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  • Forum on the Future of Manufacturing in the US and Europe

    The Future of Manufacturing in the US and Europe, The German Marshall Fund. Speakers: Ron A. Bloom, Simon Fraser, Wilfried Porth and Philip Stephens. I must admit I didn’t find this to be the most useful webcast but for those interested it may be worth watching.

    Related: Manufacturing Driving USA Recovery – USA Manufacturing Output Continues to Increase (over the long term) – Manufacturing Output in Historically by USA, Europe and Asia – Capacity Utilization Rate Up Slightly From All Time Low (Aug 2009)

  • Charlie Munger’s Thoughts on the Credit Crisis and Risk

    Charlie Munger’s Thoughts on Just About Everything by Morgan Housel

    The academic elites failed us with their utterly asinine ideas of risk control. It was grounded on the idea that all risk took Gaussian distributions, which is just totally wrong. Very high IQ people can be completely useless. And many of them are.

    Benjamin Graham used to say, “It’s not the bad investment ideas that fail; it’s the good ideas that get pushed into excess.” And that’s a lot of what happened here.

    Some economic distortions come from the masses believing that other people are right. Others come from the need to make a living through behavior that may be less than socially desirable. I’ve always been skeptical of conventional wisdom. You have to be able to keep your head on when everyone else is losing theirs.
    …
    Take soccer as an example. It’s a tremendously competitive sport, and often times one team tries to work mayhem on the other team’s best player. The referee’s job is to limit this mayhem and rein in extreme forms of competition.

    Regulation is similar. Most ambitious young men will be more aggressive than they should. That’s what happened with investment banking. I mean, look at Lehman Brothers. Everyone did what they damn well wanted until the whole place was pathological about its extremeness.
    …
    A lot of this [financial collapse] can be blamed on accountants. Accountants as a whole have been trained with too much math and not enough horse sense. If some of these insane accounting practices were never allowed, huge messes could have been avoided. Bankers have become quite good at manipulating accountants
    …
    Learning has never been work for me. It’s play. I was born innately curious. If that doesn’t work for you, figure out your own damn system.

    More good thoughts from Warren Buffett’s partner at Berkshire Hathaway.

    Related: Buffett and Munger’s 2009 Q&A With Shareholders – Berkshire Hathaway Annual Meeting 2008 – Misuse of Statistics, Mania in Financial Markets – Leverage, Complex Deals and Mania

  • Is the Euro Going to Survive in the Long Run?

    To me, the prospects of a Euro currency surviving over the long term were not helped this week. The markets have behaved as though some great solutions have been adopted but it seems to me the fundamental problems if anything are worse now. It is true the short term is more stable. But at what cost?

    Bailout Is ‘Nail in the Coffin’ for Euro, Rogers Says

    The 16-nation currency weakened for a second day against the dollar after rallying as much as 2.7 percent on May 10, when the governments of the 16 euro nations agreed to make loans of as much as 750 billion euros ($962 billion) available to countries under attack from speculators and the European Central Bank pledged to intervene in government securities markets.

    “I was stunned,” Rogers, chairman of Rogers Holdings, said in a Bloomberg Television interview in Singapore. “This means that they’ve given up on the euro, they don’t particularly care if they have a sound currency, you have all these countries spending money they don’t have and it’s now going to continue.”
    …
    “It’s a political currency and nobody is minding the economics behind the necessities to have a strong currency,” Rogers said. “I’m afraid it’s going to dissolve. They’re throwing more money at the problem and it’s going to make things worse down the road.”

    This makes sense to me. The problems with the Euro also explain why the dollar hasn’t fallen more over the last few years. The only significant alternative is the Yen. The BRIC countries (Brazil, Russia, India and China) are looking to increase the profile of their currencies supposedly – or even forming their version of the Euro (I can’t see how that could happen).

    Greece’s budget deficit of 13.6 percent of gross domestic product is the second-highest in the euro zone after Ireland’s 14.3 percent. As part of the bailout plan, Spain and Portugal also pledged deeper deficit reductions than previously planned.
    …
    [Rogers suggests] Investors should instead buy precious metals including gold or currencies of countries that have large natural resources, Rogers said. Among other asset classes, he favors agricultural commodities as the best bet for the next decade as well as silver because prices haven’t rallied.

