Neglected nest eggs

A recent study by the mutual fund giant Vanguard Group suggests that investors don't pay much attention to their retirement savings and often don't diversify well.

The fund firm looked at more than five million people with employer-sponsored defined-contribution plans or individual retirement accounts that it administers and found that during the first six months of 2005, only 10% of investors in the defined-contribution plans and 8% of IRA owners made any trades within the accounts.

Vanguard also found that a large percentage of IRA owners and defined contribution plan participants only invest in a single asset class or a single mutual fund.

While it's true that many investors are not well diversified, here's the important thing to note about this particular study: the sample was 5 million Vanguard clients. Vanguard, as a financial services provider, attracts clients who want to invest on the cheap. Its customers want low fees and no help. They have been convinced by the popular financial media that the most important aspect of investing is price, the cheaper the better. Service and education are lower priorities. Is it really surprising that their accounts are in such sad shape?

Rumsfeld gets it

The mainstream media are having a heyday with Rumsfeld's declaration today that the enemy in Iraq are not "insurgents". He's late to the party but he's absolutely right.

From the SF Chronicle:

More than 2 1/2 years into the Iraq war, Donald H. Rumsfeld has decided the enemy are not insurgents.

"This is a group of people who don't merit the word `insurgency,' I think," Rumsfeld said Tuesday at a Pentagon news conference. He said the thought had come to him suddenly over the Thanksgiving weekend.

They are guerrillas, they are terrorists, they are lowlife scum of the earth, they are assholes, but they are certainly not insurgents.

Webster defines insurgent as, "Rising in revolt against established authority, especially a government." These cowardly half-wits with explosives don't have the sense to understand revolt. The only thought in their heads is that killing innocent civilians somehow makes them great in the eyes of Allah. Huh?

Black Friday and Cyber Monday

I don't recall ever hearing the phrase "Black Friday" so much as I've heard it this year. It refers to the day after Thanksgiving when so many retailers finally go into the "black" for the year. And this is the first year I've heard the phrase "Cyber Monday", referring to the quantity of online shopping done on the Monday following Thanksgiving. But it's apparently significant.

The Monday after Thanksgiving, nicknamed "Cyber Monday," is the unofficial kickoff of the Internet holiday shopping period. It has become a huge online shopping day in part because after a long Thanksgiving weekend of comparing prices and exchanging gift ideas, many shoppers return to the high-speed Internet connections in their offices ready to buy electronically.

Online Christmas sales already had jumped over the four-day Thanksgiving weekend. Americans spent $305 million online Friday, up 22% from the same day a year ago, according to research firm comScore Networks. Research firm Nielsen/NetRatings said its Holiday eShopping Index, which tracks traffic to 100 Web sites, jumped 29% Friday from a year earlier.

Both traditional and electronic retailing is off to a rapid start this holiday season. Will it hold up?

We're shakin'

About ten minutes ago, the house took a pretty good jolt. From the USGS website:

Magnitude 2.4
Date-Time Monday, November 28, 2005 at 05:37:32 (UTC)
= Coordinated Universal Time
Sunday, November 27, 2005 at 9:37:32 PM
= local time at epicenter
Location 37.840°N, 122.22°W
Depth 5.6 km (3.5 miles)
Region SAN FRANCISCO BAY AREA, CALIFORNIA
Distances 2 km (1 miles) NNE (15°) from Piedmont, CA
5 km (3 miles) E (85°) from Emeryville, CA
5 km (3 miles) N (3°) from Oakland, CA
18 km (12 miles) ENE (67°) from San Francisco City Hall, CA

These coordinates put this little temblor on the Hayward fault about a mile from our house. These days we're thinking that these small releases are keeping the really big shifts from occurring. Why would anyone live in a place like this?

Ka-ching!

