Herman Cain is not a nitwit

Herman Cain is not a nitwit. Really.  He's not a nitwit, even though he claimed that people seeking to audit the Federal Reserve were ignorant.  Rather, Herman Cain, formerly a board member of the Federal Reserve, is thoroughly corrupt, as demonstrated by the fact that a recent partial audit of the Federal Reserve revealed $16 trillion in secret loans. Check out the following short video:

Continue ReadingHerman Cain is not a nitwit

Investing voodoo

I've followed the writings of Investment Advisor Dan Solin for several years.   After reading a half-dozen of his articles, he might start to sound like a guy who only sings one song, but it seems to be a damned good song.  Solin constantly rails at investment "experts" claim that they can actively manage your investments efficiently because they can "time the market"--they claim that they can figure out when and what to buy, such that you will make good returns on your investments. The problem, as Solin once again indicates in his latest article, is these experts who advocate active-management of funds are shams and charlatans because high-fee actively managed investment funds almost never beat low-fee passively-managed index funds.  In fact, almost all of these investment "experts" who set up think tanks, newsletters and websites end up out of business. Solin repeatedly tells us what the problem is and what to do about it: "Well-advised investors hold a globally diversified portfolio of low management fee stock and bond index funds in an asset allocation suitable for them." Repeat as necessary.  The evidence is clear that actively-managed plans consistently fail to beat the market as a whole (only 5% of actively managed funds will equal their benchmark index each year) and they cost a lot more money in management fees than index funds.  Passive funds run by Vanguard charge only .41% per year on average.  Actively managed funds typically charge 1% more than passive funds, and this difference can add up to huge numbers of dollars over the life of an investor. [caption id="attachment_19627" align="alignright" width="300" caption="Image by Vtupinamba at Dreamstime.com (with permission)"][/caption]

According to Vanguard, for the 10 years leading up to 2007, the majority of actively-managed U.S. stock funds underperformed the index they were seeking to outperform. For instance, 84% of actively-managed U.S. large blend funds underperformed their index, and 68% of actively-managed U.S. small value funds underperformed, as well. The case is even worse for actively-managed bond funds. In that case, almost 95% of actively-managed bond funds underperformed their indexes for the 10 years leading up to 2007.

Give the damning evidence Solin has offered over the years, it amazes me that so many of us are forced into 401K accounts that charge much bigger fees to hire people who claim that they can "time the market."  That might be changing.  Consider what happened to Kraft's plan administrators after they included actively managed funds in their plans:

In their lawsuit, the plaintiffs asserted the retention of two actively managed funds in the defined contribution plan violated Kraft's duty of prudence. They claimed the plan administrators in this plan should have followed the lead of the trustees in the defined benefit plan and dumped all actively managed funds.

In a stunning decision, Judge Ruben Castillo agreed to let this issue proceed to a jury trial. He held that, based on the conclusion of the Investment Committee for the defined benefit plan to drop all actively managed funds, a jury could conclude that the decision of the plan administrator and consultants to the defined contribution plan to retain two actively managed funds was a breach of fiduciary duty.

What is Smolin's advice for Plan Administrators or retirement plans?
This decision should be a wake-up call to all trustees and plan administrators of retirement plans. Either they should pay attention to the data and replace actively managed funds with index funds, or risk the possibility of being liable for the shortfall.

Continue ReadingInvesting voodoo

Black Swan moments approaching

Even since my workplace put a television screen in the lunch room, I've gotten a regular dose of the kinds of things that TV offers. I find it incredibly distressing to see that this is the sort of information America relies on. Based on my re-acquaintance with live TV, I know that next week, while the financial markets roil (or not), we will have lots of Black Swan moments by all of the financial "experts." Namely,

The Black Swan Theory or Theory of Black Swan Events is a metaphor that encapsulates the concept that The event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight. The theory was developed by Nassim Nicholas Taleb to explain:
-The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology -The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities) -The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs.
Truly, I don't know if there's any sort of "expert" that annoys me more than financial markets "experts," especially highly credentialed well-coiffed economists who "explain" things only after they already know that those things have happened. When has any such expert ever had the courage to predict a major development in the market ahead of time?  How many "experts" predicted that they market would lose 7% last week (or even predict that it woudl lose 2%?).  I suspect that I (and I'm not a financial investment expert) could make up lots of "reasons" for anything the market does, as long as you tell me what happened before I need to give my reasons.   If the market went up 1%, I'd say, "You see, the DOW is up 1% because Ben Bernancke stuttered in a press conference and China's 3rd biggest computer factory is 17 days ahead of schedule. And, oh yeah, because a butterfly flapped its wings in Dayton." I could get away with this kind of crap for many years, especially if I were a fast-talking TV "expert" whose pathetic record (i.e., whose lack of meaningful predictions) was (almost) never held up to ridicule. We should make these jokers always videotape their analyses the day prior to the market-day they are analyzing. We should make them record their analyses in that same cock-sure tone of voice they use when they "explain" what has already happened. If we did that, 99% of them would look like idiots. They can't predict short-term markets any more than a historian can predict what will be in tomorrow's newspaper. They lack the honesty to say that they don't know. Or maybe they are so arrogant and dense that Dunning-Kruger runs rampant. Let the silliness begin on Monday.

Continue ReadingBlack Swan moments approaching

Sex education in Texas

Huffpo offers some disturbing information from the Texas approach to "sex education."

Texas lawmakers cut sex ed from two six-month courses to a single unit of "abstinence only" education. But early indications showed that the program wasn't working. In fact, teens in almost all high school grades were having more sex after undergoing the abstinence only program. By 2007, Texas had the highest teen birth rate in the nation.
Texas now has the highest teen birth rate in the nation, and Rick Perry, the Governor of Texas who is leading the abstinence crusade in Texas, now wants to be President of the U.S. The Huffpo article mentions a segment of the abstinence-only training some of the young Texans are receiving in a PUBLIC school:
"Things to Look for in a Mate:" I. How they relate to God A. Is Jesus their first love? B. Trying to impress people or serve God?

Continue ReadingSex education in Texas

Free Speech Above All

Johann Hari on Religious Censorship This video is an impassioned declaration on the importance of not allowing "sensitivities" and an unwillingness to offend become a force against free speech.  It is also, underneath, an argument for rejecting the pseuodthink of irrational defenses of absurdity.

Continue ReadingFree Speech Above All