1/3:  Most interesting: I have been down in So Cal cleaning up the estate of a long time client. Next to impossible during the holidays. But it is even more frustrating when the attorney is effectively clueless.

12/30: Let's be careful  out there. (GAO, David Walker) IN a Financial Times interview, he drew parallels with the decline of the Roman Empire. There were striking similarities between the US's current situation and the factors that brought down the Roman empire.,  including declining moral values and political civility at home, an overconfident and overextended military in foreign lands and fiscal irresponsibility by the central government. He condemned the current US policies on education, energy, the environment and immigrations as :unsustainable".  

12/28: In a sweeping decision issued today, the United States District Court for the Southern District of Ohio denied in virtually every respect motions to dismiss over $1.6 billion in claims filed against Credit Suisse First Boston ("CSFB") by investors who formerly held "AAA" rated notes issued by now-defunct National Century Financial Enterprises of Columbus, Ohio ("NCFE").

The Court's ruling is highly significant for purchasers of asset-backed notes, an area of keen recent interest in light of the sub-prime loan crisis. The court categorically rejected Credit Suisse's argument that disclaimers included in the offering memorandum required the dismissal of Plaintiffs' fraud claims: "the disclaimers in the offering materials ... do not preclude Plaintiffs from showing that they justifiably relied on Credit Suisse's alleged misrepresentations." The opinion held that CSFB's disclaimer stating that it had done no independent investigation of its own "would seem beyond credulity," particularly to investors who knew that CSFB "had helped devise the note programs [and] helped draft the offering materials." The Court noted that "it would defeat the securities laws if parties could escape liability for their own deliberate misrepresentations by including boilerplate disclaimers into offering materials."

Pay attention to that

12/27: Real estate is still plummeting and the number of credit card defaults is way up. Not a good 2008.

12/17: A  bearish sentiment-``The adjustment in the U.S. housing market has just begun,''' Kazuo Mizuno, chief economist in Tokyo at the unit of Japan's largest publicly traded lender, said in an interview today. ``It will probably bottom out in three or four years. Meantime, this will keep buffeting consumption, employment and the dollar.''  

Mizuno's forecast is among the most bearish, with the median estimate of 42 economists for the dollar to fall 3 percent to 110 yen next year.

The U.S. currency has weakened against 15 of the 16 most- active currencies this year, reaching a more than two-year low of 107.23 yen on Nov. 26, because of widening credit-market losses and the worst housing slump in 16 years.

The dollar depreciated in five of the past six years against the euro, leading Asian and Middle Eastern nations to diversify their reserves. The dollar made up 64.8 percent of central banks' currency reserves in the second quarter, down from 71 percent in 1999, the year the euro made its debut, according to the International Monetary Fund. The euro accounts for 25.6 percent.

12/26: At the end of January 2007, analysts were asked their prices on oil- ECONOMISTS ON OIL,

Average oil price per barrel

Q1 $54

Q2 $56

Q3 $56

Q4 $58

Slightly off, wouldn't you say.

12/26: Lessons from the Subprime Meltdown Minsky is best known for his analysis of the downturn and crisis, he argued that the strongest force in a modern  capitalist economy operates in the other direction—toward an unconstrained speculative boom. The current crisis is a natural outcome of these processes—an unsustainable explosion of real estate prices, mortgage debt and leveraged positions in collateralized securities. Unlike some popular explanations of the causes of the meltdown, Minsky would not blame “irrational exuberance” or “manias” or “bubbles.” Those who had been caught up in the boom behaved “rationally,” at least according to the “model of the model” they had developed to guide their behavior. That model included the prospective course of asset prices, future income, behavior of policy-makers, and ability to hedge or shift risks onto others. It is only in retrospect that we can see the boom for what it was— mass delusion propagated in part by policy makers and those with vested interests who should have known better.

* financial institutions responded to each tight money episode by innovating, creating new practices and instruments that would evade constraints to make the supply of credit more elastic. In this manner, as time passed, the upside tendency toward speculative booms became ever more difficult to attenuate.

12/26: Cord Blood Banking

12/26: Alternative Minimum Tax- The House voted 352-64 for a one-year fix of the AMT, a four-decade-old tax originally meant only to touch super-rich tax dodgers but now hitting millions of middle- and upper-middle income level households. Without that fix, an annual ritual of Congress, those subject to the tax would have risen from four million in 2006 to about 25 million in 2007, with the average levy of $2,000 per taxpayer.

12/26: In March this year- For the rest of the year- the U.S. economy will most likely achieve moderate growth this year with gradually slowing inflation, Federal Reserve Chairman Ben Bernanke

Be careful of Mexican food

12/26: The IRS has announced the Applicable Federal Rates for January 2008, including the Section 7520 rate of 4.4%. This lowered rate makes lead trusts very attractive for estate planning cases.

* “Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is a large weight to units engaged in speculative and Ponzi finance”

(Minsky 1992).

12/25: Old and stupid- (Times) Eight years ago, when Robert J. Pyle was 73 years old, he had about $500,000 in the bank and owned a house in Northern California worth about $650,000. He was looking forward to a comfortable retirement.

Today, at 81, he has lost everything. Mr. Pyle, a retired aerospace engineer, now lives in his stepdaughter’s tiny, mountainside home in a room not much larger than his bed.

By his own admission, Mr. Pyle willingly made every decision that led to his financial problems. He gave away large sums to people he thought were friends, and then, in need of money, sold his house at a deep discount to the first person who offered to buy it.

Even so, he claims in a lawsuit that he should be compensated for some of his losses for a simple reason: he is old, and should not bear the full responsibility for his choices. Mr. Pyle’s suit contends that mortgage brokers and banks defrauded him by helping him take out loans they knew he could not afford, and that the person who bought his house deceived him by paying far less than its market value.

more than 760 civil lawsuits were filed last year in California alone contending elder abuse (most of them claim financial abuse, though some assert other kinds of abuse, including physical). That is an increase of 98 percent from five years earlier

I understand  his dilemma but there is little that can be done. A fool and his money are soon parted, no matter the age. He was not mentally incapacitated. Nor are most elderly. You cannot protect everyone.

12/25: The latest instance of a Western bank to seek emergency financing from cash-rich Eastern investment funds, as turmoil in the subprime mortgage market continues to shake up Wall Street.

Merrill Lynch said it will take $6.2 billion in investments from the Singapore government and a mutual fund manager to shore up its capital base

* Why men don't write advice columns

Dear Walter:

I hope you can help me here. The other day I set off for work leaving my husband in the house watching the TV as usual. I hadn't gone more than a mile down the road when my engine conked out and the car shuddered to a halt. I walked back home to get my husband's help. When I got home I couldn't believe my eyes. He was in the bedroom with a neighbor lady making mad passionate love to her. I am 32, my husband is 34 and we have been married for twelve years. When I confronted him, he broke down and admitted that he'd been having an affair for the past six months.

I told him to stop or I would leave him. He was let go from his job six months ago and he says he has been feeling increasingly depressed and worthless. I love him very much, but ever since I gave him the ultimatum he has become increasingly distant. I don't feel I can get through to him anymore.

Can you please help?


Mrs.. Sheila Usk

Dear Sheila:

A car stalling after being driven a short distance can be caused by a variety of faults with the engine. Start by checking that there is no debris in the fuel line. If it is clear, check the jubilee clips holding the vacuum pipes onto the inlet manifold. If none of these approaches solves the problem, it could be that the fuel pump itself is faulty, causing low delivery pressure to the carburetor float chamber.

I hope this helps.


12/25: Interesting Social Security- (WSJ) Social Security's "earnings test" dissuades some people who have reached 62 from filing for benefits. If you claim benefits before full retirement age -- and if you're still working -- Social Security deducts $1 in benefits for each $2 you earn above an annual limit. In 2008, the limit is $13,560. (The deductions are reduced in the year you reach full retirement age and end once you hit that mark.)

That said, it's still possible to get benefits, even though you're working. What's more -- and what many people don't realize -- is that, once you reach full retirement age, Social Security recalculates (read: increases) your benefit to give you credit for deductions tied to the earnings test.

Steve Potter, a retired public-affairs specialist for Social Security, shows how this can work -- and why January is important:

Let's say you turn 63 next month and expect to earn $33,560 in 2008. Also, Social Security tells you that, based on your earnings, your monthly benefits will total $1,000 at 63 -- or $1,250 at 66 (your full retirement age).

You decide to file at 63. Social Security first subtracts $13,560 (the earnings limit in 2008) from your expected income: $33,560 minus $13,560 equals $20,000. That figure is divided by two (again, $1 in benefits is deducted for each $2 above the limit.) The result -- $10,000 -- is the amount in 2008 that Social Security will withhold from your benefits.

The good news: Even though $10,000 is deducted from the $12,000 you were scheduled to receive in 2008, you still end up with $2,000 in your pocket -- money you wouldn't have seen if you hadn't filed for Social Security. (Ideally, continuing the math at ages 64 and 65 would yield $6,000 in all.)

And when you reach full retirement age, Social Security will increase your monthly benefit (to $1,208, in this case, from $1,000) to help compensate for the deductions.

The catch: Uncle Sam gets paid first. In our example, Social Security would withhold benefits from January through October ($1,000 times 10 equals $10,000) and send you $1,000 in both November and December.

12/25: Washed away- (WSJ) A wash sale comes when an investor sells a stock at a loss and promptly repurchases it. Then there is no capital loss deduction, since the taxpayer never really closed out his position. The sale and repurchase must be at least 31 days apart to get the benefits of a capital loss.

So here’s the gimmick, which some tax advisers have been pitching for years. You sell the stock and take the loss. But at the same time your IRA or Ross IRA buys the same stock. Since the IRA is a different entity from you, there’s no wash sale and no problem. And you will still get the benefit if the stock leaps a few days after you sell.

Well, that was the theory. In a revenue ruling this week, the IRS said that

12/25: Reinforcement Learning and Investor Behavior* Abstract: What affects individual investors’ willingness to invest in an asset? This paper presents evidence that — when there is no salient reference purchase price — investors tend to be return chasers and variance avoiders with respect to their idiosyncratic history with the asset.

Investors are reluctant to sell assets that have fallen below their purchase price and more likely to sell assets that have risen above their purchase price. This behavior is anomalous because the asset’s purchase price is investor-specific and already sunk, and hence should not affect the selling decision in the absence of capital gains taxes.2 Odean (1998) shows that investors are also more likely to buy additional shares of stocks they already own if they have unrealized losses in those stocks. The most common explanation for the disposition effect is that prospect theory preferences (Kahneman and Tversky, 1979) cause investors to experience disutility from making a sale below the “reference price” at which they bought the asset, and to be risk-seeking for assets that are mentally classified in the loss domain.

we find that an investor’s 401(k) contribution rate increases more if she has recently experienced a higher 401(k)  portfolio return and/or a lower 401(k) return variance. We find no evidence that this behavior is welfare-improving. These results are explained by a naïve reinforcement learning heuristic: investors expect that investments in which they experienced past success will be successful in the future, whether or not such a belief is logically justified. Consistent with reinforcement learning’s Power Law of Practice, return chasing and variance avoidance diminish with age.

* we find no evidence that high past 401(k) alphas predict high future 401(k) alphas. If anything, a high alpha in the current year predicts a low alpha in the following year.

Our findings are explained by a naïve reinforcement learning heuristic: investors expect that investments in which they personally experienced past success will be successful in the future, whether or not such a belief is logically justified.

Past return performance positively affects estimates of future return performance through reinforcement learning. In the absence of a  reference price, these beliefs induce return chasing and variance avoidance. However, once a reference price becomes salient, the loss aversion induced by prospect theory preferences is activated and dominates the reinforcement learning effect, leading to reluctance to close out losing positions and a propensity to increase risk-taking in those securities.

Our paper is also related to the large literature finding that investors chase mutual fund returns.

Papers have studied how learning improves investing skill, as manifested in higher portfolio returns or decreasing strength of the disposition effect (Nicolosi, Peng, and Zhu, 2004; Feng and Seasholes, 2005; Seru, Shumway, and Stoffman, 2006). In contrast, our paper focuses on how investors update their portfolios in response to irrelevant information, although we do find that this responsiveness attenuates with experience

* We see that, if anything, a good 401(k) portfolio performance this year predicts poor performance the following year

In the 2001 Survey of Consumer Finances, among 401(k)- holding households earning between $20,000 and $70,000 a year—a sample roughly comparable to the one we use in our analysis—the median household has gross non-retirement financial assets equal to only 2.1 months of income, 76% of which is held in checking, savings, or money market accounts.21 It is only at the 82nd percentile that households have one year’s income in gross non-retirement financial assets. These figures probably overstate outside asset holdings in our sample because the generosity of our 401(k) plans’ early withdrawal and loan provisions substantially mitigates the need for a precautionary wealth stock outside the 401(k).

We have presented evidence that when there is no salient reference purchase price, individual investors chase their own historical returns and shy away from their own historical return variance. Specifically, we find that investors who experience high returns or low variance in their 401(k) portfolio increase their 401(k) contributions more than workers in the same savings plan who experience low returns and/or high variance. This behavior cannot be accounted for by public news about asset returns, investor fixed effects, wealth effects, or time shocks that are correlated with the tendency to hold equities, bonds, or cash. Moreover, we find no evidence that the return chasing and volatility flight are welfare improving, since 401(k) portfolio performance is not persistent. These results are in sharp contrast to the disposition effect, which induces contrarian behavior when there is a salient reference purchase price. The observed patterns are explained by a naïve reinforcement learning heuristic: assets in  which one has personally experienced success are expected to be successful in the future.

Consistent with reinforcement learning, we also find evidence for the Power Law of Practice: return chasing and volatility avoidance decline with age as a large stock of experience is accumulated, though they remain present throughout the lifecycle.

12/24: Car Insurance- 34% of consumers surveyed by telephone bought a rental car company's insurance just to make sure they were covered.  About 30% of renters at Enterprise Rent-A-Car buy some type of insurance coverage. It was going to cost me $9 per day for my recent trip.


Two popular products sold by car rental companies are the loss (or collision) damage waiver and supplemental liability insurance. The following are the companies' daily rates, which can vary by type of car and rental location.

           Company Loss damage waiver    Supplemental liability insurance

Alamo $10.50-$22.99                           $11.95-$12.95

Avis $9-$35.99                                      $10.95 or $12.95

Budget $9-$35.99                                 $10.95 or $12.95

Dollar $8.95-$34.99                             $8.95-$12.99

Enterprise $10-$15                                $10-$16

Hertz $9-$35.99                                     $10.95-$12.95

National $10.50-$22.99                          $11.95-$12.95

Thrifty $8.95-$34.99 $8.95-$12.99

* I estimate that the costs of the system—the $100 billion annual expenses borne by mutual fund investors; plus those hundreds of billions of dollars of brokerage commissions and investment banking fees; plus all those staggering fees paid to hedge fund managers (the 25th highest paid of whom earned $130 million last year), and those legal and accounting fees, all those marketing and advertising costs, come to something like $530 billion last year, up from a mere $100 billion in 1990.

John Bogle

12/19: Well this will be interesting. I just had a long time client (20+ years)  die and I am the executor on the estate- primarily because she didn't want her two kids screwing up everything. I have to fly to Southern Cal tomorrow evening and stay a few days to start making an inventory. Then go back down after Christmas. Then go back down again, then................

Not a very Merry Christmas, but the plus side is  that she died in her sleep.

A very nice person.

12/19: LTC- at least 90 percent of persons age 45 to 64 are uninsured for long term care. For ages 65 and over, 85 percent are uninsured. The data shows that in recent years there has been basically no significant increase in long term care market penetration.

Only 40 percent of approximately 116 million women are at home and available to provide long term care for an aged parent. At the same time, the “explosive” number of elders over age 65 are living longer with the increasing risk of disability. This is all happening with a diminishing number of LTC facilities to provide their care.

12/19: Housing Starts Decline 3.7%  The housing market, in its deepest rut since the early 1990s, showed little sign of stabilization in November, and economists expect conditions to worsen in the near term.

12/19: Phishing- Some 3.6 million adults lost money in phishing attacks in the 12 months ending in August 2007, as compared with the 2.3 million who did so the year before,. Of consumers who received phishing e-mails in 2007, 3.3% say they lost money because of the attack, compared with 2.3% in 2006. However, the average dollar loss per incident declined to $886 from $1,244 lost on average in 2006 (with a median loss of $200 in 2007), but because there were more victims, $3.2 billion was lost to phishing in 2007, according to surveyed consumers

12/19: Oil prices. Barrons says  that prices are unlikely to fall much below the $70-per-barrel level and will most likely average $85 per barrel, or more, for the next several years as a result of (1) OPEC member countries (which cumulatively represent approximately 40% of world production) continuing to manage volumes to maximize revenue; and (2) emerging-market economies consuming ever more crude oil.

12/19: Billionaires

USA- 320 billionaires  (I am not one of them, in case you were wondering)

Germany 55 billionaires

Russia 53 billionaires

India 43 billionaires

UK 28 billionaires

Turkey 25 billionaires

Canada 23 billionaires

China 20 billionaires

Brazil 20 billionaires

Spain 20 billionaires

Hong Kong 18 billionaires

Australia 16 billionaires

France 15 billionaires

Saudi Arabia 13 billionaires

South Korea 10 billionaires

Sweden 8 billionaires

Taiwan 8 billionaires

Switzerland 8 billionaires

Ukraine 7 billionaires

United Arab Emirates 5 billionaires

Egypt 4 billionaires

Netherlands 4 billionaires

Norway 4 billionaires

Singapore 4 billionaires

South Africa 3 billionaires

Philippines 3 billionaires

Cypress 2 billionaires

Czechoslovakia 2 billionaires

Serbia 2 billionaires

Romania 2 billionaires

12/19: Food  for thought- the world food supply is dwindling rapidly and food prices are soaring to historic levels.

The changes created “a very serious risk that fewer people will be able to get food,” particularly in the developing world.  The agency’s food price index rose by more than 40 percent this year, compared with 9 percent the year before — a rate that was already unacceptable. New figures show that the total cost of food imported by the neediest countries rose 25 percent in the last year, to $107 million. At the same time, reserves of cereals are severely depleted, the agency’s records show. World wheat stores declined 11 percent this year, to the lowest level since 1980. That corresponds with 12 weeks of the world’s total consumption, much less than the average of 18 weeks’ consumption, in storage during the 2000-2005 period.  There are only 8 weeks of corn left, down from 11 weeks in the same five-year period.

12/19: Wanna know why U.S. food is  high and going higher?? The bill in Congress would increase the mandate for renewable fuels to a striking 36 billion gallons by 2022. That is far beyond a requirement on the books now for 7.5 billion gallons of ethanol by 2012.

Ethanol is made from corn and its by products. Farmares are now getting better prices for corn to ethanol than for corn for cattle, pigs and humans.

12/18: Just horrid- (Willima Henry)The new Congressional Budget Office report shows that rising health care costs are the largest driver of the nation’s long-term budget problems. But CBO’s projections also indicate that the costs of making expiring tax cuts — such as those enacted in 2001 and 2003 — permanent without paying for them would be the second largest factor, if policymakers follow that course. In fact, assuming relief from the Alternative Minimum Tax is extended, making the tax cuts permanent without paying for them would account for one-third of the “fiscal gap” (the imbalance between spending and revenues) over the next 50 years.

12/18: Naughty, naughty- bad facts" family limited partnerships. The Court sustained an IRS deficiency of $1,633,049 and Sec. 6662(a) accuracy-related penalty of $92,790.

The decedent, Concetta Rector, was born in 1906, married Jack Rector and was the beneficiary of a marital trust and a bypass trust funded through his estate in 1975. Subsequently, the decedent created a 1991 irrevocable trust and transferred all of the marital trust assets to that trust.

In 1998, when she was age 92, the decedent became a resident of a convalescent hospital and she and her son, John Rector, created the Rector Limited Partnership (RLP). The RLP Agreement listed her as a 2% general partner and 98% limited partner. RLP was funded with virtually all of her assets and held over $8.8 million in liquid investments. The bypass trust from her husband's estate at that time held approximately $2.5 million in assets.

The Tax Court noted that RLP had no business plan, no investment strategy, no investment management, no balance sheets, no income statements, no other financial statements and no formal meetings. Distributions from RLP for its first three years were over 90% to the decedent.

Prior to her demise, the decedent made gifts valued at $595,000 to sons John Rector and Fred Rector. When she passed away, she owned 72.27% of RLP. The estate allocated that percentage of assets to her, claimed a 19% discount for lack of control and lack of marketability and reduced the approximately $8.1 million in assets to $4.8 million in assets for estate tax purposes. The IRS claimed that she held under Sec. 2036(a) a "retained possession or enjoyment" of the assets and included the assets at full value in the estate.

The estate claimed that decedent relinquished enjoyment of the right to income and transferred the assets in a bona fide sale for adequate and full consideration. The Tax Court cited the Estate of Bigelow v. Commissioner, .3d 955 (9th Cir. 2007) and noted that the evidence showed her retained possession. The Court determined that there was indeed an implied agreement that she would have full benefits of the assets and the overwhelming use of the assets was for her benefit.

The estate noted that the bypass trust held $2.5 million in assets. Under that trust, she received income and could have received principal. Therefore, the estate maintained that she was not dependent exclusively on RLP for her medical care and other costs that approached $100,000 the last year of her life. The Court noted that the record indicated that she was indeed depending on RLP for support and that "Trust B was not available in any significant sense" for her living expenses.

Citing Bigelow again, the Court stated that this also was not "a bona fide sale for an adequate and full consideration in money or money's worth." In view of the Court, there was no significant non-tax business purpose for the trust. Finally, because son John Rector was involved in management and held various securities, insurance and financial planning licenses, he was deemed to be financially knowledgeable. Therefore, the Sec. 6662(a) accuracy-related penalty was affirmed."

Planners were touting these things as the best thing since hot water. True,  they can work IF they have a legitimate purpose. Lots of these will fall prey to IRS scrutiny.

12/18: Applicable Federal Rate- The IRS has announced the Applicable Federal Rate (AFR) for December of 2007. The AFR under Sec. 7520 for the month of December will be 5.0%. The rates for November of 5.2% or October of 5.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2007, pooled income funds in existence less than three tax years must use a 4.8% deemed rate of return.

12/18: Risk, Timing and Overoptimism in Private Placements and Public Offerings  We examine whether risk, timing or mispricing hypotheses can explain the underperformance of private and public equity issuers, in Canada, where both categories share several common characteristics. Adding an investment risk factor to the TFPM reduces, but does not eliminate, the underperformance. Four arguments, including financial constraints and poor operating performance, do not support the timing hypothesis. Our results for their part support the mispricing hypothesis. The market correctly assesses the investment projects of value firms, but tends to overestimate those of glamour firms. For both types of issues, the underperformance is explained by investors’ overoptimism relative to glamour/high-investment firms.

12/18: Didja expect to hear anything different- U.S. home-builder index remains at record low for third straight month

Just adorable

12/18: I truly disagree: Alan Greenspan, former chairman of the Federal Reserve, said Sunday that the government should provide direct financial assistance to homeowners who are threatened by foreclosure in the worsening credit crisis. No way. The bulk took a risk- and many committed fraud- so why should they be bailed out. I did not do anything wrong during that time and I should not have to pay for those that did.

I do agree that it might be quicker to solve this problem with a cash grant to homeowners in problems, but the impact on all would linger for decades. Those that foot the bill would never forgive the government for making their own lives worse.  

