Bob Carlson

January 30, 2015

An Estate Planning Saga

Filed under: Estate Planning — Bob @ 1:20 pm

Celebrities teach the best estate planning lessons. They make a lot of mistakes, and the people around them seem to have extreme reactions to everything. Plus, the details make their way into the media. A recent, tragic example is the last days of Casey Kasem. GQ documents the details. The lessons are that you should have a health care directive and resist the urge to name someone close to you if that person doesn’t have the best judgment or is emotional. When there are conflicts within your family, consider appointing one or more people from outside your family.

But when his illness, diagnosed in 2007, began to erode his faculties, all that he’d built up began to break down, and the mounting rancor within the Kasem family only made his decline sadder and more poignant. As his life moved haltingly toward its conclusion, it was hard not to think about how, for four decades, Kasem had ended every show with the phrase “Keep your feet on the ground and keep reaching for the stars.” Now he was living another, much bleaker kind of countdown.

After Jean removed Casey from the Santa Monica convalescent hospital, Logan Clarke, the P.I., got a frantic call from Kerri and began the process of tracking Jean down. A few days later, one of Jean’s attorneys reported that the ailing legend was out of the country. That wasn’t true. Jean, it turned out, had driven him to what has to be the last city on earth you’d think to take a dying man: Las Vegas, where the couple, their daughter, and two caregivers occupied three suites at the Vdara Hotel & Spa, just off the Strip. (Later, in court papers, Jean would say that she’d taken Casey on “vacation” to “escape the theatrical antics of Kerri Kasem for a few days and realize some peace and privacy.”) Kasem was not examined by a physician for nearly a week.

The Limits of European QE

Filed under: Economy,Financial crisis — Bob @ 9:26 am

The announcement by the European Central Bank that it will embark on a large-scale asset-buying program seemed to put a floor under many markets and relieve the fears that were rising about the European economy. But the efforts aren’t enough to end the depression that exists in much of the continent. Martin Feldstein of Harvard agrees that the QE isn’t enough. The European governments have a lot more work to do to make the economy reasonably healthy. He explains why and gives the policymakers some ideas.

Thus, QE’s success in the US reflected the Fed’s ability to drive down long-term interest rates. In contrast, long-term interest rates in the eurozone are already extremely low, with ten-year bond rates at about 50 basis points in Germany and France and only 150 basis points in Italy and Spain.

So the key mechanism that worked in the US will not work in the eurozone. Driving down the euro’s dollar exchange rate from its $1.15 level (where it was before the adoption of QE) to parity or even lower will help, but it probably will not be enough.

But, fortunately, QE is not the only tool at policymakers’ disposal.

January 29, 2015

Saga of a Treasure Hunter

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

You might recall some years back the discovery of the wreckage of a ship off the Carolina coast that held thousands of pounds of gold bars. The gold was sold to a marketing group for $50 million. The treasure hunter financed his expedition with investor money, which usually is the case for these things. But the investors never saw any return on or of their $12 million. After the treasure hunter was sued, he went into seclusion and avoided an arrest warrant for two years. He was arrested recently, and here’s the story.

When the property’s caretakers searched the mansion, they found prepaid disposable cellphones and bank wraps for $10,000 scattered about, along with a bank statement in the name of Harvey Thompson showing a $1 million balance, court records said. Harvey, according to friends, was Thompson’s nickname in college.

Also found was a book called “How to Live Your Life Invisible.” One marked page was titled: “Live your life on a cash-only basis.”

Perhaps the Most Important Investment Issue

Filed under: Economy — Bob @ 1:21 pm

Growth and productivity boomed since 1982 and really going back longer. This contributed to the boom in earnings and stock prices. Is that going to continue? This post for Philosophical Economics presents the history of the profit margin boom, attributing it primarily to technology and finance. He then presents both a bullish case (that the trends will continue for at least a while longer) and a bearish case (that the outsized profit margins from financial and technology innovation won’t continue). The discussion of the bearish case is much longer.

The result ends up being a steep curve that boosts financial sector profit margins.  But when the Fed cuts rates and keeps them cut, for a period that seems to drag on forever, because the economy never seems to get hooked into the kind of genuine inflationary expansion that would justify a tightening cycle, the market eventually figures things out. Investors realize that long-term rates need to be lower, and pulls the long-end down accordingly, at the expense of financial sector profitability.

Eventually, the Fed will raise the short-end–if not simply out of a desire to restore some normalcy to monetary policy.  When that time comes, the long end will again be slow to respond–this time slow in the opposite direction, slow to rise, given the anchoring and inertia of market participants who, by then, will have grown accustomed to the idea of secularly low interest rates.  The result will be a yield curve that gets flatter and flatter with each hike, and a financial sector whose profit margins get squeezed.  That seems to be exactly where we are currently headed, and it is not bullish.

Whatever Happened to Netscape?

Filed under: Economy — Bob @ 9:20 am

You might remember the first web browser, the hype and amazing initial public offering, and then the war with Microsoft. Or you might have forgotten a lot of that. Here’s an interesting book excerpt that reviews the history. It reminds us of things we’ve forgotten that once were the major news of the day and also shows how the world could be a very different place today if some of the players had made different decisions.

