"Lawmakers Seek to Prevent Americans Outliving Savings"

In response to this article from Businessweek

Good idea. I suggest the government create some social welfare program. My idea would be that the benefit is high enough to ensure a person's welfare until the end of life. To make it affordable there must be some restrictions.

What if you knew how much you paid for advice?

This is a continuation of my last entry "Healthcare and Financial Services, Can Either be Fixed?" See here.

No reason to estimate the value of the advice if we don't know how much you paid.

But what if you did know?

To the penny.

Healthcare and Financial Services, Can Either be Fixed?

This is Part 2 of a 3 part series.

I know, sigh. As if another commentary is needed on either issue. But appropriate today as we wonder with the election yesterday, what's next.

Let me get right to the point.

What if the fee for health care, was paid in units of life expectancy?

"Financial Services"-- The Global Lexicon Misnomer

This is part 1 of a series of 3.

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."--Mark Twain

We nod then shake our heads in complete agreement with commentators these days regarding the sad state of the "financial services" industry. But if you believe the term "financial services" defines anything, how much do you really understand about the current environment? If this makes you wonder, then I suggest it is important for you to understand the difference in what we understand as financial services, financial sales, and financial advice.

The Bill is Due

We've all been there... or at least I have. You open the mail to find a surprise bill that you cannot afford to pay. Of course it shouldn't be a surprise if you paid attention to where your money was going.

Yes prior to my wonderful wife, and understanding personal finance to ignore the indoctrination of credit companies, I had debt. And a few times I couldn't pay a bill. So like millions, I used a cash advance from another credit card to pay the bill. I was paying ridiculous interest twice on the same balance. Thankfully I learned before getting in real trouble. Some people do this until the cards are all maxed. And why not? It is good enough for the U.S. Treasury.

Update to Market Valuation and PE Q2 '09

As everyone seems to be interested in what I have to say about the PE of the market from viewings of these past entries, here is an update on what I see over the past few days of quarterly earnings while it is still on everyone's mind.

Update to Market Valuation and PE
Market Valuation

Socialism of Capitalism-Update on Australia Regulation #1

This post from November of last year on Australian regulation is still one of the most read posts on my blog, and rightfully so. I consider it one of my most thoughtful, original, and well researched. But in sharing this information with other professional peers, and the public, I have realized further truth that I believe is worth your time to read. I will focus posts on these thoughts over the coming weeks.

Unintended Consequences of Tax Policy

So Florida changed the basis on property taxes for non-residents versus residents. Non-residents have a noticeable increase. Off the top of my head I don't remember specifics. But let's just say that the average snowbird would pay twice as much per year if staying an Indiana resident ($2,000 and maintaining a Florida condo).

Update to Market Valuation and PE

This is an update to my blog entry on market valuation that is important enough to reiterate and has additional details I am now willing to share with those who are not clients. Just as important are other thoughts that may have serious implications for the future that I will write about in coming weeks.

The following chart is simple to understand. The left column heading is the PE, the top row is the earnings of the S&P 500, and the intersection is the price the S&P 500 would be given those two factors.

The PE ratio says how many dollars investors will pay for one dollar of current earnings. When investors buy a stock (knowledgeably or not) they are buying a stream of earnings. When people are more risk averse, they will want more current earnings per dollar. The prior blog discusses historic trends in PE at market highs and lows. As noted at the beginning of the year Standard & Poors estimated that earnings this year would be around $40. Well, with 99% of companies reporting for Q1 '09 they overestimated by 25%. Overestimates are common with declining earnings as are underestimates with rising earnings. The band highlights the rough range of where the S&P 500 is today given various forward earnings.

As I hinted before, either investors must have an historically unprecedented appetite for stocks in a bear market (PE usually ends below 10), or earnings have to ramp up in an unprecedented manor to justify current levels, or a combination of both.

I have a hard time believing a person should invest betting on something that has never happened before without tremendous upside. In this case this unusual bet is only to justify current levels of the market, not forward growth.

The following chart shows the inverse relationship of 10 year forward returns on the stock market in red, and current PE ratio in blue. There are deviations, especially over the most recent 10 year periods, but the relationship is strongest at extremes of PE (shown here inversely). Source data: Robert Shiller http://www.irrationalexuberance.com/index.htm

If S&P is correct at $40 per share of earnings, the PE at current levels will almost match that at the top of the dot com bubble (shown here as the low side of the chart). As an investor in the market, are you right or is Standard and Poors? Or are you betting against history?

To find recent S&P 500 earnings information visit http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS

Historical average PE is 14.29
1918 down to 5.74
1924 9.05
1942 7.97
1949 6.62
1975 8.30
1982 7.73

The Ultimate Self-Dealing Government-- not US

So GM goes sort of bankrupt... finally (see this post from November 2008), and two coincidental and seemingly unrelated events happen.