achievements of consumer capitalism were never planned; they are explicable only in retrospect, if at all.

"If our leaders seek to conceal the truth and we as people become accepting of
alternative realities that are no longer grounded in facts,
then as an American people we are on a pathway to
relinquishing our freedom,"

Rex Tillerson

5/17: Don't ever remember reading this before

since the Dow Jones Industrial Average was created in the late 1890s, it has produced an annualized gain of just 1.4% in the six months before midterm elections, in contrast to a 21.8% annualized return in the six months thereafter.

5/17: uncertainty index

The index, which was calculated back to 1900, measures the extent of economic uncertainty driven by politics. It was constructed from article searches in six key newspapers for any instances in which the words “uncertain” or “uncertainty” were coupled with the words “economic,” “economy,” “business,” “commerce,” “industry” or “industrial” and one or more of the following terms: “Congress,” “legislation,” “White House,” “regulation,” “Federal Reserve,” “deficit,” “tariff” or “war.” The more sentences in these six newspapers that satisfied these criteria, the higher the index.

5/17: Medical mystery

The United States devotes a lot more of its economic resources to health care than any other nation, and yet its health care outcomes aren’t better for it.

5/17: Why pessimists sound better

Despite the record of things getting better for most people most of the time, pessimism isn’t just more common than optimism, it also sounds smarter. It’s intellectually captivating, and paid more attention to than the optimist who is often viewed as an oblivious sucker.

5/17:Biases in the financial meltdown

The crisis was merciless to companies that allowed market instincts and inherent biases to drive risk-taking to levels that were clearly unsustainable in the end. Chastened by the experience, the crisis spawned a decade of introspection, regulation and analysis by market participants and policymakers about many things thought to have sparked the crisis.

EFM- True but until most recently with my material, risk was little more than an esoteric term without adequate specificity. Of course the ones who started the mess probably couldn't care less. Unfortunately those who had to care (about losses) kidded themselves into a financial euphoria iwhere the industry was complicit in denying or obscuring the depth it could sink to. Maybe some new but there was so much money being made that ..................

Many industry observers may feel that the current environment for risk-taking is a vastly different place from the boom years, partly due to a myriad of banking and regulatory changes

EFM- there has been some effort but most of it fleeting and certainly without specificity (obviously I like the word). The point being that the vast audience of the public has no clue to the risk that they are taking and, hence, are going with the flow. On the other side, those that also did get pummeled pulled out and lost years and years of growth. Well, the Process allows both to see what is going on, the expsoure they are taking (maybe about 75% less than a buy and hold) with an opportunity for growth thereafter triggered by a government press release.

Now this comment from the article really pisses me off, "
The great behavioral scientists of our era – Kahneman, Tversky, Shiller and Thaler – have shed light on the nature of bias and how it plays a direct role in risk-taking by individuals and firms. In the years preceding the crisis, herd mentality and recency and confirmation biases all accelerated, reflecting the unusually benign economic environment during that same period. What’s more, senior management, boards of directors and investors in asset-backed securities (including many nontraditional mortgage borrowers) were afflicted with a range of biases that colored their views on the relative riskiness of the mortgage business in ways that would not be well understood until after the crisis."

EFM:  The euphoria from the press et al nudged consumers into a false sense of free money. However, were the consumers- at least- given specific material identifying the losses they could expect, many would have recognized the folly. And this may be where I am completely bonkers-  (judge your comments of today's economic mess)- wouldn't consumers want to know where they stand in regards to overall investment risk, how much they WILL lose. and what they could do to offset the probabilities? Since the industry hates me, I think I am on the right track. But maybe consumers are going to be just to difficult to move and it is a waste of time.

From the author-
It is important to remind our newer staff of what the signs of abnormal risk-taking look like by having them simulate these experiences in realistic risk war-game scenarios. Beyond sensitizing risk professionals to behavioral responses to risk, better training needs to occur across the industry. Few of us have formal training in risk management, which makes it even more important to build effective training programs to ensure our risk talent has the technical tools and domain expertise to do their job well over the entire business cycle.

5/16: Recessions and yield curve correlation

leading up to the 1990 recession, there was virtually no inversion in the yield curve. Moreover, in last two recessions, there is an interesting trend. In Charts II and III, we find the yield curve was inverted 12-months prior, but 30 days before each recession began, the slope was normal. This trend was more drastic prior to the Great Recession of 2008. It seems the yield curve has been a less reliable predictor of recession since the late 1980s.

Why hasn’t the yield curve inverted prior to recessions in recent decades like it did before 1990? I believe technology is a key reason. With the advent of the computer age, the Fed can obtain more accurate data, more quickly than it could in the past.


The slope of the yield curve is based on the difference between short- and long-term interest rates. Short-term rates depend on the Fed’s ability to make good decisions and long-term rates are a reflection of the health of the economy plus other issues. With the advance of technology, the Fed has demonstrated an improved ability to manage the interest rate lever well. Is it possible the yield curve will rarely invert in the future? Do we need to find a better recession predictor? The yield curve as a recession predictor may be part of a bygone era, but one thing seems certain, the business cycle is not going to disappear.

5/16: Should Equity Exposure Decrease In Retirement, Or Is A Rising Equity Glidepath Actually Better

Want to hurt your little head about trying to figure out what to take in retirement? Frankly I don't think much will help here but this is what the mainstream industry is looking at. .


