Connect with us

Investment

How a Riskier World Has Me Rethinking Investment Risk – New York Magazine

Published

on


What’s next for the stock market? Could go either way.
Photo: Johannes Eisele/AFP via Getty Images

Because I don’t want to end up like Larry Kudlow, I don’t make claims about whether the stock market is going to go up and down. I mean, sure, I expect stock prices to tend to go up over the long run as they roughly track the growth of the economy. I own stock mutual funds, so I’ve put my money where my mouth is on this view. But I don’t make claims about whether the stock market is currently “overvalued” or “undervalued,” or about whether a particular stock market rally or decline is rational, or about whether now is an especially good time to buy — not on television, not to my friends, and not even to myself. If I knew in advance what the stock market was going to do, I wouldn’t be writing this article; I would be self-quarantining on my private island.

Since I don’t think I can outsmart the market, my usual investing strategy is just to take the money I don’t need to use right now and park it in low-fee, broad-market equity index funds; set it and forget it, knowing the equity markets are likely to be a lot higher when I retire than they are now. At least that was my approach until the Friday before last, when I sold about a third of my stock funds.

Here is my thinking. I am still unwilling to make claims about the future level of the S&P 500, but I am willing to make claims about the standard deviation of its likely future levels. The coronavirus crisis means tremendous uncertainty for the U.S. economy, with possible outcomes ranging from relatively benign to calamitous, and those outcomes all have implications for the financial markets. At this point, I can easily envision the Dow above 25,000 in a year and also below 15,000, and so can other market participants. This uncertainty is why stocks have been so volatile of late. When we have a clearer picture of the impact of this crisis, I expect stock prices to become more stable, but I don’t know whether they will stabilize at a high or low level. The uncertainty will only be reduced when we have locked in a good outcome or a bad one.

Like essentially all Americans, my financial position is tied to the fate of the U.S. economy for reasons unrelated to investing. My human capital — the wage and salary income I can expect to earn in the future — is closely correlated to U.S. economic performance, and my earning outlook has therefore gotten more uncertain in recent weeks just as the outlook for stocks and the human condition have gotten more uncertain. And like most Americans not at or near retirement age, my ability to earn money in the future is my primary store of wealth, exceeding my current financial investments. There are ways to insure future labor income against idiosyncratic risks (disability insurance, life insurance) but there is no good way for me to hedge it against broad economic risk. This makes me feel overexposed to U.S. economic growth, and I wanted to rebalance away from that risk in the only places I can: my investment account and my retirement accounts.

By selling some of my stock holdings, I have given up some of the upside I might enjoy if the stock market bounces right back. But if the stock market bounces right back, that probably means the damage from coronavirus has been less severe than feared and my future professional outlook is therefore less impaired. Conversely, if the stock market continues to crater, I will have preserved assets at a time when I most need them.

Alas, I used the money I took out of the stock funds and bought bond funds, which has been an unfortunate choice so far. The idea was to diversify my risks by buying something that would not move in line with the stock market. Returns on U.S. Treasury bonds have typically been inversely correlated to returns on stocks, since investors who sell stocks out of fear often buy the safest bonds — government bonds — as they seek a stable investment. Investment-grade corporate bond prices are typically only somewhat correlated to stock prices; both depend on the financial health of corporations, but bondholders are ahead of stockholders in line to be paid, so bonds do not get beat up as badly as stocks when corporate finances weaken. Municipal bonds are barely correlated to stocks at all. I bought funds with diverse exposure to many classes of high-quality bonds, hoping to be significantly less exposed to the market gyrations. Unfortunately, over the last few days, pretty much every kind of investment has fallen in value simultaneously: stocks, corporate bonds, Munis, even Treasury bonds.

“When stocks and Treasuries both sell off, it only means one thing: Everybody’s trying to get their hands on cash,” said Josh Brown, the CEO of Ritholtz Wealth Management and a panelist on CNBC’s Halftime Report. He compared the situation to October 2008, when investors were selling not to adjust a risk mix but to meet urgent cash needs. Investors are selling not what they especially want to sell but whatever they can sell. It’s a sign of significant economic distress.

