Gentlemen Prefer Bunds (German Bonds)

On March 10th, U.S. stocks declined for a fifth day.  The reason most often given was concern over Europe. Bond prices on most European bonds have declined, producing higher yields. Investors have flocked to safe havens, such as U.S. and German bonds, pushing those prices up and those yields sharply lower.

Spain’s ten year bonds are now yielding 5.8%. Spain is entering its second recession in three years, unemployment is at 23% and the government expects the economy to contract about 1.7% in 2012. The Spanish stock market is the lowest since March 2009. The concern is that austerity measures could have the effect of further depressing growth and creating a vicious cycle in which more budget cuts are needed to balance the books. Italy’s ten year bonds are not far behind, yielding 5.5%.

French business confidence has stagnated and factory output has dropped. Manufacturing production fell 1.2% in February and the Bank of France said its surveys suggest that GDP didn’t expand in the first quarter. On March 31st the Economist characterized France, Europe’s second largest economy, as “A Country in Denial.” Comparing them with Greece, the Economist indicated that “the Greeks know that free-spending and tax-dodging are over. But (France) has yet to face up to its changed circumstances.” Upcoming French elections demonstrate the reluctance to change. Front-runner Socialist Francois Hollande has promised to rollback most of the recent pension-age reforms and install a 75% tax rate on the wealthy. None of the candidates are offering radical reforms or austerity programs seen in other European elections recently. Yields on France ten-year bonds are currently 2.93%. But that could move up quickly and significantly right after the elections.

Germany is the one major bright spot. German ten year bonds are yielding 1.8% (as compared to ten year US treasuries yielding 2.04%.) Germany’s exports are up and its trade surplus surged in February. The above chart tells it all. German productivity has far outpaced the rest of Europe in the last eight years. Nominal unit labor costs have stayed almost level in Germany, while growing in Italy, Ireland, Spain, Greece and France. During this period, only Ireland has seen their costs drop, starting in 2008, as their labor accepted pay cuts and productivity increased. To get on par with Germany, all five countries would need a 30% pay cut to become competitive. It’s unlikely we can expect that to happen any time soon.

Preventing the Next Financial Overdose

Financial overdoseNew drugs are vetted by the Food and Drug Administration before they reach market. Should the same process be considered for new financial instruments?

Two professors at the University of Chicago, Eric Posner and E. Glen Weyl, think so. In February they published a paper arguing that regulators should approach financial products the way the FDA approaches new drugs. They suggest that the potential dangers of financial instruments “seem at least as extreme as the dangers of medicines.”

Their idea is that there would be a federal agency, designed along the lines of the FDA, which would test new financial products for social utility. In their analysis, products that serve only to increase speculation would be rejected. Products that help people hedge risks would be approved. The goal would be to deter financial speculation, or gambling, which contributes to systemic risk.

Certainly, their proposal has gotten pushback from those who believe that financial innovation is always good and regulation is always bad. Yet, given the fact that exotic instruments contributed to the credit crisis, it is valuable to review their proposal in a more detail.

Professors Posner and Weyl would distinguish between financial markets-where institutions lend money, trade securities and make investments and the real economy, where people trade goods and services. They believe that the real economy should be largely unregulated but the financial markets need regulation.

Furthermore, they don’t believe that disclosure alone is enough for financial instruments. “In pharmaceuticals, we could allow a company to sell whatever it wants as long as it tells the people the product might work but also might cause your head to fall off,” said Professor Posner. But, “we don’t do that because people will ignore the information, so we draw the line and say, ‘You can’t buy the product’.“ The same logic, they say, should be applied to financial instruments that could be harmful.

It’s unlikely that their proposals will become reality anytime soon. However, their comments may someday help to limit financial overdoses in the future.

Investment Behavior- Do Your Genes Control You?

Economists assume people act rationally. Bad assumption. Investors often don’t act the way they should. There is a long list of investment biases and many people are born with them. Five of the major follies of investing are 1) the reluctance to realize losses, 2) chasing performance, 3) insufficient diversification, 4) excessive trading, and 5) non-objective evaluation of risk and reward.

The recent report, “Why Do Individuals Exhibit Investment Biases?” researched and written by Henrik Cronqvist and Stephan Siegel illustrates how genes impact investment decisions.

Investment Behavior- Do Your Genes Control You?Economists assume people act rationally. Bad assumption. Investors often don’t act the way they should. There is a long list of investment biases and many people are born with them. Five of the major follies of investing are 1) the reluctance to realize losses, 2) chasing performance, 3) insufficient diversification, 4) excessive trading, and 5) non-objective evaluation of risk and reward.

The recent report, “Why Do Individuals Exhibit Investment Biases?” researched and written by Henrik Cronqvist and Stephan Siegel illustrates how genes impact investment decisions.

