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Robyn55 - an apology is due to you, my Harvard comment was simply dumb, please accept my apology. It was generated by the ongoing nonsense I deal with in the pro bono college financial planning/consulting that I do as a hobby. I also owe TuborgP a mea culpa for digressing from his excellent thread on QE. TuborgP is a wise and tolerate chap and will hopefully forgive me for my digressions.
Harvard, Princeton. Yale, MIT, Stanford, etc. are beyond the realm of most folks (myself included). Parents/grandparents and many kids beat themselves up trying for the "best" college that they can "finger nail" their way into, against (in my opinion) common sense. If one is so blessed to attend such schools, more power to you. Enjoy and benefit from being one of the ""chosen (whether as a legacy, superior talent, whatever). Go for it, but it is absolutely silly to spend large amounts of cash for an education from a non-premier school that doesn't buy you much, if anything.
However, most folks are best served (in my opinion) by obtaining an education at the least possible cost (and emphatically with no debt) that prepares them for a successful economic life. The issue has relevance to a retirement thread as many of us retired folks have a serious interest in providing assistance to future generations.
Later this month I will become a grandparent for the first time. The plans for college savings accounts are already in place. The advice I'm giving to my daughter and SIL about college planning is also in high gear. Its germane to both retirement planning and kiddie support because it deals with the issue of what to do with cash through time, a subject relevant to both grey hairs and young folks.
Recent economic history has shown us that many economic assumptions of the past are just that, history, however painful it has been for many folks. QE is a first (to my knowledge) new event in my lifetime (I'm 60) and one which I think is a watershed event, which TuborgP has accurately pointed out as being worthy of note.
The world has changed, buy and hold (which I did quite successfully for many years in my daughters' UTMA college accounts) is, in my view, no longer a viable option for any funds of less than 20+ years duration.
What grey hairs should do with their money is obviously subject to their specific circumstances, but going forward --- we are in perilous times. The US's position in the 20th century is history, the emergence of China and India (and other nations) in the 21st century is where one ought to focus their investment attention. A policy of QE by the Fed tells me that the powers that be are reaching for their last bullet as a desperate attempt to stimulate a pitiful economy. May the gods be kind to us. JMHO.
I agree with most of what you say. But note that when I went to Harvard Law School (graduated in 1971) - tuition was $1750/year. You didn't have to be a rich parent to pay for that. And my husband paid 100% for himself - working in a Ford Motor Company factory in the summer - and as a bartender during the school year (I paid for a lot myself through summer work - but my parents helped me too). How times have changed. Today - like you pointed out - the dollars and cents don't make a lot of sense for most middle class people (it's only a game for the rich and the poor). In my state - Florida - UF Gainesville now has higher SAT scores than my undergraduate school (Cornell) did when I went there. You're not the only one looking at the dollars and cents in terms of making sense .
I tend to agree with you about the state of the United States - both current and future. But I am not sure what that means in terms of investments. I have always had a rule about investing outside my country (the United States). I don't put my money where I wouldn't care to live - or even go on an independent trip. Regardless of what our fearless leader said today - India is still pretty much a second and third world country. And it has some weird ideas of what's appropriate. Brides are burned - and children are mutilated to be better beggars. In China (again pretty much a second and third world country) - female babies are killed (you only get one kid - so it better be a male who'll take care of you in your old age). And the legal systems in both countries aren't exactly what we'd expect to find in the first world.
You seem to like travel. I do too. And I was starting to plan a trip to China last week - and then I figured out that I'd need these shots - and have to travel with those drugs - and I couldn't eat street food (which I like a lot - had tons of it in Japan) - and then I said - no way. I'm too old - and the few times I've been to second countries when I was younger - I always wound up with a case of "tourista".
Anyway - it is entirely possible that people (especially shorter term traders) will make money in these markets. But - for now - I will stick with my old rule (I won't send my money on a plane to anywhere I wouldn't like to live). Robyn
I've just been doing slow and boring for years and years and years. My husband and I were in very speculative legal practices - so the last thing I wanted in terms of investing was the same kind of speculation (it's hard telling what juries will do - but even harder telling what markets will do).
Well, predicting the market is like predicting the weather. Ask any meteorologist how much it will rain on July 2nd of next year. You'll get a blank stare and two upward facing palms with bent elbows. Now, if you ask those same meteorologists how much it will rain this decade they will go to their computer analysis and come back with an incredibly accurate estimate. The market works the same way. If you ask me what the S&P will return tomorrow, I'd tell you I don't have the faintest. Over the next twenty years it will average between 8-12%.