5/16:The Financial Literacy Gender Gap (Finra)

For the three largest generations (i.e., millennials, gen Xers and boomers) and at all three points in time, men exhibit higher levels of financial literacy, based on answers to a five-question financial literacy quiz. Here are some key findings:

  • A narrowing gender gap. Millennial women exhibit the lowest levels of financial literacy, but the gender gap starts to narrow among younger generations. In 2015, the gap in financial literacy between boomer men and women was 19 percent, and for gen Xers 18 percent. But for millennials, it was only 10 percent. This result is driven by a decrease in financial literacy for millennial men and a slight increase for millennial women during the six-year period studied.
  • Increased self-assessed financial knowledge. Unlike financial literacy, which has remained at about the same level over the last six years, self-assessed financial knowledge—regardless of gender—increased significantly between 2009 and 2015. For example, in 2009 69 percent of boomer women rated their financial knowledge as high, in 2012 the figure went up to 72 percent, and in 2015 it rose to 78 percent. That same upward trend is consistent for men and women in all three generations.
  • Rising confidence in financial knowledge among younger generations. Younger women express more confidence in their financial knowledge compared to prior generations, a factor that many believe contributes to the gender gap in the first place. The percentage of married women who report that they are the most financially knowledgeable person in the household has increased since 2009, and it is highest for millennial women—53 percent for married millennial women in 2015 compared to 48 percent for married gen X women and 40 percent for married boomer women. 
  • Growing exposure to financial education. Across generations, women were less likely than men to report that they were offered financial education, and older generations regardless of gender reported less exposure to financial education. Millennials reported the highest exposure to financial education: 45 percent of millennial men and 33 percent of millennial women. While only 23 percent of boomer women and 27 percent of gen X women report being offered financial education, and 30 and 35 percent for male boomers and male gen Xers, respectively.

5/15: And fees are bad in Europe

Less than one in five of the funds sold to retail investors in Europe in the past three years outperformed their benchmark after fees were taken into account,
only 18 per cent beat their benchmark

Many managers are unable to compensate for fees because they are not taking enough active risk, so they are

very unlikely to beat their benchmark. This is a structural problem”.

Half the top-ranked managers of global and European equities, global bond and flexible balanced funds, measured by returns over three years, drop out of the top performance decile over the following 12 months. Huge gaps also exist between the best and worst managers across all fund types, complicating the decisions facing retail investors.

Many politicians want to redirect huge savings that remain locked in low-yielding bank accounts into useful investments. This task has been made difficult by the failure of financial product providers to give clear information to investors, especially the less financially literate, about fees and charges. “Today, an average consumer is overwhelmed by the sheer complexity and uncertainty associated with investment products. Most households do not invest at all in capital markets or do so very infrequently across their lifetime” said the commission.

Regulators have introduced rules, known as Mifid II, to try to improve transparency. Some fund distributors, private banks, wealth managers and financial advisory firms are cutting their catalogues to ensure they provide suitable products to clients, as required under Mifid.

5/15: Markets in Financial Instruments Directive  (the entire text is 7,000 pages long)

MiFID is a European Union law which standardizes regulation for investment services across all member states of the European Economic Area. The law is 7,000 pages long

The high level goals of MiFID II are:

  • Increased transparency of markets
  • A shift in trading towards more structured marketplaces
  • Lower cost market data
  • Improved best execution
  • Orderly trading behaviour within markets
  • More explicit costs of trading and investing

5/15:Student Lon Payments options (by FINRA)


In today’s newsletter, we will take a quick look at some of the critical figures and data in the energy markets this week. 

We will then look at some of the key market movers early this week before providing you with the latest analysis of the top news events taking place in the global energy complex over the past few days. We hope you enjoy.


The U.S. exported 905,000 bpd of propane in 2017, about half of which went to Asia to be used in petrochemical production.   

-   Surging demand in Asia for propane has supported investment in propane exports in the U.S. 

-    About half of U.S. propane production, and the vast majority of exports, occur along the Gulf Coast. 


 Target-date fund fees fall to 66 basis points in 2017

The average asset-weighted expense ratio for a target-date mutual fund series fell to 66 basis points in 2017.

5/15: Text of Policy Statement and Request for Comments: 'HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs' (PDF)

45 pages. "The blueprint covers multiple areas including, but not limited to: [1] improving competition and ending the gaming of the regulatory process, [2] supporting better negotiation of drug discounts in government-funded insurance programs, [3] creating incentives for pharmaceutical companies to lower list prices, and [4] reducing out-of-pocket spending for patients at the pharmacy and other sites of care.... HHS seeks to identify when developed nations are paying less for drugs than the prices paid by Federal health programs, and correct these inequities through better negotiation.... Through this request for information, HHS seeks comment from interested parties to help shape future policy development and agency action."
U.S. Department of Health and Human Services [HHS]

There is a reason for everything

And sometimes that reason is that you are stupid

John McCain

5/14: The poor will really get screwed. Many take necessary monies and bet to win the lottery.

States are free to legalize sports betting, Supreme Court says

The decision could set off a scramble to find a way into what is a billion-dollar business.

5/14 NARIU: Most economists determine whether the economy needs stimulus by comparing current and projected unemployment rates with a measure called the Nairu—the nonaccelerating inflation rate of unemployment (sometimes called the natural rate of unemployment). That number is supposed to mark the dividing line between unemployment so high that it pulls inflation down and unemployment so low that is pushes inflation up. Hence the awkward name.

5/14: r*: economists have compared the real interest rate—the funds rate minus inflation—to another key dividing line: the neutral (or natural) real interest rate, which Wall Street calls r* (pronounced “r-star”). : When the real federal funds rate is above r*, that means money is “tight,” the Fed is holding back demand and inflation should fall. When the real federal funds rate is below r*, money is “loose,” the Fed is pushing demand up, and inflation should rise.

