Bob Carlson

March 30, 2011

Hiding the Inflation

Filed under: Economy — Bob @ 8:31 am

Readers have been asking since last summer why the Federal Reserve and many prominent economists say there isn’t any inflation. They see higher prices when they go to purchase things, and they wonder why it doesn’t show up so much in the data. One reason, which you’re probably aware of, is retailers charge the same price while reducing either the quantity or quality of what you buy. The New York Times looked at the changes at grocery stores in some detail.

Most companies reduce products quietly, hoping consumers are not reading labels too closely.

But the downsizing keeps occurring. A can of Chicken of the Sea albacore tuna is now packed at 5 ounces, instead of the 6-ounce version still on some shelves, and in some cases, the 5-ounce can costs more than the larger one. Bags of Doritos, Tostitos and Fritos now hold 20 percent fewer chips than in 2009, though a spokesman said those extra chips were just a “limited time” offer.

Trying to keep customers from feeling cheated, some companies are introducing new containers that, they say, have terrific advantages — and just happen to contain less product.

March 29, 2011

Broken Hearts Really Hurt

Filed under: Health — Bob @ 5:26 pm

This post isn’t about your finances, but it’s interesting. Scientists believe that rejection and similar losses actually trigger physical pain, and even the memory of past experiences still trigger reactions similar to physical pain.

The research builds on a 2010 study published in the journal Psychological Science that showed people who took the painkiller acetaminophen, sold by Johnson & Johnson as Tylenol, felt less rejected when excluded from a ball-passing game. While rejection and physical pain aren’t identical, they are more similar than anyone had realized, said Edward Smith, a psychology professor at Columbia University in New York and an author of today’s study.

“There may be something special about rejection,” Smith said in a telephone interview. “No other negative emotion, not anger and not fear, elicits reactions in the pain matrix of the brain.”

This could be related to a phenomenon in finance. Studies show that investors feel the pain of a loss to a greater extent than they enjoy gains. Retired investors feel losses even more than other investors. Perhaps losses also trigger a reaction similar to physical pain.

Deciding Where to Retire

Filed under: Housing,Real Estate,Retirement - General — Bob @ 4:18 pm

A number of web sites and publications seek publicity by publishing lists of “Best Places to Retire” and similar topics. I’ve always advised using these lists simply as starting points or sources of ideas. You shouldn’t choose a place because it topped someone’s list. The lists are created by first deciding on the criteria to use and how to rank them. The ranking system usually is very unscientific, though a few try to make the lists appear scientific by giving numerical scores to their subjective view. Here’s a compilation of the latest lists. The article makes the same point I’ve long made: Your priorities aren’t likely to be those of the people making the list. Of the people I’ve talked to over the years, the top criteria often is where the grandchildren will be. Some people want to be near them, while others don’t mind being far enough away that visits are limited to a few a year.

Bright Spots in Real Estate

Filed under: Asset Allocation,Economy,Financial crisis,Housing — Bob @ 3:08 pm

The latest housing data from Case-Shiller weren’t very good. I think we have to declare a double dip in the national housing market. It shouldn’t be as bad as the first drop. But there are too many homes on the market or due to come on the market, more homeowners moving into default as the employment situation remains weak, and not enough buyers. It’s still fairly difficult to get a mortgage.

The good news is in some pockets of the country. Naples, Fla., for example is experiencing a modest rebound in its housing market, even at the higher-priced homes.

While much of Florida’s real estate market remains depressed by foreclosures, buyers seeking a second home in the state’s affluent vacation enclaves are “finally getting off the fence,” Karen Van Arsdale, an agent at Premier Sotheby’s International Realty in Naples, said in a telephone interview.

Sales in the Naples area last year rose 10 percent, the first annual increase in at least five years, while the median price for homes listed at $300,000 or more gained 4 percent to $544,000, according to data compiled by the Naples Area Board of Realtors. About half of the properties in the market are second homes, and discounts from 2006 peak prices average about 25 percent, said Brenda Fioretti, president of the group.

Another positive sign is the creation of “vulture funds” to buy homes. They pay cash for homes, most of which are in foreclosure.

As lenders tighten mortgage standards and consumers stay on the sidelines amid a five-year slide in home prices, all-cash purchases are surging. The deals are done mostly by investors who can get properties for less than buyers needing loans, fix them up and resell or rent them.

“If there weren’t vultures out there, you’d have a city of dead carcasses,” Robert Theocles, an independent consultant for Fort Lauderdale, Florida-based Delavaco, said in a telephone interview. “It’s like the circle of life.”

