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Prozac, Dr. Phil, And Your Financial Advisor…

Thursday, July 2nd, 2009
Financial advisers are experimenting with new ways to talk to their clients. Some have even started running pseudo-therapy sessions.
  • Financial advisers and their clients have always talked intimately about money, but the financial crisis has inspired a new kind of dialogue: the clients’ personal issues.
  • On the one hand, this therapy-like approach elevates the goals of financial planning from purely monetary to lifestyle and values. On the other hand, there’s a certain danger in trusting one person too much (e.g. Bernie Madoff).
  • Rick Campell is an investor with exposure to this new style of financial planning. In one of his sessions for instance, he opened up about everything from the number of kids he wants, to his parents’ divorce, and even his dad’s death.

Facts & Figures

  • The advisors at Merrill Lynch have started doing “values clarification” exercises and daylong retreats with their clients.
  • Wells Fargo hired psychologists and “family dynamics” counselors to help address their wealthiest clients’ personal issues.

Best Quote

“Are we going to get Prozac at the end of this?”  –Rick Campbell, investor

Destroy The Rainforest To Save The Environment?

Wednesday, July 1st, 2009

This write-up demonstrates an important economic and life lesson: actions with even the best intentions can have unintended consequences, so we need to really think about all the consequences and the people whom we might affect.

  • Concerns about climate change have fueled a massive, global increase in demand for alternative fuels like biodiesel, which can be refined from the oil palm tree.
  • Although the use of biofuels itself releases way less carbon than fossil fuels, the destruction of rainforest necessary to produce the palm oil results in much more carbon dioxide being released than the use of petroleum-based fuels.
  • Even though there are laws in place to protect endangered forests, those laws are not being enforced and the majority of the forest is in danger of being irreparably destroyed and replaced by oil palm plantations.

Facts & Figures

  • U.S. subsidies for biofuels are set to total $92 billion between 2006 and 2012.
  • When the destruction of the rainforest is factored in, oil palms produce 10 times more carbon than petroleum.
  • 98% of Indonesia’s rainforest will be degraded or destroyed by 2022 if the current rate of destruction is kept up.

Best Quote

“For the permit certification, a guy just comes to your office and you just pay him off. This is how it works.” – Ong Kee Chau, former executive at Wilmar International Ltd.


Moral Cleanup Or Reckless Crackdown?

Wednesday, July 1st, 2009

Here’s an interesting topic for debate: how should anti-vice programs be carried out? Below is the Russian government’s solution to the problem, but it’s a very controversial one.

  • In accordance with Prime Minister Putin’s anti-vice plan, the Russian government is closing every casino and slot-machine parlor in the country. This move will result in the loss of hundreds of thousands of jobs.
  • Casinos’ only option will be to relocate to one of four remote, backwoods areas of the country. However, none of these regions are prepared for such a move, and it is expected to take at least several years before a casino will be able to reopen there.
  • The gambling industry has proposed the creation of a regulatory body to keep the casinos clean and safe, but the government has refused to compromise.

Facts & Figures

  • The World Bank estimates that the Russian economy will decline by 7.9% in 2009.
  • According to the gambling industry, 400,000 workers will be thrown out of work as a result of the ban.
  • The gambling industry pays an estimated $1 billion in taxes annually.

Best Quote

“The authorities are taking this step without thinking at all. They have not considered what this decision means for the workers. With the crisis, it is going to be very difficult for us.” – Irina Mysachka, Supervisor at Moscow’s Shangri-La Casino

The Truth About Bagging Your Groceries

Tuesday, June 30th, 2009
You might not have realized that you can change the world, save or destroy the environment with just two little words: paper or plastic.
  • Plastic grocery bags were introduced 30 years ago and today, hundreds of billions are dispensed each year.
  • A major problem with plastic bags is that they are rarely recycled and often end up becoming deadly traps for fish and birds.
  • It is generally agreed that paper bags pose less of a litter problem, but they require more water and energy to produce than plastic bags.

