Bob Carlson

July 27, 2016

Could Lehman Brothers Have Been Saved?

Filed under: Economy,Financial crisis — Bob @ 8:22 am

The sudden bankruptcy filing of Lehman Brothers generally is considered the event that made the financial crisis as bad as it was. After that, many markets basically froze for days. Investors, businesses, and households were uncertain and cautious. All the government officials involved at the time have stated many times that there was nothing they legally could do. Neither the Treasury nor the Federal Reserve had the authority to rescue Lehman Brothers, and potential buyers were scared away by the state of Lehman Brothers.

A professor at Johns Hopkins now argues that the federal government had legal authority to save the company, and that the company had sufficient assets to back any loans from the Fed or Treasury. Here’s a video interview with the professor.

The paper, four years in the works, is unusual not just for the forcefulness of its argument — Ball calculates that Lehman had $131 billion worth of securities that would have been eligible to secure Federal Reserve loans and thereby keep the bank in business— but also in its methodology. Ball draws upon materials from the Lehman Brothers bankruptcy examiners’ report, the U.S. government’s financial crisis commission inquiry, news clippings, books and the like to help draw his conclusions.

July 26, 2016

Slower Growth, Low Rates

Filed under: Economy — Bob @ 5:20 pm

The team at Wasatch-Hoisington U.S. Treasury Bond has issued its second quarter investment commentary. The team continues to believe that government policies, especially monetary policies, are going to keep economic growth low and therefore inflation and interest rates low. They allow there is the potential for inflation and interest rates to increase in the short-term, but they don’t think such periods will last for long.

Six considerations indicate federal finance will produce slower growth: (1) the government-expenditure multiplier is negative; (2) the composition of the spending suggests the multiplier is likely to trend even more negative; (3) the federal debt-to-GDP ratio moved above the deleterious 90% level in 2010 and has stayed above it for more than five years, a time span in which research shows the constriction of economic growth to be particularly severe. It will continue to move substantially further above the 90% threshold as debt suppresses the growth rate; (4) debt is likely to restrain economic growth in an increasingly nonlinear fashion; (5) the first four problems produce negative feedback loops from federal finance to the economy through the allocation of saving, real investment, productivity growth and eventually to demographics; and (6) the policy makers force the economy into a downward spiral when they rely on more debt in order to address poor economic performance. More of the same does not produce better results. It produces worse results, a situation we term a policy trap.

A Case Against Social Media

Filed under: Retirement - General — Bob @ 12:20 pm

For those of my readers who never joined social media (Twitter, Facebook, Instagram, etc.), you’ll like this essay. It’s from a CNBC anchor who was an early adopter of all the social media but recently decided it was a mistake. Read her reasons.

That is what made platforms like Twitter seem so dazzling at first. But it ultimately became dizzying and exhausting to me. I felt lost in endless spools of social media, all the while emails by the thousands were piling up, phone calls were getting lost in the mix, and messages from the most important people in my life were getting drowned out in the din. I was more responsive to comments on Instagram than to my own closest friends and family.

A Primer on Self-Learning

Filed under: Retirement - General — Bob @ 8:20 am

All learning is self-learning to some extent, but there are more opportunities for self-learning today because of the Internet. This article explains the importance of self-learning and looks at the science behind it to give you a guide for how to be a self-learner today, no matter your age.

One good reason to dive head first into self-initiated learning is that much of what you were taught is already obsolete. “Knowledge workers succeed not based on what they know, but rather how they learn,” writes James Marcus Bach in his book, Secrets of a Buccaneer-Scholar. He dropped out of school when he was 14 and, in the early days of home computing, taught himself enough to become a software tester for Apple. He’s now an independent consultant.

Bach’s philosophy is rebellious yet inclusive: “Intellectual buccaneering is about self-education, but schools are OK, too. I’ve learned in schools, and I’ve learned from people who were trained in schools. I happily plunder knowledge wherever I find it. I don’t seek the destruction of schools. I am out to dismantle something else—the popular belief that schooling is the only route to a great education and that the best students are those who passively accept the education their schools offer.”

July 25, 2016

The Utility Stock Dilemma

Filed under: Income Investing — Bob @ 5:30 pm

Utility stocks have been one of the leading market sectors in 2016, returning over 20% so far. That brought the dividend yield for new buyers below 3%. Utility stocks usually are purchased for either safety or income, or both. How should investors assess utility stocks today? This article gives several ideas. At Retirement Watch, we sold them because they’re too expensive.

A recent research report from Citi analyst Praful Mehta illustrated the challenge investors face with utilities today. Mehta has a neutral or sell rating on most of the stocks he covers, but still shies away from predicting any kind of imminent correction.

Why? “Because there is meaningful market uncertainty right now and we don’t want to suggest a correction too early as it would mean lost dividend yield for investors in a market where yield is scarce.”