12/18: Medicare- Figuring out how much you will have to pay for Medicare drug coverage can certainly be confusing. That is because every plan has different costs and a different list of drugs that it covers.

With most plans you pay

a monthly premium. This is the amount you pay each month to have your coverage. You will pay this in addition to your Part B premium.

a deductible. With many plans, you pay 100 percent of your drug costs until they reach a set amount (deductible). The deductible cannot be more than $275 in 2008. Once you reach it, you will pay your plan's copayments for covered drugs. (Some plans may cover some generic drugs during the deductible.)

a copayment or coinsurance for covered drugs. This is what you pay for drugs at the pharmacy. Your plan will only cover medications on its list of covered drugs ("formulary").

After your total drug costs (what you pay and what your plan pays) reach a certain amount ($2,510 in most plans in 2008), you may have to pay the full cost of your drugs until you get catastrophic coverage. Some plans will cover some drugs like generics during the coverage gap and a few do not have a coverage gap (sometimes called the doughnut hole) at all.

With every plan, after you have spent $4,050 out of pocket for covered drugs in 2008, your costs will go down significantly.

12/17: 401k investments  A professional study by the GAO indicating that retirees simply will not have enough money.

GAO’s analysis of 2004 SCF data found that only 36 percent of workers participated in a current DC plan. For all workers with a current or former DC plan, including rolled-over retirement funds, the total median account balance was $22,800. Among workers aged 55 to 64, the median account balance were $50,000, and those aged 60 to 64 had $60,600 (see figure below). Low-income workers had less opportunity to participate in DC plans than the average worker, and when offered an opportunity to participate in a plan, they were less likely to do so. Modest balances might be expected, given the relatively recent prominence of 401(k) plans. 

Projections of DC plan savings over a career for workers born in 1990 indicate that DC plans could on average replace about 22 percent of annualized career earnings at retirement for all workers, but projected “replacement rates” vary widely across income groups and with changes in assumptions. Projections show almost 37 percent of workers reaching retirement with zero plan savings. Projections also show that workers in the lowest income quartile have projected replacement rates of 10.3 percent on average, with 63 percent of these workers having no plan savings at retirement, while highest-income workers have average replacement rates of 34 percent. Assuming that workers offered a plan always participate raises projected overall savings and reduces the number of workers with zero savings substantially, particularly among lower-income workers.

From our analysis of the 2004 SCF, of the 21 percent of households reporting that they had previously received lump-sum distributions from previous jobs’ retirement plans, about 47 percent cashed out all the funds, 4 percent cashed out some of the funds, and 50 percent rolled over all the funds into another retirement account. Low-income workers had the opportunity to participate in DC plans less frequently than the average worker, and when they were offered a plan, they were less likely to do so. As a result, only 8 percent of workers in the lowest income quartile participated in DC plans with their current employer.

12/17: Investor Timing and Fund Distribution Channels This study examines the investment timing performance of equity mutual fund investors and its relationship to the distribution arrangement of the fund. We find that investors who transact through investment professionals using conventional distribution arrangements experience substantially poorer timing performance than investors who purchase pure no-load funds. Investors in all three principal load-carrying retail share classes (A, B, and C) significantly underperform a buy-and-hold strategy. Among all load funds, Class B investors suffer from the poorest cash flow timing, underperforming a buy-and-hold strategy by 2.28% annually, compared with annual underperformance of 0.78% for investors in pure no-load funds. No-load index funds are the only funds found to show no evidence of poor investor timing. Although investors are ultimately responsible for their own investment choices, these findings question the value being added by investment professionals who sell mutual fund shares through conventional distribution arrangements.

Share Classifications

Funds are sorted based on the following functional share classifications:

• Class A shares include any share class with a front-end load.

• Class B shares include any share class with a deferred sales load in excess of 1%.

• Class C shares include any share class with either deferred sales load of 1% or less, or a

12b-1 fee in excess of 0.25%.

• Legal no-load funds have no loads and charge 12b-1 fees greater than 0% but not in

excess of 0.25%.

• Pure no-load funds have no loads and no 12b-1 fees.

Key Findings for Load vs. No-Load Funds

• Investors in load funds and legal no-load funds (funds with no load and a low 12b-1 fee)

experience annual returns that lag the performance of the funds in which they invest by

1.82% and 1.91%, respectively.

• Among all load funds, Class B investors suffer from the poorest cash flow timing,

underperforming a buy-and-hold strategy by 2.28% annually.

• In comparison, investors in pure no-load funds (funds with no commission and no 12b-1

fee) experience an annual performance gap of 0.78%, representing an economically and

statistically significant difference.

12/17: Liquidity preference (Times) What scares the central bankers now is the evaporation of trust from the system. Banks don't believe each other's numbers; since nobody knows the real value of some of the mortgage-backed securities everyone is holding, they assume the worst. They start hoarding cash as a buffer against their own losses and because they're nervous about lending to anyone else.

That's what bankers mean when they talk about lack of liquidity. It isn't so much a shortage of cash as an unwillingness to make it available to others. It was Keynes, again, who coined the term "liquidity preference" to describe a situation in which even high rates of return couldn't persuade frightened investors to commit their cash.

A fresh portrait of this stressed system appeared last week in the latest quarterly report by the Bank of International Settlements. The report noted that net issuance of certain mortgage-backed securities fell to $3 billion in September, compared with $30 billion or more a month in 2005 and 2006. Borrowing in general declined sharply, with the net issuance of bonds and notes in the third quarter less than half that of the previous quarter.

12/16: The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back. The time to look into this is before the shredders have worked their magic - not five years from now.

Those selling the "freeze" have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures. But with fast-depreciating collateral, the last thing investors in mortgage bonds ought to do is put off foreclosures. Rate freezes are at best a tool for delaying the inevitable foreclosures when even the most optimistic forecasters expect home prices to fall. In October, Goldman Sachs issued a report forecasting an incredible 35 to 40 percent drop in California home prices in the coming few years. To minimize losses, a mortgage bondholder would obviously be better off foreclosing on a home before prices plunge.

The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"

The key is to refinance borrowers whose current loans involved fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn't involve fraud.

12/16: Recession- Warren Buffett again warned that the U.S. could fall into recession, if unemployment increases significantly.

12/16: Gack!! The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in November before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The November level of 210.177 (1982-84=100) was 4.3 percent higher than in November 2006.

12/16: This is not an endorsement, just an identification that underwriting for certain risks are possible. And it is different for each company. "Please join The Hartford for an informative look at “Inventive Underwriting". Learn more about The Hartford’s liberalized underwriting for certain breast cancers and prostate cancer, “Enhanced Standard” or Table Shavings, and improved programs for foreign nationals and travelers."

Others may cover alcoholism because of the past experience of the company. For example, one AA member and CEO is willing to do the underwriting better for this risk since he understands the implications. And so forth.

12/16 Recommendations to Customers (Suitability)

(a) In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

(b) Prior to the execution of a transaction recommended to a non-institutional customer, other than transactions with customers where investments are limited to money market mutual funds, a member shall make reasonable efforts to obtain information concerning:

(1) the customer's financial status;

(2) the customer's tax status;

(3) the customer's investment objectives; and

(4) such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer.

(c) For purposes of this Rule, the term "non-institutional customer" shall mean a customer that does not qualify as an "institutional account" under Rule 3110(c)(4).

: That's it. Never expect a broker to understand suitability

12/16: Not good- The Producer Price Index for Finished Goods rose 3.2 percent in November, seasonally  adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This  gain followed increases of 0.1 percent in October and 1.1 percent in September.

That is the biggest gain in 34 years

12/16: Alcohol- Every 31 minutes a life is taken by a DUI.

12/16: And yet another mess by insurance agents- Some insurance sales representatives may be persuading older consumers to take out reverse mortgages and then put the proceeds or other assets into annuities.

About 31% of all of the 345,762 reverse mortgage loans insured in the 21-year history of the reverse mortgage program were issued in fiscal year 2007

Only 1% of older households now have reverse mortgages,

The share of individuals ages 45 and older who have heard of reverse mortgages increased to 70% this year, from 51% in 1999, but consumer interest in the products has declined.

Although long term care finance experts often list reverse mortgages as a possible vehicle for paying for long term care, the share of older consumers who say they are willing to consider getting a reverse mortgage has declined to 14%, from 19%, the AARP analysts report.

12/16: Low Defined Contribution Plan Savings May Pose Challenges to Retirement Security, Especially for Low-Income Workers  GAO’s analysis of 2004 SCF data found that only 36 percent of workers participated in a current DC plan. For all workers with a current or former DC plan, including rolled-over retirement funds, the total median account balance was $22,800. Among workers aged 55 to 64, the median account balance were $50,000, and those aged 60 to 64 had $60,600 (see figure below). Low-income workers had less opportunity to participate in DC plans than the average worker, and when offered an opportunity to participate in a plan, they were less likely to do so. Modest balances might be expected, given the relatively recent prominence of 401(k) plans.

Projections of DC plan savings over a career for workers born in 1990 indicate that DC plans could on average replace about 22 percent of annualized career earnings at retirement for all workers, but projected “replacement rates” vary widely across income groups and with changes in assumptions. Projections show almost 37 percent of workers reaching retirement with zero plan savings.

12/16: FINANCIAL ABUSE OF THE ELDERLY IN CALIFORNIA Good for other  states as well.

Most financial abuse against elderly persons is perpetrated by one individual, usually a family member or other trusted person with access to financial information.2 In contrast, this Article focuses on systemic financial abuse or scams, usually perpetrated by strangers, against numerous elderly people. Special focus will be made on living trust and annuity scams, a volume sales scam that is perhaps the most prevalent form of financial scam. Other scams will also be described and addressed, including Internet fraud, sweepstakes and telemarketing fraud, predatory lending, identity theft, and scams on funerals and burial plots

12/16: Medicare hospital and inpatient costs will be in 2008

12/16: Medicare drug costs will be in 2008,

12/16: costs for Medicare doctors and outpatient services will be in 2008,

12/14: Hiring An Independent  Caregiver (MET LIFE)  Good stuff- see the Caregiver contract. Here are some questions to ask

What is your prior work experience?

Have you worked with people with similar impairments?

• What are your qualifications?

• Do you have a résumé with a detailed work history?

• Do you have references from past positions? Can they be contacted?

Are you bonded?

• Do you have any health restrictions that would limit your ability to do the job?

• Do you own a car and have a valid driver’s license? (This is important if you expect the caregiver to provide transportation for doctor’s visits, etc.).

• Are you able to prepare basic meals?

• Can you commit to the days and hours required?

• Will you submit to a background check and drug test?

12/14: And the hits go on (Times) Wachovia doubled its estimate of loan loss provisions to about $1 billion for the fourth quarter

12/14: Well, this ain't good- The government reported that the deficit for October increased to $57.8 billion as record oil prices and a flood of imports from China swamped another solid gain in U.S. exports.

 We cannot keep doing this. By the same token, I have harped about the inability to no properly fund Medicare and Social Security to no avial so what's the diff????

12/14: Money flow- Central banks in Europe and North America moved on Wednesday to increase the amount of money they could lend to banks and to make it more readily available in an effort to ease the credit squeeze.

The move by the central banks should get more money to banks at interest rates lower than what they would have to pay if they borrowed at the Fed’s discount window. The Fed will auction up to $40 billion in loans to banks at two auctions this month, and undetermined additional amounts at two auctions in January.

Heck, why don't they loan cheap money to all the people who did not by a home with crazy loans. I'll go out and buy stuff


Rates of emergency room visits among older Americans are growing at an alarming rate, and the burden on emergency departments could reach “catastrophic levels” in the next decade.

While researchers found that there was no noticeable change in emergency room visit rates among adults over 75, adults between 65 and 74 saw a 34 percent increase in the usage of emergency care over 10 years—the largest rate increase of any age group covered by the study.

Although emergency room visits increased, hospital admission rates remained unchanged, leading experts to conclude that older Americans are visiting emergency rooms for “real emergencies” and not for lack of access to outpatient care.

The authors concluded that older Americans are resorting to emergency care at greater rates because they are living longer with chronic conditions, they tend to seek emergency care earlier than younger adults, and they are often encouraged by doctors to seek emergency care faster because of liability concerns.

From 1993 to 2003, the rate of emergency care among older African American patients increased by 93 percent; Caucasians saw a 26 percent increase during the same period. The authors attribute disparities to pre-existing differences in disease rates and lower rates of health insurance in younger years, which can complicate chronic illness prior to becoming eligible for Medicare.

If current trends continue, experts fear that the number of emergency room visits among older Americans could double from 6.4 million in 2003 to 11.7 million in 2013, overburdening the already overloaded emergency care system. The authors forewarn that emergency department closures—14 percent of emergency departments closed in the time period studied—compounded with nursing shortages could create a public health disaster if preventive planning does not begin immediately.

12/13: The authors find that stock and bond returns tend to move substantially together during periods of lower stock market uncertainty. However, stock and bond returns tend to exhibit little relation or even a negative relation during periods of high stock market uncertainty.


Mrs. M is enrolled in a Medicare private health plan. A few months ago, she tripped and injured her ankle. Her doctor prescribed a special ankle brace to help her get around the house. When Mrs. M went to get the brace at the medical equipment supplier, she made sure that the supplier billed her Medicare private health plan. The next month, however, Mrs. M got a letter from her plan, stating that it would not pay for the ankle brace.

Mrs. M called the Medicare Rights Center and asked a hotline counselor why the plan would not cover her brace. The counselor explained to Mrs. M that things like ankle braces are usually considered Durable Medical Equipment, or DME, and are covered under Medicare Part B when obtained from a supplier who is enrolled in Medicare. However, if you are in a Medicare private health plan, your plan may also require you to go to a DME supplier in the plan’s network, or get prior authorization to have your DME covered. Together, Mrs. M and the MRC counselor called her plan and found out that the plan requires members to use DME suppliers in the plan’s network. While the DME supplier Mrs. M used was enrolled in Medicare, it was not a part of the plan’s network.

The counselor explained that Mrs. M is responsible for the full cost of the brace and advised her to always remember to check with the plan to make sure that she chooses an in-network provider, whether it be for DME, home health or any type of service. Mrs. M decided to switch back to Original Medicare during the Annual Coordinated Election Period (November 15-December 31 each year), so that she could go to any Medicare-enrolled provider without having to worry about a plan’s network.

* The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.


An alarming number of nursing home patients are receiving antipsychotic medications to sedate them or suppress disruptive behavior associated with dementia, even though the drugs are not approved for these uses.

Nearly one-third of nursing home patients are on antipsychotic drugs, with a full 21 percent of occupants on the drugs without a diagnosis of psychosis. Some states are finding medication rates as high as 60 or 70 percent in local institutions.

Drug companies producing the most widely used antipsychotics—newer drugs called atypical antipsychotics—are reaping record profits, raking in nearly $12 billion in the past year. Federal reimbursements through Medicaid accounted for almost half the revenue—$5.4 billion in 2005—before the Part D drug benefit supplanted Medicaid coverage for people with Medicare and Medicaid in 2006. While 2006 profits were derived from a total of 45.4 million prescriptions, the illnesses these drugs were developed to treat, schizophrenia and bipolar disorder, afflict only seven million Americans.

Federal and state regulatory authorities have begun scrutinizing the widespread use of atypical antipsychotics in nursing homes, through intensifying inspections of appropriate medication usage and readily citing nursing homes that overmedicate residents. The Centers for Medicare & Medicaid Services (CMS) recently initiated a process to administer “appropriate use of medicine,” resulting in a 50 percent increase in the number of nursing home inspections that produced drug violations in the past three years.

The American Association for Geriatric Psychiatry told the Wall Street Journal that atypical antipsychotics are not effective treatments for dementia. “We know the more staffing there is and the higher quality of care, the less antipsychotic usage,”

Well, duh!. Of course more care would work. More care would cure about everything. But the U.S. does not have the money so it will just suck to get old. I figure unless I get lucky, I may die badly like most people.

12/12: 0.25% and the market tanks: I don't know what the consumer wants. They caused a lot of this mess and the FED has been receptive to dropping rates. But inflation is also getting worse. It's a very fine line.

All that said, I figured some time ago for a recession. I still think I am 'right'.    

12/12: What is a Charging Order? (John Dietz, CAPP)

Charging Order is an order obtained from a court or judge by a judgment creditor, by which the property of the judgment debtor is held against the partner’s right to distribution from the entity. The Uniform Partnership Act and LLC Act describe the charging order as “in the nature of a garnishment” from a business. A Charging Order may be analogous to a garnishment because it is an assignment of the partner’s economic right to distribution from the partnership.

The rationale behind Charging Orders came from historical remedies to punish debtors. In the 1800s a simple remedy was to punish debtors by having a law enforcement agency of the church or the town simply close the company down, even if one partner was at fault and the others had no judgment. Eventually the non-debtor partners got wise and began to protect themselves with legal remedies from the liability of their partners and file in court for remedies against the violation of their rights. It may sound confusing or unreal, but this is a natural cycle in law.

To protect the non-debtor partners from the creditor of the debtor-partner it was necessary to keep the creditor from seizing partnership assets (which was also in line with the developing perception of partnerships as legal entities and not simple aggregates of partners) and to keep the creditor out of partnership affairs.

These complicated questions face the courts when remedying these types of judgment.

What happens if a judgment is obtained against a partner, but not the partnership?

What happens if the judgment closes the company down?

What if there is another remedy besides the remedy to close the company?

Is it fair against to punish the non-debtor partners who have no judgment against them?

Should the courts permit involuntary dissolution of the company?

A judicial dissolution threat would either force a sale of the entity's assets or require the other members to purchase the interest from the foreclosure and purchasing creditor. Either would be highly disruptive to the successful continuation of the LLCs business and represent a serious impediment to the use of the LLC entity form. Moreover, the eventuality of judicial dissolution would represent a serious threat to “Asset Protection” goals of using an entity's separate existence to insulate personal assets from the reach of that member's creditors.

A CHARGING ORDER defines CREDITOR as a substituted Limited Partner for tax purposes an LLC.

The concern is that the rights transferred (the transferee rights) are only economic rights and not management rights and that the transferee has not rights to petition the court for dissolution of the LLC. However, creditors are currently lobbying Congress to revise the Uniform Limited Liability Company Act to abolish the flexible role of the “fiduciary” in Operating Agreements to abolish the ability to “eliminate fiduciary duties” within the LLC.

Those opposed to these changes site reasons of strain on the Full Faith and Credit Act, the differences between states on fiduciary responsibilities and contract obligations and the difference between each state’s individual drafting of LLC versus the Uniform Code Law.

In the future, it is likely that the courts will develop a “reasonable test” for Charging Orders. This will likely mean that if you want to negate your fiduciary responsibilities by contract, you would have to choose other Asset Protection options or combine your options because the courts would not permit the abatement of fiduciary responsibility. This approach is contrary to some states such as Delaware and Nevada, where fiduciary responsibility is easily abated or diminished by contract clauses in the Operating Agreement.

Remember that state law does not necessarily dominate law; public policy does.

12/12: Paradise California, A cease and desist insurance agent, life settlements and a bunch of greedy old broads. From a broker who was trying to find answers on a life settlement fraud. He had a 80 year old client that was approached at her church to buy an insurance policy. She was paid $10,000. This was the setup- she made $25,000 annually and had an estate that might push $600,000. He had her sign a form that she was making $90,000 annually and needed a $2,500,000 policy for estate purposes. The company never bothered to do any checking and accepted the coverage. The 'investors' paid the first $90,000 annual premium. The broker was a friend and contacted her and her kids to do some checking. There was fraud all over the place (obviously) with signatures and so on. He made the valid point that the insurance company would come back for fraud and catch her into all sorts of problems (true if during the two years incontestability period). They wanted out. They brought the agent in- he had been under a ceases and desist five years ago for doing the same thing but just started up again under a new name. He saad that he really didn't know what was going on- his partner did all the paper work. The broker filed with the California Department of Insurance. We'll see what happens.

But this agent also did the same thing with 7 other older ladies at the church. When the broker contacted them and told them of the problem, they said they didn't care since they already had gotten their money.  So much for church teachings. But if they get caught, they will just plead ignorance and undoubtedly get away with knowing what they were doing simply because they are old and "didn't know any better". Yes they did. They just wanted the money. The heck with honesty, integrity- the odd stuff the church taught them every week for years and years and years.

12/11: More children will be trapped by the dreaded "kiddie tax" this year. The "kiddie tax" is a tax on children's unearned investment income or capital gains. To prevent parents from transferring highly appreciated investments to their children who are in lower tax brackets, children under 19 or full-time students under 24 will owe taxes on unearned income at their parents' higher tax rates as of 2008 under the Small Business and Work Opportunity Act of 2007. The expanded kiddie tax now makes uniform gifts to minors' accounts and uniform transfers to minors' accounts a poor choice for college savings. "Instead, 529 college savings accounts provide tax-free growth on contributions, allowing families to reduce their exposure to income and capital gains taxes," they wrote in the newsletter. Expenses that qualify as being for education can be withdrawn tax-free. Unlike UGMA and UTMA accounts, the college savings accounts are owned by the parent.

12/10: I have harped on this for years- to no avail. Here is commentary from NY Times- Because of our inability to talk sensibly about taxes, the United States has been sliding toward second-class status in the world economy. Our national debt, for example, has increased by more than $3 trillion since 2002. Once the world’s largest creditor nation, we are now its largest debtor. We are currently borrowing more than $800 billion a year from the Chinese, Japanese, South Koreans and others — loans that will have to be repaid in full with interest. These imbalances have sent the dollar plummeting.

The situation is set to become worse. On the current trajectory, the national debt will rise an additional $5 trillion over the next decade. The retirement of baby boomers will require additional revenue to cover growing deficits in the Social Security and Medicare programs.

The next president- REpublican, Democrat or small furry animal party- will have to raise taxes, if just to keep Medicare. There can b e NO national health care program because the U.S. has no money and is inept in its budgeting. Second class status is well deserved. The financial mess is completely moronic and brought about by greedy stupid people- politicians and the people that support the pork barrel spending.

12/10: This is an actual professional study. Exact prediction of S&P 500 returns A linear link between S&P 500 return and the change rate of the number of nine-year-olds in the USA has been found. The return is represented by a sum of monthly returns during previous twelve months. The change rate of the specific age population is represented by moving averages. The period between January 1990 and December 2003 is described by monthly population intercensal estimates as provided by the US Census Bureau. Four years before 1990 are described using the estimates of the number of 17 year-olds shifted 8 years back. The prediction of S&P 500 returns for the months after 2003, including those beyond 2007, are obtained using the number of 3 year-olds between 1990 and 2003 shifted by 6 years ahead and quarterly estimates of real GDP per capita. A prediction is available for the period beyond 2007. There are two sharp drops in the predicted returns - in 2007 and 2009, and one strong rally in 2008. Equivalently, S&P 500 index should drop in 2007 and 2009 to the level observed one year before. Potential link between S&P 500 returns and 9-year-old population is tested for cointegration. The Engle-Granger and Johansen tests demonstrate the presence of a long-term equilibrium (cointegrating) relation between these variables. This makes valid standard statistical estimates. Correlation between the predicted and observed indices, including RMS difference, linear regression, and VAR demonstrate good prediction accuracy at two-year horizon, when the prediction uses 7-year-olds instead of 9-year-olds. The RMS difference between the observed and predicted returns for the period between 1992 and 2003 is only 0.09 with standard deviation of the observed series for the same period of 0.12 and the naïve (random walk) RMS deference of 0.18.