Facts & Figures

  • The plastic industry estimates that only 10% of Americans don’t reuse plastic bags, but the Environmental Protection Agency points out that they are recycled at less than one-third the rate of paper bags.
  • There have been some instances of discouraging plastic bag use: Ireland imposed a tax on plastic grocery bags in 2002, San Francisco banned plastic grocery bags in 2007, and China banned the distribution of free plastic grocery bags in 2008.
  • Recycling rates for plastic bags exceed 30% in some European countries.

Best Quote

“There is simply zero justification for manufacturing them anymore, anywhere.” – Achim Steinger, Executive Director of the U.N. Environment Program

Taking Netiquette To A New Level

Tuesday, June 30th, 2009
This is just a quick, fun piece about an interesting new business. See if you want to give it a try!
  • Alexa and James Hirshfeld, two siblings living in New York City, have started Paperless Post, a Web-based business that allows users to design and send invitations through e-mail.
  • The business was created to cater to the needs of people who want something more upscale than Facebook invites but don’t want to go through the time and expense necessary for printed invitations.
  • Paperless Post seems to be growing in popularity, boasting such clients as Zac Posen and Diane Von Furstenberg.

Facts & Figures

  • The Hirshfelds have sent out 60,000 invitations since January 2009, and 150,000 since the previous fall.
  • Paperless Post boasts a variety of letterhead templates, fonts, motifs, border patterns, paper colors, sizes, stock, and textures, as well as an RSVP tracking system.
  • The carbon footprint of Paperless Post is virtually zero.

Best Quote

“The Internet has been a kind of vacuum in terms of aesthetics. We wanted to leverage functionality with design.” — Alexa Hirshfeld, Co-Founder of Paperless Post

Fiat Rescues Chrysler Just In Time

Tuesday, June 30th, 2009
About to collapse in the heat of the recession, American car giant Chrysler is picked up by Italian automaker Fiat.
  • The U.S. government brokered a deal between Italian automaker Fiat and the recently bankrupt Chrysler; Fiat’s CEO Sergio Marchionne will become the CEO of the newly formed Chrysler Group LLC .
  • It may take up to two years for Chrysler to unveil smaller cars, which are a key ingredient to Fiat’s success in Europe.
  • Although Chrysler has sold its assets to the newly formed Chrysler Group LLC, it will most likely stay in bankruptcy for quite some time.

Facts & Figures

  • Fiat will initially inherit a 20% stake in Chrysler, but has the potential to increase its stake to 35% should it meet certain fuel-efficiency goals.
  • The new Chrysler will be owned by many different groups: 55% will be owned by the United Auto Workers union, 8% by the U.S. government, and 2% by the Canadian government.
  • If Fiat is able to repay the $22.1 billion Chrysler was lent from the U.S. Treasury Department, it will be allowed to take a majority stake in Chrysler.

Best Quote

“This is by no means the end of Chrysler’s bankruptcy case. So many issues still need to be resolved, which may take months or even years.” – Ed Neiger, Founder of Neiger LLP (a creditors’ rights and bankruptcy law firm)

Understanding New Options for Retirement

Thursday, June 25th, 2009

Now that Roth IRAs are undergoing a rule change, people at higher income levels can get access to these highly desirable accounts. Read on to learn what the new rules do and don’t allow you to do, as well as how best to convert to a Roth and the pros and cons of doing so.

  • On January 1st, 2010, the government is removing the income restrictions that prevent some individuals from converting to a Roth IRA.
  • Roth IRAs are desirable because there are virtually no taxes on withdrawals – for you or your inheritors – and you aren’t required to start making withdrawals when you reach a certain age, as is the case with traditional IRAs.
  • The obstacle to conversion is that you have to pay taxes to do so, and since you can’t pick and choose which assets to convert, these taxes are often quite high.

Facts & Figures

  • Currently, you can’t open a Roth IRA if your modified adjusted gross income is more than $120,000, or $176,000 for married individuals who file joint tax returns. These restrictions will stay in place in the future.
  • The restrictions that will be eliminated are those on converting to a Roth: currently, you can’t convert if your modified adjusted gross income for your entire household is more than $100,000. In addition, someone who is married but who files an individual tax return can’t convert regardless of his or her income.
  • The government is providing a special deal for those who convert to a Roth in 2010: they can split the taxes they’re charged for the conversion over 2011 and 2012.

