Our Place in the Cosmos

If you’ve ever wondered about the relative size of the planets, and the Sun, and other stars in the sky, there’s a wonderful scale model slideshow that illustrates just how small our planet is (though not as small as Mars, Venus, Mercury or the former planet known as Pluto).  Go here: http://www.iceagenow.com/Solar_System_Relative_Size.htm and prepare to be humbled.

But there’s more.  Scientists have recently mapped out where our galaxy, the Milky Way, sits within a massive supercluster of galaxies that has been named Laniakea.  It turns out we’re living toward the end of a long filament in a cosmic web of more than 100,000 galaxies.  You can view the image here:  http://www.space.com/27016-galaxy-supercluster-laniakea-milky-way-home.html.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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The Harm in Financial Journalism

In most areas of our lives, the more information you get, and the more up-to-the-minute it is, the better we can do business and make astute decisions.  It is interesting that investing is one area where the opposite is true.

We’re not talking here about the second-by-second blips on a Bloomberg terminal that traders and computer algorithms use to make quick-twitch buys and sells.  We’re talking about the normal news reports, cable TV investment reports and investing articles that you’re bombarded with on a daily basis.  In general, the news and data supplied by consumer journalists is almost always harmful to your financial health.

How?  Consider profiles of mutual funds and mutual fund managers.  The quarterly profiles in Barron’s and the articles in Money, Kiplinger’s and the Wall Street Journal tend to focus a bright spotlight of attention on the hot funds—that is, funds that outperformed their peers (and the market) in the previous quarter.  Three months worth of track record is statistical nonsense, but the hot fund manager is interviewed with breathless deference normally given to a certified genius.  It is interesting that seldom if ever is the next quarter’s genius the same as the last one.  Anyone who invests with the fund of the hour is in grave danger of suffering a regression to the mean—which means losses when compared with the indices.

Even one-year and five-year rankings have no predictive value, particularly when the focus is on outliers who were well ahead of their peers.  Meanwhile, when we aren’t reading about hot managers, we’re hearing about what the stock market did (or is doing) today.  Today’s price movements are, to a statistician, meaningless white noise, indicative of nothing remotely significant about the future.  The markets go up today, down tomorrow, up for a week, down for a week, and during each of these time periods, analysts try to tell us the causes of these random bounces.  They would be more productively employed trying to explain the “causes” behind each of the waves in the ocean, yet we can’t help listening to their plausible explanations as to why this earnings report, that jobs report, or some other speculation on what the Federal Reserve Board will or will not do has affected our investment outlook.

And, of course, at market tops, when new money is chasing returns at the most dangerous possible time, the news reports are telling us how the markets have been going up, up, up.  When markets are depressed, and it is the best possible time to put new money to work, the news reports are telling us all the bad news about months of market losses.  Swimming against that tide is nearly impossible, even for professionals.

There may be meaningful information among this chatter, but it’s unlikely that most of us will see it amid the noisy background.  Back in the late 1990s, one analyst who couldn’t believe how much people were paying for tech stocks finally broke through the background noise by pointing out that Amazon’s share price had reached approximately the same level as the entire yearly economic output of the nation of Iceland, plus a few 747 cargo jets to carry it all back to the U.S.  Of course, few listened, and the bursting tech bubble cost a lot of investors a fortune.

Today, we’re being told that the current market rally is long in the tooth, that the Fed is going to raise rates soon, that market valuations are kind of high, and of course that certain fund managers did really well last quarter and yesterday’s market was up or down.  The problem is that we were hearing exactly the same things last year and the year before (remember?), and still the market churned ahead, cranking out new record highs.

Unlike just about any other activity you might pursue, the best, most astute way to invest is to turn off the noise and let the markets carry you where they must.  The short-term drops tend to become buying opportunities in the long run, and over time, the U.S. and global economies reflect the underlying growth in value generated by millions of workers who go to work each day and build that value.  Investor sentiment will swing around with the unhelpful prodding of journalists and pundits, but people who stay the course have always seen new market highs eventually, while people who react to every positive or negative report tend to fare much less well.  When it comes to the markets, wisdom trumps up-to-the-minute knowledge every time.

