Posts filed under “UnGuru”
If you hang around these parts for any length of time, you will occasionally run across one of my jeremiads complaining about the Financial Services Industry.
I’ve been thinking about this more than usual lately. This has led to some correspondence with Helaine Olen, whose book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry is next up in my queue. (Her appearance on the TDS yesterday is here). It is similar to the deep dive my colleague Josh Brown took in Backstage Wall Street.
My criticism is somewhat different than Helaine’s (though I am sympatico with much of her view). I break down the problems as follows:
• Simplicity does not pay well: Investing should be relatively simple: Buy broad asset classes, hold them over long periods of time, rebalance periodically, get off the tracks when the locomotive is bearing down on you. The problem is its easier in theory than is reality to execute. And, it is difficult to charge excessive fees for these services.
• Confusion is not a bug, its a feature: Thus, the massive choice, the nonstop noise, confusing claims, contradictory experts all work to make this much a more complex exercise than it need be. This is by design.
• Too much money attracts the wrong kinds of people: Let’s face it, the volume of cash that passes through the Financial Services Industry is enormous. Few who enters finance does so for altruistic reasons.
There is a difference between normal greed (human nature) and outright criminality. This is why strong regulators and enforcement cops are required.
• Incentives are misaligned: As I’ve written previously, too many people lack the patience to get rich slowly. Hence, not only do the wrong people work in finance, and some of the right people exercise bad judgment.
• Too many people have a hand in your pocket: The list of people nicking you as an investor is enormous. Insiders (CEO/CFO/Boards of Directors) transfer wealth from shareholders to themselves, with the blessing of corrupted Compensation Consultants. Active mutual funds charge way too much for sub par performance. 401(k)s are disastrous. NYSE and NASDAQ Exchanges have been paid to allow a HFT tax on every other investor. FASB and Accountants have doen an awful job, allowing corporations to mislead investors with junk balance statements. The Media’s job is to sell advertising, not provide you with intelligent advice. The Regulators have been captured.
Guess what the net impact of all this is on your investments?
• The Financialized US Economy: The above list reflects nearly half a century of the financialization of the broader US economy. Instead of serving industry, finance has trumped it. This led in part directly to the financial crisis and economic collapse of 2007-09.
• Human Nature: Then there is your own behavioral issues. On top of everything else, you are governed by a brain that simply wasn’t built for this.
All of these add up to a system that is flawed, and often fails to do its job.
This sort of problem used to be cyclical — they run tot he point of excess, than a crisis causes the pendulum to swing the other way. The great tragedy of Obama/Geithner/Summers was that crisis moment to undo the damage was missed, and indeed, the concentration of power amongst the banks only made it worse.
I fear we have to wait until yet another crisis for this to be repaired . . .
My wife happened to mention hearing a financial guru on the radio a little while back. I am always interested in knowing what financial gurus are saying (and thinking maybe it was Ritholtz or Rosenberg or Levkovich or someone else I personally know). I asked her who it was.
“Dave Ramsey,” she said.
“Dave who?” was my reply.
So I asked around – colleagues, friends in the business, etc. etc. Couldn’t get a bid. I turned to The Google and in short order realized that Dave Ramsey is the male version of Suze Orman. He seems to be a self-promoter with little actual experience or knowledge of financial markets or economics. But what really struck me was the condescending, patronizing tone he directs toward his callers. This a site refers to him as a “Christian financial guru,” yet he doesn’t seem to preach in very Christ-like manner.
I could write a thesis about all that’s wrong with this ilk. But rather than take the 30,000 feet view (that’s BR’s province), let’s get granular:
Once again, investors are reacting to the uncertainty in the stock market by investing in gold. Since the third quarter of 2010, the price of gold has jumped 40%, peaking at just over $1,900 an ounce. The “experts” are touting gold as the only “safe” investment in a volatile market.
So is now the time to buy gold?
Think about it: Why would you buy something at its all-time high?
Before we move on to the idiocy of the final sentence, let’s consider another aspect of what’s going on here.
Later in that same post:
Gold Stash is a quality company that will gladly buy any of your unused gold and silver. They do business the right way, going above and beyond. Dave wouldn’t endorse them if they did any less. With Gold Stash, you can take advantage of the high gold prices in a safe and responsible way.
So, not only is Mr. Ramsey advising against gold under nearly all circumstances, he’s recommending selling it to a company he “endorses,” who coinicentally happens to be an advertiser?
Oct. 13, 2009: “He never has, and he never will [advise buying gold]. Companies like GoldStash.com offer an outlet for you to make some money on your unwanted or unneeded jewelry. Dave will only endorse companies that he trusts, and Gold Stash is reputable, honest and absolutely trustworthy.” Gold price then: About $1,050/oz.).
Who is Gold Stash? Hmm. Well, there’s a tab that allows us to see who “Dave Recommends.” There’s Gold Stash. Funny thing is that at the bottom of that drop down is a link for us to “View all Advertisers.”
