8 Fascinating Reads

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.

Boom and bust
Legendary investor Howard Marks of Oaktree Capital gives an interview with Outlook:

Bubbles happen when people are unworried. That is not going on now. The bad news is even though people are not thinking in a wildly optimistic manner, they are still behaving in a pro-risk fashion because they have to, in order to get any return. With interest rates as low as they are, if you stick to totally safe investments you can't make any money. So they are not thinking bullish but they are acting bullish.

Read the whole thing here. It's good.

Moving in the right direction
The New York Times
notes one of the most important trends for those who worry about the long-term budget deficit: The fall in health care cost growth.

Look at Medicare: over the last 43 years, costs per beneficiary grew 2.7 percent faster than the overall economy. That's why Medicare spending rose from $7.7 billion in 1970 (or 0.7 percent of gross domestic product) to $551 billion in 2012 (almost 4 percent of G.D.P.). But this trend has finally reversed; over the last three years, Medicare costs per person have grown 1.3 percent slower than growth in the overall economy. In January, a Department of Health and Human Services report showed that Medicare spending per beneficiary grew just 0.4 percent in 2012. And last week, the Congressional Budget Office lowered its 10-year Medicare spending projection by $137 billion, because "health care spending has grown much more slowly" than "historical rates would have indicated."

Competition
ETF Trends shows how fierce the competition in ETF costs has become:

Charles Schwab (NYSE: SCHW  ) on Thursday commenced a new platform that will allow investors to trade over 100 ETFs commission-free. ... The financial giant already lets its customers trade its own ETFs commission-free, and some ETF providers have similar arrangements with online brokers. But Schwab is the first to create a commission-free ETF supermarket with funds from multiple firms.

Backfire
John Cassidy of The New Yorker details how austerity has worked for the European economy:

[Austerity] hasn't led to the improvement in the government finances that Osborne and his supporters predicted. As a result of the renewed slump, tax revenues are lower than expected and spending on benefits for the unemployed has risen. Overall government spending has continued to rise; the budget deficit has remained stubbornly high. And that's why Osborne still will need to borrow so much money.

In short, the U.K. experience shows how austerity policies, when applied without regard to the state of the economy, often lead to more government borrowing and debt creation, not less. In the past few years, we've seen pretty much the same thing happen in other European countries: Greece, Ireland, Portugal, and now Italy and Spain. Still, though, many proponents of austerity refuse to acknowledge their errors.

Open for business
Last week I showed the dire state of Singapore's demographics. Turns out its government is trying to do something about it:

Singapore's government has laid out a vision for sustaining the tiny city-state's economic growth, predicting that it will have to accept a continued influx of foreign workers while it tries to persuade its citizens to have more children. In a long-awaited white paper published on Tuesday, the government forecast that its population would grow by up to 30 per cent, to 6.9m by 2030. Of that, up to 36 per cent, or 2.5m, would have to be made up of foreign workers, or what it called "non-residents", as Singapore tries to balance a shrinking working-age population and low birth rate with the need to have enough workers to maintain economic growth.

Sociopaths
From prison, Bernie Madoff still has no idea what reality looks like. According to CNBC reporter Scott Cohn:

Writing to me from the federal prison where he is serving a life sentence for his epic fraud, Madoff said he is not getting credit for what he calls his "instrumental" role in returning money to his victims. Madoff wrote that he is so frustrated, he is having second thoughts about having pleaded guilty four years ago.

Humility
Josh Brown throws cold water on those attempting to predict the market's next correction:

Determining whether or not a correction is actually one of these trend-changing points in time can only be done in hindsight. I know of no trader, investor, blogger, journalist, professor, TV anchor, system, formula, strategy, firm, octopus, researcher, algorithm, machine or mechanism by which anyone can do this in real-time consistently.

The best investors don't even bother trying. The biggest wannabes are consumed with the ongoing attempt and desperate for you to watch them do it. "I'm bullish! Now I'm bearish! Now I'm bullish again! Look at me! Follow me!"

Those who constantly shout about imminent corrections are occasionally rewarded by the fact that corrections can and will happen on both sides of the market.

Great call.

Can you make it again? On time? Can you make it every time? Can you remind us of how many corrections you've predicted that did not occur?

Can you nail every 5 to 7 percent upside and downside correction in the market on a continuous basis?

You are to be congratulated if so.

But it is more likely that you cannot.

The constant correction call is noisy in bull markets, dangerous in bear markets and of little value to the majority of people in either case.

On the mark
On the topic of market timing, here's investor Martin Zweig, who passed away this week, calling the 1987 market crash: 

Enjoy your weekend. 

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  • Report this Comment On February 25, 2013, at 9:23 AM, Darwood11 wrote:

    Morgan;

    Good as usual.

    I remember watching Wall Street Week decades ago and it was pleasant to see that clip.

    WSW was one of the influences that got me really thinking about investing. the market. and how the financial system worked, or didn't. It was clear to me at the time that the "experts" frequently rolled the dice and fed potential investors pap.

    The clip is fascinating because it provides a glimpse into how things really haven't changed. There is good advice and then there is bad advice. Crystal balls haven't improved in the past 25 years.

    What has changed is there is a lot of information available. That is offset by the fact that there is even more noise. The challenge is to make the distinction and filter our the noise and the entertainment.

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