Hedge fund irresponsibility

Yesterday I ran across an article THE ST LOUIS POST DISPATCH reprinted from THE WALL STREET JOURNAL by Gregory Zuckerman headlined:

"Who's sorry now?

Well, it's not hedge funds"

And it's about how many hedge funds have lost large chunks ("up to one-third") of their customers' money during the recent subprime stock market sell-off and decline.

And they refuse to take any responsibility for it.

According to Zuckerman, they "point fingers at other funds, once-in-a-lifetime events and their own computer programs."

Black Mesa Capital blamed "unprecedented market events."

Those words should put a chill in the hearts of anyone considering handing your money over to a hedge fund.

Yes, the past two months in the stock market are "unprecedented."

Gosh, gee willikers, darn it all to heck, Mr. Wilson!

I've got news for these hedge fund managers who're making millions of dollars -- history is being made every single day!

The future is going to be full of "unprecedented market events"!

Guess what? -- for the millions of dollars those investors are stupid enough to pay you, you're supposed to be prepared.

You're supposed to know how to deal with risk.

It's not like risk is anything new.

It's not like "unprecedented market events" are unprecedented.

The 1929 market crash was unprecedented. The oil embargo of 1973 along with the social dislocation caused by the Vietnam War and the Watergate investigations were all unprecedented to the stock market, which helped it decline dramatically 1973-74. The 520 point 22% crash of October 1987 was unprecedented. The high tech dot com boom of 1995-2000 was unprecedented and so was the Nasdaq tech wreck of March-April 2000.

I'm going out on a limb here, to make a tremendous prediction:

There're going to be a lot more "unprecedented market events" before we all die.

The world's not going to stop changing just because you don't hedge your hedge funds!

hedge fund irresponsibility
hedge fund irresponsibility

Terrorism and Investing

Here's an interesting article on How Does Terrorism Affect Your Trading.

The focus is on trading of stocks and currencies, which is certainly not my focus, but it's still an interesting read.

And although I don't see a mention of income investing itself, it does discuss long term investing strategies in relation to terrorism attacks. I'd say this - if you're investing for income, you're most likely banking on common human needs and desires. Coca-Cola, not software. Snack food, not biotechnology. Electric lights, not GPS satellites.

Terrorist attacks can certainly harm economies -- as September 11 did to the United States -- but as long as we're alive, we're going to keep on consuming basic commodities. Following September 11, business in the U.S. slowed dramatically -- car sales, restaurant sales and so on. Yet people kept using electric current to watch the news on TV and to eat Hershey's chocolate to deal with the stress.


terrorism and investing
terrorism and investing

Financial Rebel

I found an interesting blog called Financial Rebel.

I didn't find anything particular "rebellious" about it, but he gives his comments and commentary on the market and various company stocks and their prospects. Some people have found his article on how to own gold through using exchange traded funds useful.

Myself, I favor joining in with businesses that serve human needs, rather than expecting a chunk of metal to pay me money. That could include something such as the Mergent Broad Dividend Achievers Index.

One thing caught my eye in his comments on the current stock market -- it's quite volatile, and that's an open invitation to trading. I agree, but notice that he doesn't tell you how to trade volatility.

If you think that in the current market you want to be a day trader, all I can say is, good luck. You don't need to be reading this blog, you need to be reading the Help Wanted Ads.

But although I'm know expert, I know that the words "high volatility" are music to the ears of an options trader. That means it's tell to sell volality, because the price is high. You do that by selling puts and calls. There are relatively, safe and conservative ways to do that, and after I write and publish my book on investing for income, I'll tell people how to get rich quick by selling calls and puts.



Financial Rebel
Financial Rebel

Dividend Detective

I found a site that should be interesting for all income investors -- Dividend Detective.

This site is not about any kind of "fixed" or loanership or interest type of investing for income -- just dividends from equity investments. So for those of you who are resisting the double taxation of dividends, this can be a good resource.

But be aware that it's a membership site -- that is, access to much of the information is limited to subscribers. However, you can still obtain good information on, and lists of, dividend paying stocks, Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs), CanRoys, closed-end funds, Canadian income trusts, and Business Development Corporations.

