Bob Carlson

July 22, 2014

Slowing Life Down

Filed under: Retirement - General — Bob @ 12:19 pm

As people get older, they often feel that time is passing faster. The phenomenon actually has been studied. Here’s an article with a theory about why people feel that way and what you can do about it. Essentially, it argues that you can slow down time.

Embrace the new

New adventures are more memorable, especially when they’re emotionally engaging. Making new friends, experimenting with novel hobbies, and taking on challenging projects at work require more from us cognitively and focus our attention on the present.

Going away on vacation can similarly provide a mental marker between life events, breaking up the routine of everyday life. It’s when every Wednesday night consists of going to yoga, ordering sushi, and watching television that the weeks, months, and years begin to blur.

A Different View of Health Cost Slowdown

Filed under: Health — Bob @ 8:20 am

A number of people have been trumpeting data indicating that in recent years medical costs have been rising slower than previously and than forecasts. That’s helped federal and state government budgets. But why is the growth of medical costs declining? Keep in mind that we’re not talking about inflation. Inflation is when essentially the same good or service costs more than it did last year. That might occur because the currency has less purchasing power or because demand and supply have changed.

When people talk about medical cost inflation they’re really talking about the amount of money spent on medical care. That includes inflation. But it also includes money spent on the volume of care provided. People might seek less care during recessions because they don’t want to spend the money. And it includes money spent on treatments that weren’t available in the past.

Some argue that medical cost increases are slowing because of policy changes or innovations in the way care is delivered. This summarizes a piece that argues costs aren’t growing as fast because we’re not having as many new treatments. Innovation is declining. That might be good for budgets in the short term but likely means people in the future won’t be as healthy as they could have because new treatments and technology aren’t being developed.

Technological decline seems more plausible [as a cause]; see this Brookings Institution paper for the extended argument. Basically, health-care innovation is expensive, and for roughly the last decade, we’ve been doing less of it. As old innovations come off patent or are refined into cheaper and better versions, costs fall.

July 21, 2014

Smart People Buy Generic

Filed under: Cash Management — Bob @ 5:20 pm

When considering the purchase of many products, you have a choice between a generic or store brand and one or more name brands. The generic often is considerably less expensive than the name brand, yet name brands tend to dominate. Why is that? Here’s a report of an academic study of the question. Its simple conclusion is that the more informed you are the more likely you are to buy generic.

For the first time, we have solid answers, thanks to a study by Dutch economist Bart Bronnenberg of Tilburg University and three colleagues from the University of Chicago. They found a simple correlation: The more informed you are, the more likely you are to choose store brands. Pharmacists, for example, are especially likely to buy store brands of headache medicines. Chefs are far less inclined to select national brands of salt and sugar than are nonchefs who are otherwise demographically identical. In other words, national brands are succeeding largely because of consumer ignorance.

Avoiding the Fraud of Collectibles Investing

Filed under: Cash Management — Bob @ 8:20 am

I’ve always believed that collectibles aren’t investments. Collectibles are items such as wine, art, antiques, cars, and the like. Periodically there are news reports that a particular collectible is a great investment because it has appreciated so much in recent years. There’s considerably less publicity when the price of that collectible declines are flattens out.

Here’s a good example of why collectibles are a difficult place to put your money. It describes major wine frauds. The frauds were perpetrated on some of the wealthiest Americans. These people with all the resources available bought millions of dollars of counterfeit wine. So, the rest of us don’t have much of a chance of succeeding. If you like some type of collectible, go ahead and collect it. But you need to know what you’re doing, especially how to tell the real thing from a fake. You also should do it for the pleasure, not for profit.

Egan soon began pulling suspect wines from Frye’s collection and breaking them down by component parts. Some of the labels, he realized, were photocopies that had been distressed–as he puts it, “scuffed in a weird way you wouldn’t see in normal cellaring.” Though the photocopies were expertly done, under his jeweler’s loupe the letters were revealed as pixilated, as from a laser printer. By the time he was done, Egan had identified 30 very expensive fake wines in Frye’s collection.

There are no even vaguely reliable numbers compiled on the value of bogus fine and rare wines that change hands every year (as opposed to the industrial-scale counterfeit bottling of more commonplace wines said to take place in the Far East). Egan’s ballpark estimate is around $100 million. But most of them go undetected, or unprosecuted, partly because, as Russell Frye discovered, “it takes very deep pockets to pursue someone who is selling fake products.” (For that reason Frye ended up settling out of court with the vendor who sold him the ersatz bottles.)

July 18, 2014

The Latest Gossip on PIMCO

Filed under: Income Investing — Bob @ 12:20 pm

Financial journalists have a need to write about what’s happening inside PIMCO ever since Mohammed El-Erian surprised everyone with his resignation early this year. The latest is this bit from The Wall Street Journal.. (Subscription might be required.) It doesn’t say much, though it does have a few behind-the-scenes stories from anonymous sources. Here’s one of several optimistic passages:

Both Messrs. Gross and Hodge said the transition to a new leadership team is going smoothly. Traders say Mr. Gross has been a calmer presence in recent weeks than at times in the past, helping boost morale. And Pimco’s investment performance has improved, leading some executives to feel the firm is close to weathering the recent storm.

Mr. Gross has begun to allow others to share some responsibility, appointing six executives as deputy chief investment officers. The deputies now take turns running investment-committee meetings, held four times a week. Previously, Mr. Gross and Mr. El-Erian split that duty.

“The table is more evenly balanced” than when Mr. El-Erian was at the firm, Mr. Gross said in the June 30 interview. “We needed some additional chefs and cooks. It’s working really well.”

