Are We A Nation Of Wusses?

Yesterday CNBC had a segment about ETFs during its show Power Lunch that started with a snippet from Jack Bogle saying “they’ve corrupted it (ETFs) into a trading business. You can trade all day long in real time, that’s the tag line Tyler (Mathisen), to which I would ask what kind of a nut would want to do that?”

Um, what kind of nut when able to choose, would prefer the more restrictive wrapper, that being traditional mutual funds? Bogle likes VTI and SPY to buy and hold forever but the assertion that ETFs are bad because they can be traded is ludicrous. As mentioned before he is really attacking human behavior not the product. A couple of years ago Dylan Ratigan was going to interview Bogle and of course this same line of thought was coming so I emailed Dylan before the interview and pointed out that this is really about human nature, by coincidence or not Ratigan asked Bogle about this on the air and Bogle sort of conceded the point.

ETFs are just a tool. I promise you that people in the past have misused every single tool in existence and will do so in the future. The rest of yesterday’s CNBC segment focused on elementary discussions about potential adverse complexities with commodity based products, funds where the components are thinly traded and so on. It became a reminder (for people somewhat familiar with ETFs) or an introductory point that you need to do homework, look under the hood and understand the dynamics relevant to the fund. So telling people they had to do work.

On a related noted my last few posts about social security have generated a lot of comments at Seeking Alpha. Some comments liked the starting point of self imposed means testing and some were critical which is all fair game but there was one line of comments that popped up in a few instances that was very disappointing and frankly very emblematic of one aspect of the problem.

I noted a couple of times that given how “broken” the US might be financially, any real solution will have to involve sacrifice on everyone’s part or if you prefer unfair treatment, punishment or any other word that has a negative connotation. I believe that I set the expectation that anything I might think of would involve everyone taking a bit of a hit somewhere in order to help the country get back on firmer ground.

Even still there were comments along the lines of “why do you want to punish me for being responsible?” Other comments that were similar seem to fail to recognize the magnitude here. The math on several fronts does not work (read Bruce Krasting for detailed content about social security) which threatens our country. Threats like this first require recognition (not quite there yet) and then require an adult response–a sort of tough get going type of thing.

Ed Rendell said we have become a “nation of wusses” because Sunday night’s game in Philadelphia got pushed back due to snow. It is possible we are becoming a nation of people who do not want to work hard enough to achieve what we want (like thinking we can get rich buying ETFs we don’t understand) and becoming a nation of people who are not willing to sacrifice for the country, in a non-life threatening way mind you, when the country needs that sacrifice.

What’s past is past. If you have $2 million saved that is great but it also means you need your social security check a whole lot less than the one of the 54% of Americans who has less than $25,000 saved. Thinking of this as unfair punishment is a bad way to look at it. If you have $2 million then chances are you are at least on firm footing and have a few choices about how your life goes. That sounds fantastic to me and I’m pretty sure the guy with $25,000 would trade places with you. Obviously no one would trade their $2 million portfolio for a $2000/month social security check.

There are of course many complexities and nuances here, I’m not a fan of bailing out reckless behavior as one example, but we all have a vested interest in seeing the country get back on relatively firm footing and should be willing to be involved on some level, especially a noninvasive, non life threatening way.

Who in your life have you respected the most? What would those people have to say about working hard and making certain sacrifices?

30 Comments

  1. Roger,

    You seem to have accepted that Social Security is a Ponzi scheme that will take your money and give you nothing back.

    Lots of people do not yet realize SS is a ponzi scheme so expect a lot of upset people in the future.

    Many of us that already know SS is a ponzi scheme do not like being swindled. So do not expect a bunch of people forced into a ponzi scheme to be happy.

    Reply
  2. i don’t know if it is a Ponzi scheme, but i have been writing for years that i expect nothing

    Reply
  3. actually no, as I think about it I don’t think anyone set out to defraud the american people with SS. However incompetence is easy to believe

    Reply
  4. “…as I think about it I don’t think anyone set out to defraud the american people with SS.”

    Well madoff started off as a legitamate business man and then became a crook.

