From MarketWatch.com:
Fidelity Investments proved that an 800-pound gorilla gets to sit “anywhere it wants” Thursday when the company announced a new suite of sector-oriented exchange-traded funds — squatting squarely in the territory of low costs, essentially ensuring that investors will benefit from a cost-cutting war as the industry’s big apes slug it out.
Fidelity launched 10 new passive sector exchange-traded funds — they started trading at 9:30 a.m. — each with a total expense ratio of 0.12% and available commission-free through the company’s brokerage platforms. The expense level represents roughly an 80% discount off the average ETF in the space, and the costs are 0.02 points below Vanguard’s offerings tracking essentially the same indexes.
“These companies are embarking on a pretty ugly price war,” said industry consultant Geoff Bobroff of East Greenwich, R.I. “For investors, this has the potential to be a pretty glorious time, because once prices have dropped, there’s really no way for the companies to bring them back.”
While Fidelity has been slow to enter the ETF space, Thursday’s announcement changed all that.
“Fidelity is not just seeking entry into the ETF business, but is clearly seeking market share from the get-go in the sector ETF sleeve” of the business, says Jim Lowell, editor of the Fidelity Investor newsletter.
Industry watchers note that Fidelity has played this game before, and with great success. Years ago, Fidelity engaged in a price war with Dreyfus in the money-market fund space, each waiving fees to create the highest yield possible, hoping to capture market share even if the business model was showing minimal if any profits as a result.
Fidelity could engage in that kind of war because its core revenues were not particularly tied to the money-market business....
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Link: http://www.marketwatch.com/story/a-price-war-to-benefit-etf-investors-2013-10-25
Sunday, October 27, 2013
Sunday, October 20, 2013
How Obama and entitlements are helping the Baby Boomers rip off future generations
From the Wall Street Journal weekend interview:
(An interview with retired hedge fund manager Stanley Druckenmiller)
...lately [Druckenmiller] has been touring college campuses promoting a message of income redistribution you don't hear out of Washington.
It's how federal entitlements like Medicare and Social Security are letting Mr. Druckenmiller's generation rip off all those doting Barack Obama voters in Generation X, Y and Z.
...And this president, despite what he says, has shown time and time again that he needs a gun at his head to negotiate in good faith. All this talk about, 'I won't negotiate with a gun at my head.' OK, you've been president for five years."
His voice rising now, Mr. Druckenmiller pounds his fist on the conference table. "Show me, President Obama, when the period was when you initiated budget discussions without a gun at your head."
Which brings him back to his thieving generation. For three decades until 2010, Mr. Druckenmiller ran the hedge fund he founded, Duquesne Capital. Now retired from managing other people's money, he looks after his own assets, which Forbes magazine recently estimated at $2.9 billion. And he wonders why in five years the massively indebted U.S. government will begin sending him a Social Security check for $3,500 each month. Because he earned it?
"I didn't earn it," he responds, while pointing to a bar chart that is part of his college presentation. Drawing on research by Boston University economist Laurence Kotlikoff, it shows the generational wealth transfer that benefits oldsters at the expense of the young.
While many seniors believe they are simply drawing out the "savings" they were forced to deposit into Social Security and Medicare, they are actually drawing out much more, especially relative to later generations.
That's because politicians have voted to award the seniors ever more generous benefits. As a result, while today's 65-year-olds will receive on average net lifetime benefits of $327,400, children born now will suffer net lifetime losses of $420,600 as they struggle to pay the bills of aging Americans...
Are the kids finally figuring out that the Obama economy is a lousy deal for them?
"No, I don't sense that," says Mr. Druckenmiller, who is a registered independent. "But one of my points is neither party should own your vote. And once they know they own your vote, you're not going to get any action on this particular issue."
When the former money manager visited Stanford University, the audience included older folks as well as students. Some of the oldsters questioned why many of his dire forecasts assume that federal tax collections will stay at their traditional 18.5% of GDP. They asked why taxes should not rise to fulfill the promises already made.
Mr. Druckenmiller's response: "Oh, so you've paid 18.5% for your 40 years and now you want the next generation of workers to pay 30% to finance your largess?" He added that if 18.5% was "so immoral, why don't you give back some of your ill-gotten gains of the last 40 years?"