5/14:IMF to introduce borrowing database

The International Monetary Fund will launch a borrowing database dating back to the 1950s. The IMF has warned the global economy is more indebted, at $164 trillion, than it was before the financial crisis and has urged immediate action.. Banks and other financial services companies will be hopelessly left behind unless they step up and improve their use of data to screen out and stop suspicious transactions

EFM- I do not see them making a concerted effort

EFM- This huge debt can decimate us

5/14: Inverted yield curve

More Fed speak on the yield curve this week. Bloomberg's Brian Chappatta: "The fate of the flattening U.S. yield curve now rests squarely in the words of Federal Reserve officials. Bond traders have already reached their verdict. The yield spread between 5- and 30-year Treasuries narrowed last week to as little as 26.2 basis points, the lowest since August 2007. The prospect of an inverted curve, which has presaged past recessions, is as strong as ever...

5/14: There goes the American Dream for many. A 10% drop in less than 10 years

Low-income buyers are a shrinking percentage of mortgage borrowers

Low- to moderate-income homebuyers made up 36.6% of mortgage borrowers in 2009, but by 2017, that figure had dropped to 26.3%. Independent mortgage companies are making a larger percentage of home loans as big banks shift away from mortgages.

5/14:Research: Suddenly losing retirement savings shortens people's lives

The sudden loss of 75% of a person's retirement savings increases his or her chances of dying within 20 years by 50%, but the consequences of never saving anything are worse, according to a study in the Journal of the American Medical Association. People who have never accumulated any significant retirement savings are 67% more likely to die within 20 years,

EFM- what happens if they lose 50%. That is what happened in 2000 and 2008. I expect this next recession might even top that.

5/13: This is here as a reminder and as caution- there is a significant possibility that the next recession (probably starting within the next 1.5 years) will be as bad as 2008

Peso panic: After the peso fell to historic lows, Argentine president Mauricio Macri asked the IMF for help. While this is obviously bad news for Argentina, writes Gillian Tett, it serves as a useful reminder of the challenges facing markets around the world. Policymakers need to be sure that the global financial safety net is robust enough to survive more widespread turmoil.

5/13:"Big Data in Finance and the Growth of Large Firms" Fee Download
NBER Working Paper No. w24550

JULIANE BEGENAU, Stanford University - Graduate School of Business, National Bureau of Economic Research (NBER)
Princeton University - Bendheim Center for Finance
New York University - Stern School of Business, National Bureau of Economic Research (NBER)

One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. Large firms, with more economic activity and a longer firm history offer more data to process. As faster processors crunch ever more data – macro announcements, earnings statements, competitors' performance metrics, export demand, etc. – large firms become more valuable targets for this data analysis. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm's cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger

"Sophisticated Investors and Market Efficiency: Evidence from a Natural Experiment" Fee Download
NBER Working Paper No. w24552

YONG CHEN, Texas A&M University - Department of Finance
Yale SOM, AQR Capital Management, LLC, National Bureau of Economic Research (NBER)
Texas A&M University - Mays Business School

We study how sophisticated investors, when faced with changes in information environment, adjust their information acquisition and trading behavior, and how these changes in turn affect market efficiency. We find that, after exogenous reductions of analyst coverage due to closures of brokerage firms, hedge funds scale up information acquisition. They trade more aggressively and earn higher abnormal returns on the affected stocks. Moreover, the participation of hedge fund significantly mitigates the impairment of market efficiency caused by coverage reductions. Our results show a substitution effect between sophisticated investors and public information providers in facilitating market efficiency in a causal framework.

5/13: A primer for Modern Portfolio Theory

As with any article, you do not know if the material is correct. And while this is from Investopedia, the level of Stock diversification was from 1981. It says 20 stock- around 2000 due to the internet, 24 hour trading and so on, it can be as high as 350. Or it simply is not worthwhile for the novice to buy stocks to make up their portfolio. 5/13: EBRI: More retirees over 75 have outstanding loans

The number of older retirees with debt has hit a record, the Employee Benefit Research Institute says. Nearly 50%half of retirees 75 or older are carrying debt, up from 25% in 1992.

5/13: Fed study suggests US interest-rate fluctuations hardest on emerging markets

A study by Federal Reserve Board economists finds that changes in US interest rates are hardest on emerging markets that have high inflation and weak financial metrics. "On the dark side, these responses seem to be large, to the point that they suggest that foreign economies -- especially vulnerable, emerging economies -- may react to U.S. monetary shocks more so than the U.S. economy itself," write study authors Matteo Iacoviello and Gaston Navarro.

EFM- going to be interesting as the FED raises rates two or three more times this year

This would make you take up drinking

5/13:  U.S. Financial Data (USFD) Publication

5/13:   Eurozone investor confidence weakened for the fourth straight month in May following a series of soft economic data covering the bloc. The index compiled by Sentix fell to 19.2, from 19.6 in April, and has dropped dramatically from 32.9 at the start of the year. Tensions over trade - like whether the U.S. will slap the eurozone with tariffs - have weighed on sentiment

5/13:   Black mothers are dying at an alarming rate. Are doctors' biases to blame?

Black women in the U.S. are three to four times more likely than white women to die from pregnancy complications. And the problem won't get better until doctors acknowledge their own unconscious prejudices, some experts say. “Bias is in the air,” said one mother who nearly died after giving birth to twins. “I didn’t realize that this was a systemic problem until after it happened to me.”

I could 'accept' a slight increase but this is way out of whack

5/13: And then there is this;

   One thousand MORE people have been shot in Chicago this year compared with the same time last year, according to police data compiled by the Chicago Tribune. The announcement comes after a particularly violent week in the city that saw eight people killed and at least 40 wounded.

EFM   civilization seems to be going backwards

5/12: Crude markets have seen a wave of bullish news in the last couple of weeks, and as tensions
 in the Middle East continue to rise and Venezuela falls further into crisis, upward pressure on prices is only increasing.

