Bob Carlson

December 7, 2016

The Irrational Exuberance Update

Filed under: Economy — Bob @ 6:20 pm

It’s been 20 years since Alan Greenspan first commented on the irrational exuberance in the stock market. Stocks still are highly valued, but some things have changed. This article discusses what’s changed and what hasn’t, and says bonds probably are in more of a bubble now than stocks.

“The philosophical thinking behind Greenspan was that the central bank was there to pick up the pieces” rather than prejudge on bubbles, said Chris Green, a veteran of two central banks who now heads economics and strategy at First NZ Capital Group Ltd. in Auckland. “We’ve moved away from that. It’s a more holistic approach that central banks have adopted with the benefit of hindsight and looking at the problems that emerged” from the Greenspan era, he said.

Improving Your Credit Score

Filed under: Cash Management — Bob @ 1:30 pm

I rarely link to articles about credit scores and improving your credit rating, because most of my readers don’t have to worry about that. But in case you do, or you want to pass good information on to someone who does (such as a child or grandchild) take a look at this post. It gives a comprehensive look at what matter without getting into details about how credit scores are computed. It also gives reasonable, practical tips.

Make strategic payments

Are you making your minimum payments on time? Your payment history (where delinquent payments show up) contributes the most to your credit score. Late payments generally stay on your credit report for seven years.

South Carolina’s Pension Problems

Filed under: Economy — Bob @ 9:30 am

The problems South Carolina has with its pension plan are unique. This article takes a comprehensive look at how the problems developed since 1999. I wouldn’t assume everything in the article is accurate or complete, but it gives a good overview of some key mistakes the state made, and these often are the same mistakes made by individual investors.

By pouring money into stocks after prices had already soared, the pension funds arrived just in time for the bursting of the internet stock bubble and a deep, two-year tumble in market prices.

“We missed a significant portion of the dot-com bubble,” said the current S.C. Retirement System Investment Commission CEO, Michael Hitchcock. “The timing of what happened, it was not good by any stretch of the imagination.”

It was the first in a series of ill-timed pension investing decisions, some allowed by additional voter-approved changes to the state constitution, that resulted in the funds repeatedly buying stocks at high prices near peaks in the market.

Regular folks saving for retirement are typically advised not to try to time the stock market as it rises and falls, to avoid chasing investments that were last year’s winners, and to avoid paying high fees. The pension managers did the opposite, repeatedly, with state lawmakers’ encouragement.

December 6, 2016

Two Economists View Christmas

Filed under: Cash Management,Happiness & Money — Bob @ 6:27 pm

The two economists behind Marginal Revolution blog prepared a free video that’s a little over five minutes long about the economics of gift giving. They say a lot of giving is inefficient, and offer some suggestions for improving gift giving.

What Your Car Company Can Do

Filed under: Economy — Bob @ 12:14 pm

Recent model automobiles have a lot of technology and communications equipment in them. That allows auto manufacturers to do convenient things, such as unlocking your key after you locked the key in them or lost the key (or the fob you have instead of a key). But they can do more. Here’s an article about how BMW helped the police track a stolen car and then lock the thief in it until the police arrived to arrest him.

But technology triumphed. When the owner, who’d just gotten married a day earlier, discovered the theft, the police contacted BMW corporate, who tracked the car to Seattle’s Ravenna neighborhood. The car was parked, still running, with the snoozing suspect fast asleep behind the wheel.

Some Counterintuitive Thoughts

Filed under: Retirement - General — Bob @ 9:30 am

Dan Ariely is a professor at Duke and a leader in behavioral economics and similar studies. In this interview he gives a few of the insights developed from research and how he’s applied them with different organizations.

I think that the first thing to recognize is how difficult it is to be motivated about things that will happen in the long term. It’s almost inhumane. And this includes all kinds of things that we need to motivate ourselves to do. There are very few projects that we’ll finish in a month. Everything that we do for our health is about the long-term. But the long-term is just not that motivating because we just do effort, effort, effort, effort—and nothing good comes from it. So what can we do? We can hope, which is what physicians often do—they tell patients, “Oh, you just need to take this medication because otherwise you’ll die from something.” And we can hope that that will be sufficient. The problem is, it’s just not.

