10 Monday AM Reads

Record bearishness? So why do mutual funds have record low levels of cash? Where are the redemptions? People say one thing, but their behavior is 180 degrees opposite.

I have a simple theory: lots of investors have realized long ago that this market’s been inflated by the Central Banks and government borrowings. They realize that it may get really ugly really fast. But they’ve also been conditioned to buy the dips (that’s in addition to other factors such as going against the herd means career risk.) And so they say they’re bearish, while almost fully invested. Unfortunately when a few of them do decide to sell, everything will follow and there will be a stampede to get out.

Re: The rich are different

I think the writers miss a huge point that becoming rich is very different from staying rich. I think they also misunderestimate the importance of the Greenspan-Bernanke-Yellen Put.

People usually become rich because they are completely undiversified, bet big on or two big things, worked their butts off, exhibited skill in that undiversified area, and also exhibited skill on capitalizing on luck (many people turn away from luck because capitalizing on it is a risk in itself).

Once they become rich, then keeping it is a completely different game. Many studies have shown that many fortunes are largely frittered away within three generations. The graph of the amount of equities owned by the wealthy is fascinating. It is clear that the real “wealth effect” engendered by the Federal Reserve Put over the past 20 years has been in the halls of the rich. It also exposes them to a lot of downside compared to what they had before. We see lots of stories of wealth inequality, but perhaps that wealth is actually more ephemeral than we thought. The last two bear markets have largely been arrested by the Fed stepping in aggressively, the last one with unparalleled actions, to push asset valuations back up. This graph shows that a prolonged period of depressed valuations (like the 1930s-40s and 1980s) would cause significant damage to the wealthy. While many would survive reasonably well, probably some would be sufficiently over-extended with debt etc. that their lifestyles could be seriously impaired. So if the Fed were to be unable to sustain todays’ elevated valuations, the most impacted people may very well turn out to be the wealthy unlike the previous couple of generations.

BTW – I support a strong inheritance tax. Within reason, the people who made the money have the right to spend it. However, just winning a genetic lottery should not be viewed the same as creating an entire industry like oil, railroads, technology etc. At the very least, an inheritance tax should capture unpaid capital gains instead of just stepping up the cost-basis for a future generation. Beyond a certain amount of money (say $$5-10 M per person so they can live in comfort if they wish or provide capital seed money), I think the next generation should be able to earn most of their money “The old-fashioned way…they earn it” to re-purpose the old Smith Barney commercials. The skillful ones will have a head-start – the not so skillful or hard-working will just fade into the background where they belong.

Sep 28, 2015
33 Million Americans Still Don’t Have Health Insurance
Here’s who they are.

By Anna Maria Barry-Jester and Ben Casselman

Nearly 9 million people gained insurance last year, a win for “Obamacare” as the president’s signature health care law expanded Medicaid and opened health insurance exchanges. And yet, 33 million Americans, 10.4 percent of the U.S. population, still went without health insurance for the entirety of 2014. Millions more were uninsured for at least part of the year.1 New data released this month shows they were disproportionately poor, black and Hispanic; 4.5 million of them were children.

It isn’t a surprise that some Americans still don’t have health insurance. Despite aiming to insure “everybody” in the U.S., the Affordable Care Act (ACA) left significant gaps in coverage, and decisions made by the law’s opponents have denied benefits to millions of people it was designed to help. But the new numbers reveal that most of the uninsured last year were people who should have been able to access insurance under the law. That presents a major challenge for President Obama in the final years of his term, but also an opportunity: Millions of Americans qualify for coverage but, for whatever combination of reasons, haven’t yet signed up.

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http://fivethirtyeight.com/features/33-million-americans-still-dont-have-health-insurance/