But if you want guidance on what to buy and when, you must fork over some cash.

My one gripe is that, from what I can see (and I didn't subscribe, so maybe this is addressed in the premium section for subscribers), the site encourages investing in individual securities. There is market commentary advising that certain ones or types be bought or sold. The whole idea of the site is to advise you on what to buy and sell, and when.

I strongly suggest you stick to exchange traded funds (EFTs) and index mutual funds, if at all possible (and it may not be with some of the most unusual securities, such as Business Development Corporations -- those are not your average every day investment.)


Dividend Detective
Dividend Detective

Bipolar Mr. Market

Obviously, I can't predict the amount dividends every high-paying stock is going to pay next quarter. But while the Dow and many stock markets around the world tumble on worries about the subprime mortgage industry in the US, and you feel poorer because the market price of your portfolio makes you feel like you just dropped off a cliff, think about this --

Is demand for electricity any less now than before this crisis started?

-- I can't speak for the overall economy, but here in St Louis the temporature has been reaching high 90s and triple digits (Fahrenheit) for over a week. Demand for electricity to run air conditioners is very high.

So has the true value of utility companies dropped?

Is demand for soft drinks any less now than before this crisis started?

-- I can't speak for the overall economy, but I'm pretty sure that lots of people are consuming record quantities of soft drinks, thanks to the terrific heat.

So has the true value of Coca-Cola (KO) and Pepsi dropped?

Is demand for gasoline any less now than before this crisis started?

-- Thanks to people driving and flying on summer vacation trips, I doubt there's been any serious drop in demand for oil and its byproducts.

So has the value of Canadian oil trusts dropped?

I hope you get my point -- don't count on market prices which are driven by market sentiment that blows hot and cold. In modern terms, Benjamin Graham's "Mr. Market" has a severe case of bipolar depressive disorder. He's going through a depressive stage right now.

And considering the amount of bad mortgage loans in the economy, I can't blame him . . . I feel bad when I think about the debts I owe!

But if you count on basic human needs for electricity, gas, snack foods and other such items . . . you can continue to receive income while everybody else is hoping Mr. Market will be happy again.

Bipolar Mr. Market
Bipolar Mr. Market

Canadian income trusts resources

I've been focused lately on researching Canadian income trusts. These are terrific investments, especially for income investors. Unfortunately, I have learned about them after the Canadian Finance Minister Jim Flaherty proposed to eliminate their tax-free status effective with 2011.

He proposed this on October 31, 2006, so it's become known as the Halloween Massacre.

Anyway, all income investors should be aware of the profits from Canadian royalty trusts which they can share in -- through receiving monthly dividend trusts. I've previously linked to the beginning of the information pages on my actual site, but I've also written:

Canadian Income Trusts -- Time to Buy or Dump? -- article in Ezine Articles

Review of Canadian Income Funds book in Go Articles

The Safest Way to Profit From Investing In Canadian Income Funds -- on my new Squidoo lens on Canadian income trusts.

If you're not already familiar with Squidoo, it's a fairly new site that allows you to put up pages on subjects you're interested in and knowledgeable about. It encourages the marketing of your own products and as an affiliate.

Despite the government's proposal to end income trust taxation, these are good investments now -- and it's possible that the proposal will never be passed into law. If you're a Canadian citizen, write to your members of Parliament.


Canadian income trust resources
Canadian income trust resources

Dividend Yield Hunter site

This site has its heart in the right place -- investing for income -- and so I wanted to like it more than I did:

Dividend Yield Hunter

One problem is that its domain name is misleading . . . it's focused on non-dividend income investments -- REITs, Canadian trusts, preferred stocks, and so on. It even lists some high-yielding money market accounts.

But it totally ignored common stocks that pay dividends, so it misses the biggest way to grow income faster than inflation in the long term.

It lists some basic information on each type of investment, and then lists some of them. It contains interesting information on shipping and transportation stocks. I'd thought they were high-yielding simply because the shipping business is so strong right now. That's the impression I got from reading various sales letters for financial newsletters sent to me. But apparently these companies get a tax break from the government. So that's interesting to know.

