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

Welcome back to the table, emerging markets! As a recent Wall street Journal article points out, emerging markets are back. Emerging markets, defined as rapidly growing economies coming from a smaller base (but notoriously hard to list!), have bounced back from their lows this year. Are emerging markets re-emerging?

Let the good times roll! As I write this article, the S&P 500 is at 1068.22, up 55.91% in absolute terms since the trough on March 9, 2009. Investor and consumer sentiment seems to be climbing according to polls and news headlines. In fact, if you somehow avoided the news since last October 7th, your S&P 500 investments would be even. However, signs abound that we could be in the midst of a “sucker’s” rally- universally defined as unsustainable…

Do psychological barriers matter to you in investing?

The Dow Jones Industrial Average is poised to climb, once again, to the psychologically important level of 10,000. 10,000 has been a memory since last October. As Brett Arends of the Wall Street Journal points out, we first crossed the 10,000 barrier over 10 years ago, and the dollar has lost 23% of its purchasing power in that time. What does Dow 10,000 mean?

From the Wall Street Journal yesterday: the bear market has taken a swipe at college savings rates. In fact, it’s taken more than a swipe; 47% of parents are savings less than before or nothing towards the education of their children. Ouch.

Feeling lucky? The Wall Street Journal recently ran an article suggesting investors take a look at health care stocks. The article makes the argument that an aging population and potential congressional mandates for people to buy health insurance make the health care sector a decent place to look for some growth in the medium to longer term. Politically, it’s impossible to read the tea leaves. However, could the story be on to something?

How did you react to the stock market’s (defined, in my mind, as the S&P 500 index) recent precipitous drop? If you’re like many investors, you moved out of ‘risky’ assets such as stocks and into ‘safe’ assets such as money market funds and stable value funds. Unfortunately, the seeming safety of fixed income investments is a mirage… hidden forces, such as the danger of inflation, make ‘safe’ investments less safe than first glance. Paradoxically, the recent movement to safer portfolios has put many people at risk for a reduction in the real value of their money in inflation adjusted dollars.

As noted in a CNN article today, one way to gauge the market’s reading of current conditions is by reading the bond yields. Twice I’ve taken a look at how you can use Treasury Inflation Protected Securities plotted with the Daily Treasury Yield Curve to get a glimpse at the market’s inflation expectations (TIPS adjust their value due to CPI). Some other interesting ratios are presented, the treasury yield curve on its own, and the spread between junk bonds and government debt.

Ever made a mistake in investing? Yeah, I bet you have. I have too.

The reasons that investors make mistakes are numerous and hard to detail, but the Wall Street Journal took a really good shot at it today. Covering everything from the pain of selling at a loss to mental accounting, it’s one of the best personal finance articles I’ve read in a long time. Oh, and I read a lot. Everyone has biases which make mistakes possible, the question is how can we recognize them and adapt? Read on…

“Finance is the art of passing money from hand to hand until it finally disappears.” – Robert W. Sarnoff.

From the “it’s about time” category, I present the Supreme Court case Jones v. Harris Associates. The case was filed because a group of investors felt:

1. The board of directors wasn’t sufficiently neutral (the law requires 40% of advisors to be “disinterested”).
2. The fund didn’t disclose the advisers’ financial links to the trustees
3. Compensation for the adviser should be controlled by a majority of the disinterested advisers

As Jason Zweig of the Wall Street Journal writes, the Supreme court has no business setting fees. However, the disclosure rules on mutual funds stem from older laws. Is it time for reform in fund disclosure?

Master Limited Partnerships are publicly traded Limited Partnerships, most often investing in the extraction and transportation of raw materials. A limited partnership is a limited liability corporate structure which contains Limited Partners, and at least one General Partner. This gives the funds great tax advantages with liquidity advantages coming from their listing on a public exchange. The lack of understanding of MLPs also means they are a great place to start looking for market pricing disconnects and investment opportunities.