Bob Carlson

June 30, 2016

Follow Ups to Brexit

Filed under: Asset Allocation,Economy,Investing — Bob @ 5:20 pm

Ben Hunt summarizes what’s likely to follow the U.K.’s vote to leave the European Union. He expects markets will be stable and calm for a while. But he’s also expecting another shoe to drop and expects it will be worse than the Brexit vote and possibly have serious consequences for markets and the economy.

Brexit is a Bear Stearns moment, not a Lehman moment. That’s not to diminish what’s happening (markets felt like death in March, 2008), but this isn’t the event to make you run for the hills. Why not? Because it doesn’t directly crater the global currency system. It’s not too big of a shock for the central banks to control. It’s not a Humpty Dumpty event, where all the Fed’s horses and all the Fed’s men can’t glue the eggshell back together. But it is an event that forces investors to wake up and prepare their portfolios for the very real systemic risks ahead.

Another Celebrity Estate Planning Lesson

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

Frank Zappa passed away some years ago and left his musical legacy in a trust with his wife in charge. His wife had the right to change the terms of the trust. It turns out she did change the trust to favor the couple’s two younger children at the expense of the older children. Apparently she didn’t fully explain the changes or the reasons for them before she passed away. The result is the predictable splitting of the family and the potential for lawsuits. You can read about it here.

Ahmet says that he didn’t really see Gail clearly until the end of her life. “I really cherish the last year that I spent with her because I heard so many stories,” he says. “She was so much more open to talking about things and her experiences. She cared most about keeping the family together. She would literally do anything to have us all under the same roof.”

That the opposite has happened is hard for Moon to take. She says that when Gail passed away, Moon figured that the kids would commiserate and then move on as a unit. “I thought we would all breathe a sigh of relief and, like refugees that made it across the border, put the whole thing behind us. Hug — the four of us — and say, ‘We made it, guys.’ That is not what happened. And it’s heartbreaking.”

Why Markets Were Wrong About Brexit

Filed under: Economy — Bob @ 8:28 am

Here’s an interesting summary of how global investors became convinced that the U.K. would vote Remain in the European Union referendum. It talks about group think and how people tend to listen only to those they agree with. All that spilled over from polls, to betting markets, to the investment markets.

At some point, in other words, the processing of data gave way to personal desire, groupthink, bias — whatever you want to call it. Translating polling data into asset-allocation decisions requires human judgment. And when instinct kicked in last week, by and large, those who were making the decisions about putting money to work were personally, culturally, and emotionally invested in one side of the outcome. As a result, they processed information and made decisions accordingly. That’s one of the reasons the market reversal was so swift in the wake of the actual ballot results. The Leave vote didn’t just shatter the conventional wisdom — it was a direct affront to the worldview of many market participants.

June 29, 2016

Long-Term Care: The U.S. vs. the World

Filed under: Long-Term Care — Bob @ 5:20 pm

Here are some numbers and and an interesting discussion comparing public long-term care spending in the U.S. to many other nations. The U.S. has relatively low spending on LTC. The question raised is whether that can continue.

In turn, a main reason why the share of over-65 Americans receiving long-term care is so low is because, compared with other countries, the American cohort feels it’s in pretty good physical shape.  In the US and Canada, about 80% of the over-65 population reports being in good or very good health. For comparison, less than half of the over-65 population in for the other OECD countries is reports being in good or very good health.

New York’s Real Estate Kings

Filed under: Estate Planning,Investing,Real Estate — Bob @ 12:04 pm

Donald Trump receives all the headlines, but others have a lot more money. Here’s a profile of the Goldman family, which owns a lot more real estate than Trump, has little debt, and probably has a higher net worth. Their story isn’t without bad periods. The patriarch lost a lot in the mid-1970s, and there was an estate dispute after he died. But everything seems to be working well now.

When Sol died in 1987, he was New York’s largest private landlord. The estate soon went to New York’s surrogate’s court as Sol’s estranged wife fought with her four kids over what to do with the massive portfolio. The long legal battle became the largest trust case in New York’s history. Forbes untangled the story from thousands of legal documents packed in boxes pulled from the court archive. The saga starts with Sol and Lillian’s tenuous marriage. After being separated, Lillian filed for divorce in 1983. They attempted to reconcile and in 1984 they signed a formal agreement, which won Lillian 33% of his estate. That was later challenged by her children, though after a five-year long legal battle, it ultimately stuck.

June 28, 2016

Will Brexit be Triggered?