Microsoft and the “browser war” were the major but not the exclusive reasons for Netscape’s inglorious descent. Netscape never converted its many browser users into paying customers. It never quite knew what to do with its much-visited homepage. The Netscape saga—from spectacular rise to near-hegemony to decline and humiliating absorption by AOL—spanned fewer than five years. In its run, Netscape helped define “Internet time,” an idiom of the late 1990s that meant everything moved more swiftly online. The compressed arc of Netscape’s meteoric trajectory was itself emblematic of Internet time.

January 28, 2015

Greece’s Letter to Germany

Filed under: Economy,Financial crisis — Bob @ 6:20 pm

The head of the newly-victorious political party in Greece wrote an open letter to Germany, published in a German newspaper, earlier in January. The letter explains the party’s view of economic conditions in Greece and Europe and why Germany should stop insisting that the austerity program continue and the debts be paid on schedule. At one time it refers to the European establishment as a cleptocracy.

In 2010, the Greek state ceased to be able to service its debt. Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.

In other words, Europe adopted the tactics of the least reputable bankers who refuse to acknowledge bad loans, preferring to grant new ones to the insolvent entity so as to pretend that the original loan is performing while extending the bankruptcy into the future. Nothing more than common sense was required to see that the application of the ‘extend and pretend’ tactic would lead my country to a tragic state. That instead of Greece’s stabilization, Europe was creating the circumstances for a self-reinforcing crisis that undermines the foundations of Europe itself.

Defending the Company Town

Filed under: Economy — Bob @ 1:11 pm

I like this post for several reasons. First, it’s interesting to read and provides good perspective. Second, it argues that the common belief about something isn’t supported by the history. Third, someone took the time to look at the history and data before forming an opinion and was willing to take a position that is completely contrary to conventional wisdom.

In essence, these company towns were doing what Google does today, competing for workers with amenities. Margaret Crawford’s book, Building the Workingman’s Paradise, is an interesting history showing how company towns pioneered a number of architectural and planning innovations that later found there way into many post World War II home developments.

Do You Want An Aluminum Vehicle?

Filed under: Cash Management — Bob @ 9:20 am

Auto manufacturers changed some of their parts from steel and similar metals to aluminum for several reasons. A key one is that aluminum weighs less and so improves gas mileage. But aluminum has drawbacks for the vehicle owner. Take a look at this post that describes the downside of buying an aluminum version of Ford F-150 pickup truck. Bottom line: It costs a lot more to repair a damaged aluminum vehicle.

Edmunds’ goal, in the name of consumer awareness, was to test the theory that it’s more expensive to repair an aluminum truck than a steel one. Their answer? Way, way more. (There are a few flaws in their approach, however, which we’ll get to later.)

Here’s what Edmunds found: It wasn’t just the two fist-sized dents behind the rear wheel that needed repairing. The energy from the blows also left at least four creases in the aluminum panel. And, it turns out, that energy was enough to crack the rear tail light as well, which drove up the repair costs (way more, in fact, than you might imagine).

Even so, Edmunds Editor-in-Chief Scott Oldham says his team was surprised at how strong the F-150 was. “We were impressed with the resilience of the aluminum panel. We hit it and thought it would have far more damage than it did. So we hit it again. That was eye opening.”

January 27, 2015

Nursing Homes Control Patients Who Don’t Pay

Filed under: Long-Term Care — Bob @ 6:20 pm

A nursing home has options if you are admitted to residence and can’t pay your bills or dispute some of them. The nursing home has the option of going to court and seeking guardianship over the resident. In New York especially the law is written to make it easy for nursing homes to be appointed guardians and then withdraw money from the resident’s financial accounts, as this New York Times article shows.

Few people are aware that a nursing home can take such a step. Guardianship cases are difficult to gain access to and poorly tracked by New York State courts; cases are often closed from public view for confidentiality. But the Palermo case is no aberration. Interviews with veterans of the system and a review of guardianship court data conducted by researchers at Hunter College at the request of The New York Times show the practice has become routine, underscoring the growing power nursing homes wield over residents and families amid changes in the financing of long-term care.

In a random, anonymized sample of 700 guardianship cases filed in Manhattan over a decade, Hunter College researchers found more than 12 percent were brought by nursing homes. Some of these may have been prompted by family feuds, suspected embezzlement or just the absence of relatives to help secure Medicaid coverage. But lawyers and others versed in the guardianship process agree that nursing homes primarily use such petitions as a means of bill collection — a purpose never intended by the Legislature when it enacted the guardianship statute in 1993.

Changes Coming for Brokers

Filed under: Retirement - General — Bob @ 1:34 pm

A proposal for changing the regulations of financial advisers, especially those who manage retirement plan assets, has been stuck in limbo for several years. Some want brokers to have fiduciary duties to their clients, while brokers want to retain something close to their current lesser status that is less restrictive. Advisors in the administration recently circulated a memo arguing that the fiduciary standard should be pushed. It cites research showing that brokers have the wrong incentives and act on those incentives to earn lots of money in extra fees that don’t improve returns for clients.

Jason Furman, chairman of Obama’s Council of Economic Advisers, drafted a Jan. 13 memo citing research that says some broker practices, such as boosting commissions with excessive trading, cost investors $8 billion to $17 billion a year. The document was circulated to senior aides and indicates the White House may support tighter oversight of brokers who handle retirement accounts.

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