Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are eight fascinating ones I read this week.
The kids have it rough
Amir Sufi of the University of Chicago shows how spending declined during the Great Recession broken out by age:
According to Charlie Gasparino of Fox Business News:
UBS is planning a mass mailing to many of its brokerage clients alerting them that they have been reclassified as "aggressive" investors following a recent change in its market outlook that some people inside the firm say reflects growing bearishness in the bond market, particularly over the long term, the FOX Business Network has learned. ... According to brokers inside UBS, new guidelines will reflect a growing belief among the firm's market strategists that the bull market in bonds has largely run its course, and that those investors who believed they had constructed a "conservative" portfolio by being heavily invested in bonds could be reclassified as "aggressive." Some also believe the move may be an attempt by the firm to lessen its liability in the event clients who are holding large positions in bonds decide to take legal action against UBS.
Barry Ritholtz shows the incredible rise in ETF assets:
Slate's Matthew Yglesias cracked that "Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers." But what's really going on is that Jeff Bezos has trained elements of the investment community to expect that low profits (or big losses) now represent investments that will eventually pay off, not signs of trouble.
How has Bezos done this? Well, he's a hedge fund veteran who has always taken a skeptical view of Wall Street, treating it more as a loopy rich uncle than the efficient information processor of standard finance theory. When Uncle Wall Street (also known as Mr. Market) is in a generous mood, Bezos is always ready to take advantage by putting investment ahead of profitability. But he's also always been ready to shift gears when the mood turns stingy.
Not a good sign
The Economist worries that the Postal Service's ongoing losses -- caused in part by inane laws it wants overturned -- is a harbinger of things to come:
Most people don't rate mail delivery as one of their top concerns. It isn't the third rail of American politics. Yet Congress could not even pass a reform supported by seven in ten Americans. Now consider America's attitude toward Social Security, Medicare and Medicaid. Those programmes, primarily the health-related ones, will bankrupt the country if they're not changed or taxes aren't raised. No workable solution has anywhere near the backing of 70% of Americans. And the debate over what to do about them is highly charged. Does anyone truly believe Congress is up to the challenge?
Or take a single bond, one issued by the equipment maker Caterpillar. Issued at $100 in 2009, its value has appreciated to $129 now, the equivalent of an annual capital gain of more than 5 per cent, even before factoring in an annual interest payment of 7.25 per cent of face value on top of that.
Mr Ablin calculates that for total returns on the Caterpillar bond -- capital gains and interest together -- to hit 5 per cent in the coming three years, interest rates would need, implausibly, to fall to zero.
Baby boom to bust
The Wall Street Journal writes about our demographic decline:
Forget the debt ceiling. Forget the fiscal cliff, the sequestration cliff and the entitlement cliff. Those are all just symptoms. What America really faces is a demographic cliff: The root cause of most of our problems is our declining fertility rate.
The fertility rate is the number of children an average woman bears over the course of her life. The replacement rate is 2.1. If the average woman has more children than that, population grows. Fewer, and it contracts. Today, America's total fertility rate is 1.93, according to the latest figures from the Centers for Disease Control and Prevention; it hasn't been above the replacement rate in a sustained way since the early 1970s.
Nassim Taleb shares his outlook and discusses what he owns personally. Watch it here.
Enjoy your weekend.