George Morgan's Blog, page 20

Summers School

Yesterday, after a month-long rash of Congressional criticism, Larry Summers informed President Obama that he was no longer a candidate for the post of Chairman of the Federal Reserve. The response of Wall Street was a 150 gain in the Dow. The lesson here is that while the Fed may not have absolute powers over the economy, the perception of investors is that the Fed can move the stock market. Those who oppose the nomination of Mr. Summers are critical of his role as economic adviser in the Wh...

Which Index Is King???

This week’s edition of the Intelligent Investor addresses upcoming changes in the Dow Jones Industrial Averaged and its performance record vs. the S&P 500. The Dow is set to swap the current components Alcoa, Hewlett-Packard and Bank of America for Nike, Visa and Goldman Sachs Group. These changes were prompted by low prices of the components being replaced and a desire to diversify the index. Critics of the Dow point out that it is a price weighted index and the S&P 500 is a value we...

Bernanke Is Not Superman

If you listen to the financial media, you might get the impression that the Fed has complete control over the general level of interest rates. If Bernanke wants the rates to go up they will go up and they will go up by the amount he dictates. If he does not want them to go up, they will remain unchanged. While it is true that the Federal Reserve does have significance influence over the general level of interest rates, their power is not absolute. The bond market is a $35 trillion giant and t...

The End Is Near. Where Will You Be?

Interest rates peaked in 1985 when 30 year treasuries paid 20 percent. From there, the interest rates gradually trickled down until several years ago when they came close to zero. I know you’ve been hearing this for several years, but, the end really is near and interest rates are about to start climb again. When they do, all the pundits –read Jim Cramer- will wring their hands and shout about all of the nasty things that can happen. They will tell you that higher rates will mean companies ha...

Great 401(k)s Make Great Companies

Hundreds of books have been written about the factors that separate mediocre companies from great companies. In some cases, great companies started a new market or were just in the right place at the right time. One element common to all highly successful companies, regardless of size, is an engaged workforce. The textbook definition of an engaged employee is one who has a positive emotional attachment to their job, colleagues and organization that profoundly influences their willingness to l...

How The Mighty Have Fallen

Hedge funds and hedge fund managers are considered to be the elite of the investment world and as a result of their exalted status they are able to charge fees that many consider to be over the top. The average hedge fund charges 2% of the assets and 20% of the investment profits.  Currently, there is $2.5 trillion invested in hedge funds which means that in 2012 the hedge fund industry received $50 billion in management and performance fees. However, the financial environment following...

Not Designed To Do That

Investors who succumb to the charms of the online services who claimed they can dramatically increase investment returns by frequently trading in their 401(k) need to recognize that their
accounts are not designed to operate this way. For example last July, mutual fund company T.
Rowe Price banned a group of 1,300 American Airlines employees from using T. Rowe Price
funds in their 401(k) plan due to excessive activity. These employees subscribed to a monthly
newsletter called EZTracker wh...

You Gatta Be Kidding Me?

In his column this week, Jason Zweig reports on the growing number of the advisory services designed to help 401(k) investors manage their accounts from a short term – read market timing –perspective. The article begins by pointing out that 401(k) accounts are the ultimate long-term holding and that many investors have time horizons of multiple decades. Most of these services are on line and run by individuals who are not regulated by any of the security agencies. One of these services is cal...

I Told You So!

Over the past three years, I have devoted to a great deal of time and effort educating 401(k) owners - mainly through their employers - that with a small amount of effort they could significantly improve the investment performance of their retirement funds. I now have company in this effort because big advice providers, such as Morningstar and Vanguard Group, are developing programs to provide advice for people with 401(k)’s and self-directed IRA’s.  A recent survey by Charles Schwab fou...

Mid Term Grade For GDP

According to the Federal Reserve’s periodic survey of regional economic conditions released Wednesday, the U.S. economy expanded at a moderate pace in July and August. The central bank’s report is a summary of the economic conditions in each of its 12 districts. Eight districts reported moderate growth while four reported a modest increase. Back to school shopping helped boost consumer spending, particularly in the metropolitan areas. Activity in the residential real estate market was another...