The American consumer continues to be the strongest leg of the U.S. economy even with the dampening effect of higher energy prices. From the WSJ:

Charge-card company Visa USA reported retail sales using its cards rose over 11% to $3.7 billion for Friday and Saturday, from the same two-day period last year. Sales of electronics, books and CDS jumped 21%, while specialty-retail and hobby sales increased 16% and discount and drug-store sales climbed 10%.

Solid retail sales through December could be just the ticket to propel the Dow above 11,500 by year-end.

Built to last

Less than a year out of college and living in my first real apartment, one of my first "major purchases" was a Weber Kettle for around 50 bucks. I was sleeping on a bed that I bought used in college for $25, I didn't own a sofa and my TV was a 12-inch black and white, but I had to have a grill.

Pictured above is yesterday's Thanksgiving turkey on the very same grill I bought in the spring of 1981. It has spent its entire lifetime outdoors, uncovered. It's been used at least weekly, rain or shine or bitterly cold. Yes, I've been known to shovel a path out to it to roast a turkey or tri-tip or just plain ol' burgers.

Yesterday Mrs. THC suggested that someday it might have to be replaced. I don't know...I think it might have another 25 years left in it.

Big Exam

The Big Exam is just ten days away. Maybe afterward blogging can return to its former regularity. In the meantime I'll be spending all of my time with books and the HP 12C.

What can Brown do for you?

I was working in our home-office this evening when I was startled by something hitting the front door--hard. I ran to the front door only to see a UPS truck driving off. It was obvious what had happened. The driver had thrown a package and hit the front door, probably without even getting out of the truck. UPS would have to hear about this. I couldn't believe it.

I called the main UPS customer service number and spoke with a nice woman who agreed that this was not how their drivers are trained. She was very apologetic and promised that I would hear from someone at our local distribution center.

Not fifteen minutes later I received a call from a local supervisor who was also very congenial and apologetic. He admitted to me that this driver had other problems and he wasn't terribly surprised by my complaint.

So I asked, "Why is this guy still on your payroll?"

I got a two-word answer, "He's union."

"What? You've got a driver pissing off customers and you can't fire him?"

"It's really hard. You have to have a lot of documentation before you can even think about going to the union to try to get rid of him."

The supervisor thanked me for taking the time to report the problem and said he'd discuss it with the general manager of the facility but I got the impression that it wouldn't go any further. Actually, I'm even a little fearful of retribution, this driver is on our street every day.

How did labor unions become so powerful that thoughtless and irresponsible employees are protected? There may have been a time in America when unions served a legitimate purpose, but aren't we beyond that now? Shouldn't a business be able to fire someone who is an embarrassment and a liability?

Go long French autos

Go long French automakers. In the eighteen days of rioting in France, more than 7,000 automobiles have been destroyed.

Since the wave of violence started, the daily damage report posted by the French police has been a car owner's nightmare: 502 burned on Friday night, 463 the previous night, 482 the night before that, and so on.

No other country in Europe immolates cars with the gusto and single-minded efficiency of France. Even during tranquil periods, an average of 80 vehicles per day are set alight somewhere in the country.

These cars will have to be replaced and, most likely, will be replaced with new Renualts, Citroens and Peugeots. Looks like a good year for French autos.

Vanguard raises minimums

Vanguard is tripling the minimum investment required to open an IRA from $1,000 to $3,000, and doubling the minimum on Education Savings Accounts, from $1,000 to $2,000.

"It's unfortunate, to say the least, that one of the best-run mutual fund companies in the country is pricing itself out of the market for middle-income investors," Barbara Roper, director of investor protection at the Consumer Federation of America, told Phillyburbs.com.

This isn't surprising. As the expenses that go along with servicing small investors increases we'll see more and larger minimums. It's a real squeeze for firms like Vanguard--they loose money on small accounts and, as investors acquire more significant investable assets, they leave to seek professional help from full service firms. It's no wonder Vanguard has started courting financial advisors at the big brokerage houses.

Load up the truck!