“I’m always surprised that people are surprised that there’s not this consistent negative correlation between bonds and stocks,” said Allison Schrager, a financial economist who focuses on risk. “Whenever you have tail events, those correlations always start reversing, because people are looking for cash or they’re worried about inflation in the future — there’s always a million reasons why. All we know is those correlations are not reliable at all.”

I was surprised as I researched this column: Most of the experts I spoke with offered the view that the stock market has gone down too much. Usually, this view came unsolicited — I don’t call people up and ask them if stock prices are too low because I don’t think anybody really knows the answer. Nonetheless, Mark Dow, an investment manager who writes the Behavioral Macro blog, told me he sold equities back in February, because he thought markets were pricing in “zero risk” from coronavirus when there was at least some risk (he was right) but now that prices have crashed he thinks they have gone down too much and he is buying again. Schrager — who describes herself as a “militant efficient markets person” and therefore should not really have a view on whether stocks are too high or too low — also told me she thinks stocks are too low. Andrew Biggs, a pensions expert at the conservative American Enterprise Institute, told me he’d moved a small amount of money out of Treasury bonds into stocks in an effort to “buy the dip.” But Michael Strain, also of AEI, seemed to consider stocks to be oversold and undersold at the same time. He told me he thought stocks had fallen more than was reasonable — but then admitted to me that he was holding cash out of the market that he’d previously intended to invest in stocks, because he thought he would be able to buy later at a lower price.

Strain’s internal conflict of opinion reinforced my view that I should not form an opinion about whether stock prices are higher or lower than they should be. But I also realized, several days after I sold stocks, why I had done so without any particular conviction that their price was too high. It wasn’t a hard-headed calculation about portfolio allocation. After all, as Schrager pointed out to me, it was kind of dumb to think I’d be able to rely on bonds moving independently from stocks in a crisis. But the trade worked as a psychological mechanism: I wanted to feel myself asserting control over some kind of risk in a world that has become much scarier than it was a few weeks ago, and I found an opportunity to do so in my brokerage account. It made me feel a little better. At least until bond prices started falling.

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

In years before outbreak, investment in public health shrunk – CityNews Vancouver

Published

on


In the decade before Michigan and its largest city became the latest hot spot for the deadly coronavirus, officials were steadily, and at times dramatically, cutting back on their first line of defence against pandemics and other public health emergencies.

Approaching bankruptcy, Detroit disbanded most of its public health department and handed its responsibilities to a private non-profit. When the department reopened in 2014 in the back of the municipal parking office, its per capita budget was a fraction of other big cities’, to serve a needier population.

In Ingham County, home to the capital city of Lansing, then-Public Health Director Renee Branch Canady sat down at budget time every year for seven straight years to figure out what more to cut.

“It was just chop, chop, chop,” Canady said. By the time she left in 2014, all the health educators, who teach people how to prevent disease, were gone.

What happened in Michigan also played out across the country and at the federal level after the 2008 recession, which caused serious budget problems for governments. But as the economy recovered, public health funding did not, a review of budget figures and interviews with health experts and officials shows.

A shortfall persisted despite several alarming outbreaks, from H1N1 to Ebola, and has left the U.S. more vulnerable now to COVID-19, experts say. In normal times, public health workers are in the community, immunizing children, checking on newborns and performing other tasks. In a health emergency, they’re tracing outbreaks, conducting testing and serving as “first responders” when people fall sick — efforts that are lagging in many states as the coronavirus spreads.

“Our funding decisions tied their hands,” said Brian Castrucci, who worked with health departments in Philadelphia, Texas and Georgia and is now president of the de Beaumont Foundation, a health advocacy organization.

The cuts came under both Democratic and Republican administrations. While there is no single number that reflects all federal, state and local spending, the budget for the federal Centers for Disease Control, the core agency for public health, fell by 10 per cent between fiscal year 2010 and 2019 after adjusting for inflation, according to an analysis by the Trust for America’s Health, a public health research and advocacy organization. The group found that federal funding to help state and local officials prepare for emergencies such as outbreak has also fallenshrunk — from about $1 billion after 9-11 to under $650 million last year.