I am sure it worked for the time frame indicated. But maybe the statistics on green salamanders in Ethiopia with hoof and mouth disease  would work as well. Caution advised.  

12/10: Recession and rebalancing- NY Times- Since 1945, the Standard & Poor’s 500-stock index has tumbled nearly 26 percent, on average, in the periods leading up to and during recessions. Worse, equity investors have had few places to hide during these downturns, as virtually every sector of the market has lost ground, on average, during the last 11 recessions

12/10: So much for $4.00 gallon- (Times) The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market. Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.

Indonesia has already made this flip. By some projections, the same thing could happen within five years to Mexico, the No. 2 source of foreign oil for the United States, and soon after that to Iran, the world’s fourth-largest exporter.

Rising internal demand may offset 40 percent of the increase in Saudi oil production between now and 2010, while more than half the projected decline in Iranian exports will be caused by internal consumption.

The report said “soaring internal rates of oil consumption” in Russia, in Mexico and in member states of the Organization of the Petroleum Exporting Countries would reduce crude exports as much as 2.5 million barrels a day by the end of the decade.

That is about 3 percent of global oil demand. It may not sound high, but experts say demand for oil is so inflexible, and the world has so little spare production capacity, that even small shortfalls can raise prices. In 2002, when a labor strike in Venezuela took 3 percent of global production off line, oil prices spiked 26 percent within weeks.

12/9: Economics for marketing revisited  This paper aims to provide evidence supporting the following: that recent theoretical, empirical and methodological advances in microeconomics are decisive to the progress of marketing science. That such a notion is not yet mainstream and uncontroversial, we contend, is more due to insufficient knowledge dissemination and outdated perceptions about irreconcilable differences between economists and psychologists than to lack of intrinsic value or cognitive appeal. Evidence is provided by describing these advances in a concise manner, showing how they can contribute to tackle complex marketing issues and providing examples from published matter in which this contribution already takes place. (oy!)

12/9: Oil prices: OPEC officials appear ready to defend prices somewhere between $50 and $100 aware that higher prices do not necessarily send the world economy into recession. For American drivers, the implication is that gasoline could stay near or above $3 a gallon for a (very) long time. It's just under $90/barrel now.

I still think we could see $4.00 per gallon by the end of next year

12/9: Qualifying teaser rates- I do understand some governmental interference because it is politically palatable. But the freezing of rates will simply cause other lenders to raise rates for regular buyers.

Sure they do not call it a bailout. But it hurts others.

12/9: ILIT and Breach of Duty- Here is a formal report on the breaches of duty in regards to most life insurance policies inside an Irrevocable Life INsurance Trust

12/6: Productivity in the nonfarm business sector increased at a 6.3% annual rate in the quarter. Unit labor costs fall 2% in third quarter, signaling low wage inflation

12/5: Deceased Do Not Contact list Many marketers prey on surviving spouses, especially during the early days and weeks following the death of their loved one. They scour obituaries to find their targets ... easy marks (victims) who can be convinced to buy things they would never buy during less stressful times.

To stop these predators, the Direct Marketing Association (DMA) has created a Deceased Do Not Contact list. When a deceased person has been registered with that list, the person's name, address, phone number and e-mail address is placed on a special do not contact file. All DMA members are required to permanently eliminate these individuals from all of their mailing, email, and telemarketing lists. However, be patient; it can take about 3 months before the number of phone calls and mail decreases.

121/5: Designation Toolkit - For several years The American College has been calling attention to the issue of "rogue designations" -- those that result from weekend seminars or simplified courses without the rigorous studying that is required to gain full mastery of a particular topic. While some of these programs may provide valuable education, they should not be confused with in-depth designations and certificates such as those supported by The American College and other accredited institutions. State regulators and the U.S. Senate are now becoming concerned about this same issue, and The American College is providing support and counsel in this process.

I still have a problem with designations anyway. Get someone with a planning degree.

12/5: Canada interest rates: The Bank of Canada cut its key interest rate today by a quarter-point, to 4.25 percent, citing concerns about the global effect of the subprime loan crisis in the United States. While made for other reasons, the move may provide some relief for exporters that have been suffering from the recent sharp rise in the Canadian dollar.

But, then again, who cares about Canada.

Australia holds key interest rate at 6.75%

12/5: Out intelligence agencies at large. Took four years to find out that Iran was not building bombs?? Four years?? No wonder most countries said that Iraq had weapons of mass destruction. They just aren't that bright.

Hard to believe though. Billions of dollars of all sorts of sophisticated eavesdropping equipment and it took FOUR YEARS!!!

12/5: This is not so much about the case but about Life Partners and the difficulty of consumers in the viatical and life settlement field.

The U.S. Supreme Court declined Monday to hear a case that could have challenged the extent to which states can regulate life settlements.

The court’s move effectively let an appellate court decision in favor of the states to stand.

The 4th U.S. Circuit Appeal Court in Richmond, Va., had ruled on the case earlier this year, finding that states have the power to regulate life settlements and viaticals under language in the McCarran-Ferguson Act giving the states authority over businesses that “relate to” insurance.

In the case, Life Partners Inc. vs. Morrison, 07-261, a resident of Virginia had filed a complaint with the State Corporation Commission contending that Life Partners Inc., Waco, Texas, had not paid her enough for her policy under state law.

According to a decision written by Judge Paul Niemeyer, the policyholder, referred to as Jane Doe, contracted with Ideal Settlements Inc. of New Jersey to bring a policy into the secondary market, and ultimately to sell it to Life Partners. After rejecting two offers, Doe accepted a bid from Life Partners for $29,900, which represented 26% of the face value of the $115,000 policy.

However, Virginia law requires that viators receive certain percentages of the policy’s face value based on their life expectancy, and under that law Doe should have received as much as 60% to 70% of the face value, Doe contends.

Five months after the transaction was completed, Doe contacted Life Partners to demand more money, Niemeyer writes.

Life Partners offered to rescind the transaction, but Doe refused that offer and instead filed a complaint with the state.

As a result of the complaint, the Virginia State Corporation Commission issued a “show cause” order to Life Partners asking why it was conducting business in the state without having obtained a license and warning that if it did not comply with Virginia regulations, the company would be barred from transactions with state residents.

Life Partners challenged the order, claiming that the order violated the commerce clause of the Constitution by asserting jurisdiction over all transactions involving Virginia viators. The state countered that its law was appropriate under the McCarran-Ferguson Act.

A district court ruled against Life Partners while declining to rule on the McCarran-Ferguson question raised by the state. The decision was appealed by both parties, and the appellate court upheld the earlier decision on the commerce clause while agreeing with the state’s arguments on the issue of McCarran-Ferguson.

12/5: Subprime- About two million people have subprime mortgages with monthly payments that are likely to jump sharply in the next year or so as their introductory teaser rates expire.

Analysts estimate that payments on many subprime mortgages will increase 30 percent or more.

Just gonna be a real big mess. Recession at least about 50%

12/5: When A Parent Passes Away —

When one of your parents passes away, your surviving parent will be alone, often for the first time in a very long time. If your parents enjoyed a long and loving relationship, your surviving mother or father may experience a deep, pervasive loneliness despite your best efforts to cheer them up.

Grieving is a normal process of disengaging from their comfortable past, and preparing to move on with their life as a single adult. Regardless of how close you are to your surviving parent, you will never be an adequate replacement for the loved one the lost. Your role is simply to be there for them, to help them through the process, to act as their advisor IF they ask for advice, to be the shoulder they can cry on, and to give a reassuring hug whenever appropriate.

The grieving process usually lasts six to twelve months. If it is still going on after a year, and your parent shows few signs of rejoining the world, professional help may be appropriate. Professional help may also be needed if your parent shows signs of pervasive depression during the first twelve months. There is nothing wrong with that. And, it is important that your parent understands the fact that no one will think any less of them for seeking professional help during their extraordinarily difficult recovery period.

Here are a variety of things your mother or father can do for a successful transition:

Find an activity they enjoy, preferably one they like to do and ideally gives them the opportunity to meet a lot of people and make new friends. For example: join a church group, women's club, or poker group; take adult classes in a subject they may have put off earlier in their life; and/or join an exercise group.

If they like animals, volunteer at a local animal shelter. If they don't have a pet, getting a dog or cat could be a great source of companionship.

Help others through community service. Volunteer work can give them a source of pride, helping them feel better about themself, and can develop enduring friendships.

The important thing is that they do something constructive. Sitting around doing nothing will not make things better. Both you and they should take things one day at a time and stay committed to moving on with their life.

12/4: The average cost of nursing home care was about 3% higher this year than in 2006, while home health care costs were up 12%, New York Life Insurance Company reports.

The average cost of a private U.S. nursing home room with a single occupant climbed to $209 a day, or $76,322 per year, according to New York Life, New York.

CareScout, a research arm of National Eldercare Referral Systems Inc., Wellesley, Mass., compiled the figures for New York Life by gathering data from about 3,000 nursing homes in 120 metropolitan areas.

The average private room rate increased by $5.36 per day, or $1,956 per year.

The cost of a semiprivate room, with double occupancy, rose to an average of $185 a day, or $67,554 a year.

The average semi-private room rate rose by $5.27 per day, or $1,924 per year.

The hourly rate for a home health aide hired from a Medicare-certified agency is averaging $37.36 per hour, up about 12%, New York Life reports.

According to the study, the highest daily rates for private nursing home rooms in the U.S. were:

1. Alaska: $407.

2. Southern Connecticut: $348.

3. Connecticut Valley: $322.

4. Hudson Valley, New York: $318.

5. Boston area: $299.

12/4: Goldman Sachs REALLY has a bad commentary on the economy-  The housing slump has increased the chance of a U.S. recession and will further weaken home prices, Goldman Sachs Group Inc (GS: Charts, News, Offers) said on Tuesday, cutting its stock recommendations on a slew of companies vulnerable to sluggish growth. In a grim assessment of the U.S. economy's health, the investment bank said the Federal Reserve will have to cut its lending rate to banks by 1-1/2 percentage points to 3 percent in the next six to nine months to avert a recession. Weakness in construction and consumption will likely shave 2 percentage points from real U.S. economic growth in 2008, and will likely increase the unemployment rate to 5.5 percent from the current 4.7 percent.

I mean, you really have to think things are black when you state the FED will have to drop rates that much. If they have to do that, kiss much of the U.S. economy good bye. It will kill the dollar.

12/3: 64% of black college students are women.

12/3: 2008 Real Estate- (Times) “Uncertainty and challenges characterize 2008, with greater downside risk than real estate markets have faced in close to two decades.

78 percent said they expected underwriting standards for commercial and multifamily mortgages to be more stringent in 2008, compared with 70 percent surveyed last year and just 37 percent in 2005.

In late November, Moody’s Investors Service reported that commercial property values nationwide declined by 1.2 percent in September.

Given the likelihood of a slowdown in consumer spending, the respondents were most concerned about the retail sector. In particular, many older second- and third-tier malls in suburban areas and smaller cities are rapidly becoming obsolete, while a lot of new supply is coming next year. A traditional stronghold has been shopping centers anchored by a big grocery store, which tend to be more resistant to downturns.

* The cost of raising a medium-size dog to the age of eleven: $ 16,400

12/3: Buy, buy, buy:  (Barrons) A study from 1003 though 2002 shows that sell side analysts gave neutral to positive ratings 95.4% of the time. In other words, the sell side recommended that a stock only be sold 4.5% of the time.

12/3: Couldn't keep it in his pants. The CEO of the Red Cross, married, had to leave when he acknowledged he had an affair with a colleague and got her pregnant. He is the fourth CEO to have to leave the Red Cross in the last six years.


12/2: Real estate never goes down, eh??? New home prices: Worst drop in 37 years Also depressing sales and prices was a record 191,000 completed new homes on the market that have not yet been sold.

The report showed that the median price of a new home sold in October plunged 13 percent from year-earlier levels to $217,800. It was most severe year-over-year drop since September 1970, when the median price was only $22,600, or less than the cost of a typical new car purchase today.

12/2: The FED may lower rates. Just a short time ago, the FED said it was probably through lowering rates. But the economics are so bad that Bernanke noted, "The fresh wave of investor concern has contributed in recent weeks to a decline in equity values, a widening of risk spreads for many credit products (not only those related to housing), and increased short-term funding pressures. These developments have resulted in a further tightening in financial conditions, which has the potential to impose additional restraint on activity in housing markets and in other credit-sensitive sectors."

12/2: Insurance terms (Bruce Gordon) Of course, technically we don't call them flexible premiums because frequently they are not flexible-or, at least, not if the policyholder wants to keep the policy in force. Instead, we use names like "target premiums," "minimum premiums," "guideline annual premiums," "guideline single premiums," and "seven-pay premiums." Some of these also can be "guaranteed premiums" and "non-guaranteed premiums." We can even select or solve for "specified premiums."]

Usually, none of these terms is synonymous, although sometimes, under some circumstances, they can be. I guess "flexible" is meant to be an admonition regarding the prospective buyer's overall attitude and attempt at understanding.

"Target premium" is usually the premium most frequently quoted. However, it usually is only the level of premium upon which the agent receives full commissions. That's probably why it is most frequently quoted. But, that's a relationship better left "bundled" to avoid any confusion.

There is also an initial "minimum" premium, which is the premium actuarially determined to meet all the initially required expenses and fund the initial surrender charge.

This, of course, differs from the real minimum premium, which is the amount required to keep the policy in force, longer term, under a given set of performance assumptions. But, the National Association of Insurance Commissioners conceived its new, consumer friendly, multi-page required proposal format to help mitigate this confusion.

And, then there are the government's defined premiums, which are really "maximum" premiums.

However, since it is still a "flexible premium" policy, you can always pay more than these maximums-if you are willing to give up some of the benefits of a "flexible premium, adjustable benefit, whole life policy." That must be the "adjustable benefit" aspect, right?

Then, there are the "cost of insurance" charges, which usually cover more than just the cost of the term insurance. These should not be confused with term insurance premiums that might be paid for a separate term insurance policy (which probably is really a "term-like" "graded premium whole life" insurance policy, but that's the subject of another article).

In fact, they are probably not even closely similar rates. Does that mean the probability of dying is dependent upon policy type?

And with universal life, the amount of insurance that the COI pays for is called the "net amount at risk," which is different from the "specified amount," which is the amount of insurance originally purchased. This is the kind of stuff that makes advertising copywriters cringe.

Similarly, "cash value" is usually only that portion of the "policy value" that can be borrowed or withdrawn, although the latter is usually referred to as a "partial surrender" (probably so as not to be confused with a "full surrender").

Meanwhile, "Partial surrender" returns part of the cash value to the policyholder, while a "full surrender" returns the policy to the insurance company, right?


12/2: Global Equity Indexes:  Excellent statistics

12/2: Subprime loans (I think this is a bailout. I may actually be necessary to avoid an economic calamity but it nonetheless is a bailout ) The Treasury Department is leaning on the nation’s biggest subprime mortgage lenders to help at least some of their borrowers avoid foreclosure by persuading major mortgage lenders to agree to a temporary freeze on the low introductory rates on subprime loans for many of their customers.

Within the industry, much of the struggle is between the original mortgage lenders and the investment funds around the world that hold mortgage-backed securities. Many lenders have been willing to offer temporary freezes, but many investment funds and Wall Street firms that package mortgages into securities are reluctant.

Industry analysts estimate that about two million subprime borrowers — typically people who have weak credit scores and pay higher interest rates — face a jump of at least 30 percent in monthly payments as their introductory rates expire in the next year or so.

Federal officials predict that about 500,000 of those borrowers will lose their homes, but many experts think the number of foreclosures could be significantly higher.

11/29: Housing has fallen for 8 months in a row. Look for many more.

11/29: Durable financial power of attorney. (WSJ) This legal document authorizes an agent -- usually a spouse, another family member, or a trusted adviser -- to make financial decisions if you become unable to make them yourself. But naming someone to take control over your money has the potential for serious abuse, and lawyers are increasingly devising strategies to help safeguard their clients.

Among the tactics: Lawyers are including provisions requiring regular accounting statements from agents. They also are naming co-agents who can serve as checks on each other, or naming a supervisor who has the power to fire an agent.

11/29: REcession: Credit Suisse says it's a "close call" whether the U.S. economy can avoid recession in 2008. They expect the Federal Reserve to cut interest rates by another full percentage point by the end of 2008 to 3.5%. Earlier, the they had seen the Fed raising rates to 5% by then. The economy has weathered two shocks very well -- the housing bust and the subprime collapse. But a third shock in the financial system is now under way, said Neal Soss, chief U.S. economist for the bank. "A whole class of financial structuring seems to have fallen out of favor. Balance sheets across the financial system seem to be rushing headlong toward more conservative configurations,"

11/28: Retirement plans (Diversified Investment Advisors) , 62% of corporate plan sponsors implemented or are currently implementing automatic enrollment, a 7% increase over last year, and another 30% reported they are considering making automatic enrollment part of their plan. Twice as many plan sponsors (30% versus 15% in 2006) have or are currently implementing automatic deferral increases, and more are offering managed accounts (37% in 2007 versus 32% in 2006). Seventy-six percent of employers offer at least one defined benefit plan, with 70% of those offering a traditional pension plan, but roughly one in four plan sponsors is planning to freeze their DB plan within the next 12 months; almost as many say they will reduce plan benefits, and another 14% plan to terminate their DB plan altogether.

11/28: Do Financial Literacy and Mistrust Affect 401(k) Participation?  Yes

Don't really need to say more but click to the excellent article.

11/28: Well, duh!! U.S. consumer confidence weakens in November; concerns about future highlighted

11/28: An Email on a great annuity  

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11/27: Officer deaths- there has been a 30% increase in police murders  since 2006.

11/27: How do I compare Medicare private drug plans?

11/127: Consumer spending- Over all, retail sales growth this season is predicted to be the weakest since 2002, with spending pinched by rising energy costs, falling home prices and a tight credit market.

11/26:  From a reader- Co-worker just passed her series 7 test, is about to quit the sheriff's  department and is working for an outfit called Tax Shelter America. She has "0" formal or self taught education in Finance. Yet she convinced at least 10-15 co-workers getting ready to retire to take their Florida Retirement System pensions lump sum and invest with her firm in variable annuities. These people just handed over their money because they trust her. Each lump sum is around $800k-$1 million. She claims they can draw 7% annually which is a higher amount than their pension (but the pension has a 3% annual cola). I am sure the fees are pretty stiff. Not one of them knows how their money is invested or how much they are shelling out in fees. I sent them links to the Trinity Study and no one replied. If we get a prolonged bear market or even a flat market, their money might run out a lot sooner than   they think. They'll end up in some newspaper article about people who lost money in the stock market and have to go back to work. You can't teach common sense.

The crazy thing is how quickly & easily she managed to talk so many people into handing over their life savings to her, having no experience and education in money management."

EFM- 7% withdrawal, eh? Giving up a guaranteed 3% COLA??? Just how stupid can these people be?? Apparently pretty stupid. So what happens when they lose their money? Do we get all their money back and make them whole gain. And stupid again??

No. They have to pay something for doing nothing to protect themselves.

11/26: How bad could things get? (NY Times) Pretty bad, say many economists. Not so bad that your grandfather’s prescriptions for enduring the Great Depression need dusting off, but nasty enough to force many Americans to get reacquainted with living within their means. That could make life uncomfortable. It may also be an unavoidable step toward purging the United States and the global economy of a major source of instability — an unhealthy dependence on the willingness of American consumers to keep buying even as debt mounts. Concerns that Americans must eventually grow thrifty, leaving factories from Guangzhou to Guatemala City scrambling for buyers, now sows unease around the world.

I think the consumer will not be able to continue spending. The cost of gas and the inability to get any more out of their home will deter the economy form going forward.

11/25: Prevalence of Regular Physical Activity Among Adults --- United States, 2001 and 2005 To examine changes in the prevalence of regular, leisure-time, physical activity from 2001 to 2005, CDC analyzed data from the Behavioral Risk Factor Surveillance System (BRFSS). This report summarizes the results of that analysis, which indicated that, from 2001 to 2005, the prevalence of regular physical activity increased 8.6% among women overall (from 43.0% to 46.7%) and 3.5% among men (from 48.0% to 49.7%). In addition, the prevalence of regular physical activity increased 15.0% (from 31.4% to 36.1%) among non-Hispanic black women and 12.4% (from 40.3% to 45.3%) among non-Hispanic black men, slightly narrowing previous racial disparities when compared with increases of 7.8% (from 46.0% to 49.6%) for white women and 3.4% (from 50.6% to 52.3%) for white men, respectively.

In addition to the racial/ethnic disparities, disparities in education also were observed. In 2001 and 2005, increasing education level was associated with increased prevalence of regular physical activity in both men and women. In 2005, 54.6% of men and 53.3% of women who were college graduates engaged in regular physical activity, compared with 37.2% of men and 37.1% of women with less than a high school education.


11/25: Life Settlement Survey 2006:

82% said they had never done one.

5% had completed one transaction.

8% had completed 2-5 transactions.

3% had completed 6-10 transactions.

And 2% had completed 11 or more.


70% said they had never done one.

8% had completed one transaction.

13% had completed 2-5 transactions.

5% had completed 6-10 transactions.

6% had completed 11 or more.

11/25: Stranger Owned Life Insurance- STOLI is “a practice or plan to initiate a life insurance policy for the benefit of a third party investor who at the time of policy origination has no insurable interest in the insured,” according to the text of the definition.

“STOLI practices include but are not limited to cases where life insurance is purchased with resources or guarantees from or through a person, or entity, who at the time of policy inception, could not lawfully initiate the policy themselves, and where, at the time of inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy and/or the policy benefits to a third party,” according to the definition text.

The definition offered by Hudgens also includes a provision dealing with use of trust arrangements to obtain STOLI.

“Trusts that are created to give the appearance of insurable interest, and are used to initiate policies for investors, violate insurable interest laws and the prohibition against wagering on life,”

11/25: Larry King's formal court filing for $25 million life settlement scam Even the rich can be real stupid.

11/21: Told ya: The Federal Reserve expects economic growth to slow sharply next year, and policy makers there are worried that even this forecast may prove too optimistic. Fed officials have signaled in recent speeches that they do not want to cut rates anytime soon, saying their cuts in September and October would be enough to keep the economy out of recession.

Indeed, many of them were already uneasy about their last cut in the benchmark federal funds rate on Oct. 31, to 4.5 percent from 4.75 percent. According to the minutes of that meeting, Fed bankers saw that decision as a “close call.”.

The “central tendency” of policy makers’ individual forecasts calls for economic growth in 2008 of 1.8 percent to 2.5 percent. Growth in 2007 is expected to be 2.4 percent to 2.5 percent.

As a group, the Fed policy makers expect “subpar economic growth” over the next year. They also predict that unemployment will edge up to as much as 5 percent next year, compared with about 4.7 percent today.

But the new report shows that they are much more worried that the downturn in housing and the problems in mortgage markets could cut deeper into the overall economy.

The new forecasts predict that inflation will range from 1.5 to 2 percent in 2008 and 2009.

11/21: Overcoming Biases to Promote Wise Investing, http://www.finrafoundation.org/Princeton_Bias%20and%20Investing%20Report_8.2.07.pdf.

11/21: FDIC: (WSJ) Bank failures are rare: Of 8,600 banks insured by the FDIC, only two have failed this year -- Internet-only savings and loan NetBank and Metropolitan Savings Bank of Pittsburgh.