Disappointing Housing Starts

Filed under: Economy,Housing — Bob @ 8:21 am

The housing starts data issued this week disappointed analysts. Month to month housing starts decreased 9.3%. This was caused mainly by a record drop in the South, while other regions had increases. The decrease in the South is attributed largely to rainy weather and is considered temporary. This post by Bill McBride puts the data into a longer-term context and says it paints a generally positive trend in housing.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion – so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Single family starts had been moving up, but recently starts have been moving sideways on a rolling 12 months basis.

Note the exceptionally low level of single family starts and completions.  The “wide bottom” was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

July 17, 2014

Facts About the Child Immigrant Crisis

Filed under: Economy — Bob @ 5:20 pm

The news the last couple of months has been filled with stories of a large number of children illegally crossing the Mexican border into the U.S. It’s now described as a crisis by most observers. It’s been difficult to find information that isn’t either biased or incomplete. I came across this article on that seems to be unbiased and has a number of facts not covered elsewhere. I’m not an expert in the field, so I can’t be sure of its accuracy, but it seems more on point than most other things I’ve seen and heard.

Current government numbers show that the majority of people under age 18 (including minors who arrived with adults) who apply for asylum receive it. But for children who come over the border and apply for asylum via the process Congress set down for unaccompanied immigrant children, the approval rate for their asylum applications is only 35%. Furthermore, very few children are using either of these processes — only 1100 unaccompanied immigrant children had pending asylum cases as of March 31st.

The rest of the children are going into immigration court, to determine whether they qualify for some sort of legal status. Some Republicans have alleged that most children never show up for their immigration court hearings. In fact, about 60 to 70 percent of Central American children are showing up for their hearings — closer to 70 percent of Honduran and Salvadoran children. It’s not clear how many of the children who didn’t show up to court were deliberately absconding, and how many simply didn’t understand the process because they didn’t have a lawyer.

Over the last decade, a little over half of all children in immigration court (not all of whom came into the US unaccompanied) have ended up getting a “removal order” — a formal order of deportation. A little over a quarter have been allowed to stay, either because the judge gives them legal status or because the judge closes the case while they pursue legal status another way. And the rest are given “voluntary departure” — they have to leave the country, but they don’t face the lasting legal consequences of a deportation.

Social Security’s Low-Ball Estimates

Filed under: Social Security — Bob @ 12:20 pm

It appears that for some reason Social Security deliberately underestimates the value of future retirement benefits. A few weeks back I came across an item that argued when SSA estimates future benefits it deliberately uses a low inflation or growth forecast. This item argues that SSA also understates the percentage of income that will be replaced by Social Security. Most SSA reports state that on average retirement benefits are 40% of average income. But this article says SSA is referring to average lifetime benefits. In fact, it says, Social Security retirement benefits typically replace 60% of final pre-retirement income. That’s a big difference and leaves most people better off in retirement than they realized and than most studies indicate.

Of all the different ways of measuring replacement rates, SSA’s is by far the lowest. It also makes the least sense, since there’s nothing in the “life cycle” theory in economics or in standard financial planning in which people base their retirement saving on the growth of other people’s earnings, which is what wage-indexing does. It’s your own earnings, and smoothing your standard of living between work and retirement, that matter.

Why does SSA measure replacement rates the way it does? It’s a long story. But the short story is that we shouldn’t take it for granted that Social Security benefits fall far short of what financial planners recommend as an adequate retirement income.

Time to Take the Load Off the Fed

Filed under: Economy — Bob @ 8:29 am

The Fed’s been doing all the work to keep the economy growing, while fiscal policy either hasn’t contributed or has worked against growth. John Makin of AEI says its time for policymakers to focus on policies that will stimulate growth. He says the labor statistics when looked at in detail reveal weaknesses in the economy that should worry people. Makin is more concerned about deflation and a slump in growth than he is about growth taking off and triggering high, sustained inflation.

Unfortunately, at a time when imagination and action are required to break out of a persistent pattern of sluggish growth, stagnant wages, and a growing alienation of the majority of the population who have not benefited from either the Fed’s action to boost asset prices or ad hoc fiscal measures, Congress and the White House have grown torpid.

Neither Republicans nor Democrats can be satisfied with a virtually stagnant economy five years into a recovery. Having now exceeded the average 58-month duration of a post-World War II recovery, the economy obviously needs to be extended and improved. There are well-known ways to boost growth of employment and output, and there are signs that chances for implementation of growth measures after the November 2014 election are rising. There are also faint signs (detailed later) that the White House may be considering a new supply-side growth initiative. And a new policy group, publishing in National Affairs and other outlets, is pioneering a more positive, pragmatic approach among Republicans.

July 16, 2014

10 Steps to Happiness

Filed under: Happiness & Money — Bob @ 5:24 pm

I’ve linked to versions of this before, but each one is a bit different. This article shows 10 things you can do to increase your happiness. The actions all are backed by research. Take a look and see how many you’re doing already.

8. Plan a trip – but don’t take one

As opposed to actually taking a holiday, it seems that planning a vacation or just a break from work can improve our happiness. A study published in the journal, Applied Research in Quality of Life showed that the highest spike in happiness came during the planning stage of a vacation as employees enjoyed the sense of anticipation:

In the study, the effect of vacation anticipation boosted happiness for eight weeks.

After the vacation, happiness quickly dropped back to baseline levels for most people.

Shawn Achor has some info for us on this point, as well:

One study found that people who just thought about watching their favorite movie actually raised their endorphin levels by 27 percent. If you can’t take the time for a vacation right now, or even a night out with friends, put something on the calendar–even if it’s a month or a year down the road. Then whenever you need a boost of happiness, remind yourself about it.

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