Category: Your Money

Knowing the right question

Mission:Explore London Launch 16

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A recent study asked: How do you want to live in retirement? Where do you want to live? What activities you want to engage in?

And based on how much it would cost to lead that lifestyle, people would actually need 135% of their final income to live that way.

 

We have an industry that asks one question it’s giving the answer to, and a second question that assumes that people can accurately describe their risk attitude (which they can’t). This saddens me because, while I think that financial advisors are overpaid for the service they provide, in principle they could contribute much more, and they could even deserve their salary. But only if they start offering a more useful service, one that they are in the perfect position to provide. Money, it turns out, is incredibly hard to reason about in a systematic and rational way (even for highly educated individuals). Risk is even harder.

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Nice trade!

June 26, 2008:

Angelo Mozilo: “Bank of America will reap the benefits of what we have sowed.”

August 31, 2011:

Bank of America paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.

Banks still hung-over

Small line of customers (presumably anxious in...

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Battered by a weak economy, the nation’s biggest banks are cutting jobs, consolidating businesses and scrambling for new sources of income in anticipation of a fundamentally altered financial landscape requiring leaner operations.

Bank executives and analysts had expected a temporary drop in profits in the aftermath of the 2008 financial crisis. But a deeper jolt did not materialize as trillions of dollars in federal aid helped prop up the banks and revive the industry.

ABN Amro, Barclays, Bank of New York Mellon, Credit Suisse, Goldman Sachs, HSBC, Lloyds, State Street and Wells Fargo have in recent months all announced plans to cut jobs — tens of thousands all told. Even as they cut payrolls, banks are exploring ways to generate revenue that could translate to higher costs for consumers. Among the possibilities are new fees for automatic deductions from checking accounts that pay utility and cable bills, according to people involved in the discussions.

SunTrust Banks, a major lender in the Southeast, is already charging a $5 monthly fee to its “everyday checking” customers who use a debit card for purchases or recurring charges.

Lending, the prime driver of revenue, has been depressed for several years and is not expected to pick up anytime soon, even with historically low interest rates favourable to borrowers. Consumers are spurning debt after a 20-year binge, while businesses are so uncertain about the economy that they are hunkering down, rather than financing expansion plans.

Source.

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Gold bulls and bubble dynamics

The last bull market in gold began in 1971 with US president Richard Nixon’s closing of the “gold window” and ended in a euphoric blow-out 10 years later. Buying gold in its last parabolic surge proved to be a disastrous decision as the yellow metal then entered a 20-year bear market in which its real price fell 80 per cent. A house can be lived in. Corporate stocks generate dividends. Gold generates nothing and therefore cannot be valued in its own right, only as a measure of revulsion towards other assets. Rather than being a store of value, it is doomed to obey bubble dynamics. When bubbles burst, they usually return to pre-bubble valuations. In 2001, gold was no higher in real terms than in 1972.

Source.

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Structural changes required for the corporate debt market to take off

Structure of the organised banking sector in I...

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The corporate debt market (even for the highest rated corporates) has failed to take off. And The reason has very little to do with the availability of capital or the existence of securities and market instruments. It has more to do with the strength of the legal system in India and the existence of strong bankruptcy, insolvency and receivership laws and the effectiveness of their speedy and smooth implementation. What happens when things go bad, and a company or a special purpose entity is unable to meet all its payment obligations, holds the key to the development of a vibrant debt market.

The usury by the Indian banking system exacts a huge toll on Indian companies (borrowers) and significantly reduces the efficiency of the Indian economy. Unless the government is able to put in place the structural changes required to its legal and regulatory systems and ensure their effective implementation, its debt markets will remain underdeveloped, placing its corporations at a disadvantage

Source.

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