He has a similar argument for those on the left who say entitlements can be fixed with an eventual increase in payroll taxes. "Oh, I see," he says. "So I get to pay a 12% payroll tax now until I'm 65 and then I don't pay. But the next generation—instead of me paying 15% or having my benefits slightly reduced—they're going to pay 17% in 2033. That's why we're waiting—so we can shift even more to the future than to now?"
He also rejects the "rat through the python theory," which holds that the fiscal disaster will only be temporary while the baby-boom generation moves through the benefit pipeline and then entitlement costs will become bearable. By then, he says, "you have so much debt on the books that it's too late."
Unfortunately for taxpayers, "the debt accumulates while the rat's going through the python," so by the 2040s the debt itself and its gargantuan interest payments become bigger problems than entitlements....
----
Link: http://online.wsj.com/news/articles/SB10001424052702303680404579141790296396688
(An interview with retired hedge fund manager Stanley Druckenmiller)
...lately [Druckenmiller] has been touring college campuses promoting a message of income redistribution you don't hear out of Washington.
It's how federal entitlements like Medicare and Social Security are letting Mr. Druckenmiller's generation rip off all those doting Barack Obama voters in Generation X, Y and Z.
...And this president, despite what he says, has shown time and time again that he needs a gun at his head to negotiate in good faith. All this talk about, 'I won't negotiate with a gun at my head.' OK, you've been president for five years."
His voice rising now, Mr. Druckenmiller pounds his fist on the conference table. "Show me, President Obama, when the period was when you initiated budget discussions without a gun at your head."
Which brings him back to his thieving generation. For three decades until 2010, Mr. Druckenmiller ran the hedge fund he founded, Duquesne Capital. Now retired from managing other people's money, he looks after his own assets, which Forbes magazine recently estimated at $2.9 billion. And he wonders why in five years the massively indebted U.S. government will begin sending him a Social Security check for $3,500 each month. Because he earned it?
"I didn't earn it," he responds, while pointing to a bar chart that is part of his college presentation. Drawing on research by Boston University economist Laurence Kotlikoff, it shows the generational wealth transfer that benefits oldsters at the expense of the young.
While many seniors believe they are simply drawing out the "savings" they were forced to deposit into Social Security and Medicare, they are actually drawing out much more, especially relative to later generations.
That's because politicians have voted to award the seniors ever more generous benefits. As a result, while today's 65-year-olds will receive on average net lifetime benefits of $327,400, children born now will suffer net lifetime losses of $420,600 as they struggle to pay the bills of aging Americans...
Are the kids finally figuring out that the Obama economy is a lousy deal for them?
"No, I don't sense that," says Mr. Druckenmiller, who is a registered independent. "But one of my points is neither party should own your vote. And once they know they own your vote, you're not going to get any action on this particular issue."
When the former money manager visited Stanford University, the audience included older folks as well as students. Some of the oldsters questioned why many of his dire forecasts assume that federal tax collections will stay at their traditional 18.5% of GDP. They asked why taxes should not rise to fulfill the promises already made.
Mr. Druckenmiller's response: "Oh, so you've paid 18.5% for your 40 years and now you want the next generation of workers to pay 30% to finance your largess?" He added that if 18.5% was "so immoral, why don't you give back some of your ill-gotten gains of the last 40 years?"
He has a similar argument for those on the left who say entitlements can be fixed with an eventual increase in payroll taxes. "Oh, I see," he says. "So I get to pay a 12% payroll tax now until I'm 65 and then I don't pay. But the next generation—instead of me paying 15% or having my benefits slightly reduced—they're going to pay 17% in 2033. That's why we're waiting—so we can shift even more to the future than to now?"
He also rejects the "rat through the python theory," which holds that the fiscal disaster will only be temporary while the baby-boom generation moves through the benefit pipeline and then entitlement costs will become bearable. By then, he says, "you have so much debt on the books that it's too late."
Unfortunately for taxpayers, "the debt accumulates while the rat's going through the python," so by the 2040s the debt itself and its gargantuan interest payments become bigger problems than entitlements....
----
Link: http://online.wsj.com/news/articles/SB10001424052702303680404579141790296396688
Friday, October 11, 2013
For sale by owner: Homeowners ditching brokers
From CNN Money:
Bolstered by the housing recovery, a growing number of homeowners are going it alone when selling their homes hoping to save thousands of dollars in commissions.
The hot housing market in Cambridge, Mass., gave Jon LaRosa the confidence to sell his condo on his own. So in late May, the 34-year-old freelance IT worker listed it for $429,000 on ForSaleByOwner.com and scheduled an open house for the weekend.