Between 2008 and 2017, state and local health departments lost more than 55,000 jobs — one-fifth of their workforce, a major factor as cities struggle to respond to COVID-19.

“It definitely has made a difference,” said John Auerbach, Trust for America’s Health CEO and a former public health director in Massachusetts.

New York has seen the most COVID-19 cases in the U.S., but numbers are surging in places such as Detroit, where those testing positive nearly tripled in the week between March 28 and Saturday, when officials said the city was approaching 4,000 cases, with 129 deaths. A more robust health system could have done more earlier to track down and isolate people who were exposed, said the city’s former health director, Abdul El-Sayed.

State spending on public health in Michigan dropped 16% from an inflation-adjusted high point of $300 million in 2004, according to a 2018 study.

Some of the funding problems, Canady and other public health advocates believe, stem from a fundamental belief in smaller government among Republican governors, including former Michigan Gov. Rick Snyder, who called for “shared sacrifice” after the state’s auto-dependent economy was battered by the recession.

In Kansas, then-Gov. Sam Brownback ran what he called a “red-state experiment” to cut taxes. State spending on its Public Health Division, outside of federal funds, dropped 28% between 2008 and 2016.

The cuts meant a “shifting of responsibility for services from the state level to the county level,” Democratic Gov. Laura Kelly said in an interview. “And we saw that in public health.”

In Maine, then-Gov. Paul Le Page’s administration stopped replacing public health nurses who were dealing with families in the opioid crisis. The number of nurses fell from around 60 to the low 20s before the Legislature tried to reverse the action.

Although agencies often receive emergency funding when a crisis strikes, the infusion is temporary.

“Decisions are made politically to support something when it becomes an epidemic,” said Derrick Neal, a public health official in Abilene when Ebola surfaced in Texas. “And then as time passes, the funding shrinks.”

In Oklahoma, state funding for the Department of Health still hasn’t returned to its levels of 2014, when a combination of slumping oil prices, tax cuts and corporate breaks punched a giant hole in the state’s budget. When state revenues later improved, the money went to other priorities.

“It’s much easier to cut funding for public health than it is to start taking away benefits from people or access to care for people,” said former state Rep. Doug Cox, an emergency room doctor.

Castrucci said the problem with providing more money only at times of emergency is it doesn’t allow time to recruit and train new workers.

“We waited until the house was on fire before we started interviewing firefighters,” he said.

For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia, and death.

___

Associated Press reporters David Eggert in Lansing, Michigan, Paul Weber in Austin, Texas, John Hanna in Topeka, Kansas, and Sean Murphy in Oklahoma City contributed to this report.

Sara Burnett, The Associated Press

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

In years before coronavirus outbreak, U.S. investment in public health fell – Toronto Star

Published

on


In the decade before Michigan and its largest city became the latest hot spot for the deadly coronavirus, officials were steadily, and at times dramatically, cutting back on their first line of defence against pandemics and other public health emergencies.

Approaching bankruptcy, Detroit disbanded most of its public health department and handed its responsibilities to a private non-profit. When the department reopened in 2014 in the back of the municipal parking office, its per capita budget was a fraction of other big cities’, to serve a needier population.

In Ingham County, home to the capital city of Lansing, then-Public Health Director Renee Branch Canady sat down at budget time every year for seven straight years to figure out what more to cut.

“It was just chop, chop, chop,” Canady said. By the time she left in 2014, all the health educators, who teach people how to prevent disease, were gone.

What happened in Michigan also played out across the country and at the federal level after the 2008 recession, which caused serious budget problems for governments. But as the economy recovered, public health funding did not, a review of budget figures and interviews with health experts and officials shows.

A shortfall persisted despite several alarming outbreaks, from H1N1 to Ebola, and has left the U.S. more vulnerable now to COVID-19, experts say. In normal times, public health workers are in the community, immunizing children, checking on newborns and performing other tasks. In a health emergency, they’re tracing outbreaks, conducting testing and serving as “first responders” when people fall sick — efforts that are lagging in many states as the coronavirus spreads.

