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Explaining Interest Rates with Hamburgers

Popeye the Sailor Man has a sidekick named Wimpy, with a prodigious appetite, who famously says "I'll gladly pay you Tuesday for a hamburger today." Wimpy provides a classic example of consuming now and paying later. The Federal Reserve, by continuing to keep interest rates low, is promoting such behavior.

Think of low interest rates as making money cheap. With cheap money, there is an incentive to borrow and consume now and repay the debt in the future.

In fact, that is what the Federal Reserve has sought to accomplish. In response to the recession that began in 2008, the Fed moved to dramatically reduce interest rates in an effort to spur spending and revive the economy.

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Putting a Stock Market Decline in Perspective

If the stock market didn't go down on occasion, sometimes dramatically, then you would not experience the positive long-term results that have historically occurred. How is this possible?

Stock returns in the long run have been quite compelling because of many factors, such as a growing profits. But another factor is something known as the "risk premium."

Think of it this way. A 10 year U.S. Treasury bond is paying around 2% a year. This is not much of a return, especially after inflation and taxes. The trade-off is knowing that you will likely receive the stated interest payments and get your money back at maturity. You just don't get paid much for certainty.

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Would You Run with the Bulls at Pamplona?

Running with the bulls in the Spanish city of Pamplona can lead to serious injury, even death. How risky is it? According to the website FiveThirtyEight, there was a 0.3% chance of being injured in 2014. In a highly unscientific survey I sent out recently, about half of the respondents chose this figure. A little over one-third of the respondents said they would participate in the event if the probability was this low.

But do people who run with the bulls correctly calculate the risk? After all, FiveThirtyEight called the festival "one of the most jarring examples of how imperfect a process natural selection is ... Literally the only point of going is to survive extreme risk (and to slap a bull on the butt, apparently)."

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Financial Advisors, Dentists and Golf Balls

 

Choosing a professional, like a dentist or financial advisor, can be difficult when we don't have the requisite expertise to judge their skill level. But there are certain things you can focus on. Check out the video for some criteria to use and how golf balls fit into the equation.

Musical Treat

Dentists help create a nicer smile.  Hopefully financial advisors make you smile. Chicago's "Make Me Smile" is a great combination of rock with a horn section.  The 1970 live version is worth a listen. (Sadly, the 1977 live version shows the deterioration of the late guitarist/singer Terry Kath.) Other "smile" songs include "Desecration Smile" by the Red Hot Chili Peppers and a take on the classic "Smile" by Nat King Cole.

Notes From My Trip to China

China overwhelms you -- in a positive way. There is the history, the culture, and the food. There is the size of its cities and the presence of so many people. There is the natural beauty of its mountains, lakes, and rivers. It's hard to convey everything we saw, so I'll focus on some of the broader themes of our experience (as compared to a travelogue).

You say you want a revolution ...

Construction cranes filled the sky of the Chinese cities we visited, adding ever more high rises to the seemingly endless vista of apartment buildings. How could Beijing (population 22 million), Xian (8.5 million), and Chengdu (14 million) become any denser?

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