5/12 The Invincibility Gene - the one that tells you you can climb a ladder and will not fall off. When you are 80'

"The Effects of Home Health Visit Length on Hospital Readmission" Fee Download
NBER Working Paper No. w24566

ELENA ANDREYEVA, University of Pennsylvania - The Wharton School
University of Pennsylvania - Health Care Systems Department
The Wharton School, University of Pennsylvania - Operations, Information and Decisions Department

Home health care has experienced significant growth as an industry and is viewed as one of the avenues for achieving reductions in the cost and utilization of expensive downstream health care services. Using a novel dataset on home health care visits, this study quantifies the effects of reduced time spent with patients during a post-acute home health visit on hospital readmissions. We focus in particular on the subset of patients with conditions that are subject to penalty under the Hospital Readmission Reduction Program. Since both visit length and readmission risk are likely to be correlated with unobserved illness severity, we use the daily sequence of provider visits and deviation from the provider’s average daily workload as instruments for visit length. We find that patients who are visited later in the provider’s day as well as those who are visited by a provider who has a higher than usual workload experience home health visits that are shorter than usual. Using our instruments and controlling for patient, visit, and provider characteristics, we find that home health visits that are longer than usual by one minute reduce the risk of hospital readmission by approximately 8 percent. These effects seem to be driven by providers with higher levels of discretion in their time management and care provision. We suggest several approaches that managers could take to attain reductions in readmissions without incurring significant additional costs.

5/10: "The Poverty Reduction of Social Security and Means-Tested Transfers" Fee Download
NBER Working Paper No. w24567

BRUCE D. MEYER, University of Chicago - Irving B. Harris Graduate School of Public Policy Studies, National Bureau of Economic Research (NBER)
University of Chicago - Irving B. Harris Graduate School of Public Policy Studies

Many studies examine the anti-poverty effects of social insurance and means-tested transfers, relying solely on survey data with substantial errors. We improve on past work by linking administrative data from Social Security and five large means-tested transfers (SSI, SNAP, Public Assistance, the EITC, and housing assistance) to 2008-2013 Survey of Income and Program Participation data. Using the linked data, we find that Social Security cuts the poverty rate by a third – more than twice the combined effect of the five means-tested transfers. Among means-tested transfers, the EITC and SNAP are most effective. All programs except for the EITC sharply reduce deep poverty (below 50% of the poverty line), while the impact of the EITC is more pronounced at 150% of the poverty line. For the elderly, Social Security single-handedly slashes poverty by 75%, more than 20 times the combined effect of the means-tested transfers. While single parent families benefit more from the EITC, SNAP, and housing assistance, they are still relatively underserved by the safety net, with the six programs together reducing their poverty rate by only 38%. SSI, Public Assistance, and housing assistance have the highest share of benefits going to the pre-transfer poor, while the EITC has the lowest. Finally, the survey data alone provide fairly accurate estimates for the overall population at the poverty line, although they understate the effects of Social Security, SNAP, and Public Assistance. However, there are more striking differences at other income cutoffs and for specific family types. For example, the survey data yield 1) effects of SNAP and Public Assistance on near poverty that are two-thirds and one-half what the administrative data generate and 2) poverty reduction effects of SSI, Social Security, and Public Assistance that are 34-44% of what the administrative data produce for single parent families.

5/10: Euthanasia:
104 year old preferred death to the lack  of joy in his life. Article addresses a lot of the elements of euthanasia

“It’s not personal. The boss just doesn’t like seeing people in so much debt for such a useless degree.”

5/10: Inverted Yield Curve' 

Basically just works for the U.S.

As the flattening of the yield curve brings it closer to an inversion, in which long-dated yields fall below short-dated yields, some investors worry that it could soon signal the end of the second longest U.S. economic expansion since World War II. But the phenomenon doesn’t travel well.

Quantitative analysts at AQR Capital Management found that the yield curve’s prophetic reputation was either nonexistent or weak in major economies from Australia to Germany.

Economists theorize the yield curve inversion is a harbinger of economic trouble for two usual reasons.

One, banks rely on short-term deposits to fund longer-term loans, harvesting the difference in interest rates. Because the net interest margin broadly correlates with the yield curve’s steepness, an inverted curve suggests banks would cut back on loan issuance, hurting business investment. Two, a yield curve inversion is a sign that monetary policy has become tight as a central bank’s hiking plans raises short-term yields much faster than the long-term yield, on which it has a weaker influence.

42 people in the world have the same wealth as the bottom 50 percent

5/9: Why the low wages

There’s still slack in the job market.

— Productivity growth is slow.

— Many workers have too little bargaining clout in our highly unequal economy.

Friday’s jobs report showed that the unemployment rate fell to 3.9 percent last month, its lowest level since late 2000. The report also showed, however, that wage gains, before inflation, have been stuck at 2.6 percent. Moreover, as the figure below shows, even as the job market has tightened, this wage series — the year-over-year hourly wage growth for private-sector workers — has been jiggling about 2.5 percent for about two years running.

Consider the share of the prime-age (25-54) population with jobs. While this important and large group of workers has consistently been clawing back their losses since the last recession, they’re still short of where they were. Their employment rate fell more than 5 percentage points in and after the recession (from about 85 to 79 percent), but as the figure below shows, they’ve clawed back 4.4 percentage points of that loss. So 20 percent to go, which translates to 7 million potential workers, i.e., a fair bit of slack.

Low productivity growth: When the job market tightens, firms must typically bid up their wage offers to get and keep needed workers. When that occurs, to maintain their profit margins they try to squeeze out any inefficiencies. That is, they want to pay for wage gains with higher productivity, not by cutting into profit margins.  A bit before the last recession, productivity growth slowed by about half, from around 2 percent to around 1 percent, and it hasn’t picked up since.

