Stress Tests

Ever since Geithner announced they would be conducting "stress tests" on the banks a few months ago, people have been speculating on the outcome and what it will mean for the markets. Some argue that the government won't publish negative results because that would spook the markets. Others hypothesize that good results will be viewed skeptically by the markets, owing to the fact we all "know" the banks are in bad shape.

Tax-and-Spend Democrats, Small Government Republicans and other Myths

A few years ago, I attended an industry meeting at which TJ Rogers, CEO of Cypress, gave the keynote speech. Shortly after dessert was served, a color guard complete with blaring bagpipes followed a kilted TJ Rogers up to the podium. That night, TJ turned my beliefs about the fiscal policies of Democrats and Republicans upside down. I dedicate this posting not to TJ though, but to his former corporate controller, who claims he did the work.

Here are a few facts for your amazement and amusement.

"Be Your Own Banker"

Coincidentally, we received several emails asking about a concept called "be your own banker". This has been around for decades, but apparently is now being remarketed as "Infinite Banking", "Bottomless Banking" among other catchy names. Why pay interest to a bank when you can enjoy the "extraordinary benefits of creating your own banking system"? One site claims the method will "make you rich". Does it sound too good to be true? Sound like a scam? Read on.

The Chinese aren't manipulators after all

Or so says Geithner today. The Treasury released its International Economic And Exchange Rate Policies report to Congress today. Very exciting reading, I know. Interestingly, in the very first paragraph of the report, the Treasury says:

Between 1988 and 1994, Treasury cited three economies (China, Korea, and Taiwan) several times each for manipulating their exchange rates...Since July 1994, no economy has been found to have met the standards identified in Section 3004 of the Act.

How to fix the economy

Snopes had a recent expose of this hair brained idea:

For a total cost of 40 Billion you could solve our financial problems. There's about 40 million people over 50 in the work force. Pay them $1 million apiece severance with the following stipulations.

1) They leave their jobs. Forty million job openings
- Unemployment fixed.

2) They buy NEW American cars. Forty million cars ordered
- Auto Industry fixed.

3) They either buy a house or pay off their mortgage
- Housing Crisis fixed.

A Buffett Contest

No, not a buffet eating contest. As many of you may recall, we here are big fans of Warren Buffett. Well, I'm a big fan of Buffett, I can't speak for Karl or Julio. Anyway, each year Buffett holds Berkshire's annual meeting on the first Saturday in May (May 2 this year) in Omaha. The gathering is sometimes called "Woodstock for Capitalists" on account of it being a gathering of some 30,000 [mostly] wealthy Berkshire shareholders who gather to hear the Oracle of Omaha opine on a rich variety of subjects for nearly the whole day.

A Step In The Right Direction Against Counter Party Risk

Bloomberg is reporting this morning that some 2,054 entities have signed up to participate in a group which will oversee the credit default swap (CDS) market. CDS are the instruments (amongst others) that got AIG in trouble. Some of the big criticisms of such derivatives is the lack of standardization, oversight and clearing. CDS are not regulated products like stocks, bonds or options, but are are private contracts instead. There can even be disagreement between parties on whether or not a default of the underlying company really occurred.

What is 'Financial Planning'?

One of our original goals for The Long Run Blog was to explain or examine general misconceptions about money. In my introductory post, I wrote

"financial decisions are becoming more complicated and more important to one's well-being at the same time. Traditional pensions are disappearing while self-directed 401Ks are on the rise. Businesses, salespeople and politicians twist, bend and contort economic statistics to sell you products or ideas. How can we tell fact from fiction?"

AIG Casino and Financial Services Company

My wife and I often argue about whether investing in equities is the same as going to a casino and pumping dimes into a slot machine. Now when it comes to slot machines and dimes, my wife has first hand experience. On our first trip to Las Vegas together we stopped at the first casino we came to, she put a dime into a slot machine and on the first pull collected $100. “That’s a better return than on any equity investment we’ve made,” she’ll point out thirty years later. I’ve given her the business school pitch on markets countless times and have explained that we’re value investors and occasional traders, but that we’re not gambling with our retirement.