"I figured that even if I sold it for $5,000 less... I was still making out well," he said. In the next week or so, more than 100 people came to see the place. LaRosa received 7 offers and sold for $450,000, closing the deal by mid-July...
Sellers say they also go it alone because they want more control of the deal. Tara and Brent Anderson didn't want to rush the sale of their three-bedroom Dallas home, which they listed for $500,000.
"Real estate agents are willing to take a lower price to make a quick sale, but that would cost me a lot of money," said Tara.
A study by Stanford University economists Douglas Bernheim and Jonathan Meer supports the Andersons' concern. They found that homes on campus using real estate brokers sold for 5.9% to 7.7% less than homes sold without brokers. The National Association of Realtors, however, maintains that homes sold using agents usually fetch much higher prices....
----
Link: http://money.cnn.com/2013/10/11/real_estate/for-sale-by-owner/
Bolstered by the housing recovery, a growing number of homeowners are going it alone when selling their homes hoping to save thousands of dollars in commissions.
The hot housing market in Cambridge, Mass., gave Jon LaRosa the confidence to sell his condo on his own. So in late May, the 34-year-old freelance IT worker listed it for $429,000 on ForSaleByOwner.com and scheduled an open house for the weekend.
"I figured that even if I sold it for $5,000 less... I was still making out well," he said. In the next week or so, more than 100 people came to see the place. LaRosa received 7 offers and sold for $450,000, closing the deal by mid-July...
Sellers say they also go it alone because they want more control of the deal. Tara and Brent Anderson didn't want to rush the sale of their three-bedroom Dallas home, which they listed for $500,000.
"Real estate agents are willing to take a lower price to make a quick sale, but that would cost me a lot of money," said Tara.
A study by Stanford University economists Douglas Bernheim and Jonathan Meer supports the Andersons' concern. They found that homes on campus using real estate brokers sold for 5.9% to 7.7% less than homes sold without brokers. The National Association of Realtors, however, maintains that homes sold using agents usually fetch much higher prices....
----
Link: http://money.cnn.com/2013/10/11/real_estate/for-sale-by-owner/
Monday, October 7, 2013
WSJ: Workers Stay Put, Curbing Jobs Engine
From the Wall Street Journal online:
Gridlock in Washington delayed last week's jobs report. But blame gridlock of a different kind for holding back the job market itself....
Even when the numbers are released, however, there is a strong argument that they aren't the most important gauge of the health of the labor market, at least right now. That's because the headline figure measures net growth—all the new jobs that were created in a month minus all the ones that were destroyed....
But focusing on net growth masks what's going on beneath the surface—or rather, what isn't going on. Workers aren't quitting their jobs to pursue better opportunities. Companies aren't filling positions when they do open up.
Economists refer to job turnover that doesn't change the overall number of employees at a company as "churn." In normal times, churn dwarfs job creation and destruction, as millions of workers resign or are fired and are replaced. By a wide array of measures, however, rates of churn remain far below normal...
Churn doesn't get as much attention as new-job creation, but to people looking for work, it's just as important. The unemployed don't care whether the jobs they're applying for are new positions or were vacated by other workers. In fact, they may have a better chance at landing pre-existing jobs: Economic research suggests companies tend to be pickier when filling new positions, which tend to be more discretionary. When fewer people quit their jobs, there are fewer opportunities for the unemployed to come in behind them.
"Nobody's leaving for a better job," said Jason Faberman, an economist at the Federal Reserve Bank of Chicago. "These guys aren't moving on to better jobs, which means their positions aren't opening up for the unemployed."
...Nor is it just the unemployed who suffer from reduced turnover. Changing jobs is one of the most important sources of wage growth, particularly for younger workers. With unemployment for those under age 25 still elevated at 15.6%, many of those lucky enough to have jobs are playing it safe by staying put—and as a result may put themselves at a permanent earnings disadvantage.
"If you miss that window when you're young, that could have really long-term consequences," said Toshihiko Mukoyama, a University of Virginia economist. "They cannot go up the job ladder."
That kind of ladder-climbing doesn't just matter to individual workers. Churn acts like a kind of grease in the economy's gears, helping workers move to jobs that are a better fit for their skills and helping to shift workers away from poor-performing companies and toward better ones. Recessions slow that process, making the economy as a whole less productive.
"People are getting stuck" at less productive companies, said Lisa Kahn, a Yale University economist. "That very likely has consequences even after the recovery."