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OTOH - I really don't know what to make of today's investment climate. Bernanke is trying to get everyone to walk the plank and jump into speculative investments. But I don't like the feeling of having anyone pushing a sword into my back - trying to force me to do this. So I probably won't - because I don't have to. But what about retired people who can't live on 1% a year (average CD rate as of today is less than 1%)?
Those who can't live on 1% a year have to get on the boat and take the risk associated with the level of return they need to provide themselves with needed income.
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On my part - I still think there are some decent values in both tax-free and taxable municipal bonds. There is more risk in these instruments now than in years past. But diversification is a good way to minimize risk IMO (most munis can be bought in increments of as little as $5k - so diversification can work for average investors). Just curious what you think (you won't change what I do - but other people might be interested in knowing).
The supply and demand curve of muni bonds was thrown off a bit in 2008. Hedge Funds and private investment vehicles, who invest heavily in munis, had record level redemptions. In order to provide liquidity, a lot of those firms chose to sell their muni bonds and they flooded the market. Keeping rates artificially high while interest rates were being lowered. This has lead to an odd position in CD and Muni Bond rates. Municipal bonds are usually 80% of CD rates. Right now you can get a CD for 1% or a Muni Bond for 4%.
Also, the Build America Program has done an odd thing to Muni Bonds. It has made it so an average investor can get a well diversified bond portfolio in a taxable account while not having to hold a corporate bond. The influx of taxable munis has caused taxable muni yields to be competitive with corporate yields. While muni bonds might represent more risk than was perceived 5 years ago, they are still not close to the risk level of a corresponding corporate bond of equal rating.
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And - FWIW - there's an Oregon long term tax-free GO on the market today at about 4.2% - and a couple of weeks ago I bought a highly rated local Florida long term taxable water and sewer revenue bond at about 5.7%. People who are used to buying CDs aren't used to buying this stuff. So they probably need advisors to help them when they're taking their first "baby steps" (and note to investors - you'll pay a bit more in price - and a bit less in yield - for this advice - worth it IMO if you don't know what you're doing). Robyn
There's a BAB taxable muni revenue bond from NJ yielding 6.14% and a Penn GO bond yielding 6.4%. But, it's very difficult to get CD buyers to invest in these bonds, because they are savers and not investors. Savers don't want to lose money, while an investor understands the risk/return model and measures their risk tolerance to find the point on the risk/return curve that will give them the most utility. Or, so we would hope!
its all un-charted areas this qe stuff.we all have opinoions of what or could be the end result but we argue this stuff like we know. nobody knows how it will work out. so far its worked fine .
we may have avoided a financial collapse or a deflationary spiral that really would have kicked our butts. dont forget we talk about un-emplyment like its high but 85-90% of america is still gainfully employed and while not doing great most of us are at least treading water.
our investments are re-inflating, inflation is still nothing out of the norm and at this point ill just monitor the situation. i certainly cant predict if we are all going to be shopping with wheel barrows full of money at some point.
just the mere fact that almost 40 years after living through the high inflation of the 70's and 80's im now worrying about things deflating is proof things rarely turn out the way you think.the two biggest assets i have ,my salary and real estate were both deflated
What do you mean it's worked fine? As a result of the increases in the prices of most commodities - the cost of living will be going up a lot for ordinary Americans - many of whom are unemployed - underemployed - or not getting salary increases. In the meantime - if they own homes - the values of many of those are still going down. The average Joe who manages to save a bit is getting scr**ed on his savings. Etc. Etc.
And what's the unemployment rate where you live? Where I live - it's 12% or so. That stinks. And it's structural unemployment (because unless the construction industry is revived - unemployment in Florida will remain very high). And that 12% doesn't count the people who aren't looking for jobs - because there aren't any.
I think you are taking a very narrow view of the situation. Robyn
even 12% has 88% of america gainfully employed....a rise in commodities may have somethings going up but unless we all get wage increases and unemployment drops further major inflation in my opinion wont be an issue for a while. while things arent good they are certainly less bad and getting less bad every month lately.
i cant say qe1 hurt us at this stage and i wont comment on the what if's of the future until things unfold and actually happen. maybe qe2 will inflate us enough and not hurt us.nobody knows yet. i can only comment on what is.
so far the two biggest expenses that rise every year for us are much lower ,.. we just signed a 2 year lease at a 5.25% increase over two years in nyc, thats compared to over 8% in 2008 for apartments in nyc. our real estate and school taxes on our pa home held steady for the first time ever... there are things going on for us that balance out increases elsewhere.
even 12% has 88% of america gainfully employed....a rise in commodities may have somethings going up but unless we all get wage increases and unemployment drops further major inflation in my opinion wont be an issue for a while.
