Wednesday, March 31, 2010

Yale Increases Exposure to Private Equity

This was an interesting story that just came across Twitter about the Yale Endowment.

First, some background.

David Swensen - the head of Yale's endowment investment group - has been one of the most influential voices in university endowment investing strategies for years. The chief investment officers for MIT and Harvard, for example, both worked for a time with Swensen, and his beliefs influenced them greatly. Swensen has also written a couple of books targeted to individual investors.

Swensen's ideas about the appropriate investing strategy for endowments are numerous. One of the most important, however, involves the role that private investing (as opposed to investing in publicly-traded stocks and bonds) should play in large endowment investment strategy (BTW: I have read both of his books).

Historically, Swensen found, investors who focused on less-liquid sectors achieved significantly higher returns with lower risk than endowments that used the more traditional capital market investments. It seems logical to Swensen, therefore, that large endowments like Yale - which typically tap only a small portion of their endowment annually for operating expenses - should focus most of their investments into more lucrative areas like private investments.

Under Swensen's guidance, then, Yale moved aggressively into private investments such as timberland, private equity, and hedge funds. If my memory serves me correctly, at one time nearly 80% of Yale's endowment was in private investments.

Up until 2008, the reported returns of the Yale endowment were terrific. Swensen seemed to have found the "holy grail", and he was profiled numerous times as the man who had figured out a way that universities could earn out-sized returns without significant risk.

Then the credit markets froze, stock markets collapsed, and a number of hedge funds and private investors were nearly wiped out. Instead of reporting good returns, Yale and other endowments were forced to face up to huge losses. The illiquidity that did not seem to matter when markets ere good suddenly became a liability, especially as college presidents needed funds for on-going capital improvements.

This vicious cycle has continued into 2010, even though the bond and stock markets have greatly improved over the past year. Most of the strategies for private equity, for example, involved investing in small companies, nuturing them for several years, then taking the companies public, reaping great rewards for their investors.

However, the IPO market remains sluggish, and investor appetite for risk remains muted.

Which leads to today's story. According to the note, Yale is increasing its allocated exposure to private equity from 21% to 26%, which on the surface seems to be making a bullish statement. However, as the article notes, Yale really doesn't have much choice, since they were already committed to these "capital calls" due to investments made in prior years.

All of this is not to say that Swensen will not eventually be proven right, especially if the capital markets continue to regain their health. However, it does indicate that even the smartest investors can do too much of a good thing.

Betting on the Blind Side Business:

Michael Lewis has a new book out entitled The Big Short.

Most of us in the financial services business have been reading Michael Lewis for years.

Starting with Liars Poker, his very entertaining account of his short career as a bond salesman at Salomon Brothers (now part of Citigroup), Lewis has a gift for making difficult and often arcane financial subjects seem interesting.

Lewis has been everywhere in the media recently - "60 Minutes", "Charlie Rose", etc. and even last weekend on PBS's "Wait, Wait, Don't Tell Me". Clearly his publishers and he have high hopes for this book, and have arranged this massive media campaign.

For some reason known only to Lewis and his agent, they have decided to not release a version on Kindle - not yet, at least - which means that I probably will not be reading the book anytime soon.

Interestingly, some of my fellow Kindle lovers are waging a negative campaign on Amazon with the hope of forcing the publishers hand and getting the book on Kindle.

If you go to Amazon, you will see the composite rating of The Big Short is "three stars", which essentially means "average". However, if you read the reviews of the people who have actually bought the hardcover copy, they are all glowing - "five star". These reviews have been essentially negated by a host of "one star" reviews posted by angry Kindle owners.

I draw two lessons from this: first, you can't trust composite ratings; and, second, beware the power of on-line reviewers!

In any event, here's an excerpt from the book, courtesy of Vanity Fair:

Betting on the Blind Side Business:

Tuesday, March 30, 2010

The Met's Grand Gamble Culture:

On Saturday I posted a short note about my new-found interest in opera. I attended a Met production of "Hamlet" at a local movie theater, and had a terrific experience.

But then today, on Twitter, someone referenced this article that will appear in the May 2010 Vanity Fair. It's a long article, but interesting.

I don't know all of the facts behind the numbers (I suspect the Met would disagree with some of the observations) but I do know that the average age of the operas that I have attended is even older than me (!), which can only be worrisome for the longer term prospects of opera in the United States.

The Boston Lyric Opera is doing a good job, I think, in holding various events around the Boston area to try to attract a younger audience. And the performances that I have attended from the BLO have been pretty well-attended, which is a good sign also.

Still, it highlights the problems that all theatre and other arts companies are having. Production costs keep rising, and the competition for the entertainment dollar has multiplied over the years (when Mozart was writing operas, people went in part because that was the only entertainment available).

The Met's Grand Gamble Culture:

Advisors Plan Move Back To Stocks

Attention Contrarians:

While on the surface this article might seem bullish, a contrarian might view it completely different.

As Warren Buffett says, you're supposed to be greedy when others are fearful in order to be a successful investor, not vice versa.

Ever since the market meltdown in late 2008, advisers and investors have been very wary of the stock market. But now that stocks have risen over +50% in last twelve months, sentiment seems to be changing - time to add to stocks!

Yikes, where have you been!

Even more worrisome: these surveyed investors think that emerging markets - which are up more than +65% over the last 12 months - are very attractive.

I remain bullish on stocks for the near term, but reading stuff like this makes me nervous.

Advisors Plan Move Back To Stocks

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The GRAT Rush Of 2010

Good, detailed summary from estate attorney Deborah Jacobs:

The GRAT Rush Of 2010

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Payback Time - States’ Debt Woes Grow Too Big to Camouflage -

Today's New York Times carries an ominous front-page article on the perilous state of public sector finances. Much of this has been covered elsewhere (does anyone not know the states have financial woes?) but it does highlight some of the unpleasant decisions that municipalities will be facing in the years to come.

However, from an investment standpoint, the most important part of the article comes near the end, when the author notes the very low level of municipal debt default that historically occurs, even in the most strapped municipalities:

Goldman Sachs, in a research report last week, acknowledged the pension issue but concluded the states were very unlikely to default on their debt and noted the states had 30 years to close pension shortfalls.

Even though about $5 billion of municipal bonds are in default today, the vast majority were issued by small local authorities in boom-and-bust locations like Florida, said Matt Fabian, managing director of Municipal Market Advisors, an independent consulting firm. The issuers raised money to pay for projects like sewer connections and new roads in subdivisions that collapsed in the subprime mortgage disaster.