Low worker bargaining clout:  The reason that has yet to occur in any big way is a function of the uniquely low bargaining clout of many in the U.S. workforce. Unionization is at historical lows, and there’s also more monopolistic concentration among big firms (giving them the upper hand in wage setting), along with eroding labor standards such as low minimum wages and inadequate overtime rules.

 the remaining labor supply needs help to overcome the barriers they face. That implies the need for interventions such as job training, apprenticeships (“earn-while-you-learn”) and some form of a government job creation or job subsidy program when the private market isn’t creating enough employment opportunities.

The problem is that these interventions cost money, so step one is reversing the wasteful, regressive tax cut and using some of that revenue to help people who need the help.'

“We only have to look at ourselves to see how intelligent life might
 develop into something we wouldn’t want to meet.”

Stephen Hawking

5/9: Max Tegmark: A living organism is an agent of bounded rationality that doesn’t pursue a single goal, but instead follows rules of thumb for what to pursue and avoid. Our human minds perceive these evolved rules of thumb as feelings, which usually (and often without us being aware of it) guide our decision making toward the ultimate goal of replication. Feelings of hunger and thirst protect us from starvation and dehydration, feelings of pain protect us from damaging our bodies, feelings of lust make us procreate, feelings of love and compassion make us help other carriers of our genes and those who help them and so on.

5/9: Thinking: Rationalists have long sought to make reason as inarguable as mathematics, so that, as Leibniz put it, “there would be no more need of disputation between two philosophers than between two accountants.” But our decision-making process is a patchwork of kludgy code that hunts for probabilities, defaults to hunches, and is plunged into system error by unconscious impulses, the anchoring effect, loss aversion, confirmation bias, and a host of other irrational framing devices. Our brains aren’t Turing machines so much as a slop of systems cobbled together by eons of genetic mutation, systems geared to notice and respond to perceived changes in our environment—change, by its nature, being dangerous. The Texas horned lizard, when threatened, shoots blood out of its eyes; we, when threatened, think.

Klaus Schwab, chairman of the World Economic Forum, described the fourth industrial revolution in Davos in January 2016:

We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.

Compared with previous industrial revolutions, Schwab continued,

the fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

First Schwab looked at the bright side:

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

Schwab then turned his attention to the downside. Many “workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate,” he said, and the “middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness.”

EFM- My point is that in the (supposed) valid theory of investment analysis, many are using old methods to try and predict the future. Obviously there will be some correlation of past/future. In the most recent past of 2000 and 2008 with massive losses (49% and 57%) to 85% of the general public, the industry has to recognize it needs new methods and thought processes. To continue to use old rules is accepting the fait compli- but that is generally what the industry is doing. It cannot allow massive losses to investors to continue. Rebalancing is not the best thing to do. Buy and Hold is close to being a relic. So is buying at the drop. 100,000 attempts with Monte Carlo to figure out a 95% viability for a retirement is still based on financial activities even from 1929.
We are not in Kansas anymore, Toto

5/9: Retirement
There are 79 million baby boomers and over the next 30 years a staggering 10,000 people a day will retire.  The average age of retirement in the United States is 63 and the average length of retirement is 18 years,

 Because the 18-year average length of a retirement liability will likely experience multiple market cycles, fixing withdrawal rates and allowing the portfolio’s net asset value to fluctuate can help meet an investor’s cash-flow needs while allowing time to smooth over market volatility.   We believe this is best executed by employing a well-diversified portfolio with the objective of seeking to maximize risk-adjusted returns over time.  (EFM-Disagree)

 historical monthly returns offer perspective (EFM-does it really??) regarding how assets classes performed over past investment cycles. For the 30-year period from January 1987 through December 2016, starting with a hypothetical $1 million and assuming reinvestment of all income, the three major asset classes and high yield corporate bonds achieved the following returns4:


(The problem with old numbers is that they are almost useless going forward. Bond returns  will be MUCH lower- same with cash/Tbills./ Equity returns might be 6%+ and high Yield is questionable (my opinion)

5/9: Corrupt equilibrium- Comments by Michael Edesses on Jim Comeys book

In his controversial book, A Higher Loyalty: Truth, Lies, and Leadership, the former FBI director James Comey – in a much-quoted opening “Author’s Note” – says, “We are experiencing a dangerous time…” a time in which “basic facts are disputed, fundamental truth is questioned, lying is normalized, and unethical behaviour is ignored, excused, or rewarded… It is a troubling trend that has touched institutions across America and around the world – boardrooms of major companies, newsrooms, university campuses, the entertainment industry, and professional and Olympic sports.” This diagnosis would elicit broad agreement across the political spectrum. What has precipitated this disastrous ethical decline?

I (Edesess) will argue that as much as anything, it is Wall Street.

Wall Street (by that term, meaning the financial industry not only in Wall Street but in the City of London and other financial centers) routinely lives numerous lies. Increasingly over recent decades, it has become well known in the finance field that the search for verifiably effective investment management in pursuit of the goal of outperforming the market average is highly likely to be futile.

....This lying is winked at, and even admired by the finance profession. In an article covering a talk by Seth Klarman,.....  “I know Wall Street will always try to rip our eyeballs out.” This is representative of the normalization of – and even begrudging admiration of – Wall Street’s lying.

EFM- there is more commentary in the article but for those that are not familiar with it: it is when regular people may recognize illegal and unethical behavior but condone what is done because everyone else is doing it. It simply means a status quo and life just goes on without any care at all. Is such activity within the financial planning industry? 0f course.And it must be expected if agents acting in a capacity to clients/investors have never been trained on how to use a financial calculator. Or to become aware of major economic issues and the impact on money. In a very tacky way..... the industry is made up of Liars and Frauds, Grossly incompetent, Conveniently stupid or simply Unethical. Make sure you read the review and possible get Comey's book

5/9: Look at the prices- they should go up more. So should the rig count

Chart of the Week

-    The EIA
expects nearly 32 gigawatts (GW) of new electricity capacity to come online this year, the largest single-year capacity growth in over a decade.

