Bob Carlson

July 31, 2015

The Worst Mutual Fund

Filed under: Investing — Bob @ 5:20 pm

Index funds have been all the rage the last few years. Very low costs, returns that match a major index, and liquidity. What more could you want in a stock mutual fund? Of course, all mutual funds, even all index funds, aren’t equal. This post argues that the worst mutual fund in the world is an index fund. It points out that this particular index fund charges fees of 0.60 while most index funds charge 0.10 or less. It also is offered in 401(k) plans, so plan members have no option if they want to invest in U.S. stocks.

Frustration with a 60 basis point expense ratio may seem extreme. Surely the impact of an extra half a percentage point in fees is nominal, right?

Yes and no.

The fees on a $6,000 investment in MXVIX made in the first year of employment would total about $21. If a similar S&P 500 fund with a 10 basis point expense ratio were used instead, the fees would be about $3. That $18 isn’t going to make or break your retirement.

You’d probably feel quite differently about a difference of $114,000 though.

What’s Wrong with Medicare

Filed under: Medicare,Medicare Advantage — Bob @ 12:40 pm

The 50th anniversary of Medicare was July 30. With the anniversary came a new book, Medicare’s Victims by David Hogberg. Here’s an interview with the author in which he states that Medicare doesn’t pay for someone to coordinate care, has the “doughnut hole” for prescription drugs, and has a lot of bad incentives and inefficiencies, and more.

I don’t think Medicare reimburses physicians’ visits adequately. A committee advises CMS [Centers for Medicare and Medicaid Services] on where to adjust price controls and it’s dominated by specialists. Physician visits tend to get short shrift.

A second reason is the massive coding system Medicare uses. The primary care generalist has to be familiar with more codes and that means spending a lot more time coding and the overhead for that falls harder on them than on specialists.

How Bad is Short-Termism?

Filed under: Economy — Bob @ 8:17 am

A common complaint about the stock market is that investors and executives are too focused on the short-term, such as the latest quarter, instead of what is good for the long term. But is that really the case? Academic researchers have tried to make careers by pinpointing short-termism and its problems. So far, they haven’t been able to. In fact, to the extent that the research has conclusions, they are that the stock markets and companies do a pretty good job of weeding out short term outlooks. This post has some good information and links to more.

The problem is that short-termism is very difficult to prove. As we will see, many of the common perceived symptoms of short-termism don’t hold up to scrutiny, and there are some legitimate reasons for the shortening of time horizons. While there remains plenty of room for improvement, especially when it comes to incentives, the issue of short-termism deserves more care than it has received in the popular discourse. With little exception, the debate appears to be very one-sided.

July 30, 2015

Floridians: Beware of Fraud

Filed under: Housing,finances — Bob @ 5:20 pm

This article reports that southern Florida is fraud capital of the U.S., including identity fraud. The east coast of Florida is where frauds are really concentrated, no doubt reflecting a belief that is where the money is.

The three-most populous counties in southern Florida, Miami-Dade, Broward and Palm Beach, are rife with underhanded deals that steal millions from governments, banks and individuals, reports the Associated Press.

Florida ranks No. 1 in identity theft complaints, which were at about 193 per 100,000 residents in 2013, according to the Federal Trade Commission. Bring that down to the local Miami level and it’s even worse: 340 complaints per 100,000 residents over the same time period.

South Florida also logs more than 46 times the national average for false federal income tax returns, according to the Treasury Department.

Office Cliches to Avoid

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

Here’s an amusing compilation of cliches and jargon that often are used in offices and at conferences but that shouldn’t be. See if there are any you’d add to the list.

I understand the temptation. These phrases are spicy and they make you feel clever (low hanging fruit is a crutch of mine), but they also annoy the hell out of people.

If you think that you can use these phrases without consequence, you’re kidding yourself. Just pay close attention to how other people react to your using them, and you’ll see that these phrases don’t cast you in a favorable light.

A Calmer View of China

Filed under: Emerging stock markets — Bob @ 8:20 am

The gyrations of China’s stock market made a lot of headlines recently. Most of the commentary is on one extreme or the other. This post takes more of a middle view, offering more details than most and some insight on why the market’s had such sudden moves and why those are likely to continue.

The mechanics of the Chinese stock market are also important. Like some other emerging market stock markets, the Shanghai Stock Exchange imposes a daily price limit of 10% up or down. That means it can take days of trading for price discovery and may cause more panicky trades that cause the stocks to overshoot. In other words, the method that is supposed to prevent volatility actually causes it. It is also important to note that much of the Chinese stock market boom has taken place in the technology media and communications stocks, not old economy stocks like food or beverage.