The states, he said, are different. They learned a lesson from New York City, which got into trouble in the 1970s by financing its operations with short-term debt that had to be rolled over again and again. When investors suddenly lost confidence, New York was left empty-handed. To keep that from happening again, Mr. Fabian said, most states require short-term debt to be fully repaid the same year it is issued.

Some states have taken even more forceful measures to build creditor confidence. New York State has a trustee that intercepts tax revenues and makes some bond payments before the state can get to the money. California has a “continuous appropriation” for debt payments, so bondholders know they will get their interest even when the budget is hamstrung.

Payback Time - States’ Debt Woes Grow Too Big to Camouflage -

Monday, March 29, 2010

Wealth Matters - Tax Credits and Changes for 2010 -

There's plenty of changes coming down the road in terms of taxes, and most of them will not be good news for higher net worth individuals.

This article from the New York Times highlights several of these changes, particularly in relations to GRATs and Charitable Remainder Trusts.

Wealth Matters - Tax Credits and Changes for 2010 -

S&P 500 Cheapest to Junk Bonds Since ‘07 Signals Gain (Update2) -

This article from Bloomberg today does a nice job of summarizing one of the main "bull" cases for stocks: namely, while the outlook for the market may be for subdued growth, the alternatives to buying stocks are much less compelling.

S&P 500 Cheapest to Junk Bonds Since ‘07 Signals Gain (Update2) -

Economic View - In Financial Regulation, Recognize Our Limitations -

From yesterday's New York Times.

I like Professor Mankiw's idea (towards the end of the piece) of a sort of convertible debt obligation that would act as a brake on institutions that are overleveraged:

MY favorite proposal is to require banks, and perhaps a broad class of financial institutions, to sell contingent debt that can be converted to equity when a regulator deems that these institutions have insufficient capital. This debt would be a form of preplanned recapitalization in the event of a financial crisis, and the infusion of capital would be with private, rather than taxpayer, funds. Think of it as crisis insurance.

The beauty of the proposal is its simplicity, I think.

Economic View - In Financial Regulation, Recognize Our Limitations -

Who Should Convert an IRA to a Roth IRA - Planning to Retire (

Who Should Convert an IRA to a Roth IRA - Planning to Retire (

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“So This Is Wesleyan’s Clothing-Optional Library…” – Wesleying

Glad this didn't happen when we took our college tour of Wesleyan!

“So This Is Wesleyan’s Clothing-Optional Library…” – Wesleying

"DIY U": The end of university prestige - Nonfiction -

Like fine wines, the prestige of a college tends to rise in the estimation of the buyer when the price of the service (i.e. tuition) rises.

Many of the most prestigious colleges in the United States now cost more than $50,000 per year - a pretty healthy charge, to say the least.

For years there have been discussions that perhaps there would be a backlash against the cost of higher education, but this has not come to pass - not yet, at least. Application volumes at the most desirable colleges and universities remain at very high levels, with the concomitant admission rates very low.

Still, it would seem likely that the rate of tuition increases will eventually have to slow down.

This article in this morning's Slate has a good discussion about this topic.

"DIY U": The end of university prestige - Nonfiction -

Op-Ed Columnist - After the Financial Crash, the Return of History -

David Brooks of the New York Times wrote an interesting column on Friday. He points out - as have several other prominent economists - that modern economics essentially failed to forecast the economic catastrophe of 2008-2009. Here's a paragraph from his column:

In The Wall Street Journal, Russ Roberts of George Mason University wondered why economics is even considered a science. Real sciences make progress. But in economics, old thinkers cycle in and out of fashion. In real sciences, evidence solves problems. Roberts asked his colleagues if they could think of any econometric study so well done that it had definitively settled a dispute. Nobody could think of one.

“The bottom line is that we should expect less of economists,” Roberts wrote.

In a column called “A Crisis of Understanding,” Robert J. Shiller of Yale pointed out that the best explanation of the crisis isn’t even a work of economic analysis. It’s a history book — “This Time is Different” by Carmen M. Reinhart and Kenneth S. Rogoff — that is almost entirely devoid of theory.

I read "This Time is Different" and found it very interesting, albeit a little dry. The authors' essential point is that nearly every financial crisis over the last 500 years tends to follow the same pattern.

Worth a read.

Op-Ed Columnist - After the Financial Crash, the Return of History -

Saturday, March 27, 2010

The Met: Live in HD

I just back from a terrific performance of "Hamlet" by the Metropolitan Opera - only I saw it in a movie theater in Dedham, Massachusetts instead of the upper West side of Manhattan.

This is a great idea of the Met - bringing world class opera across the world in HD.

I'm a late convert to opera, but I will definitely go to more of these productions. You should too - it's a great way to enjoy an afternoon.

Also, it makes sense for the Met to try to broaden its audience. This is the second Met opera that I have seen in a movie theater, and in both cases the average age of the audience was well north of 70 years old. If opera is to continue, it needs to diversify its audience, and this is one way to accomplish this.

The Met: Live in HD

Friday, March 26, 2010

Rupert Murdoch's pathetic paywall | Jeff Jarvis |

Rupert Murdoch has been an outspoken opponent of allowing free access to his news organizations' information via their websites. The Wall Street Journal now charges for most articles, for example, and yesterday Murdoch's Guardian announced that it, too, would be begin charging for access.

I don't know if he will be successful, but frankly I am skeptical. Perhaps a decade ago, when use of the internet was just beginning to explode, the publishing industry should have had a "paygo" model, but I think it is too late.

Jeff Jarvis, a columnist from the Guardian seems to agree. Here's an excerpt from his column today, with the full link below:

According to his biographer Michael Wolff, Murdoch has not used the internet, let alone Google (he only recently discovered email) and so he cannot possibly understand the dynamics, demands and opportunities of our post-industrial, now-digital media economy. I use the internet and teach it and write about it and I still can't grasp the complete implication of the change. I don't think even Google can.

So to try to transpose old business models to this new business reality is simply insane. Just because people used to pay in print they should pay now – when the half-life of a scoop's value is a click, when good-enough news that's free is also a click away, when the new newsstand of Google and Twitter demands that you stay in the open, searchable and linkable? This argument I hear about paywalls comes from emotional entitlement (readers "should" pay – when did you ever see a business plan built on the verb "should"?), not hard economics.

