10 Monday AM Reads

Welcome back to the monkey house. Grab a banana, and swing into our morning train reads:

• Active Fund Performance = Index Fund +/- Skill – Expense Difference – Tax Difference (Morningstar)
• The Endless Parade of Recession Calls (Calculated Risk)
• All the Product Reviews Money Can Buy (NYT)
• A cautionary tale of relying on demographic projections (FT Alphaville)
• Why Behavioral Economics is Cool, and I’m Not (Mediumsee also Born to Be Conned (NYT)

Be sure to check out our Masters in Business interview this weekend with Roger Lowenstein, author of When Genius Failed and America’s Bank: The Epic Struggle to Create the Federal Reserve.

Continues here


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  1. Molesworth commented on Dec 7

    Expecting Congress to lead on gun control is crazy. They are scared sheep.
    Until members of Congress start getting gunned down themselves, they won’t change.
    Oh wait. That happened. And nothing changed. So it’s up to us.
    Pro gun voters tend to be motivated by that one issue.
    Gun control supporters tend to rank gun control less important on their top issues list.
    When it gets so bad that voters rank gun control their top 1 or 2 issue, when voters press their congress representatives (in red states) in overwhelming numbers to do something, when they know they could lose if they don’t vote for gun control, then the needle will move.
    Not before.

    • NoKidding commented on Dec 7

      Pro _X_ voters tend to be motivated by that one issue.

      X={guns, baby disposal, criminal disposal, health care nationalization, drug legalization, marriage criteria, wealth distribution, federal reserve empowerment, gold standardization, ethnicity based naturalization, refugee definition,…}


    • Molesworth commented on Dec 7

      You are right. Probably I’m ignorant but

      Updated version on their front page

      The October poll did give us an indication that more Americans are now concerned enough about guns and gun control to say that it would affect their propensity to vote for certain candidates. The 26% of registered voters who said they would only vote for a candidate who shares their views on gun control is considerably higher than what we found when we asked the same question in 1999 and 2000.

      This sentiment is more likely to be held by those who are opposed to stricter gun control than those who support it. Conservatives are also more likely than liberals to say they would take a candidate’s position on guns into account.

    • willid3 commented on Dec 7

      expecting leadership from Congress is a fools errand. what we have seen is expecting them to follow is now actually worse. most barely follow their ‘leaders’ on their team (see last house speaker). course some of the ‘fake reforms’ (papered over the use of tax dollars to help their voters out, only really made it so they do it a different way as opposed to ear marks) probably had to do with that.

  2. Molesworth commented on Dec 7

    I’m sorry to realize I’m not going to stop climate change if The Upshot article is all they can offer up.
    And don’t you think a more realistic graphic for the wsj hedge fund returns would be to include a balanced portfolio returns?
    I mean who puts 100% in S&P500?
    I’m guessing none of the assets managed by RWM are 100% SP500 index etf.

    • rd commented on Dec 7

      Here is a graph of the Morningstar Moderate Risk category Total Return for 10 years as well as the Vanguard Lifestrategy Moderate Growth fund which is a 60/40 fund that includes US equities and bonds with international equities and bonds – all biased towards the US compared to actual global weights, but very diversified in general – the Vanguard fund is similar to a Vanguard 2020 Target Date fund for portfolio mix.


      The Morningstar Moderate Target Risk index had a total return of about $17.6k and VSMGX had $16.9k over the past 10 years, both handily crushing the hedge fund index and staying within shouting distance of the S&P 500 with less volatility.

    • catclub commented on Dec 7

      “who puts 100% in S&P500?”

      If you consider Social Security income and pension income to be about to a bond portfolio of size X, then how much of the rest of your investible assets should also be in bonds?
      I could envision cases where zero is a reasonable answer.

    • willid3 commented on Dec 7

      i doubt we will do any thing to reduce climate change, because we have a history of not doing things like that (its similar to what happened in ww2. it took till 1941 and a direct attack to bring the US in, but it had been going on since the 1935 or 34. it only changed when we became a really big arms producer. before that we would stick our noses in only if it suited us. and didnt really cost us much).
      so i expect that we will have to figure out how to survive the worst impacts. which means our kids will likely hate us

    • rd commented on Dec 7

      I assume that many of these babies were born in US hospitals or clinics. I wonder if proof that they were born in a US hospital is proof that the child was born on US soil. My understanding is that the only typical exception to the “born in the US =citizenship” rule is if the parents are documented diplomats from other countries.

