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Archive for the ‘Pensions’ Category

On Learning Compound Interest Math

Saturday, July 19th, 2014

When I read articles like this where people get scammed borrowing money, I say to myself, “we need to teach children the compound interest math.”

Even my dear wife does not get it, and she sends the children to me when they don’t get it.  But beyond learning the math, a healthy skepticism of borrowing needs to be encouraged, especially for depreciating items like autos.

The compound interest math is really one of the more simple items of Algebra 2.  Everyone should be able to calculate the value of a non-contingent annuity at a given interest rate.

Once people learn that, they might have more skepticism regarding the long-dated pension-like promises that the government makes, because they can look at the future payment stream, and say, “I can’t see how we fund that.”

All for now.

Pity the Multiemployer Pension Plans

Wednesday, July 2nd, 2014

Most of the efforts to encourage defined benefit pension plans in the US have been an exercise in wishful thinking.  Then there are the efforts to discourage defined benefit plans, which came about because the IRS felt that they were losing too much tax revenue to overfunded plans.  Thanks, IRS… many plans were not really overfunded, but you discouraged a healthy funding of DB plans.

But if things are bad with corporate DB plans, it is much worse with Multiemployer Pension Plans.  These are plans meant to cover union laborers in a given industry.  What led me to write this evening were the problems with pensions in the coal-mining industry.  From the article:

Union miners are among the 10.4 million Americans with retirements tied to multiemployer pension plans, the large investment pools considered low risk because they don’t rely on a single company for financing. Two recessions, industry consolidation, and an aging workforce have the multiemployer funds facing a $400 billion shortfall. Dozens already have failed, affecting 94,000 participants.

Strong investment returns helped lift the average funding level of pension plans by three points, to 88 percent, from 2013 to 2014, according to Segal Consulting, which advises multiemployer trust funds. Yet, more plans were added to the “endangered” or “critical” lists that require fund managers to take steps to improve their financial status, including adding cash or adjusting future benefits.

“In 2001, only 15 plans covering about 80,000 participants were under 40 percent funded,” the government pension agency reported June 30. “By 2011, this had grown to almost 200 plans covering almost 1.5 million participants.”

The pension plan for union miners had about $5.8 billion in liabilities in 2012 and was only 71.2 percent funded at the end of 2013, according to Labor Department filings.

The trouble with multiemployer plans is that as some employers fail, the remainder of the employers have to pick up the bill for pensions.  In a declining or cyclical industry, that is a recipe for disaster.  As a result UPS spent $6.1 billion to exit the multiemployer plan, while still guaranteeing benefits to its own employees.  The $6.1B was the ransom payment to escape something far worse in an underfunded multiemployer plan.

Though average multiemployer plan may be better funded, the average hides a lot, as there are more people expecting benefits from plans that are dramatically underfunded.  What’s worse, is that those in multiemployer trusts have a maximum guarantee that is around 30% of what a single-employer plan would receive.

As such, to the degree that unionized industries as a whole suffer, so will benefits to unionized laborers, present and past.  People need to understand that pensions aren’t magic.

  • Adequate contributions need to be made.
  • Investment returns must be adequate.
  • Benefits promised must be reasonable relative to contributions.
  • Anti-selection should be limited in multiemployer trusts.  Perhaps employers need to put up extra capital that they would forfeit if they wanted to leave the collective industry pension promises.

As it is, participants in the worst multiemployer pension plans will suffer losses, and the PBGC will guarantee small amounts of the benefits, and that is as it should be, because the ability to drag money out of a shrinking industry is hard, very hard.

So pity participants in multiemployer defined benefit pension plans.  A significant portion of them will get far less than they expected.

Post 2500: What is the Aleph Blog About?

Thursday, June 12th, 2014

Every hundred or so posts, I take a step back, and try to think about broader issues about blogging about finance.  Tonight, I want to explain to new readers what the Aleph Blog is about.

There have been many new followers added to my blog recently,  through e-mail, RSS, and natively.  This is because of this great article at Marketwatch, which builds off of this great article at Michael Kitces’ blog.

I am humbled to be included among Barry Ritholtz, Josh Brown, and Cullen Roche, and am genuinely surprised to be at number 4 among RIAs in social media influence.  Soli Deo Gloria.

What Does the Aleph Blog Care About?

I’m writing this primarily for new readers, because I’ve written a lot, and over a lot of areas.  I write about a broader range of topics than almost all finance bloggers do because:

  • I’m both a quantitative analyst and a qualitative analyst.
  • I’m an economist that is skeptical about the current received wisdom.
  • I like reading books, so I write a lot of book reviews.
  • I’m also a skeptic regarding Modern Portfolio Theory, and would like to see it discarded from the CFA and SOA syllabuses.
  • I believe in value investing, in both the quantitative and qualitative varieties.
  • I believe that risk control is a core concept for making money — you make more money by not losing it.
  • I believe that good government policy focuses on ethics, not results.  The bailouts were not fair to average Americans.  What would have been fair would have been to let the bank/financial holding companies fail, while protecting the interests of depositors.  The taxpayers would have been spared, and there would have been no systematic crisis had that been done.
  • I care about people not getting cheated.  That includes penny stocks, structured notes, private REITs, and many other financial innovations.  No one on Wall Street wants to do you a favor, so do your own research and buy what you want to own, not what someone wants to sell you.
  • Again, I don’t want to see people cheated, so I write about  insurance.  As a former actuary, and insurance buy-side analyst, I know a lot about insurance.  I don’t know this for sure, but I think this is the blog that writes the most about insurance on the web for free.  I write as one that invests in insurance stocks, and generally, I buy the stocks because I like the management teams.  Ethical, hard working insurance management teams do the best.
  • Oddly, this is regarded to be a good accounting blog, because as a user of accounting statements, I write about accounting issues.
  • I am a skeptic on monetary and fiscal policy, and believe both of them tend to sacrifice the future to benefit the present.  Our grandchildren will hate us.   That brings up another issue: I write about the effects of demographics on the markets.  In a world where populations are shrinking in developed nations, and will be shrinking globally by 2040, there are significant economic impacts.  Economies don’t do well when workers are shrinking in proportion to those who are not working.  (Note: include stay-at-home moms and dads in those who work.  They are valuable.)
  • I care about the bond market.  There aren’t that many good bond market blogs.  I won’t write about it every day, but I will write about i when it is important.
  • I care about pensions.  Most of the financial media knows things are screwed up there, but they do not grasp how bad the eventual outcome will likely be.  This is scary stuff — choose the state you live in with care.

Now, if you want my most basic advice, visit my personal finance category.

If you want my view of what my best articles have been, visit my best articles category.

If you want to read about my “rules,” read the rules category.

Maybe you want to read some of my most popular series:

My blog is not for everyone.  I write about what I feel most strongly about each evening.  Since I have a wide array of interests, that makes for uneven reading, because not everyone cares about all the things that I do.  If that makes my readership smaller, so be it.  My blog expresses my point of view; it is not meant to be the largest website on finance.  I want to be special, even if that means small, expressing my point  of view to those who will listen.

I thank all of my readers for reading me.  I appreciate all of you, and thank you for taking the time to read me.

As one final comment, I need to say this.  I note people unfollowing my blog at certain times, and I say to myself, “Oh, I haven’t been writing about his pet issue for a while.”  Lo, and behold, after these people leave, I start writing about it again.  That is not intentional, but it is very similar to how the market works.   People buy and sell investments at the wrong times.

To all my readers, thank you for reading me.  I value all of you, and though I can’t answer all e-mails, I read all e-mails.

In summary: the Aleph Blog is about ethics and competence.  I want to do what is right, and do what gives the best investment performance, in that order.

 

Book Review: The Investor’s Paradox

Sunday, April 27th, 2014

18593599Investing is paradoxical, as many that read my blog would know. The market has cycles.  There are overall boom/bust cycles.  There are minor cycles between the major cycles.  Strategies fall in and out of favor.  What is an investor to do?  Even harder, what should one who selects assets managers do?