Peaking at Financial History

Filed under: Economy — Bob @ 1:58 pm

I like history. One aspect of the investing I like is studying market history and trends, and bringing them up to date. The Federal Reserve of St. Louis makes that easier with a little-known and underappreciated section of its web site. FRASER, the Federal Reserve Archival System for Economic Research, has collected various data and publications. You can find publications and statistical releases that were common before the Internet became the prime way to publish economic research and data. It has online some books you can’t find too many places, such as 75 Years of American Finance, presenting charts of the economy from 1861-1935. It’s worth a few minutes of your time.

Watching a Key Stock Level

Filed under: Asset Allocation,Investing — Bob @ 12:57 pm

We’ll soon know if the stock indexes will move to new highs. Keep an eye on the S&P 500. For over a month it’s been struggling to settle above 1315. With the exception of a week in mid-March it’s been bouncing between 1310 and 1315. It’s not a good idea to invest solely on technical factors, but it’s a good addition to your toolbox. In this case, there’s a strong resistance level at 1315 that the index hasn’t exceeded since the fall of 2008. The next week or so will be interesting.

Summarizing Medical Insurance/Medical Care Trends

Filed under: Health,Medical Insurance — Bob @ 8:42 am

We saw many changes in medical insurance and related topics in 2010 and more are on the way in 2011. A very useful summary of these trends is available from Cheiron, an actuarial firm that consults with employers on their benefit programs. It covers trends in costs, coverage, and other features. Of interest to those in or planning for retirement is this:

The percentage of surveyed “large” plans (defined as
those with 200 or more employees) offering retiree
health benefits continued to drop in 2010 to 28%
from 30% in 2009, 31% in 2008, 34% in 2007, and
66% in 1988, according to the KFF.

You also might find interest a list of the top 10 medical advances in 2010, including removing the R (resuscitation) from CPR and a new blood test for early diagnosis of heart disease.

March 28, 2011

Surveying the Discount Brokers

Filed under: Cash Management,Investing,finances — Bob @ 2:35 pm

There’s not as much different between the discount brokers as there used to be. But there are some differences, and you want to be with the broker that best  matches your finances and investment style. Even if you’re happy with your broker, it’s a good idea to survey the options periodically to see if you’re paying too much or missing out on a service that would benefit you. These days, it’s easy to survey the brokers using web site that aggregate the data. For these tasks, I recommend using more than one web site. Each of the sites can’t always be up to date, and some might not gather details on a feature or two that is important to you. Two that should be on your list are and

Explaining the CLASS Act

A little-known provision of the Affordable Health Care Act is the CLASS program. The program’s been getting more attention since we first wrote about it last fall. CLASS is supposed to be a self-funding program providing cash to members who need long-term care assistance. Few people understand the program, and the bureaucrats have until late 2012 to figure out the program’s details. For those interested in a video presentation of some of what’s known about the program and is likely to happen, click here. The Urban Institute, which sponsors the video, is on record as saying the CLASS program should be fixed, not repealed. So you might consider the presentation as supportive of the program.

Lifting the Hood on Index Annuities

Filed under: Annuities,Asset Allocation,Income Investing,Investing — Bob @ 10:08 am

Index annuities sales are rising, actually hitting a record high in the third quarter of 2010, according to LIMRA. I’ve presented balanced views of index annuities (once called equity indexed annuities) for years. Those articles are in the Archive on the members’ section of Here’s a publicly-available article that lifts the lid on these complicated products. It makes the same point I do. Index annuities are for cautious investors who want a higher return than they’re receiving from CDs and the like but don’t want to put their principal at risk. They’re willing to pay the higher costs and accept illiquidity and lower-than-market returns in good times in return for safety and guarantees. Here’s a sample:

David Maurice, a partner in the financial planning firm Carrier and Maurice, Johnson City, Tenn., does not recommend index annuities because of surrender charges, complexity and the fact that ordinary income tax is charged on the earnings. It is hard for investors to compare index annuities and estimate their expected returns due to complex formulas used to calculate returns.

“We think [index annuities] are flawed by design,” Maurice says. “I can get better returns with less risk by diversifying clients in a wide range of assets classes over the long term.”

Here’s a sample with the opposite view

“Index annuities were never designed to exceed the performance of an index, but to provide a return similar to CDs and bonds and protect the downside,” he says. ”There are a lot of people that lost a tremendous amount of money using asset allocation strategies.”

In answer to critics who contend that equity index annuities are illiquid due to surrender charges, VanderPal says the annuity contracts often permit policyholders to withdraw 10% of the account value per year without penalty. Plus, equity index annuities provide full surrender value upon death of the policyholder. Many also offer full surrender value for nursing home and extended hospital stays and long-term illness. Some insurers offer full surrender value for unemployment if the policyholder is less than 65 years old.

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