The Stingy News Weekly (03/18/2012)
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Retirement 100: Fall 2011
"I'm a big fan of the British TV series Jeeves & Wooster, based on the comedic scribblings of P.G. Wodehouse. In the series a young Hugh Laurie (now better known as the acerbic Dr. House) plays the aristocratic and lovably foppish Bertie Wooster who must be regularly rescued by his clever servant Jeeves, played by an impish Stephen Fry. The show revolves around the bother caused by Bertie's newt-addled friends and unusually meddlesome aunts, who constantly interrupt his life of fun and leisure. But Bertie's carefree lifestyle is the product of inherited wealth and he would be in deep trouble without it. Such is the good fortune of the lucky sperm club. Alas, if you're like me, you weren't born with a silver spoon in your mouth and you have to worry about money. But fear not, there is hope for us common folk. A good dollop of thrift and hard work is all that's required to build up an income portfolio that can generate enough cash to support a comfortable retirement or life of leisure."
"As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of “taxation” that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt. Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers."
Greece: same old high yields
"Yields on the Greek government’s brand new bonds are already trading at distressed debt levels — suggesting that despite February’s bailout package investors still see a strong chance that Greece will not be able to sustain even its much-reduced debt burden. As the first week of trading closed, yields on the benchmark 10-years were at 18.24 percent — down from Tuesday’s closing high, but still the highest in the euro zone."
The end of Asia’s demographic dividend
"Demographics is not destiny, though it does set the parameters of possibility. Asia has grown used to a demographic tail wind. For many of its economies, that wind is about to start blowing the other way."
Hubble, bubble, index trouble
"There’s one final hypothesis we can derive from the index bubble effect. If this theory is correct it would mean that active fund managers have been faced with an almost impossible task over the past twenty years, because they’ve been battling the wall of money cascading into index trackers. In such an environment it would mean that the average quality of active managers has declined because it’s impossible to discern who’s good and who’s not and would also suggest that all of the careful and clever studies designed to show how active management is hopeless are so much wastepaper. How ironic would that be: genuinely good active fund managers driven to the margins by index trackers, researchers wasting their time proving a general theory of active management failure undermined by an environment biased by flow of funds to index trackers while passive funds themselves are the subject of a behaviorally induced bubble, caused by investors seeking to escape the underperformance of said active managers. It’s reflexivity writ large. Hubble bubble: modern finance is a witches’ brew indeed."
Meredith Whitney was right
"The more general point that Meredith Whitney was trying to make about public debt -- that municipal finances in this country were a mess that was only going to get messier -- was dead on."
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