    It is very difficult for the politicians in the USA, United Kingdom and other countries to behave fiscally responsible when their taxpayers will eventually have to pay the bill. When you can hope to have others bail you out it seems that much less likely people will behave responsibly. Then again I was skeptical the Euro would be created without first having more consolidation of European governments. There are lots of good things about having the Euro, but in the long run there are very challenging issues to deal with.

    Related: Jim Rogers on the Financial Market Mess – Why the Dollar is Falling – A Bull on China

  • Bond Rates Remain Low, Little Change in Last 6 Months

    chart showing corporate and government bond yieldsChart showing corporate and government bond yields from 2005-2010 by Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve.

    Bond yields have remained low, with little change over the last 6 months. 10 year Aaa corporate bonds yields have increase 10 basis points to 5.29%. 10 year Baa yields have decreased 7 basis points to 6.25%. 10 year USA treasury bonds have increased 45 basis points (largely the effective of money scared into the safety of US treasuries leaving as the credit crisis eased. The federal funds rate remains under .25%.

    The United States economy appears to be gaining strength and if job growth can continue the Fed will likely reduce the amount giveaways to the banks by increasing the fed funds rate (though when this will happen is still very hard to judge). The Fed will also likely sell mortgages back to the market which will increase long term rates. The Fed will likely start by changing the wording that the economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” When this language changes rates may well go up 25 to 50 basis points quickly.

    Related: Bond Yields Change Little Over Previous Months (December 2009) – Chart Shows Wild Swings in Bond Yields in Late 2008 – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Government Debt as Percentage of GDP 1990-2008 in OECD: USA, Japan, Germany…

  • Bogle on the Stock Market and Investing

    Bogle on Bankers, Buffett, Obama; an interview of John Bogle, from February 2010.

    Bogle: What happened over the last 10 years were two things, and one of which we have never encountered before. The 17% returns we had over the two previous consecutive decades, the ’80s and the ’90s, were born largely on ascending price-earnings multiples. If the price-to-earnings ratio goes from 8 to 16 in one decade, and then to 32 in the next decade, that accounts for 7% per year of that 17% return. So the market was driven by the revaluation of corporate America and that just can’t keep recurring at those rates. I projected in the original book that the price-earnings multiple might get down below 20, which is exactly what it’s done, so that was fairly predictable.

    But what made the decade quite so bad is that we then had a major recession or light depression at the end of 2008 to 2009 which is still with us. That coming with the market so highly valued meant that earnings growth was much less than what we might have expected. So looking out from here, I think we can look for better earnings growth. And dividend yields are back in decent territory but not great. We started this decade with a 1% dividend yield, and that’s an important part of investment returns, and now the dividend yield is around 2.25%, so a higher dividend yield contributing to future growth. So I think it’s highly likely that stocks will outpace bonds in the decade that just began.
    …
    Are we on the right path now? Has America learned its lesson?
    Bogle: No. Unequivocally not. The long overdue reforms being discussed in Washington do not go nearly far enough, in my opinion. We need protection for consumers. Canada has a financial structure similar to ours except it has a consumer-protection board, which would prevent banks from giving people mortgages if they have no ability to pay them back. To get that done has been very difficult. Also, Senators (John) McCain and (Maria) Cantwell have proposed a return of the Glass-Steagall Act, and that’s gotten nowhere but it is long overdue. We should have banks behave as banks and not as investment banks or hedge-fund managers.
    …
    But let’s suppose the stock market creates a 10% return. And the value of the stock market today is around $13 trillion so 10% is $1.3 trillion. By my numbers, Wall Street and the mutual fund industry take $600 billion a year out of that return. That’s half of the return. So the only way investors are going to get their fair share of the $1.3 trillion is to reduce the costs and get the casinos out.

    As usually John Bogle provides excellent analysis and vision.

    Related: Bogle on the Retirement Crisis – Is Trying to Beat the Market Foolish? – Lazy Portfolios Seven-year Winning Streak – Sneaky Fees

  • USA Added 290,000 Jobs In April

    The stock market showed again yesterday how non-efficient it can be at times. Several stocks fell to pennies a share for awhile before returning to tens of a dollars a share. While the markets continue to react violently, the economy appears to be gaining more strength.