The FDIC says "historically" depositors are paid -- up to the insurance limit -- within a few days after a bank closes, usually the next business day. Depositors can access the funds by opening an account at another bank or by receiving a check for principal and interest.

Generally, checking and savings accounts, money-market deposit accounts and certificates of deposit are insured by the FDIC up to a limit of $100,000 per depositor, per FDIC-insured bank.

If a consumer has $100,000 in a savings account at one bank and a $100,000 in a money-market account at another, the depositor is covered for the full $200,000. If the two accounts were with a single bank, only $100,000 would be insured.

If savings are held in a joint account, each account holder is separately insured up to $100,000; your half counts toward your $100,000 limit at that bank.

Retirement accounts are also insured at FDIC-insured banks, including individual retirement accounts, Roth IRAs, Simplified Employee Pension (SEP) IRAs, Savings Incentive Match Plan for Employees (SIMPLE) IRAs, certain deferred compensation plan accounts, self-directed defined contribution plan accounts, and self-directed Keogh plan accounts.

All your retirement accounts at the same insured bank are combined and the total is insured up to $250,000 -- above and beyond any insured nonretirement accounts at the same bank.

Deposits in revocable trust accounts -- payable-on-death accounts and living trusts -- are also insured at FDIC-insured banks. Under certain conditions, each beneficiary of the account is separately insured up to $100,000. But these accounts can be complex beasts, and so the agency recommends that account owners call (877) 275-3342 to determine who and what is covered.

11/21: More- Minneapolis Federal Reserve Bank President Gary Stern said on Monday he expected the U.S. housing market to weaken further because of a large pool of unsold homes. But employment and incomes were still rising, Stern said, and that would underpin consumption. The adjustment in the housing market has still some way to go. The reason I say that is because of the huge inventory of unsold homes,.

"I would expect new home building to remain quite constrained. It is also true foreclosures will go up rather than down over the next several quarters


11/20: What is Behavioural Economics Like? Behavioural Economics’ milestones, Endowment Effect and Loss Aversion, have been recognized as ‘well documented,’ ‘robust,’ and ‘important’ even by the critics. But well documented, robust, and important what? Are these stylized facts, theoretical constructs, or psychological truths? Do they express genuine preferences or are they judgement mistakes? We discuss the problems with the nature of these claims in the lights of the goals of Behavioural Economics: to improve economics’ realisticness and to be considered mainstream. We argue that, under sensible interpretations of Loss Aversion and Endowment Effect, Behavioural Economics is neither more realistic than, nor part of the mainstream.

11/20: More losses- Swiss Re Reports $878 Million Subprime Loss

11/20: Great annuity marketing "17.6% GUARANTEED FOR 1st YEAR" Of course they don't tell you the next year or the next or the next or....................

11/19: The Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities, and Correlations  We study the impact of FOMC announcements of Federal funds target rate decisions on individual stock prices at the intraday level. We find that the returns, volatilities and correlations of the S&P100 index constituents only respond to the surprise component in the announcement, as measured by the change in the Federal funds futures rate. For example, an unexpected 25 basis points increase of the target rate leads on average to a 113 basis points negative market return within five minutes after the announcement. It also increases market volatility during the 60-minute window around the announcement with 147 basis points. Positive surprises, meaning bad news for stocks, provoke a stronger reaction than negative surprises. Market participants also respond differently to good and bad news. In case of bad news for stocks the fact that there is a surprise matters most, whereas in case of good news the magnitude of the surprise is more important. Across sectors, Financials and IT show the strongest response to target rate surprises.

11/19: In addition to considering age, vehicle make and model, and place of residence; certain states allow insurance companies to use what’s called an “insurance score” to determine who they will insure and how much they will charge for coverage. In fact, Insurers say more than 50% of policyholders have a lower premium because of good credit.

11/19: Dollar- It has dropped 44% against the EURO since 2002.

11/19: More Subprime: B of A took a $3 billion loss for subprime

11/18: Bad Christmas- (Times) When Wal-Mart starts its holiday markdowns three weeks before Thanksgiving, you know it will be a tough Christmas season. The Arkansas-based discount chain, a bellwether for U.S. retailing, usually holds off on its "door buster" sales until the day after Thanksgiving, traditionally the year's busiest shopping day. This year, Wal-Mart decided that it couldn't afford to wait.

* Economic forecasting is particularly hard now because some of the key factors -- such as the credit crunch arising from the subprime mortgage mess, spiking oil prices and the plunging dollar -- have little historical precedent.

11/18: That ain't nice- the number of laid off workers filing claims for unemployment benefits rose last week by 20,000 to 339,000, double what economists expected.

11/18: Oops- Barclays to Make $2.7 Billion Write-Down

There is going to be more and more. The adjustable rate increases will continue through 2008

11/16: From a reader- "Here's my Bank of America story. Years ago, I asked a B of A official to use money in my account to buy me a Treasury bill. He said they could do that, but he had to warn me that the T-bill would not be insured by FDIC. Amazing. I was at a loss for words, not wishing to call him a moron or a crook. I just told him to go ahead anyway, I didn't think insurance was needed on a T-bill. You can draw your own conclusions about the kind of investment help someone like that might provide."

11/18: S&P 500 Index P/E ratio

11/18: S&P 500 index

11/18: Oops again- JC Penney reported a 9 percent drop in third-quarter profit today, saying sales weakened “dramatically” in September and October, and it slashed its fourth-quarter forecast.

11/18: Oops, oops: U.S. industrial output suffers steepest monthly decline since January

11/15: It's just money: The Florida agency that manages about $50 billion of short-term investments for the state, school districts and local governments holds $2.2 billion of debt that was cut below investment grade.

The downgrades affect more than 4 percent of what the Florida State Board of Administration has purchased for the funds, according to a report by the agency's director, Coleman Stipanovich, that was delivered at a cabinet meeting of Republican Governor Charlie Crist today. Some $3.6 billion, or 7.3 percent, of the securities may be downgraded by credit- rating companies, according to the document, provided to Bloomberg by the state board.

Florida rules require the state's short-term investments to only be top-rated, liquid securities, so taxpayer funds aren't placed at risk. The data from Florida shows how far the effects of the bursting of the housing bubble are being felt as complex investment vehicles once marketed as high-yielding safe havens are now backed by collateral shunned by investors.

``Investment of public money needs to be carefully conducted and thoroughly researched,'' said Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission. ``This is not the place for seat-of-the-pants judgments. It requires a lot more than jumping on the latest investment du jour to improve your results.''

They're playing with pensioners' money. That's serious. That's more serious than a brokerage firm or a bank losing money on a bad bet. We're talking about pension losses, and I think the fact that this is spreading is something that we've got to watch very, very carefully.''

* How do you tell the difference between an actuary and the deceased person at a funeral?

The deceased has a new tie.

11/14: Fixed Rate Non- Callable CDs

Term Rate Payment Frequency Restrictions

1 Year 4.700% Monthly

5 Year 4.750% Semi-Annual

7 Year 5.000% Semi-Annual

10 Year 5.150% Semi-Annual

11/14: How useful are historical data for forecasting the long-run equity return distribution?

We provide an approach to forecasting the long-run (unconditional) distribution of equity returns making optimal use of historical data in the presence of structural breaks. Our focus is on learning about breaks in real time and assessing their impact on out-of-sample density forecasts. Forecasts use a probability-weighted average of submodels, each of which is estimated over a different history of data. The paper illustrates the importance of uncertainty about structural breaks and the value of modeling higher-order moments of excess returns when forecasting the return distribution and its moments. The shape of the long-run distribution and the dynamics of the higher-order moments are quite different from those generated by forecasts which cannot capture structural breaks. The empirical results strongly reject ignoring structural change in favor of our forecasts which weight historical data to accommodate uncertainty about structural breaks. We also strongly reject the common practice of using a fixed-length moving window. These differences in long-run forecasts have implications for many financial decisions, particularly for risk management and long-run investment decisions.

* Subprime has been around a long time and never created problems such as we have seen recently. It was the inane extension of subprime outside the realm of sane underwriting that set this is motion.

Dick LePre

11/14: Afghan and Iraq wars have now cost about 1.6 trillion. This is not an indictment- just stating a number.

11/14: You better believe investors would pull out money (Times) large investment firms, having sought out the high yields for their money market funds, are being forced to protect the funds from losses brought on by investments that no longer seem safe.

The bailouts reflect the fact that while the managers of money market funds have no legal obligation to assure the funds do not lose money, they fear that losses might lead investors to flee the fund and perhaps take money out of other funds managed by the company. Such losses could also damage a firm’s reputation.

* It is a no-brainer to spend a few million dollars on troubled securities or lose their entire mutual fund franchise that is making them billions of dollars,. “Anyone who is running a big mutual fund has more than their money fund — they have their reputation on the line.”

11/14: What Does Economics Assume About People’s Knowledge? Who knows?

The purpose of the paper is to explore, from an assessment viewpoint, the ideas below. Economics, as a social science, has always considered sets of individuals with assumed characteristics, namely the level of knowledge, although in an implicit way in most of the cases. In this sense, an influential approach in Economics assumed that society, as a global set of individuals, was characterised by a certain level of knowledge that, indeed, could be associated with the one of its representative agent. In fact, an attentive recall of the evolution of these matters in Economics will immediately recognise that, since the very first economic models of the government, it was assumed that the level of knowledge of society, represented by a set of voters, was not the same as the one of the agent being elected, i.e. the government. The irrelevance of the difference in the level of knowledge of economic agents was soon abandoned after some seminal works of Hayek and Friedman. More recently, the viewpoint of Economics has changed by focusing on the characteristics (e.g. knowledge) of individuals, who may interact in sub-sets of society. From this point of view is clearly relevant, given the close connection with the assumed level of knowledge, to distinguish the adaptive behaviour from the rational one, as well as the full rational from the bounded rationality behaviour by people. Quite recent developments in the Economics of Knowledge, i.e. the so-called learning models, have been considered as more realistic approaches to model the process by which individuals acquire knowledge, for instance from other individuals that are, themselves, acquiring knowledge.

* I just figured out how to reduce the population explosion, environmental issues, and a whole lot more. Chinese cannibalism. We induce a small group to go out and eat their neighbors. And as we all know, after you eat Chinese- in one hour you want more. So I figure in 15 years there will only be 3 people left in China and they are not tasty. So on to Europe and they eat all the French. They will get bad indigestion and then die. So then the rest of us move in.  

I am surprised no one else has thought of this.

11/14: Dividend Yield for Stocks in the S&P 500  

11/14: S& P Earnings: 1960-Current

11/14: Billionaires: just one year ago, there were a total of 15 billionaires in China; today there are over 100

* Two people are flying in a hot air balloon and realize they are lost. They see a man on the ground, so they navigate the balloon to where they can speak to him. They yell to him, "Can you help us - we're lost." The man on the ground replies, "You're in a hot air balloon, about two hundred feet off the ground." One of the people in the balloon replies to the man on the ground, "You must be an actuary. You gave us information that is accurate, but completely useless."

The actuary on the ground yells to the people in the balloon, "you must be in marketing." They yell back, "yes, how did you know?" The actuary says," well, you're in the same situation you were in before you talked to me, but now it's my fault."

11/13: There are now at least 658,000 registered advisors. Hardly a one knows diversification. I bet it is less than o.5%.


11/13: Back pain and neck pain  Excellent Resource

11/12: Grantor defective ILIT (National Underwriter) In addition to providing flexibility for the disposition of the ILITs assets, it may be beneficial, in some instances, for a client to create a defective, or grantor-trust, ILIT. A grantor-trust ILIT causes the creator or grantor of the ILIT to be taxed on the income earned by the ILIT.

Thus, although the ILIT is effective with respect to removing the trust assets from the grantors taxable estate, it is defective with respect to removing the trust income from the grantors taxable income. A grantor-trust ILIT can open the door to a multitude of planning opportunities.

A grantor-trust ILIT is created by violating (usually intentionally) one or more of the provisions of Internal Revenue Code Sections 673 through 677. For example, a grantor-trust ILIT results when the grantor reserves the power to re-acquire trust assets by substituting assets of equivalent value. Or, when the trustee is given the discretionary power to make a loan to the grantor without charging adequate interest. Another instance occurs when a party that does not have an interest in the trust (a non-adverse party) is empowered to add or remove a beneficiary. The trustee also could use trust income to pay a life insurance premium on the grantors or grantors spouses life without the consent of someone with a beneficial interest in the trust.

11/12: Elliott Wave Theory- "When the bull market in inflation is over, an inverted pyramid of debt, will collapse in value in a deflationary rush, and prices from stocks to commodities to goods and services will fall along with them,"

I used this in 1987 as the final reason to remove funds from the market before Black Monday. I use al lot of different material now but I do not dismiss this out of hand.

11/12: S&P 500: (Times) 45 percent of the sales of the companies in the S.& P. 500 are now being generated overseas. “the S.& P. has become a good indicator of what’s going on globally,”

11/12: True??? Don't know and no way of proving: Twelve Americans are murdered every day by illegal aliens, according to statistics released by Rep. Steve King, R-Iowa. If those numbers are correct, it translates to 4,380 Americans murdered annually by illegal aliens. That's 21,900 since Sept. 11, 2001.

Total U.S. troop deaths in Iraq as of last week were reported at 2,863. Total U.S. troop deaths in Afghanistan, Pakistan and Uzbekistan during the five years of the Afghan campaign are currently at 289, according to the Department of Defense.

11/11: I knew it was bad, but................. the International Energy Agency warned that demand for oil imports by China and India will almost quadruple by 2030 and could create a supply “crunch” as soon as 2015 if oil producers do not step up production, energy efficiency fails to improve and demand from the two countries is not dampened.

Bolstered by speedy economic development and industrialization, energy demand from Asia has been one of the main contributors to higher oil prices. Over the last two years, China and India accounted for about 70 percent of the increase in energy demand and the world’s energy needs would increase 55 percent by 2030. Another reason for higher prices is investments not made by oil producers, including the Organization of the Petroleum Exporting Countries,

China’s and India’s energy use is projected to double from 2005 to 2030. By 2030, the two countries will account for nearly half the increase in global demand. China is expected to overtake the United States as the world’s top carbon emitter this year and the largest energy consumer soon after 2010, the agency said. In India, where more than 400 million people have no access to electricity, energy demand is expected to more than double by 2030.

11/11: I can live with this- The House passed a $78.3 billion tax bill on Friday that would shield about 21 million people from the alternative minimum tax next year, and pay for it in part by ending tax breaks for private equity funds, hedge funds and other partnerships.

But it may not pass the Senate

* Definition of a computer:

An actuary with a heart.

11/11: More oil: India and China are home to about a third of humanity. People there are demanding access to electricity, cars, and consumer goods and can increasingly afford to compete with the West for access to resources. In doing so, the two Asian giants are profoundly transforming the world’s energy balance.

Today, China consumes only a third as much oil as the United States, which burns a quarter of the world’s oil each day. By 2030, India and China together will import as much oil as the United States and Japan do today.

global demand is expected to rise to about 115 million barrels a day by 2030, a level that is likely to tax the world’s ability to pump more oil out of the ground. Already, the world is running on a limited cushion of spare capacity; any interruption in supplies, whether from hurricanes or armed conflict, causes prices to spike.

11/11: Home equity: “Everybody was basically using their house as an A.T.M. machine. “Now they are upside down on their house without that piggy bank to go back to.”

From 2004 through 2006, Americans pulled about $840 billion a year out of residential real estate, via sales, home equity lines of credit and refinanced mortgages

in the first half of this year, equity withdrawals were down 15 percent nationally compared with the average for the last three years, and consumption supported by such funds plunged nearly one-fourth, Only a year ago, money taken out of houses was still more than 9 percent of the nation’s disposable income, Mr. Zandi calculated, using a sampling of Equifax credit reports to supplement Fed data. By this fall, it had dropped to about 5 percent, a difference of about $350 billion a year.

Consumer spending accounts for about 70 percent of all economic activity in the United States, or about $9.8 trillion

“A fall of 2 percent in consumption would be big enough to trigger a recession

11/11: Alzheimer's: Planning for the holidays Alzheimer's disease affects every aspect of your family and community life. Your holiday observances are no exception. Holiday memories from before your loved one developed Alzheimer's may darken what usually is a joyful season. And worries about how your loved one's condition may disrupt your family's plans can overshadow the simple pleasure of being together.

Rather than dwell on how much things have changed or worry about what might go wrong, focus on making the holidays as enjoyable as possible. Consider your loved one's needs, but don't forget about yourself.

When your loved one lives with you

If you're caring for a loved one with Alzheimer's at home:

Make preparations together. If you bake, your loved one may be able to participate by measuring flour, stirring batter, rolling dough or whatever tasks match their current retained skills. You may find it meaningful to open holiday cards or wrap gifts together. In the end, a perfectly wrapped gift or an award-winning pie may not be the outcome, but a pleasurable activity nonetheless is very possible.

Tone down your decorations. Blinking lights and large decorative displays can cause disorientation. Avoid lighted candles and decorations such as artificial fruits that could be mistaken for edible treats.

Host quiet, slow-paced gatherings. Television, conversation and meal preparation all add to the noise and stimulation of an event. A calm quiet environment usually is best. Keep daily routines in place as much as possible and, as needed, provide your loved one a place to rest during family get-togethers.

If your loved one is in a nursing home

If your spouse, parent or other close companion is in an assisted living facility or a nursing home, consider these tips:

Celebrate in the most familiar setting. For many people with Alzheimer's, a change of environment — even a visit home — causes anxiety. Instead of creating that disruption, consider holding a small family celebration at the facility. Find out what holiday activities are planned for the residents, and consider participating with your loved one there.

Keep the visitor traffic to a minimum. Arrange for a few family members to drop in on different days. Even if your loved one isn't sure who's who, two or three familiar faces are likely to be welcome, while nine or 10 may be overwhelming.

Schedule visits at your loved one's best time of day. People with Alzheimer's tire easily, particularly as they approach the late stage of the disease. Your loved one may appreciate morning and lunchtime visitors more than those in the afternoon or evening.

Care for yourself

Consider your needs, as well as those of your loved one. Here are some tips to help you manage your expectations of yourself:

Pick and choose. Decide which holiday activities and traditions are most important. Remember that you can't do it all. Focus on what you enjoy.

Simplify. Bake fewer cookies. Ask others to provide portions of holiday meals, and use disposable plates and utensils. Write a holiday letter and send a copy to family and friends instead of sending handwritten cards.

Delegate. Remember family members and friends who have offered their assistance. Let them help with cleaning, writing cards and shopping for gifts. Ask if one of your children or a close friend could stay with your loved one while you go to a holiday party.

Trust your instincts

Caregivers know best what their loved ones with Alzheimer's disease are capable of doing — and what agitates and upsets them. Resist pressure to celebrate the way others may expect you to. You can't control the progress of Alzheimer's or protect your loved one from all distress. But by planning and setting firm boundaries, you can avoid needless holiday stress and enjoy the warmth of the season.


11/11: The company provides LTC coverage for 600,000 people through employer-sponsored LTC plans, and it estimates it accounts for about 75% of U.S. employer group LTC contracts.

The company has paid out about $13 million in LTC benefits for 277 claimants under age 50.

In addition to trauma, other leading causes for LTC claims for workers under age 65 include cancer, stroke and neurological disease.

- About 72% of all claimants under age 65 have received or are receiving care at home, while 24% percent have received nursing home care.

- A typical claim for Unum policyholders under age 65 lasts a year or longer.

- The average age of claimants under 65 is 54, and more than 15% are younger than 45.

11/11: It's just money- Morgan Stanley said that it would take a $3.7 billion charge for nonperforming assets tied to subprime mortgages.

11/11: LTC- The average age of Americans buying individual LTC insurance policies now appears to be 58

The average age of LTC insurance buyers has fallen from 67 in 2000

A total of about 8 million U.S. residents have LTC insurance coverage through group, individual or “multi-life” LTC insurance policies or through annuity or life insurance contracts that offer LTC insurance benefits.

All private LTC insurance policies combined paid about $3.3 billion in benefits in 2006,

11/11: Oil- (Times) Unlike past oil shocks, which were caused by sudden interruptions in exports from the Middle East, this time prices have been rising steadily as demand for gasoline grows in developed countries, as hundreds of millions of Chinese and Indians climb out of poverty and as other developing economies grow at a sizzling pace.


11/11: Offshore accounts: From a reader- I enjoy reading you blog, it is without a doubt one of the best. I was wondering your thoughts on off shore accounts. I followed your link you left a few days ago. I have a read a few books on the subject. I just wanted to know if you feel it is a good strategy for an individual investor?

My reply- If you have lots of money and a litigious profession AND have used any retirement benefits that have some protection, an offshore account might work simply because it makes it SOOOOOOOOOO difficult for a creditor to get the money from foreign country. Of course, you need to do this BEFORE something goes wrong or you can really tee off a judge who can make things more than uncomfortable.

11/11: Told ya: (Times) The poor retailer results for October — which followed a dismal September — suggest that this will be a tough season for retailers and a deeply-discounted one for consumers.

Wal-Mart predicted sales growth could be flat for November.

The chief executive of J.C. Penney, Myron Ullman, summarized the plights of shoppers this morning. “Our customers are clearly facing head winds that are impacting both sentiment and discretionary spending levels, including weak housing market conditions, high energy prices and uncertainty in the mortgage and credit markets.”

Going to be a cold financial winter. Then Spring, Then summer. Maybe fall and next winter too.

All brought about by a bunch of greedy and stupid people buying stuff they were effectively cluelss to or where they had done no homeweork (more porbable).

Same as the Dotrcom but this one will last longer and be worse overall.

11/8: Bonds: Investors say they are most troubled by the accelerating pace of write-downs and credit downgrades in the residential mortgage area, but they are also starting to question the value of bonds in related areas like commercial mortgages and consumer debt. For instance, an index that tracks the cost of protecting bonds tied to commercial mortgages has surged since the end of October.

the markets for the investment-grade debt issued by nonfinancial corporations are functioning fairly normally, though prices are not as lofty as they were earlier in the year, analysts say.

Prices on riskier assets are falling, however, with high-yield debt falling steadily in the last three days of trading. The yield on those bonds, which moves in the opposite direction of price, jumped to 9.41 percent yesterday, from 9 percent at the end of October

11/8: Australia raises key interest rate 0.25% to 6.75%. Everyone is raising but we are lowering. Chinese investors have reduced their holdings of U.S. Treasuries by 5 percent to $400 billion in the five months to August.

11/8: Current PR Release- The Economic World is Gobbling U.S. up.

Effectively every international economy is raising interest rates. Australia just upped theirs to 6.75%. The Mark is up, the Pound is up. Even Japan has raised rates. My god, even the Canadian dollar is now beating us and all they have to offer is a lot of ice and Northern Pike.

But our rates are down (Treasury notes are at 4.4%) due to the mess by a bunch of greedy and stupid homebuyers and a bunch of greed by lenders. And therein lies a huge problem for the U.S. beyond anything with home foreclosures and defaults. It starts with this:

Chinese investors have reduced their holdings of U.S. Treasuries by 5 percent to $400 billion in the five months to August.

And it will escalate throughout the world. The U.S debt is highly financed by foreign governments buying our Treasury instruments. It keeps the U.S. afloat. If we lose such purchasers, who is going to buy our debt? Santa Claus? The Tooth Fairy?

Simply stated, rates have to rise. If they don't we WILL end up in a financial maelstrom far worse than a potential recession. Admittedly the FED had to reduce rates to forestall a recession. But don't expect any more.