On a technical level, this site is poorly laid out. I had to scroll right and left, and move the screen around a lot. It badly needs a web design makeover to make it user-friendly.

It does contain some news and opinion, also. It has a model portfolio, but now real plan (although to its credit it does say that it doesn't support trading.)

Comparing it to my site, I have to rank mine higher in terms of appearance and usability. I think I do a better job of giving in depth information about the investments, but I don't even try to keep up with news, so I don't give yields, which will change constantly. However, this site currently covers more types of investments than I do (yet - many more pages will come in the not too distant future). I also do not give an overall plan on my site -- but I am writing a book that will give a plan.

It's a good place to see a wide range of income investments and to get a list of some of them, so it's not a bad place to begin your research.

Dividend Yield Hunter
Dividend Yield Hunter

Global warming municipal bonds on the way?

Here's an idea for a new type of bond -- global warming bonds

Only I have to admit, the story is quite vague on details about how such bonds would work. Selling an issue of bonds would raise money -- but what would they spend the money on to reduce carbon emissions?

Also -- and very important to anybody who'd be crazy enough to invest in such bonds -- how would the bond debt be serviced? By the issuing government? Out of what revenue? General tax revenues?

One way or the other, I'm sure the taxpayers of this country are going to pay out the nose to solve this problem, if problem it is indeed.

However, unless they're a clear and rational use of the bond issuance money to generate income from whatever activity is done to reduce carbon emissions, then I'd strongly advise you to NOT add global warming bonds to your fixed income portfolio.

Global warming bonds
Global warming bonds

Canadian income trusts -- doomed or not?

I've just completed the beginning of a new section of my site on income investing -- on Canadian income trust funds.

So I just checked out the latest news, and it doesn't look good for those who've been hoping to stop the government of Canada from beginning to tax trusts in 2011:

You can read about that here:

Canadian trust fund taxation

The Conservative Party of Canada seems determined to shoot itself in the foot. It barely won the January 2006, where it promised no new taxes. So many Canadian voters feel betrayed by this broken campaign promise.

Plus, as the land of oil and natural gas in a politically stable country, Canada is well poised to benefit from the rising prices of energy, not to mention that most of these energy assets are in unstable and unfriendly places such as the Middle East, Russia and Venezuela. Of course the government knows this -- and wants to grab a big chunk of tax money.

I am sort of sympathetic to the "Why should trusts get away with not paying taxes when corporations have to" argument. My answer is that, simply, neither trusts nor corporations should have to pay taxes. It doesn't really make sense. Business structures are not people. Eliminate all double taxation. Just impose taxes on dividends received by individuals. This would make eliminate a lot of inefficiency.

Yet this is politically impossible. Liberals in Canada as well as the U.S. act like corporations themselves are evil rich people and it'd be a crime against the poor not to tax them.

Canadian income trusts
Canadian income trusts

Here's a site I found recently that could help you -- their focus is in the right places for income investors -- REITs, energy master limited partnerships, unit trusts, preferred bonds and convertible preferred bonds, fixed income bonds, royalty trusts . . . this site keeps up with yield, prices, news and so on.

ePreferreds Online


Only trouble, it's not free.

They also publish the Yield and Income Newsletter, which covers these same topics on a monthly basis.

I have two reservations.

1. Their newsletter recommendations are from major banks and brokerages. Yes, I know they're the professionals, but they must take a short term approach. They're also the institutions that encourage people to overtrade their stocks.

2. If you follow the news about which REITs are up, which master limited partnerships are down, which preferred bond issues look good, which royalty trusts don't etc -- you'll be tempted to start buying and selling your portfolio. If you get all this information and advice, you might make the mistake of actually trying to use it.

I much prefer a long term approach of diversifying your portfolio with high quality yet high yielding securities of all these types -- and holding them forever.

So I suggest you subscribe while you're still building a portfolio, to take advantage of current trends -- then forget about whether or not bond yields are too high or too low. Cash or reinvest your checks, but spend the rest of your time enjoying life or working a job or business that makes you even more money to invest.

