Surprise, Surprise, Surprise, (Part 3)

By |2017-07-17T12:35:19-04:00March 31st, 2010|Global Market Update|

Surprise, surprise, surprise. They cheated their clients, too. People who work with other people’s money are supposed to abide by a series of rules called fiduciary duties. The duty of care states that you’re supposed to know what you’re doing. The duty of loyalty states that you’re supposed to put yourself in the money-owner’s shoes. This can conflict with an advisor’s self-interest. So when brokers “churn” client accounts, eating up principal with transaction fees, we say that they’ve violated their duty of loyalty. A [...]

Surprise, Surprise — Not

By |2017-07-17T12:35:20-04:00March 30th, 2010|Global Market Update|

So after all this, who do you trust? Between Ponzi schemers and conflicted bankers, where do you put your money? After all, you can’t just stuff it in a mattress. It’s not very comfortable, and if everyone did that, there’d be a lot more stolen beds. There are basically three criteria: you want someone competent, you want someone who understands you, and you absolutely want someone honest. They’re all hard to nail down. It really comes down to trust. Can you trust their skill, [...]

Surprise, Surprise, Surprise, (Part 2)

By |2014-09-05T18:18:45-04:00March 29th, 2010|Global Market Update|

So that’s why we need financial reform. That’s what some have said in response to the kinds of abuses I mentioned yesterday. Surely municipalities need protection against the depredations of financial shysters. Only, it’s already illegal to hold sham auctions and collude. New regulations wouldn’t change a thing. That may be why the biggest banks are all getting behind the proposed financial reform legislation. Surely with the Senator from Fannie Mae—Chris Dodd—leading the charge, the big banks have nothing to fear. Seriously, Congress is [...]

Surprise, Surprise, Surprise (Part 1)

By |2014-09-05T18:18:04-04:00March 28th, 2010|Global Market Update|

Surprise, surprise, surprise! That’s how Gomer Pyle would respond to his beloved “Sarge” when he had something totally obvious to tell. Well that’s what’s in the news today: a surprise that’s not. The news today is how a consortium of big banks conspired to cheat some municipalities. Apparently Bank of America, Bear Stearns, Smith Barney, and GE Capital were asked to bid on some municipal investments, called GICs—or Guaranteed Investment Contracts. Towns use these to park excess cash that they plan to use later. [...]

(Un)healthy Games

By |2014-09-05T18:17:04-04:00March 25th, 2010|Global Market Update|

Someone asked me what I think about health care reform. I’ll respond with a story. An economist’s young daughter had been potty-trained, but it didn’t “take.” The child was having accidents and frustrating her parents. The economist thought he could solve the problem with incentives. He offered an M&M for every time she went to the bathroom properly. Within hours, the young lady was perfectly regular. Problem solved, he thought. Only, a couple days later he noticed that every 10 minutes or so his [...]

Healthy Unknowns

By |2014-09-05T18:16:24-04:00March 24th, 2010|Global Market Update|

So what can we expect from the new health care legislation? After all the hoopla, what really has changed in health care? Tanning salons will be charging a 10% Federal tax, and Medicare recipients will begin receiving “donut hole” rebate checks. But what else has changed? For right now, not much. Most of the public policy changes don’t kick in until after the next presidential election. Part of that is smart policy; after all, you need to give people time to plan for the [...]

Not Counting (Part 3)

By |2014-09-05T18:07:31-04:00March 23rd, 2010|Global Market Update|

So if the numbers don’t count, how do you invest? After all, stocks and bonds depend on a company’s ability to generate cash to pay interest and dividends and grow its business. The financial statements are the report card, and accountants are supposed to tell you how reliable that report card is. If you can’t trust the statements, how do you put your money to work? One way is to use index funds to invest in an entire economy. Most people are basically honest, [...]

Not Counting (Part 2)

By |2014-09-05T18:06:49-04:00March 22nd, 2010|Global Market Update|

So what turned accounting into the enemy? Why is the Financial Accounting Standards Board the investor’s enemy? After all, all the accountants I know are decent people who care deeply about their work and love their families and pay their bills. So why has their profession cranked out rules upon rules that seem to defy common sense and leave the educated layman scratching his head? In a word, interest. The rulemaking body is dominated by the Big Four accounting firms. Based on the size [...]

Not Counting (Part 1)

By |2014-09-05T18:05:09-04:00March 18th, 2010|Global Market Update|

So who is the new scoundrel in the Lehman fiasco? Now that the bankruptcy examiner has reported his findings, what can we learn that’s new? Not that Lehman cooked its books. That was evident some time early in 2008, when spreads on their debt ballooned. Not that some politicians had a soft spot for their competitors. Hello? Did anyone notice where Hank Paulson and Bob Rubin used to work? No, the villain today is the accounting firm Ernst and Young. Not the guys down [...]

No Exit

By |2014-09-05T18:04:29-04:00March 17th, 2010|Global Market Update|

Are we really surprised that Google is leaving China? The company whose motto is “Don’t be evil,” is leaving the home of Tiananmen Square and the occupation of Tibet. Ostensibly, the cause was the official hacking of some Gmail accounts. But the conflict was inevitable. As long as the Chinese leaders maintain that their immense cash balances and growing consumer population puts them in a special class of market, these conflicts will continue. Organizations that think that they special and that stifle dissent are [...]