Tuesday, March 05, 2024

The financial time bomb no one is discussing

 The explosive growth of the national debt.

In the absence of fiscal restraint, the interest rate for servicing this debt can only go higher.  As interest rates go higher, the debt gets bigger, even if other federal spending is held constant—which it won't be.  Both Republicans and Democrats will vote for higher deficit spending, the only question is how much higher.

This path is not sustainable.  A bipartisan agreement removed the debt limit entirely, but only until next January.  The next President will have the mother of all financial calamities to deal with.

Wednesday, February 14, 2024

Yale beats Harvard again

Baylor scores high for endowment returns, according to the Wall Street Journal.

But why are these multibillion dollar funds tax free, and my personal investments are not?  The tax-free sector has gotten much too large for a healthy economy,

Tuesday, June 06, 2023

How does our national debt stack up?

 I ran across an interesting IMF dataset on the debts of central governments, which is timely considering the latest from Congress on our national debt.

In GDP terms, we have one of the highest national debts in the world, at 115% of our GDP (2021 data, could be higher by now).  Japan has an astonishing 212% debt ratio.  At the other end of the scale stands Norway with just 15.75%.  Germany has a more manageable 46%.  I'm uncertain that having a debt larger than the economy is sustainable.

Here's a short excerpt from the IMF's more complete table:

Country by country, national debt as a percentage of GDP









United Kingdom










United States


Thursday, April 27, 2023

A Timely Guide to Banking, and Why Banks Fail

Wealth meanagers and their clients couldn’t ask for a better pocket guide to banking than Bank Failures:  as American as Apple Pie, by veteran financial historian John Steele Gordon.  Although the article appears in the latest online issue of the once beloved American Heritage magazine, the closing section suggests Gordon may have written it in the wake of the S&L crisis. Even so, this quick, readable trip through financial history is timely. Especially this century-old quote from Walter Bagehot:

“Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.” 

Friday, April 14, 2023

The January in April Mystery

This full-page ad keeps popping up in our local paper, and that’s downright odd for several reasons: 

1. Hardly anybody runs full-page newspaper ads these days. January’s stands out like a a sumo wrestler at a toddler's birthday party.

2. January Capital Advisors is based in San  Francisco and run by three broker/advisor/insurance agents. The company offers wrap programs and individually managed accounts. As of three years ago they managed about $161 million. Why are they seeking clients on the Atlantic seaboard?

3. In these volatile times, investment advisers brave enough to tell nervous wealth holders, “Don’t just do something, stand there!” have gained admiration. Number crunchers point out that active trading and market timing are good therapy but too often bad for wealthbuilding. According to its Form ADV, January seems to prefer high portfolio turnover, guided in part by technical analysis, with holding periods of a year or less. In other words, don’t stay the course.

4. January is awfully late to the party. This area, known for its relative affluence, is drastically overstocked with investment advisers and wealth planners. Hundreds and hundreds! Maybe thousands.

Thursday, March 16, 2023

How Siri Became Apple’s Bad Apple

Twelve years ago I fell in love with Siri, the virtual-assistant app that Apple had just added to the iPhone. Secretary 3.0, I called her. My feelings were widely shared. David Pogue gave her a rave review. Siri, Steve Rohr wrote in The New York Times, "represents the future of Apple as a business.”

Sure glad he was wrong about that!

Unlike like the smart young secretary who typed her way up, Siri never evolved. Now she’s a middle-aged drudge. Her cousins, Alexa and Google Assistant, aren't much better. (To be fair, Alexa will tell me the time of the next high tide when I ask her. Siri diffidently offers me a tide chart and expects me to figure it out myself.) 

Clunky coding (perhaps dating back to a Pentagon project in Siri’s case) and poor strategy doomed Siri and her ilk. See this new Times report. Now the enthusiasm once showered on these early attempts to make Artificial Intelligence useful is lavished on far more powerful A.I. tools, like chatbots.

What about it, Apple? Could you get it right this time?

Saturday, January 14, 2023

Ups and Downs of the Rule Against Perpetuities

 The Rule Against Perpetuities was born in Tudor England, as this Smithsonian item reminds us. Charitable funds were exempted by Queen Elizabeth I. In this country the Rule, as applied to family transfers, has now weakened or vanished in a number of states. Dynasty trusts turn out to be an easy sell. 