-    To date, wind and solar accounted for 98 percent, or 2 GW, of the capacity additions so far.

-    But, the EIA sees 21 GW of new natural gas before the end of 2018, which will mark the first year since 2013 that renewables didn’t make up more than 50 percent of new capacity.   

5/9: Teenagers

In 2000, about 45 percent of those between 16 and 19 had a job — today it’s 30 percent.


5/9:Behavioral Biases with risk identification

A decade on, have the failures from the crisis been adequately addressed to prevent a future meltdown? There is no simple answer, but an analysis of the evolution of risk-taking behavior and risk talent demonstrates that there is clearly more work to do.

5/8: Retirement and Marriage

A retirement study by Fidelity Investments found that 1 in 3 couples aren’t on the same page when asked to describe their expected lifestyle in retirement.

“Approaching the second half of life is an opportunity to reassess outdated rules, let go of what no longer works and open up to new possibilities,” the authors write. “It takes courage, commitment and compromise. Couples do best when they think ahead, communicate and plan together. Remember, it doesn’t matter how long you have been together, relationships are always a work in progress.”

If you don’t work things out, you risk a divorce, which can derail the best-laid retirement plans.

Read  A ‘gray divorce’ can devastate your retirement plans. Here’s how.



2017 Close

Prior Week

As of 5/4

Weekly Change

YTD Change













S&P 500






Russell 2000






Global Dow






Fed. Funds target rate




0 bps

25 bps

10-year Treasuries




0 bps

54 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

5/8: Due to Iran


5/8: If the U.S. is doing well and the Eurozone is almost crashing, what happens next? Dunno

Eurozone investor confidence weakened for the fourth straight month in May following a series of soft economic data covering the bloc. The index compiled by Sentix fell to 19.2, from 19.6 in April, and has dropped dramatically from 32.9 at the start of the year. Tensions over trade - like whether the U.S. will slap the eurozone with tariffs - have weighed on sentiment.

5/8:  The robots will cut the number of nurses over time but nurses still will be needed for all us old people

HCA to spend $300M on employee benefits with focus on attracting nurses
Written by Ayla Ellison / Becker's Hospital Review E-Weekly
Nashville, Tenn.-based HCA Healthcare is earmarking $300 million for employee benefits, largely in an attempt to attract nurses, HCA executives told Reuters.
HCA is one of the big winners under recent changes to the U.S. tax code, and the company said in January it would invest the majority of its windfall from the tax overhaul in employee benefits, such as tuition reimbursement and extra family leave, over the next three years.
HCA officials recently told Reuters a top priority of the spending plan is to attract and retain nurses.
The Bureau of Labor Statistics predicts the U.S. nursing field will have more than 1 million vacancies by 2022, leaving hospitals to implement strategies to recruit and retain nurses. The nurse retention push is vital for HCA, as the company plans to grow in states like Texas and Florida, where up to 40 percent of nurses are slated to retire in coming years. Half of HCA's hospitals are in Texas and Florida, and those facilities account for 48 percent of the company's revenue

5/8: Twenty Five Percent!!!!

Nearly a quarter of the nation’s homeless population lives in California. In the city centers, tent encampments have become their own neighborhoods,


5/8 Europe inflation staying low while U.S. is hitting its stride at 2%

The ECB doesn’t target core inflation, but will be watching it closely for signs that durable inflationary pressures are building. Yet April’s reading is at the bottom end of a 0.6%-1.2% range that has persisted for five years now. The pickup in growth last year has allowed ECB President Mario Draghi to talk of increased confidence that headline inflation will head toward the central bank’s aim of below, but close to 2%, over the medium term. But that seems as far off as ever.

5/7: Home Prices

The national median list price now rests at $273,663, which is roughly 20% higher than in March 2015. Over that time, the pace at which home list prices have increased has risen nationally. Between 2015 and 2016 the national median listing price only rose 4.8%, but over the last year it increased by 7.4%. And housing analysts have grown increasingly concerned with how sustainable this boom is.

5/7: The Centers for Medicare and Medicaid Services is getting ready to let Medicare Advantage plan issuers add major new long-term care benefits to their supplemental benefits menus.

CMS will let a plan cover adult day care services for adults who need help with either the basic “activities of daily living,” such as walking or going to the bathroom, or with “instrumental activities of daily living,” such as the ability to cook, clean or shop.

(EFM- Walking is not one of the 6 ADLs. They are eating, bathing, dressing, toileting, continence, transferring)

in addition to adult day care, a Medicare Advantage plan could pay for:

  • In-home support services to help people with disabilities or medical conditions perform activities of daily living and instrumental activities of daily living within the home, “to compensate for physical impairments, ameliorate the functional/psychological impact of injuries or health conditions, or reduce avoidable emergency and health care utilization.”
  • Short-term “respite care” or other support services for family caregivers.
  • Making non-Medicare-covered safety changes, such as installing grab bars, that might help people stay in their homes.
  • Non-emergency transportation to health care services. (Plans can already pay for ambulance services for enrollees experiencing medical emergencies.)

A Medicare Advantage plan could not use the new interpretation to pay for in-home food delivery.

EFM- going to be interesting as to the cost and how it relates to standalone LTC coverage and universal life policies  with the LTC rider

5/7: "A coming debt crisis in the US?" warns a Deutsche Bank report*

the CBO argues that, assuming current policies and trends are not changed, “the likelihood of a fiscal crisis in the United States would increase. There would be a greater risk that investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates.”