No, a 12% unemployment rate does not mean that 88% are gainfully employed, or employed at all. The unemployment rate only reflects those who are currently collecting unemployment benefits. It ignores everyone else who would like job but can't find one; small business owners and independent contractors that are not making a living, all new high school and college graduates looking for work, people who have moved in search of work, and other large groups.
According to the US Bureau of Labor Statistics site, in 2008, 120,589,850 were employed out of an estimated 330,000,000 citizens.
As of November 5, 2010: "Both the civilian labor force participation rate, at 64.5 percent, and the employment-population ratio, at 58.3 percent, edged down over the month." Employment Situation Summary
As for inflation, don't look for wage increases or a drop in unemployment to tell you it is coming. The fact that the Fed is monetizing the national debt makes it inevitable, and the only question is how long it will take for all those worthless dollars to actually move into the economy. I guess we can be thankful that the Big Banks and the ultra-rich are just sitting on their "stimulus" windfalls, though as a taxpayer I'd be happier to have gotten a tax reduction instead of an even bigger future tax bill.
Well, predicting the market is like predicting the weather. Ask any meteorologist how much it will rain on July 2nd of next year. You'll get a blank stare and two upward facing palms with bent elbows. Now, if you ask those same meteorologists how much it will rain this decade they will go to their computer analysis and come back with an incredibly accurate estimate. The market works the same way. If you ask me what the S&P will return tomorrow, I'd tell you I don't have the faintest. Over the next twenty years it will average between 8-12%.
Those who can't live on 1% a year have to get on the boat and take the risk associated with the level of return they need to provide themselves with needed income.
The supply and demand curve of muni bonds was thrown off a bit in 2008. Hedge Funds and private investment vehicles, who invest heavily in munis, had record level redemptions. In order to provide liquidity, a lot of those firms chose to sell their muni bonds and they flooded the market. Keeping rates artificially high while interest rates were being lowered. This has lead to an odd position in CD and Muni Bond rates. Municipal bonds are usually 80% of CD rates. Right now you can get a CD for 1% or a Muni Bond for 4%.
Also, the Build America Program has done an odd thing to Muni Bonds. It has made it so an average investor can get a well diversified bond portfolio in a taxable account while not having to hold a corporate bond. The influx of taxable munis has caused taxable muni yields to be competitive with corporate yields. While muni bonds might represent more risk than was perceived 5 years ago, they are still not close to the risk level of a corresponding corporate bond of equal rating.
There's a BAB taxable muni revenue bond from NJ yielding 6.14% and a Penn GO bond yielding 6.4%. But, it's very difficult to get CD buyers to invest in these bonds, because they are savers and not investors. Savers don't want to lose money, while an investor understands the risk/return model and measures their risk tolerance to find the point on the risk/return curve that will give them the most utility. Or, so we would hope!
BTW, Ithaca is gorges
I just don't know where the 8-12% comes from. Thin air? Kind of like predicting hurricanes? Historically - stock price increases = sum of dividends plus increases in earnings. With dividends at a touch less than 2% - you're talking about 8% annual increases in earnings - compounded. Kind of hard for a lot of companies to do. Particularly companies that have to buy commodity type stuff whose prices are increasing when the companies can't pass on the price increases without meeting consumer resistance.
If you told me 10 years ago that 20 years from then - the SP500 would be up 10%/year (average of 8-12%) - you'd be talking about the index being at 9613 10 years from now. Of course - the SP500 was at 1429 on 10/31/2000 - and was at 1183 at the close on 10/31/2010. So to get to 9613 10 years from now - it would have to appreciate at 23+% compounded for the next 10 years. Perhaps that will happen (although I wouldn't hold my breath). I just don't know how anyone can predict what will happen 20 years down the road (about the only thing I can say with certainty is that if I own a bond yielding 5% - I will get 5% unless the issuing entity goes belly up).