The ability of the U.S. exporters to reap benefits will be more than offset by the inability of the international community to buy anything. The lower dollar will force even higher oil prices and reduce further consumer spending than now- and that is what keeps the U.S. humming along. Increased worker productivity has always helped the U.S. but we are in a REALLY tough economic situation that may take several years to straighten out.

The bulk of it was caused by people that didn't learn much after the Dotcom fiasco. I still don't think they really learned much at all. This lesson will be one they will not forget.

11/8: It's just money: Citigroup Inc., the world's biggest bank, may have losses from asset-backed bonds of as much as $13.7 billion, roughly equal to the company's profit so far this year.Additional writedowns may balloon to $21.1 billion if off- balance-sheet units are included

11/7: Health Care Spending: (Kaiser) Among the elderly, the largest decline in spending relative to younger people occurred among those age 85 and older. Spending for this group was 6.9 times higher than spending by the working-age population in 1987, but only 5.7 times higher in 2004.

For those 65 and over health costs were 3.5 times higher than working age people in 1987 and 3.3 times higher in 2004.

Per person health spending from all sources in 2004 was $5,276, the report said, up from $1,796 in 1987.

For people 18 and under spending was $2,650, up from $868. The increase for working-age people, 19 to 64, was from $1,521 to $4,511. For people aged 65 and over it went from $5,282 to $14,797.

Of the $5,276 spent per individual on health care in 2004, $802 was out-of-pocket, $1,898 came from private health insurance, $221 came from other private sources such as workplace clinics, $1,032 was from Medicare, $918 from Medicaid and $405 from other public sources such as state and local agencies.

For people aged 65 and over the breakdown was $2,205 out-of-pocket, $2,351 private insurance, $331 other private, $7,242 Medicare, $2,034 Medicated and $633 other public source.

11/7: And another one bites the dust- A securities analyst at Fox-Pitt Kelton downgraded Morgan Stanley, forecasting that the firm could suffer losses of $6 billion related to the reduced value of credit investments.

11/07: OFFSHORE LINK: You can use it to get a brief overview of the offshore protection that countries across the world may, or may not, offer

11/7: NY Times article. I spent close to 8 hours helping a journalist with the new income retirement vehicles. Of course that was my decision but it was based on getting some good ink. I am getting a couple sophomoric sentences in a rather non descript article. I guess I should have known better.

11/07: Oil is at $97.

11/6: Self-Regulation in Today’s Securities Markets LINK: An analysis of how it occurred and what is gong on now. Professional article. Very good

The CFA Centre historically has supported self-regulation in lieu of government-imposed regulation. Our support for self-regulation, however, is tempered in situations where investor protections appear to be compromised.

Over the last decade, the securities markets have encountered more rapid changes to structure, market participants, and regulation than at any other time in their history.

This broad definition envisions the assumption by participants in the system of the duty to create and adopt common guidelines to govern their collective behavior.10 Although such a system can take many forms, including voluntary agreements, codes of conduct, charters, guidelines, and harmonized standards, self-regulation “must be consistent with Community law, represent added value for the general interest, [and] meet the criteria of transparency . . . and representation of the parties involved.”11 Simply put, the overarching purpose of any selfregulatory  group is to keep industry interests aligned with the public interest so as to avoid government intervention and the possibility of more-restrictive regulation. Proponents of self-regulation expound the benefits of a system that places the responsibility for crafting and enforcing regulations in the very hands of those to be regulated. They believe that such a system is philosophically in keeping with the principles of free market enterprise.

This group notes the efficiency of allowing the participants, who are the industry experts, to craft rules that more realistically reflect the issues of the industry, thereby reducing the regulatory burden on market participants. Given the speed with which the global markets move, supporters of self-regulation also cite the benefits of a system whose flexibility allows it to respond to market developments quickly, fostering innovation. They also note the advantages of a system that is basically self-funding, relieving the government of a financial burden. Opponents of a self-regulatory system, on the other hand, dismiss the long-term viability of selfregulation and believe that it is incapable of truly divesting itself of self-interests in favor of the public’s good.17 This group believes that the conflicts inherent in having the regulated regulate themselves doom this system as ultimately impractical at best and grossly self-serving at worst.

* Do you know what the dermatologist said when he came home at night?

Warts for dinner??!!

11/6: Reading: The circulation declines of U.S. newspapers continued to accelerate over the spring and summer, as sales across the industry fell almost 3 percent compared with the year before.

11/6: Creepy- I just got this in a blind Email- "We have uncovered a 401k Plan Sponsor prospect in the 415 regional area code. The 401(k) Plan Sponsor has assets at approximately OVER $ 50MM. They would like to meet with an advisor, with strong experience / knowledge in 401k plans. They have not had a plan review in over two years and have a number of concerns with their current plan."

So, for kicks, I called up. Yes, I can get the appointment. But it would cost $10,000.

Gives you an idea how the system works.

11/6: Merrill one more time- Merrill Lynch advised 100 of its pension fund clients in Florida that the S.E.C. has taken issue with its practices as a consultant. It’s unknown precisely what Merrill might have done or whether any laws were broken. But the possibility for conflicts among pension consultants in general seems to be growing. Pension fund boards hire consultants to advise them on investment strategies and suggest whom they should hire as money managers. Problems emerge when consultants put their interests ahead of their clients’. Money managers often compensate consultants for recommending them to their pension fund clients, even though funds are told that the process for selecting managers is entirely objective.

But while the news may be bad for Merrill, it is positive for investors. The shadowy practices of pension consultants are ripe for some sunshine. And increased scrutiny on the costly effects that middlemen like Merrill can have on pensions will surely help investors and pension beneficiaries.

Pension funds are not the only accounts at risk to costly conflicts of interest. Private retirement accounts — like 401(k) plans sponsored by companies for their employees — are also in harm’s way. Financial institutions that provide administrative and other services to 401(k) plans can also receive payments from investment companies whose funds are included in the menus offered to workers.

consultant like Merrill Lynch, whose operations include a brokerage firm, may receive compensation in the form of commissions on trades steered its way by the money managers it has recommended to pension fund clients. These commissions may be higher than those charged by unaffiliated brokerage firms.

Consultants with brokerage firm affiliates may also select money managers who trade more often and generate more commissions. Or the consultant may not be willing to negotiate hard with managers to reduce their investment advisory fees if the consultant’s brokerage firm gets lucrative trades from those managers.

11/6: Tax Evasion: Cheating Rationally or Deciding Emotionally? The economic models of tax compliance predict that individuals should evade taxes when the expected benefit of cheating is greater than its expected cost. When this condition is fulfilled, the high compliance however observed remains a puzzle. In this paper, we investigate the role of emotions as a possible explanation of tax compliance. Our laboratory experiment shows that emotional arousal, measured by Skin Conductance Responses, increases in the proportion of evaded taxes. The perspective of punishment after an audit, especially when the pictures of the evaders are publicly displayed, also raises emotions. We show that an audit policy that induces shame on the evaders favors compliance.

11/6: In need of advice (USA Today) "Rusty Gilardi, a 24-year Chevron veteran, says he had "no savvy when it came to investments." That's why he sought investment advice in the mid-1990s for the $1 million in 401(k) and pension assets he'd built up.

Through co-workers, Gilardi was introduced to Dominick Musso, a broker at Morgan Stanley. He says the broker won his trust by playing golf with him, asking about his wife and daughters and talking about his own family. Then, Gilardi says, "Dominick told me flat out, 'I can make you at least 15% (return a year); you'll never touch your principal for the rest of your life. You're set.' "

Gilardi says Musso also told him to cash out his pension because he could earn more in the stock market than from the guaranteed stream of pension income. The lure of spending more time with his family in retirement led Gilardi, then 51, to take Musso's advice. He began withdrawing $85,000 a year, about 8.5% of his portfolio value.

After the tech bubble burst and the roaring stock market tanked in 2000, Musso urged him to stay in the market, according to Gilardi, saying, "You've got to be in position for when the market comes up."

As his portfolio shrank to about one-third of its original value, Gilardi took what remained of his money to another adviser. Now, at 60, he's working full time as a helicopter pilot for a sheriff's office in Jefferson Parish, La. "I don't know if I'll get another retirement back," says Gilardi, who, along with Lirette and dozens of other Chevron workers, has arbitration claims pending against Morgan Stanley. "I might be working for the rest of my life now."

Through Morgan Stanley, Musso, who retired from the firm in 2005, declined to comment.

But the firm, in response to Gilardi's arbitration claim, says Gilardi was provided with mutual fund prospectuses that explained the "characteristics, potential risks and expenses associated with the investments," which were made with Gilardi's "approval and consent and were fully consistent with (his) investment objectives." He also received monthly account statements detailing the investments' performance, Morgan Stanley said.

Gilardi "suffered losses of the same type and extent as the losses experienced by millions of investors during the historic market downturn that began in March 2000," the firm said."

EFM- Oy!. Another golf buddy. Some more superfluous comments about the family. And a 'guaranteed' 15% per year. I sure wouldn't want him as a pilot of paper airplane if he was that dumb and gullible.

But suffering the same losses, ad nauseam. Unacceptable. Morgan Stanley knew full well such risk could occur and never said a word. The investments had to be suitable. But in order to be, they had a duty to inform the client of the risk. So they should be liable no matter the gullibility.

11/5: Wealth Managers: Investment News says that maybe only 6.6% of those who call themselves Wealth Managers actually make the grade. 6.6% is pushing it.

11/5: Pakistan: Good lord, another mess and international instability. I haven't heard from India yet but it won't be nice. It's a significant cause for concern.

11/5: Not a one man store: Merrill's $8.4 billion loss was not solely the responsibility of the CEO. The NY Times notes, "analysts are quick to point out that no major corporation is a one-man operation. They ask who else had helped Mr. O’Neal mind the store at Merrill, and wonder to what extent accountability for effective oversight of financial strategies and gambits reached beyond the chief executive’s suite and into the boardroom."

Underlying the situation at Merrill is the nagging question of what a Wall Street board is expected to know about complex financial markets where asset values can shift drastically and where many directors are not in the business of managing trillion-dollar balance sheets — or perhaps have little experience in doing so.

“There’s a clear dichotomy between oversight and management and the board’s function is oversight, not day-to-day risk management,”

“The board asked the right questions, exercised diligence, and acted aggressively on the basis of the information that was presented to it,” the firm said in a statement. “No board, however, can be expected to act on the basis of information not known to it, and even the most responsible and diligent board cannot prevent every serious problem that a company may face.”

This is a clear comment on the problem to me- "And, like everyone else, directors knew about the bank’s very public shift into riskier business areas, which until this summer were delivering handsome profits. Merrill had become the top issuer of collateralized debt obligations in the marketplace, and its profitability soared; fixed-income revenue in the second quarter was up 201 percent. According to some analysts, the billion-dollar size of those profits — and the soaring return on equity — should have caused directors to ask whether the risks being taken to generate higher profits warranted better controls."

For every dollar received, there is an element of risk. When the market is flowing nicely and the economy is relatively steady, you can reap some benefits (as a consumer) without too much difficulty. But when everything changes- and it does- the real task is at hand. The question is, 'What to accept as a return when the risk keeps going up and up'. The difference as a consumer is that you can change you investments to something less risky with a phone call. (It's not perfection, obviously, but the discussion is always about risk.

Analysts say that directors should have asked about the exposures and, more important, what might happen to those exposures under various financial scenarios, including a collapse of the mortgage market.

In addition, the securities are hard to value, leaving the board in a position where it has to trust management’s best decision. In fact, Merrill said in late September that it would take a $5.5 billion write-down and 50 cent-a-share loss, only to have to report weeks later an $8.4 billion write-down and a $2.3 billion loss. Analysts expect further write-downs from Merrill.

In the current highly regulated environment, directors have to be both sophisticated and engaged

11/4: The National Alliance for Caregiving notes that nearly 23 million  households are currently home to a caregiver, most often a woman who is taking care of someone 50 or older . Some 43% of them are also over age 50. 13% are over age 65.

11/4:  Almost all major countries have increased interest rates. Wee are the only one going down.

11/4: And another bites the dust- Citigroup's Charles O. Prince III has told directors that he would resign in the wake of a $5.9 billion write-down and a sharp drop in profit. Not as bad as Merrill Lynch at about 8 billion but.....

Consumers/investors need to take note of this for several reasons, primarily the fact that billions and billions have been lost by the professionals who "know" how to manage risk. So how competent/lucky do you feel??.  

10/30: Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets ? An Overinvestment View" ABSTRACT: Credit booms have globally fuelled hikes in stock, raw material and real estate markets which have culminated in the recent US subprime market crisis. We explain the global asset market booms since the mid 1980s based on the overinvestment theories of Hayek, Wicksell and Schumpeter. We argue that ample liquidity supply originating in the large industrialized countries has contributed to overinvestment cycles in Japan, East Asia, the new markets in the industrial countries and many emerging market economies. Expansionary monetary policies in response to the burst of bubbles are argued to have contributed to vagabonding bubbles around the globe.

10/29: WITHDRAWAL LINK:  How much can you safely take out.

10/28: LTC: “There are serious concerns that private equity firms are reducing the care at nursing homes by decreasing the number of employees. “We’ve been made aware that nursing home residents are losing their ability to use lawsuits to fight poor care, and that people may be suffering.”

10/28: And some more writeoffs- American International Group Inc., the world's biggest insurer, may write down $9.8 billion before taxes in subprime- mortgage related assets

10/28: Lapse rates- A study by Bragg and Assoc. said that 15.9% of all whole life policies are in force for just ONE year. In years three though five, another 5.7% lapse the policy. Universal life, which is cheaper loses about 8.1% of policyholders in the first year and about 9.5% of the remaining are closed out after the second year. After 6 years, about 40% of all whole and universal life policies have lapsed.

1028: Ameriprise- One of their agents called last week and noted that the young reps are given an EXACT 4 page script to memorize in order to sell product.

Feel better now?

10/28: Credit derivatives and risk management  The striking growth of credit derivatives suggests that market participants find them to be useful tools for risk management. I illustrate the value of credit derivatives with three examples. A commercial bank can use credit derivatives to manage the risk of its loan portfolio. An investment bank can use credit derivatives to manage the risks it incurs when underwriting securities. An investor, such as an insurance company, asset manager, or hedge fund, can use credit derivatives to align its credit risk exposure with its desired credit risk profile.> However, credit derivatives pose risk management challenges of their own. I discuss five of these challenges. Credit derivatives can transform credit risk in intricate ways that may not be easy to understand. They can create counterparty credit risk that itself must be managed. Complex credit derivatives rely on complex models, leading to model risk. Credit rating agencies interpret this complexity for investors, but their ratings can be misunderstood, creating rating agency risk. The settlement of a credit derivative contract following a default can have its own complications, creating settlement risk. For the credit derivatives market to continue its rapid growth, market participants must meet these risk management challenges.

EFM- Of course, you can also ask Merrill Lynch how well they manage risk. Real easy, eh??

10/28: LTC: A key factor is the definition of "substantial assistance." Under newer policies, "substantial assistance" with an activity refers to either hands-on help or standby help (to prevent falling, for example). If the insured person would not be able to safely perform the activity without the assistance, the activity would be considered "substantial." Other factors aside, a policy that includes "standby" assistance in the definition of "substantial assistance" is far superior to one that recognizes only the need for hands-on help. After all, some folks can perform some of the activities of daily by themselves some of the time—but often need someone standing by just in case.

Nice, friendly rivals

10/28: 72,571 foreclosure notices in CA in 3rd quarter. That is a 167% increase from last year

10/28: Devastating fires. This is just like hurricane probabilities. Well before the Internet, about 20+ years ago, insurers stated that a major fire occurred in the areas about every 11 years. When I lived in Orange county, it was not unusual to get a major fire in Malibu or Laguna Beach. After all, Southern California is nothing but lousy scrub brush. When it gets dry, it's great fodder for a major conflagration.

10/28: Our legal system- There are nearly 93 million new court cases filed each year in our Nation's State Courts. Americans are more than twice as likely to end up in court as in the hospital during the next 12 months!

* “Examinations are formidable even to the best prepared, for the greatest fool may ask more than the wisest man can answer.”

Charles Caleb Colton

10/28: LONGEVITY LINK:  It will take forever to read everything (just kidding)

10/28: Ah, nothing like good press- The kudos were pouring in for Frank Bluestein. GunnAllen Financial of Tampa had named him its No. 1 producer among more than 800 independent brokers nationwide. Detroit's DBusiness magazine described the 58-year-old Highland, Mich., resident, who says he began trading stocks at age 12, as "one of the nation's most successful financial planners." Registered Repranked him the country's fourth-busiest independent adviser, with $1-billion in client funds under management. "Frank is the smartest and hardest-working guy I know," GunnAllen national sales manager David Levine told DBusiness this summer. "The numbers don't lie." So much for the truth.

In a remarkable meltdown that led to Bluestein's resignation last month and his formal termination last week, the pudgy Michigan native is accused of putting hundreds of clients - including some of his own GunnAllen customers - into questionable partnerships that the brokerage firm says it knew nothing about.

Millions of dollars in unauthorized investments went undetected until several months ago

The firm may face years of litigation. "Blue-stein was a stockbroker who worked for GunnAllen. "In my opinion, they are responsible for any security he sold to their joint clients." In response, GunnAllen's Jarvis claimed the firm was vigilant in its supervision of Blue-stein and met all regulatory criteria for supervision. Last week, it took the unusual step of filing a defamation suit against Smith and his law firm.

EFM- I do not dismiss that some fraud can always occur. But stuff at this scale is somewhat incredulous.

10/28: Sales are up but still down 23% from a year ago. And economists say mortgage market troubles could, all told, cost financial firms and investors up to $400 billion.

I work with many

10/24: Small policy Life Settlements Face values from $25,000 to $500,000   “We estimate that $6.1 billion in face amount was transferred in 2006 -- up from $5.5 billion in 2005. It’s all about investor demand in the life settlement market right now. He said that the limits on market growth have much more to do with policy availability and consumer education than with provider capacity.

“We anticipate growth of about $1 billion in additional life settlement transaction volume per year for the foreseeable future.

10/24: Hey, it's only 7.9 billion. Merrill Lynch had to write down a little bit of money due to its use of risky mortgages. Wonder who will really lose. the little guy???

10/23: Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 as a psychologically realistic alternative to expected utility theory. It allows one to describe how people make choices in situations where they have to decide between alternatives that involve risk, e.g. in financial decisions. Starting from empirical evidence, the theory describes how individuals evaluate potential losses and gains. In the original formulation the term prospect referred to a lottery.

The theory describes such decision processes as consisting of two stages, editing and evaluation. In the first, possible outcomes of the decision are ordered following some heuristic. In particular, people decide which outcomes they see as basically identical and they set a reference point and consider lower outcomes as losses and larger as gains. In the following evaluation phase, people behave as if they would compute a value (utility), based on the potential outcomes and their respective probabilities, and then choose the alternative having a higher utility.

Some behaviors observed in economics, like the disposition effect or the reversing of risk aversion/risk seeking in case of gains or losses (termed the reflection effect), can also be explained referring to the prospect theory.

An important implication of prospect theory is, that the way economic agents subjectively frame an outcome or transaction in their mind, affects the utility they expect or receive. This aspect has been widely used in behavioral economics and mental accounting. Framing and prospect theory has been applied to a diverse range of situations which appear inconsistent with standard economic rationality; the equity premium puzzle, the status quo bias, various gambling and betting puzzles, intertemporal consumption and the endowment effect.

Another possible implication for economics is that utility might be reference based, in contrast with additive utility functions underlying much of neo-classical economics. This means people consider not only the value they receive, but also the value received by others. This hypothesis is consistent with psychological research into happiness, which finds subjective measures of wellbeing are relatively stable over time, even in the face of large increases in the standard of living

I was out late last night

10/23: Gold and stocks- A study from 1970 to 2006 found that, on average, gold and stocks have moved in opposite directions since that point. In other words, what historically has been good for gold has not usually been good for stocks, and vice versa.

 They found that the price of gold tended to rise and fall with changes in investors’ collective expectations about inflation. In contrast, stocks tended to have just the opposite relationship to inflation, performing poorly when inflation expectations were rising.

However, most recently, gold and stocks have been moving together. Something's gotta give but no one is saying what or when.

10/23: Shutting down- Collateralized debt obligations — made up of bonds backed by thousands of subprime home loans — are starting to shut off cash payments to investors in lower-rated bonds as credit-rating agencies downgrade the securities they own.

Cutting off the cash flow, which is governed by rules and mathematical formulas that vary by security, is expected to accelerate in the months ahead.

With such a re-evaluation, owners of collateralized debt obligations — investment banks, hedge funds, insurance companies and public pension funds — may be forced to write down mortgage investments beyond the billions they have already written off. Some bonds, for example, may go from being valued at, say, 70 cents on the dollar to becoming largely worthless overnight,

On Friday, Standard & Poor’s lowered the ratings on $22 billion in bonds backed by mortgages made to people with weak credit in 2006, citing the continued deterioration in the housing market. Another credit rater, Moody’s Investors Service, lowered a similarly large group of bonds earlier in the month.

It is unclear exactly how many bonds will be affected and how quickly. Investment banks issued some $486 billion in debt obligations linked to mortgages in 2006 and the first half of 2007. A majority of the bonds have high credit ratings, and the trustees of the debt obligations typically shut off lower-rated bonds first to accelerate payments to investors holding higher-rated debt.

When ratings on the bonds directly backed by mortgages are lowered, it forces the trustees to discount the value of their holdings in a calculation performed once a month. Some C.D.O.’s also hold bonds issued by other debt obligations, so it can take months for ratings downgrades to work their way through the system.

Fitch has downgraded 30 percent of the debt obligations in its rating portfolio and has put 15 percent more on watch for possible downgrading.

In the last two weeks, leading investment banks have written down about $20 billion, much of it in collateralized debt obligations and mortgage-related securities.

Yet for all the damage that has already been done, the real stress for investors in these securities lies ahead, industry officials say.

Most mortgage securities have not yet had significant losses, which are only recorded when homes are foreclosed and sold. Up to two years can pass between a borrower’s falling behind on payments and an auction. Each mortgage security has a reservoir of excess cash to draw upon to pay bondholders when borrowers do not make monthly payments.

“As far as the security is concerned, it’s only once the property is effectively sold that a loss is recorded. “The process of foreclosure is a long process. It doesn’t just happen overnight.”

Looks like our education system at work

10/22: On 7/18, Crude oil futures were at $75. It's now about $90. Look for $100 by the end of the year.

10/22: Analysis of the Investment Potential and Inflation-Hedging Ability of Precious Metals Several researchers have previously examined the investment value of the precious metals. Jaffe (1989) finds that gold and silver have positive but very low betas when measured against U.S. stocks using monthly data for 1971 to 1987. Using daily returns from 1976 to 2004, Hillier, Draper, and Faff (2006) find that gold and silver have negative betas that are very small in absolute value but statistically significant when measured against U.S. stocks, thus providing hedging of an investor.s stock portfolio. They also find that the betas are positive and small, but also statistically significant, when measured against foreign stocks.

The prospect of some 77 million baby boomers outliving their cash may be the nation's biggest financial risk


10/22: And from May- "out of Whack- Many consider a strong stock market as an indicator of a strong economy, but consider this. From the beginning of 2004 through the first quarter of 2006, economic growth averaged 3.4%, yet the Dow rose just 6%. Since then, economic growth has slowed to about 2%, but the Dow has jumped 18%."

