1) Ben Bernanke has a tremendously good post on the Euro declaring that Germany’s trade surplus is a huge problem. I had been critical of his last few posts, but he really redeems himself with this one. He compares the Euro to the gold standard and blames the fixed exchange rate for Europe’s woes. But he goes even further. He says Germany is contributing to the problem by not trying to reduce their surplus. Bernanke recommends wage increases and more government spending.
The counterpoint to this is that the peripheral countries contributed to their own current account deficits by promoting policies that were reckless. There’s probably some truth to both arguments. But I think that blaming one side or the other misses the point. The bigger point is that the Euro itself is flawed. Policymakers haven’t only responded to results of the flawed currency poorly, but they’ve failed to fix the root cause of the problem. So yes, Germany can try to fix their trade surplus all they want, but that just likely means that some other country will become a trade surplus country within the fixed exchange rate system and the problem will simply get passed on like a hot potato. You have to fix the currency by creating some form of federal system of redistribution that automatically rebalances the internal imbalances just like the USA does. That’s the only way a single currency system like this can become sustainable.
2) Spend some time watching/listening to Howard Marks and Charley Ellis. I just can’t say enough about these two programs. The first is a Howard Marks interview at Google (via Josh Brown). And the second is a Charley Ellis interview with Barry Ritholtz on Masters in Business. I won’t ruin either one for you. These are great, great thinkers. Go have a listen.
3) I had to chuckle a bit at this piece in the NY Times today about why you should pay for financial advice. It discusses the LearnVest purchase by NorthWestern Mutual and how larger firms are starting to get into the business of making financial advice available to everyone. It ends with this:
“Here’s hoping that those insurance agents in the field agree to sign a fiduciary pledge to act in their clients’ best interests, put their money in basic index mutual funds instead of something more complex, give them simple term life insurance unless there is clear imperative to do otherwise and make all fees and commissions utterly transparent.”
Lovely thought, but totally unrealistic. The reality is that LearnVest’s primary strength was its status as an independent RIA. By becoming part of an insurance company they no longer adhere to a fiduciary standard and their employees likely can’t adhere to that standard because they will be increasingly incentivized to sell Northwestern’s products. After all, that’s part of the issue with this whole debate and the larger firms. The larger firms are the producers of many of the products that the industry uses. And the employees of these firms are incentivized to sell these products because they probably make more money selling this product than a low priced alternative. So I seriously doubt we’re going to see big changes at the big firms because they’ve already spent too much time and money developing their own product lines just to suddenly stop selling them out of the goodness of their hearts.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.