Should the Rule again apply to great family wealth? What about charitable foundations? 

Brooke Astor, known for her philanthropy, disapproved of perpetual funds. Her favorite Thornton Wilder quote: "Money is like manure. It should be spread around." 

Wednesday, September 21, 2022

“Your 401k Isn’t Drowning"

Twitter exchange worth noting:

Debbie B 
So much for hubby retiring soon...our 401 is drowning

Don’t look at the balance, look at how many more shares it buys at double-digit discounts when it automatically reinvests your Q3 dividends next week.

Your 401k isn’t drowning, it's diving for treasure.

Monday, May 23, 2022

Old Wall Street’s Preserved Fish

What early New York financier’s name described pickled herring, finnan haddie and other storable seafood?

That was the question posed by WQXR’s Know-It-All New Yorker contest this week. Answer: Preserved Fish.

Born in 1766, Preserved (a Quaker name, properly pronounced “Pres-ser-ved”) left the farm to become cabin boy on a whaling ship. By age 21 he was a ship’s captain. By his 40’s, whale oil had made him rich enough to move to New York, where he and a cousin started a shipping company. Preserved helped found the New York Exchange Board (forerunner to The New York Stock Exchange) and in 1829 became president of the Tradesman's Bank of New York. 

More on Preserved Fish here.

Monday, May 09, 2022

Some People Have Big Bezzles

 Today’s Axios Markets pointed me to a Felix Salmon column where I learned a new word. Here’s the gist:

When markets turn, more investors tend to want to take their money out. That's when victims of fraud find out the money has disappeared. The Bernie Madoff fraud is a prime example — it couldn't survive the downturn of 2008, since the higher Madoff marked his clients' positions, the more likely they were to want to cash out.

Until the point of discovery, the money is gone, but the victim feels no loss. Economist John Kenneth Galbraith, writing in 1955, named this "net increase in psychic wealth" the bezzle, and explained that it invariably increases in bull markets, only to shrink when "money is watched with a narrow, suspicious eye.”

As John Mills wrote in 1867: "Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works."

No, Salmon’s column does not mention NFTs.

Tuesday, April 26, 2022

Bitcoin: Thumbs Up or Thumbs Down?

Later this year, the 23,000 companies that use Fidelity to administer their retirement plans will be able to offer Bitcoint as as investment option.

“There is a need for a diverse set of products and investment solutions for our investors,” says a Fidelity spokesman. “We fully expect that cryptocurrency is going to shape the way future generations think about investing.”

Years ago, tech writer Glenn Fleishman thought cryptocurrency might be among the most exciting and important innovations in technology and finance. His thinking has since evolved to provisional cynicism.

"Cryptocurrency is on everyone’s lips,” he writes, "but it should be in no one’s virtual pockets. An overhyped form of imaginary value storage, it has all the disadvantages of cash, suffers from all the volatility of an overhyped penny stock, and consumes more power than a mid-sized European nation. Although it has been vaunted as untraceable, anonymous, and beyond the reach of governments, none of that is true. Law enforcement agencies have used cryptocurrency to take down crime ringsstop people from exchanging child sexual abuse material, and seize massive amounts of Bitcoin and other currencies."

Personally, I think NFTs are a speculative fad that possess useful features. Bitcoin is a speculative fad that ...?

Friday, February 04, 2022

“Take that, Exxon! Shove off, Chevron!”

Last summer Yale issued a list of fossil fuel stocks in which it would no longer invest. Conspicuously absent: Exxon and Chevron. Since then, shares in the two largest oil companies have produced significant gains for investors. This apparently inspired divestment activists to redouble their efforts, for both Exxon and Chevron have now been added to the list of stocks in which the Yale endowment must not invest.  

Exxon and Chevron shares are to be shunned because the companies fail to give enough support to climate-change regulations and climate-change science.

Tuesday, January 11, 2022

Disaster Insurance for Billionaires

What will happen if the crazies take over and inflation goes hyper, turning dollars into pennies?  A few billionaires are worried enough to go long on bitcoin. Some choose other cryptocurrencies. Even if worst comes to worst, they figure, bitcoin and the like might be tradable for goods and services. 

Billionaires are ideal cryptocurrency investors – they can afford the risk. As for the rest of us, we do well to heed a warning issued on CNBC by Robert McCauley: Investing in crypto is worse than investing with Madoff.

