Monday, April 30, 2007

The Return of Principle

So lets see, you have a mutual fund or IRA. They know your date of birth.

Most probably, your not ready to retire. You are paying into this account 3 to 4 thousand a year to avoid paying taxes on the income.

Lets look at it from the funds point of view. They know when you will start to draw benefits. The funds are not accountable to anyone. Legally they have broken no laws, it is not illegal to loose money.

What about income statements? "What ever the fund prints on paper and sends to them they will believe." "It doesn't have to be really truthful, it can't be confirmed without information from the fund itself." Can you even read the statement?

The question you need to ask is: How much time do these investment machines have before problems become apparent? Nobody is in any real hurry to retire and the money is still rolling in.

How can these funds be held accountable when there is no perceived problem? This could go on for for a long time.

There are thousands of investment funds and not one of them has had any problems. And yet 63 lending institutions have gone belly up. Something is a little too perfect here. Didn't one rogue trader send Barings Bank to the bottom?


Anonymous said...

Jim, you are feeding my paranoia.

Good post!

Seriously, the ability to save for retirement once upon a time (in my dad's age) amounted to a pension for a company to which one showed loyalty, and social security. His pension disappeared (as I am sure the ones promised by a company for which I toiled for seventeen years will), and while social security exists today, we all have reasonable doubts it will be around when it's time to collect.

My grandparents survived on that- barely- and my grandfather's part time job at a filling station in Texas (low cost of living). Part time because he couldn’t make over a certain amount, or he'd lose some of his SS benefit.

So what is my point? I guess it is the disconnect that our leaders/ legislators/ ruling class have, what with their plush pensions (paid for by... me, and you!) and the reality of most folks who don't make it to the millionaires club (to which said politicos surely belong), which is most (the rest) of us. They are not like us; they might have been once (only a few ever break thru tho'), have turned their back on OUR reality, whether it's for disgust at the unwashed masses (Hey! I showered today!) or a form of voluntary or convenient Alzheimer’s, insidious contempt, blatant disregard, I don't know. But it is there, and I challenge anyone to prove it ain't. C'mon now, it isn't like lobbyists and those with wealth and influence (and lots of free time) haven't figured out the rest of us are too busy with our proletarian struggle to pay attention at their unreported dirty deeds, which they slip by incrementally in the dead of night when we're not looking until one day HELLO! WELCOME TO WAL_MART!

So there.

Love the blog! I read it faithfully. Thanks for keeping it real, man.


Anonymous said...

An institution like New Century is a very different company from a mutual fund company. Mutual funds that are holding MBSs are going to be impacted by the lender implosion. Fortunately, most mutual funds are more diversified than that. Bond funds invest in municipals, corporate debt, and other instruments on top of mortgage pools. The people who are screwed right now are those who bought into funds with a very narrow mandate. If Fidelity had a "Fidelity MBS Fund", you'd be very unhappy right now. You won't see mutual fund performance start to go south until all asset classes start having problems.

As for mutual fund accountability, I thought that's what Sarbanes-Oxley was for.

Jim in San Marcos said...

Just to add to what both of you have said.

I hit on mutual funds all of the time. There are about 60,000 mutual funds world wide right now. I don’t particularly like them. Just the words “Mutual Fund” strikes awe into the uninformed. It’s as if this is some miracle operation that will make everyone rich.

Actually it’s a bunch of monkeys throwing darts at a copy of the WSJ stock listings and then rolling the dice to see how much to invest. These people will be fully invested in the market even when it is not wise.

In an up market a mutual fund is a great thing. In a down market, it’s just a faster way to lose your money.

Here is a link to something I wrote last year.
The Invisible Derivative's Market

Mutual funds will be ok if redemptions don’t exceed incoming investments. But if there is the need to raise capital by the fund, they will keep the dogs and sell the good stuff so it doesn’t show on the books.