“Our funding decisions tied their hands,” said Brian Castrucci, who worked with health departments in Philadelphia, Texas and Georgia and is now president of the de Beaumont Foundation, a health advocacy organization.

The cuts came under both Democratic and Republican administrations. While there is no single number that reflects all federal, state and local spending, the budget for the federal Centers for Disease Control, the core agency for public health, fell by 10 per cent between fiscal year 2010 and 2019 after adjusting for inflation, according to an analysis by the Trust for America’s Health, a public health research and advocacy organization. The group found that federal funding to help state and local officials prepare for emergencies such as the coronavirus outbreak has also fallen — from about $1 billion (U.S.) after 9/11 to under $650 million last year.

Between 2008 and 2017, state and local health departments lost more than 55,000 jobs — one-fifth of their workforce, a major factor as cities struggle to respond to COVID-19.

“It definitely has made a difference,” said John Auerbach, Trust for America’s Health CEO and a former public health director in Massachusetts.

New York has seen the most COVID-19 cases in the U.S., but numbers are surging in places such as Detroit, where those testing positive nearly tripled in the week between March 28 and Saturday, when officials said the city was approaching 4,000 cases, with 129 deaths. A more robust health system could have done more earlier to track down and isolate people who were exposed, said the city’s former health director, Abdul El-Sayed.

State spending on public health in Michigan dropped 16 per cent from an inflation-adjusted high point of $300 million in 2004, according to a 2018 study.

Some of the funding problems, Canady and other public health advocates believe, stem from a fundamental belief in smaller government among Republican governors, including former Michigan Gov. Rick Snyder, who called for “shared sacrifice” after the state’s auto-dependent economy was battered by the recession.

In Kansas, then-Gov. Sam Brownback ran what he called a “red-state experiment” to cut taxes. State spending on its Public Health Division, outside of federal funds, dropped 28 per cent between 2008 and 2016.

The cuts meant a “shifting of responsibility for services from the state level to the county level,” Democratic Gov. Laura Kelly said in an interview. “And we saw that in public health.”

In Maine, then-Gov. Paul Le Page’s administration stopped replacing public health nurses who were dealing with families in the opioid crisis. The number of nurses fell from around 60 to the low 20s before the Legislature tried to reverse the action.

Although agencies often receive emergency funding when a crisis strikes, the infusion is temporary.

“Decisions are made politically to support something when it becomes an epidemic,” said Derrick Neal, a public health official in Abilene when Ebola surfaced in Texas. “And then as time passes, the funding shrinks.”

In Oklahoma, state funding for the Department of Health still hasn’t returned to its levels of 2014, when a combination of slumping oil prices, tax cuts and corporate breaks punched a giant hole in the state’s budget. When state revenues later improved, the money went to other priorities.

“It’s much easier to cut funding for public health than it is to start taking away benefits from people or access to care for people,” said former state Rep. Doug Cox, an emergency room doctor.

Get the latest in your inbox

Never miss the latest news from the Star, including up-to-date coronavirus coverage, with our free email newsletters

Sign Up Now

Castrucci said the problem with providing more money only at times of emergency is it doesn’t allow time to recruit and train new workers.

“We waited until the house was on fire before we started interviewing firefighters,” he said.

For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia, and death.

Associated Press reporters David Eggert, Paul Weber, John Hanna and Sean Murphy contributed to this report.

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

In years before outbreak, investment in public health shrunk – 680 News

Published

on


In the decade before Michigan and its largest city became the latest hot spot for the deadly coronavirus, officials were steadily, and at times dramatically, cutting back on their first line of defence against pandemics and other public health emergencies.

Approaching bankruptcy, Detroit disbanded most of its public health department and handed its responsibilities to a private non-profit. When the department reopened in 2014 in the back of the municipal parking office, its per capita budget was a fraction of other big cities’, to serve a needier population.

In Ingham County, home to the capital city of Lansing, then-Public Health Director Renee Branch Canady sat down at budget time every year for seven straight years to figure out what more to cut.

