Don’t Quit Your Day Job – Personal Finance, Economics and Investing

So, here we are: Thursday, October 29, 2009, nearing the end of a large recession. We appear to be in the midst of a jobless recovery- unemployment shows no signs of abatement, and is poised to cross 10% soon. Naturally, after something bad happens, it’s natural to try to blame something. A common scapegoat for the financial crisis is the venerable Big Bank CEO. Were these CEOs were so greedy that they leveraged the entire economy into the Great Recession? Allow me to speak in their defense, then you can go back to protesting against them.

A collection of links and carnival hosts for the week.

… isn’t always good for the individual investor. For example, the S&P 500 has rallied back more than 400 points since March, but the Federal Lending Rate is somewhere between 0 and 0.25%. The rate has all sorts of consequences for Main Street- it mostly affects short term rates. In the carnage, even asset classes that were once expected to provide a little more return have suffered- as of today, the average money market rate is a mere 1.07%.

Who is your favorite investor? Warren Buffet, Peter Lynch? Do you wish you had their insights? What if you could link your brokerage account to theirs? That exact concept is brought up in an article from the New York Times hosted on Yahoo! Finance: for a fee, your brokerage account can mirror that of an expert investor.

Ready for a Generation Y surprise? From U.S. News and World Report comes this report (using a Scottrade study) about the attitudes of Generation Y investors mid (post?) recession. Yes, instead of running scared from ticker symbols to the safety of buried backyard treasure, Generation Y is taking the recession in stride- even increasing their investments despite the plunge.

Of note: an interesting report from Cumberland Advisors. An ETF that tracks the KBW Banking Index is up a whopping 145% since March 9. It consists mainly of bigger, national banks. With their ‘bigness’ also comes ‘too big to fail-ness’ and political connections. Smaller, regional banks are a totally different story.

How accurately can the stock market (as modeled by the S&P 500 Index) predict future recessions? If one charts the S&P 500 over the years and marks when recessions begin, is there any indication that the market senses it early? How accurate are the predictions? Can the market be used to prepare for downfalls? In short: somewhat, yes, very, probably not.

What better way to start writing again (Happy October!) then to write about an investing fallacy: over periods of 20 years or longer, many investors automatically assume that stocks are the best investment. Really, it isn’t fair. Stocks have behaved (before this decade anyway) in such a controlled fashion, gaining 10% or so on average every year, that it is only natural for many investors to assume that this trend will continue. Well, as Jason Zweig of the Wall Street Journal makes clear, that isn’t the case.

The Money Hacks carnival for the week hosted a DQYDJ article. Check it out!

A classic quote on government regulation by the Nobel prize winning economist Milton Friedman.