Bob Carlson

October 23, 2016

Understanding Prediction Markets

Filed under: Uncategorized — Bob @ 2:43 pm

Prediction markets once were an obscure part of the economics profession. The Internet made it much easier to build and use the markets,s o now there are a range of prediction markets where people can bet on the outcome of almost anything. You’ll see references to prediction markets in discussions of elections, Fed decisions, and more. The advocates of prediction markets say they are the most accurate forecasters of events. This article discusses the history of prediction markets including records of how reliable they are.

As Surowiecki and others have emphasized, however, crowds are wise only if they harbour a sufficient diversity of opinion. When they don’t — when people’s independent judgements are skewed by peer pressure, panic or even a charismatic speaker — the wisdom of crowds can easily fall prey to collective breakdowns. The housing bubble of the mid-2000s, which was a major contributor to the 2007–08 financial crash, was one such breakdown of judgement. But this is where the second market mechanism comes in. Sometimes called the marginal-trader hypothesis, it describes how — in theory — there will always be individuals seeking out places where the crowd is wrong. In the process, these traders will identify undervalued contracts to buy and overvalued contracts to sell, which tends to push prices back towards a sensible value. An example can be seen in the 2015 film The Big Short, which dramatizes the true story of a hedge fund that bet against the irrational exuberance of the US housing market and gained substantially from the crash.

October 17, 2016

More Changes to Medicare

Filed under: Medicare,Medicare Advantage — Bob @ 8:20 am

The government issued new regulations describing changes in the way the program will compensate doctors in coming years. Authorized by a law enacted last year, the changes are significant and will be phased in over several years. The aim, as always, is to increase quality of care while reducing Medicare’s costs. The regulations, however, are very complex and there is a wide range of opinion over how the new rules will change the practice of medicine and the care Medicare beneficiaries receive.

Whether it succeeds or fails, it’s one of the biggest changes in Medicare’s 50-year history.

While the concept of paying for quality has broad support, the details have been a source of trepidation for some clinicians, who worry that the new system will force small practices and old-fashioned solo doctors to join big groups. Patients may soon start hearing about the changes from their physicians, but it’s still too early to discern the impacts.

October 15, 2016

The Company That Made Mail Fraud Work

Filed under: Economy — Bob @ 5:40 pm

This article from profiles a company that was designated a transnational criminal organization by the U.S. government. According to CNN’s reporting, the company was formed specifically to provide banking services to companies that were committing mail fraud. The company denies the claims.

And the government’s crackdown has already had sweeping effects. Many banks outside the United States have also shut down or frozen PacNet accounts. And with this financial lifeline cut off, CNNMoney has learned that the company is shutting down operations around the world, leaving employees out of work and the company’s clients scrambling.

We happened to be looking into PacNet at the very same time the government was building its case. And through our months-long investigation, we found that PacNet had profited from global mail fraud for years — depositing payments for an alarming number of unethical and flat-out criminal schemes.

October 14, 2016

The Hidden Effect of Asia’s Aging

Filed under: Emerging stock markets — Bob @ 12:20 pm

Most nations in Asia have aging populations. The average age of their populations is rising. There are a number of potential and likely effects of this aging. Here’s one that isn’t frequently discussed. Goldman Sachs says that aging populations in Asia mean money is likely to move out of the countries, weakening economic growth and currency values.

It has everything to do with demographics. For the first time since 1950, the Asian emerging markets — a group that includes China, Thailand and South Korea — will see their populations age faster than those in the developed world in the coming two decades, according to Goldman Sachs Group Inc.

When workers hit their 50s and 60s, those are peak savings ages —  and times when households probably will want to put a portion of their investments abroad, according to Goldman research published this month.

A Look at Mutual Fund Pricing

Filed under: Investing — Bob @ 8:20 am

American Funds, long a fund family that charges loads to all investors, recently created a no-load share class available through the discount brokers. But this article from Morningstar says things aren’t that simple. You have to beware of 12b-1 fees with these new shares.That fee will go to the brokerage firms.