Trump’s Ghostwriter Speaks

Filed under: Retirement - General — Bob @ 12:20 pm

The ghostwriter for The Art of the Deal never liked Trump and took the job only for money. His disdain for Trump only increased while working on the book and in the years since. He decided to go public with this interview/profile in The New Yorker.

The idea of Trump writing an autobiography didn’t originate with either Trump or Schwartz. It began with Si Newhouse, the media magnate whose company, Advance Publications, owned Random House at the time, and continues to own Condé Nast, the parent company of this magazine. “It was very definitely, and almost uniquely, Si Newhouse’s idea,” Peter Osnos, who edited the book, recalls. GQ, which Condé Nast also owns, had published a cover story on Trump, and Newhouse noticed that newsstand sales had been unusually strong.

Newhouse called Trump about the project, then visited him to discuss it. Random House continued the pursuit with a series of meetings. At one point, Howard Kaminsky, who ran Random House then, wrapped a thick Russian novel in a dummy cover that featured a photograph of Trump looking like a conquering hero; at the top was Trump’s name, in large gold block lettering. Kaminsky recalls that Trump was pleased by the mockup, but had one suggestion: “Please make my name much bigger.” After securing the half-million-dollar advance, Trump signed a contract.

Thoughts from Daniel Kahneman

Filed under: Retirement - General — Bob @ 8:20 am

The author of Thinking, Fast and Slow and winner of the Nobel Prize in Economics, lists a series of short thoughts in The Guardian’s “This Much I Know” feature.

Many people now say they knew a financial crisis was coming, but they didn’t really. After a crisis we tell ourselves we understand why it happened and maintain the illusion that the world is understandable. In fact, we should accept the world is incomprehensible much of the time.

July 22, 2016

Controversy About Social Security Replacement Rates

Filed under: Social Security — Bob @ 5:20 pm

I wouldn’t have thought that replacement rates would be a controversial topic, but they’ve become one. Social Security routinely has reported that at median income levels, Social Security retirement benefits replace about 40% of pre-retirement income. The SSA invited criticism, however, when it dropped replacement rates from the latest annual trustees’ report. It turns out that the SSA doesn’t compute replacement rates the way everyone else does, and that led to arguments that the SSA’s previously-published data were misleading. In fact, according to this article, the Social Security replacement rate is much higher for most people than previously reported. This is similar to other arguments that SSA over the years has deliberately mis-estimated the benefits people are likely to receive, presumably to encourage people to save more.

SSA’s headline figures represent the benefits paid to a (supposedly) typical new retiree as a percentage, not of that worker’s pre-retirement earnings, but of the average earning of workers at the time. Table V.C7 of the 2014 Trustees Report, the focus of Munnell and the SSA actuaries’ ire, makes this calculation clear: divide the $19,477 benefit received by a medium earner retiring in 2014 by the $46,787 average wage in 2014 and you get 41.6%, almost precisely equal to the pseudo-replacement rates published by the SSA actuaries.

Unless we live in a world with zero wage growth, the earnings of today’s workers will be higher than the pre-retirement earnings of today’s retirees. Thus, SSA’s measure of replacement rates overstates today’s retirees’ pre-retirement earnings and understates their benefits relative to those earnings. While Munnell and SSA’s actuaries complain about what has been taken out of the Trustees Report, the information that has been added is actually far more revealing.

The Marketing in the Brexit Vote

Filed under: Economy — Bob @ 12:29 pm

This is a long article, but it’s worth reading. It dives into the campaign ads and marketing on both sides of the Brexit debate. It gives examples to show why the materials used by the Remain side were not very good. It also argues that the Remain side didn’t make good use of social media, which might have led to the loss of a lot of younger voters.

Remember how important the youth vote in particular was said to be for Remain? This advert consistently greeted me on an app called Swarm. I’m probably about the oldest Swarm user you’ll find (it’s an appendage of the Foursquare leisure service facility ratings app) so this ad wasn’t really targeted at me. It was targeted at? younger people. Someone was doing their ‘hygiene’ work in Vote Leave’s marketing team. Meanwhile I was beginning to wonder why people in the Stronger In campaign weren’t.

Yes, the Leave marketing was ruthless. But that’s not the only reason it was more effective. It was more effective because it was just better. Let’s go back to basics and the choice we were being presented with.

The Initial Brexit Decline

Filed under: Economy — Bob @ 10:24 am

It’s been anticipated that the Brexit vote is likely to reduce economic growth in the U.K. and in Europe for a while. The uncertainty for most people is how much growth will decline and for how long. This article reports the initial economic damage from the Brexit vote.

A special edition of purchasing managers’ index (PMI) – a well-regarded survey of activity produced by research group Markit – has been published to provide a picture of how the UK economy has fared after the referendum. The picture is not pretty.

The PMI survey for Britain’s powerhouse services sector – which accounts for nearly 80 per cent of the economy – has dropped to a seven year low of 47.4 for July from 52.3 at the June survey. Any reading below 50 indicates contraction. The outcome was far lower than economists’ forecast of a reading of 48.8.

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