10/22: Oil and the dollar- While Americans gape wide-eyed as oil passes $90 a barrel, countries with stronger currencies haven't felt the same sticker shock: the rapidly falling dollar has provided a de facto discount. A barrel of crude crossed $90 a barrel for the first time Thursday. The same barrel bought with euro looks like $63. Bought with British pounds, a barrel of crude looks more like $44.

But since oil is denominated in dollars and it has been declining, the oil producers raise prices in order to get the same value as previously. And they can continue this since internationally countries (China) are not going to stop growing.

* Interconnected global markets should make the world economy more stable, according to traditional economic theory, with risk spread more widely and strength in one region offsetting weakness in another.

“In practice, we’re not seeing that happening.” What’s different now is how closely international markets are correlated with one another. “Everybody tends to invest in the same assets and employ the same strategies.”

10/21: Mortgage ratings: Standard & Poor's cut the ratings on 1,713 classes of securities backed by mortgages issued in the first six months of this year, worth about $23.35 billion. The securities are backed by subprime, alt-A and home-equity loans. Those three types of loans have gone increasing delinquent and into default in recent months. The downgraded securities represent more than 6% of the $371.9 billion of subprime, alt-A and home equity mortgage-backed securities S&P has rated in 2007. In addition to the downgrades, S&P placed 646 other classes of mortgage-backed securities on negative credit watch, which means the securities could be downgraded in the coming weeks. The securities on negative credit watch are valued at $3.3 billion.

10/21: Option Link: Tons of info

10/21: childhood obesity has tripled in the last 15 years.

19% of children ages 6 to 11 are overweight

The expression is priceless

10/21: Lawsuit protection: Under federal law, the value of your 401(k) plan or your traditional "defined benefit" pension should be protected from creditors. And if a hefty legal judgment forces you into bankruptcy, your rollover individual retirement account and up to $1 million in a regular IRA should also be protected.

Florida and Texas residents enjoy ample protection for homes, annuities and life insurance. By contrast, residents of California, New Jersey and Pennsylvania are far less protected.

If you have money in a variable annuity, life insurance, a limited partnership or a limited-liability company, creditors may settle for less, because these assets are harder to get at.

10/21: This was posted here in June- Inverted yield curve. "Of the past 17 times the curve has been inverted for at least four months, we have had a recession. Why has it not happened this time? No one knows.

Maybe now????? 

10/21: Asset Protection: State Information LINK:  Check each state- may make a difference where you live. Great resource.

10/18: Elderly scams: Approximately five million seniors each year are a victim of financial abuse? In fact, $100 million dollars of hard-earned money was lost in 2006 to investment scams. There is no shortage of conmen willing to flash dubious credentials and take money away from seniors to line their own pockets.

10/18: Social Security adjustments for 2008


10/18: Cancer link:  Tons of info

10/18: Irrational exuberance: (NY Times) Internet companies with funny names, little revenue and few customers are commanding high prices. And investors, having seemingly forgotten the pain of the first dot-com bust, are displaying symptoms of the disorder known as irrational exuberance.

Consider Facebook, the popular but financially unproven social network, which is reportedly being valued by investors at up to $15 billion. That is nearly half the value of Yahoo, a company with 38 times the number of employees and, based on estimates of Facebook’s income, 32 times the revenue.

Google, which recently surged past $600 a share, is now worth more than I.B.M., a company with eight times the revenue.

Think hard about what you just read. Google worth more than IBM? Not likely. Facebook at $15 billion? Get real.

Going to be another- though admittedly smaller- dotcom bust. Maybe as part of the softening of the market overall. There just won't be enough money to support the valuations.

10/18: Mexican Nursing Homes: (USA Today) Very, very interesting.

10/18: CPI- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in September before seasonal adjustment. The September level of 208.490 (1982-84=100) was 2.8 percent higher than in September 2006.

10/18: Most recent PR Release- Stocks down on the slippery slopes of oil. And housing is sliding right along with it.

Just a few weeks ago I stated that we were in for a definite slowdown. Same stuff as everyone talked about- housing, credit crunch- you know it all. Then what? The market surges to new highs based, primarily, on the FED reducing rates. And the comments that the subprime mess would not be as problematic as initially projected.

Ah, but have we come down to earth now? Oil kept moving up and today hit $88/barrel. Newscasts say that the price is still not as high, inflation adjusted, as what it was at certain times in the 70s and 80s. Screw that. I am interested in now and when oil starts pushing towards $100/gallon, you bet I am concerned. Some say that the consumer has formally "accepted" $3.00 gallon gas, but I submit that is a fallacy. They know doggone well that it is beating up their budget and the additional rise to $3.50 gallon or more makes them tremble whether it be a conscious or subconscious thought process.

As far as the subprime mess, Bernanke just stated that, "Although the Federal Reserve can seek to provide a more stable economic background that will benefit both investors and non-investors, the truth is that it can hardly insulate investors from risk, even if it wished to do so," And it shouldn't. "Those who made bad investment decisions lost money." Too bad. Further, if the government attempts to bail out any of these ‘investors' it is effectively called ‘moral hazard'. (It means that if you protect someone from the underlying risk of an investment, then they will continue to take the risk. And why not if they can get bailed out when something goes wrong yet make tons of money if it goes right.)

Treasury Secretary Poulson is now admitting that the problem is not going away as hoped. Consider this: There were 223,538 foreclosure filings last month, including default and auction notices and bank repossessions, an 8 percent decline from August. California had the most with 51,259 filings and Florida was second with 33,354. The national foreclosure rate was one for every 557 households.

Paulson also wants the lenders to ‘help' homeowners' keep their homes. Fine and dandy. But just how far is one able to go to provide assistance to people who made bad decisions?

Government officials are trying to say that there is no government money involved. Maybe. But for every dollar a lender is ‘forced' to provide to a homeowner in foreclosure, then less money is available for those who did not make a ‘bad mistake'. It unquestionably makes rates higher for the people who did not make a ‘bad mistake'- and credit more restrictive. And absent fraud, I submit that such homeowners inherently knew there was a risk with adjustable rate mortgages in that future rates could be too high. To bail them out is wrong. Life sucks, then you die. You cannot get everything you want. You have to put more effort into thinking- which means reading. The government cannot be the lifeline when you are responsible for your own drowning. As stated previously, God gave people a brain. America gave them an education. They have to use both.

All that said, both the FED and the Treasury must make a calculated guess as to how much effort is put in to hold the economy together and how much looks like a bailout (via more lower interest rates). But no matter, the economy will still be negatively impacted well into 2008. And sooner or later, the market will have to take that into consideration.

Maybe it will be when Christmas spending is too low. I do know that Wal Mart et al are going to do some serious price cutting to keep people buying. But if gas reaches $3.25/gallon and their house declines by 10%, how receptive is the U.S. consumer going to be in buying yet another cell phone with far more buttons than they will ever use.

Lastly, in regards to all the loans that are packaged for sale to investors, here is the greatest line to indicate how messy this entire situation is. Fed Chairman Bernanke said, "I'd like to know what those damn things are worth"


My wedding picture.

10/17: AIDs is here. The Bird flu is supposedly next. Apparently not. The bug was first.- A dangerous germ that has been spreading around the country causes more life-threatening infections than public health authorities had thought and is killing more people in the United States each year than the AIDS virus. The microbe, a strain of a once innocuous staph bacterium that has become invulnerable to first-line antibiotics, is responsible for more than 94,000 serious infections and nearly 19,000 deaths each year.

The germ, which is spread by casual contact, rapidly turns minor abscesses and other skin infections into serious health problems, including painful, disfiguring "necrotizing" abscesses that eat away tissue. The infections can often still be treated by lancing and draining sores and quickly administering other antibiotics, such as bactrim. But in some cases the microbe gets into the lungs, causing unusually serious pneumonia, or spreads into bone, vital organs, and the bloodstream, triggering life-threatening complications.

MRSA was striking 31 out of every 100,000 Americans, which translates into 94,360 cases and 18,650 deaths nationwide. In comparison, the AIDS virus killed about 12,500 Americans in 2005.

The estimates makes MRSA much more common than flesh-eating strep infections, bacterial pneumonia and meningitis combined.

I think that within the next 20 years, we will see some type of epidemic or germ that will decimate the elderly population. Maybe bird flu, maybe killer tomatoes. But it may make the Social Security deficit relatively moot if a bunch of us will be very, very dead before the government can pay us much.

10/17: The brain: a constrained processor of information

An individual (he) has to take an action with uncertain payoff . Prior to that, he can obtain some information about the relative desirability of the alternatives. His objective is to process the information as efficiently as possible, given the physiological limitations of his brain. As reviewed above, the neurobiology literature highlights three key aspects of signal processing in the brain. First, information is scarce and imperfect: neuronal cell ring is stochastically correlated with the state. Second, the brain has a limited capacity to process information. It can only determine whether the neuronal cell ring activity surpasses a given threshold or not. Third, the brain (and, more specifically, the soma according to the somatic marker theory) has the ability to choose the neuronal threshold.

"A rationale for stubbornness": agents are less likely to change their mind as time passes, not only because they are more con dent about which alternative they prefer, but also because they modify thresholds in a way that existing beliefs are most likely to be reinforced. At the same time, when they change their mind, they do it more drastically. It also suggests that stubbornness should be more prevalent in complex issues, where information is more difficult to interpret. Second and related, two individuals with opposite beliefs will set thresholds at opposite ends and therefore may interpret the same evidence in opposite directions. In other words, in a world of different priors, common information may increase polarization of opinions, at least in the short run.21 Third, we have seen that the information sequence matters in dynamic settings. This suggests that behavior can be influenced by manipulating the order in which news is revealed. One could possibly develop a theory of framing based on this approach. Last, the way information is interpreted in strategic settings seems to affect behavior substantially.

This is not an easy article. But it does help to explain why the human has a ways to go.  

10/16: Foreclosures- U.S. home foreclosures doubled in September from a year earlier as subprime borrowers struggled to make payments on adjustable-rate mortgages, RealtyTrac Inc. said. There were 223,538 foreclosure filings last month, including default and auction notices and bank repossessions, an 8 percent decline from August. California had the most with 51,259 filings and Florida was second with 33,354. The national foreclosure rate was one for every 557 households.

10/16: Oil- it's up over $83. One NY Times article said that it could up to $100- but also down to as low as $50.. I know that there is tremendous volatility here, but I just can't believe it can below $60. (But I was wrong last year when I said the same thing and it dropped into the 50's. Though it certainly has shot back up.)  

I still feel that we are in for a BIG mess.

“I have no interest in bailing out lenders or property speculators,”  said the Treasury Secretary. . “Still, we must keep in mind the balance between moral hazard concerns and the very real harm to families affected by the housing downturn.”

Fed Chairman Bernanke noted. “Despite a few encouraging signs, conditions in mortgage markets remain difficult

You got that right.

Bernanke said the overall economy is still growing, suggesting that the Fed is not likely to cut interest rates at its policy meeting at the end of this month unless conditions worsen markedly in the next couple of weeks. But he predicted that the housing market has yet to hit bottom and that it was likely to be a “significant drag” on growth through early next year. A weak economy, he added, could reinforce problems in the credit markets

As to the value of the mortgage backed securities, Bernanke said, “I’d like to know what those damn things are worth"

Comforting, eh???

10/15: From a reader: I" never get tired of your tirades about the financial services industry. Thank you for being at least one voice trying, against the odds, to bring enlightenment to consumers and industry members alike. I am a CFP. And I agree that CFP is just barely scratching the surface regarding the education that a real planner should have."

10/15: Depression rates categorized by job

The percent of full-time workers age 18 to 64 reporting depression lasting two weeks or longer, by categories of occupation, as provided by the National Survey on Drug Use and Health using 2004 through 2006 data:

—Personal care and service: 10.8

—Food preparation and serving related: 10.3

—Community and social services: 9.6

—Health care practitioners and technical: 9.6

—Arts, design, entertainment, sports and media: 9.1

—Education, training and library: 8.7

—Office and administrative support: 8.1

—Building and grounds cleaning and maintenance: 7.3

—Financial: 6.7

—Sales and related: 6.7

—Legal: 6.4

—Transportation and material moving: 6.4

—Mathematical and computer scientists: 6.2

—Production: 5.9

—Management: 5.8

—Farming, fishing and forestry: 5.6

—Protective service: 5.5

—Construction and extraction: 4.8

—Installation, maintenance and repair: 4.4

—Life, physical and social science: 4.4

—Engineering, architecture and surveyors: 4.3

10/15: Another designation?????? A Certified Mortgage Planning Specialist (CMPS) is a recognized expert in the area of mortgage planning, cash flow management and real estate equity management. A CMPS is an invaluable resource for homeowners, first-time home buyers, move-up home buyers, senior citizens, real estate investors, Realtors, builders, attorneys and financial advisors. A CMPS is committed, qualified and equipped to help you build your dream home, invest in real estate, increase your cash flow, become debt free sooner and achieve true financial freedom.

Some more crap.

10/15: Council for Disability Awareness (CDA) Website

¥ Nearly 50% of all mortgage foreclosures are caused by disability, compared to 2% caused by death, according to a February 2005 article in The Health Affairs Website.

¥ 50% of all personal U.S. bankruptcies were attributable to illness or medical bills, according to a Health Affairs Web exclusive.

¥ 30% of workers between 25 and 65 will have an accident or illness that keeps them out of work for three months or more, according to a Social Security Administration Fact Sheet.

According to the United States Census Bureau, over 51 million Americans are classified as disabled.

"Americans With Disabilities: 2002," U.S. Bureau of the Census, May 2006

A disabling injury occurs every two seconds.

National Safety Council, Injury Facts 2004 Ed.

Three in 10 workers entering the work force today will become disabled before retiring.

Social Security Administration, Fact Sheet 2007

Over 6.8 million workers are receiving Social Security Disability benefits, almost half are under age 50.

Social Security Administration, Fact Sheet 2007

Disability often keeps people out of work:

An illness or accident will keep 1 in 5 workers out of work for at least a year during their working careers.

U.S. Census Bureau, December 1997

One in 7 workers can expect to be disabled for five years or more before retirement

"Commissioners Disability Table, 1998," Health Insurance Association of America, the New York Times, February 2000

The average long-term disability absence lasts 2 and a half years.

Commissioner’s Individual Disability Table A

Disability can cause financial hardship:

Two-thirds of American families live from paycheck to paycheck.

Parade Magazine, Is the American Dream Still Possible?, April 23, 2006

Unexpected illnesses and injuries cause 350,000 personal bankruptcies each year.

"Illness and Injury as Contributors to Bankruptcy," Health Affairs, February 2, 2005

Disability causes nearly 50% of all mortgage foreclosures, 2% are caused by death.

Health Affairs, The Policy Journal of the Health Sphere, 2 February 2005

Most American workers can't afford to become disabled:

Over 70% of working Americans do not have enough savings to meet short-term emergencies.

National Investment Watch Survey, A.G. Edwards Inc. 2004

According to the Federal Reserve, 44% of U.S. families spend more than they earn.

Federal Reserve Board, Survey of Consumer Finances 2004

For the average American household, the savings rate is negative, the lowest since 1933, and credit card debt is at an all-time high - $9,300.

Parade Magazine, Is the American Dream Still Possible?, April 23, 2006

Over 50% of the workforce has no private pension coverage and a third have no retirement savings.

Social Security Administration, Fact Sheet 2007

Social Security and Workers' Compensation may not be adequate:

Over 90% of disabling accidents and illnesses are not work related.

National Safety Council, Injury Facts 2004 Ed.

The average monthly Social Security Disability Insurance (SSDI) benefit is $978.

Social Security Administration, Fact Sheet 2007

Less than half - 39% - of the 2.1 million workers who applied for SSDI benefits in 2005 were approved.

Social Security Administration, Office of Disability and Income Security Programs

Most American workers are not covered by disability insurance:

Over 100 million workers do not have private disability income insurance.

Council for Disability Awareness, Long Term Disability Claims Review, 2005

70% of the private sector workforce has no long-term disability insurance.

Social Security Administration, Fact Sheet 2007

Disability is a real and growing risk and is widespread

10/15: Disability Insurance 101 Good stats

10/15: It will help but it will not stop the overall growth: China's central bank said Saturday it was boosting the amount of money that its banks must hold in reserve for the eighth time this year, reducing the amount available for lending in an effort to cool an investment boom.

10/14: Income and tax (NY Times) after adjusting for inflation, 95 percent of Americans reported smaller incomes to the tax man in 2005 than in 2000.

Despite this, all Americans had more in their pockets as a result of the Bush tax cuts, although the increases ranged from barely perceptible for the bottom half of American earners to thousands of dollars a month for those at the top.

For the bottom half of Americans, the average after-tax income in 2005 was $14,526, which was $20 a month more than in 2000. Without the tax cuts, their incomes would have slipped by $234 a year, or around $20 a month.

The next higher 25 percent, who made $30,881 to $62,068, had on average $52 a month more after taxes in 2005. For the next 20 percent above that, the increase ranged from $144 to $274 a month.

The only group to report higher incomes both before and after taxes was the top 5 percent.

After-tax income for the 96th through 99th rungs on the income ladder rose $5,656 on average, or $471 a month. For the top 1 percent, whose incomes averaged more than $1.2 million, after-tax income rose by $64,796, or $5,400 a month, even though their average income rose only $18,000 in the same period. More than 75 percent of taxpayers make less than $5,400 a month.

Analysis of the new income tax data also shows that while incomes rose markedly in 2005 from 2004, with all taxpayers’ average income up nearly 4 percent in real terms, average pretax income declined slightly for 75 percent of Americans.

The Tax Foundation’s table shows that the lowest 50 percent of American earners paid an average federal income tax rate of 2.98 percent. When all tax credits are taken into account the rate drops to a negative 2.27 percent.

“Money at risk doesn’t bother me. It’s the risk of the money. Is it being run intelligently? If you take a $5 billion hit, my question is, Do these guys know what they are doing?”

Merrill Lynch broker after recent big loss in October.

Merrill is “managing risk and market activity every day” “It’s what our clients pay us to do, and as you all know, we’re pretty good at it.”

Merrill Lynch CEO in July

10/14: Of course they want coverage- they are simply unwilling to pay for it: nearly seven in ten Americans have not made any plans for their own, a spouse's or another relative's long term care needs. Yet, over half those surveyed have had a loved one who needed some form of long term care. The poll also found that close to 80 percent of the respondents want to see long term care included in the healthcare proposals offered by the presidential candidates. More than 80 percent of those surveyed also said that positions on long term care funding will be an important factor in deciding who to vote for in the 2008 election.

10/14: 1031

* Today’s global financial markets may actually be more risky than in the past. That’s because the same types of investors are taking on the risky bets and then simultaneously heading for the exits when trouble comes, even if they’re on opposite sides of the world.


* 10/11: More hedging: (NY Times) A survey of 50 major pension managers showed they would, on average, raise their allocation in alternative investments to nearly 20 percent by 2010 from 14 percent today. In all, that would mean another $1.2 trillion flowing into alternatives over the next two years.

I  am not sure they really want to. I think they are grasping at anything to make money because a number of municipalities they represent are going under water.

College and university foundations had, on average, 17.4 percent of their assets in alternatives (including private equity, venture capital, hedge funds, real estate and natural resources) at the end of July 2006. Ten years ago that figure was 5 percent.

New investment dollars are also pouring in from abroad. Morgan Stanley estimates that there is currently $2.8 trillion in sovereign wealth funds — government-owned and managed funds that are, in most cases, invested in foreign currencies. Some of them are looking to alternatives to diversify and improve returns. The investment arm of the government of China, for example, invested in the Blackstone Group in May before it went public.

Middle Eastern countries, enriched by high oil prices, have been investing more in alternatives, following the lead of government funds in Singapore. In September, an investment group owned by the government of Abu Dhabi bought a 7.5 percent stake in the Carlyle Group for $1.35 billion.


10/8: I have been working on several cases. I will describe these more fully later but this is a problem with one. The CFP started doing real estate that he did not have a clue to. He put out  a beautiful brochure (and that is what attracts people.) He had a sports agent extolling  his capabilities. In the deposition he stated that he paid $100,000 to the agent for the pictures and nice words.

Happens all the time but I did not expect $100,000.

Millions upon millions of losses.

“Americans are apt to be unduly interested in what average opinion believes average opinion to be. The battle of wits to anticipate the basis of conventional valuation of a few months hence does not even require gulls amongst the public to feed the maws of the professional — it can be played by professionals among themselves.”

John Maynard Keynes

* Words ought to be a little wild for they are the assaults of thought on the unthinking.

John Maynard Keynes

10/7: Europe: Recent surveys have shown shakier consumer and business confidence in Europe in the wake of the credit market turmoil, which has led to emergency rescues at two German banks and one in Britain.

Under the treaties that created the euro, the bank’s chief priority is to fight inflation, which is now edging above 2 percent because of higher oil and food prices, slightly above the bank’s comfort zone. Over the last two years, the bank has steadily raised rates to ensure that accelerating growth does not lead to a spiral of rising prices as companies pass on the costs of more expensive raw materials to consumers or bid up the price of labor amid falling unemployment — dangers that Mr. Trichet said were still very much present in the euro area.

The bank did drop a reference from its monthly statement to interest rates being “on the accommodative side,” a sign that it has finished tightening credit. But the bank “stands ready to act” to ward off higher inflation with higher rates, even though it is clearly pausing to gather more information about the effects of the credit squeeze.

One reason the bank may have altered its trajectory on interest rates is that credit markets have done the bank’s job for it over the last two months, economists said. As nervous banks and investors have curbed their lending, they have forced up the cost of borrowing, effectively creating the tighter credit conditions that central banks use to keep inflation under control.

10/7: Worldwide productivity: Since 1995, the United States has experienced a period of strong labor productivity growth, with GDP per employee advancing at a rate of 2.0 percent a year. While this rate easily exceeds the 1.0 percent average growth rate seen in the euro area, it falls markedly short of labor productivity growth in emerging markets, which has averaged more than 4.0 percent across developing Asia and Eastern Europe.1 China and India, two large emerging economies of particular interest, have seen spectacular growth rates of 6.4 and 4.4 percent per year,

10/7: ) “Is the United States Losing Its Productivity Advantage?” by Mary Amiti and Kevin Stiroh (Current Issues in Economics and Finance, September 2007)

Strikingly high rates of labor productivity growth in China, India, and other emerging economies have prompted concerns that U.S. workers and firms are losing ground to their competitors in world markets. A closer look at the evidence, however, suggests that rapid foreign productivity growth will bring gains as well as losses to the U.S. economy. Some import-competing firms may be compelled to restructure or leave the market, but consumers will benefit from lower import prices and more import varieties, and U.S. exporters may gain access to cheaper intermediate products from abroad.

10/7: Fee for service??: Only 2.6% of the Medicare beneficiaries who now have basic Medicare or Medicare supplement insurance coverage want to move into Medicare Advantage managed care or fee-for-service plans

10/7: Controversies Involved in Arbitration Cases

Type of Controversy*                            2003           2004            2005            2006             Aug-2007

Margin Calls                                          244             168                78                 103                 29

Churning                                                665              449            315                   257                 94

Unauthorized Trading                             789             520              395                242                 116

Failure to Supervise                              3,230            2,743          1,828             1,425                589

Negligence                                           3,500           3,398           2,225             1,619               638

Omission of Facts                                 1,949          2,195            1,123               588                192

Breach of Contract                                 2,328         2,723             1,987              1,397               632

Breach of Fiduciary Duty                      5,565           5,426            3,514               2,621           1,145

Unsuitability                                         3,198            2,697            1,926            1,347                 501

Misrepresentation                                3,280            3,230            1,826           1,187                 540

Online Trading                                      74                     4                  7                   8                     0

*Each case can be coded to contain up to four controversy types. Therefore the columns in this table cannot be totaled to determine the number of cases served in a year.