Rupert Murdoch's pathetic paywall | Jeff Jarvis | Comment is free |

History Says Small-Cap Rally May Be Ending

We're of the belief that by the end of the year large cap, dividend-paying stocks will be the best performers for the year.

Large cap stocks lagged the rally last year, and their relative valuation looks very attractive. Moreover, as investors look for dividend yield (as opposed to leaving cash in money market funds yielding 0%), stocks of large companies will become much more sought-after.

This article from the Financial Advisor magazine supports our view.

History Says Small-Cap Rally May Be Ending

Valuation of Utility Stocks

As interest rates rose this week, utility stocks (which normally trade in the same direction of bond prices) also got hit hard.

Utilities had been strong performers over the last decade, but have struggled over the last year as investors have favored higher beta, lower quality names. In addition, utilities have suffered from lackluster demand in the current weak economic environment.

I think that utilities can make a lot of sense in here for longer term investors that need dividend. Bernstein analyst Hugh Wynne also agrees. Here's few key points, with the full link to Hugh's 23 page research report below.


• Regulated utilities today appear conservatively valued, based not only on the traditional valuation metrics of dividend yield and price to earnings, but also on two of our three favored quantitative measures of relative valuation: the dividend yield and earnings yield of utility stocks relative to the ten year U.S. Treasury yield.

• Relative to the S&P 500, the average dividend yield and P/E multiple of regulated utility stocks are at some of the most attractive levels of recent years.

  • Regulated utility stocks today yield 4.8%, on average, while the dividend yield of the S&P 500 is1.8%. The ratio of utility dividend yields to that of the S&P 500 is thus 2.7x, the highest since 2003.
  • While the S&P 500 currently trades at 15.0x 2010 estimated earnings, regulated utilities trade at12.8x, a discount of 14% and one of the lowest relative forward P/E multiples vs. the S&P 500 of the last five years.

• Utilities also appear conservatively valued on two of our three favored quantitative measures of relative valuation:

  • The historical relationship between Treasury bond yields and utility earnings yields indicates regulated utility stocks are 9% undervalued. The difference between regulated utilities' current earnings yield of 7.8% and our model's predicted value of 7.1% is nearly one standard deviation from the historical mean.
  • The historical relationship between after-tax Treasury bond yields and after-tax utility dividend yields indicates regulated utility stocks are 30% undervalued.

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Greenspan Calls Rise in Treasury Yields ‘Canary in the Mine’ -

After this week's bloodbath in the bond market, lots of commentators are saying this is the beginning a major rise in interest rates.

Perhaps, but I still am not convinced. I still think that the combination of low inflation, sluggish growth, and accomodative Fed policy will keep rates low for at least a few years.

I think that bonds got smacked this week for a few reasons, none of which are necessarily sustainable:

1. Several Treasury auctions this week were poorly received. Whether this was because investors just wanted higher yields, or wanted to buy stocks, is not clear;

2. The "long Treasurys/short corporate debt" swap clearly worked against several large hedge funds. In advance of quarter-end, they needed to unwind the trades, adding to supply pressures;

3. The US government is about to take up the matter of whether the Chinese government is manipulating the value of the yuan (i.e., keeping it artificially low in order to make Chinese exports more attractive). The Chinese naturally do not agree with the US position, and may have been sending a message to the US (since they are our largest creditors).

Still, there is no doubt that a 25 basis point rise in interest rates in just a week (on 10 year Treasury notes) is a little unnerving to bond bulls like me.

And then there are the comments by former Fed Chairman Greenspan, summarized in today's Bloomberg.

Greenspan Calls Rise in Treasury Yields ‘Canary in the Mine’ -

Thursday, March 25, 2010

How Long Should You Keep Your Receipts?

My wife and I have been on a major clean-up campaign of our house.

The old adage of "the more stuff you own, the more it owns you" had been mentioned more than once by each of us, so we've finally decided to act.

(It's really great to get rid of stuff!)

However, there's always the concern that we're throwing something away that we might need in the future.

As always, the trusty New York Times came through with an article to help (published today). I have highlighted in yellow a few points:
March 24, 2010

Retain Your Records No Longer Than You Must

I’VE long been a pack rat when it comes to saving financial documents. I have a file cabinet full of old cellphone and credit card bills, brokerage firm and bank account statements and health insurance benefit forms.

When my husband accused me of saving too much, I realized that there wasn’t much reasoning behind my recordkeeping. So I decided to find out what financial documents people needed to keep and in what form — as we fully enter the age of electronic statements — and what can be purged now.

According to Catherine M. Williams, vice president for financial literacy at the credit counseling firm Money Management International, there are two main reasons to keep financial records. “It’s either for backup to a tax issue or for proof that you did something like make a payment,” Ms. Williams said.

The Internal Revenue Service requires that individuals be able to produce records proving any income, deductions or credit claimed for at least three years from the date of a return, the statute of limitations for how long the I.R.S. has to assess additional tax if all income was reported correctly. In addition, the I.R.S. requires that individuals be able to produce such records for six years if they fail to report income that is more than 25 percent of their gross income. There is no statute of limitation for failure to file or tax fraud.

Therefore, experts generally recommend keeping anything that verifies the information in your tax return for at least six to seven years. “My recommendation would be never throw away copies of your tax returns and checks made out to the government — anything else, I would say keep for at least six years,” said Jude Coard, a tax partner at accounting firm Berdon L.L.P.

Full link:

What if interest rates don't rise?

From March 25, 2010 Fortune:

What if interest rates don't rise?

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How LinkedIn will fire up your career

(OK, so I don't really care for the title, but this a Fortune magazine article that is worth a read).

How LinkedIn will fire up your career

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ObamaCare by the Numbers: Part 1

Somber but interesting view of the bill by John Cassidy of the New Yorker:

ObamaCare by the Numbers: Part 1

What Happened in the Bond Market Yesterday?

Over the last few years we've learned that derivatives - loosely defined as instruments whose value derives from the prices of the underlying securities - can have an enormous impact on the capital markets.

Yesterday seems to have been one of those days. The Treasury bond market had its worst day in at least a couple of months, with prices falling across the maturity spectrum

There apparently were two reasons. First, the Treasury auctioned notes with a 5-year maturity and, unfortunately, demand was not particularly strong.

But the second reason was the one that interested me more. Apparently there were widespread "bets" placed on the idea that corporate bond spreads (i.e., the yield advantage of corporate bonds versus comparable Treasury securities) would be widening. However, this proved not to be the case, and in fact corporate yields in some cases moved lower than government bonds (see my post earlier this week).