It is hard to select talented investment managers.  I know this, because I have done it many times in my career.  This book points out the difficulties in selecting managers.  Were the returns due to skill, or did he hit a lucky streak?  If you are looking at the numbers only, it would be hard to tell.  Asking managers detailed qualitative questions could help, as could looking at the current portfolio, and asking:

  1. Does the portfolio fit the stated style of the manager?
  2. Does it fit his description of how he tries to make money?

This book summarizes many issues in picking managers:

  • Strict mandates vs looser mandates
  • The ways in which we deceive ourselves willingly, to believe a nice manager, or con man
  • How hedge funds grew and changed
  • Can managers adapt to new market environments successfully, or should they persist with their model which used to work, but is now out of favor?
  • How do you deal with funds that are too complex for the ordinary retail investor to understand? (I would say avoid them.)

The book includes a chapter on Madoff, and while it doesn’t break new ground, it does point out why custodians and auditors are important.  If there had been an independent custodian, or a real auditor, Madoff’s scam could never have happened.  I also appreciated the reference on page 125 as to the methods that scammers use to gain the confidence of those they scam.  This is one case where bright people get fooled.  I would encourage readers to read “The Big Con,” or even marketing books, to make themselves skeptical.

The book has a firm hand on what leads to risk/return among managers — Concentration, Directionality, Compelexity, Illiquidity, and Leverage.  LTCM is held out as an example of a disaster waiting to occur.

The book explains different types of investors, and why they take the risks they do.  Different investors take different risks.

The author gives his own summary of how to interview fund managers, though I found it to be light.  As a former buy-side analyst, I had to interview CEOs, and while I used a few techniques of the author, there are more techniques that can be used.  I appreciated the allusion to “Colombo,” because purposely dumb questions can reveal the honesty of the one being interviewed, and may reveal details that could not be gotten through a smart question.

At the end, he points out how pension plans will not be likely to meet their return goals.  He is right, and efforts to break that paradigm through allocations to alternative investments are also unlikely to work.  Hedge funds don’t respond well to volatility.

This is a good book, but I have one further main objection.

Quibbles

When the author discusses Simon Lack’s analysis of hedge funds (P 190), he wrongly dismisses the significance of dollar-weighted versus time weighted rates of return.  If a manager’s returns are so volatile that it leads investors to buy high and sell low, that is the manager’s fault.  Good managers limit risk so that their investors don’t panic.  Also, since dollar weighted returns are what investors receive as a whole, that is the actual result of the investing, and is the way that all investment managers should be measured.  And as such, Lack’s arguments are correct.  Investors would have gotten more out of investing in T-bills, which absolutely, would not be much more, but less is less.  Lack is correct, and the author is wrong.

Who would benefit from this book: If you hire mutual fund managers, you could benefit from this great book.  If you want to, you can buy it here: The Investor’s Paradox: The Power of Simplicity in a World of Overwhelming Choice.

Full disclosure: I asked the PR people for a copy of the  book, and they sent it.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Also, it should be noted that value managers have client bases that often invest more in bad times, and take profits in good times, so their dollar-weighted returns are often higher than the time-weighted returns.  Educated, contrarian investors do better.

To Live off of, and Die from, the Equity Premium and Alpha

Thursday, April 10th, 2014

I’m working on my taxes.  I’m not in a good mood.  Okay, writing that made me chuckle, because I am usually in a good mood.

Let me divide my working life into four segments:

  • 1986-1998: Actuary — reasonably well paid, and significantly underpaid compared to the value I delivered.
  • 1998-2007 — Investment risk manager, Mortgage bond manager, Corporate bond manager, and Senior Analyst at a long/short hedge fund.  Paid well for my efforts, and the  rewards to clients were far more than what I was paid.
  • 2007-2010 — Almost no pay, as I deal with home issues, provide research to a small minority broker-dealer, and try to gain institutional asset management clients.  Living off of assets from earlier days.
  • 2010-2014 — Living off of asset income as I slowly build a retail and small institutional client base for my value investing.

The last two periods are the most interesting in a way, because I was drawing more income from investments than I was from any other source.  Even during my time at the hedge fund, I made more money from my own investing every year than I was paid, and I was paid well.  That said the mid-2000s were a hot time, particularly if you made the right calls on a growing global economy.

My net worth today is roughly where it was at the peak of the markets in 2007, despite my low wage income.  I have been bailed out by the returns of the equity market and my alpha.

This is not a comfortable place to be, because general equity returns are not predictable, and alpha, though I have had it for years, is not predictable either.  That said, my client base has been growing, and in another year or so, my practice should support my family even if the markets don’t do well.

=-=-=-=-=-=–==-=-=–=-==-=–=-==–=-=-=-=-==-=–=-==-=-=-=-=-=-=-=-=-=-=-

Though I just told a story about me, the real story isn’t about me.  Think of all of the people who are trying to manage their lump sum in retirement.  They are relying on strong equity markets; they are hoping for alpha.  They are not ready for setbacks.

Unless you are seriously wealthy, when you are not receiving reliable income from a wage-like source, you can feel like you are in a weak position. I have felt that on occasion, but in general  I have not worried.

I write this because equity outperformance over bonds will likely be limited over the next ten years.  I peg equities at about a 5%/year average nominal return, with a diversified portfolio of bonds at around 2-3%/year.  Also the ability to add alpha is limited, because alpha is zero in total, and are you smart enough to find the managers that can do it?

In desperate times desperate men do desperate things.  Low interest rates are leading many to speculate more than they ordinarily would.  Equity allocations go higher.  Allocations to “alternatives” go higher.  People start using nonguaranteed income vehicles as if they had the structural protections of bonds.

As I always say, be careful.  Those trying to manage a lump sum for income in retirement are playing a dangerous game where if you try to draw more than 3.5%/year with regularity will prove challenging, because that is playing at the boundary of what the assets can deliver, and leaves little room for an adverse scenario.  Be careful.

Sorted Weekly Tweets

Saturday, March 29th, 2014

Rest of the World

 

  • Malaysia Plane Traced in Inmarsat Engineer London Huddle http://t.co/roKtJSY9WY How they managed to figure out the area of the crash $$ $SPY Mar 30, 2014
  • UK Pension Revolution Putting Long-Term Bonds at Risk http://t.co/o8TNO4lgAn Need 2 match liabs drives demand 4 long bonds, lowers yields $$ Mar 30, 2014
  • Putin Has Exposed NATO’s Weakness http://t.co/xDs2X10AKg US & NATO Europe willing to agree upon? What r they willing 2 risk? Be careful $$ Mar 30, 2014
  • China Said to Expand Property Survey Amid Oversupply Concern http://t.co/m0VAkijXmi Will b difficult 2 end overinvestment by fiat $$ Mar 30, 2014
  • Chinese Pigs Eating Soybeans Cut US Supply to 1965 Low http://t.co/hLfrB2MXM1 Chinese demand 4 pork drives demand 4 US Soybeans $$ Mar 30, 2014
  • Lira Fate Tied to Real Assets as Hot Money Flees http://t.co/GpdoGuymdO In countries where inflation is a threat, invest in property $$ Mar 30, 2014
  • Business not ipso facto criminal: Tendency of presuming it guilty without proof is damaging India’s economy http://t.co/HgpdxdNrbu $$ Mar 30, 2014
  • Mr. Putin’s Revealing Speech http://t.co/BTQ2IDbny5 Defender of Orthodox civilization as he sees it pushes back against encroahing NATO $$ Mar 30, 2014
  • Russian Forces on Border Stir Concern as Crimea Annexed http://t.co/b7SLK8wTTH Threats of more economic sanctions will not deter Putin $$ Mar 23, 2014
  • What the West Can Learn From Putin’s Other Neighbors http://t.co/NB4aeGih9D Don’t make promises that u won’t keep; Putin is not scared $$ Mar 22, 2014

 

Financial Sector

 