    They may not have intended a ponzi scheme, but not raising the retirement age and lowering SS taxes by 2% when they actually need to be raised is intentionally running this program into the ground. The politicians are crooks that are knowingly going to defraud many americans. Many of those people are expecting to get something and will not.

    Continuing to take money today, knowing you will never give it back to people as promised makes it a ponzi scheme today regardless of original intent

    Reply
  5. Roger,

    Appreciate your perspective.

    To pile on the subject, what is you view of the economic impact of unfunded public pension and health care liabilities and what should be the shared pain there?

    Reply
  6. I certainly don’t have all the answers. My starting point is that my parents were financial failures which has made me conservative with my finances and although maybe unrelated in a narrow sense very motivated to be financially self sufficient. Relying on the competence or incompetence of other people is something I will not do (talking matters of finance, I’m not anti-doctor or the like).

    This starting point probably makes me unsympathetic such that my thoughts about pensioners and bailing them out may not be practical.

    However as I think that bank depositors should have been made whole while allowing banks to fail, perhaps if I thought about your question I would draw a similar conclusion? Candidly, I am not sure.

    Reply
  7. i have spent the past week in and around Havana. Although most folks are most reluctant to comment except within a secure, private area, the nearly unanimous opinion is one of being let down by the current administration in Washington and cannot fathom our slide towards increasing government control (Obamacare). “What are we thinking??’

    By the way, the Cuban government banned the Michael Moore film that as to be shown here at a festival that reflected so well on the Cuban health system. in fact, most people are desparate for even basic supplies such as aspirin (antibiotics? ha). Food? get in line and wait, maybe you’ll get some fat pork. of course the priviledged class (government employees) has it good compared to the masses.

    If you like B’Iraq, you’ll love this place.Of course, investment is now on the table, so some international companies will benefit.

    T

    Reply
  8. For the average person, trading ETFs probably is self-destructive behavior. Study after study shows that a typical average investor chases performance and lags market returns significantly. I tend to view Mr Bogle’s comments through the prism of him attempting to give the ordinary vanilla flavored investor a chance to improve investment returns. As you point out, ETFs are a tool that people misuse. Are your points of view really that different?

    For most of your readers, perhaps his advice seems sophomoric, but I find it to be very powerful and convincing.

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  9. T, you’ve been in Cuba? holy cow!

    Obviously Obama would not agree with you. One of the problems , although maybe this is true of every president, I see with Obama is a total lack of introspection. Parts of Obamacare might not be constitutional and the push back from people on the street was huge right out of the chute.

    While I don’t think anyone can honestly defend the health insurance business as being anywhere close to ideal his ideas would serve to complicate things for the vast majority that already have coverage, flawed though it may be. Yet he simply cannot fathom this.

    To paraphrase one of my favorite quoates from the shockingly profane show Deadwood; it is a conversation that he cannot hear.

    Reply
  10. WH, I tihnk our views are different. I would say make the time to learn more about investing and tools available then go ahead and build a portfolio with narrow based products and take the occasional defensive steps when the market warns of trouble.

    I think Bogle is saying don’t take the time because it is impossible, go as broad as possible and hold forever no matter what.

    Reply
  11. “Who in your life have you respected the most? What would those people have to say about working hard and making certain sacrifices?”

    Yes, we’ve become a nation of “wusses” – period. Those of us under 60, collectively, know nothing of sacrifice. In our over-indulgence (myself included), our sacrifice is driving past Starbucks to drink office coffee.

    Your questions at the end quickly took me to my grandmother. She lived as a single mother of 5 during the depression with only a high school education. Her ONLY asset was a home paid for by my grandfather’s life insurance policy. She never drove a car, lived off of food stamps, and cleaned houses and cleaned the local mortuary. Yet, she never ever thought of her circumstances as dire or sacrificial.

    We, as a country, need to realize and accept that we are entitled to NOTHING. This country was built on the back of entrepreneurs who created their own security and took care of themselves or suffered the consequences. Not sure when it happened, but somewhere along the way we lost our backbone and “we” need to find it again.

    Reply
  12. Paul–great story!

    collectively, we do not have the salt that your Grandmother had.

    I’ve referred to this before as pulling ourselves up by our own bootstraps; doing whatever it takes.