So what happened yesterday? A number of traders threw in the towel, and sold their "long" Treasury positions covered their bets in the derivatives markets.

When you include the poorly-received Treasury auction, then, bonds got hit hard.

Here's an excerpt from this morning's Financial Times:

The negative swap time-warp

FT Alphaville has already noted on Wednesday how financial markets have breached new negative territory.

The 10-year US swap spread — the price to swap floating for fixed-rate payments — dipped below zero for the first time on record.

This is something that isn’t ever really supposed to happen, since it implies that it’s less risky to lend for 10 years to a money market counterparty than to the AAA-rated US.

Wednesday, March 24, 2010

Lots of bad advice given on Roth IRA rules -

Lots of bad advice given on Roth IRA rules -

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Everything is Relative

Today's Wall Street Journal blog (written by Robert Frank) had an interesting angle on people's feeling about their financial situation, and whether they consider themselves "wealthy" or not.

Maybe Status, Not Wealth, Makes Us Happier

Maybe money can’t buy happiness. But it can buy status, and status can indeed make us a bit happier.

An article in Time describes new research from Chris Boyce, a psychologist at the University of Warwick, and Simon Moore, a psychologist at Cardiff University. The pair sought to understand why societies that became wealthier didn’t become collectively happier. After all, rising incomes and wealth made individuals happier, up to a certain point of course.

So the researchers decided to dig deeper into what is called the “reference-income hypothesis,” a fancy way of saying that wealth is relative. If an entire country gets richer at the same time, individuals wouldn’t necessarily feel wealthier, since their relative positions in society hadn’t changed.

Most people don’t compare themselves with an abstract national average. Messrs. Boyce and Moore decided to try to figure out how people compare themselves with their neighbors, colleagues at work or friends from college. The higher their rank, the greater their sense of happiness and self-worth would likely be.

“For example, people might care about whether they are the second most highly paid person, or the eighth most highly paid person, in their comparison set,” write the authors.

They found that the person’s rank within the comparison set was a stronger predictor of happiness than absolute wealth. “If absolute income matters, as we increased our income, everybody should get happier at a national level, but we don’t seem to,” Mr. Boyce said. “So what we are showing is that in terms of life satisfaction, rank is a better predictor than absolute wealth.”

The research may help explain why there is much consternation about wealth inequality over the past two decades even though standards of living have improved for many in the lower strata.

Do you think your happiness depends in part on your wealth rank among your friends or colleagues?

Change Management

In 1996 I was working at a company that was taken over by a large European insurance company.

At the time the purchase was billed as a "growth strategy", and no major cost cuts (i.e. layoffs) were planned.

However, within five years of the buyout, a great majority of the senior management (including me) had been transitioned out of the company.

For me the whole experience actually worked out pretty well. I was able to land my current position pretty quickly, and got back to my true professional passion: working with clients in the investment world.

Still, the experience of a decade ago stayed with me, and it has actually helped me in one aspect of investing: that is, I am very wary of investing in the stocks of companies that are in the midst of a major takeover. From personal experience, I can tell that the employees of the company that is being taken over are probably consumed with internal politics, and their attention is less focused on sales than it is on job retention.

With all of this in mind, I found this piece from the Harvard Business Review interesting:

13 Unlucky Mistakes in Managing Traumatic Change — and How to Avoid Them

By Rosabeth Moss Kanter

Turbulent times put leaders to the test. How people handle unwelcome surprises and unexpected blows to the best-laid plans can exacerbate a run of bad luck — or turn things in their favor. Traumatic change is hard enough without adding insult to injury. When crises occur, leaders need to know how to avoid the traps that make it harder to recover. Here are 13 common mistakes and some guidelines for avoiding them.

1. Pressure to act quickly undermines values and culture. Leaders take drastic steps quickly with no time to explore alternatives. Values about participation, involvement, or concern for people disappear. Cynicism grows.
Solution: Avoid the temptation to announce instant decisions. Find issues that can benefit from employee input and assign teams to tackle them.

2. Management exercises too much control. In crises, decisions get pushed to the top. Because top managers are rethinking everything, people below go passive and wait to be told what to do. Initiative declines; innovation goes on hold.
Solution: Establish short-term tasks that empower employees to seek quick wins, giving them a feeling of control over results.

3. Urgent tasks divert leaders' attention from the mood of the organization. Managers are swamped with meetings and decisions. No one takes responsibility for assessing the impact on employees' motivation and performance.
Solution: Appoint a team of natural leaders to monitor the culture, take the pulse of employees, and coach managers on an effective process.

4. Communication is haphazard, erratic and uneven. Things change quickly, leaders are distracted, and it's not clear who has accurate information. Potentially destructive rumors take on a life of their own. Time is wasted.
Solution: Develop an interactive communications site to reach everyone with the same information in a timely fashion. Keep it going after the worst of the crisis is over.

5. Uncertainty creates anxiety. Executives don't like to say "I don't know," so they wait until they have definitive answers before they talk to their people. But people can't commit to positive actions while mired in anxiety.
Solution: Establish certainty of process when there can't be certainty about decisions. Create a calendar of briefings so that people know when they'll know. If there are no answers yet, say so.

6. Employees hear it from the media first. Aggressive journalists dig for information, and items can run in the media before employees hear about them — e.g., workers who heard that their plant was closing on the radio while driving to work. Middle managers look dumb and uninformed. Employees feel insulted and left out.
Solution: Keep the press out. Develop networks of employee-leaders to connect an information chain.

7. There is no outlet for emotions. Anger and grief mount with no way to express or deal with these emotions. People might start acting in strange ways, undermining teamwork.
Solution: Create facilitated sessions for venting. Teach managers about dealing with trauma and ensure that they acknowledge grief and anxiety.

8. Key stakeholders are neglected. Busy internally, leaders fail to engage other key constituencies. Customers, dealers, suppliers, government officials hear only the media's and competitors' slants. They get nervous and withhold support.
Solution: Manage relationships. Identify all groups that need to be communicated with regularly and devise a plan for reaching each.

9. It seems easier to cut than redeploy. Reducing budgets or people in equal proportion everywhere seems easier than taking time to reassign people or reallocate resources. Inevitably, strong performers are lost when they could have served elsewhere — including in sales roles.
Solution: Establish a pool of strong performers from areas with cutbacks. They might be able to help the business in another way — or be called back for special assignments such as supporting the transition.

