Sunday Morning Coffee

“And if I claim to be a wise man, it surely means that I don’t know.” That is a lyric from the 1976 Kansas hit Carry On Wayward Son (the word My is not in the title which I did not know until I looked on Wikipedia). I have this song on my iPod, it is a great workout song (who knew?) and seems to often come on at the most difficult point of my workout; the last 5:30 on the stairmaster. Anywhoo that one line strikes me being especially poignant. While I am not sure that I claim much wisdom there is plenty I don’t know and one thing I really don’t know but that I’ve started to think about more lately is the serious pickle the country is facing. The chart comes via John Mauldin and tells an important part of the story. While the spread will probably narrow in the next couple of years it is not realistic with what we know today to expect it to revert to any sort of mean. I am thinking more about the magnitude of the deficits, how much debt needs to be purchased by someone in the future, the percent of revenue that could need to go to interest payments and the $53 trillion (or whatever number you care to insert) entitlement problem and I do not know what the answer is. To repeat, think about the magnitude of the numbers. One thing that will happen is that some amount of growth at some point will make the problematic numbers a little smaller. This always happens but whatever the...

Sunday Morning Coffee

“And if I claim to be a wise man, it surely means that I don’t know.” That is a lyric from the 1976 Kansas hit Carry On Wayward Son (the word My is not in the title which I did not know until I looked on Wikipedia). I have this song on my iPod, it is a great workout song (who knew?) and seems to often come on at the most difficult point of my workout; the last 5:30 on the stairmaster. Anywhoo that one line strikes me being especially poignant. While I am not sure that I claim much wisdom there is plenty I don’t know and one thing I really don’t know but that I’ve started to think about more lately is the serious pickle the country is facing. The chart comes via John Mauldin and tells an important part of the story. While the spread will probably narrow in the next couple of years it is not realistic with what we know today to expect it to revert to any sort of mean. I am thinking more about the magnitude of the deficits, how much debt needs to be purchased by someone in the future, the percent of revenue that could need to go to interest payments and the $53 trillion (or whatever number you care to insert) entitlement problem and I do not know what the answer is. To repeat, think about the magnitude of the numbers. One thing that will happen is that some amount of growth at some point will make the problematic numbers a little smaller. This always happens but whatever the...

The Big Picture for the Week of January 31, 2010

A few ETP odds and ends. PowerShares filed for small cap sector ETFs for all ten of the big S&P 500 sectors. The funds will be called PowerShares S&P SmallCap then whatever sector it tracks. For anyone so inclined you can probably glean what the funds might hold by looking at the iShares S&P Small Cap 600 Index Fund (IJR) as the funds will be comprised of stocks from this index. I think the choice being available is absolutely a plus in terms of, as I have talked about before, being able to manage cap size in a portfolio or just have better diversification for people willing to do the work of building a portfolio at the sector level but would rather not pick individual stocks. However there are a lot of specialized or thematic ETFs that offer smaller cap exposure to various sectors. As one example mentioned previously is the PowerShares Water Portfolio (PHO) which is a client holding. PHO is 76% industrial stocks and has an average market cap of about $4 billion versus about $45 billion for the mega cap dominated Industrial Sector SPDR (XLI). Some specialized funds are not so focused into one sector like the iShares Global Infrastructure (IGF) is 40% industrials, 37% utilities and 20% energy. It can still be integrated into a portfolio, I do so with IGF for some clients, but there is a little more to pay attention to with this type of fund. I think it is worth the effort but still it is more work. Next up is that WisdomTree is closing ten funds including one that I...

The Big Picture for the Week of January 31, 2010

A few ETP odds and ends. PowerShares filed for small cap sector ETFs for all ten of the big S&P 500 sectors. The funds will be called PowerShares S&P SmallCap then whatever sector it tracks. For anyone so inclined you can probably glean what the funds might hold by looking at the iShares S&P Small Cap 600 Index Fund (IJR) as the funds will be comprised of stocks from this index. I think the choice being available is absolutely a plus in terms of, as I have talked about before, being able to manage cap size in a portfolio or just have better diversification for people willing to do the work of building a portfolio at the sector level but would rather not pick individual stocks. However there are a lot of specialized or thematic ETFs that offer smaller cap exposure to various sectors. As one example mentioned previously is the PowerShares Water Portfolio (PHO) which is a client holding. PHO is 76% industrial stocks and has an average market cap of about $4 billion versus about $45 billion for the mega cap dominated Industrial Sector SPDR (XLI). Some specialized funds are not so focused into one sector like the iShares Global Infrastructure (IGF) is 40% industrials, 37% utilities and 20% energy. It can still be integrated into a portfolio, I do so with IGF for some clients, but there is a little more to pay attention to with this type of fund. I think it is worth the effort but still it is more work. Next up is that WisdomTree is closing ten funds including one that I...

looking-for-a-fix-for-retirement-security

looking-for-a-fix-for-retirement-security This article is from Yahoo about the ideas President Obama is putting forward. Here is an idea. To get people to save more how about letting people deduct $2 from their income for every $1 they put into a tax deferred account above some contribution minimum. So for example the first $3000 (or whatever number) you deduct $1 per and above $3000 you deduct $2 per. Someone putting $10,000 into a 401k would be able to deduct $17,000 ($3000 X $1 plus $7000 X $2) from their income for tax purposes. Additionally I would make the penalty for non-hardship withdrawals more onerous. Is this idea...