    Nonfarm payroll employment rose by 290,000 in April, the unemployment rate increase to 9.9%, and the labor force increased sharply, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in manufacturing, professional and business services, health care, and leisure and hospitality. Federal government employment also rose, reflecting continued hiring of temporary workers for Census 2010. Since December, nonfarm payroll employment has expanded by 573,000, with 483,000 jobs added in the private sector. The vast majority of job growth occurred during the last 2 months.

    Household Survey Data

    In April, the number of unemployed persons was 15.3 million, and the unemployment rate edged up to 9.9%. The rate had been 9.7% for the first 3 months of this year.

    The number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up over the month, reaching 6.7 million. In April, 45.9% of unemployed persons had been jobless for 27 weeks or more.

    In April, the civilian labor force participation rate increased by 0.3 percentage point to 65.2 percent, as the size of the labor force rose by 805,000. Since December, the participation rate has increased by 0.6 percentage point. The employment-population ratio rose to 58.8 percent over the month and has increased by 0.6 percentage point since December.

    Manufacturing added 44,000 jobs in April. Since December, factory employment has risen by 101,000. Over the month, gains occurred in several durable goods industries, including fabricated metals (9,000) and machinery (7,000). Employment also grew in nondurable goods manufacturing (14,000).

    Related: USA Added 162,000 Jobs in March – Unemployment Rate Reached 10.2% (Oct 2009) – USA Unemployment Rate Rises to 8.1%, Highest Level Since 1983 (March 2009) – Over 500,000 Jobs Disappeared in November, 2008
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  • Middle Class Families from 1970-2005

    As I have said before, Elizabeth Warren is one of the people I find most informative on the economy we have created. This lecture (from January 31, 2008) is very interesting: The Coming Collapse of the Middle Class: higher risks, lower rewards and a shrinking safety net. It is important for us to realize that the decisions we make have consequences. If we allow corruption to grow and grow in the USA we will suffer more and more. If we continue to elect people that give away society wealth to those the pay them to the detriment of society (investment banks, drug companies, “intellectual property” lawyers, retail banks, farmers, trial lawyers, hedge fund managers, trust fund babies, physicians…) that naturally means their is less wealth for the rest of society.

    Interesting data. Looking at standard family (Mom, Dad and 2 kids from 1970 to 2005), in inflation adjusted dollars: earnings increased a great deal (due to women working much more) but disposable income decreased. This is because basic expenses increased: health care, housing, transportation… (and this is with assuming employer provided health care – which has really been decreasing in likelihood over time). Those families are also more deeply in debt and reliant on 2 incomes. And if either income producer losses their jobs the economics of the family fail. Which means the family is much more at risk.

    It really is great that lectures like this are available to us now.

    Related: Elizabeth Warren Webcast On Failure to Fix the System – In the USA 43% Have Less Than $10,000 in Retirement Savings – Failure to Regulate Financial Markets Leads to Predictable Consequences – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren

  • Government Debt, Greece is a Very Small Part of the Problem

    Roubini Says Rising Sovereign Debt Leads to Inflation, Defaults

    Credit-rating cuts on Greece, Portugal and Spain this week are spurring investors’ concern that the European deficit crisis is spreading and intensifying pressure on policy makers to widen a bailout package. Roubini’s remarks underscore statements by officials such as Dominique Strauss-Kahn, managing director of the IMF, that the global economy still faces risks.

    “The thing I worry about is the buildup of sovereign debt,” said Roubini
    …
    If the problem isn’t addressed, he said, nations will either fail to meet obligations or experience higher inflation as officials “monetize” their debts, or print money to tackle the shortfalls.
    …
    “While today markets are worried about Greece, Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems,”
    …
    Greece “could eventually be forced to get out” of the 16- nation euro region, he said in a Bloomberg Television interview yesterday. That would lead to a decline in the euro and make it “less of a liquid currency,” he said. While a smaller euro zone “makes sense,” he said, “it could be very messy.”
    …
    [Roubini supports] a carbon tax on gasoline, with Roubini saying it would reduce American dependence on oil from overseas, shrink the trade deficit and carbon emissions, and help pay down the U.S. budget deficit.