  • So what is today’s nonbank business model? http://t.co/awllKHMHK1 Legalized extortion done to “protect consumers,” objective is political $$ Mar 30, 2014
  • Wall Street Banks Cut Out of Prized Commercial Mortgages http://t.co/xImkJXAwC7 $MET $PRU originate commercial mortgages 2 fund own liabs $$ Mar 30, 2014
  • SEC Is Probing Dealings by Banks and Companies in Loan Securities http://t.co/yseFiyZvFJ Current CLO issuance drives loan issuance $$ $BKLN Mar 30, 2014
  • Pimco Chases BlackRock in ETFs as Money Returns to Bonds http://t.co/rL9Bm40rHm Amazing how people follow anything w/positive momentum $$ Mar 30, 2014
  • And if banks start lending aggressively, it will b time to radically shrink asset maturities in bond portfolios, velocity will b rising $$ Mar 30, 2014
  • Banks Lending Like It’s 2007 Belied by $10T Hoard http://t.co/Ef6yHiVNSu But they aren’t lending heavy yet, if they do FOMC has 2tighten $$ Mar 30, 2014
  • Scandal-Hit British Banks Turn to ‘Weirdy Beardy’ http://t.co/XGv1Bt9af1 “Why do you exist?” “Who r u?” Pondering existence bugs bankers $$ Mar 30, 2014
  • Josh Rosner: The Wrong Remedy for Fannie and Freddie http://t.co/ExIuZxRlyM Better to wind them up & get Govt out of the Mtge mkts $$ Mar 30, 2014
  • Iowa’s Friendlier Watchdogs Lead Insurer Pack to Des Moines http://t.co/UPug7MJA7I Iowa DOI will regret embracing complexity, gtee funds2 $$ Mar 30, 2014

 

Market Impact

 

  • Which will win? $BRK.B or $IWM ? 3views: http://t.co/P4rWOG283S & http://t.co/c20Fbqh2b6 & http://t.co/QMIWqojPnB BRK will beat smallcaps $$ Mar 30, 2014
  • Americans Can’t Retire When Bill Gross Sees Repression http://t.co/4hNi5jAH2U Investments eventually reflect the underlying cash flows $$ Mar 30, 2014
  • Financial scars linger: 1/3 of investors wary of stocks http://t.co/xbFcGeOykX Have 2 wait 4 these people 2 come & put in the top $$ $SPY Mar 30, 2014
  • 1999 Buffett: stocks can’t possibly meet public’s expectations. Internet? Notes how few got rich in auto &aviation http://t.co/2FsC9vuvKe $$ Mar 30, 2014
  • Declining Pension Benefits Leave Workers Uneasy http://t.co/A5RmBueODe Difficult 2 fund high benefits when interest rates r so low $$ $TLT Mar 30, 2014
  • Google Traders See Opportunity in Confusion on New Shares http://t.co/2bTfXy75ol New nonvoting shares may allow 4 some arbitrage plays $$ Mar 30, 2014
  • Attention Suckers: Please Send Us Your Money http://t.co/Mibp1EXWh3 @Ritholtz comments how the JOBS Act weakened investor protections $$ Mar 30, 2014

 

US Housing

 

  • High Prices Partly to Blame for Slow New Home Sales http://t.co/rSHWH4Uzra When markets near their peak, frequently volumes drop off $$ $LEN Mar 30, 2014
  • Time might be ripe for boomers to sell their homes and move on http://t.co/hzL9mMImDS Sell them 2whom & @ what price? Lack move-up buyers $$ Mar 30, 2014
  • Finding a House That Won’t Destroy You http://t.co/kJNQf3upos Buy a house u can afford even under stressed conditions, reduce risk $$ Mar 30, 2014

 

US Politics, Policy & Economics

 

  • Florida’s Scott Travels on Corporate Tab as Lobbyists Tag Along http://t.co/qhDVzIgXO1 Governors increasingly use corporate $$ 2fund trips Mar 30, 2014
  • IRS Takes a Position on Bitcoin: It’s Property http://t.co/aCbGKvWGRT Thus any trading of bitcoins involves capital gains &losses $$ $BTCUSD Mar 30, 2014
  • Google, EBay and the Roots of Collusion http://t.co/Vc2SMUU5T5 Some don’t want to annoy companies that r complementary 2their biz goals $$ Mar 30, 2014
  • The Individual Mandate Goes Poof http://t.co/PvjexmswaF Barack Obama undoes what House GOP would like 2undo, just not permanently totally $$ Mar 30, 2014
  • Global Warming Will Not Cost the Earth, Leaked IPCC Report Admits http://t.co/hziljg2Npp Will b interesting 2c how gets spun by bothsides $$ Mar 30, 2014
  • Economists: Rising interest rates are the biggest threat to recovery http://t.co/gPQ1c2ZHAQ More evidence that rates will stay low $TLT $$ Mar 24, 2014
  • Kocherlakota: Don’t raise rates to head off possible crisis http://t.co/yxAGSWGmGQ There may come a time when you will have no choice $$ Mar 22, 2014

Other

 

  • Advice for a Happy Life by Charles Murray http://t.co/7y51RDeGy3 Marry young & someone similar 2u, don’t try2get rich, Groundhog Day $$ $SPY Mar 30, 2014
  • Why Runners Can’t Eat Whatever They Want http://t.co/FLMOWE8sC1 Studies Show Heart Risks to Devil-May-Care Diets—No Matter How Much U Run $$ Mar 30, 2014
  • Speed Reading Returns http://t.co/EwxEFe6Paz Apps and Classes Help People Adapt 2Reading on Their Phones | More content 2 read everywhere $$ Mar 30, 2014
  • The book Scientology tried to ban http://t.co/g4GeTda7bS Read about the *real* L. Ron Hubbard, from a book Church of Scientology hates $$ Mar 30, 2014

 

Wrong

  • Wrong: Not Voting Should Not Be a Choice http://t.co/UlBFwMe6fi Seems fundamental that no one should b forced to vote; it’s a protest $$ Mar 30, 2014
  • Wrong: Japan Is Doomed Unless It Learns to Love Inflation http://t.co/AFD8QA1d8Z More “hair of the dog that bit you solutions” $$ $JPY $JOF Mar 30, 2014
  • Wrong: Digital v human: the new debate http://t.co/PiUgvNHm6x We’ve seen transformational technologies b4, takes a while 4 new jobs 2show $$ Mar 30, 2014
  • Wrong: Fed’s Bullard: Yellen’s ‘6 Months’ Comment Doesn’t Represent Change in Policy Stance http://t.co/v7gzHBobVw Could have fooled me $$ Mar 22, 2014

 

Notes, Comments, Reples & Retweets

  • RT @ReformedBroker: In November 1999, Buffett wrote this op-ed for Fortune on why he doesn’t bet on innovation. @pmarca @hblodget http://t… Mar 27, 2014
  • RT @felixsalmon: “This means Bitcoins are not fungible, and that makes it unworkable as a currency.” http://t.co/JjFOO8Z2Xq cc @pmarca @bar… Mar 27, 2014
  • RT @journalistjosh: Crowdfunding emptor: Attention Suckers: Please Send Us Your Money http://t.co/gvxeT4SyOW via @BloombergView Mar 27, 2014
  • We enjoyed having @susanweiner speak to us at the #CFA Institute – Baltimore; we can all benefit from learning to write more engagingly $$ Mar 26, 2014
  • ‘ @PlanMaestro Yes, I remember that piece http://t.co/YDhQTnNopk and the series that followed it http://t.co/OC2PfnWc1z $$ Capital efficient Mar 26, 2014

 

The Idea of Contributory Defined Benefit Plans

Tuesday, March 18th, 2014

In the good old days, there were Defined Benefit [DB] plans for pensions, and only those.  Why were those good?

  • The sponsor took care of the investing
  • Participants received a level, or inflation-adjusted payment.
  • Payments offered longevity insurance — you could not outlive them.

Then, by accident, the 401(k) plan, and other defined contribution [DC] plans came into existence.  Employees could invest their money pretax, and make money during the bull markets of the ’80s and ’90s.  Many companies terminated their DB plans, and replaced them with DC plans, cash balance plans, etc.

DC plans were attractive to most participants because:

  • They could see the value easily — it was expressed in a single number, and a higher number is always better, right?
  • The employer match was an obvious source of value.
  • Since most of the plans were participant directed, many enjoyed control of the asset allocation, particularly in bull markets.
  • The benefits were portable, they did not rely on continued employment with the same firm.
  • They could take loans against their  balances.

After the bull market of the ’90s, what did participants in DC pension plans lose?