Best Quote

“If I can take a portion of my assets and shift them over to a Roth, am I going to sleep better knowing they can’t be touched by future tax increases?” – Ben Norquist, president of Convergent Retirement Plan Solutions LLC

An I.O.U. From The Government?

Wednesday, June 24th, 2009

Everyone is cutting back now that we’re in a recession, even the government. You might want to know what this means for you, but also how it is going to affect your community and neighbors – it isn’t that great.

  • States are experiencing huge budget deficits because the recession has slashed their tax revenues by billions of dollars. To close these budget gaps, states are proposing and approving policy measures that would never otherwise be considered.
  • Many state governors and legislatures are not able to come to a consensus and so several states are still struggling to approve a budget for next year.
  • Even if the recession were to quickly end, states would continue to experience budget shortfalls for many years because of high unemployment, lower tax collections, and increased demand for government safety net programs.

Facts & Figures

  • In the 2010 fiscal year, states will have a $121 billion budget gap.
  • Budget schemes include taxing candy and cellphone ring tones, releasing prisoners early, increasing sales taxes, selling state parks, and having state workers work for free three days a month.
  • Governors have proposed increasing taxes by roughly $24 billion dollars for the 2010 fiscal year.

Best Quote

“We still don’t know how bad it will be. The story is yet to be told, because in the next couple of weeks we will see some of the states with the biggest gaps have to wrestle this thing to the ground and make the tough decisions they’ve all been dreading.” – Susan K. Urahn, Managing Director of the Pew Center on the States

Breathe In, Breathe Out, Breathe In, Breathe Out… Overreacting During Difficult Times

Tuesday, June 23rd, 2009

Making investments can sometimes be stressful. Now add a recession and you might be swept up in some pretty powerful emotions. If you feel yourself feeling this way, you should check out what several respected financial psychologists have to say.

  • During stressful times (like a recession), people’s tendency to react emotionally to a situation is greatly exaggerated. Emotionally charged investment decisions usually do not lead to higher earnings.
  • Behavioral finance tries to understand how people react to stressful situations and how they affect people’s investment choices.
  • These ‘biases’ are hard to overcome – we are emotional beings, but understanding how emotions influence decision-making can reduce the degree and scope of their impact.

Facts & Figures

  • The ‘anchoring’ bias is where an investor gets too attached to an asset and cannot make practical decisions involving it.
  • The ‘loss aversion’ bias is where investors do not sell a falling asset because they would be acknowledging the loss.

Best Quote

“What was a great trait for surviving and thriving in the jungle doesn’t work so well in the stock market.” – Brad Klontz, Financial Psychologist.

Iranian Voters Got Money On Their Minds…

Tuesday, June 23rd, 2009

It always boils down to the economy in the end; this classic political adage applies in the Near East as the Iranian economy dominates political issues.

  • In Iran’s 2009 presidential election, the economy — in terms of the inflation rate, unemployment, and how oil revenue is being spent — is of high priority to most voters.
  • Incumbent President Mahmoud Ahmadinejad and his supporters believe that the policies of his first term have improved the daily life of the average Iranian, whereas his three opponents claim that the economy is in a dire situation.
  • Ahmadinejad increased pensions and the wages of federal employees; his rivals say that government money, a huge part of which comes from oil revenue, should have been spent on creating jobs and improving the infrastructure of the country.

Facts & Figures

  • Iran’s economy expanded by 8.0% in 2007 and 4.5% in 2008, but the IMF projects it will expand by only 3.2% in 2009.
  • Unemployment was 10.5% in 2005 and is projected to be 17% in 2009.
  • Current inflation is at 23.6%, according to Iran’s Central Bank.

Best Quote

“The problem is that Ahmadinejad has focused on the distribution of wealth, and what we need is the creation of wealth.” — Mr. Saeed Leyaz, Iranian economist

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