Risk and return in the Gulf of Mexico
Buz Livingston, CFP
www.waltosun.com
May 15, 2010
The foreboding Gulf of Mexico oil spill could have been why the media completely missed a potentially more dangerous scenario, or they just were asleep at the wheel.
Conservative news sources complain about liberal bias, but this was bipartisan oversight. An amendment to the financial services regulation bill would have limited the ?too big to fail? escape clause that financial conglomerates now enjoy. The U.S. Senate overwhelmingly voted against the proposal. Speaking of bipartisanship, this was an epic; the Republicans voted in unison and were joined by one-third of the Democrats. It is not clear whether they sang ?Kumbaya.?
The cleanup in the Gulf of Mexico will cost American taxpayers. Sure, BP will be sued, but look at the hazardous duty/overtime pay for the Coast Guard. Likewise, we have allowed financial conglomerates to grow so large that their failure affects the economy (ala Lehman Brothers).
Again, taxpayers are stuck with the bill.
The media?s talking point is that certain banks are too big to fail, but that is misleading. A more accurate description would be financial conglomerates rather than banks. JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, Wells Fargo and Bank of America are the ?mega-banks? in question. The zombie-like Citigroup markets its wares through its Smith Barney salespeople. Even after three government/ taxpayer bailouts, Citigroup stock is over 90 percent off its highs.
Without taxpayer subsidies, their sales force would have been unemployed.
I picked up ?The Investor?s Manifesto? by Dr. William Bernstein last weekend. It had been on my reading list for a couple of months, but temptation got the best of me. My dad gave me ?The Civil War? by John Keegan, and once I started reading that I could not stop. ?The Investor?s Manifesto? was written after the 2008 market meltdown, with the foreword by former Wall Street Journal writer Jonathan Clement. Clement notes: ?Most of us are not as brave as we thought.? High returns always mean high risk in real estate or stocks. If you bailed out of the market in 2008-2009, then reassess how much risk you are comfortable bearing.
He also points out that ?our homes likely will not pay for our retirement.?
I was lucky. In the 1980s, the first piece of land I owned went down in value ... precipitously, and I was immunized from real estate fever.
Bernstein considers his latest book a ?lifeboat manual.? More important, it is easy to read since some of his friends said his first one put them to sleep. The math is separate, so you can skip over it if your eyes glaze over.
Each chapter is summarized with bullet points for those with short attention spans or Auburn degrees. ?If you learn nothing from this book, it should be that risk and return are inextricably intertwined.?
In light of current events, the downside risk of drilling in Florida waters is too great for the return.
Over the past 200 years, long-term U.S. stock investors have done pretty well. However, in the 20th century, oncebustling stock exchanges were shuttered in Russia, Egypt, Argentina and Shanghai. History shows that it is entirely possible one day that our luck will run out.
Just like our luck ran out with oil drilling in the Gulf.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@ LivingstonFinancial.net .
BUZ LIVINGSTON
Just Plain Talk
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Buz Livingston, CFP
www.waltosun.com
May 15, 2010
The foreboding Gulf of Mexico oil spill could have been why the media completely missed a potentially more dangerous scenario, or they just were asleep at the wheel.
Conservative news sources complain about liberal bias, but this was bipartisan oversight. An amendment to the financial services regulation bill would have limited the ?too big to fail? escape clause that financial conglomerates now enjoy. The U.S. Senate overwhelmingly voted against the proposal. Speaking of bipartisanship, this was an epic; the Republicans voted in unison and were joined by one-third of the Democrats. It is not clear whether they sang ?Kumbaya.?
The cleanup in the Gulf of Mexico will cost American taxpayers. Sure, BP will be sued, but look at the hazardous duty/overtime pay for the Coast Guard. Likewise, we have allowed financial conglomerates to grow so large that their failure affects the economy (ala Lehman Brothers).
Again, taxpayers are stuck with the bill.
The media?s talking point is that certain banks are too big to fail, but that is misleading. A more accurate description would be financial conglomerates rather than banks. JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, Wells Fargo and Bank of America are the ?mega-banks? in question. The zombie-like Citigroup markets its wares through its Smith Barney salespeople. Even after three government/ taxpayer bailouts, Citigroup stock is over 90 percent off its highs.
Without taxpayer subsidies, their sales force would have been unemployed.
I picked up ?The Investor?s Manifesto? by Dr. William Bernstein last weekend. It had been on my reading list for a couple of months, but temptation got the best of me. My dad gave me ?The Civil War? by John Keegan, and once I started reading that I could not stop. ?The Investor?s Manifesto? was written after the 2008 market meltdown, with the foreword by former Wall Street Journal writer Jonathan Clement. Clement notes: ?Most of us are not as brave as we thought.? High returns always mean high risk in real estate or stocks. If you bailed out of the market in 2008-2009, then reassess how much risk you are comfortable bearing.
He also points out that ?our homes likely will not pay for our retirement.?
I was lucky. In the 1980s, the first piece of land I owned went down in value ... precipitously, and I was immunized from real estate fever.
Bernstein considers his latest book a ?lifeboat manual.? More important, it is easy to read since some of his friends said his first one put them to sleep. The math is separate, so you can skip over it if your eyes glaze over.
Each chapter is summarized with bullet points for those with short attention spans or Auburn degrees. ?If you learn nothing from this book, it should be that risk and return are inextricably intertwined.?
In light of current events, the downside risk of drilling in Florida waters is too great for the return.
Over the past 200 years, long-term U.S. stock investors have done pretty well. However, in the 20th century, oncebustling stock exchanges were shuttered in Russia, Egypt, Argentina and Shanghai. History shows that it is entirely possible one day that our luck will run out.
Just like our luck ran out with oil drilling in the Gulf.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@ LivingstonFinancial.net .
BUZ LIVINGSTON
Just Plain Talk
Back