  • They weren’t natural investors, so they lost there through underperformance.  Fear and Greed led them to lose.
  • They lost longevity insurance — it is a lot cheaper to get it early, when you don’t need it.
  • As interest rates fell, so did the ability to buy a future income  by buying an annuity.  Yes, the balance was higher, but you could not earn as much from it with safety.
  • Managing a lump sum for income is a very tough task, and one that most average investors are not equipped to tackle.

This is why I would like to propose replacing DC plans with DB plans, but give employees the option of adding more to their DB plans, and making DB plans portable.  This would require:

  • Making DB plans tax-favored relative to DC plans.  Drop the tax-advantaged status for DC plans.
  • Have standard transfer assumptions for the valuation of DB plans.

The great advantage of contributory DB plans is that they divide responsibilities/advantages where they are best held:

  • Plan sponsors are better at investing than participants.
  • DB plans provide longevity insurance.
  • If participants want to save more, they can do so, buying streams of future income.

I know this piece is nonstandard — out of step with the current “reality.”  If pensions were structured this way, it would save many people a lot of headaches:

  • How do I invest?
  • How can I lock in a good future income for life?
  • How can I get more than what the company is putting aside for me?

Contributory Defined Benefit plans would divide the duties of pensions properly.  Participants would decide how much to save, and sponsors would invest and provide longevity insurance.  Can you think of a better way to do pensions?  I’m all ears.

Sorted Weekly Tweets

Saturday, February 22nd, 2014

Facebook & WhatsApp

 

  • Rags-To-Riches Tale Of How Jan Koum Built WhatsApp Into Facebook’s New $19B Baby http://t.co/bJs6kQrlMx Background on WhatsApp founders $$ Feb 22, 2014
  • WhatsApp Shows How Phone Carriers Lost Out on $33B http://t.co/3gOutvRDzK Perhaps consortium of telephone companies should have bot them $$ Feb 22, 2014
  • Whatsapp and $19B http://t.co/TWI44XfTOC Explains why $FB decided 2 get into mobile, & how WhatsApp may benefit their mobile push $$ $GOOG Feb 22, 2014
  • Zuckerberg Bonded With WhatsApp CEO Over Coffee and Dinners http://t.co/EZAR7rFAsG Promise made to respect the unique culture of WhatsApp $$ Feb 22, 2014
  • Facebook’s horrible, stroke-of-genius IPO @felixsalmon http://t.co/9HrdWMd0Fo Makes point that overvalued $FB stock can b currency 4deals $$ Feb 22, 2014
  • How Much Sequoia Made On WhatsApp http://t.co/SzzdcObDXJ The funny part is how Zuckerberg pranked Sequoia 10 yrs ago, & regretted it $$ $FB Feb 22, 2014
  • Facebook Investors Shrug Off Concerns About $19B Deal http://t.co/AwON4bV9tU also http://t.co/TItg9AIJfI & http://t.co/vgKAI4w1Ye $$ $FB Feb 21, 2014

 

US Politics & Policy

 

  • Companies bracing for 1-2 retirement punch http://t.co/bVBBRV1ytu Unlikely that Obama’s proposals would b enacted; hurts powerful people $$ Feb 22, 2014
  • White House to Propose New Limits on Overseas Corporate Tax Avoidance http://t.co/Me6p3WFG9U This will be difficult 2 enforce; complexity $$ Feb 22, 2014
  • Gold Rush Ghost Town Bodes Ill for California Power Flow http://t.co/fpor2Toct2 Interesting article on how the drought is affecting CA $$ Feb 22, 2014
  • Peggy Noonan: Whose Side Are We On? http://t.co/5l2dofDbpg We can have a “Cold War” vs those who hate democracy & human rights $$ $SPY $TLT Feb 22, 2014
  • NSA Official Warned About Threat 17 Years Before Snowden http://t.co/8utCDM2eug Warned computer system administrators had too much power $$ Feb 22, 2014
  • Fannie Mae Payments to US Will Exceed Bailout http://t.co/aT1Z8jlrW0 2 bad, b/c government owns $FNMA & will keep it as a piggy bank $$ Feb 22, 2014
  • An anti-tech backlash in San Francisco http://t.co/NYsVvWZUu7 Note to politicians: don’t bite the hand that feeds u 2 support malcontents $$ Feb 21, 2014
  • Good: Bumper profits threaten US ethanol support http://t.co/UVjiGT68Wr Time to free *all* energy sources from subsidies adj 4 pollution $$ Feb 21, 2014
  • Bottlenecks along the Industrial Revolution http://t.co/pzxGIC8GjL There is $$ 2b made in expanding energy infrastructure in America $$ Feb 21, 2014
  • CBO Is Right: Minimum Wage Hike Can Kill Jobs http://t.co/hKL64NzpJw Suggests raising the Earned Income Tax Credit, which would add jobs $$ Feb 21, 2014
  • Obama Keystone Pipeline Review Roiled by Nebraska Judge http://t.co/PiF9q1F4nE Governor & Legislature bypassed Public Services Commission $$ Feb 21, 2014
  • Obamacare’s Latest Surprise for Taxpayers? http://t.co/zirjEk1cP0 @Asymmetricinfo says Obama Admin may extend risk corridors past 3 years $$ Feb 19, 2014
  • Detroiters Without Cars Seek Jobs in Vain as City Shrinks http://t.co/x76RJvkgza Cities r organic & they can die, like Detroit. Give up $$ Feb 19, 2014
  • UAW’s Devastating Defeat at a Tennessee Volkswagen Plant: 4 Blunt Points http://t.co/ISoUdA2WBZ Give workers credit 4 rejecting bad deal $$ Feb 17, 2014

 

Market Impact

 

  • Frontier-Market Funds Pour in Boosted by Fixed Currencies http://t.co/YwDTW6bccU 2 much $$ flowing into immature mkts via ETFs; avoid $$ Feb 22, 2014
  • Learning From a Literary Legend: The Importance of History http://t.co/7QqQ9dkiZd Argues that 10-year stock returns will b below average $$ Feb 21, 2014
  • Income As The Outcome: Reframing the 401(k) Plan http://t.co/bEWsAPSuiK Int rates fall, 401(k) bond values rise, but future income falls $$ Feb 21, 2014
  • Wall Street Bond Dealers Renounce Treasuries That Lure Pimco http://t.co/uPxeIqN5uE This is a mess, &no one knows, but I remain long $TLT $$ Feb 19, 2014
  • FX Traders Facing Extinction as Computers Replace Humans http://t.co/CDqoLCjqsn True if all u r doing is matching trades not if profiting $$ Feb 19, 2014
  • Information asymmetry, bad incentives and Taibbi http://t.co/K9M8pI1vQR @izakaminska does an excellent takedown of Tabibi’s recent piece $$ Feb 15, 2014

 

Rest of the World

 