----
Link: http://online.wsj.com/article/SB10001424052702303492504579113703779249002.html
Gridlock in Washington delayed last week's jobs report. But blame gridlock of a different kind for holding back the job market itself....
Even when the numbers are released, however, there is a strong argument that they aren't the most important gauge of the health of the labor market, at least right now. That's because the headline figure measures net growth—all the new jobs that were created in a month minus all the ones that were destroyed....
But focusing on net growth masks what's going on beneath the surface—or rather, what isn't going on. Workers aren't quitting their jobs to pursue better opportunities. Companies aren't filling positions when they do open up.
Economists refer to job turnover that doesn't change the overall number of employees at a company as "churn." In normal times, churn dwarfs job creation and destruction, as millions of workers resign or are fired and are replaced. By a wide array of measures, however, rates of churn remain far below normal...
Churn doesn't get as much attention as new-job creation, but to people looking for work, it's just as important. The unemployed don't care whether the jobs they're applying for are new positions or were vacated by other workers. In fact, they may have a better chance at landing pre-existing jobs: Economic research suggests companies tend to be pickier when filling new positions, which tend to be more discretionary. When fewer people quit their jobs, there are fewer opportunities for the unemployed to come in behind them.
"Nobody's leaving for a better job," said Jason Faberman, an economist at the Federal Reserve Bank of Chicago. "These guys aren't moving on to better jobs, which means their positions aren't opening up for the unemployed."
...Nor is it just the unemployed who suffer from reduced turnover. Changing jobs is one of the most important sources of wage growth, particularly for younger workers. With unemployment for those under age 25 still elevated at 15.6%, many of those lucky enough to have jobs are playing it safe by staying put—and as a result may put themselves at a permanent earnings disadvantage.
"If you miss that window when you're young, that could have really long-term consequences," said Toshihiko Mukoyama, a University of Virginia economist. "They cannot go up the job ladder."
That kind of ladder-climbing doesn't just matter to individual workers. Churn acts like a kind of grease in the economy's gears, helping workers move to jobs that are a better fit for their skills and helping to shift workers away from poor-performing companies and toward better ones. Recessions slow that process, making the economy as a whole less productive.
"People are getting stuck" at less productive companies, said Lisa Kahn, a Yale University economist. "That very likely has consequences even after the recovery."
----
Link: http://online.wsj.com/article/SB10001424052702303492504579113703779249002.html
Sunday, October 6, 2013
Even people who should know, don't know
From the NYTimes.com:
Financial Literacy, Beyond the Classroom
Even if we grade on a very generous curve, many Americans flunk when it comes to financial literacy. Consider this three-item quiz:
• Suppose you had $100 in a savings account and the interest rate was 2 percent a year. After five years, how much do you think you would have if you left the money to grow? More than $102, exactly $102 or less than $102?
• Imagine that the interest rate on your savings account was 1 percent a year and that inflation was 2 percent. After one year, would you be able to buy more than, the same as or less than you could today with the money?
• Do you think this statement is true or false: “Buying a single company stock usually provides a safer return than a stock mutual fund”?
Anyone with even a basic understanding of compound interest, inflation and diversification should know that the answers to these questions are “more than,” “less than” and “false.”
Yet in a survey of Americans over age 50 conducted by the economists Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania, only a third could answer all three questions correctly...
(Writer Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.)
----
Link: http://www.nytimes.com/2013/10/06/business/financial-literacy-beyond-the-classroom.html?
Financial Literacy, Beyond the Classroom
Even if we grade on a very generous curve, many Americans flunk when it comes to financial literacy. Consider this three-item quiz:
• Suppose you had $100 in a savings account and the interest rate was 2 percent a year. After five years, how much do you think you would have if you left the money to grow? More than $102, exactly $102 or less than $102?
• Imagine that the interest rate on your savings account was 1 percent a year and that inflation was 2 percent. After one year, would you be able to buy more than, the same as or less than you could today with the money?
• Do you think this statement is true or false: “Buying a single company stock usually provides a safer return than a stock mutual fund”?
Anyone with even a basic understanding of compound interest, inflation and diversification should know that the answers to these questions are “more than,” “less than” and “false.”
Yet in a survey of Americans over age 50 conducted by the economists Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania, only a third could answer all three questions correctly...
(Writer Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.)
----
Link: http://www.nytimes.com/2013/10/06/business/financial-literacy-beyond-the-classroom.html?
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