Two years ago Californians fired Governor Gray Davis, only nine months into his second term and hired Arnold Schwarzenegger. It was all about fixing a broken system. Voters demanded reform.

Yesterday the voters of California said, "just kidding".

Californians defeated all eight propositions at voting booths yesterday. Arnold's "top props", Propositions 74-77 would have taken steps to reform state politics and California's sad schools.

Under Prop 74, school teachers would become tenured at 5 years instead of 2. Why should they get tenure at all?

Prop 75 would have made labor unions get employees' permission before making political contributions with their union dues. Doesn't that make sense?

Prop 76 would have placed reasonable, responsible limits on state budget growth. Oh no, not responsible spending!

Prop 77, endorsed by all the major newspapers in the state, would have stopped politicians from drawing their own election districts and made redistricting the responsibility of a panel of non-partisan judges. There's no reasonable explanation that this one failed.

They all seemed pretty sensible but they all went down in flames.

We'll be loading up the truck and heading back to Kansas but first, I want to see what life in California is like under our third actor-governor, Warren Beatty.

Wine country foliage

On our last trip to Sonoma County we were accompanied by our good friends Vavoom and Mrs. Vavoom. So naturally, this weekend we thought of them often as we ate and drank our way through the Russian River Valley. This beautiful tree outside our B&B made us think of them even more as they are now residing in New England, famous for its foliage. How does this compare, Vavoom?

U.S. Housing: A soft landing?

Last week we took a look at some pretty compelling evidence that the U.S. housing market is a bubble ready to burst. There is already a great oversupply in housing, the Fed will overshoot neutral causing the yield curve to invert and high energy prices will have a profoundly negative effect on the U.S. economy. The combination of these factors will cause a "perfect storm" for the housing market.

Today, we'll examine the argument that prices will moderate but supply will not dramatically outpace demand and the market glides in for a perfect landing.

Housing
In this scenario, both demand fundamentals (household formation from immigration and population growth) and affordability (interest rates and wages) continue to prop up home prices. While the supply of new homes for sale is currently at 4 1/2 year highs, this supply level will remain manageable because long-term interest rates are still close to historical lows, the rate of new ARMs is declining and a pullback in the use of home equity loans has begun.

A Steepening Yield Curve
While the Fed has raised the discount rate 12 consecutive times, from 1% to 4%, and could continue to tighten, there is no danger that the Fed could "overshoot neutral". Even if rates rise another 50-75 basis points, that would not be restrictive for growth. There will be no yield curve inversion and we may, in fact, see inflation creep upward.

Energy Prices Moderate
While higher prices, especially for natural gas this winter, will be economically dampening, this will be temporary and manageable. We've already seen oil prices fall significantly and they will continue to moderate and stabilize below $60/barrel.

Provided that these factors hold true, a bubble-bursting dramatic decline in housing prices is not likely.

Data from the October 27, 2005 ML RIC Report

Russian River Valley

The Russian River Valley is one of the finest grape growing and wine making regions anywhere and this weekend we're taking some time to relax here.

This year, 57 wineries are participating in "A Wine and Food Affair-Tasting Along the Wine Road". It's a weekend full of food and wine--pretty tough duty, but somehow we'll get by.

Off with their thumbs...or whatever

The mayor of Las Vegas has an interesting solution for the city's graffiti problem.

Las Vegas Mayor Oscar Goodman has suggested that those who deface freeways with graffiti should have their thumbs cut off on television.

What do you suppose he would have done with rapists?

Allies and Molotov Cocktails

From the San Francisco Chronicle:

An anti-Bush demonstration in San Francisco ended with the arrest of several people, including one who was found carrying several Molotov cocktails after such a device was thrown at The San Francisco Chronicle building on Wednesday, police said.

Just a couple of points: First, how much sense does it make to protest war by throwing bombs? Secondly, lamebrain, the Chronicle is on your side.