  • Japan Record Trade Gap Shows Risk of Abenomics Losing Steam http://t.co/Lfqgvay6KL High debts, trade deficit due 2 low yen, disaster $$ $FXY Feb 22, 2014
  • For Chinese, It’s Going to Cost More to Become Canadian http://t.co/OlBMh7ZpFv Pity those that want to escape China 2 Canada w/their loot $$ Feb 22, 2014
  • Nigeria’s Delta Oil Thieves Scrape Out a Precarious Living http://t.co/VxknSU5t3Q Long piece shows a vignette of the troubles in Nigeria $$ Feb 21, 2014
  • Foreign Investors Scoop Up New Treasuries Even as Fed Cuts Buying http://t.co/zgPmG1NIQu Weaken your currency. Help exporters. Buy US Tsys $$ Feb 21, 2014
  • India Hedging at Two-Year High as Polls Shroud Outlook http://t.co/mBfYH1HNky Fears of a minority govt have hedgers buying puts on Nifty $$ Feb 21, 2014
  • Samsung Investors May Discover World of Possibilities http://t.co/8DsBUYHKDu Pity about Sarbanes-Oxley. Samsung shares used 2 trade in US $$ Feb 21, 2014
  • Emerging Stocks Rise to Three-Week High on Record China Lending http://t.co/bukIP0bFPA W/China overlending already a problem, not helpful $$ Feb 21, 2014
  • Invading Switzerland? Try Before 8 or After 5 http://t.co/jgBHUG6m84 The Swiss Air Force likes to have the evenings off. War can wait $$ Feb 21, 2014
  • UN warns North Korea’s Kim Jong-un w/a strongly worded letter http://t.co/AlwVjivIO4 Few things crueler than making a Mom kill own child $$ Feb 21, 2014
  • Bank of Japan Surprises Markets http://t.co/BbVlwTMHVR Expands Loan Programs, Keeps Main Policy Unchanged, builds bigger debt bubble $$ $FXY Feb 21, 2014
  • Japan’s GPIF Should Own $600B of Stocks, Ito Says http://t.co/YCfIvErZfb Angling 4a nomination 2 the coveted “Putting in the top” award $$ Feb 21, 2014
  • As World’s Kids Get Fatter, Doctors Turn to the Knife http://t.co/VdTVjqXu0j Bariatric surgery on a 3-yo, as parents can’t say no re food $$ Feb 21, 2014
  • China Fund Shifts Focus Away From Energy to US, European Recovery Plays http://t.co/h10gQrGrEs CIC shifts out of power & into real estate $$ Feb 21, 2014
  • Japan Growth Figures Disappoint http://t.co/FsFtS5qaA5 GDP Increase Comes in Well Below Expectations, perhaps Abe will think twice $$ Feb 21, 2014
  • China Overtakes India as Gold Consumer http://t.co/XV9WA5p8sT When your property can b confiscated by gov’t, helpful 2 have gold 2 carry $$ Feb 21, 2014
  • US to Face G-20 Pressure Over Tapering http://t.co/dLYU5cbqKd If the emerging market nations are properly financed, US $$ policy won’t harm Feb 21, 2014
  • At Asia Air Show, Plenty of Competition for Sales of Drones http://t.co/UCxNe9jQP9 Many uses 4 drones to monitor areas that r hard 2get2 $$ Feb 21, 2014
  • Russians Return to Cyprus, a Favorite Tax Haven http://t.co/qxW0YkMqlK But they won’t put $$ is Cypriot banks after losing much of it b4 Feb 21, 2014
  • Billionaire Niel Trains Geeks to Fix France’s Talent Mismatch http://t.co/3jSO5yXExl Sets up a school in France that teaches programming $$ Feb 21, 2014
  • Elliott vs Argentina: 3 possible resolutions @felixsalmon http://t.co/LuxIKbslsj Sovereign immunity, pari passu & bondholders’ ransom $$ Feb 20, 2014
  • Europe Mending as Markets Signal Even Portuguese Get Work http://t.co/OwqyCMKeGh Less clear than it seems, but Europe is getting better $$ Feb 20, 2014
  • Sochi Olympics: Vic Wild, American-Born Snowboarder Competing For Russia, Wins Gold http://t.co/uKlhwCdHP3 Far better he got a good wife $$ Feb 20, 2014
  • What the Heck Is Going on in Venezuela? (Could the Maduro Regime Fall?) http://t.co/JknNNCQpm6 Yes, it could fall, but what will replace? $$ Feb 19, 2014
  • China Digs Itself Deeper Into Dollar Trap http://t.co/VXRPJEt5o2 Buying Dollar assets supports the cronies of the party that export $$ $FXI Feb 19, 2014
  • Asia Has Crisis to Thank for Gains in Emerging Rout http://t.co/JMyYasAild Emerging Asia, minus China, in better shape than 1997-8 $$ $FXI Feb 19, 2014
  • Swiss Fault Lines Exposed as Villagers See Risk to Postcard Life http://t.co/55NLuUb7er Urban vs rural & the “last settler” syndrome $$ $FXF Feb 17, 2014
  • Salmond Says Forcing Scotland to Drop Pound to Hurt UK http://t.co/bQEK4xwTfY Seriously doubt UK would giveup the seigniorage if Scots go $$ Feb 17, 2014
  • A Rebuke to Japanese Nationalism http://t.co/iZfr1gfeYM Japan needs 2 give up any sense that what they did in WWII was honorable $$ Feb 17, 2014
  • Indonesia Says Australian Defense of Spying Is ‘Mind Boggling’ http://t.co/ykT06aSaxe My, but Snowden opened many cans of worms w/leaks $$ Feb 17, 2014
  • Saudis Agree to Provide Syrian Rebels With Mobile Antiaircraft Missiles http://t.co/vRawuKKAgj Proxy war between Wahabis & Shia continues $$ Feb 15, 2014

 

Financials & Personal Finance

 

  • Wall Street Landlords Buy Bad Loans for Cheaper Homes http://t.co/hrf9Ph0RNq Color me skeptical; when investors own homes, mkt overvalued $$ Feb 22, 2014
  • Energy Holdings Nears Bankruptcy After Creditor Talks Falter http://t.co/MXMolWYXSg They overpaid & the debt was huge, even Buffett lost $$ Feb 22, 2014
  • Tender Offer for Insurer Divides a Boardroom http://t.co/uaNnWRYPfq $AFG ‘s offer for $NATL is more than generous, just tender yr shares $$ Feb 22, 2014
  • Putting Your 401(k) on Autopilot http://t.co/Mby8Yf9iQe Would b better if we made plans where employees could buy defined benefit units $$ Feb 22, 2014
  • The growing case against ETFs http://t.co/dV8fE2563o Makes same point that Jack Bogle & I make, ETFs get traded badly by most investors $$ Feb 22, 2014
  • Americans Ramp Up Borrowing http://t.co/qApFJ0KESP US Household Debt Posts Largest Quarterly Increase Since Before Recession $$ #seenthisb4 Feb 21, 2014
  • Has Small-Business Lending Really Improved? http://t.co/NujuTdfGtk Qty available may b high, but yields r steep @ nontraditional lenders $$ Feb 21, 2014
  • The Current Opportunity Set http://t.co/k1i9NS5nsD Valuation-sensitive mgrs see fewer & fewer places 2 put $$ 2 work, so cash balances grow Feb 21, 2014
  • These Wells Fargo robbers were also tellers http://t.co/ERo7JVe2X1 Comments, some think if banks r dishonest they should b stolen from $$ Feb 21, 2014
  • I, Claudius, caller of bank bonds http://t.co/tlXoiypnQV Memo 2 bond investors: if you buy an odd bond, b sure 2 read the prospectus $$ $TLT Feb 15, 2014
  • When One Spouse Saves and the Other Spends http://t.co/vtJfjX0W8P I do not get how this person can be a financial advice columnist $$ $TLT Feb 17, 2014
  • Debt-Market Chill May Leave Banks Out in the Cold–Heard on the Street http://t.co/MdpS2KOwSv No January bounceback 2 make up 4 December $$ Feb 15, 2014

Companies & Industries

 

  • 10-Gbit Google Fiber is already real, just not from $GOOG http://t.co/6d0nEU3ViN $VZ has tested it & others 2, coming 2 biz, not home $$ Feb 22, 2014
  • Charter Seen Eyeing Cox After Time Warner Loss http://t.co/S2YpktEr5x Cox family is pretty cagey; $CHTR would have 2 pay through the nose $$ Feb 21, 2014
  • ‘Candy Crush Saga’ Maker Files for an IPO http://t.co/TIUYMDKnIE Put King Digital in the “too hard” pile, hard to predict future success $$ Feb 21, 2014
  • Google to Push Its Fiber Rollout on Comcast’s Turf http://t.co/qStVon4gvq $GOOG experiments, $CMCSA will have hard time competing w/fiber $$ Feb 21, 2014
  • My Goldman Sachs Post-Traumatic Stress Disorder (And Why I’m Grateful) http://t.co/1cJJpQzreu Toughened her up, made her more cynical $$ Feb 21, 2014
  • Chevron’s Free Pizza Offer Only Feeds Public’s Distrust http://t.co/xXsFzIgqT4 It was a cheesy way 2 compensate people 4 their troubles $$ Feb 21, 2014
  • The Coal Plant an Illinois Town Couldn’t Give Away http://t.co/7tMYEXqV8u $AEE pays $DYN to take over a coal plant. Now $DYN wants 2leave $$ Feb 21, 2014
  • Rarest of Rare Iridium Gains as Growth Spurs Demand http://t.co/2X7P02FFBb Cheaper than gold, Iridium is used in industrial applications $$ Feb 21, 2014
  • Buffett’s Coca-Cola Complacency Warning Foretells Troubled Year http://t.co/MaoyseiN8O Listen to Buffett, his intuition is sharp $$ Feb 20, 2014
  • Steve Perlman’s Amazing Wireless Machine Is Finally Here http://t.co/BGpdOactlf If it works, it is a huge increase 4 mobile bandwidth $$ $T Feb 19, 2014
  • Actavis Agrees to Buy Forest Labs for $25 Billion http://t.co/bv6o4VtRM8 Kudos 2 @Carl_C_Icahn Quite a string of victories $FRX $ACT $IEP $$ Feb 18, 2014