    I agree that the damage done by those (which is nearly all of them) countries living beyond their means is significant. The USA and many countries in Europe and Asia (South Korea and China are two exceptions) have raised taxes on the future (by default – spending more than you have necessarily increases taxes later) to consume today. The strong emerging markets are another exception, many having learned their lessons and stopped spending money they didn’t have in the 1990’s.

    However the richest countries have been spending money they don’t have for decades and the increase in government debt as a portion of GDP is an increasingly serious problem. It would be nice if the government of the rich countries could behave responsibly but it does not look like many of them have citizens who will elect honest and competent leaders. As long as they elect leaders that insist on raising taxes on the future (and lying to the populace by claiming they cut taxes – because they eliminate taxes today) those countries will pay severely for the irresponsible spending.

    Saying you cut taxes when you just delay them is equivalent to saying I paid off my credit card bill when all I did was get 2 new credit cards, borrow all the money I owed on my original card, pay that one off, and then borrow more to increase my debt even more. Yes it is true I did pay off my original credit card, but that is hardly the salient point. My credit card debt increase. All that has happened in the USA since the Clinton administration had a balanced budget is politicians used a credit card thinking to lower taxes while necessarily increasing them in the future. You don’t reduce debt by spending money you don’t have.
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  • 10 Jobs That Provide a Great Return on Investment

    10 Jobs With Great Return on Investment

    For those who feel pressure to make the most of their education, here are some careers that offer major bang for the buck.

    Radiation therapist

    Most common degree: Associate’s
    Median pay: $72,910
    …
    Employment in the occupation is expected to grow by nearly a third between 2008 and 2018
    …
    Dental hygienist

    Most common degree: Associate’s
    Median pay: $66,570
    It’s no surprise that the healthcare field is home to several careers that offer the best pay and opportunities for the education required, given that the healthcare industry has faced steady increases in demand despite the recession.
    …
    Petroleum engineer

    Most common degree: Bachelor’s
    Median pay: $108,020
    When it comes to jobs for which the typical degree is a bachelor’s, only airline pilots earn more than petroleum engineers. For one thing, engineers’ salaries reflect the technical skills required, says Margaret Watson of the Society of Petroleum Engineers. But the salaries are also a result of supply and demand, as there are relatively few graduates in petroleum engineering—some enter the field with degrees in other engineering disciplines, as well—and demand is expected to increase as more engineers reach retirement age.
    …
    Nuclear power reactor operator

    Most common training: Long-term, on-the-job training
    Median pay: $73,320
    Nuclear power reactor operators might start their careers as plant equipment operators while they become familiar with the operations. In fact, reactor operators need at least three years of experience working in a power plant—including at least one year in a nuclear plant. To earn the right to control the equipment as reactor operators, they must be licensed by the Nuclear Regulatory Commission. Employment of nuclear power reactors is expected to grow by 20 percent between 2008 and 2018.

    Follow the link for more of the top 10 job paths that payoff well. I certain don’t think it makes sense to pursue a career that doesn’t interest you just because it pays well. But if you are choosing among several careers that appeal to you, one factor worth considering are the employment prospects in the careers.

    Related: Engineering Majors Hold 8 of Top 10 Highest Paid Majors – The Declining Value of a college degree – Manufacturing Jobs Data: USA and China – Medieval Peasants had More Vacation Time

  • Using Your Credit Card Properly

    Many people get into financial trouble in part due to their misuse of credit cards. By following a few simple rules you can avoid the missteps and use credit cards to improve you personal finances instead of falling into the credit card traps.

    Most importantly, don’t use your credit card for loans. Pay off your balance each month. Pretty obvious advice but far too many people don’t follow it. If you use your credit card for a loans most of time that is a mistake and big risk to your personal financial future. Don’t do it. There is a reason pretty much all the advice from financial advisers on credit cards starts with this – it is the most important advice.

    Second, if you don’t follow the advise above pay off your loan as soon as possible. Payment the minimum payment is huge mistake. You should not be making any discretionary purchases if you are not paying down your credit card debt substantially each month.

    Continue reading tips on using your credit card in a smart way.

    Related: Majoring in Credit Card Debt – Outrageous Credit Card Fees – Credit Card Debt and Delinquencies Decline