McCauley's reasoning: Eventually Madoff’s victims have had most of their losses returned to them. If bitcoin bites the cosmic dust, there’ll be nothing left but unpaid electric bills. 

Sunday, January 02, 2022

Monday, December 13, 2021

Samuel Pepys Saves Widow’s Estate

On January 16, 1667/68, Samuel Pepys’ despondent cousin decided to end it all. He threw himself
into a pond behind an inn, determined to drown. A woman spotted him in the water and alerted farmhands who pulled him out. He was revived but sickened and died at home a few days later.  

Now his widow faced a potentially disastrous financial loss. By law, the estates of suicides were forfeit to the crown. She asked Pepys, a naval bureaucrat, for help. As we can read in his diary entry for January 21, Pepys came through big time:

So, at their entreaty, I presently took coach to White Hall, and there find Sir W. Coventry; and he carried me to the King, the Duke of York being with him, and there told my story which I had told him:1 and the King, without more ado, granted that, if it was found, the estate should be to the widow and children. I presently to each Secretary’s office, and there left caveats, and so away back again to my cozens, leaving a chimney on fire at White Hall, in the King’s closet; but no danger. And so, when I come thither, I find her all in sorrow, but she and the rest mightily pleased with my doing this for them; and, indeed, it was a very great courtesy, for people are looking out for the estate, and the coroner will be sent to, and a jury called to examine his death. This being well done to my and their great joy, I home, and there to my office, and so to supper and to bed.

Friday, November 26, 2021

Christmas Price Index up 5.7%

Back in 1984, a bank economist came up with the fun idea of measuring inflation by annual changes in the cost of the gifts in “The Twelve Days of Christmas.” PNC has continued the whimsy, and this year’s index shows significant price increases. (To avoid distortions in 2020 prices caused by the coronavirus, PNC compared current costs with those from 2019.)

How much would you need to to spend this year to purchase the gifts mentioned in the song and hire twelve drummers drumming, eleven pipers piping, etc.? $179,454.19.

Most expensive gift by far: those seven swans.

Monday, November 08, 2021

Unhappy news for financial advisors

 Rich millenials are apparently succeeding without them.  The Wall Street Journal reports that:

About 70% of households with a net worth of $500,000 or more headed by a person under 45 had an investing style that was either strongly or mostly self-directed in 2019, up from 57% in 2010

Will the coming inflation change their perspective? 

Tuesday, October 19, 2021

Who remembers Black Monday?

 I remember it well.  My senior editor, JLM, had turned on a radio in his office to follow the events, which was without precedent.  I didn't have any money in the market in those days, but I was concerned about the possibility of another Great Depression.

Here's a nice retrospective on the events of that day.

The 1929 crash was down 13% in one day.  Black Monday in 1987 was down 22%, bringing the three-day loss to about 33%.

Tuesday, October 12, 2021

“Harry and Meghan can make E.S.G. investing part of pop culture“

According to the New York Times DealBook, the Duke and Duchess of Sussex have made a deal with Ethic, a fintech provider of ESG portfolios. The Duchess apparently intends to market Ethic’s services as ESG for ordinary people like herself:

“From the world I come from, you don’t talk about investing, right? You don’t have the luxury to invest. That sounds so fancy.”

(Before her marriage to Harry, Meghan reportedly made $450,000 annually from her seven seasons on the TV series “Suits.”) 

Sunday, October 10, 2021

Tuesday, October 05, 2021

South Dakota, World-Class Tax Haven

Back in 2013, when this blog saluted Sioux City’s street of trust companies, South Dakota seemed an unlikely addition to the list of states that promote upscale financial services by offering to keep family assets safe in trusts – trusts that can last a long, long time. 

Now the Pandora papers reveal that South Dakota has become a world class, $367 billion tax haven. Handsome office buildings have replaced the old mail-drop trust offices.

Who ever imagined that South Dakota would one day be compared to Switzerland and the Cayman Islands?

Wednesday, August 25, 2021

Jason Zweig’s Artful Newsletter

Recently signed up for Jason Zweig’s newsletter from the WSJ.  The latest is a winner.

Zweig leads off with the depressing thought that the average performance of active investment managers is one or two percent lower than reported. Reason: survivorship bias. As time passes, the unfortunate returns of funds or managers that drop out of the race vanish from data bases, leaving an average based on better-performing survivors.