 

Fed Notes

  • Fed Puts Rate Increase on the Radar http://t.co/IdvNVpEmDl Move Before 2015 Unlikely, but Minutes Suggest Some Inflation Hawks R Circling $$ Feb 21, 2014
  • The Key Passages in the Federal Reserve’s Minutes http://t.co/xUpUwu9IZZ Hawks start discussion on when the Fed Funds rate should rise $$ Feb 21, 2014
  • Yellen Leads Fed Damned Every Way by Emerging Market Angst http://t.co/TApq07VklJ Can’t win b/c developed mkt $$ policy swamps EM policies Feb 21, 2014

 

US Economics

 

  • Worsening US Divorce Rate Points to Improving Economy http://t.co/f5He5DrfuY “We’re finally doing well, honey. Now we can afford2divorce” $$ Feb 21, 2014
  • Citi’s Economic Surprise Index Hits Zero http://t.co/Z69Vy85Hfi As such, the economy is slowing & bond yields r falling. Who knew? $$ $TLT Feb 21, 2014

 

Other

 

  • ‘Downton Abbey’ Is Downright Un-American http://t.co/zGCbFHWzfY If a servant wrote book about how nice her employer was it wouldn’t sell $$ Feb 21, 2014
  • Go Ahead, Let Your Kids Fail http://t.co/kHSID4NgpT Fail & bounce back -> Kids gain skills & grit @asymmetricinfo is off on her book tour $$ Feb 21, 2014
  • I Took the GMAT With No Preparation. Here’s What Happened http://t.co/hXwdxNJiub Journalist gets score good enough 2 go 2 biz school $$ Feb 20, 2014
  • Friedman and Hanke on Bitcoin http://t.co/T4bK693dJ8 But what happens when 1 party gets cheated in a Bitcoin transaction? Caveat emptor? $$ Feb 20, 2014
  • The Official Forecast of the US Government Never Saw This Winter Coming http://t.co/w3RS18QJJd We don’t understand climate well $$ $TLT $SPY Feb 19, 2014

 

Wrong

  • Wrong: In Buffett We Trust as Berkshire Annual Report Lacks Disclosure http://t.co/JP3U63bhnj There is more than adequate info in the 10K $$ Feb 21, 2014
  • Wrong: Cut Off Harvard to Save America http://t.co/ro9cIOe2ok When u mess w/what is a nonprofit & not, u can’t tell what will b the result $$ Feb 21, 2014
  • Wrong: Is China at Risk of a Debt Crisis? Not Really,Bank Says http://t.co/erURFnC3g1 China facing domestic banking crisis, like US 2008 $$ Feb 19, 2014

 

Comments, Replies and Retweets

  • “From what I glean, Zuckerberg romanced them & told them $FB wouldn’t touch their baby. We’ll see” — David_Merkel http://t.co/X25hjO1Fxo $$ Feb 20, 2014
  • “Well said. It is hard for China to give up forced investment and export promotion. It’s economic heroin” Merkel http://t.co/0eH1kgg0lo $$ Feb 19, 2014
  • Commented on StockTwits: This: http://t.co/D0mIcnLtIP and if I knew Spanish, could have seen it earlier:… http://t.co/lPajNQAc4w Feb 18, 2014

 

Why are Pensions so Messed Up

Tuesday, February 18th, 2014

A few days ago, I was reading Felix Salmon’s piece Pension politics.  (Nice title, the type that Tadas likes — the shorter the better.)  I wrote a short response in the comments, largely agreeing with Felix.  Here it is:

Here are the facts:

1) DB pension funding accounting rules are more liberal than life insurance accounting rules.

2) Pension actuaries have long assumed investment earnings rates well in excess of what can be achieved.

3) Longevity has long been increasing for those that buy annuities, and take pensions.

4) Average people are lousy investment managers, they panic and get greedy at the wrong times. Pension asset managers aren’t great, but they largely avoid panic & greed.

5) The PBGC is horribly underfunded, as are most municipal pension plans.

6) Overseas, things can be bad, like Poland, Argentina, India, etc. In those cases being on your own is better. Our custodial systems here are pretty good. (Please ignore MF Global.)

7) Fees are generally too high in asset management, and most people should go for passive management, or a few clever value investors.

8 ) Hedge funds, commodities, and private equity are not the answer. Analyze the returns on an dollar-weighted [IRR] basis and they will be much lower than the illustrated buy & hold returns.

9) Highly paid workers lose out in bankruptcy. Multi-employer trusts are prone to a run on the pension plan if a major employer goes BK.

10) the average person is at best a budgeter, and not an investor. That said, buying inflation insurance is very expensive, if you can achieve it at all.

Summary: in general, you are right, Felix, but it is a question of cost to the corporations funding the DB plans. I think the cost is worth it, but maybe it needs to be shared with workers, taking pre-tax dollars to buy more future DB plan payments. How many people would do that? Sadly, not many.

Pensions have always been a bit of a compromise.  In order to get employers to create Defined Benefit [DB] pensions, the government allowed for funding methods that were liberal — a plan sponsor wouldn’t have to put in as much at the beginning; it can catch up over time.  More than that, the assumptions that DB pensions could use were far more liberal than what life insurers could use for similar contingencies.  Life insurers had to use best estimates and then add risk margins.  Pensions could dream of returns, with no risk margins.

The 401(k) was an accident.  It was tossed into a much larger bill, and no one noticed.  After passage, some benefits consultants, notably Ted Benna, found ways to use it, creating the boom in Defined Contribution [DC] plans.

Corporations initially added DC plans to their DB plans, but as the 90s ended, and equity performance sank, many terminated their DB plans.  Part of it was the asset markets, but another part of it was aging workforces, because the funding rules were weak (unlike life insurance).  Sponsors realized that they would have to spend a lot more on DB plans in the future than they would otherwise want to.  Now stingy corporations cut back on their DC matches, or accept kickbacks out of investment manager fees.

There are two great virtues in defined benefit plans: 1) Investing is handled by professionals.  2) Level payments are made.  Most people can budget.  Few can invest.  Yes, there is the problem of inflation, should it occur, but pensioners should have assets outside of their pension to deal with inflation.  They need longevity insurance, so that they avoid outliving their assets.

Though it might be hard managing a fixed income versus uncertain inflation over an uncertain lifespan, it is much harder to manage a lump sum over a full retirement.  When finances are tight, it is much harder to make the right decisions.  Hope biases average investors in favor of taking chances, whether the market favors taking chances or not.

Add in the troubles with defaults of DB plan sponsors, and significant benefits can be lost, particularly if you have been highly paid.

I would want to tell most asset allocators that there is little to no magic in alternative investments.  The alternatives face the same risk factors as ordinary investments, and they are not underinvested by pension investors.

Closing Notes

Sorry, I forgot to blame the IRS for limiting overfunding for tax reasons, when the overfunding was really funding, and would have been useful today.

Even without the introduction of the 401(k), corporations would have cut back on DB pensions because of costs.  A lot of that was due to bad funding methods, but without those bad funding methods, many DB plans would never have been done.

Just be grateful you don’t live in other parts of the world, where governments are more graspy, and pension assets are a target to plug holes in the government deficit.