10. Casualties dominate attention. Sometimes leaders want to do the humane thing by offering help to people who are cut, while neglecting the "keepers" on whom the future depends. Some of the keepers don't know that they are valued and decide to leave.
Solution: Meet individually with leaders of the future and show appreciation. Offer recognition for extra problem-solving efforts during the crisis period.

11. Changes are expedient, not strategic. Managers often restructure by removing the weakest or newest people, without regard to business needs. The unit does what it has always done but with fewer people. The opportunity for change is lost.
Solution: Identify a team and process to reexamine mission and priorities, to redirect activities toward more productive future uses.

12. Leaders lose credibility. The shock of crisis, lurches in business strategy, and performance shortfalls make top leaders' words less credible. Why believe any new strategy now? Motivation drops.
Solution: Make short-term, tangible, doable promises, and keep them.

13. Gloom and doom fill the air. Everyone is preoccupied with the negative current situation. They feel guilt about the people who are being let go. Morale sinks, and it is hard to find the energy to be creative or productive.
Solution: Show that there is a future beyond the crisis. Repeat a credible positive vision. Emphasize the steps being taken to avoid reoccurrence of the present crisis — how we're going to change so that this won't happen again.

Leaders make their own luck. In the face of traumatic change, it is important to take the time to anticipate and avoid the 13 unlucky mistakes. Learning better acts of leadership when change is difficult will help everyone get through the crisis to find better fortunes ahead.

Tuesday, March 23, 2010

Investment Implications Of Health Care Reform

Investment Implications Of Health Care Reform

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More on the Inflation Debate

I am not necessarily a huge Paul Krugman fan, but this piece from his blog in the New York Times was pretty good, I thought.

To connect to Paul's site, just click on the title above.

March 18, 2010, 9:16 am

Stagflation Versus Hyperinflation

I’m a bit late to this, but Mike Kinsley has an odd piece in the Atlantic in which he confesses himself terrified about future inflation, even though there’s no hint of that problem in the real world. He’s not alone: there are a lot of voices predicting imminent hyperinflation in 2009, make that 2010 (and yes, I am keeping a record).

What I want to take on, however, is this piece of analysis in Kinsley’s piece:

Hyperinflation is when inflation feeds on itself and takes off beyond control. You can have stable 2 to 3 percent inflation. But you can’t have stable 10 percent inflation. When everybody assumes 10 percent, all the forces that produced 10 percent push it to 20 percent, and then 40 percent, and soon people are lugging currency in a wheelbarrow, as in the famous photos from Weimar Germany.

Uh, no — at least not according to textbook economics, which makes a real distinction between the kind of inflation that bedeviled the 1970s and 1923 (or Zimbabwe)-type hyperinflation.

Hyperinflation is actually a quite well understood phenomenon, and its causes aren’t especially controversial among economists. It’s basically about revenue: when governments can’t either raise taxes or borrow to pay for their spending, they sometimes turn to the printing press, trying to extract large amounts of seignorage — revenue from money creation. This leads to inflation, which leads people to hold down their cash holdings, which means that the printing presses have to run faster to buy the same amount of resources, and so on.

The kind of inflation we had in the 1970s, the famous era of stagflation — high inflation combined with high unemployment — was quite different. Deficits weren’t the issue — actually, US deficits were much smaller in the inflationary 70s than in the disinflationary 80s. Instead, what you had was a combination of excessively expansionary monetary policies, based on an unrealistic view of how low the unemployment rate could be pushed without causing accelerating inflation (the NAIRU), plus oil shocks that pushed up inflation across the board thanks to widespread cost-of-living clauses in contracts. There was never any risk of hyperinflation; the only question was whether and when we’d be willing to pay the price in high unemployment of bringing inflation back down.

Kinsley seems to be confusing the logic of the natural rate argument, which says that expected inflation gets built into price-setting, so you need an accelerating inflation rate to keep unemployment below the NAIRU, with the very different logic of hyperinflation, which is about people fleeing money.

Meanwhile, for those predicting hyperinflation, my question would be: what is it about the United States now that looks different to you from Japan in say, 2000? Big budget deficits and high debt? Check. Huge expansion in the monetary base? Check. And yet Japan’s GDP deflator has fallen 9 percent since 2000.

Seems Hard to Believe

From a story on Bloomberg this morning (full link below):

Obama Pays More Than Buffett as U.S. Risks AAA Rating

By Daniel Kruger and Bryan Keogh

March 22 (Bloomberg) -- The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.

“It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”

Moody’s Warning

While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody’s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.

Monday, March 22, 2010

"The Case for Equities in the Decade Ahead"

Last week I attended a two-day conference on asset management hosted by UBS. I had the chance to hear a number of good presentations from some of the leading asset managers and consultants, including Ameriprise, Callan Associates, and Fidelity.

Franklin Resources (parent company for the Franklin Templeton mutual fund group) also gave an interesting talk. They highlighted a report that they have been sending to investors trying to get more people interested in the stock market.

To get the complete report just click on the title of this post, or go to their website: . Let me just list the five key points:


1.History Favors a Return to the Mean
Investors often assume the worst (or best) will continue—it’s important
to consider long-term market history.

2.The World is Getting Smaller (and More Prosperous)
The world is not only shrinking, but emerging nations are experiencing
growth of the middle class and consuming at a rising rate.

3.Innovation Will Surprise Us...Again
While we should expect change (and never fully do), the real surprise might
be the pace at which it occurs.

4. Quality Companies Are Not Short-Sighted
The market is continually growing and changing, and while some companies
don’t survive this evolutionary process, the strongest benefit from it.

5 Equities Help Protect Purchasing Power
For most investors, equities need to be a part of their investment mix
to help reduce the potential risk in their overall portfolio.

At the end of the marketing brochure, they have this chart labeled "Where Will the Dow Jones Industrial Average Be in the Year 2020?" Basically it just highlights the power of compound interest, but I thought it was worth a review nonetheless.

For example, while most analysts are looking for stocks to be in a low return mode, even if the market averages +4.1% return for the next decade (which hardly seems a stretch, given that the dividend yield on the Dow is 2.6%), the Dow would stand above 15,000 in 2020, or +50% higher than it is today. A return of +7.2% for the next decade leads to a doubling in the value of the Dow.

While I realize that Franklin is trying to draw people to its equity funds, I think the brochure makes several good points if you're trying to figure out asset allocation.