Filed under: Economy — Bob @ 12:20 pm

The U.K. vote to leave the European Union raises a number of questions. While there’s a provision in the EU agreement for withdrawal, hardly any details are clear. Here’s an article that argues the Brexit might never occur. Nothing happens, apparently, unless someone in power in the U.K. officially notifies the EU that the U.K. is withdrawing. Outgoing Prime Minister David Cameron said it’s up to his successor to do that, sometime after October. His likely successors have been silent on what they would. There’s also question about whether the referendum was binding or advisory on U.K. elected officials. There’s a lot of uncertainty ahead.

British Prime Minster David Cameron had said that he would invoke Article 50 — which establishes a timetable for formally breaking up with the E.U. — if his country voted to leave the E.U. In fact, he’d said he would do it the morning after. Instead, in announcing his impending resignation, he may be trying to shield his legacy by passing the responsibility of triggering a potentially catastrophic Brexit to his successor.

Given that Cameron’s likely successors are Brexit supporters from within his party, one might think that they would simply go ahead and invoke Article 50, setting the E.U. pullout process in motion. But, as Teebs notes, these likely successors have been quite subdued in their remarks since the referendum — and some are nowhere to be found.

A Consequence of Negative Interest Rates

Filed under: Economy — Bob @ 8:20 am

Negative interest rates prevail in many countries. You pay a bank to have it hold your money. Or you pay a bank or government for the privilege of lending it money. A result of negative rates is that some people and businesses are finding it makes more sense to store money in vaults than to lend it. This article talks about the trade off between negative rates and the cost of storage and security of cash.

Other financial institutions have also tested or considered storing physical cash as an alternative to paying negative interest rates. Nikolaus von Bomhard, Munich Re’s chief executive officer, said in March that the reinsurer will store at least 10 million euros in two currencies so it won’t have to pay for the right to access the money at short notice. Allianz SE, Europe’s biggest insurer, considered the move but so far has decided against it.

June 27, 2016

Prescriptions from Mohammed El-Erian

Filed under: Economy — Bob @ 5:20 pm

The former head of PIMCO gave his views of the Brexit vote. He found some good news (but not all good news) in the outcome. He also said he hopes the vote will be a wake-up call for policymakers to take serious action to get us past the financial crisis.

In the event that governments finally step up to the economic policymaking responsibilities and stop relying excessively on central banks, the recent period of low growth and artificial financial stability would evolve into high growth and genuine financial stability. The improvements would be turbo charged by the productive engagement of cash that currently resides on the balance sheets of companies, as well as technical innovations.

But if politicians continue to disappoint, low growth would turn into periodic recessions, and artificial financial stability would give way to disruptive instability. The inequality trifecta – that of income, wealth and opportunity – would worsen. Already-alarming youth unemployment would get even more deeply embedded in the structure of the economy. Political tensions would increase, as would the trust deficit in business and political elites, as well as expert opinion.

Some Commentary on Brexit

Filed under: Economy — Bob @ 12:15 pm

Many people are making comments about Britain’s vote to leave the European Union. Here are two interesting ones. This one focuses on the market and economic effects. It says markets are forecasting lower economic growth unless policymakers act wisely, and that the the remainder of Europe, especially southern Europe, will are the worst. This commentary by Tyler Cowen is broad-based but makes the point that the Brexit vote wasn’t about economics or the markets. The vote was more about culture and especially immigration. Leaving the European Union was the only mechanism U.K. voters were given to express their dissatisfaction with recent trends.

One way to understand the English vote is to compare it to other areas, especially with regard to immigration.  If you read Frank Fukuyama, he correctly portrays Japan and Denmark, as, along with England, being the two other truly developed, mature nation states in earlier times, well before the Industrial Revolution.  And what do we see about these countries?  Relative to their other demographics, they are especially opposed to very high levels of immigration.  England, in a sense, was the region “out on a limb,” when it comes to taking in foreigners, and now it has decided to pull back and be more like Denmark and Japan.

Changes in the Housing Market

Filed under: Housing — Bob @ 8:20 am

Not too long ago, the luxury sector of the residential housing market was outpacing the rest of the market. In some areas, it was tough to sell a home to anyone except the wealthiest buyers. Now, things have changed. The luxury end of the market is faltering. In some areas of the country where luxury homes were hottest, prices are below their peaks. At the lower end of the market, however, there are more buyers than homes available for sale. Buying prices for the lower end of the market are increasing faster than the average.

Values in the top third of the market climbed 4 percent in May from a year earlier, compared with an 8 percent increase for the least-expensive houses, Zillow said in a statement Thursday. The supply of starter-home listings plunged 9 percent, while the number of top-tier offerings was little changed.

The lower end of the housing market is starving for listings as homebuilders focus on more-profitable luxury projects and negative equity keeps many owners of less-expensive properties from selling. At the same time, global economic turmoil and stock market volatility are hurting demand for luxury homes.

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