December 5, 2016

Hiding $400 Million

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

Do you want to know how the global system of secret accounts, money laundering, and the like works? This article starts with a divorce. The couple apparently was wealthy, but when the divorce proceedings began, most of the wealth appeared to have disappeared and the couple wasn’t wealthy at all. The article is about the efforts to track down the wealth and determine how it was hidden.

In a pile of mail was a statement from a bank in Luxembourg showing an account with at least $30 million in cash. She had never seen it before. There were two laptops — one with baby photos of their younger daughter, which she set aside. In a cupboard were documents concerning not only Xacti, the internet company she and Oesterlund had built, but also oddly named corporations in other states and countries. Finally, there was a statement from their accounting firm. She had never seen that before, either. The accountants seemed to think her husband was worth at least $300 million.But even as Pursglove was repacking her suitcase for the flight home, her family’s fortune was vanishing into an almost impenetrable array of shell companies, bank accounts and trusts, part of a worldwide financial system catering exclusively to the very wealthy.

Why the CAPE Ratio Works

Filed under: Asset Allocation — Bob @ 12:20 pm

The cyclically-adjusted price-earnings ratio (CAPE), also known as the Shiller P-E ratio, attempts to smooth market valuations by using the 10-year P-E ratio instead of only current earnings. The problem for many investors is that the CAPE ratio has said U.S. stocks are highly overvalued for some time. Investors following CAPE missed a lot of profits. This article explains why the CAPE is working exactly as it is supposed to and that investors who have followed CAPE should be happy. A key to the success is to realize the investment world consists of more than stocks and cash.

This dynamic is no different in the investment markets. If markets are overvalued, is the safer bet that the markets will continue rising or offer sub-par returns? Statistically, the likely outcome is sub-par returns. Of course, that doesn’t mean the markets won’t continue climbing despite lofty valuations. And, of course, a bullish investor could make such a bet as did the tourist – and win. (And as we’ve demonstrated in the past, a cheap uptrending market is the best…but second best?  An expensive uptrending market…) But that doesn’t mean it’s a good wager.

Most investment research has shown that when people buy an expensive market, they have a higher chance of big drawdowns in their future.

The Future of the NFL

Filed under: Economy — Bob @ 9:18 am

Ratings for NFL game broadcasts are down for probably the first time ever. There’s a lot of debate about the causes, but the fact is people are starting to do things other than watch football. There are some reports that the NFL is thinking of ending Thursday Night Football after the current TV current expires. Here’s an online conversation between well-known journalists Bill Simmons and Malcolm Gladwell discussing the causes of the recent change of fortune and the possible future.

Back to those 12 secondary conversations?—?how have they affected the NFL’s erratic ratings in 2016? In the first three post-election weekends, the NFL’s signature games drew more attention than ever, in particular, Steelers-Cowboys (stupendously entertaining), Patriots-Seahawks (still hurts) and Cowboys-Deadskins (an impossible 35 million viewers on Thanksgiving!). Any NFL owner could easily argue, “That nonstop coverage of the most polarizing election of our lifetimes hurt everyone’s ratings, not just ours, so everything’s fine!”

December 2, 2016

Behind OPEC’s Production Deal

Filed under: Economy — Bob @ 6:23 pm

OPEC and the oil market in general have been in disarray since the 2014 by Saudi Arabia not to change production in response to price changes. That brought the sharp crash in oil prices to the $20 range. This week, OPEC agreed to a production cut that immediately boosted the spot price of crude oil. This story has the background of what happened and what motivated the different players to finally agree to a deal that eluded them for years.

The agreement to cut production comes at the end of a year of failed efforts, and several days of high drama between producers, who quibbled over how much cutting each would contribute in order to rein in the global oil glut. West Texas Intermediate oil futures plunged Tuesday, and then rallied 9 percent Wednesday in response to the accord. Whether the proposed deal works remains to be seen, but even the semblance of an agreement is expected to be positive for prices.

“There was a lot of overnight diplomacy. That was the turning point. The skeptics in the room needed to see the numbers. It looks like the Saudis drove the hardest bargain on specificity. They knew what the market needed, and they pushed it through,” said Helima Croft, head of global commodities strategy at RBC.

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