Income Investing Site
Income Investing Site

Next -- Dow 15,000 or 10,000?

Stocks go up, stocks go down.

Do you feel poorer today than you did a week ago, thanks to the 700 pount loss in the Dow Jones Industrial Average?

If so, may I suggest that you need to rethink your investment strategy?
Another long time aphorism came to my mind in thinking about the latest decline in the Dow -- easy come, easy go.

The DJIA went from 13,000 to 14,000 in just 56 days.

Did that 7.7% rise in under 2 months reflect the American economy rising 7.7% in under 2 months? Of course not.

Yet a week ago, millions of investors were once again congratulating themselves on how smart they were to be buying stocks. I have o quarrel with that in general -- it's when you start thinking of market price rises as cash in your pocket, that I suggest you're out of touch with reality.

The truth is, we don't know the future. I don't know whether the market is going to rise or fall tomorrow, and neither do you. Nor do any of the paid commentators and talking heads.

What's more, we have no idea whether the DJIA has attained any unpenetrable "floor" . . . is there an absolute limit on how fair the DJIA can go down now that's at just over 13,000 and has been over 14,000?

We'd like to think that the DJIA will never see 10,000 or 7,000 or 1,000 again -- but we don't know. You have no guarantees. What if Al Quaida terrorists succeeded in setting off atomic or dirty bombs in multiple major American cities, including Manhattan where the New York Stock Exchange is based? How far down would the DJIA go? Who knows? Will that ever happen? I sure hope not. But we have no guarantees.

Nor do we have guarantees against biochemical terrorism, or a natural problem such as bird flu or natural catastrophes such as the flooding global warming allegedly will bring.

The trouble with called price rises in your stocks "capital gains" is that they all too often don't reflect real gains in REAL capital. The traditional economic definition of "capital" is not simply a profit made selling an investment -- that's the IRS's definition -- no, it's the productive assets of one kind or another.

Land, warehouses, forklift trucks, patents. Cash in the bank is simply the liquidity used to obtain capital assets or to pay the expenses associated with running them.

If the stock market were strictly rational, the price of a company's stock would go up only to the degree that the company achieved success in expanding its net capital assets. The price of the overall stock market would go up only to the extent that overall economic activity expanded the value of the country's net capital assets.

Obviously, the stock market is not strictly rational. Efficient, yes -- but not rational.

Of course, a strictly rational stock market would not go up or down in sharp, fast bursts. It wouldn't be so exciting, but you would still have the advantage of participating in the overall growth of the nation's economy. That's still a big advantage over money market accounts.

And if you buy only stock that pays dividends, then you get quarterly checks in your mailbox whether the market price is up or down. Use this drop in the Dow to buy dividend-paying stocks cheap.

They may never be this low again.

(Or maybe they'll get a lot lower -- but you don't know that, and you don't know when. So buy now to start collecting dividend checks now.)


Dow down 700
Dow down 700

What if . . . something unprecedented affects your investments?

Sometimes I wonder whether my way of thinking helps or hurts me when it comes to income investing and investing in general.

I think that if I were to try to get a "real" job in the financial world, I'd be at a disadvantage. That's because the general financial community accepts historical returns and situations, but I'm a long-time science fiction reader (and very minor writer) and therefore am used to asking, "But what if . . . ?"

For example, to the conventional, statistically savvy financial mind, the sun is not going to blow up tonight simply because it's been existence over 4 billion years and hasn't yet blown up. To most people, the sun going nova is simply an incomprehensible event.

But as a science fiction reader I'm used to thinking about suns going nova. If a particular star is about to go nova, it's going to go nova even though it's been in existence for billions of years, and therefore provided billions of mornings to any planets in its solar system.

My only comfort is my understanding -- hopefully not wrong or out of date -- that our particular G class, yellow sun is of a type that doesn't go nova. I put more faith in the findings of astronomers who've studied many stars that have gone nova or not than I do in the narrow, statistical viewpoint of, it hasn't happened in the past 4 billion years so it's not going to happen.