As for people who can't live on 1% a year - it really depends on the individual. Makes a big difference if you're 58 and still working - or 88 with no possibility of working again. Portfolio size - other income - expense levels - etc. - also matter a lot. I've only managed the portfolios of 2 really elderly people - my late FIL and my father. I'm glad they were both big savers their whole lives (and now that my father is the last standing - well at age 92 - I don't think I have to make his money last for more than 20 years - don't laugh - his mother lived to be 103 and he's healthier today than she was at his age!).
Yes - munis were weird in 2008. Great buying opportunity if one could resist the urge to regurgitate (I was buying - but my stomach wasn't at all the better for it). I'm glad I have a friend who's a portfolio manager. We'd talk at least once a week - to give one another courage to buy. And munis are still decent relative value - although not screaming buys today IMO. But I have yet to develop a coherent view of QE2 and its implications in terms of my portfolio management. Until I do that - I'll be buying a little - putting cash on the sidelines - and thinking a lot. Robyn
No, a 12% unemployment rate does not mean that 88% are gainfully employed, or employed at all. The unemployment rate only reflects those who are currently collecting unemployment benefits. It ignores everyone else who would like job but can't find one; small business owners and independent contractors that are not making a living, all new high school and college graduates looking for work, people who have moved in search of work, and other large groups.
According to the US Bureau of Labor Statistics site, in 2008, 120,589,850 were employed out of an estimated 330,000,000 citizens.
As of November 5, 2010: "Both the civilian labor force participation rate, at 64.5 percent, and the employment-population ratio, at 58.3 percent, edged down over the month." Employment Situation Summary
As for inflation, don't look for wage increases or a drop in unemployment to tell you it is coming. The fact that the Fed is monetizing the national debt makes it inevitable, and the only question is how long it will take for all those worthless dollars to actually move into the economy. I guess we can be thankful that the Big Banks and the ultra-rich are just sitting on their "stimulus" windfalls, though as a taxpayer I'd be happier to have gotten a tax reduction instead of an even bigger future tax bill.
not true that its based on un-employment claims only,thats one parameter.this is from the labor departments own website. i dont know the exact number but the fact is there are way more people employed then unemployed and thats good...
Where do the statistics come from?
Early each month, the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor announces the total number of employed and unemployed persons in the United States for the previous month, along with many characteristics of such persons. These figures, particularly the unemployment rate—which tells you the percent of the labor force that is unemployed—receive wide coverage in the media.
Some people think that to get these figures on unemployment, the Government uses the number of persons filing claims for unemployment insurance (UI) benefits under State or Federal Government programs. But some people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.
i wont bore you with the rest of what they do figure but what they use for those numbers is very complex and as complete as they can get it.you can read it on their website
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
bottom line is they cant really know all the unemployed just as they cant know all those on un-employment who are collecting un-employment and working off the books or just milking the system and will continue to pull benefits as long as they can before going back to work.
but the thing we can do is give qe1 a report card so far.
heres what i see and of course we dont know how much is related to just the natural business cycle and how much is qe1 but like being sick and taking medicine you dont know if your getting well on your own or treatment.
the economy and financial system was quite sick in 2008 and we were on the path to a depression. that now dosnt seem to be the path at this moment.
so far:
i see corporate profits coming in 47% above estimates with good revenues as well
my own net worth broke a new high
1st time jobless claims fell the last few months
retail sales are up 3 months in a row
housing stabilized in many areas
commodities rose already 50-100% but price increases have been 5-7% on average on finished goods
my company is hiring again in all capacities
aol had a list of 10 s&p companies this week that started hiring again in their headlines
that means things are alot less bad then they looked and the fear of a double dip recession is almost not in the cards by many economists who thought it was a given.
while the printing of money is never taken as a good thing we dont and wont know the effects for quite a while so i reserve judgement yet on the results off in the future.
a good part of the dollars weakness is world central banks have been selling dollars but buying tips as a hedge against the dollar falling more. tips arent counted as dollars and so the trade off isnt really on the charts but those tips will eventually be sold for dollars again.in any case those dollars are still in good ole american assets but the press never talks about that,it isnt interesting news like the dollars falling is.
like steering a big ship its just possible the fed can nudge the money supply back as things heat up and pull us back a bit and all is well but time will tell.
rising commodities dont always mean high inflation. less then 10% of the price of a loaf of bread is based on wheat prices.90% is still labor costs,production costs ,shipping and advertising..
so far most goods absorbed those 50-100% commodity price increases and we saw small price increases on the consumer side. as time goes on and if things get worse and if our wages dont keep up then yes qe2 will get a failing grade in my book.
