Attention Economy May 5, 2016

  • End of Golden Era for Investors Spells Troubles for Millennials – Bloomberg 042716
    Rich Miller : Turning 30 just got a lot scarier. | A coming collapse in investment returns means that people that age today will have to work seven years longer or save almost twice as much to end up with the same nest egg as those of roughly a generation ago. | So says the research arm of McKinsey & Co. in a new report that argues that investors of all ages need to resign themselves to diminished gains. | The consulting company maintains that the last 30 years have been a “golden era” of exceptional inflation-adjusted returns thanks to a confluence of factors that won’t be repeated. They include falling inflation and interest rates, swelling corporate profits and an expanding price-earnings ratio in the stock market. | The next two decades won’t be nearly as lucrative, even on the optimistic assumption that the world economy snaps out of its recent funk and resumes growing at a faster clip, according to the McKinsey Global Institute report titled “Diminishing Returns: Why Investors May Need to Lower Their Expectations.”
  • Don’t Let McKinsey Scare You, Millennials – Bloomberg Gadfly 050416
    Nir Kaissar: Poor millennials. Up to their ears in student debt. Facing stagnant wages. Beset by obscene housing costs in the big cities where they are most likely to land a job – if they can land a job, that is. | And now a high-profile consulting firm, McKinsey & Co., is adding to millennials’ woes with a Debbie Downer report that warns that millennials will have to work seven years longer or save twice as much in order to live as well in retirement as their parents. The reason, according to McKinsey, is that returns for U.S. and Western European stocks and bonds will be far lower over the next 20 years than they were over the previous 30 years.
    Well, take heart Millennial Investors. Your futures are better than McKinsey would have you believe.
  • The Cost of Moving at Sub-Treasury Speed – Bloomberg Gadfly 050416
    Lisa Abramowicz: Treasuries, for example, move rapidly. Corporate bonds, on the other hand, trade about 3,000 times more slowly than U.S. government debt. So it would be much more expensive to quickly liquidate a pool of company debt than it would for Treasuries.
    That’s one of the conclusions of a research paper presented by Albert S. Kyle, a finance professor at the University of Maryland, this week at the Federal Reserve Bank of Atlanta conference in Amelia Island, Fla. He highlighted how time is the main distinguishing factor between different securities and how they trade.
    The paper’s point is critical to anyone who invests in corporate-debt funds because it raises a question about relying on a quick exit from slow-moving securities. While mutual funds promise investors the ability to redeem their capital daily, the underlying securities often move much more slowly.
    So far, this liquidity mismatch hasn’t caused a crisis during market hiccups, even given the billions of dollars of mutual-fund money that has poured into corporate debt markets since 2008. And it seems unlikely to cause a systemic seizure in the near future because fund managers are taking actions to prevent selling debt in a down market, including holding more cash and securing credit lines.
  • Clinton’s Thinking Vs. Trump’s Feelings – Bloomberg View 050416
    Cass R. Sunstein: Donald Trump is an iconic System 1 candidate — more clearly so than any party nominee in at least sixty years. Hillary Clinton is an iconic System 2 candidate — as clearly so as any party nominee in the same period. That distinction may well end up defining the general election. | Let me explain. Psychologists, and most prominently Nobel Prize winner Daniel Kahneman, have distinguished between two ways of thinking — fast and slow. Fast thinking is associated with the brain’s System 1: It is intuitive, quick, and sometimes emotional. When you think that two plus two equals four, and when you immediately recognize a warm, smiling face, you are using System 1. | System 2 is deliberative and reflective. When you multiply 346 times 213, or struggle to fill out your tax forms, you are relying on System 2. If you are engaging in some kind of complex cost-benefit analysis, System 2 will be working hard. | System 1 is what leads people to fall in love. System 2 helps them decide whom to marry.
  • Tesla’s Talk Isn’t Cheap – Bloomberg Gadfly 050416WC
    Liam Denning: Investors should have known this was coming. As I wrote here a month ago, Tesla’s Kickstarter-like down-payment program for the mass-market Model 3 was not only a useful source of interest-free funding. By holding out the promise of huge potential demand, it created a perfect opportunity to open the door to selling more new equity. | Tesla, like any new-ish business with global ambitions, has long relied on the good graces of the capital markets to bridge the gap between voracious up-front spending and future growth.
  • Tesla’s Wild New Forecast Changes the Trajectory of an Entire Industry – Bloomberg 050416
    Tesla just took the most ambitious automotive production timeline since the Ford Model T and moved it up two years.
  • Tesla Powerwalls for Home Energy Storage Hit U.S. Market – Bloomberg 050216
    A year after Elon Musk unveiled the Powerwall at Tesla Motors Inc.’s design studio near Los Angeles, the first wave of residential installations has started in the U.S. The 6.4-kilowatt-hour unit stores electricity from home solar systems and provides backup in the case of a conventional outage. Weighing 214 pounds and standing about 4-feet tall, it retails for around $3,000. But hookup by a trained electrician is required, as is something called a bi-directional inverter that converts direct-current electricity into the kind used by dishwashers and refrigerators. The costs add up quickly — which has fueled skepticism about Musk’s dream of changing the way the world uses energy. | Net-metering policies, which allow residential solar customers to sell their excess solar electricity back to utilities, have limited the appeal of home batteries in many states. But that’s shifting: Net metering is being phased out in some states, making storage more attractive.
  • Billions Are Being Invested in a Robot That Americans Don’t Want – Bloomberg 050416
    The driverless revolution is racing forward, as inventors overcome technical challenges such as navigating at night and regulators craft new rules. Yet the rush to robot cars faces a big roadblock: People aren’t ready to give up the wheel. Recent surveys by J.D. Power, consulting company EY, the Texas A&M Transportation Institute, Canadian Automobile Association, researcher Kelley Blue Book and auto supplier Robert Bosch LLC all show that half to three-quarters of respondents don’t want anything to do with these models.
  • How Americans Blow $1.7 Trillion in Retirement Savings – Bloomberg 042716
    You’re traveling across the desert, feeling parched and looking dirty. You take a long drink of water from your canteen, then wash your face with the rest. As you’ll discover before you die of thirst in a day or two, you just made a huge mistake. | Outside of cartoons, nobody is this stupid. But people make the same kind of mistake all the time, putting their current happiness (vacations, flat screens, new cars) way above their future well-being. | Economists call this kind of irrationality “present bias.” And according to a National Bureau of Economic Research study, it and other biases are holding back millions of Americans from saving enough money for that ultimate future need: retirement. | How much money? Try $1.7 trillion on for size. That’s 12 percent of the $14 trillion in U.S. individual retirement and 401(k) accounts.
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