 Delightfully, Zweig illustrates his items with everything from ephemera to fine art. Here he uses a Koloman Moser painting that we can imagine as a  collection of deceased funds floating around in other waste matter. 

Guess what happened a few months before Prohibition? Coca Cola went public. Shares were sold on the Curb, Street brokers received orders from clerks who signaled from office windows or ran downstairs to deliver orders. Fights sometimes broke out. Here’s the Curb as shown on a 1919 postcard:  

Can’t promise all of Zweig’s newsletter will be as sprightly as this one, but they are worth a look. 

Wednesday, August 18, 2021

Contrary indicator?

 The New York Times has a nice, well-illustrated analysis of the inflation picture at the moment.

However, I don't trust their conclusion that we don't need to worry about inflation, that it really is transitory.  The general public perceives inflation by what they see at the gas pump and at the grocery store.  Inflationary expectations are as significant as inflation itself.  The fact that the prices of window coverings and men's suits are going down doesn't cut much ice.  Gas prices can only go higher given the new restrictions on building pipelines and fracking.  Note also that President Biden's plea to OPEC to boost production was rebuffed.

What's more, the New York Times has been practicing "agenda journalism" for the past few years, which makes me skeptical of any of their pronouncements.  "No long-term inflation to see here" sounds an awful lot like "Kabul can survive for 90 days" to my ears.  Wishful thinking.

Having said all that, I do find their data presentation and explanations to be interesting, potentially helpful.

Friday, August 13, 2021

Anniversary of a turning point in my Merrill Anderson career

 It was 40 ago today that President Reagan signed the Economic Recovery Tax Act into law.  I helped turn that event into significant profits for the Merrill Anderson Company, co-writing brochures on the benefits of the new law and on IRAs, because they became available to everyone with wages.  I did well enough that the firm's owners began grooming me for future ownership.

Background here:  https://www.powerlineblog.com/archives/2021/08/it-was-40-years-ago-today.php

Wednesday, August 11, 2021

August is the Coolest Month

 Cool in the sense of excellent for stock investors, that is. Instead of fixating on the "January effect", Jason Zwieg's Intelligent Investor newsletter points out, we should focus on the "August effect."

According to Bill Schwert, emeritus professor of finance at the University of Rochester, August has averaged the highest returns of any month, at 1.45%, even better than January -- the month whose supposedly superior results have been touted for years in books, blogs and research papers. 

Zweig also reminds us of what happened 39 years ago on August 12, 1982. Without fanfare the most horrendous stock market decline since the Depression ended.  Investors contrarian enough to start buying equities would have prospered mightily. Stocks rose 229% before Wall Street had its 1987 panic attack. Thereafter stocks rose another 582% percent before the dot.com bubble burst. 

Tuesday, August 10, 2021

How Investment Advisers Became ‘Designated Drivers’

When the merely affluent seek investment help, their advisers generally call the shots. High-net-worth investors aren’t so easy to handle. Their peer group has told them what’s “hot,” and they want their advisers to get them in on the action. Result, an expanding category of alternative asset classes, including sneakers.

Bitcoin and other cryptocurrencies are the hottest of the hot. Many advisers dislike these unstable – and sometimes unserious –mediums of exchange, but they nevertheless have to yield to clients’ insistence: “OK, we’ll put one percent in bitcoin.” 

Even Jamie Dimon, CEO of JPMorgan Chase, finds he must curb his mistrust. His bank is launching a bitcoin fund.

 Dimon recently explained his dilemma to the House Financial Services Committee: "My own personal advice to people is: stay away from it. That does not mean the clients don't want it. This goes back to how you have to run a business. I don't smoke marijuana but if you make it nationally legal, I'm not going to stop our people from banking it.”

If the high-net-worth crowd is going to bet on crypto anyway, Dimon figures, at least JPMorgan advisers can help them do it without getting ripped off. They’re the designated drivers. 

Friday, July 30, 2021

Work Six Days, Get Paid for Five?

In some settings a shorter workweek –“work four days, get paid for five” –  draws kudos. Not on Wall Street, where Goldman Sachs and others cherish a tradition of long workdays and only Sundays off.