5/7: Medical coverage

The number of people with individual major medical coverage fell to 15.6 million in December 2017, down about 10% from the total in December 2016,

  • The total number of people with medical coverage administered by private organizations increased to 265.2 million, from 264.3 million.
  • Employers’ insured and self-insured plans provided coverage for about 67% of the people who had health coverage administered by private organizations in December 2017.
  • Enrollment in Medicare Advantage plans increased 12%, to 61 million, but stayed about the same for insured employer health plans, self-insured employer health plans and managed Medicaid plans.

5/7: Pet insurance

 pet health insurance industry posted another record year in 2017, with the total number of pets insured in the U.S. and Canada reaching over 2 million – nearly a 17 percent increase from a year earlier, according to the 2018 NAPHIA State of the Industry Report.

Pet insurance is also one of the most requested voluntary benefits, and is expected to grow 60 percent by the end of 2018,

the pet insurance marketplace surpassed the $1 billion mark in gross written premium by the end of 2017, an increase of 15 percent over 2016.

Accident and illness plans” continue to be the main driver in the market. In the U.S., 98 percent of insured pets in 2017 were covered either through an “accident and illness plan” or an “insurance with embedded wellness plan.” The remaining 2 percent of insured pets were covered through an “accident-only plan.”

Accident and illness plans generated an average annual premium of roughly $516 USD per pet in the U.S. and $603 CAD in Canada. Accident-only plans generated an average annual premium of roughly $181 USD per insured pet in the U.S. and $217 CAD in Canada. The average claim amount paid for accident and illness plans was $278 USD in the U.S. and $311 CAD in Canada.

5/6: Wanna buy stock. Think you get a great one? If it goes down, should you buy more- as the colloquial knowledge tells you to??.

The stock value lost by GE in the past 12 months is twice the amount that vanished when Enron Corp. collapsed in 2001 — and more than the combined market capitalization erased by the bankruptcies of Lehman Brothers and General Motors during the financial crisis. Longer term, GE’s market capitalization has fallen more than $460 billion since its 2000 peak.

EFM-  And at this point I will ask you what is diversification. The sophomoric commentary is "don't put all you eggs in a basket". True but potentially devastating in that how many stocks must you have  stocks are needed in a portfolio to offset its unsystematic risk? It used to be about 15 to 20 (though some analysts suggested higher.) But due to 24 hour trading and computers which can analyze thousands of pieces of information per second, one now needs up to 350. If you did not know that, you shouldn't be buying individual issues.
But few paid attention to that prior to 2000, in particular. Billions lost. Millions of people bought CMOs prior to the Great Recession- and we know how that went 

5/6: Forget the 4% rule in retirement

Actually I do not think much of the article since she starts off by referring to the conventional rule of taking out 4% per year and having a 95% probability to finish your retirement with the money saved. That rule has been dispelled years ago. And as we look at today's market , the rest of the article's commentary about using bonds is fraught with peril.

"No one knows what will happen in the future, but among those who make forecasts, there is an expectation for lower returns.” EFM- I agree.

But in recent years, the rule’s safety has been questioned. While 4% would have worked over every 30-year retirement from 1926 on for an investor with 60% in large-company stocks and 40% in intermediate-term U.S. bonds, it failed in almost half of the simulations researchers recently ran using forecasts of future, rather than past, returns.

As a result, “3% is the new safe withdrawal rate.per Wade Pfau.  EFM- no it isn't. If numbers and rules are run from 1926, along with the losses, it is true. But why would anyone accept huge losses in this new world economy??  Secondly why would you use bond funds (I am not addressing the rich that can buy individual bonds for laddering).

Many dynamic strategies set their initial withdrawal rate for a 30-year retirement at about 5%. But they require users to cut spending in a year in which their portfolio loses value.

EFM- so how much is the loss??? You cannot do a formal analysis without this. So I say that a 12% loss is much less than a standard loss in recessions that has averaged over 50%  (49%- 2000; 57%-2008). Then the bond allocation side is as high as 40%. That's stupid. Hardly an informed advisor would allow what? - slightly over 1%?? And economic interest rates going up??? Vanguard intermediate bond index lost 0.03 last year. Yes you can play games with the risk factor (high yield), leverage, international-  but the basic commentary in most of my commentary is the middle income consumer who would have no clue to what is going on.

Now take the lower rate but with no bonds, Over time, you will make more money in appreciation than a 70/70, 60/40 split where the equity returns are identical. So now we come to what is called the sequence of returns,

5/6: Sequence of Returns

"Essentially, sequence of returns risk is the probability that a dip in the markets may occur early in retirement. Since most retirees must take withdrawals from their savings to fund retirement, taking withdrawals through a significant down market early in retirement may create a situation where there is not enough remaining in the portfolio to participate in a recovery and put the client back on solid footing."

EFM That sucks and is little more than spewing out of an outdated rule of thumb that fails real life. It is valid if someone sat like a lump watching over 3 years (starting in 2000) as the market dropped 49% and felt no qualms at all. And that an adviser let him/her. That defies common sense. Even uncommon sense.

The article noted this:
"There are a variety of ways to manage sequence of returns risk in retirement, and they all start with a reasonable expectation of whether the client is actually at risk or not — and if so, to what extent. A client who has 95% of her retirement income needs met through pensions and Social Security and is completely comfortable cutting 5% of spending out of her lifestyle faces essentially no sequence of returns risk. '

EFM- That is cavalier and utter nonsense. And it fails a fiduciary duty (or maybe of just not being stupid) in letting money be lost unnecessarily. It maybe true that this (lost) money really had no specific use or intended beneficiary. But the investor knew or should have known of the recessionary element  and that there was no way to provide any data to assure the market would come back in their retirement lifetime. So make an assumption that there was 2,200,000  in invested equity assets for retirement. The $2.000.000 was adequate to provide the income needed. The $200,000 was not needed. So we go into recession starting in 2000. The $2,000,000 goes down to $1,000,000 but "who cares' (depending n the sequence of course) and the $200,000 goes to $100,000. Apparently I'm the only planner (at least as far as I have read) that thinks losing $1,100,000 in a recession that was 100% predicted is absolute folly. And really, really wrong since I also violated the status quo of the proverbial 'buy and hold'. The general assumption is that the market will come back to the $2,000,000- but that is unknown in time and iffy anyway. Apparently the assumption is still that a 95% statistical income is OK since it happened in the past. I 'know' the future should/will/is already radically different than the past and simply don't have the confidence of everything coming out right. . It is unrealistic that an investor would not utilize a simple method of retaining assets rather than leaving large amounts to chance. As far as the $200,000/$100,000 is concerned, a $100,000 saved could have gone to a charity, other beneficiaries, special medical needs. But not lost to incompetence.