July 29, 2015

Leading Distressed Investor Not Buying Yet

Filed under: Economy,Investing — Bob @ 5:20 pm

Oaktree Capital likes to buy things only when they are dirt cheap and everyone is scared of them. That’s why it’s known as a distressed asset investor. Unlike many other investors, Oaktree is very disciplined. It is raising a fund of $10 billion or more to invest in distressed investments after the next “crack” in markets. While Oaktree see a lot of potential events that could cause markets to crash, it doesn’t think we’re there yet. It is waiting for a a real decline in assets. It isn’t even buying too many energy assets yet. Read details here.

“To the extent that we see further cracks in the general environment — either commodities markets, effect of China slowing — we may well decide to increase the amount that we raise above $10 billion,” he said. “Perhaps well above.”

Karsh also cited Puerto Rico’s “deteriorating” debt as one of the factors heightening market volatility and creating new investment opportunities.

Oaktree continues to evaluate potential oil and gas deals, as oil this week traded in a bear market amid surplus supplies and concern that Chinese demand will wane. Karsh said the firm has “a lot of dry powder” available for energy investments.

The Worst View of China

Filed under: Emerging stock markets — Bob @ 12:17 pm

China’s had financial troubles lately, not the least of which is a sharp decline in its stock indexes since mid-June. There’s a lot of conflicting discussion about the likely consequences of the stock bear market. Here’s a worst-case scenario from a writer who tends to write about worst-case scenarios. One thing he does have right is that the bear market could have political repercussions for the current leadership. They’ve been in place only a few years and have engineered drastic changes in policies, including strong crackdowns on corruption. No doubt there are people who aren’t faring as well under the changes as they did before and are waiting for an opportunity to engineer a change in leadership. And here are some other interesting thoughts on China to balance things a bit.

Mark Williams, chief Asia strategist at Capital Economics, said the Chinese authorities appear to have been testing the waters to see what would happen if they stopped intervening. The market verdict was swift and brutal.

“They have got themselves into a very difficult situation. They have put a lot of credibility on the line to shore up prices and this credibility has been badly damaged,” he said.

Inside the Greek Crisis

Filed under: Emerging stock markets,Financial crisis — Bob @ 8:20 am

The former Finance Minister of Greece allowed a writer from The New Yorker to spend time with him in the months preceding the historic July referendum in which a majority of Greeks voted to reject the terms offered by European authorities regarding their debt. The article has interesting insights, including that the minister expected the Greeks to buckle under pressure and vote to approve the debt terms.

When the crisis hit Greece, Varoufakis began his blog, and, with Stuart Holland, a British academic and former politician, published an essay, “A Modest Proposal.” It suggested ways in which the E.C.B. and the E.U. could press the banks holding bonds of struggling eurozone countries to forgive much of this debt, and envisaged a Europe that could issue its own bonds and fund stimulus investments—effectively putting German savings to work in Ireland and Greece. Varoufakis, who had argued against Greece’s decision, in 2001, to adopt the euro, wrote that if there was going to be a currency union then it should not be half-baked, and should function more like the one that joins California and Alabama.

Varoufakis recognized the many frailties in Greece’s economy, but he preferred to talk of a banking crisis rather than a debt crisis, and of a European crisis rather than a Greek one. If Greece had over-borrowed, the real villains were the lenders standing in line for bailout funds. The euro had created a delusion: banks had lent to Greece as if it were a student backed by wealthy parental guarantors. But there were no such guarantees, and when the lending stopped Greece was trapped by the currency that had indulged it. The country couldn’t painfully devalue its currency, like, say, Argentina at the start of the century. (A devaluation makes your people poor but your goods enticingly cheap.) And the euro lacked a body like the Federal Reserve, or the Bank of England, that could feed newly minted cash into the Greek economy; to Varoufakis’s frustration, the E.C.B. wasn’t that kind of bank.

July 28, 2015

Teaching Finance Early

Filed under: Economy — Bob @ 5:16 pm

Financial illiteracy is a major problem. The housing boom and ensuing crisis occurred because so many people weren’t financially literate. They took out mortgages they didn’t understand and ultimately wouldn’t be able to pay. They paid prices for houses that didn’t make any sense. There are other problems resulting from financial illiteracy. This article makes the case that financial literacy can be taught, and that a key is to begin teaching kids early.

Given Ariel’s success, Rogers hopes other firms will follow its lead and partner directly with schools. “We need to jump-start job creation in urban areas,” he says. “Financial literacy is a big part of that.” Gage thinks so too. “The school put a lot of possibilities in my brain,” he says. “It definitely works.”

Next Page »

Powered by WordPress