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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Retirement Confidence At Record Lows

On March 14, 2012, in Our Culture, by Tim

Some highlights from the Employee Benefits Research Institute’s Retirement Confidence Survey in which we find Americans as ill-equipped as ever to enter their golden years:

Many workers report they have virtually no savings and investments. In total, 60 percent of workers report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.

Although 56 percent of workers expect to receive benefits from a defined benefit plan in retirement, only 33 percent report that they and/or their spouse currently have such a benefit with a current or previous employer.

That second one is kind of a shocker, that is, unless those 23 percent of respondents who said there were going to receive a pension but didn’t have a pension retirement plan thought they were being asked about social security.

And this chart says a lot about how the fortunes of aspiring retirees are changing:

Retirement Confidence

That area circled in red has gone from around 50 percent to 60 percent over the last ten years and will likely continue to go higher in the years ahead as long as Ben Bernanke is running the Federal Reserve and savers continue to be punished.

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Pity for Wall Street’s Shrinking Bonuses

On March 6, 2012, in Our Culture, Personal, by Tim

This Bloomberg report on the impact lower bonuses are having on Wall Street’s finest serves as another reminder that, like elected officials in Washington, Americans throughout much of the rest of the country have more of a spending problem than a revenue problem.

Andrew Schiff, brother of  doomsayer Peter Schiff of Euro Pacific Capital, laments the high cost of private school tuition, living in New York City, and four month long summer vacations in Connecticut that have become difficult to bear on his $350,000 income.

While Andrew won’t get much sympathy from the rest of the country that struggles to make ends meet on a 10th of that income or less – and that is, perhaps, the more important story here – it does illustrate the point that, at just about every income level, many Americans are doomed to financial failure simply because they spend too much money.

I’ll never forget Lakers owner Jerry Buss who, back in the 1980s, famously said that all you have to do to become wealthy is to spend less than you make and to keep doing this over many, many years.

It’s a simple formula, actually.

Yet, in a society where image seems to be everything and buying things you don’t need with money you don’t have is a way of life, that simple wisdom seems about as relevant today as the idea of paying off your mortgage.

I find it hard to conjure up much sympathy for people like Schiff and the primary reason why is that, for decades, I’ve approached personal finances in a completely different way, one like Jerry Buss recommended and which may someday soon come back in style.

(more…)

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More Amazing Student Loan Statistics

On March 5, 2012, in Debt, Our Culture, by Tim

The cost of a college education has been in the news a lot lately, what with Fed Chief Ben Bernanke telling a Congressional committee last week that his son is about to graduate from medical school with $400,000 in student loan debt as recounted in this Huffington Post story the other day and with Catherine Rampell documenting the dramatic rise in the cost of attending state colleges in this New York Times report.

Another data point comes today in this item at Sober Look in which the dramatic rise in government involvement in student loans is made clear in the graphic below:

I’ve known that rising student loan debt has been doing a pretty good job in recent years of offsetting falling credit card debt in the Fed’s monthly report on consumer credit, but I didn’t know that the gubment was on the hook for so much of it, though, with all the other money that has been gushing out of the nation’s capital since the Great Recession started in 2008, it really shouldn’t be too surprising.

Of course, it would be nice if a college degree was worth what it used to be in the workplace. It used to be that for little or no money you could go out and get an engineering degree at just about any state college and you’d be rewarded with a pretty decent standard of living (I should know, I did it). But, that doesn’t seem quite as easy any more.

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Grantham, Shakespeare on Debt

On February 27, 2012, in Consumerism, Debt, Our Culture, by Tim

As always, Jeremy Grantham’s quarterly investment letter(.pdf) is well worth reading, a good portion of it taking up the issue of how capitalism has failed us and another recounting GMO’s surprisingly good market calls over the years, but item number two in the section on investment advice was what grabbed my attention:

“Neither a lender nor a borrower be.” If you borrow to invest, it will interfere with your survivability. Unleveraged portfolios cannot be stopped out, leveraged portfolios can. Leverage reduces the investor’s critical asset: patience. (To digress, excessive borrowing has turned out to be an even bigger curse than Polonius could have known. It encourages financial aggressiveness, recklessness, and greed. It increases your returns over and over until, suddenly, it ruins you. For individuals, it allows you to have today what you really can’t afford until tomorrow. It has proven to be so seductive that individuals en masse have shown themselves incapable of resisting it, as if it were a drug. Governments also, from the Middle Ages onwards and especially now, it seems, have proven themselves equally incapable of resistance. Any sane society must recognize the lure of debt and pass laws accordingly. Interest payments must absolutely not be tax deductible or preferred in any way. Governments must apparently be treated like Polonius’s children and given limits. By law, cumulative government debt should be given a sensible limit of, say, 50% of GDP, with current transgressions given 10 or 20 years to be corrected.)

In Shakespeare’s Hamlet, it was Polonius who said, “Neither a borrower nor a lender be”, words of wisdom that seem to have gone out of fashion over the last thirty years or so but that now seem to be making a strong comeback.

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Why Save When Borrowing is So Cheap?

On February 22, 2012, in Banks, Debt, Our Culture, by Tim

Federal Reserve Chairman Ben Bernanke is clearly winning his war against savers as the freakishly low interest rates mandated by the central bank combined with a weak economy here in the U.S. are making it either impracticable or impossible for many Americans to maintain even a tiny amount of cash set aside for a rainy day.

According to a survey by Bankrate.come that included the graphic to the right, a full one-quarter of Americans now have more credit card debt than emergency savings which, when you think about it, shouldn’t be too surprising.

But, what was surprising (at least to me) was that a full 30 percent of those earning $75,000 or more could not say that they have more savings than credit card debt and 36 percent of college grads were characterized the same way.

One could make allowances for the avalanche of zero interest rate offers from credit card companies and how recent college grads have been having a tough time in the current economy, but still, these numbers seem quite high.

As might be expected, for non-college grads and low wage earners, things are much worse with nearly two-thirds of the respondents saying they had less savings than credit card debt, but things seem to be deteriorating rapidly for the middle and upper-middle class.

Overall, just over half of Americans now have more emergency savings than credit card debt while another 21 percent either don’t know what they have or have neither.

When asked how they feel about their level of savings as compared to a year ago, only 14 percent said they were more comfortable while 38 percent said they were less comfortable.

Don’t look for any of these numbers to improve much in the years ahead – at least not until 2015 when the Fed’s low interest rate policy might finally come to an end.

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Clearing Up Buffett’s Misconceptions On Gold

On February 15, 2012, in Commodities, Our Culture, by Tim

Like many gold investors, I’ve grown increasingly tired of listening to what Warren Buffett has to say about the yellow metal in recent years, but his latest comments do offer something valuable. It is another timely reminder that conventional wisdom here in the U.S. is decidedly “anti-gold,” and that many investors will never, ever understand (or care) why gold has been one of the very best performing asset classes for more than a decade (many of them never even bother to try).

In many ways, this is a classic case of cognitive dissonance, a condition that I normally summarize as “rejecting out of hand or going to great lengths to construct weak/invalid arguments against beliefs that are inconsistent with other strongly held views”.

In short, for many to believe that there is a valid investment case to be made for gold, they must grapple with other uncomfortable possibilities, such as the idea that the world’s monetary system is unsustainable over the long run and that, perhaps, many assets have been mispriced for decades now due to actions taken by central banks and other policymakers, and that this was a major cause of the ongoing financial crisis.

[To continue reading this story, please visit Seeking Alpha.]

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