This is not a new idea or thought. Back in the 90's I did a paper that showed how a index fund beat a variable annuity just on the fees. But this paled to insignificance when looking at the losses for a recession and hence this system has been utilized for both 2000 and 2008. Why put all the press and necessity of gaining some 'small' amount over time where you have 3 o4 recessions in a 30+ year of retirement where one was hit with 50% losses each time. This next recession could be as bad as 2008 and nobody can afford to lose large gobs of money due to gross ineptness coupled with a clear breach of fiduciary duty.

“Wide diversification is only required when investors do not understand what they are doing.”

Warren Buffet

5/6: Greek banks are still bad. Will the EU let them take a pass again??

Greece’s four biggest banks would take a €15.5bn hit to their combined capital ratios in a future economic downturn, according to the results of the European Central Bank’s latest stress test of the country’s main lenders.

The ECB’s health check of the Greek banking system is designed to determine if any of the banks need extra equity before the country enters talks on exiting its eight-year bailout programme.

The Greek banks, which have been recapitalised three times since a 2010 debt crisis, are still weighed down by large piles of bad loans, which on average account for about half their balance sheets — higher than any other EU country.

5/6: Don't kill rats (just because this was interesting and should save thousands of lives)

In 2016, 8,605 people were killed or injured by land mines or other explosive remnants of war—most of them civilians—according to the International Campaign to Ban Landmines.

The idea of training rats to detect mines was hatched in 1995, when Bart Weetjens, co-founder of Apopo, was working on technologies for developing countries and examining the global land mine problem. The owner of pet rats, he came across a project that was using gerbils as scent detectors and decided to try it with rats.

Unlike demining dogs, the rats don’t bond with any specific handler, which makes them easier to transfer from person to person over their seven-to-eight-year lifespan, more than double that of a typical lab rat. And at 2 to 3 pounds in weight, the rats are too light to set off a land mine. In 20 years, no rat has been killed in the line of duty, according to Apopo.

5/6: Boomers. GEN X

more Generation X (ages 38-53) consumers worry more about having a comfortable retirement and becoming disabled than Boomers. In addition, more than a third of Gen X consumers worry medical and long-term care expenses could undermine their financial security.
The 2018 Barometer Study finds more than half Gen X consumers are concerned that they will be able to have a comfortable retirement, compared with just a third of Boomers (ages 54-72). Nearly twice as many Gen X consumers are concerned about becoming disabled, compared with Boomers (45 percent vs. 23 percent).
Research shows Gen X consumers are less likely to have access to a defined benefit plan, which could contribute to their concern about their retirement security. While about half of Boomers enjoy a guaranteed income stream through a pension, more than two thirds of Gen X workers will be responsible for creating retirement income through their savings. It is not surprising that Gen X workers worry about the financial risks of becoming disabled, incurring medical or long-term care expense because these risks could undermine their efforts to save for retirement.

5/6: Insurance

In college, high-profile athletes typically take out insurance policies, meant to assist them financially should their intended source of income fall through due to injury. This happens across all major sports, but especially in high-injury sports like football as well as for the lumbering 7-footers of college basketball.

5/6: Retirement

Financial advisors should start to discuss developing a formal retirement plan, addressing Gen X consumers’ top concerns of protecting family income from risk of becoming disabled or incurring large medical expenses. (Read 4% income above)

5/6: Emerging market bond funds
Investors withdrew almost $1bn from global emerging market bond funds for the week ending May 2, according to data from EPFR Global, the largest outflow since February’s market turmoil and the first time the asset class has suffered two consecutive weekly outflows in 16 months. The data underscores the widening fallout from the rise in the dollar. The US currency has risen 2.7 per cent since the start of April against its developed market peers, while JPMorgan’s EM currency gauge is down by 4.2 per cent against the greenback. A stronger dollar raises costs for emerging market companies servicing dollar-denominated debt.

“The minute you get away from the fundamentals – whether it’s proper technique, work ethic, or mental preparation –

the bottom can fall out of your game.”

Michael Jordan

5/6:Study: Advisers aren't telling clients about protections provided by annuities

While consumers want to learn about guaranteed lifetime income products such as annuities, only half said they had been advised about those products and the protections they offer, according to a study from the Insured Retirement Institute and AXA US. "This research underscores financial professionals' pivotal role in helping retirement savers to gain comfort around their ability to withstand market volatility and the potential role of high quality annuity products in helping to achieve financial security,"

 Data show 56 percent of those surveyed are highly pleased with whomever they consult about finances when that professional touches on lifetime income. In contrast, only 34 percent of clients report high approval of their financial professional if he or she skips over the subject. Furthermore, 60 percent say they aren’t okay with the way in which their assets are currently allocated to stocks. (EFM and for good reason)

EFM- So why does it not happen? Because registered investment advisors are licensed to sell securities and have no training (and generally no interest) in understanding annuities and life insurance.  You can also add in disability insurance and life settlements

5/6: Assisted Suicide- article on a 104 year old man who has to go to Switzerland to die. What the Swiss do etc.

5/6: The China trade war