“It was just chop, chop, chop,” Canady said. By the time she left in 2014, all the health educators, who teach people how to prevent disease, were gone.

What happened in Michigan also played out across the country and at the federal level after the 2008 recession, which caused serious budget problems for governments. But as the economy recovered, public health funding did not, a review of budget figures and interviews with health experts and officials shows.

A shortfall persisted despite several alarming outbreaks, from H1N1 to Ebola, and has left the U.S. more vulnerable now to COVID-19, experts say. In normal times, public health workers are in the community, immunizing children, checking on newborns and performing other tasks. In a health emergency, they’re tracing outbreaks, conducting testing and serving as “first responders” when people fall sick — efforts that are lagging in many states as the coronavirus spreads.

“Our funding decisions tied their hands,” said Brian Castrucci, who worked with health departments in Philadelphia, Texas and Georgia and is now president of the de Beaumont Foundation, a health advocacy organization.

The cuts came under both Democratic and Republican administrations. While there is no single number that reflects all federal, state and local spending, the budget for the federal Centers for Disease Control, the core agency for public health, fell by 10 per cent between fiscal year 2010 and 2019 after adjusting for inflation, according to an analysis by the Trust for America’s Health, a public health research and advocacy organization. The group found that federal funding to help state and local officials prepare for emergencies such as outbreak has also fallenshrunk — from about $1 billion after 9-11 to under $650 million last year.

Between 2008 and 2017, state and local health departments lost more than 55,000 jobs — one-fifth of their workforce, a major factor as cities struggle to respond to COVID-19.

“It definitely has made a difference,” said John Auerbach, Trust for America’s Health CEO and a former public health director in Massachusetts.

New York has seen the most COVID-19 cases in the U.S., but numbers are surging in places such as Detroit, where those testing positive nearly tripled in the week between March 28 and Saturday, when officials said the city was approaching 4,000 cases, with 129 deaths. A more robust health system could have done more earlier to track down and isolate people who were exposed, said the city’s former health director, Abdul El-Sayed.

State spending on public health in Michigan dropped 16% from an inflation-adjusted high point of $300 million in 2004, according to a 2018 study.

Some of the funding problems, Canady and other public health advocates believe, stem from a fundamental belief in smaller government among Republican governors, including former Michigan Gov. Rick Snyder, who called for “shared sacrifice” after the state’s auto-dependent economy was battered by the recession.

In Kansas, then-Gov. Sam Brownback ran what he called a “red-state experiment” to cut taxes. State spending on its Public Health Division, outside of federal funds, dropped 28% between 2008 and 2016.

The cuts meant a “shifting of responsibility for services from the state level to the county level,” Democratic Gov. Laura Kelly said in an interview. “And we saw that in public health.”

In Maine, then-Gov. Paul Le Page’s administration stopped replacing public health nurses who were dealing with families in the opioid crisis. The number of nurses fell from around 60 to the low 20s before the Legislature tried to reverse the action.

Although agencies often receive emergency funding when a crisis strikes, the infusion is temporary.

“Decisions are made politically to support something when it becomes an epidemic,” said Derrick Neal, a public health official in Abilene when Ebola surfaced in Texas. “And then as time passes, the funding shrinks.”

In Oklahoma, state funding for the Department of Health still hasn’t returned to its levels of 2014, when a combination of slumping oil prices, tax cuts and corporate breaks punched a giant hole in the state’s budget. When state revenues later improved, the money went to other priorities.

“It’s much easier to cut funding for public health than it is to start taking away benefits from people or access to care for people,” said former state Rep. Doug Cox, an emergency room doctor.

Castrucci said the problem with providing more money only at times of emergency is it doesn’t allow time to recruit and train new workers.

“We waited until the house was on fire before we started interviewing firefighters,” he said.

For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia, and death.

___

Associated Press reporters David Eggert in Lansing, Michigan, Paul Weber in Austin, Texas, John Hanna in Topeka, Kansas, and Sean Murphy in Oklahoma City contributed to this report.

Sara Burnett, The Associated Press

Let’s block ads! (Why?)



Source link

Continue Reading

Trending