    Reply
  13. The funny thing is that as a kid, I never once thought she was missing anything. I just loved it that she paid me a few bucks secretly when my dad made me mow her yard! (pulling the mower behind my bicycle BTW)

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  14. “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain

    IMO, this reflects Mr. Bogle’s teachings.

    Good discussion today.

    Reply
  15. Let’s be clear on the wusses thing. Sunday’s Philadelphia game would have been played had it been a game of sport such as you might see at a high school event. No this game was canceled because it was a business decision. There was a host of “customers” who couldn’t or wouldn’t make it to the store that day. The store selling hotdogs, beer and jersey’s at unbelievable prices. By waiting a couple of days, the customers were able to get to the store. That’s the simple story. Period. Anybody who thinks professional sports is something other than a business deserves to live only on SS.

    Reply
  16. I certainly disagree with your stance. Not giving benefits to the people who have been responsible and saved and lived within their means is not fair. It is once again giving the rewards to the people who are not responsible and don’t care, they live for the moment and don’t plan ahead, when things blow up they expect to get a bailout.

    Reply
  17. Rare earths (REMX) on a terror today. SQM, one of Roger’s holdings, is close to a new 52 week high.

    Reply
  18. given the math involved then what do you propose? how does everyone get what they want with no sacrifice?

    to set the record straight I do not own SQM, I’ve mentioned the name before and Jeff from Milan mentioned that he thought I owned but I corrected him.

    Reply
  19. I propose slashing reckless Gov. spending. Slashing Corporate welfare. Making the super rich pay their fare share. Increasing some caps on taxes that are collected. To think that the people who lived the most reckless get the majority of the benefits is just absurd. To quote someone who commented on a blog the other day regarding a guy with a $100,000 income who only had $5,000 in savings,”Have fun begging out in the street pal, you deserve it”.

    Reply
  20. cut reckless spending?

    do you have something specific or is this an ideological point?

    there is no one in the country who is remotely aware of the situation who would disagree with cutting reckless spending but the way you phrase brings nothing to the discussion.

    so as not to be just talking the talk; I would look at every Federal department and with most of them I would eliminate the department sort of. I would sell the buildings, fire almost everyone and give the money that actually goes to running the programs to the states. They could give everyone two years salary as the leave. The revamped department could operate out of one office with a dozen people to make sure the money moved properly. This would cut the expense by 50%.

    This could be done with many departments.

    Reply
  21. I’m with you all the way on this one Roger. Let’s get rid of these departments. However, I would like to start by any department that exists in the area of fire prevention as well as the financial arena. Once that is cleared up, we move on to other departments. As I make my living as a farmer, I would want the agricultural department to be last on the list. I think I can make compelling arguments as to the value of everything the agricultural department does (not in this space of course). OKAY????

    Reply
  22. While the “me culture” has damaged public deliberation and cooperation I’m inclined to believe that Americans are still willing to sacrifice and work together more than suspected. Other issues aside though I see two, mostly perceptual, impediments to this project:

    1. An increased wariness and sense that the social contract has been violated; e.g., that elites charged with governance have failed in their charge and that the undeserving receive more than they are due. Some including myself believe it is the well connected but undeserving wealthy and their associated corporate bodies who are the primary problem while others prefer the poor, ‘welfare types,’ and/or government bodies as problems but there is that sense all the same.

    2. A significant proportion of public media, pundits, politicos, etc make their living by actively promoting that sense of grievance to keep people angry, divided and willing to donate to “their side.” Among other things this means just getting the facts straight can be a real challenge because jerking people’s chains typically involves misinforming them.

    I personally never accept news reports, commentary or “common knowledge” at face value: If it is not consequential I ignore it, if it appears consequential (or strongly appeals to my prejudice) I seek out primary data sources to confirm. The vast majority of the time the news or opinion is simply incorrect and in many cases is so distorted as to constitute a lie.

    Reply
  23. I think the starting point to reducing out of control federal spending will be to cut every discretionary program back to 2008 levels as of about 1 March when the current spending authorization expires, and I think the republican House will make a very credible move in this direction. The only exception(s) would be programs/departments that make credible cases that their increased spending is in the national interests. From 2008 levels, further cuts are probably appropriate starting with the 2012 budget that starts 1 Oct 2011.

