My longer form weekend materials: Pour yourself a strong cup of Joe and settle in for some fascinating reads:

• Silicon Valley’s circus of innovation (Aeon)
• Deal Me Out: Access Journalism at the New York Times’ Dealbook (The Baffler)
• How To Think (Farnam Street)
• Behavioral Economics + Machine Learning = Big Data (Robot Economics)
• The Great Divide Over Market Efficiency (Institutional Investor)
• Oops: The Texas Miracle That Isn’t (Washington Monthly)
• The Invention of the AeroPress (Priceonomics)
• What Louis Armstrong Really Thinks (New Yorker)
• How the U.S. team launched the greatest comeback in sailing history at 2013 America’s Cup (WSJ)
• The broken-down grace of Bill Murray (The Dissolve) see also In Conversation: Saturday Night Live’s Lorne Michaels (Vulture)

Whats up for the weekend?


U.S. Household Net Worth Hits Record High

Source: WSJ


Category: Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “10 Weekend Reads”

  1. stonedwino says:

    U.S Household net worth hits record high? No, not even close.

    Household net worth of the 1% hits record high! It has been documented ad nauseam that ALL of the income & net worth gains since 2009 have gone to the 1% and the 1% only.

    Off course we should leave it to the Wall Street Journal to tell us the truth…LOL

    • They are telling the truth — TOTAL household net worth hit a record high

      You are telling a related but different truth — what the distribution of that wealth is.

    • 873450 says:

      A generation of underemployed young adults either can’t afford to move out or move back to reside with their parents. Millions more households are now occupied by 3-4 working adults instead of 1-2 working adults. While individually they may all earn less, cumulatively their household income is greater.

      Two million Calif. adults living with parents

      “More than 2.3 million adult children are living with their parents in California, a 63 percent increase since the Great Recession began seven years ago and a phenomenon straining budgets and pushing some families to the brink of poverty … job losses, home foreclosures, and divorces are among the factors driving hundreds of thousands of adults to return to their childhood homes. In many cases, those homes are headed by parents who are approaching or in retirement, and are living on fixed incomes themselves. … report released by the UCLA Center for Health Policy Research … figures were generated from federal census statistics”
      Another household wealth distortion stems from bailed out speculators artificially jacking up property values in many areas by scooping up hundreds of thousands of distressed 1-family residences before the next middle class generation (if there is one) can sufficiently achieve some type of delayed independence, family formation, procreation, etc. Ironically, speculators driving up prices simultaneously inflate current household wealth (on paper anyway) and push affordability further out of reach for millions of young, educated, underemployed adults stuck living with parents.

  2. swag says:

    I just have a question for any investment/financial advisers who might read this blog:

    If you include an ETF or mutual fund (or other instrument with built-in management fees) in a client’s portfolio, do you net out from your own management fee the expense ratio of the fund or ETF?

    Example: you stick VWO in a client portfolio. VWO has an expense ratio (i.e., management fee) of 15 bps. You charge the client 70 bps for managing their portfolio. Does your client pay both fees? Should your client pay both fees for the pleasure of your “management”?

    Better yet, you stick an actively managed mutual fund with an expense ration of 160 bps in your client portfolio, and you charge the client 70 bps. Does your client pay both fees, or do you adjust your fees to account for the fund’s internal expenses (management fees or whatever you would like to call them)?

    What should an adviser do (as far as billing) when sticking already managed instruments into a client portfolio that is billed on the basis of assets under management?

    • I can tell you what we do here. Follow this, as there are lots of moving parts.

      In 2013, our fees averaged ~1.03%. Since we launched the new firm in October 2013, our new accounts are averaging considerably less (Same fee scale, more of the larger accounts).

      We run separately managed accounts in what is known as a “Core & Satellite” arrangement.

      It varies from client to client, but about 60-80% goes into the core asset allocation model. That is primarily ETFs along with a few funds (Vanguard & Doubleline). Over the years, we have driven the internal cost structure down a slow as possible. The typical internal expense ratio ranges from 10 bps on the low end to 65bps on the high end. I would have to check what it averages across the portfolio, but I would guess 25-35bps. As Fiduciaries, we have an obligation to constantly evaluate low cost alternatives to existing holdings. We always look, consider, etc. (However, it is tough to beat Vanguard). The internal expense ratios you are paying is not for financial planning or asset management, but for the creation and maintenance of the ETF.

      For the core allocation account, the internal expenses DO NOT come off the top. We get paid for designing the allocation model, managing it, rebalancing, and essentially being disciplined enough to not mess it up. We tell our clients they can do this themselves; nearly all cannot be bothered — or don’t trust themselves to be disciplined to see it through the rough patches.