10/7: How Arbitration Cases Close

 Cases Decided by Arbitrators                2003    % of Cases          2004    % of Cases            2005     % of Cases                2006      % of Cases             Aug-2007     % of Cases

After Hearing                                         1,764    24%                     1,915    21%                     1,767    20%                         1.265    18%                         678                 19%

After Review of Documents                   313         4%                        508     6%                       355         4%                          192       3%                          103                  3%

Total                                                     2,077      29%                    2,423    27%                    2,122      24%                         1,457     21%                        781                  22%

10/7: Cases Resolved by Other Means                     2003       % of Cases               2004       % of Cases             2005       % of Cases               2006      % of Cases          Aug-2007      % of Cases

Direct Settlement by Parties                                     2,616        36%                       3,700      41%                         3,940      44%                       3,503       50%                  1,957            55%

Settled Via Mediation                                              1,182          16%                     1,201       13%                       910         10%                        730         10%                     317             9%

Withdrawn                                                                647              9%                      677          7%                        806          9%                          643         9%                       250           7%

All Others*                                                           679                 9%                      1,073       12%                    1,127         13%                       738          10%                      235           7%

Total                                                                     5,124            71%                     6,651       73%                    6,783          76%                       5,614         79%                  2,759          78%

*All Other reasons for closed includes cases closed by: Stipulated Award, Bankruptcy of critical party; Uncured Deficient Claim; Forum Denied; Stayed by Court Action, etc. Note cases counted as closed in this report do not include those cases that closed and were then reopened.

Results of Customer Claimant Arbitration Award Cases

Year             Decided                   All Customer Claimant Cases Where Customer Awarded Damages          *Percentage of Customer Award Cases

2000            1,196                       635                                                                                                          53%

2001            1,172                       637                                                                                                           54%

2002            1,330                      702                                                                                                           53%

2003            1,513                     742                                                                                                            49%

2004           1,894                       888                                                                                                          47%

2005          1,610                       687                                                                                                              43%

2006          1,011                       425                                                                                                              42%

10/4: Somethings out of kilter: Over the past 25 years, the economy has grown an average of 5.9% a year -- and the shares in the Standard & Poor's 500 index have soared an annual 10.3%. Tack on dividends, and you get an annual total return for the S&P 500 of 13.4%,

10/4: Corporate profits- While corporate profits were sluggish through the 1980s, they have skyrocketed since then, climbing at a blistering 8.2% a year since 1990. The problem is, corporate profits have raced ahead of the economy, which grew just 5.3% a year over that stretch. Result: In 2006, corporate profits claimed 13.3% of national income, versus 8.6% in 1990 and just 7.3% in 1982. . The last time corporate profits claimed such a large share of the economy's rewards was in 1965.

the S&P 500 companies now get 40% of their earnings from abroad, and he speculates that the corporate-profit bonanza has been partly driven by foreign growth. But it's pretty clear the surge in earnings has also come at the expense of employees.  While corporate profits have been snagging a larger share of national income, the portion going to wages and salaries has shrunk, declining from 56.5% in 1980 to 51.7% in 2006.


IRS Pencil Sharpener

10/3: Homes: Pending sales of previously owned homes fell by a larger-than-expected 6.5 percent as more borrowers seeking loans were turned away by wary lenders

Morgan Stanley announced a restructuring of its residential lending business that will result in 600 job cuts because of lower mortgage origination.

* Mankind have a great aversion to intellectual labor; but even supposing knowledge to be easily attainable, more people would be content to be ignorant than would take even a little trouble to acquire it.

Samuel Johnson

10/3: Long-Term Care Calculator LINK (Met Life) Enter State and nearby major City. Shows you how much long term care, assisted living and home care would cost.  Very expensive. Very depressing.

10/3: Disability Insurance Calculator  How much income would you need to replace if you were sick or injured and couldn't work? Personally, I would like a rich young woman to take care of me. But I digress,,,,,,,,,,,,,

10/3: MEDICARE AND SOCIAL SECURITY LINK:  A excellent review of the current and future exposure of the health care and retirement systems. Facts, figures and charts make it all very clear just how bad the exposure is.  Medicare spending will soar, rising from 3 percent of GDP today to 8 percent of GDP in 2040. Total program expenditures are projected to increase from 9 percent of GDP in 2007 to 24 percent in 2080. The rising costs of Social Security are driven solely by the aging of the population so, as the ratio of retirees to workers climbs, costs increase from 4.3 percent today to 6.3 percent in the future.

The costs of the health programs are driven, however, by both the aging of the population and more importantly by the general rise in health care prices and the increase in the volume and intensity of services. As a result of their faster growth, the health programs reflect the bulk of government spending on the elderly in the future. And the bulk of the health care spending on the elderly will come from Medicare.

By 2040, retirees will face:

a nearly 20 percent increase in income tax rates to cover the government’s Medicare contribution; and rising out-of-pocket costs that will eat up more than half of the average Social Security benefit.

These sobering numbers suggest that individuals nearing retirement should aim for an extra cushion to cover health care

10/2: Gold is up  to $750 because of concern about recession. The market is up because its looking for a rate cut.

But oil is still at $80 and the subprime mess has a long ways to go.

10/1: Foreclosures: (NY Times) In August foreclosure filings across the country — default notices, auction sales notices and bank repossessions — soared to almost 244,000, up 36 percent from the previous month and more than double the number in August 2006.

Lenders, government officials and loan servicers, who take in borrowers’ monthly mortgage payments, contend that troubled borrowers everywhere are being helped to stay in their homes by those overseeing their loans. But neither data nor anecdotal evidence supports this view. A recent survey of 16 top subprime loan servicers by Moody’s Investors Service found that for the first six months of 2007, an average of only 1 percent of loans experiencing an interest rate adjustment, or reset, had been modified.

Expressed as a percentage of the loans’ unpaid principal balances, they jumped to 1.2 percent in August from 0.48 percent a year earlier. Foreclosures pending as a percentage of total loans increased to 0.89 percent in August, up from 0.50 percent a year earlier.

The Mortgage Bankers Association said that adjustable-rate mortgages to subprime borrowers accounted for 44 percent of all new foreclosures in the second quarter of this year.

A 2003 Federal Reserve study found that estimated losses on foreclosures range from 30 percent to 60 percent of the outstanding loan balance, as a result of legal fees, lost interest payments and property costs. Countrywide said it incurred $600 million in losses on loans it holds in the first six months of 2007.

10/1: 34 and 29 and they are wondering why they got screwed (WSJ)-  For the past six years, the road to Bill Clinton has often run through Douglas Band, a 34-year-old former White House intern who has helped manage Mr. Clinton's time, accompanied him around the world and even fielded some of his calls. Two years ago, Mr. Band befriended a handsome and charming Italian businessman named Raffaello Follieri age 27. The young Italian had moved to New York in 2003 to launch a business buying and redeveloping Roman Catholic Church properties. He claimed close ties with Vatican officials (probably had to go to confession a lot ) that would smooth the way for deals, according to business associates and material issued by his company, Follieri Group LLC. He also said he could help Mr. Clinton's wife, Sen. Hillary Rodham Clinton, with Catholic voters during her presidential campaign, people in the Clinton camp recall.

Mr. Follieri has been sued for allegedly misappropriating at least $1.3 million. The lawsuit claims Mr. Follieri used Yucaipa's investment money to fund a lavish lifestyle that included a Manhattan penthouse, five-star meals and private jets for Mr. Follieri and his girlfriend, actress Anne Hathaway.

A résumé posted on the company's Web site says that while Mr. Follieri was attending the University of Rome in the late 1990s, he founded a cosmetics company called Beauty Planet that attained "tremendous success" and licensed a line of products to "an internationally renowned hairstylist." Beauty Planet financial records on file in Italy indicate that the firm was small and had three straight years of losses. (Bet not a sole bothered to check).

Mr. Follieri's résumé also says he worked as executive vice president of EFFE Holdings, "a London based, privately held investment firm" that "purchases large real estate packages from government holdings in Europe and the Middle East" and "is also active in oil trading as well as gold and diamond mining," with "mining operations in Gambia, Senegal and Angola." British public records show an EFFE Holding Ltd., with Mr. Follieri listed as a director, was formed in 2002 and dissolved two years later. (29 years old and he is treading all this stuff??) Bet nobody checked on the two years of "activity".

Mr. Follieri is now searching for new investors. Call him up- he's waiting for you (and your money).

10/1: Need to varnish something?? I had to strip my office again. When revarnishing I looked for the right brush- supposedly a very detailed item and expensive- up to $50 and more. Was at a swap meet and saw a makeup brush.Twice as good and next to nothing in price. Very s o f t brushes and hundreds of bristles. Perfect for this work. So get your wife's, girlfriends (or your own)- you will be pleasantly surprised. If you have any left, they are great for rouge.

10/1: The Grand Canyon of Expertise

Levels                                                      Characteristics

Pre-novice                                               Unaware of the Principles or rules of the field or process. Little or no direct experience in the field. The field and work in it is often incidental to what the novice does

Novice                                                     The novice follows specific rules for specific circumstances. No modifiers “Context free” Doesn’t feel responsible for other (outcomes) than following the rule. Engages in working                                                                             backwards on a problem.

Advanced Beginner                                   New “situational” elements are identified. Principles and rules begin to be applied to related conditions. Decisions still made by rule application. Does not experience personal                                                                                   responsibility. Blames other-than-self for mistakes made.

Competent                                                Pivotal level. Sheer numbers of Principles and rules become excessive. Develops organizing principles or “perspectives” Perspectives permit sorting of information by relevance. The                                                                        experience of responsibility arises from active decision-making.

Proficient                                                   Intuitive diagnosis. Approach to problem molded by perspective arising from multiple real world experiences. “Holistic similarity recognition” Learner uses intuition to realize what is                                                                          happening. Conscious decision-making and Principles /rules used to formulate plans.

Expert                                                      (10,000 hours; 50,000 chunks of fieldrelevant information) These are the people who discover the Principles and write the rules others follow. Do what works. Don’t make conscious                                                                     decisions. Don’t solve “problems”. No decomposition of situation into discrete elements. Pattern recognition extends to plans as well as diagnosis Relies on metaphors and underlying                                                                         principles. Thinks strategically. Engage in forward reasoning. Knowledge stored in strategically significant ways Operates on autopilot so is typically unable to articulate to others how it                                                                     works at this level.

Consciously competent expert                  Able to articulate clearly to others how an expert thinks, operates.

9/30: Recession: Greenspan said the odds on the first U.S. recession in six years have increased as falling house prices threaten consumer spending.. He indicates it is still less than 50/50. I think it is higher though not preordained. Purchases of new homes fell to an annual rate of 795,000, an 8.3 percent decline from July, as inventory levels rose to their highest level since March. The median price for a new home was down 7.5 percent from a year ago, to $225,700, marking the steepest monthly price drop since December 1970. 

9/30: The Myths of High Medical Costs

The rising cost of medical care in the United States is often erroneously linked to the growing population of older adults. Despite public perception, health care costs associated with aging are limited in scope and expense, according to research just published in our report "Myths of the High Medical Cost of Old Age and Dying."

“When we imagine the end of life, most people picture a very frail older patient receiving expensive and unlimited medical care. “The truth is only a fraction of older adults receive costly care at the end of life. In fact, they are less likely to receive aggressive care when dying then other age groups.”

Dr. Robert N. Butler,

9/30: “Deaths: Preliminary Data for 2005.” The good news included in the report is that life expectancy at birth rose to a record high of 77.9 years, up from 77.4 years in 2003 and 77.8 years in 2004. Life expectancy for females was 80.4 years and for males 75.2 years. The black population had a lower life expectancy of 73.2 years, compared to 78.3 years for the white population. The data also indicate that a person aged 65 years in 2005 could expect to live an average of 18.7 additional years for a total of 83.7 years. Overall, there were 2.45 million deaths in the U.S. in 2005.

9/30: On the Fairness of Early Retirement Provisions

Declining fertility and increasing longevity have rendered public pension systems in many OECD countries unsustainable and have triggered substantial reforms of these systems. One of the officially declared reform objectives is to raise the average retirement age. Crucial parameters for this endeavor are first the legal retirement age and secondly the early retirement provisions inherent in the public pension system. In this paper we discuss several notions of "fairness" of early retirement provisions in pay-as-you-go financed public pension systems and we claim that the "right" notion of fairness depends upon the objectives pursued in the design of pension systems. We point out the problems attached to the extreme positions "efficiency" and "welfare maximization" and propose a more modest concept of equity called "distributive neutrality", which is based on the notion that the ratio between total benefits and total contributions to the pension system should not depend systematically on the individual's ability. By applying this concept to the German retirement benefit formula and taking empirically estimated relationships between average annual income, life expectancy and retirement age into account, we show that at the present discount rate of 3.6 per cent per year there is systematic redistribution from low to high earners, which would be attenuated if the discount rate were raised. This seemingly paradoxical finding is due to the fact that in our data set, there is a negative relationship between earnings and retirement age

9/27: ALTERNATIVE MINIMUM TAX FOR INDIVIDUALS LINK:  IRS Everything you wanted to know about this insidious tax. That said, if they eliminate it, where will they get the money to run the country. (They can't without increasing individual taxes overall)

9/27: And yet another dismal projection- U.S. says August orders for durable goods fall steeper-than-expected 4.9%

9/27: Current press release

Here we go- DOWN!!!!

There has been all sorts of chatter about the subprime lending and the exposure of those least able to afford the loss. The Times notes that, “ In many cases, when the true costs are revealed, the brokers who arranged the mortgages at unfavorable terms have long moved on with their fees, while the original lenders have already sold the loans on the secondary market to banks that used them to back securities.” Most of the blame I can lay there since the state and national entities all had a hand in looking the other way as the debacle kept getting worse and worse.

You’d have to be dumber than a fence post for an entire industry not to recognize the fraud on one hand and the clear financial irresponsibility of the consumer on the other. But, then again, most of our officials are that dumb, ignorant, lazy and incompetent. (Sorry to offend some but the truth does hurt sometimes.) Just look at the Dotcom era and try to say that some type of calamity was not preordained by a decade of mental lapse and lots of greed. The valuations were not valid for stocks. The valuations were not valid for real estate. Hello!!!!!!!

As stated, the consumer is not blameless. Many were clearly aware that their income and assets were being fabricated upwards to pass the lending criteria. (I am excluding all speculators- screw ‘em they can’t take a joke!) Admittedly some were taken in by the comment, “don’t worry, we’ll refinance later and it will all be O.K.” But far too many allowed the lies to perpetuate.

In any case, this mess will ultimately bring the U.S. into a recession. When one loses housing construction and sales, you invariably stop consumer spending. “Purchases of previously owned homes in August dropped 4.3 percent from July, sending sales to a five-year low. Existing-home sales are down nearly 13 percent over the last 12 months.” It will get worse.

So, is that the only impact to spending and our financial woes? Nope. Take a look at the falling dollar. It makes imports more expensive and that means that more of the U.S. consumer dollar goes out the window. Admittedly it makes our products cheaper overseas. So will their buying help us out of the financial doldrums? Doesn’t sound like it- “Fears of an abrupt economic slowdown in Europe deepened, after the release of weaker-than-expected data and another record in the euro’s relentless rise against the dollar.” Nuff said there.

What about inflation? It’s generally higher. Even basic costs for milk and beef has gone way up-and it won’t get better. That’s because the U.S. has put so much emphasis on ethanol as a gas substitute, farmers can get a LOT more money growing corn that they sell for conversion. That means feed corn will stay very high. And so will food.

So what about gas prices? Should be coming down with slower consumption, shouldn’t they? But the costs per barrel are above $80. Why? Consider China as one ‘culprit’. Their expansion will continue- though somewhat abated- and their demand for oil is massive. As bad as the U.S. Further, with a low dollar, the oil producers are not getting as much bang for their buck. They simply raise prices denominated in the U.S. dollar to account for the drop in value. So what if the U.S. won’t buy- China will. There goes a lot of our leverage.

But everything else is rosy. Wrong! State pension plans have deteriorated from a $20 billion surplus in 2001 to a $381 billion deficit last year. (You have little idea of how bad this issue is. Some municipalities will have to declare bankruptcy because they will not have adequate monies to pay for pensions or retiree health care.)

But those are “little” deficits. Medicare and Social Security shortfalls are enormous and have not been addressed because of the Iraq war. Governmental programs must be bailed out. So that means more taxes no matter who is elected next year. Or four years after that. And four years after that...........

The list goes on.

The current request for the wars is $190 billion.

U.S. says August orders for durable goods fall steeper-than-expected 4.9%

The consumer confidence index fell to 99.8 in September from a revised 105.6 in August. That's the lowest in two years.

Has the FED drop in rates help? Sure. But unlike the Dotcom, the foreclosures stay with us for far longer with far deeper repercussions. Next years news will be just as bad. And just how low can the FED drop rates with the underlying inflation still being a concern.

Also think about this as the FED plays with who gets a reprieve from a foreclosure. If the U.S. or the various lenders (forced by political arm twisting) do come to the aid of the borrowers- even those non speculators- and provides them better terms in order to keep the properties, who do you think it impacts? Every other person in America who did not buy a house. The lenders will simply increase rates as necessary to maintain their profits and the non homebuyers will pay the subprime owners an extra benefit. Sure makes me feel happy.

In short, the FED is trying to prevent a wholesale meltdown to a recession. But the problem is too entrenched and almost neverending (at least for another 1.5 years).

Doubt the intensity of all this? Well, just watch Christmas spending. It is a good precursor for the future. It’s supposed to be bad and I am betting it will be.

There is going to be a lot of coal in the stockings this year- assuming the parents can afford it.

9/26: Houses: Purchases of previously owned homes in August dropped 4.3 percent from July, sending sales to a five-year low, the National Association of Realtors said yesterday. The annual sales rate fell to 5.50 million from 5.75 million in July, the steepest percentage decline since March. Existing-home sales are down nearly 13 percent over the last 12 months.

* “I’m normally bullish on the U.S. economy; there’s no bullish data here,”

Joseph Brusuelas, the chief United States economist for IdeaGlobal. “

9/26: Expected: The consumer confidence index fell to 99.8 in September from a revised 105.6 in August. That's the lowest in two years.

9/26: Didn't know this: IN california, mortgage brokers must act in the fiduciary interest of their clients.

9/26: Financial literacy and stock market participation  Individuals are increasingly put in charge of their financial security after retirement. Moreover, the supply of complex financial products has increased considerably over the years. However, we still have little or no information about whether individuals have the financial knowledge and skills to navigate this new financial environment. To better understand financial literacy and its relation to financial decision-making, we have devised two special modules for the DNB Household Survey. We have designed questions to measure numeracy and basic knowledge related to the working of inflation and interest rates, as well as questions to measure more advanced financial knowledge related to financial market instruments (stocks, bonds, and mutual funds). We evaluate the importance of financial literacy by studying its relation to the stock market: Are more financially knowledgeable individuals more likely to hold stocks? To assess the direction of causality, we make use of questions measuring financial knowledge before investing in the stock market. We find that, while the understanding of basic economic concepts related to inflation and interest rate compounding is far from perfect, it outperforms the limited knowledge of stocks and bonds, the concept of risk diversification, and the working of financial markets. We also find that the measurement of financial literacy is very sensitive to the wording of survey questions. This provides additional evidence for limited financial knowledge. Finally, we report evidence of an independent effect of financial literacy on stock market participation: Those who have low financial literacy are significantly less likely to invest in stocks.

9/25: Higher oil prices in the making: (Times) Mexico is the second largest supplier of oil to the United States (about 1.5-million barrels a day). But output from its major fields is dwindling fast. The country's known oil reserves will run out in nine years, the government says, potentially undermining the nation's oil-dependent budget.

Mexican output peaked at just over 3.4-million barrels a day in 2004. "I don't believe we'll ever see it that high again, no matter how much is invested. Daily output at Mexico's biggest oil field, Cantarell, highlights the problem. Production there dropped by a staggering half a million barrels in the last 18 months, to 1.5-million barrels from 2-million. Once the world's second-biggest oil field, it is expected to continue losing production, down to as little as 600,000 barrels a day by 2013.

And if the production declines, so does the Mexican economy. And if the Mexican economy declines, you are going to see a flood of illegal immigrants.

9/25: And yet another huge deficit: (National Association of State Retirement Administrators (NASRA) State pension plans have deteriorated from a $20 billion surplus in 2001 to a $381 billion deficit last year.. That underfunding, much of which comes from big stock market losses earlier this decade, means the assets they have in their portfolios today aren't enough to cover the present value of the long-term retirement promises they've made.

Many are using hedge funds. But the growing popularity of hedge funds is reducing the diversification they can provide as managers increasingly compete for the same limited set of investments. That dampens how well they can help a pension fund perform. "In some ways, what you have is almost a commodity. "Ten years ago fund managers had much more unique insight and strategies."

* "Fear dissipates when price uncertainty diminishes, that is to say when the spread between the sale price and the purchase price of securities falls and stabilizes. We're not there yet,"


9/25: LTC- The average age of buyers has dropped from 69 in 1995 to 61 in 2005. That's due to the offering of policies to the younger, mainly through businesses.

9/24: Let's be careful out there: Habana Health Care Center, a 150-bed nursing home in Tampa, Fla., was struggling when a group of large private investment firms purchased it and 48 other nursing homes in 2002.

Alice Garcia, with her granddaughter Jacqualynn Hewitt in 1995. Mrs. Garcia, who had Alzheimer’s disease, died in 2003 after a bedsore became infected at Habana Health Care Center in Tampa, Fla.

The facility’s managers quickly cut costs. Within months, the number of clinical registered nurses at the home was half what it had been a year earlier, records collected by the Centers for Medicare and Medicaid Services indicate. Budgets for nursing supplies, resident activities and other services also fell, according to Florida’s Agency for Health Care Administration.

The investors and operators were soon earning millions of dollars a year from their 49 homes.

Residents fared less well. Over three years, 15 at Habana died from what their families contend was negligent care in lawsuits filed in state court. Regulators repeatedly warned the home that staff levels were below mandatory minimums. When regulators visited, they found malfunctioning fire doors, unhygienic kitchens and a resident using a leg brace that was broken.

The Times analysis shows that, as at Habana, managers at many other nursing homes acquired by large private investors have cut expenses and staff, sometimes below minimum legal requirements.

The typical nursing home acquired by a large investment company before 2006 scored worse than national rates in 12 of 14 indicators that regulators use to track ailments of long-term residents. Those ailments include bedsores and easily preventable infections, as well as the need to be restrained. Before they were acquired by private investors, many of those homes scored at or above national averages in similar measurements.

in recent years, large private investment groups have agreed to buy 6 of the nation’s 10 largest nursing home chains, containing over 141,000 beds, or 9 percent of the nation’s total. Private investment groups own at least another 60,000 beds at smaller chains and are expected to acquire many more companies as firms come under shareholder pressure to sell.