"Extenders" Bill passed by Congress

From IRA expert Ed Slott's website- most important for taxpayers over 70 1/2 that want to make a direct contribution from their IRA to a qualified charity:

Monday, March 22, 2010

Senate Passes Extenders Bill

By a vote of 62-36, the Senate on March 10, 2010 passed the American Workers, State & Business Relief Act of 2010. The bill includes a combination of tax-extenders (items that expired in a previous year but are up for renewal in 2010), energy provisions and incentives for businesses. It will now be sent to a Conference Committee to reconcile the differences between the House and Senate versions of the bill.

A package of approximately 40 tax extenders has been included in the bill, seven of which directly affect charity and charitable giving. If the bill is passed, it is anticipated that these provisions will be effective retroactively to January 1, 2010 and run through December 31, 2010, in other words, for one year only.

IRA charitable rollovers, born of the Pension Protection Act of 2006, were originally in effect from August 17, 2006 – December 31, 2007 and then extended for 2008 and 2009 via the Emergency Economic Stabilization Act of 2008. However, this provision was not extended prior to its expiration on December 31, 2009. Needless to say, charitable organizations are lobbying hard for the bill’s passage.

The provision will allow IRA owners and inheriting beneficiaries age 70 ½ or older to continue to make a “qualified charitable distribution” of up to $100,000 to an eligible charity directly from their IRAs. A husband and wife could each contribute up to a maximum of $100,000 provided they are made from the separate IRA of each person. Tax filing status is irrelevant, so even those married individuals who file separately could make use of this provision.

Eligible accounts will include Traditional IRAs and otherwise taxable dollars in Roth IRAs. Additionally, SEP IRAs and SIMPLE IRAs will qualify provided no current contributions are made to these accounts for the same tax year as the distribution to charity.

To qualify, the distribution from the IRA must go directly to a qualified charity (one that is not a supporting organization or donor advised fund). Fortunately, while required minimum distributions (RMDs) are back in 2010 for both IRA owners and beneficiaries after having been suspended in 2009, the IRA distribution to charity will count towards satisfying this requirement. Thus, individuals desiring to make a qualified charitable distribution from their IRAs in 2010 should delay taking their full RMD until the outcome of the bill is known. If the bill is passed, they would not pay any income tax on the amount going to charity nor would they receive a charitable income tax deduction. The fact that they don’t have to report the distribution as income is far better than a tax deduction.

While the House and Senate Conference Committee will need to come to an agreement on this bill, it is anticipated that “qualified charitable distributions” will be back in full force in 2010. Either way, we will keep you informed on the status of this bill as it progresses through the House and the Senate Conference Committee.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler

A Tainted Victory - Politics - The Atlantic

Good read.

A Tainted Victory - Politics - The Atlantic

Losing Bets on a "Sure Thing"

As I have been writing here repeatedly, I believe that the biggest risk to bond investors is lower, not higher, interest rates.

When you see survey after survey tell you the one "sure bet" in the investment world today is that interest rates are headed higher, you have to question how much of this sentiment is already reflected in market prices.

Today's article in the Wall Street Journal is a good illustration of what can happen when you invest in accordance with prevailing sentiment:

Interest-Rate Deals Sting Cities, States


Buyer's remorse has hit some cities and states that did deals with Wall Street in different times.

Hundreds of U.S. municipalities are losing money on interest-rate bets they made during the bull market in hopes of protecting themselves from higher rates. The deals backfired when rates fell, shriveling the sums paid to municipalities. Now some are criticizing Wall Street and trying to exit the contracts.

Associated Press

Jack Wagner of Pennsylvania: 'It's gambling with the public's money.'

The Los Angeles city council approved a measure this month instructing city officials to try to renegotiate an interest-rate deal with Bank of New York Mellon Corp. and Belgian-French bank Dexia SA. The pact, reached in 2006 to help fund the city's wastewater system, currently is costing the city about $20 million a year. The banks declined to say how they would respond to a request to renegotiate.

In Pennsylvania, 107 school districts entered into interest-rate swap agreements from October 2003 to last June. At least three have terminated them. Under one deal, the Bethlehem, Pa., school district had to pay $12.3 million to terminate a swap with J.P Morgan Chase & Co., according to state auditor general Jack Wagner. J.P. Morgan declined to comment.

State lawmakers have proposed restrictions on municipalities' ability to use swaps. "It's gambling with the public's money," Mr. Wagner said. "Elected officials are simply no match for the investment banker that's selling the deal."

Examples of Interest-Rate Swaps

This study by the Service Employees International Union, which represents municipal employees, is based on government filings and payment estimates using current interest rates. It compares the interest-rate swap payments of cities with their budget outlooks. The payments don't reflect corresponding moves in municipal bonds. Included with some examples are securities firms that entered into the transactions with the municipalities.

The Service Employees International Union said Chicago, Denver, Kansas City, Mo., Philadelphia, Massachusetts, New Jersey, New York and Oregon all are in the hole on swaps agreements they made with financial firms. The required payments range from a few million dollars to more than $100 million a year, the union said.

Such deals are deepening the misery faced by state and local governments throughout the U.S., already facing their worst financial squeeze in decades because of shrinking tax revenue and stubbornly high pensions and other costs.

Government agencies that saw the transactions as a cushion against fiscal surprises now are being squeezed by the arrangements. The supply of municipal derivatives swelled to more than $500 billion before falling in the past two years, estimates Matt Fabian, managing director at research firm Municipal Market Advisors. Moody's Investors Service says the surge was fueled by Wall Street marketing efforts, demand from state and local governments and "relatively permissive" statutes on the use of swaps in Pennsylvania and Tennessee, both of which are taking steps to tighten rules.

Many of the deals generated higher fees for securities firms than traditional fixed-rate debt. Government officials, for their part, entered the deals in hopes of reducing borrowing costs.

The swaps were introduced in many cases along with floating-rate debt that municipalities issued because it was cheaper than traditional fixed-rate debt. Lower interest rates have served them well on this; their borrowing got cheaper.

But municipalities also added swaps to the mix, promising to pay a fixed rate to banks, often 3% or more, while receiving payments from banks that vary with interest rates. On the swaps, the municipalities generally have been losers, as the interest that banks have to pay them have often fallen below 0.5%.

Interesting Strategy on Roth IRA's

This seems a little complex to me, frankly, but it illustrates some interesting ways that advisers are using the new Roth IRA rules.