      The satellite portion is a 3rd party manager that we hire to fill a slot we have no expertise in. Could be tactical or aggressive concentrated or quantitative or value-based or income focused. Whatever it is, there will be a SMA fee attached. Regardless of what the satellite holdings are, the managers fee DO come off the top of our fee. (In other words, you neve rpay higher than your 1% fee). That has always been our approach. I don’t like fund of funds (I call them “fund of fees”) and the double manager fees is excessive IMO.

      The thinking is that our job is to manage the managers, and that’s much easier than managing the assets.

      There is a lot more to this, perhaps that is worthy of a full column.

      • swag says:

        Thanks. I enjoyed your answer, as this question has been bugging me for a while.

        A full column for Advisor Perspectives might certainly be called for.

      • mitchdevan says:

        I am transitioning from being a transaction-based registered rep managing clients’ accounts on a discretionary basis to a fee based portfolio manager. I am a stock picker, specializing in depressed and undervalued small cap stocks. From a compliance standpoint if the customer portfolios I am managing all have the same objective and strategy do the portfolio holdings need to be the same across each account?

        The reason I ask is because I currently have 50 companies on my watch list that have an average daily volume of less than $600 million. I am worried I will be handcuffed if portfolio positions are required to be uniform across all client accounts. I would have to avoid very thinly traded stocks.

    • rd says:

      You can look at the various strategies for using an advisor like you would a garden:

      1. You can plan and tend your own garden (no advisor fees but you still pay operating expenses)
      2. You can have a lansdscape architect give you a garden design that you execute and tend (one-time fee)
      3. You can have somebody come by regularly and tend your garden (pay labor and maintenance fees)
      4. You can live in a condominium where somebody else looks after everything but you have no input (defined benefit pension).

      Jason Zweig has a column today covering some of the changing fee structures out there:

      and collaborated on a good column about lessons from the past 5 years:

      • swag says:

        Thanks for the thoughtful reply and the links, RD. Good food for thought.

        Just so you know: me, I invest according the age-relevant model portfolios built on index fund put forth by Burton Malkiel in some recent edition of “A Random Walk Down Wall Street”, and I rebalance annually. And occasionally, I get a wild hair and invest in some funky-assed shit (FAS) (individual stocks *gasp*, exchange-traded notes *gasp*) , but with no more FAS in my portfolio than 5% of it.

        Yeah, boring, but so far, so good.

        I could afford an RIA, and I could qualify for a lot of mins, but who needs an RIA?

        Oh, also, best financial decision I ever made: vasectomy at age 25.

  3. RW says:

    Selling to the foolish and unsane is a viable business model and the target demographic shows little sign of shrinking even if its characteristic profile(s) changes over time. Competition for market share does show signs of heating up though, diversifying too.

    I lost my dad to Fox News: How a generation was captured by thrashing hysteria

    Certainly the audience is graying to oblivion, but it’s a cold comfort to those of us who watch our parents or grandparents drown in an incessant downpour of outrage. We will only see the “End of Fox News” when my father and his contemporaries die. I do not want to watch my father and his entire generation spend their remaining years enraged at utter nonsense.

    But there is always an even deeper crazy for those seeking it and the ranks of providers grows: Witness NewsMax TV taking market share from Fox and, well, stuff like this …

    The Hipster Menace

    …the menace of hipster violence may not be the top issue. The problem appears to be hipsters being aggressively cool in front of conservatives and making them feel bad.

    With the War on Christmas now largely tapped out, we’ll probably be hearing more about this new assault along with the …’War on Ketchup’, the attack on real America’s condiment of choice by coastal Sriracha-squirting elitist and their foreign sauce.

    “Out of the crooked timber of humanity, no straight thing was ever made.” -Immanuel Kant

    • barbacoa666 says:

      “Dad” is really very similar to just about every self-labeled “conservative” in the country. You’ll hear the same irrational statements and positions out of all of them, no matter the age. My hope is that younger people can pull us away from this crazyness. But let’s not fool ourselves. The far left is just as irrational as the far right (e.g., GMO hate). My hope is that we can transition to a knowledge and data based world, free of irrational government.

      • Whammer says:

        That “far left” doesn’t have its own TV network, or its own Limbaugh, Savage, et al on the radio. I’m also not so sure the “GMO haters” are the same as the “far left”, although they overlap. Certainly the anti-vax kooks are not solely the province of the left.

      • RW says:

        Reasonable enough until the false equivalency between the far-left and far-right: It’s not just that anti-GMO screeds are qualitatively different from IslamoFascistKenyan conspiracy theories, there is quantitatively difference in so far as the “left” is small and relatively powerless while the “right” is both numerous and a powerful driver of national policy; e.g., threatening national default, forcing funding cuts to services, infrastructure and research but not defense and rejection of legislative compromise (threat of being ‘primaried’ by someone more radical), etc.