That dream has been realized. The long, gradual movement recently reached its conclusion, when the largest load-fund family, American Funds, announced that it would make no-load shares available to direct investors. That’s excellent investment news. Morningstar’s Alec Lucas tells the story in “(Re)introducing Capital Group’s American Funds.” The company has several stock funds that have reliably beaten the major indexes, over time, and they now can be bought without paying either a front- or back-end sales charge.

October 13, 2016

A Crack in the Brexit

Filed under: Economy — Bob @ 5:20 pm

U.K. Prime Minister Theresa May agreed that Parliament should debate the government’s plan for leaving the European Union. She recently announced a course of action that involved giving notice to the EU next March and insisting on a couple of conditions that most EU leaders already said weren’t acceptable. Some analysts believe involving Parliament could be a way to reverse the Brexit vote, but the Prime Minister didn’t say that Parliament could vote on the measure, only debate them.

“It’s not a game-changer and we would sell the pound rally within 24 hours,” said Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank Ltd. “The hope is that Parliament will have a moderating influence over her cavalier approach so far, but we wouldn’t count on it. Crucially, May has not agreed to let Parliament vote on whether Article 50 will be activated, and that’s what really matters.”

The New Money Market Fund Rules

Filed under: Cash Management — Bob @ 12:33 pm

Retirement Watch readers have known for some time about the new rules for money market funds and how they might affect your financial decisions. Here’s a good Q&A on the new rules and how people are responding.

As of Oct. 14, the U.S. Securities and Exchange Commission is getting rid of fixed $1-a-share values for a wide swath of money-market funds. Additionally, overseers of some funds will get the ability to make it harder for clients to pull their cash in a crisis, by imposing redemption gates and liquidity fees.

Highest Tax States for Retirees

Filed under: Retirement - General — Bob @ 8:16 am surveyed various state tax laws and concluded that 10 states are the worst for retirees, from a tax standpoint. It also points out that most of the bad tax states also have financial troubles and are likely to raise taxes, cut services, or both.

These 10 states impose the highest taxes on retirees, according to Kiplinger’s exclusive 2016 analysis of state taxes. Three of them treat Social Security benefits just like Uncle Sam does—taxing as much as 85% of your benefits. Exemptions for other types of retirement income are limited or nonexistent. Property taxes are on the high side, too. And if that weren’t bad enough, some of these states are facing significant financial problems that could force them to raise taxes, cut services, or both.

October 12, 2016

The Trouble with Earning More Money

Filed under: Health — Bob @ 5:20 pm

The latest study sought to compare the day-to-day stress levels of workers with different education and income levels. It found that the higher-income, higher-educated individuals report having more stress during the workday than other workers. But the article also has interesting references to related studies and has a surprise last paragraph.

In addition to reporting being more stressed and less happy from moment to moment, those higher-status workers—that is, those in the top fifth of a combined measure of income and education, tending to earn at least $100,000 a year—also reported having more trouble meeting the demands of their jobs.

“These individuals who report higher stress are probably individuals who simply have more authority or decision-making duties than others,” said University of Toronto sociology professor Scott Schieman, who was not involved in the study but called it “interesting and important” research. “When more is on the line in your decisions, that adds stress.”

The Future of Apartments

Filed under: Housing — Bob @ 12:20 pm

Bill McBride of Calculated Risk blog updates his views of owning vs. renting. He was early to spot the move to renting instead of owning. Now, he says the market is turning again.

The move “from owning to renting” is probably over, and demographics for apartments are still somewhat positive – but less favorable than 6 years ago.  Also much more supply has come online.  Slowing demand and more supply for apartments is why I think growth in multi-family starts will slow this year (or maybe be flat compared to 2015).

On demographics, a large cohort had been moving into the 20 to 29 year old age group (a key age group for renters).  Going forward, a large cohort will be moving into the 30 to 39 age group (a key for ownership).

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