    Reply
  24. 12:26 are you being an ass or are you just stupid?

    Reply
  25. Getting the facts more or less correct gives us a chance to deliberate as otherwise it’s just GIGO over and over again until crashing against reality forces everyone to accept the truth, possibly on a battlefield as Orwell predicted (http://tinyurl.com/28r434v), but in any case somewhere unpleasant.

    As I commented above it’s probably a good idea to ignore most news and opinion unless it appears consequential (or too agreeable) and the notion currently promoted by politicos and the punditocracy that we can cut our way to prosperity is a good candidate for skepticism: Repetition, appeals to our moral sense and/or sources we consider valid does not in and of itself create a truth.

    By way of example some may recall the day a few years ago when lots of heavy hitters including then President Bush claimed ‘entitlement trusts’ were ephemeral: the bonds were different from regular treasuries, basically “just IOU’s,” with a strongly implied Ponzi implication; nothing really was there. Now I didn’t (and don’t) need SS or Medicare myself but a lot of folks I know do so when the POTUS is echoing what appears to be common wisdom among elites it’s usually worth a little homework at primary sources (SS Trust, US Treasury, etc) to get the facts.

    This one turned out to be a whopper, false and misleading both:

    False because the bonds in the SS Trust and the Disability Trust, the Medicare Trust and all the other Government trusts are “full-faith and credit” US treasuries, all present and accounted for in each separate trust fund, so if they are “just IOU’s” then everything else denominated in US dollars no better and probably worse.

    Misleading because the bonds are indeed different from ‘regular’ Treasuries but only in a way that makes them bullet-proof. That is, these “special” trust Treasuries have all the virtues of any other Treasury but in addition they: (a) can never be redeemed for less than par no matter what their maturity or date of sale and (b) can only be contained in and bought/sold by the trust, no one else (in government or out) can legally convey them.

    A bond that can be worth more than par but never less and which the US is obligated to buy but only you can sell is about as solid as it gets, nearly the exact opposite implied by the chatter in fact.

    But allocation of that substance and its further generation remain as central question and Roger’s idea remains a worthy exploration of those questions. JMO

    Reply
  26. Very few would argue that the SS trust bonds and the other gov’t trust bonds are anything other than “full-faith and credit” US treasuries. The question is where is the US going to get the money to pay those bonds. The answer inevitably is increased borrowing (raises interest rates which indirectly raises taxes) or directly increased taxes (lower standard of living for citizens). Some may argue that increased productivity will create increased gov’t revenues that will cover the bonds when they are cashed; maybe, but most doubt this assertion (at least, certainly not completely). That’s the problem and the only solution is for the gov’t to reduce its discretionary spending, pronto.

    Reply
  27. One oversight on my part. There is a third way for the gov’t to get the money to pay the bonds which is, of course, to just print more money. This must eventually produce inflation which is an indirect tax on everyone (again, lowering standards of living).

    Reply
  28. 4:30 PM, You’d be surprised how many people believe there are “just IOU’s” in the government trusts but the notion that the bonds therein are somehow a major future debt overhang is also one of those commonplaces that turns out to not be very accurate.

    It is a fundamental accounting identity that public and private debt levels cannot be lowered simultaneously without a substitution of foreign assets in domestic portfolios. This is an inescapable relationship which, as John Hussman frequently likes to point out, means both sides of the ledger must balance; one person’s debt is always another person’s asset. In this particular case that means the bonds in the trusts were sold and somebody paid for them. If someone wishes to argue that a time will come when a seller of those bonds cannot find a buyer or some such then avoiding the mistake of citing liabilities in isolation will improve the odds that argument is taken seriously.

    The notion that the Fed prints money is another off-base idea: The Fed provides a credit facility to banks so they may make new loans including those beyond their reserves which will then in turn create money that the US Treasury must then account for; the ledger must balance. If no one wants those loans or the banks decide they need to improve their own balance sheets first then no money is created. The Fed can try to force the issue by buying assets directly (AKA quantitative easing) and providing assets to the public via expansion of its own balance sheet.