        But I do agree it is beginning to look as if increasing numbers of younger people are figuring this out.

  4. RW says:

    And while we’re on the subject of dubious sales pitches

    The Fallacy of Financial Education

    The “sham” of the financial literacy movement—the idea that all of our financial problems would be solved if Americans were better educated about money—…More than a dozen states require personal finance classes in high school, even though the evidence is that they have no impact. In short, people who consume financial education behave no differently from people who don’t.

    There is a whole hierarchy of reasons for this.

    • mathdock says:

      A big one is probably that the teachers teaching it are largely non-users of the info . You have to have a credible evangelist if you want buy-in. Not a salesman–a nuts-and-bolts person with a story to carry it.

    • rd says:

      The “How to Think” link Barry has above pretty much sums up the issues.

  5. Jane says:

    Love this site.

    I’m a long-time reader and first-time poster. I had to jump in on the Aeropress, because I had just sat down with my second perfect cup and saw the link. That little sucker is the only coffee maker anyone will ever need or want. Every cup is an intimate lovely ritual.

    Thanks for this awesome, fun and insightful blog.

  6. hue says:

    Why Bitcoin Doesn’t Want a Real Satoshi Nakamoto (Wired)

    What the hell happened to Jay McInerney? (Salon)

    Is History Repeating Itself? Jonah Peretti’s recent memo to the BuzzFeed staff (Platypus Journal) Study: Everyone knows you’re high (The Onion)

  7. Matt P. says:

    The Great Divide Over Market Efficiency is a fine article on the subject.

  8. rd says:

    “I don’t tweet for a very simple reason, which is that I drink.”

    The world would be a better place if more people followed Lorne Michaels example – although the entertainment and sports reporters would be be unhappier.

  9. b_thunder says:

    Re: Record total HH wealth

    Fact #1: Today Goldmn’s David Kostin wrote that “February was the busiest month in our buyback desk’s history.”
    Fact #2: Reuters says says “US high-grade bond market in second-biggest week ever”

    #1 and #2 together: Corporations borrow to buy back shares, resulting in all-time high EPS and share prices which increased HH wealth.

    Question #1: how long can buybacks (and other accounting permutations) continue in quantities sufficient to keep the EPS rising? What if Fed buys fewer and fewer bonds and there’s increasingly more competition for investors’ dollars from the treasuries and MBS?
    Question #2: how much of this “new wealth” is nothing but “paper wealth” and when this “virtuous circle” ends (because they always do, unless this time is different) and the tide goes out, how many will be swimming naked? Enough for a “lesser depression” or just a recession?

    P.S. My business “hero” used to be Mark Cuban, for selling for $4B, at the highest valuation ever. My new hero is Jan Koum, for selling something that hardly makes any money and something that’s even easier to copy than, for a lot more “paper wealth.” However, in order to remain my business hero for as long as Cuban had been, Koum needs to sell his FB stake before the shares tank, whenever it may be.

  10. Jojo says:

    Quick Takes | Jobs and Unemployment
    The Job Market Is Muddling Along
    By Heidi Shierholz | March 7, 2014

    The jobs report released this morning showed 175,000 jobs were added in February, bringing the average of the last twelve months to 180,000. This is slightly higher than what forecasters were expecting, but for the American workforce, this is not good news at all–at this pace, it will take more than five years to get back to pre-recession labor market conditions. (For context: To get back to pre-recession labor market conditions in three years, we would need to add 280,000 jobs per month.) Today’s report shows that the labor market is doing no more than muddling along.

    The unemployment rate ticked up to 6.7 percent in February. However, if the 5.7 million missing workers–workers who are neither employed nor actively seeking work due to weak job opportunities in the aftermath of the Great Recession–were in the labor force looking for work, the unemployment rate would be 10.0 percent instead of 6.7 percent. The share of the unemployed who have been unemployed for more than six months has been generally creeping down in the last two-and-a-half years but increased in February from 35.8 percent to 37.0 percent. This share remains far higher than the peak in any prior recession, which was 26.0 percent for one month in 1983.

  11. Jojo says:

    IBM’s Supercomputer Watson Is Now a Chef With His Own Food Truck
    March 5, 2014

    Testing the creative capabilities of computers

    First, Jeopardy! champions Ken Jennings and Ben Rutter got served by Watson, the IBM supercomputer. Now, Watson is serving up dishes from a food truck as part of a new partnership with the Institute of Culinary Education in New York, NPR reports.

    The supercomputer made its debut as a chef at a Las Vegas tech conference last week, and so far has produced gourmet, fusion fare like a Swiss-Thai asparagus quiche, an Austrian chocolate burrito, and a pork belly moussaka.