Bob Carlson

November 30, 2015

A Story of Emerging Market Corruption

Filed under: Emerging stock markets — Bob @ 6:20 pm has an article that shows it still can be dangerous to invest in some of those small companies from the least developed of the emerging markets. The story details some investigations into allegations of bribery, corruption, and even torture in Uzbekistan, featuring the Harvard-educated daughter of the president.

There were millions of reasons mobile operators were eager to break into Uzbekistan in the 2000s. In 2005, when cellular service was still a luxury, the country had just 917,000 users. Now it has 21 million, the most in Central Asia by far, according the U.S. Central Intelligence Agency.

By the mid-2000s, Karimova had become the “go-to person” in Uzbekistan because she was perceived as someone “you could do business with,” said Ed Baumgartner, a co-founder of the Edward Austin research consultancy.

The Risks of Safety

Filed under: Economy — Bob @ 1:20 pm

A new book by Greg Ip of The Wall Street Journal argues that efforts to make life safer end up making it more dangerous. Here is a summary of a talk he recently gave based on the book, plus video of the talk.

Ip shows how despite our learning a staggering amount about human nature and disaster, we keep having car crashes, floods, and financial crises. Partly this is because the success we have at making life safer enables us to take bigger risks. As our cities, transport systems, and financial markets become more interconnected and complex, so does the potential for catastrophe. Drawing lessons from the US financial crisis, Europe’s sovereign debt crisis, sports, technology, and natural disasters, Ip explains how actions taken to prevent danger often cause a different sort to emerge in unexpected places.

New Way to Finance College

Filed under: Helping Grandkids — Bob @ 10:44 am

Student loans are the preferred way for most people to finance higher education these days. But student loans generally are believed to be a burden to recent graduates and are one of the reasons there aren’t enough first-time home buyers in the housing market. This article discusses a new way of financing college that is similar to loans but with a twist. Known as income shares, the borrower pays a percentage of after-graduation income for a period of years. Unlike a loan, if the graduate is between jobs, there’s no requirement to make payments. Payments are deferred until income is restored.

Loans have the greatest burden when a student overestimates their potential earnings and is poorer than expected. Thus, the loan offers no relief when relief is most needed. In contrast, payments under an income share agreement fall when income falls. An ISA does cost more than a loan when a student underestimates their potential earnings but in this case the student is richer than expected and can easily bear the extra burden.

November 25, 2015

Happy Thanksgiving

Filed under: Retirement - General — Bob @ 6:20 pm

I hope you and your family have a pleasant Thanksgiving. I’ll be back after the holiday.

Examining Fantasy Sports Sites

Filed under: finances — Bob @ 5:20 pm

The major fantasy sports sites rose rapidly from niche activities a couple of years ago to an unavoidable presence in daily life. Television commercials for the sites are omnipresent but dominant sports programming. Participants and would-be participants should examine the sites closely before making decisions. The PGA Tour banned its players from participating in these sites. This video by television show host John Oliver discusses the sites at length and gives warnings about participating in them.

Analyzing Recent Home Prices

Filed under: Economy,Housing — Bob @ 12:20 pm

Here’s a post that puts the latest home price data in perspective. Many people overlook that the real (after inflation) change in prices is what matters. The post shows that real home prices have a long way to go before returning to the pre-bubble peak. It also includes an interesting alternative to valuing homes: the price to rent ratio.

It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 6.0% below the bubble peak.   However, in real terms, the National index is still about 19.7% below the bubble peak.

Interview with a Retirement Scholar

Filed under: Retirement - General — Bob @ 9:22 am

James Poterba of M.I.T. has appeared in my writing from time to time. He’s an economist who’s done some interesting work on retirement finance and challenged what were prevailing assumptions. In this interview he covers a lot of ground. It’s all interesting to me, but his conclusions from his retirement studies are important.

The times when financial assets are drawn down significantly are often when one spouse in a married couple dies, which may be associated with medical and other costs, and at the onset of a major medical episode. Health care shocks may lead to costs for caregivers who may not be covered by Medicare and other insurance. Retirement is not a homogeneous period from the standpoint of financial behavior: Behavior for the “young elderly” can be quite different from the behavior of those who are in their 80s and 90s.

November 24, 2015

A Stock Forecast for 2016

Filed under: Asset Allocation,Economy,Investing — Bob @ 6:20 pm

I usually don’t pay attention to the annual forecasts from the major financial firms, as I’ve discussed in Retirement Watch. But I’m linking to this article summarizing Goldman Sachs’ forecast for 2016, because it is different. Usually, forecasts from the major firms cluster around the long-term average, though it is a rare year when the stock indexes actually return the average. For next year, Goldman is forecasting a flat stock market. Agree with them or not, it is news.

In 2015, a relatively small handful of stocks have been largely responsible for the year’s modest advance. Fund managers that didn’t have AMZN -0.74%, Facebook FB +0.00% and Alphabet (Google GOOGL -0.39%) in their shopping carts had a high hurdle to keep up with the tepid gains for the broader market. Goldman cites a statistic that 75% of large-cap core mutual funds are lagging benchmarks.

The Scoop on the Fed’s Upcoming Policies

Filed under: Economy — Bob @ 3:01 pm

The Fed’s made fairly clear it wants to increase short-term interest rates a little bit at its December meeting. But what comes after that? This essay from PIMCO lays out the Fed’s intentions and thinking. Richard Clarida says the Fed wants to raise rates roughly at every other meeting for two years. The key to the Fed’s recent announcements is that it expects real interest rates (market rates minus inflation) will remain quite for years, and inflation isn’t going to rise much. The bottom line is to expect low interest rates and low returns on other assets for some time.

Chair Yellen knows it is crucial to communicate why the upcoming rate normalization cycle is likely to be the most gradual in history, and building on the thesis first laid out by Ben Bernanke in September 2013, she did so masterfully in a speech at the San Francisco Fed in March 2015. In that speech, Yellen explained that liftoff will be gradual not because the Fed plans or desires to be behind the curve, but because the “equilibrium” real policy rate itself is time varying, is at present well below the level that prevailed before the crisis and that is assumed in the classic 1993 Taylor rule, and is itself expected to rise only gradually over the next several years, and even then to a level well below what prevailed before the crisis.

Popular Assumptions that Reduce Wealth

Filed under: Investing — Bob @ 9:20 am

This post lists a number of widely-held investment beliefs that are dangerous to your wealth. They’re tough to resist, because they are widely repeated and assumed to be valid. Take a look and see how many you need to dump overboard.

Investing is the sure path to riches. Your investing skills won’t matter if you’re constantly in debt, don’t save enough money or can’t get your personal finances in order. I’ve seen plenty of finance people who have very successful careers but are terrible with their own finances. All the market knowledge in the world won’t help if you don’t understand the basics of personal finance.

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