From Saturday's Wall Street Journal:

Giving More to Both Kids and Charities

Tax advisers are pushing new maneuvers that allow taxpayers to get more money to their children and to their favorite cause—at the same time.


Many involve converting an individual retirement account to a Roth IRA. The traditional IRA gets pretax contributions while a Roth gets after-tax contributions. Future withdrawals from a Roth are tax-free.

Until this year, only people with modified adjusted gross income of $100,000 or less could do Roth conversions. But the income limits have been lifted, and there has been a huge surge in conversions.

Roth conversions are especially attractive to retirees who hope to leave their IRAs largely untouched as an inheritance for their kids and grandkids. By converting to a Roth, the retirees can avoid having to make mandatory withdrawals each year. And the heirs' withdrawals will be income-tax free.

But there is a catch: When you convert to a Roth, you have to pay income tax on assets you are moving from the traditional IRA. Financial planners and accountants usually discourage conversions unless clients can pay those taxes from a separate account.

That is where charitable contributions come into play. If done correctly, the donation can reduce your tax bill.

All in the Family

How to give to charity and leave money to your kids at the same time.

  • Start with a $500,000 traditional IRA when both parents are 65.
  • Use the IRA assets to fund a charitable remainder annuity trust with a 10-year term (assuming a 5% return).
  • Income tax on IRA withdrawal is $200,000, but the charitable gift cuts it to $105,440.
  • Use the annuity payments of $32,500 a year to buy $1.6 million worth of second-to-die permanent life insurance for your heirs.
  • At age 75, annuity trust ends, and $405,665 in proceeds go to a charitable-gift fund earning 5% a year and making $20,280 a year in gifts.
  • End result at age 85: Charity gets $608,465. When you die, your heirs get a tax-free insurance trust worth $1.6 million.

Source: Daniel Nigito, Market Street Philanthropic Advisors Inc.

Martin James, a 51-year-old certified public accountant in Mooresville, Ind., is crunching the numbers to figure out how much his mother, who is 70, can convert to a Roth and give to charity without bumping her and his father into a higher tax bracket. He expects them to use this strategy for a few years, spreading the conversions out to keep the taxes as low as possible. Each year that they declare conversion-related income, his parents will contribute to a donor-advised fund and count it as a charitable contribution, he says.

"You want income-tax deductions in the year you do a Roth conversion, because it might be the most income you ever have in your whole life," says Christopher Hoyt, a law professor at the University of Missouri-Kansas City.

Even if you are converting a smaller IRA, you could set up a donor-advised fund—taking a tax deduction now and recommending the actual grants later—at a mutual-fund company for as little as $5,000. If you convert $5,000 and put $5,000 in the donor-advised fund in the same year, in most cases you pay no additional tax (as long as you itemize).

If you have highly appreciated stock, consider using that to fund the donor-advised fund, Mr. Hoyt suggests. That way, you avoid paying capital-gains tax on the stock but can use its full value to help offset your conversion income.

Roth conversions aren't the only tactic. Daniel Nigito, a certified financial planner in Bethlehem, Pa., often advises people converting at least $200,000 to use a charitable remainder trust to maximize guaranteed contributions to family and charity.

Here is how it works: The parents withdraw the IRA assets they intend to go to their children, and then use them to fund a charitable remainder annuity trust that would make payments to the parents for 10 years. The parents then use those payments to fund permanent, second-to-die life insurance in an irrevocable trust that would go to their children.

Suppose the parents want to convert a $500,000 IRA. Normally, that would generate about a $200,000 tax bill. But they could chop that bill to $105,000 by investing the $500,000 in a charitable remainder annuity trust.

If the trust paid the parents $32,500 a year, they could buy $1.6 million in life insurance that would ultimately go to their children. That is more than three times the value of the $500,000 IRA. Meanwhile, the trust would ultimately leave $600,000 to the charity, assuming 5% returns, says Mr. Nigito.

Glenn Ed and Janet Maurer, a retired couple in their 60s in New Tripoli, Pa., are using this strategy to fund life insurance for their two daughters and four grandchildren, and also to make donations to their church, a food bank and elsewhere. "Why not take control of our money and direct it where we want it to go?" Mr. Maurer says.

Write to Kelly Greene at

Saturday, March 20, 2010

Friday, March 19, 2010

Consensus Views (cont.)

Earlier this week I went to an asset gathering conference hosted by the brokerage firm UBS.

It was a good chance for me to hear from a number of leading firms and industry experts.

What I was struck by, however, was the overwhelming consensus of the "correct" investing strategy at this point in the market. Everyone, it seems, is fleeing stocks (especially US stocks) in favor of bonds and alternative investments. And everyone "knows" that interest rates are heading significantly higher, and so are keeping their portfolios structured accordingly.

As several of my previous posts have indicated, I believe that you rarely are successful in investing when you follow the consensus.

So when I think that stocks in the US can move higher, and interest rates lower, I recognize that this is a minority view, which gives me another reason to believe that events should unfold as I anticipate.

With that background, here's a report on pension investing from Merrill Lynch. Their survey work is in line with what I heard earlier this week (I have added the highlighting):

Volatility reduction on the mind…

Currently, we see a significant overall desire to reduce surplus volatility within
corporate pension plans. This will typically be achieved by the continuing sale of
equities and buying of bonds. In fact, the desire is so strong, major consulting
firms are building entire teams focused on liability driven investing (LDI) and asset
managers are prepping sales and marketing to be ready for the push.

…but rate triggers will ultimately determine moves

However, the belief among many larger plan sponsors that rates should rise is
having the most profound effect on delaying implementation. Many large plan
sponsors are on the sidelines waiting for rates to rise and are prepping
implementation when interest rate triggers are met. We believe when a plan
sponsor is comfortable and their rate trigger has been met they will begin a
meaningful shift away from equities into long-duration fixed income securities.

Forecasts imply increasing long-end rates…

Nearly every rate forecaster in Bloomberg’s current rate forecast survey believes
we should see increasing long-end (10- and 30-yr) Treasury rates in the future.
So overall, while the need to hedge surplus risk among plan sponsors seems
widespread, the timing of a sizable duration extension is tactical. Many plan
fiduciaries are holding off on an extension in the belief that interest rates will rise.

…but if history is any guide tend to overestimate

For the past nine years the median Wall Street forecasters had overestimated
forecasts by 80bp on average. Perhaps, these forecasters will be proven correct,
but that is a rather large gamble for plan fiduciaries to take. Plan sponsors may
find hedging alternatives in the options market as an ideal way to protect against
downside rate moves in the near term.