    • willid3 commented on Dec 7

      dont know why you would expect that from Texas. this is a state that did tort reform to lower health care costs, only it didnt wok out. but it did keep lawyers from suing doctors, and didnt lower doctors insurance costs. so the state had to make up the lawyers incomes . this is just on examplen of how that worked out. they will sue the Feds at a drop of the hat (and usually lose, but they dont ever talk about that). But our insurance department doesnt sue to enforce the law when insurance companies break it, but heaven help you if you as individual do it. you will likely end up in jail, even if you actually didnt do any thing. or to convince you to drop your suit. used to think this was because of the GOP take over, but if you look at enough you discover that a large chunk of the GOP were actually democrats long ago.

    • Liquidity Trader commented on Dec 7

      He has been yelling Bear Market for the past 150% upwards.

      Its a shame, but he’s destroyed his own career.

  3. rd commented on Dec 7

    Re: Hedge Fund Performance

    It appears that the primary thing the hedge funds are hedging against are profits. The amusing part is that you could have invested in one of the most conservative mutual funds on the market, Vanguard’s Lifestrategy Income fund (VASIX) and done much better than the hedge fund clients (not the managers’ though). $10k in VASIX rose to about $15.6k over that 10 year period instead of being essentially flat like the hedge fund index. Volatility was very low since it only holds about 20% equities. Interestingly, the range of outcomes for portfolios ranging from the very conservative VASIX to the aggressive 100% equity S&P 500 had a fairly narrow range from about $15k to $20k, so the massive underperformance of the hedge funds is quite remarkable considering this was a period with a couple of major market moves that should have paid massive dividends to skilled timers. The hedge fund index is probably several standard deviations lower than the mean of a 60/40 index or low-cost active portfolio with or without international diversification.

  4. Jojo commented on Dec 7

    There is always a loophole to slither through….
    Many Flexible Health Plans Come With A Costly Trap
    Updated December 3, 2015
    Julie Appleby

    Citing flexibility, many consumers choose health plans that provide some coverage outside the insurer’s network. Traditionally, the plans not only paid a portion of the bill for doctors and hospitals not in the core plan, but also set an annual cap on how much policyholders paid toward out-of-network care.

    Not anymore.

    An increasing number of the preferred provider plans, or PPOs, offered under the federal health law have no ceiling at all for out-of-network costs. Consumers who choose them face unlimited financial exposure, similar to what more restrictive and often less expensive types of coverage, such as health maintenance organizations, impose on people who use services outside their networks.


  5. RW commented on Dec 7

    Clinton offers new ‘exit tax’ on US-foreign company mergers
    WASHINGTON (AP) — Hillary Clinton on Wednesday will unveil a proposal for a new “exit tax” aimed at cracking down on corporate inversions, a practice that permits U.S. companies to merge with corporations overseas to lower their tax bill. …

    NB: What I’ve seen of Sanders economic proposals, infrastructure spending in particular, tend to impress more than Clinton’s but an exit toll on deferred earnings is a smart way to approach the problem of corporate subsidies (mainly tax avoidance in this case); ht JB

    • willid3 commented on Dec 7

      while i seriously doubt an exit tax will occur, seems like we could do other things, like force these companies to re apply for any and all government issued documents. (like tax id’s, import/export licenses, permits to produce to produce hazardous or dangerous materials, like drugs etc). basically you just cancel all of their existing permits, licenses,tax documents, any losses from previous years, etc as they exit. that would mean that any and all facilities would have to be reinspected amongv other things

  6. rd commented on Dec 7

    Fiduciary rules work! I just got a very detailed epistle from my 401k provider. Three big changes:

    1. Vanguard TD Institutional funds with 0.10% ER instead of around 0.5% for the proprietary big bank TD funds.
    2. It turns out that the participants were paying the provider a bunch of money through “revenue sharing” with the big bank plan administrator in many of the active funds. About half of the non-TD funds had this revenue sharing that was up to 0.35%. This “revenue sharing” will now be rebated to the investor.
    3. Participants will now simply pay a very clear fee that will be about 0.03% per annum for record keeping etc.

    My guess is that the average participant will now save about 0.3% to 0.5% annually which should add up over time. We already had a decent program compared to many others but it just got improved a lot. I know I struggled to get my ER down to 0.75% in my 401k a decade ago. Previous 401k plans at other firms 15-20 years ago typically had ERs over 1%.

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