Maybe somebody should tell that to the journalists.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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The Next Bailout

It has been five years since the newspapers exploded with stories of the Greek debt crisis, which, we were told, threatened the very existence of the Eurozone.  Eventually, a variety of bailout packages were negotiated, and things seemed to return to normal.

As it turns out, the current rescue package will run out at the end of June.  The European Union finance ministers and leaders of the newly-elected Greek government appear to be far apart in their negotiations on extending the bailout.  The European Central Bank, International Monetary Fund and the European Commission have demanded that Greece institute another round of economic reforms, meaning austerity in government spending and services, higher value-added taxes, pension cuts, and a continuing decline in the Greek GDP and standard of living for ordinary citizens.  The citizens, naturally, have been reluctant to endure any more pain, and elected leaders from the Syriza Party who ran in opposition to any more austerity, promising instead to cut a better deal, spend more and generally use Keynesian economic theory to restart the economy..  The Greek government recently rehired 4,000 public sector workers in a clear display of independence from the creditor demands.

Greece’s finance minister has agreed to make the next 750 million euro loan repayment to the International Monetary Fund, which staves off immediate default.  But there is no question that the country will have to refinance 172 billion euros of debt.  No deal means default and, possibly, what people are calling a “Grexit” from the Eurozone.  You can expect to suddenly see headlines about the looming “crisis” and once again hear intimate details about the financial situation in Greece.  If the negotiations succeed, and Syriza officials win concessions, it could bolster the strong anti-austerity populist movements in Spain, Portugal and Ireland.

Should you be concerned?  If you’re holding a private stash of Greek bonds, or are receiving a government pension from the nation, then you should be following these developments closely.  If not, then there is nothing about the negotiations which will change the underlying value of European stocks and bonds in most American portfolios.  The headlines could cause a selloff, particularly in the event of a Grexit, but corporate earnings and valuations will ultimately prevail, whether Greece is given a grace period, whether it remains part of the Eurozone—or not.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

http://www.ft.com/cms/s/2/7f31597a-f4cd-11e4-abb5-00144feab7de.html?ftcamp=published_links%2Frss%2Fhome_us%2Ffeed%2F%2Fproduct#axzz3ZV6PABAZ

http://www.huffingtonpost.com/rj-eskow/13-questions-about-greece_b_6621708.html

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What’s Next for Oil Prices?

Last year, the big news in the U.S. economy was the dramatic fall in Brent crude oil prices, from just under $110 a barrel last July to something less than $45 a barrel in mid-March. (See chart) Since then, oil prices have jumped back up to more than $60 a barrel. Does that mean the era of cheap oil is over?

CA - 2015-5-5 - Oil charts

Probably not, say the experts. Bill O’Grady, at Confluence Investment Management, points out that U.S. energy production, when you add 9.2 million barrels per day of oil production to 1.0 million barrels per day (equivalent) of natural gas, is the highest it has ever been, even higher than the production levels during the OPEC oil embargo in the 1970s. Meanwhile, Saudi Arabia appears to be pursuing a multi-pronged political agenda by keeping its pumps working overtime: when the world’s largest oil exporter drives down the global price of oil, it harms the economies of Russia and Iran (which need higher oil prices to prop up their domestic economies) and also discourages even higher oil production in the U.S. At the same time, the Saudi effort to suppress oil prices also suppresses the economic drivers of alternative energy, by making solar and nuclear power seem expensive compared with oil-generated electricity.

Meanwhile, more oil is on the way. Iran’s oil minister recently announced that if/when sanctions on the country are lifted, it will raise its oil production from 2.7 million barrels a day to four million over the subsequent eight months.

The recent Confluence report also offers a couple of very interesting statistics. First, the average citizen of planet Earth consumes about 4.7 barrels of oil a year in energy use. That in itself may not be surprising; what is striking is that this number has barely fluctuated since 1983, and is down from 5.3 barrels in the late 1970s. There are huge differences among countries. U.S. citizens, on average, consume 21.8 barrels a year, while the average Chinese resident consumes 2.9 barrels.