    NB: Therefore, in a liquidity trap with high unemployment, the chance of hyperinflation is low to virtually nil because no one wants to deploy cash, they just horde it. In such a scenario deflation remains more likely and, should the private sector continue to deleverage (or just not deploy their cash domestically), continued attempts to lower federal deficits by cutting are only guaranteed to lead to lower revenues and more cuts in turn in a continuing downward spiral until government shutdown.

    If that happens then everyone is going to receive a truly vivid demonstration of just how socially destructive and paralyzing a shutdown can be at the same time they receive a brutal demonstration of just how dependent upon government services and infrastructure they actually are.

    Reply
  29. Its been said that when those that have medicare cards show up at the same place as those with college scholorships we may make some progress on the issues at hand.

    Reply

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Are We A Nation Of Wusses?

Yesterday CNBC had a segment about ETFs during its show Power Lunch that started with a snippet from Jack Bogle saying “they’ve corrupted it (ETFs) into a trading business. You can trade all day long in real time, that’s the tag line Tyler (Mathisen), to which I would ask what kind of a nut would want to do that?”

Um, what kind of nut when able to choose, would prefer the more restrictive wrapper, that being traditional mutual funds? Bogle likes VTI and SPY to buy and hold forever but the assertion that ETFs are bad because they can be traded is ludicrous. As mentioned before he is really attacking human behavior not the product. A couple of years ago Dylan Ratigan was going to interview Bogle and of course this same line of thought was coming so I emailed Dylan before the interview and pointed out that this is really about human nature, by coincidence or not Ratigan asked Bogle about this on the air and Bogle sort of conceded the point.

ETFs are just a tool. I promise you that people in the past have misused every single tool in existence and will do so in the future. The rest of yesterday’s CNBC segment focused on elementary discussions about potential adverse complexities with commodity based products, funds where the components are thinly traded and so on. It became a reminder (for people somewhat familiar with ETFs) or an introductory point that you need to do homework, look under the hood and understand the dynamics relevant to the fund. So telling people they had to do work.

On a related noted my last few posts about social security have generated a lot of comments at Seeking Alpha. Some comments liked the starting point of self imposed means testing and some were critical which is all fair game but there was one line of comments that popped up in a few instances that was very disappointing and frankly very emblematic of one aspect of the problem.

I noted a couple of times that given how “broken” the US might be financially, any real solution will have to involve sacrifice on everyone’s part or if you prefer unfair treatment, punishment or any other word that has a negative connotation. I believe that I set the expectation that anything I might think of would involve everyone taking a bit of a hit somewhere in order to help the country get back on firmer ground.

Even still there were comments along the lines of “why do you want to punish me for being responsible?” Other comments that were similar seem to fail to recognize the magnitude here. The math on several fronts does not work (read Bruce Krasting for detailed content about social security) which threatens our country. Threats like this first require recognition (not quite there yet) and then require an adult response–a sort of tough get going type of thing.

Ed Rendell said we have become a “nation of wusses” because Sunday night’s game in Philadelphia got pushed back due to snow. It is possible we are becoming a nation of people who do not want to work hard enough to achieve what we want (like thinking we can get rich buying ETFs we don’t understand) and becoming a nation of people who are not willing to sacrifice for the country, in a non-life threatening way mind you, when the country needs that sacrifice.

What’s past is past. If you have $2 million saved that is great but it also means you need your social security check a whole lot less than the one of the 54% of Americans who has less than $25,000 saved. Thinking of this as unfair punishment is a bad way to look at it. If you have $2 million then chances are you are at least on firm footing and have a few choices about how your life goes. That sounds fantastic to me and I’m pretty sure the guy with $25,000 would trade places with you. Obviously no one would trade their $2 million portfolio for a $2000/month social security check.

There are of course many complexities and nuances here, I’m not a fan of bailing out reckless behavior as one example, but we all have a vested interest in seeing the country get back on relatively firm footing and should be willing to be involved on some level, especially a noninvasive, non life threatening way.

Who in your life have you respected the most? What would those people have to say about working hard and making certain sacrifices?

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