Mary Callahan Erdoes, the CEO of JP Morgan Chase's Asset and Wealth Management division, sees a workweek of six 12-hour days as an aid to speed-learning. New wealth managers, she estimates, can master their trade almost twice as fast as they could with a forty-hour workweek. 

Erdoes probably doesn’t mean to be hard on young Wall Streeters; according to this interview, she herself used to work Sundays as well. 

What do you think? Is she overestimating the ability of young analysts to soak up knowledge at 7 p.m. on Saturday night?

Tuesday, July 27, 2021

Which Kind of Trust Do You Drive?

Steve Parrish, as quoted in a Kiplinger primer on trusts:

 A revocable trust is like the minivan of estate planning. They are multipurpose and used more by the upper-middle class. An irrevocable trust is like a high-performance sports car. 
 As for me . . .

Monday, July 12, 2021

Old School Investing Ain’t Dead Yet

Passive investing rules. Mutual funds have become musty relics. Right? 

Not yet. Not by a long shot.

Index funds tracking the S&P 500 have grown at warp speed. By the end of 2020 they held assets totaling $5.4 trillion. Yet significantly more, over $8 trillion, is invested in actively-managed funds benchmarked to the S&P 500. Investor hopes spring eternal.

As for old-fashioned mutual funds, the WSJ reports  fund assets total some $21 trillion, far exceeding the $6.2 trillion in ETFs.  

In time the old order will indeed give way to the new. Already, early adopters are bypassing ETFs and turning to non-fungible tokens and cryptocurrencies. Reminder: if clients want to wager on crypto, make sure they consult their astrologer.

Monday, June 28, 2021

Yale Shuns (Some) Oil Stocks

Yale University aims to reduce its carbon emissions to zero by 2050. Meanwhile, it has issued a list of oil stocks in which it will not invest. Take that, Exxon! Shove off, Chevron! Bye bye, BP! 

Oh, wait. None of the above appear on Yale’s hit list of over 40 shunned oil stocks. According to the university’s list of guiding principles, “investable” oil companies produce fossil fuels only because no cleaner alternatives are readily available and take visible steps to reduce emissions where possible. Exxon, Chevron and BP apparently get passing grades. 

Determining when alternative energy sources are readily available can  be tricky. As Jim Gust called to my attention, Californians owning electric-powered vehicles probably shouldn’t expect that state's overstressed electric system to power them up this summer. 

Wednesday, June 23, 2021

Revenge of the Verbs

The nouns gift and bequest may be threatening to push their verb forms aside, but venerable verbs are fighting back, as we noticed when Netflix’s deal with Spielberg’s film and TV studio was described as a “good get.” Actually, get and ask used to be commonplace nouns, according to Merriam Webster. They’re just making a comeback. 

Friday, June 18, 2021

JPMorgan Adds Spice to Chase

Nutmeg, the British digital investment service, chose its name because the spice, like wealth and investment management services, was once rare but now is readily available. JPMorgan is acquiring Nutmeg – which it already works with on active ETFs – as it prepares to launch Chase as a digital bank in the UK. 

Nutmeg’s sales pitch:

We’ve got rid of all the aspects that made the wealth management industry unpopular. We don’t charge a premium for the illusion of a personal relationship. We don’t use confusing benchmarks that bear no resemblance to reality. We don’t use technical jargon. We don’t lump all your money together. We don’t charge high fees to pay for our huge sales force. We don’t hit you with sneaky charges. We don’t keep you in the dark over where you’re invested – or how your funds are performing.

 Check out Nutmeg’s admirably clear and accessible website. Well designed and well worded.

Monday, June 14, 2021

Investing's Enormous Generation Gap

From "Your father’s stock market is never coming back,” Fortune’s  readable guide to how the Fidelity-generation’s investing differs from that of Robinhood’s youngsters. (Though not a Fortune subscriber, I was able to access the article here.) 

Jerry [father] spent three decades saving and investing, prudently, and dutifully. He and Nancy have accumulated $1.2 million—for them it’s all the money in the world. Took them their entire lives.

Aiden [son] made $800,000 in the past 12 months, starting with the $25,000 his grandfather left him. He did it from a phone, knowing virtually nothing about the instruments he traded.

 Will this century’s Roaring ‘20s investors see their wealth disappear as dramatically as it did in the last century? Will NFTs really take over from ETFs?