The other interesting statistic is the declining amount of energy required to produce an inflation-adjusted dollar of economic production in the world. In 2013, the most recent year this data has been collected, the figure was the lowest it has ever been, and is more than 50% lower than in 1980. (See Figure 2) The world economy, in other words, is at least 50% more efficient in its energy use than it was 30 years ago, and that efficiency has been increasing steadily over that three-decade period. Last year, European oil use hit its lowest level since the mid-1990s, and U.S. oil demand peaked in 2007, and is expected to fall by between 1.8 million and 2.7 million barrels a day by 2035. In an op-ed piece in the Wall Street Journal, economist Steve Yetiv says that as economic growth becomes increasingly disconnected from oil in the next 20 years, attention will shift to scarcities in food, water and minerals.

None of this guarantees that oil prices will fall back to their mid-March lows, but it does suggest to energy experts that the recent rise in prices won’t take us back to last year’s $100+ prices either. Yetiv speculates prices in the range of $52 to $68 a barrel for the foreseeable future. Translated, that means the days of (relatively) cheap oil could be with us for a while.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

http://www.wsj.com/articles/oil-prices-rise-on-signs-glut-may-abate-1430991274?tesla=y

http://www.wsj.com/articles/why-the-worlds-appetite-for-oil-will-peak-soon-1430881507

http://fortune.com/2015/05/07/oils-wild-ride-where-will-prices-go/

http://confluenceinvestment.com/assets/docs/2015/WEC_Q2_2015.pdf

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Gender Earnings Deciphered

shutterstock_2935217-638x425

You probably know that women earn less than men in the U.S. economy, but you may not realize that the gap is not going to close any time soon.  A study by the Institute for Women’s Policy Research (http://statusofwomendata.org/app/uploads/2015/02/EE-CHAPTER-FINAL.pdf), created by a rather large team of economists and researchers, compared the discrepancy between pay for men and women today vs. last year and prior years.  Then they extrapolated the year in which the two genders would be paid the same for the same positions and work responsibilities.

The answer: the year 2058.  To put that into perspective, the FutureTimeline.net website predicts that in the same year, humans will have established a colony on Mars.

The gender gap seems to be a cultural phenomenon.  Some states, like New York, Maryland, the District of Columbia, Vermont and Florida, have gender earnings ratios above 85%; that is, women, on average, are paid more than 85% of what men are paid.  But a woman living in Louisiana, West Virginia or Wyoming are likely to be paid less than 68% of their male counterparts’ salary, according to the study.  The gap also appears to grow as people become more highly-educated.  Women who have not earned a high school diploma tend to earn 73.8% of what men with comparable jobs are making, but if men and women both have a graduate degree, the women are earning just 69.1% of mens’ salaries.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

 

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Government Leaders and Leading Salaries

You probably know that the U.S. President makes $400,000 a year in salary.  But do you know how that stacks up with elected leaders in the rest of the world?

According to statistics compiled by Statistica.com, the U.S. President is actually pretty well-paid, earning more than Canadian Prime Minister Stephen Harper ($260,000), German leader Angela Merkel ($234,000), South African President Jacob Zuma ($223,500) and Russian President Vladimir Putin ($136,000).

Screen Shot 2015-04-03 at 12.02.48 PMThe chart shows that one leader outpaces everybody, however.  Former Singapore Prime Minister lee Hsien Loong earns more than the combined annual wage of the leaders of France, Germany, Italy, Japan and the United Kingdom combined.

But to put all of this into perspective, the average Wall Street salary came to $356,000 last year, plus bonuses averaging $175,000.  Morgan Stanley’s top executive, James Gorman, took home $22.5 million.

Source:  http://www.statista.com/chart/3350/pay-levels-of-world-leaders-in-perspective/

http://www.businessinsider.com/truth-about-stagnant-wall-st-pay-2015-3

http://www.wsj.com/articles/morgan-stanley-ceo-gorman-gets-25-raise-in-2014-1427919552

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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