Last edited by mathjak107; 11-10-2010 at 03:00 AM..
Yea, but if you get caught you'll be in the federal slammer for a long time, with free room and board, free medical, free gym membership, and, um, .....whoah!!
I just don't know where the 8-12% comes from. Thin air? Kind of like predicting hurricanes? Historically - stock price increases = sum of dividends plus increases in earnings. With dividends at a touch less than 2% - you're talking about 8% annual increases in earnings - compounded. Kind of hard for a lot of companies to do. Particularly companies that have to buy commodity type stuff whose prices are increasing when the companies can't pass on the price increases without meeting consumer resistance.
If you told me 10 years ago that 20 years from then - the SP500 would be up 10%/year (average of 8-12%) - you'd be talking about the index being at 9613 10 years from now. Of course - the SP500 was at 1429 on 10/31/2000 - and was at 1183 at the close on 10/31/2010. So to get to 9613 10 years from now - it would have to appreciate at 23+% compounded for the next 10 years. Perhaps that will happen (although I wouldn't hold my breath). I just don't know how anyone can predict what will happen 20 years down the road (about the only thing I can say with certainty is that if I own a bond yielding 5% - I will get 5% unless the issuing entity goes belly up).
As for people who can't live on 1% a year - it really depends on the individual. Makes a big difference if you're 58 and still working - or 88 with no possibility of working again. Portfolio size - other income - expense levels - etc. - also matter a lot. I've only managed the portfolios of 2 really elderly people - my late FIL and my father. I'm glad they were both big savers their whole lives (and now that my father is the last standing - well at age 92 - I don't think I have to make his money last for more than 20 years - don't laugh - his mother lived to be 103 and he's healthier today than she was at his age!).
Yes - munis were weird in 2008. Great buying opportunity if one could resist the urge to regurgitate (I was buying - but my stomach wasn't at all the better for it). I'm glad I have a friend who's a portfolio manager. We'd talk at least once a week - to give one another courage to buy. And munis are still decent relative value - although not screaming buys today IMO. But I have yet to develop a coherent view of QE2 and its implications in terms of my portfolio management. Until I do that - I'll be buying a little - putting cash on the sidelines - and thinking a lot. Robyn
dont forget to add dividends back into those s&p calculations when ever working with figuring gains since they arent figured in and traditionally dividends account for 1/3 of all the s&p gains.
Well, predicting the market is like predicting the weather. Ask any meteorologist how much it will rain on July 2nd of next year. You'll get a blank stare and two upward facing palms with bent elbows. Now, if you ask those same meteorologists how much it will rain this decade they will go to their computer analysis and come back with an incredibly accurate estimate. The market works the same way. If you ask me what the S&P will return tomorrow, I'd tell you I don't have the faintest. Over the next twenty years it will average between 8-12%.
Those who can't live on 1% a year have to get on the boat and take the risk associated with the level of return they need to provide themselves with needed income.
The supply and demand curve of muni bonds was thrown off a bit in 2008. Hedge Funds and private investment vehicles, who invest heavily in munis, had record level redemptions. In order to provide liquidity, a lot of those firms chose to sell their muni bonds and they flooded the market. Keeping rates artificially high while interest rates were being lowered. This has lead to an odd position in CD and Muni Bond rates. Municipal bonds are usually 80% of CD rates. Right now you can get a CD for 1% or a Muni Bond for 4%.
Also, the Build America Program has done an odd thing to Muni Bonds. It has made it so an average investor can get a well diversified bond portfolio in a taxable account while not having to hold a corporate bond. The influx of taxable munis has caused taxable muni yields to be competitive with corporate yields. While muni bonds might represent more risk than was perceived 5 years ago, they are still not close to the risk level of a corresponding corporate bond of equal rating.
There's a BAB taxable muni revenue bond from NJ yielding 6.14% and a Penn GO bond yielding 6.4%. But, it's very difficult to get CD buyers to invest in these bonds, because they are savers and not investors. Savers don't want to lose money, while an investor understands the risk/return model and measures their risk tolerance to find the point on the risk/return curve that will give them the most utility. Or, so we would hope!
BTW, Ithaca is gorges
I heard a very accurate and telling comment yesterday. That the FOMC and Bernanke were surrounded by very brilliant economist but no psychologist. They don't understand human nature and for many, especially older folks their risk aversion is to the bone.
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