Sorry, but if there's something inside the sun that's about to make it go nova, all the statistics in the world won't stop it.

But, as I mentioned, I'm sure that pension fund managers charged with obtaining optimal performance at a given degree of risk are not interested in statistically highly improbable "long tail" events that may make their forecasts based on historical results irrelevant.

Yet the world is always changing, and sometimes the statistically improbable happens. In 1998 the Long Term Capital Asset "hedge" (I use quotes because they did not hedge their trades, but rather leveraged them 100 to 1 or more) fund placed a lot of money -- huge amounts of it borrowed -- on a derivative contract based on the historical relationship between United States and Danish government bonds.

In the summer of the 1998, a "what if" occurred that they didn't think of, despite their Nobel prizes in Economics and PhDs and Masters . . . The sun didn't go nova, but the Russian stock market did "melt down" -- losing about 90% of its value. This, following the Asian currency crisis of 1997, frightened people in developing countries around the world so much that the shipped all the cash they could to the United States and bought United States Treasury bonds, driving their price far past its historical relationship with Danish government bonds.

Net result -- Long Term Capital Asset not only lost all its investors' money and went bankrupt, the New York Federal Reserve Bank had to intervene to prevent a massive breakdown of the United States (and, probably, world) financial systems.

So . . . what if millions of retiring baby boomers start selling their non-dividend paying, "growth" stocks?

What if . . . ?
What if . . . ?

Dow 14,000, and on up!

I meant to mention it earlier, but I did notice that the Dow Jones Average closed above 14,000 for the first time in history. Hip, hip hooray!

If you're accumulating stock, you should be sorry that the shares you are going to be buying now will be more expensive -- but only Warren Buffett and I seem to have figured that out. It seems to be immutable human nature in everyone else to place more importance on the total value of the stock shares they've already bought than on the price they're going to pay in the near future.

One reason is that we celebrate capital gains over dividends is the difference in tax treatment. This was alleviated by President Bush's tax cuts of 2003, but unfortunately that law is temporary. If Democrats are in charge in the future, they've made it known that they'll allow the lower tax rates on dividends to expire.

This would be bad, but I still advise investing for income. To get the preferential tax treatment on capital gains, you still have to realize those capital gains by selling them. And with many stocks after the baby boomers start to retire, you may not have any capital gains.

But the run up to Dow 18-20,000 foretold by Harry S. Dent seems to have begun.


DOW 14,000
DOW 14,000

Austrian School economic prophesy

Is the world and U.S. economy in a bubble which will inevitably break?

This article maintains that it is, based on the work of the Austrian School of economics:

Austrian economics

I don't know, of course. And just because the current leaders of the Austrian school think we're in a worldwide bubble, doesn't mean Hayek and van Mises would think so if they were still alive.

The dislocations which the author mentions all result from the drastic lowering of the value of the U.S. dollar. Perhaps India's stock market is valued more than the U.S. stock market in part because so many financial newsletters, including some from Agora, Inc -- the author's employer -- emphasize how much India and China's economies are growing in relation to the rest of the world.

If India were as economically developed as the U.S., its stock market obviously would be worth a lot more than the U.S., since India has 3-4 times as many people.

The advice to put 20% of your portfolio into gold, I think is crazy. Especially after reading Peter Bernstein's book The Power of Gold, which is a terrific argument against everything "gold bugs" such as this author say.

My own advice is to put all of your portfolio into income-generating investments such as stocks that pay dividends, if if you need to use DRIPs (Dividend ReInvestment Plans). Gold is just a metal -- it doesn't write you any checks, and it costs money to store safely.

I'm not saying the price of gold won't go up in the future -- perhaps tremendous just as the gold bugs are predicting.

But the problem with that is the same problem I have with buying stocks and other investments for capital gains. You can't realize your profit without selling the gold/stocks. And then you miss out on future gains, plus you must pay capital gains taxes.

There's at least one gold mining stock -- BHP Billiton -- that does pay dividends. If gold goes up, its dividends will likely go up. So you could buy shares of that company if you want to hedge your portfolio with gold.




