October 6, 2010

Earnings-yield on S&P 500 at two decade-high

from ibtimes.com
The earnings yield (EY) on the S&P 500 index is now above 7 percent, which is typically the kind of yield an investors would get from an average junk bond.

EY amounted to 7.09 percent for the S&P 500 as of June 30, 2010 -- the highest quarter-end level in two decades.

This either means that stocks are very cheap (relative to bonds) and might make an attractive buy; or that investors have such a pessimistic view of the economy that they expect earnings growth to slow down over the next few quarters (or even years), given the grim economic backdrop.

Market Gauge - Today's values

S & P 500 Earnings Yield vs. Treasury-Bill Yield


Historically, when the ratio of the T-Bill yield divided by the S&P 500 earnings yield has risen above 1.1 it has been a noteworthy warning that the market was vulnerable to a correction. When this indicator has been below .9 the market has demonstrated a significant upward bias.
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April 4, 2010

The Upside of Irrationality

In The Upside of Irrationality article, the Investment Advisor author observes "If we rely too heavily on the expectation that people will act rationally, we can end up making mistakes when we design policies and institutions." This is a very thought-provoking article with many good observations that helped connect the psychology to financial behavior.

But is this the problem? It seems that way too many people are taking advantage of this known predictable irrationality for their own gain. Instead of eliminating the conflict of interest, there seems to be a systematic migration to allowing and even encouraging these behaviors. Not only are we moving away from identifiable cash money, everyone - government, corporations, non-profits, financial advisors, kids - is 'generously' spending other people's money (yours and mine).

Is this really the problem or is it just me?

March 23, 2010

behavioral economics

And where does paternalism end and manipulation begin? Who gets to determine what is the social good of these choices offered? Just asking... :o)

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The problem isn't the idea of universal health care - pretty much everyone agrees that it is shameful that a country that is willing to spend so much money on lavish lifestyles and military deployment beyond its own borders can still have millions of citizens without any health care at any cost. Many Americans think that systems like those in the UK and Canada may not be perfect, but everyone is reasonably well served and nobody goes without access to basic health care.

Some Americans get health care that is the best in the world, and far more health care than they actually want or need. Many people have minimal coverage in case of a catastrophic illness or injury but don't get routine checkups because the out-of-pocket for all the tests and diagnostics and preventative medications are too expensive. Still others depend on hospital emergency services as their only source of medical care.

Many Americans believe that the Obama health care reform will only make matters worse for most people. The level of government regulation, intervention and oversight are major concerns for the libertarians AND the paternalists among us.

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There is so much meddling by governments - federal, state and local, in all areas of the US economy that it is difficult to see how a genuinely free market economy would handle these social and cultural issues.

Health care is a great example. "Willingness to trust the private market" - well, no not really. Government regulation has played a large but largely un-noticed role in defining what health care and coverage is available. Only with government support could the few primary providers control most health care spending by individuals, companies and government.

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As a nutritionist who has been learning about libertarianism, the Austrian school and behavioral economics, this is a really complex problem. Do you solve the symptoms - obesity (big difficult problem) or try to get to the root causes (historic, regulatory and cultural)?

The US used to be about WIN-WIN - everyone was better off if everyone was better off. But the US sugar beet farmers were able to get legislation that kept imported sugar prices high. Then the food industry needed to find cheaper sweeteners and High Fructose Corn Syrup was invented - great for agra business and corn farmers in particular. Now lots of "empty" calories in attractive packaging with an infinite shelf-life cost next to nothing while real food (with actual nutritional value) is expensive and often not available in neighborhoods where obesity is most prevalent.

So where to start to fix this problem...

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interesting reference to Behavioral Economics as it relates to training and education ...

Behavioral Economics is about slight of hand

Behavioral Economics is actually the marriage of economics with psychology and sociology. Some programs use it to “improve the accuracy and empirical reach of economic theory“. One of the main premises of behavioral economics is that humans have bounded rationality – which means the rationality of individuals is dependent on the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions (via wikipedia). This is a field with decades of research to back it up. Maybe a bit complicated to understand and explain, but deserving of a better description than a comparison to a magic trick.

... We’re at a time when the roles that would traditionally defend us against information imposters are being eliminated by the move to digital. What if defense of truth and logic is one of our new responsibilities as elearning and social learning professionals?

http://gminks.edublogs.org/2010/03/27/lets-get-real-about-analysis-starting-with-the-last-ls2010-keynote/


reference to the link above

...Same with "behavioral economics is about slight of hand." If this were true, we'd never know how long to make left-turn lanes (or even whether to make them at all), stores would always run out of stock, and restaurants would have no reason to close between midnight and 6:00 a.m.

http://www.downes.ca/cgi-bin/page.cgi?post=52105

February 13, 2010

Growth is everything

German economic recovery falters
Germany's recovery from recession faltered in the final quarter of 2009, according to preliminary figures released on Friday.
The German economy failed to grow at all in the last three months of the year, with GDP unchanged compared with the previous quarter.
This preoccupation with growth is part of the problem. Growth at any cost is leading to many of the other social problems that we are having to address. Prompting consumption and borrowing to ensure demand for consumer goods and services is having adverse effects on families and communities. For example, cheap "convenience" food is leading to obesity, poor health and decreases in quality of life and life expectancy. Why on earth is all this energy going into creating so much stuff that is so harmful to so many? Why does everyone seem to think that this is a desirable outcome?
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January 10, 2010

better than a CD

A learning experience... I had some money to "park" that I don't plan to spend anytime soon. I wanted it to be safe and earn whatever money it could, but still be readily accessible if a need arose.

I put it into a CD in my ING account that is electronically linked to my checking account elsewhere. The rate is not wonderful, but it is FDIC insured. Yield: 1.75%

Other options with higher returns.
The difference isn't worth the 3 month interest early redemption fee. I really hope that I don't need the FDIC insurance premium.
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