Are you getting the right answer to the wrong question? When people find out I used to run a hedge fund, they often ask me, “What is a hot investment right now?” Of course, I don’t attempt to answer the question for a lot of reasons, the least being that I would have to ask them a series of probing questions about their finances. Besides, I am not a money manager. Either way, it always occurs to me that they might just be asking the wrong financial question.

I wrote this in response to a friend who said he agreed with Goldman Sachs that austerity is the biggest threat to the economy.  After all, look at Britain (see, for example, “Why Budget Cuts Don’t Bring Prosperity”, David Leonhardt, The New York Times, February 23, B1):

Vanguard led all ETF issuers in cash inflows last year, thanks in no small part to a shift among investors towards the most cost-efficient ETF options. Now the company is lowering expenses on six of its international equity ETFs, reflecting greater efficiencies realized in the form of asset growth and operating cost reductions. The ETFs impacted by the expense ratio reduction include:

The official national debt figure is widely trumpted as a bit over $14 trillion. If that were not bad enough the currenty historically-low effective interest rate on the debt service has come as a result of shifting more and more of the total debt to short-term maturities.

As we enter year three of record low interest rates, many investors continue to face significant challenges in constructing a portfolio that delivers attractive current income without taking on considerable risks. With interest rates on investment grade fixed income securities pushed down, investors who require a constant stream of payments from their portfolios have been forced to get creative in their search for yield. Some have found attractive options in emerging market debt or junk bonds, while others have looked beyond fixed income to address a “yield deficiency.” Enter dividends, a powerful tool that and investing strategy that may be attractive to various types of investors.

People spend hours analyzing their next purchase by comparing quality and prices in order to get the very best deal possible.  However, when this very same individual is selling something, they give away the store.  When you stop and think about it, the behavior is odd because, bottom line, money is money whether you are buying or selling.  This thought came to me when I watched a commercial for a company that encouraged people to mail in their gold jewelry with the promise of an envelope with a fat check mailed back to them. Come to find out there are now “gold” parties (think Tupperware parties for the 21^st century) where ladies are being encouraged to bring their gold jewelry to sell.

Gross margin decreased 190 basis points due to higher commodity costs.  Higher year-on-year commodity cost reduced gross margin by 160 basis points.  For perspective, on a weighted average basis, spot prices for our key materials and energy inputs are up more than 20% versus last year’s levels. -  Jon Moeller, CFO, Procter & Gamble, Earnings Conference Call, January 27

In January Steven Hansen observed that, through November, the trade deficit for manufactured goods was the equivalent of 1.3 million workers earning the median manufacturing wage in the U.S. Well, the trade deficit has been with us in a major way for nearly two decades. I am reminded of the 1992 presidential campaign where one of the three candidates, Ross Perot, argued against the adoption of NAFTA, The North American Free Trade Agreement. The other two candidates supported NAFTA.

As the ETF industry has expanded in recent years ongoing innovation has given investors more precise tools for accessing various corners of the stock and bond markets, as well as securities that deliver exposure to previously hard-to-reach asset classes and investment strategies. Many of the exchange-traded products to debut over the last several years utilize futures contracts and derivatives to achieve their objectives, introducing additional complexity and risk factors. When used correctly, these products can be powerful tools to hedge exposure, speculate on short term price swings, or implement advanced strategies. But they also introduce the potential to get burned when used incorrectly.

The European Union, along with the U.S., is supposed to represent the heart of the developed world. Europe is now an emerging economy, as shown by the following graph from the 5 Min. Forecast: