In the November issue of Retirement Watch I stated that the recent stock index decline isn’t likely the beginning of a bear market. David Rosenberg agrees, arguing that bear markets don’t occur when the Fed isn’t tightening and the economy isn’t headed for a recession.
“The reality is that bear markets do not just pop out of the air,” he wrote. “They are caused by tight money, recessions, or both. These conditions do not apply, nor will they until 2016 at the earliest.”
We recently asked Rosenberg for what he considered to be the Most Important Chart In The World. He sent us this annotated chart of the year-over-year percent change in the S&P 500. As you can see, the big plunges indeed came during recessions and monetary tightening cycles.
Regulators always are fighting the last war. Housing is a good example. Regulators were completely out of the picture during the boom years, collecting paychecks while fraud and excess went on all around them. Since then, numerous new rules and restrictions have been imposed on mortgage lenders. Plus, the lenders now are afraid of being prosecuted for making bad loans. The result is that fewer loans are available. It costs more to borrow and takes a lot more time to arrange a loan. Read some details here.
Bill Cosgrove, chief executive officer of Strongsville, Ohio-based Union Home Mortgage Corp., said the issue for lenders isn’t more regulation. In a speech earlier this week to attendees at the Mortgage Bankers Association annual conference in Las Vegas, Cosgrove said the several regulatory agencies are not coordinating efforts and are producing overlapping and conflicting rules.
“The regulatory avalanche of today’s Washington isn’t working and we are seeing the results in today’s marketplace,” he said. “Regulators who oversee the mortgage market aren’t coordinating, and it’s driving up the cost of homeownership. Or worse, taking homeownership out of reach for too many Americans.”
Here’s one few people expected. The Securities and Exchange Commissions is investigating employees at the Medicare agency for insider trading. The allegations are that after the agency decided on whether or not to cover certain treatments or drugs, but before the announcements were made public, the employees notified some Wall Street traders. These traders were able to take positions on the stocks of affected companies before the news was public and reflected in the prices. There are other allegations in three separate probes.
The Securities and Exchange Commission is pursuing the three overlapping insider-trading investigations involving CMS, according to those people and documents reviewed by The Wall Street Journal. One of the cases involves the Federal Bureau of Investigation. Together they represent one of the broadest investigations into leaks of government information to Wall Street.
Investigators are looking at whether two policy-research firms and a former CMS official in the business of providing information to investors were the middlemen between the government and investors, according to the people with knowledge of the probes.
In one probe, the SEC is examining whether any agency officials tipped off policy-research firm Marwood Group LLC about CMS’s review of the Dendreon prostate-cancer treatment, called Provenge, according to the people familiar with the investigations. Dendreon’s stock dropped 26% between June 1, 2010, and the close of trading that June 30, minutes before CMS announced it would scrutinize the treatment.
Here’s a book review of a new volume and interview with the author that argues elections don’t mean much in the U.S., at least as far as defense and foreign policy are concerned. The author says that the permanent bureaucracy controls the options given to elected officials and essentially do what they’ve been doing regardless of who is elected.
IDEAS: What evidence exists for saying America has a double government?
GLENNON:I was curious why a president such as Barack Obama would embrace the very same national security and counterterrorism policies that he campaigned eloquently against. Why would that president continue those same policies in case after case after case? I initially wrote it based on my own experience and personal knowledge and conversations with dozens of individuals in the military, law enforcement, and intelligence agencies of our government, as well as, of course, officeholders on Capitol Hill and in the courts. And the documented evidence in the book is substantial—there are 800 footnotes in the book.
IDEAS: Why would policy makers hand over the national-security keys to unelected officials?
GLENNON: It hasn’t been a conscious decision….Members of Congress are generalists and need to defer to experts within the national security realm, as elsewhere. They are particularly concerned about being caught out on a limb having made a wrong judgment about national security and tend, therefore, to defer to experts, who tend to exaggerate threats. The courts similarly tend to defer to the expertise of the network that defines national security policy.
Behavioral economics ended the idea of rational economic man. Here’s a quick review of the top seven common human behaviors that are irrational and cost investors money.
4. Confirmation bias
How it tricks us: It’s a basic human flaw: We like to think we’re always right, and will go to great lengths to seek out information to uphold our preconceived notions. For instance, one legendary Ohio State study surveyed people on their political views, and then let participants browse through an online forum with various opinion pieces. One take-away? The researchers found that people spent 36 percent more time reading an essay if it supported their personal beliefs.
The problem with confirmation bias is that when we refuse to take in conflicting information, we filter out important data that could help us make more informed decisions. For example, you may get a “hot tip” about a company and focus on all the good news you read (“It’s got a patent on a great idea!”), while ignoring the bad (“Revenue is way down!”).
On the flip side, Gresham often sees this bias also feeding into people’s deep-seated fears over investing in the stock market. “So when they have friends who lose money or they see the market tanking, it confirms that [investing] is too dangerous,” she explains.
Here’s an interesting piece explaining how the Affordable Care Act reduces the growth of Medicare spending over time. According to this essay, it’s a straightforward case of rationing.
What will this mean? Seniors will be the least (financially) desirable patients as they attempt to find doctors who will see them and institutions that will admit them. Harvard health economist Joe Newhouse predicts they may have to seek care at community health centers and safety net hospitals. The Medicare Office of the Actuary predicts that in a few short years hospitals will begin closing and the elderly and the disabled will have increasing difficulty obtaining access to care.
Note: since some of these estimates were made, the administration has delayed cuts in payments to Medicare Advantage plans and there has been a slowing of overall health care spending – some of which may be permanent. Ideally, we should have an annual updating of the numbers provided here. But the changes in the estimates would be changes of degree, not of kind.
Spending on government medical programs, especially Medicare, has been slowing for several years. It still is growing, but at a slower rate than in the past. But in the last year spending per beneficiary actually decreased. This provokes a lot of discussion about the causes. This piece argues that most of the growth reductions are due to temporary factors or factors that should cause us to worry about the long term (especially the role lower prescription drug spending played). It’s an interesting read.
A recent CBO analysis highlighted that the recent slowdown in Part D can be nearly entirely explained by broader national trends in per-capita drug spending that occurred as a result of the pharmaceutical technological slowdown, as well as lower enrollment in Part D. CBO found that, between 2007 and 2010, the share of prescriptions filled with generic drugs rose from 67 percent to 78 percent nationwide (and from 63 percent to 73 percent in Part D). In addition, brand name drugs with a combined $117.2 billion in U.S. sales, including best-sellers like Nexium and Cymbalta, are expected to lose patent protection between 2012 and 2016 according to analysis from the Congressional Research Service. CBO also found that new branded pharmaceuticals have been introduced at a slower rate than in the late 1990s.
I know I’ve said this before, but it bears repeating. The main concern of investors and economists these days is Europe, and in particular they’re worried that Europe might be sliding back into a deflation. Deflations are hard to reverse and can lead to spiraling depressions. This is especially true now because central banks have been fighting deflation for years, and they’re tools are becoming less effective. Here’s a piece from The Economist making the case. It’s not only a European problem. A deflation in Europe, with its slow growth, is likely to affect the rest of the global.
The global lowflation threat is a good reason for most central banks to keep monetary policy loose. It is also, in the longer term, a prompt to look at revising inflation targets a shade upwards. But the immediate problem is the euro area.
Continental Europe’s economy has plenty of big underlying weaknesses, from poor demography to heavy debt and sclerotic labour markets. But it has also made enormous policy mistakes. France, Italy and Germany have all eschewed growth-enhancing structural reforms. The euro zone is particularly vulnerable to deflation because of Germany’s insistence on too much fiscal austerity and the ECB’s timidity. Even now, with economies contracting, Germany is still obsessed with deficit reduction for all governments, while its opposition to monetary easing has meant that the ECB, to the obvious despair of Mr Draghi, has done far less than other big central banks in terms of quantitative easing (notwithstanding this week’s move to start buying “covered bonds”).
Money doesn’t buy happiness. But exercise can increase happiness. This piece argues that the exercise/happiness connection is more complex than people realize. It involves more releasing endorphins. It also gives practical tips on how to schedule exercise to maximize happiness and makes the case that you don’t need to do a lot of exercise to get the happiness benefit.
Now here is where it all gets interesting. We know the basic foundations of why exercising makes us happy and what happens inside our brain cells. The most important part to uncover now, is of course how we can trigger this in an optimal and longer lasting way.
A recent study from Penn State university shed some light on the matter and the results are more than surprising. They found that to be more productive and happier on a given work day, it doesn’t matter so much, if you work-out regularly, if you haven’t worked out on that particular day:
“Those who had exercised during the preceding month but not on the day of testing generally did better on the memory test than those who had been sedentary, but did not perform nearly as well as those who had worked out that morning.”
Most Americans believe stress is a bad thing for their health and they should try to reduce or eliminate stress. Here’s an interesting piece that goes into some detail about the origins of research on stress and health and brings it forward to today.
This idea of a special driven and stress-sensitive subset of personality really captured the American imagination.
“You can still see it today,” says Mark Petticrew, director of public health research at the London School of Hygiene and Tropical Medicine. “Literally many thousands of websites still talk about Type A behavior in a fairly uncritical way. It still has that grip in popular culture.”
The thing most people don’t realize as they worry over the dangers of stress, Petticrew says, is that much of this foundational scientific research on stress was funded and guided by a very particular sponsor.
“What’s never really been appreciated is that the tobacco industry was a major funder and stimulant of research on stress,” he says. “Specifically Selye’s work, but also research on Type A behavior. Type A personality is to a large extent a construct of the tobacco industry.”