Austrian doom and gloom
Austrian doom and gloom

Smart Capitalist blog

I found a website with a great domain name. I wish I'd thought of grabbing it -- Smart Capitalist.

It's a blog, and of course I was attracted to the article on High Income Investment Cash Cows.

I like the general thrust, but take issue with a few items. One, although energy and pharmaceutical companies are in the news a lot, that doesn't mean they're not cash cows, so they're not in the same category as high tech stocks. Some energy and pharmaceutical companies return a lot of cash. Obviously, oil and natural gas and energy itself are rising in price. And pharmaceutical companies have a good business in that once they find an effective drug and get it approved, it's a high margin business. The drug itself is almost "digital" in that it can be replicated very cheaply. The high price is not due to the ingredients, it's to pay for the research. So once a drug makes back its research costs, it's a big money maker.

He mentions insurance, too. I don't recall seeing insurance companies in the high dividend paying lists, but maybe they're just behind the biggies (REITS, consumer goods, utilities, banks). After all, Warren Buffett bought Geigo Insurance for Berkshire Hathaway, so he expected it a large cash flow from it. They buy a lot of clever and entertaining radio ads, so I assume they're still making good money.



smart capitalist
smart capitalist

The Gold Standard Not So Golden?

Reading The Power of Gold by Peter Bernstein makes me think again about gold as the money standard. I posted before my misgivings about how mining gold apparently creates wealth, instead of the formation of new, better and cheaper goods and services. Bernstein's story dramatize the effect of gold (usually negative) on economies through history, including what happened when Spain stole so much gold and silver from the New World.

And if the economy activity of a country increases, how does that automatically increase the supply of the gold metal? It obviously doesn't.

Yet the concept of hard money is still very popular. Conservative talk show hosts like to promote gold-buying services. I remember when Laura Ingraham interviewed Ron ?, a popular economic commentator and analyst (his own radio show used to be carried here in St Louis on Saturday night, but unfortunately they dropped him). She was surprised that Ron joked that everybody should own enough gold to "bribe the border guards."

The price of gold can go up, but this is not the same as the benefits of a passbook savings account. It's solid metal that doesn't itself pay any money or interest.

Bernstein is building a strong historical case for saying that gold is a liability rather than an asset, at least when you take it beyond its function as decorative jewelry and an electrical component. It's not money, is the message I've gotten from the book so far. And when you try to make it money, it's dangerous.

And the glory years when the world was on the gold standard? This was not the norm. The gold standard in the sense of pegging a country's currency to a fixed price for gold and saying that your paper currency is always redeemable into gold -- that's a product of the 19th century through the beginning of World War I. As somebody during that period said, and which Bernstein quotes enough times to make it clear he agrees, the gold standard was not the cause of the world's prosperity during that period -- it was a result of it.

I'm looking forward to reading what he has to say about modern times and finances.



gold standard
gold standard

MAKING 36% by Dr. Terry F Allen

Fuller Mountain Press sent me a small book for review: MAKING 36%: Duffer's Guide to Breaking Par in the Market Every Year In Good Years and Bad by Dr. Terry F Allen.

It's basically a lead generator book. That is, if you read it, get excited and want to begin its program -- but you're understandably intimidated by the work involved -- you can enroll in his email trade notification service.

Basically, he advocates making 36% by putting on calendar spreads. These are option trades that take advantage of the difference in volatility between LEAPS (Longterm Equity AnticiPation Securities) and short term options.

Unless you're already an accomplished options investor, I know that's as clear as mud. I've read about calendar spreads before, but I found his explanation somewhat difficult to read in detail. Yet, I know reason to doubt that it works. I'm simply doubtful that too many people can put on these trades and also make the necessary periodic adjustments simply from reading this book. I'd certainly hesitate to risk my money on that. But again -- that's all the more reason why you need his email service.

So far as I know, his method his standard. He does confine his calendar spreads to one particular equity -- one which I wouldn't have guessed, so it's not fair of me to reveal it here.