Sorted Weekly Tweets

Saturday, February 15th, 2014

Market Impact

 

  • Companies Squeeze 401K Plans From Facebook to JPMorgan http://t.co/2glTizHOjm This should not surprise, many companies shrink labor costs $$ Feb 15, 2014
  • Wells Fargo edges back into subprime as US mortgage market thaws http://t.co/s8AJCKuzOH Isn’t a problem now, problem comes w/imitators $$ Feb 15, 2014
  • Homebuyers Get Break as Loan Rates Defy Fed Tapering http://t.co/i7PdmGThdz Housing & general economy weakened, so mortgage rates fell $$ Feb 13, 2014
  • Pension politics http://t.co/3NaaI61AxM @felixsalmon points out how defined benefit plans r in general better 4 workers. Mind the PBGC $$ Feb 13, 2014
  • Colleges Raise Record $33.8B Exceeding US Peak in 2009 http://t.co/PRjlMrKM9i Donations always follow creation of unrealized cap gains $$ Feb 12, 2014
  • Some Lines Say Maybe the Stock Market Will Go Down http://t.co/FdkJdRT9qe @matt_levine correctly criticizes the 1928-9 $SPY graph overlay $$ Feb 13, 2014
  • 1929 Stock Market Crash Chart Is Garbage http://t.co/PyPIulerCH Unequal left & right scales make the relationship look tighter than it is $$ Feb 12, 2014
  •  When to Ignore the Investment Experts http://t.co/K2vyHgb1gv “When all the experts &forecasts agree — something else is going 2 happen.” $$ Feb 11, 2014
  • Comparing Economic Recoveries http://t.co/5za6QtEFKD In 1984-2006, growth was borrowed from future by increasing debt levels-> #payback $$ Feb 11, 2014
  • Aluminum Lines Still Trouble the London Metal Exchange http://t.co/f5OyWC5EHC Aluminum inventories will b a prob, til short intrates rise $$ Feb 11, 2014
  • Top Anecdotal Signs of a Market Bubble http://t.co/MavPhxB6vZ Good piece, like one of mine: http://t.co/bON7nJJFfk Watch the credit cycle $$ Feb 11, 2014
  • Ten Stocks to Own During a Market Correction http://t.co/RzBdaNf1ff Good list. I own a few of them. $$ Feb 11, 2014
  • Does trend-chasing explain financial markets? http://t.co/3Mkg4R99dx Partly. Difference between investment IRR and total return is big $$ Feb 10, 2014
  • “Security. Safety. Stability.” http://t.co/VfKVcGgMRJ from @reformedbroker Gold is useful at certain points, but only when it is hated $$ Feb 10, 2014
  • Flows Don’t Follow Value, They Follow Performance http://t.co/9oIJ4M7HMo @reformedbroker wrote this little gem. Learn & internalize it $$ Feb 10, 2014
  • Long Term Charts 2: Western Markets Since The Middle Ages http://t.co/lsBfIot8pi Interesting charts from very messy data at Zero Hedge $$ Feb 10, 2014
  • Most Expensive Place to Find Out Who You Are http://t.co/szQfeKFZxT @jasonzweigwsj : Your reaction 2 minor crisis shows yr risk tolerance $$ Feb 10, 2014

 

Companies & Industries

 

  • AIG Takes $832 Million Charge on Death Bets as Hedge Funds Gain http://t.co/JmI7hBy9MH Life settlements should b illegal $$ $MET $AIG $PRU Feb 14, 2014
  • To Stop the Coffee Apocalypse, Starbucks Buys a Farm http://t.co/CPkyVAUnsR $SBUX helps create a variety of rust resistant Arabica trees $$ Feb 13, 2014
  • Former BlackRock Manager Finds Billions on Rice Energy http://t.co/aBPTo3u4Ky Few investment mgrs have operating talent; Daniel Rice does $$ Feb 13, 2014
  • Buffett’s Pal Munger Heads a Very Weird Company http://t.co/ztr3XizpKM Growth of $DJCO thru investing leads 2 # of growing pains & 13F $$ Feb 13, 2014
  • Here’s Why the Biggest Cable Company in the Country Thinks It Can Get Bigger http://t.co/04cdg1J9VP Feds tolerant of cable re antitrust $$ Feb 13, 2014
  • Why AOL ended up spending millions on ‘distressed babies’ http://t.co/d2lWs8eJit $AOL chose 2b in healthcare biz 4 its employees & lost $$ Feb 13, 2014
  • 3 High-Yielders To Buy On The Pullback http://t.co/8SUBI1M0ut In total $SNH issues more stock than it pays in divs. Divs -> cap losses $$ Feb 13, 2014
  • Who is John Thompson? A look at Microsoft’s new chairman http://t.co/W7SrXqxtwm May have right stuff to protect new CEO from meddling $$ Feb 10, 2014

 

US Politics & Policy

 

  • Runaway Drones Map Land, Film ‘Wolf,’ Knock Down People, FAA Gives Chase http://t.co/rcTnjug8w1 Drones r here 2 stay; time license them $$ Feb 15, 2014
  • Teacher Tenure Put to the Test in California Lawsuit http://t.co/XP5fx6HpR3 Tenure has outlived its usefulness; older teachers can b lazy $$ Feb 15, 2014
  • Lincoln’s Foreign Policy in Today’s World http://t.co/t2RELj7uRB Kept England & France from joining Civil War; otherwise pragmatic $$ $SPY Feb 15, 2014
  • What Would Lincoln Do? http://t.co/hi6n4Rb8hl A clever man w/principles, who did not cease to be pragmatic pursuing 1 main goal – Union $$ Feb 15, 2014
  • Harvard Professor Attacking Google Thrives as Web Sheriff http://t.co/g1W7KXH94K At some point, lack of disclosure will blow up on him $$ Feb 14, 2014
  • The $2.2B Bird-Scorching Solar Project http://t.co/hIYWhJpUwQ Get used 2 idea: almost every form of energy imposes environmental costs $$ Feb 13, 2014
  • Obamacare Damage-Control Teams Seek to Calm Complaints http://t.co/bPU95rVMxM Things r tough when u r trying to avoid media embarrassment $$ Feb 13, 2014
  • Billionaire Musk Gets Brownsville to Pay for SpaceX http://t.co/eoAiygs9mq Like a football owner bargaining 2 get taxpayers buy a stadium $$ Feb 13, 2014
  • Snowden Swiped Password From NSA Coworker http://t.co/1mJ5D6vGH3 & it cost him his job. Snowden denies it; NSA is Not Saying Anything $$ Feb 13, 2014
  • Puerto Rico Legislators Amend Bill Calling for Bank-Deposit Shift http://t.co/fMaCvMi7ab Provincial govt’s attempt 2raid cookie jar stopd $$ Feb 13, 2014
  • Obamacare Will, in Fact, Encourage Employers to Cut Jobs http://t.co/D3vaCFHOZY As the employer mandate comes into force, jobs will b cut $$ Feb 12, 2014
  • Tea Party Scorns Republicans as House Lifts Debt Ceiling http://t.co/fPohsF6Kbi t-party can b “pure” as Dems raise ceiling w/few GOP $$ $TLT Feb 12, 2014
  • A Lame Duckish Calm Falls Over the Capital http://t.co/u6bG2cg1nL Parties in DC act as if the next event is the November elections $$ $TLT Feb 12, 2014
  • Obama Rewrites ObamaCare http://t.co/Ym3CtHt3pI Another day, another lawless exemption, once again for business; WSJ bangs populist drum $$ Feb 11, 2014
  • The US Senate Again Insists on USPS Saturday Mail Delivery http://t.co/YnzmKE5Xrh 2 timid; end Wednesday & Saturday delivery $$ $UPS $FDX Feb 11, 2014
  • US firms ‘paid effective tax rate of 2.2% in 2011’ http://t.co/f2T5Qnrhri More than a tax haven, Ireland helps insurers shave reserves $$ Feb 11, 2014
  • No Honeymoon for Janet Yellen http://t.co/86QPfTcVE0 QE withdrawal will bite, & what will become of all the deposits? $$ Feb 11, 2014
  • Please Hold Your Bernanke Applause http://t.co/DCKPttFHNU Remember, when Greenspan left, he was viewed as a success, same as BB now $$ $TLT Feb 11, 2014
  • Sounding the Tax Alarm, to Little Applause http://t.co/r9JQmmaeLB IRS stiffs whistleblowers who often lose employability 4 being a tipper $$ Feb 10, 2014

 

Rest of the World

 