Health Care Tests and Probability

One of the major controversies in health care in America involves the desire to test - and hopefully prevent - diseases like cancer from occurring. All of us want to live long, healthy lives, so we want medical science can detect and treat possible problems early.

Problem is, medical tests - like so many things in medicine - are not always precise, as the following piece from the New York Times on March 9, 2010, discusses:

The Great Prostate Mistake

Published: March 9, 2010


EACH year some 30 million American men undergo testing for prostate-specific antigen, an enzyme made by the prostate. Approved by the Food and Drug Administration in 1994, the P.S.A. test is the most commonly used tool for detecting prostate cancer.

The test’s popularity has led to a hugely expensive public health disaster. It’s an issue I am painfully familiar with — I discovered P.S.A. in 1970. As Congress searches for ways to cut costs in our health care system, a significant savings could come from changing the way the antigen is used to screen for prostate cancer.

Americans spend an enormous amount testing for prostate cancer. The annual bill for P.S.A. screening is at least $3 billion, with much of it paid for by Medicare and the Veterans Administration.

Prostate cancer may get a lot of press, but consider the numbers: American men have a 16 percent lifetime chance of receiving a diagnosis of prostate cancer, but only a 3 percent chance of dying from it. That’s because the majority of prostate cancers grow slowly. In other words, men lucky enough to reach old age are much more likely to die with prostate cancer than to die of it.

Even then, the test is hardly more effective than a coin toss. As I’ve been trying to make clear for many years now, P.S.A. testing can’t detect prostate cancer and, more important, it can’t distinguish between the two types of prostate cancer — the one that will kill you and the one that won’t.

Instead, the test simply reveals how much of the prostate antigen a man has in his blood. Infections, over-the-counter drugs like ibuprofen, and benign swelling of the prostate can all elevate a man’s P.S.A. levels, but none of these factors signals cancer. Men with low readings might still harbor dangerous cancers, while those with high readings might be completely healthy.

In approving the procedure, the Food and Drug Administration relied heavily on a study that showed testing could detect 3.8 percent of prostate cancers, which was a better rate than the standard method, a digital rectal exam.

Still, 3.8 percent is a small number. Nevertheless, especially in the early days of screening, men with a reading over four nanograms per milliliter were sent for painful prostate biopsies. If the biopsy showed any signs of cancer, the patient was almost always pushed into surgery, intensive radiation or other damaging treatments.

The medical community is slowly turning against P.S.A. screening. Last year, The New England Journal of Medicine published results from the two largest studies of the screening procedure, one in Europe and one in the United States. The results from the American study show that over a period of 7 to 10 years, screening did not reduce the death rate in men 55 and over.

The European study showed a small decline in death rates, but also found that 48 men would need to be treated to save one life. That’s 47 men who, in all likelihood, can no longer function sexually or stay out of the bathroom for long.

Numerous early screening proponents, including Thomas Stamey, a well-known Stanford University urologist, have come out against routine testing; last month, the American Cancer Society urged more caution in using the test. The American College of Preventive Medicine also concluded that there was insufficient evidence to recommend routine screening.

So why is it still used? Because drug companies continue peddling the tests and advocacy groups push “prostate cancer awareness” by encouraging men to get screened. Shamefully, the American Urological Association still recommends screening, while the National Cancer Institute is vague on the issue, stating that the evidence is unclear.

The federal panel empowered to evaluate cancer screening tests, the Preventive Services Task Force, recently recommended against P.S.A. screening for men aged 75 or older. But the group has still not made a recommendation either way for younger men.

Prostate-specific antigen testing does have a place. After treatment for prostate cancer, for instance, a rapidly rising score indicates a return of the disease. And men with a family history of prostate cancer should probably get tested regularly. If their score starts skyrocketing, it could mean cancer.

But these uses are limited. Testing should absolutely not be deployed to screen the entire population of men over the age of 50, the outcome pushed by those who stand to profit.

I never dreamed that my discovery four decades ago would lead to such a profit-driven public health disaster. The medical community must confront reality and stop the inappropriate use of P.S.A. screening. Doing so would save billions of dollars and rescue millions of men from unnecessary, debilitating treatments.

Richard J. Ablin is a research professor of immunobiology and pathology at the University of Arizona College of Medicine and the president of the Robert Benjamin Ablin Foundation for Cancer Research.

Charitable Giving

Americans have always been generous givers to charity. Regardless of our differences, in the end most of us want to "do the right thing" and help those in need.

When Haiti suffered its horrific earthquake earlier this year, the US rushed aid and supplies to the region. In addition, as stories of the immense suffering poured out, thousands of Americans showed their concern by donating to various Haitian relief organizations.

Which makes this story in yesterday's New York Times disturbing. A concert organized to raise fund for Haitian relief will yield little in the way of actual dollars. Instead, the costs of raising the funds - despite the performers working without pay - will consume most of the proceeds.

BTW: I remember reading years ago that numerous performers will no longer do charity concerts just for the reasons highlighted by this article.

Here's an excerpt, with the full link below:

More Cash to Go to a Hall Than to Haiti

Published: March 17, 2010

Lang Lang, the celebrity pianist; Christoph Eschenbach, the conductor; and the Schleswig-Holstein Festival Orchestra are taking the stage at Carnegie Hall on Sunday night in a concert trumpeted as a fund-raiser for the earthquake-ravaged Haiti. But what ticket buyers may not realize is that far more of their dollars will go toward concert-hall rent and marketing than to anyone in Haiti, with the biggest chunks going to stagehands and newspaper advertisements.

Chang W. Lee/The New York Times

Christoph Eschenbach will conduct Sunday at the benefit featuring the Chinese pianist Lang Lang, top, and Schleswig-Holstein Festival Orchestra.

Even if the event’s nearly $200,000 worth of tickets sell out, less than $8,000 from the sales will go to the cause. The concert, though, is expected to raise some money, thanks mainly to a $50,000 subsidy by the Montblanc company and $10,000 by CAMI Music, the concert’s presenter and Mr. Lang’s management agency. Montblanc had promised to help pay for the concert well before it was transformed into a benefit, a decision made at Mr. Lang’s request. The performers, including Mr. Lang, are waiving their fees.

Officials of Unicef, the actual aid recipient, say that no matter how much money is earned, keeping Haiti in the public’s consciousness after the earthquake headlines have faded is invaluable.