The typical large chain owned by an investment company in 2005 earned $1,700 a resident, according to reports filed by the facilities. Those homes, on average, were 41 percent more profitable than the average facility.

at 60 percent of homes bought by large private equity groups from 2000 to 2006, managers have cut the number of clinical registered nurses, sometimes far below levels required by law. (At 19 percent of those homes, staffing has remained relatively constant, though often below national averages. At 21 percent, staffing rose significantly, though even those homes were typically below national averages.) During that period, staffing at many of the nation’s other homes has fallen much less or grown.

Nurses are often residents’ primary medical providers. In 2002, the Department of Health and Human Services said most nursing home residents needed at least 1.3 hours of care a day from a registered or licensed practical nurse. The average home was close to meeting that standard last year, according to data.

But homes owned by large investment companies typically provided only one hour of care a day

For the most highly trained nurses, staffing was particularly low: Homes owned by large private investment firms provided one clinical registered nurse for every 20 residents, 35 percent below the national average. Federal and state regulators also said in interviews that such cuts help explain why serious quality-of-care deficiencies — like moldy food and the restraining of residents for long periods or the administration of wrong medications — rose at every large nursing home chain after it was acquired by a private investment group from 2000 to 2006, even as citations declined at many other homes and chains.

9/24: LTC: [Image]  Projected Need for Long-Term Care for Individuals Who Turned 65 in 2005

[Image]    Funding Sources for Long-Term Care, 2005

About one-third of older Americans will require no long-term care at all while one-fifth will need it for 2-5 years, and another fifth will need it for more than 5 years. About two-thirds of those over 65 will need some long-term care in their lives, and they will require assistance for an average of 3 years.

A private room in a nursing home costs an average of $75,000 per year. Home health aides cost an average of $18/hr.3 Therefore, the 40 percent of the older population who will require long-term care for more than two years, and especially those needing assistance for more than 5 years, face potentially severe financial burdens and might well benefit from affordable insurance.

Private long-term care insurance is not inexpensive. While it is far less costly than health insurance, the average annual premium of nearly $2,000 per person at age 65 means that a couple can expect to spend more than $300/a month for this coverage. Based on National Association of Insurance Commission (NAIC) guidelines, an estimated 39 percent of 60-64 year-olds could afford coverage, falling to 27 percent of 65-69 year-olds, and just 17 percent of 70-74 year-olds (

According to one survey, nearly 60 percent of those over 45 believe that Medicare will pay for a long-term care stay in a nursing home. And half believe Medicare Supplemental (Medigap) insurance covers such care.11 These mistaken beliefs may play a key role in consumers’ unwillingness to buy private long-term care insurance.

price is by far the biggest reason people do not buy their product. In 2005, 83 percent of non-buyers said that cost was an important or very important reason why they declined to purchase.13

9/24: Long Short: (NY Times) JPMorgan Chase & Co., Charles Schwab Corp. and ING Grope NV mutual funds designed to protect investors when markets fall left clients with bigger losses than the Standard & Poor's 500 Index. JPMorgan's $1.4 billion Highbridge Statistical Market Neutral Fund dropped 4.7 percent and ING's 130/30 Fundamental Research Fund declined 2.3 percent in the past three months, a period when the S&P 500 fell 0.3 percent, data compiled by Chicago-based Morningstar Inc. show. The average so-called long- short fund lost 1.1 percent of its value.

Like hedge funds, long-short funds engage in short selling, in which managers seek profits by selling borrowed shares and buying them later at lower prices. More than 95 percent of mutual funds are prevented from short selling, according to U.S. regulatory filings.

Long-short funds are posting the worst declines since Morningstar started tracking them almost two years ago. San Francisco-based Charles Schwab and Geronimo Financial LLC of Denver are shutting offerings.

Long-short funds charge fees of $22, or 2.2 percent, for every $1,000 invested, compared with 1.5 percent for actively managed long-only mutual funds. Managers say the higher fees are needed because shorting strategies carry higher trading costs and require more research.

EFM- years ago when Barra had one that just was terrible, the manager stated that it happened "because the market did not do what it was supposed to do" (??????????)

Well, in moist cases it never will since it is emotionally driven at the most inopportune times.

9/23: Recession???: (NY Times) Fears of an abrupt economic slowdown in Europe deepened on Friday, after the release of weaker-than-expected data and another record in the euro’s relentless rise against the dollar.

is a sharp drop registered in the monthly survey of purchasing managers’ activity — evidence that the credit crisis that began in the American mortgage market and infected British and German banks has now seeped into Europe’s underlying economy.

An index of purchasing managers in the service sector dropped four points in September, its largest monthly decline ever, suggesting that commerce here is slowing faster than economists predicted.

Also note that if they keep slowing down, so will our exports. We started this mess and we are going to have to pay for it one way or the other.

9/23: WOW!!! The U.S. dollar is now worth less than it at any time since Richard M. Nixon cut the dollar’s ties to gold in 1971.

9/23: It's only money: students at public colleges graduate with an average of $17,277 in loan debt; for private school graduates, the average debt load is $28,138.

9/23: Well, duh!: Ben S. Bernanke said that the growing turmoil from increasingly permissive subprime lending had demonstrated a need for tougher restrictions on what borrowers and lenders can do. He noted, “The recent problems in subprime lending have underscored the need not only for better disclosure and new rules but also for more-uniform enforcement in the fragmented market structure of brokers and lenders,”

EFM- I get tired of this crap from effectively all the government and state officials. Real estate brokers, securities agents, life agents, financial planners et al have not been taught the fundamentals of investing. Now, admittedly with real estate, it is more clear cut. The product is a hard asset versus the more esoteric element of securities and insurance. And the home buyer wants it more than securities and insurance and is apt to make statements, along with the mortgage broker, that do not reflect true employment  or income. So the problem escalates because the underlying problem might simply be telling the truth- in other words, ethical conduct. If one wants something bad enough and sees everybody else getting one, then they are very apt to change their ethical stance to try and get one too.

9/20: The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.2 percent in August. But that will not forestall overall inflation. Gas is about $80/barrel

9/20: 20 Most Obese States: How Southern Cooking Could Mean Higher Life Insurance Rates- 127 million Americans are overweight, not counting the 69 million that are obese. Where we live influences our diet and lifestyle — and maybe even how much we pay for life insurance. Understanding how carriers use different health ratios to determine policy rates, is the beginning to realizing savings.

someone who is 40% overweight is twice as likely to die prematurely as an average-weight person. This is because obesity has been linked to several serious medical conditions, including heart disease and strokes. When determining life insurance policy costs, carriers use a simple adage: “The more a person weighs, the more they pay.” Specifically, the formula begins with an individual’s proportion of body weight to his/her height, known also as “physical build.” It’s no secret that the more a person weighs in relation to their height, the greater their risk for long-term health complications and a shortened life span.


1 Mississippi

2 West Virginia

3 Alabama

4 Louisiana

5 (tie) South Carolina, Tennessee

7 Kentucky

8 Arkansas

9 (tie) Indiana, Michigan, Oklahoma

12 (tie) Missouri, Texas

14 Georgia

15 Ohio

16 Alaska

17 North Carolina

18 Nebraska

19 North Dakota

20 (tie) Iowa, South Dakota

9/19: The Volatility Effect: Lower Risk without Lower Return

We present empirical evidence that stocks with low volatility earn high risk-adjusted returns. The annual alpha spread of global low versus high volatility decile portfolios amounts to 12% over the 1986-2006 period. We also observe this volatility effect within the US, European and Japanese markets in isolation. Furthermore, we find that the volatility effect cannot be explained by other well-known effects such as value and size. Our results indicate that equity investors overpay for risky stocks. Possible explanations for this phenomenon include (i) leverage restrictions, (ii) inefficient two-step investment processes, and (iii) behavioral biases of private investors. In order to exploit the volatility effect in practice we argue that investors should include low risk stocks as a separate asset class in the strategic asset allocation phase of their investment process.

A related study in this regard is Ang, Hodrick, Xing & Zhang (AHXZ, 2006), who report that US stocks with high volatility earn abnormally low returns over the 1963-2000 period. These authors focus on a very short term (1 month) volatility measure, while in our study we concentrate on long-term (past 3 years) volatility, which implies a much lower portfolio turnover. Furthermore, we do not only find that high risk stocks are exceptionally unattractive, but also that low risk stocks are particularly attractive.

9/19: Just plain old- U.S. Census Bureau figures indicate that the population of 100-year-olds living in the U.S. was only 66,000 in 1999. However, by 2050, the Bureau projects that number to increase to 834,000

9/19: Expected: U.S. residential-builder-confidence index falls to lowest level ever

9/19: Just too funny. I am looking for a GPS. Read about the Nav-Cam unit. However this was a customer comment- "Terrible experience. I returned it and bought a Garmin. Best move I made. If the Nav-Cam fell off the dashboard, it couldn't find its way to the floor...". (that's funny)

0/19: Beta: beta of a stock is equal to its correlation with the market portfolio times its historical volatility and divided by the volatility of the market portfolio.

9/19: I knew it was bad, but............. About 75% of U.S. adults believe that life insurance is a necessity, but few want to think about it. About 47% of the survey participants said they would prefer to go to the motor vehicle office to renew a driver’s license than to look into their life insurance needs.

Another 20% of the participants said they would prefer to go to the dentist for a root canal, and 15% said they would prefer to baby sit sextuplets.

9/16: Homeowners: (Principal Financial Well-Being Index) Most American retirees (73%) plan to keep their homes during retirement, and more than one-in-five (21%) that are still working feel the same way. However, of the nearly two-thirds of workers (65%) who own their primary residences, 36% have less than 20% equity built up in their homes, while 60% of retirees have their homes completely paid off. The majority of retirees and working American homeowners surveyed say they have not considered taking out a reverse mortgage or selling their home to help fund retirement (78% of retirees and 76% of workers

9/16: Old but still good: (The Washington Post) There is a sharp spike in the percentage of workers 65 and older "the survey's most remarkable finding." Nationally, the share of people 65 to 74 who were still working jumped from one in five in 2000 to one in four in 2006. Many are driven by necessity rather than choice. Bureau of Labor Statistics data show that the number of private sector workers eligible for an employer retirement plan has dropped from 52 percent to 43 percent since 2000, while rising housing costs have cut into workers' personal savings. Since the early 1990s, employers have also severely curtailed the health insurance coverage they offer retirees.

9/16: So why pay taxes if the government gives money away??? GAO Audit Shows Insurers Benefiting Excessively from Medicare Advantage

Private insurance companies participating in Medicare have been allowed to keep tens of millions of dollars that should have gone to consumers, according to a new Government Accountability Office (GAO) report and Monday's New York Times. GAO investigators said the money could have been used to reduce premiums or provide additional benefits to older Americans. Moreover, the Bush administration did not properly audit the companies or try to recover money paid in error, the report stated. Under federal law, Medicare officials are supposed to audit the financial records of at least one-third of the insurance companies each year. But the investigators said the Bush administration had fallen far short of that goal and had never met the statutory requirement. In fact, the proportion of companies audited by Medicare declined steadily - to 14 percent in 2006 from 24 percent in 2001 - despite steady growth in Medicare payments to the plans. In 2003, Medicare audited 49 of the 220 organizations participating in the program. Auditors found significant errors at 41 companies, but Medicare officials took no action on the findings. As a result of the errors, the auditors said, insurers kept "$59 million that beneficiaries could have received in additional benefits, lower co-payments or lower premiums."


9/9: Many a governmental agency is going to have lots of problems: Pension strains are coming at a particularly inopportune time for state and local governments. The 2001 recession showed that some state and local finances are on shaky ground; that is, a relatively mild recession had an unexpectedly large impact on some states’ and localities’ tax revenues. On the spending side of the equation, states and localities are increasingly devoting larger shares of their resources to expenditures, such as health care (Medicaid in particular) and elementary and secondary education. When expenditure growth in these areas is coupled with higher spending for corrections and public safety, little is left over for other government services. Pension obligations compound this problem, since they are usually legally protected by “nonimpairment” clauses that essentially guarantee future payouts regardless of the financial condition of the government. As such, in a fiscal crisis, a state or local government may have no other option than to raise taxes or cut other programs to meet their required pension obligation. 

Estimates for the aggregate unfunded balance—actuarial liabilities in excess of assets—for U.S. state and local pensions range from $200 billion1 to as high as $700 billion.

That's just another reason for a major financial debacle by 2010

/9: 401k Consultants- names, types , sizes and more. Good idea of what's out there

8/30: 403(b) plans are beset by an over-reliance on high-fee insurance-based products. As of 2006, close to 80% of the $652 billion dollars invested in the 403(b) was parked in annuity products. Of this amount, 34% was invested in variable annuity products.

8/30: Really fat people- Obesity rates continued to climb in 31 states last year, and no state showed a decline. Mississippi became the first state to crack the 30% barrier for adults considered to be obese, with West Virginia and Alabama close behind. Colorado continued to enjoy its honor as the leanest state in the nation with an obesity rate projected at 17.6%. Of course, the information is based on a survey of height and weight taken over the telephone - and might therefore be less than fully accurate (studies have shown that men tend to overstate their height, women do the same on their weight - both distort the obesity conclusion).

8/19: The credit crunch and market turmoil have increased the chances of a recession, many economists believe, from about one in six just a few weeks ago to one in three now. The unemployment rate ticked up a notch to 4.6 percent in July and many economists believe it will hit 5 percent this winter,



8/6: Allocations- over the last half-century, the worst one-year stretch for a portfolio of 60 percent stocks, 30 percent bonds and 10 percent cash was a loss of 24.1 percent. That occurred in the 12 months that ended in September 1974.

By comparison, the worst one-year loss for a more conservative mix — 40 percent stocks, 40 percent bonds and 20 percent cash — was just 15.5 percent during the same period.

Yet to achieve this lower risk, you would have to give up a decent amount of gains. In this case, the switch in asset allocation strategy would have reduced your average annual returns to 8.3 percent from 9.2 percent.

8/6: Home deductibles- they are now being priced as a percentage of the home's value- 1%- 5% and even higher. And since home prices moved up, the deductible can be far greater than the fixed rate amounts of older policies.

8/2: Do People Plan?  We report the results of an experimental investigation of a key axiom of economic theories of dynamic decision making, namely, that agents plan. Inferences from previous investigations have been confounded with issues concerning the preference functionals of the agents. Here, we present an innovative experimental design which is driven purely by dominance: if preferences satisfy dominance, we can infer whether subjects are planning ahead. We implement two sets of experiments: the first (the Individual Treatment) in which the same player takes decisions both in the present and the future; and the second the Pairs Treatment) in which different players take decisions at different times. In both contexts, according to economic theory, the players in the present should anticipate the decision of the player in the future. We find that over half the participants in both experimental treatments do not appear to be planning ahead; moreover, their ability to plan ahead does not improve with experience. These findings identify an important lacuna in economic theories, both for individual behaviour and for behaviour in games.

Oy vey!!!!!

8/1: Is There Really a Retirement Savings Crisis? (Alicia H. Munnell, Anthony Webb, and Francesca Golub-Sass ) The National Retirement Risk Index (NRRI) has shown that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, nearly 45 percent will be ‘at risk’ of being unable to maintain their standard of living in retirement. That is, these households are projected to have replacement rates — retirement income as a share of pre-retirement income — that fall more than 10 percent short of a target rate designed to maintain their pre-retirement living standard. More realistic assumptions regarding earlier retirement and reluctance to annuitize 401(k) balances or tap housing equity would put the percentage ‘at risk’ considerably higher, as would the inclusion of rapidly growing health care costs. Yet, recent academic articles and press stories question whether Americans are facing a retirement income crisis...

7/23: Risk: "Most Americans' (59%) fear of risk when it comes to money is standing in the way of their investing in the stock market, and that fear is exacerbated among Hispanic and African Americans, a recent survey suggests. The survey of 1,000 individuals aged 55 to 80, commissioned by NAVA, Inc., the Association for Insured Retirement Solutions, asked respondents about their interest in investment products that mirrored variable annuity features and costs. Surprisingly, just 54% say they would be more likely to invest if they could be guaranteed they would suffer no losses."

I have no idea why the article said 'surpirsingly'. Of course more people would invest if they couldn't lose. That's obvious, not a surpirse.

7/11: IRA CALCULATOR LINK: What you can contribute and where

7/11: REtirement distributions (WSJ) There's a lot of confusion about the distinctions between individual retirement accounts and 401(k) plans. Required minimum withdrawals from 401(k)s are calculated the same way as withdrawals from traditional IRAs." And, as with IRAs, you have to start taking those distributions by April 1 of the year following the year in which you turn 70½ years old.

To calculate the amount of your required withdrawal, you divide the total account balance as of the end of the previous year by the number supplied for your age in the Internal Revenue Service's "Uniform Lifetime Table," found in IRS Publication 590 at irs.gov. (If your spouse is more than 10 years younger than you are and is also your sole beneficiary for the entire year for which you're required to take the distribution, you would use the divisor supplied by the IRS's "Joint Life and Last Survivor Expectancy Table.")

There's one notable exception: If you are still working for the company where you have the 401(k) plan, and you don't own more than 5% of the company, you can delay your first distribution until April 1 of the year following the year you finally retire. But this exception applies only to required distributions from a 401(k) at the company where you're still working. And it doesn't apply to IRAs or any 401(k)s you may have lingering from old jobs.

There's no mixing or matching allowed between your IRA and 401(k) -- or with multiple 401(k)s. You can't add your IRA and 401(k) balances together to determine your distributions. And unlike with IRAs where you can add your balances together, you can't add different 401(k) balances together, either. With 401(k)s, you have to calculate the required distribution from each account separately.

Even if you take extra from your 401(k), it won't "count toward the required distribution from your IRA -- or any other plan, for that matter. "You may not aggregate IRAs and 401(k)s for required-distribution purposes."

One note: With another type of employer-sponsored retirement plan, the 403(b), you're allowed to treat multiple accounts as one, as you can with an IRA. But you still have to calculate your 403(b) withdrawals separately from your IRA withdrawals,

7/11: Over there, over there: the Dow Jones Euro Stoxx 50, an index of blue-chip European firms, trading at 12 times estimated 2008 earnings, compared with 14.5 times for the Standard & Poor's 500-stock index.

Some central banks have raised rates in recent months -- including the Bank of England last week -- and others have suggested they may do so. Those moves could help long-term economic growth by keeping inflation in check, but higher rates can hurt stock returns in the short term by increasing borrowing costs for consumers and businesses.

Likewise, when the dollar goes up relative to foreign currencies, U.S. investors see their foreign-stock returns trimmed. That's because investments denominated in other currencies lose value when translated back to dollars. A stock that's stuck at 20 euros is worth $30 when a euro costs $1.50. But it's worth only $24 if a euro sells for $1.20.

7/7: There is a sucker born every minute (second, millisecond) Two men are accused of bilking $2-million from people expecting a safe investment. The scheme netted dozens of victims in Pinellas County, and some as far away as Virginia and Wisconsin.

According to the affidavit filed in Pinellas County Circuit Court, Campbell and Carlson told their investors they were using money to repair and resell real estate. They claimed it was a way of making high profit - as high as 17 percent - without the risks of the stock market.

Some investors bought into the scheme over the phone. Others would visit Campbell and Carlson in their Clearwater office. Sometimes the two would make house calls.

The first fraudulent investment, the affidavit said, was on Aug. 6, 2002 and the last on Nov. 22, 2004. Some investors bought as much as $200, 000 in stock.

7/5: Affiliated mutual funds and analyst optimism  Prior studies have shown that investment banking affiliations place pressure on analysts to produce optimistic recommendations on the investment bank’s stock-clients. Our analysis of a large sample of recommendations issued from 1995 through 2003 indicates that a mutual fund affiliation also affects analysts’ research. That is, analysts are likely to look favorably at stocks held by the affiliated mutual funds. Controlling for a variety of factors including the investment banking affiliation, we find that the greater the portfolio weight of a stock for the affiliated mutual funds, the more optimistic the analyst rating becomes when compared to the consensus. Reputation partly restrains the optimism of analyst recommendations. In fact, the presence of other institutional investors as shareholders of the recommended stocks curbs analyst optimism. Nevertheless, from 1999 through 2001, star analysts report the most optimism when they recommend stocks in the portfolios of affiliated mutual funds.

* "The market can stay irrational longer than you can stay solvent."


7/2: How useful are historical data for forecasting the long-run equity return distribution?

We provide an approach to forecasting the long-run (unconditional) distribution of equity returns making optimal use of historical data in the presence of structural breaks. Our focus is on learning about breaks in real time and assessing their impact on out-of-sample density forecasts. Forecasts use a probability-weighted average of submodels, each of which is estimated over a different history of data. The paper illustrates the importance of uncertainty about structural breaks and the value of modeling higher-order moments of excess returns when forecasting the return distribution and its moments. The shape of the long-run distribution and the dynamics of the higher-order moments are quite different from those generated by forecasts which cannot capture structural breaks. The empirical results strongly reject ignoring structural change in favor of our forecasts which weight historical data to accommodate uncertainty about structural breaks. We also strongly reject the common practice of using a fixed-length moving window. These differences in long-run forecasts have implications for many financial decisions, particularly for risk management and long-run investment decisions.


6/21: 6/20: are you happy?? Money, Happiness, and Aspirations: An Experimental Study The past decade has witnessed an explosion of interest in the scientific study of happiness. Economists, in particular, find that happiness increases in income but decreases in income aspirations, and this work prompts examination of how aspirations form and adapt over time. This paper presents results from the first experimental study of how multiple factors -- past payments, social comparisons, and expectations -- influence aspiration formation and reported satisfaction. I find that expectations and social comparisons significantly affect reported satisfaction, and that subjects care relatively more about social comparisons once they have achieved a satisfactory outcome. These findings support an aspirations-based theory of happiness.

6/20: Predictable Returns and Asset Allocation: Should a Skeptical Investor Time the Market? Are excess returns predictable and if so, what does this mean for investors? Previous literature has tended toward two polar viewpoints: that predictability is useful only if the statistical evidence for it is incontrovertible, or that predictability should affect portfolio choice, even if the evidence is weak according to conventional measures. This paper models an intermediate view: that both data and theory are useful for decision-making. We investigate optimal portfolio choice for an investor who is skeptical about the amount of predictability in the data. Skepticism is modeled as an informative prior over the R^2 of the predictive regression. We find that the evidence is sufficient to convince even an investor with a highly skeptical prior to vary his portfolio on the basis of the dividend-price ratio and the yield spread. The resulting weights are less volatile and deliver superior out-of-sample performance as compared to the weights implied by an entirely model-based or data-based view.




6/14: By 2040, 1 in 85 could have Alzheimers world wide.The biggest jump would be in Asia which would have 62.8 million of the world's 106 million Alzheimers patients.  The U.S. would have 16 million.

6/12: Student loans-

6/10: TIPS: When designing investment portfolios within a long-term strategic asset allocation context, the authors maintain that TIPS (Treasury Inflation-Protection Securities) should be evaluated as a separate, distinct asset class. These securities possess unique characteristics that are not directly available through other investment vehicles. Their most significant benefit lies in the fact that they provide a direct hedge against one specific measure of inflation (i.e. the non-seasonally adjusted Consumer Price Index for all urban consumers; CPI-U); which allows investors to maintain real purchasing power and hedge against future nominal increases in the overall domestic price level. In addition to their obvious appeal to investors guarding against increases in inflation, TIPS may also appeal to a broader audience by virtue of their relatively low correlation with other traditional asset classes. The authors demonstrate that TIPS offer potentially significant diversification benefits, establishing them as a viable asset class to be considered when constructing a long-term asset allocation policy.