  • Putin is Playing a Game of His Own http://t.co/19Arh0aJOH Not so fast. Russia has significant resources & influence in Eastern H’sphere $$ Feb 15, 2014
  • Boy’s Life Hanging on 8-Hour Trip Shows Why Venezuelans Protest http://t.co/8G8CgGwGST Socialism is like a cancer that spreads til death $$ Feb 14, 2014
  • Let’s Watch Venezuela Destroy Itself http://t.co/g1Uy3zk1W3 Logical extreme of Socialism falls apart; pity that Chavez never lived 2c it $$ Feb 14, 2014
  • Chinese Join Winklevosses in L.A. Luxury Home Hedges http://t.co/TUdw4AItw8 Amazing what the wealthy will pay 4a fancy foreign retreat $$ Feb 14, 2014
  • Next crisis won’t come from the emerging markets http://t.co/Jei7oKJ8BD Argues France, Germany, Britain, Australia & Canada-> 2 much debt $$ Feb 13, 2014
  • Mister Donut, Pan Am and Friendster Found Alive and Well http://t.co/vDaGi33cEN Old brands never die, they just move overseas & make $$ $SPY Feb 13, 2014
  • Bank of England points to 2015 rate rise, blurs guidance http://t.co/AWhyd8GZmd More precision than 1 can know; the world is messy $$ $FXB Feb 13, 2014
  • Italy Pays Record Low to Sell 3-Year Debt at Auction http://t.co/PWmUhXufjb Let the leverage build for the next crisis $$ Feb 13, 2014
  • Fink to Mobius Touting Emerging Stocks Fails to Stem Outflow http://t.co/8PFKbOH8Lg A time 2 nibble, not a time 2 gulp $$ $EEM Be wary Feb 13, 2014
  • Greek Truckers Show Plight as Groceries Show Up Frozen http://t.co/XgAM737A7h Freeing up the labor market will work as attitudes change $$ Feb 13, 2014
  • Tunisians Bolt Doors Even After New Constitution Passed http://t.co/lBhXz8iqWb Constitutions cannot create cultural change; asks 2 much $$ Feb 13, 2014
  • Israel Desalination Shows California Not to Fear Drought http://t.co/BFidhnEF7S When resources r tight there are incentives 2 create tech $$ Feb 13, 2014
  • London Walkie Talkie Owners to Shield Car-Melting Beam http://t.co/76TP0u2tuT Reflective parabolic curve of building melts cars @ a spot $$ Feb 12, 2014
  • Rouhani Seeks Economic Fix as Iran Commemorates Revolution http://t.co/EDNL5WLOvB Will have to get the agreement of unelected true rulers $$ Feb 11, 2014
  • Argentina to Replace Bogus Inflation Index to Mend IMF Ties http://t.co/iSzQizrgnF Argentina tries 2 find cheapest way out of this mess $$ Feb 11, 2014
  • Who Should Pay for Trusts that Go Bust? http://t.co/aOXFbDltCZ If China is smart, protect depositors, but let banks & WMP holders fail $$ Feb 11, 2014
  • Iceland Girds for Fight as Suit Targets Half $14B GDP http://t.co/hX6M12PZ48 Icelandic taxpayer will refuse the bill; UK will b stiffed $$ Feb 11, 2014
  • Mobius Says Emerging-Market Rout Near End as Valuations Lure http://t.co/MMLjlAmN49 I dunno, a 4% earnings yield premium seems small $$ $EEM Feb 11, 2014
  • Rehabilitating Portugal http://t.co/tFy3GnIwRQ Long; Argues that a Greek-style bailout should b done, or Portugal will eventually default $$ Feb 11, 2014
  • Iranian TV Shows Rare Broadcast of Band Playing Music http://t.co/jTBFNcRsHJ Christianity has always been easier on music than Islam $$ Feb 11, 2014

 

Work Trends

 

  • Sheep-Shearing Wells Fargo Banker Bridges US Income Gap http://t.co/utMe1ekmir Sells coffeemakers too; many in US work multiple jobs $$ $TLT Feb 13, 2014
  • Workers Shed Caution, in a Healthy Sign for Labor Market http://t.co/zTq0NgbO0f When workers r willing 2 quit, labor mkt is healthy $$ $TLT Feb 11, 2014

 

Practical

 

  • A Little Valentine’s Day Straight Talk http://stks.co/j0I6p Sage counsel 2 younger women if they want to get married: start early $$ Feb 15, 2014
  • The Sex Question Readers Want Answered Most http://t.co/kRhYIgwI2Z Even Long-Married Happy Couples Ask, ‘How Can We Have Sex More Often?’ $$ Feb 11, 2014
  • Ten Ways You’re Probably Leaving Money on the Table http://t.co/KkjetkJsp9 Simple list of ways to save money for avg upper-middle class $$ Feb 11, 2014
  • Why Mom’s Time Is Different From Dad’s Time http://t.co/0Xr4IMsFfs Husbands, u can win if u reduce chaos for your overburdened wives $$ Feb 11, 2014

 

Other

 

  • US Scores Fusion-Power Breakthrough http://t.co/h6wDtXHcVj Bad news is Tritium very expensive @ $100K per gram; takes much energy 2 make $$ Feb 13, 2014
  • If Ocean Heat Pump Switches On, Expect to Feel It http://t.co/FlsYni5c62 Speculative; we don’t understand climate or hurricanes well $$ Feb 11, 2014
  • Who is Steven Reisman? Meet Hip-Hop VIPs’ Favorite Lawyer, The Man With The $2 Bills http://t.co/B3v87YDWrt Weird. Very, very weird $$ $SPY Feb 11, 2014
  • What Really Happened to Flappy Bird? http://t.co/3IiBxSIhYx Beware the success u wish 4? Also: http://t.co/ld6A2XaiKs Still a puzzle $$ $SPY Feb 11, 2014

 

Wrong, etc.

 

  • Skeptical: Blackstone-Fueled Single-Family Home Boom Lifts Chicago http://t.co/sETcWifBGx In past hi levels of investor ownership bearish $$ Feb 15, 2014
  • Wrong: Pros Panic, Retail Investors Stay Cool on Emerging Markets http://t.co/QXXpOcqKYw Too short a period time to judge $$ Feb 14, 2014
  • Wrong: Social norms: The indignity of no work http://t.co/6isHJo9fkw New technologies will create new jobs & make the whole world better $$ Feb 13, 2014
  • Wrong: Warren Buffett is laughing at you for selling http://t.co/S5LFS3jUk5 Poorly thought-out piece glues 2unrelated ideas together $$ $EEM Feb 13, 2014
  • Wrong: The #1 High-Yield Investment Of America’s Elite http://t.co/FUVyBblQpZ Spammy article that talks about REITs as if they r a secret $$ Feb 11, 2014

 

Replies, Retweets & Comments

 

  • 10 miles west of Baltimore, MD, we got ~15 inches of snow over the last last 2 days. #snow #weather #pax $$ Feb 14, 2014
  • “I made this comment six months ago: http://t.co/a82j8TRxm1… & then, I tipped the SEC. …” — David_Merkel http://t.co/gthPe5eQoA $$ $DJCO Feb 13, 2014
  • “Administrative Services Only” plus individual stop loss protection is in general the smart way2…” — David_Merkel http://t.co/fPV6fQo1i1 $$ Feb 13, 2014
  • “This is a common confusion in statistics — you can have a high correlation and a low beta. Second…” — Merkel http://t.co/sa6PLqEhdU $$ Feb 13, 2014
  • RT @Pawelmorski: Scary parallel my foot. http://t.co/omyovAKQaX Feb 12, 2014
  • @davidgaffen that would only be a temporary fix. I wrote this 3.5 yrs ago on the topic: http://t.co/q3lbyELN9d The internet eats USPS Feb 11, 2014
  • @quakkelaar I miss you too. If you are ever near Baltimore/DC, let me know; we can get together, brother. Last few years have been hard Feb 11, 2014
  • RT @ReformedBroker: Please explain how the wording of this investment advertisement on the Washington Post site could be legal: http://t.co… Feb 10, 2014
  • ‘ @quakkelaar Hail old friend. Yes, same old mistakes, b/c those wishing to retire are making the money sweat, until it rebels on them $$ Feb 09, 2014

 

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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