Plus, he provides a great service by giving us the name of a broker that allows us to do option trades within an IRA. That is terrific news for all of us saving for retirement.

For more information, go to Terry's Tips



calendar spreads book
calendar spreads book

Chinese investment advisor blogger arrested

This story about the arrest of a Chinese investment tips blogger is interesting, and scary in several ways.

Chinese investment tips blogger arrested

First, it reveals that the Chinese government gives warnings by first arresting people. This is apparently their warning to other such people giving investment tips. This guy did apparently go beyond giving his advice, as I myself do on this blog -- he made over $1 by selling investment advice. Here in the U.S. I'd be breaking the law if I gave individual investment advice since I'm not legally qualified to do that. (Though if you want to pay me $1 million, I might consider risking the penalties! :) )

Secondly, the investing psychology of the Chinese people is a boom mentality. A few weeks ago I read an article about how some woman believed that the Chinese government would not let the stock market crash before the Olympics of 2008.

So many Chinese investors apparently think they're now getting a free ride from the stock market -- it's going to keep going up and make them rich because the government won't let it, at least before the 2008 Olympics, to keep from losing facing internationally.

They may even be right, which means the whole question becomes, will they all pull out right before/during or after the Olympics? And, who's going to pay for it all?

Thirdly, the Chinese people also want the security and comfort of taking investing advice, including tips on specific companies, from other people who supposedly are experts. I could be wrong, but I suspect that right now there're not a lot of Chinese shareholders who have heard of the Efficient Market Theory, asset allocation, diversification or the benefits of index funds.


Chinese investment blogger arrested
Chinese investment blogger arrested

Euro headed down thanks to euro-boomers?

So Richard Lehman is complacent about the coming baby boomer retirement "crisis" -- in the United States. Interestingly, he's not so complacent about what's going to happen soon in Europe. In his viewpoint, Europeans are too used to living on the welfare state. As I said in my last entry, he expect American boomers to just keep on working until they can afford to stop.

He expects European boomers to stop working and demand that their governments pay the promised retirement benefits -- no matter what.

Since few of them have this money (most Western European Social Security systems are in worse financial condition than that of the U.S.), they're going to have a problem meeting this demand. Also, birth rates in Europe in the past 30 to 40 have been lower on average than that in the U.S. Therefore, there're going to be even fewer workers per retireee than in the U.S.

Therefore, Western European governments are going to have to run their printing presses full-time, to send their baby boomer generation the pensions they've been promising them since they established their post-World War 2 welfare states.

End result -- the euro will be inflated and lose value in comparison to the dollar.

So the current situation where the euro is at a record high against the dollar won't last more than a few years or so.

euro baby boomer retirement crisis
euro baby boomer retirement crisis

NO USA baby boomer crisis, says author

I just read Income Investing Today: Safety & High Income Through Diversification by Richard Lehman, and he casually dismissed the upcoming
baby boomer retirement crisis.

No problemo, he says. Most baby boomers just aren't going to retire, at least not for many years.

He notes that in 1935 when the Social Security Act was passed in the United States, the average life expectancy was 64. Therefore, they knew in advance that over half of all workers weren't going to collect Social Security at all!

Now life expectancy is in the 80s. There's no reason to stop working at age 65, and so baby boomers won't. They'll be too scared of running out of money before they die.

This will bolster the Social Security trust funds, because these older workers will keep paying into the system. Plus, they won't be drawing checks until they reach the age (I think it's now 70) when they can receive full checks no matter how much money they earn.

This will also bolster the Medicare trust fund, because these boomers will still be covered by health insurance (though he doesn't seem to think about how much demands will be placed on health insurance companies by covering so many people in the 60s and 70s).

I think he's correct to a degree, but it won't be as smooth as he implies. For one thing, I'm sure that most baby boomers will not want to continue working at the same job they've hated for the past 30 years.

Start an online auction business, yes. Sell macrame designs, yes. Teach English to children in Nairobi, yes. Open up a bait shop in the Ozarks, yes.

Keep working the same, dull boring job -- no.


no baby boomer retirement crisis
no baby boomer retirement crisis