Gold Stash is an advertiser of his, and Dave wholeheartedly endorses them (and only them, apparently) and, coincidentally, is always – 100 percent of the time – bearish gold. Dave is so concerned about your financial well-being that he’s going to let those suckers at Gold Stash take the hit on your soon-to-be-worthless gold. What a guy.
Paul Farrell responded to Wharton School prof Jeremy Siegel’s most recent predictions for the Dow by year-end 2013, who said: “My Dow 17,000 projection may turn out to be too timid.” He channels William Sherden, author of “The Fortune Sellers: The Big Business of Buying and Selling Predictions.” Sherden decided to test the accuracy of…Read More
Pundit tracker is an interesting new site that proclaims its mission as bringing accountability to the prediction industry.
The site notes the Media’s lack of institutional memory. This creates perverse incentives — Pundits learn that brash predictions generates news coverage. If it turns out that they are wrong, well, it hardly matters, as no one ever remembers or calls them out on it. On those occasions when the blind squirrel finds the occasional nut, they can selectively tout that correct call for self-promotional purposes. The entire cycle then repeats.
I am especially keen on these Pundit excuses:
Too early: “I was simply too early; just wait and see, that stock market crash is still coming.” (see: Broken Clock Pundits)
Black swan: “Sure, our credit rating models failed, but who could have predicted that housing prices would fall across the country at the same time?”
Close enough: “Hey, I said the stock market would go up more than 10% and it went up 8%. I was basically right.”
Self-negated: “It was our own beliefs and actions that spared the world from catastrophe.” (see When Prophecy Fails)
Hedged: “I only said that it could happen.” (See: The 40% Rule) — note: when pundits are correct, they strangely fail to mention the hedge.
Pundit tracker wants to create a permanent catalogue / track record for the punditocracy’s predictions.
It is an interesting site that has the potential to correct some abuses. It will really have an impact once the media starts to use it in questioning or even booking their guests.
More from the site after the jump…
Interesting discussion by Think Tank contributor MacroMan, who retells a story about Yale Professor Robert Shiller: We asked him once to visit us in our offices and the meeting took place the day after then Fed Chairman Alan Greenspan’s famous Irrational Exuberance speech in December 1996: “But how do we know when irrational exuberance has…Read More
This is the third or so in a continuing series of WTH/WTF posts where we look at famous wealthy folks’ investing errors, and wonder just WTF is going in their personal finances. Our goal: Learn from other people’s mistakes. Today’s WTF?! celeb is 42 year old golfer Phil Mickelson. Phil is “mad as hell about…Read More
Distinguished Lecture by Nobel Laureate Prof. Joseph E. Stiglitz
Occasion: Investiture ceremony of Prof. Joseph E. Stiglitz
Date: 04, January 2013
Venue: University of Hyderabad, India
Speaker: Prof. Joseph E. Stiglitz, Columbia University
Topic: Macro Economics in crisis: An agenda for Rejuvenating the discipline
About the speaker:
Joseph E. Stiglitz, a Nobel Laureate in Economics (2001) and University Professor at Columbia University, is one of the most eminent economists who has explored and pioneered many pivotal concepts and theories in Economics.
His Works have helped explain several critical market circumstances, globalization and economic crises in several parts of the world.
He has also authored several books in Economics. Some popular ones being, “The Price of Inequality”, “Globalization and its Discontents”.
As Ben Walsh of Reuters mentions, the Tim Geithner Legacy Project is underway. There was a large post by Neil Irwin in the Washington Post, arguing that he’ll be one of the most important Treasury secretaries in history. Joe Weisenthal argues he’s done a great job guiding us out of the recession compared to other countries. As there will be several pieces like this in the weeks ahead, I want to make some general criticisms. This will probably go across several posts.
Joe Weisthnal notes that our recovery has been better than other financial crisis recessions.
Four things about the chart. First, I’d note as a matter of the empirical research that “financial crisis” isn’t a coherent unit of measurement for these purposes. If Finland was going to have a recession three-times worse than the United States, it would also have a “financial crisis” at some point. But that doesn’t mean the recessions are identical. This idea that financial crises creates long recessions when long recessions really create financial crises is the weak part of the whole Rogoff-Reinhart argument. So I’m not sure these are equal starting points for a comparison.
Each year, David Weidner of MarketWatch puts out a list of folks in finance that you should pay no attention to.
This year’s list is out, and its a doozy:
1. Jamie Dimon
2. Sam Stovall
3. Jim Cramer
4. Bill Miller
5. Michael Grimes
6. Sheila Bair *
7. Vikram Pandit
8. Greg Smith
9. Meredith Whitney
10. Occupy Anything
11. Glenn Hubbard
12. Robert Diamond
13. Mitt Romney
* Bair was on his Do Not ignore list.
(2012′s list is after the jump.)
Who did he miss this year?
Q&A: The Price of Paying Attention (November 3rd, 2012)
13 Wall Street voices to ignore (or not) in 2013
MarketWatch, January 2 2013