Their research was based on analysis of investment decisions made by identical twins in Sweden. They selected Sweden for two reasons. First, the Swedish Twin Registry (“STR”) is the world’s largest twin registry. Swedish twins are registered at birth and STR collects additional data through in-depth interviews. In particular, Cronqvist and Siegel wanted to focus on identical twins with identical genes rather than include fraternal twins, who share only 50% of their genes. Furthermore, until 2007 taxpayers in Sweden were subject to a wealth tax based on investment assets. Information about individual portfolios including holdings and sales was required to be filed with the Swedish Tax Authorities annually from 1999 to 2007.

Cronqvist and Siegel selected 15,208 pairs of identical twins and tracked their investment behavior using the wealth tax data. Controlling for various factors, they found that identical twins were more similar in their investment behavior than fraternal twins.

They also found that twins who had a “home” bias in investing also had a home basis in other ways. A home bias in investing typically would means that the individual would rather own stock in Swedish companies rather than stocks of foreign companies. Hence, this portfolio probably had insufficient diversification. Twins showing this bias also showed a preference for living closer to their place of birth and for marrying a spouse from their region of the country.

The researchers concluded that genes explain up to half the variation in investment behavior. They also looked into other factors. In particular, they reviewed education as a possible influence in investment behavior. Earlier research has shown that education reduces expressions of genetic predispositions to poor health. A baby born with bad health genes can overcome this deficiency with education and discipline. This is not the case with investment behavior. Cronqvist and Siegel found that education was not a significant moderator of genetic investment biases.

So, there you have it. Some lousy investors now have a new excuse. Their genes “made them do it.” Fortunately, financial advisors like DWM are here for many reasons; one of which is to help individuals make rational investment decisions regardless of their genes.

Will you be able to celebrate your century mark?

Lester Detterbeck of Detterbeck Wealth ManagementFrom the Charleston Mercury today:

“You’re invited to my 100th birthday party, so mark it down: Nov. 20, 2047 – only 35 years from now. This isn’t a joke. Recent studies show that Americans are living longer. It’s likely I will reach 100. Will you? And, if you do, will your savings last that long too? “

 Click here to read my latest contribution to the Charleston Mercury.


Email and website announcement

As of today, our emails are changing. As you know, DWM has been busy in the last year. DWM Financial Group was formerly the parent company for two divisions: DWM Investment Management and Detterbeck Wealth Management. In 2011 we divested DWM Investment Management, our third party money management division, so we could focus solely on clients and prospects of Detterbeck Wealth Management.

In conjunction with this change, we recently overhauled our website at We’re very proud of it and if you haven’t seen it yet, we invite you to take a look.

Hence we’re changing our emails from to To avoid possible issues with your spam filter, please be sure to update your contact records to assure further communication from DWM!

Detterbeck Wealth Management

NAPFA Press Release

Local Financial Advisor Joins Leading Association of Fee-Only Financial Planners: Brett M. Detterbeck of Detterbeck Wealth Management accepted for membership in the National Association of Personal Financial Advisors (NAPFA)

ARLINGTON HEIGHTS, IL- Brett M. Detterbeck of Detterbeck Wealth Management in Palatine, IL has been accepted for membership in the NATIONAL ASSOCIATION OF PERSONAL FINANCIAL ADVISORS (NAPFA). With membership, Detterbeck becomes affiliated with an organization of more than 1,500 of the most­ qualified financial advisors in the nation, as well as 900 other allied professionals.

Membership in NAPFA and the NAPFA-Registered Financial Advisor designation are only available to Fee­ Only advisors who meet NAPFA’s stringent qualifications. Those standards prohibit the acceptance of commissions and sales related compensation, require advisors to act in clients’ best interests at all times, and to offer comprehensive planning services. NAPFA is also known for having the industry’s most rigorous education and training requirements. Candidates for NAPFA-Registered Financial Advisor status are required to submit a comprehensive financial plan for a peer review.

To read more, please click here.


Ben Bernanke’s Latest Report to Congress

Ben Bernanke reportOn February 29th, Federal Reserve Chairman Ben Bernanke gave his biannual “Humphrey-Hawkins” report on monetary policy to Congress. In short, Mr. Bernanke testified that the “recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards.”

Mr. Bernanke noted recent “positive developments in the labor market” but said that the job market remains “far from normal.” He indicated very little worry about inflation even with the recent rise in energy prices. He pointed to advanced household spending in 2011, even though “the fundamentals that support spending continue to be weak: real household income and wealth were flat in 2011 and access to credit remained restricted for many potential borrowers.”

In the housing sector, he testified that affordability has increased, however many potential buyers lack the down payment and credit history to qualify for loans and others are reluctant to buy due to their concerns about “their income, employment prospects and the future path of home prices.” Mr. Bernanke outlined increases in manufacturing production and capital expenditures, yet indicated that the consensus of the Federal Open Market Committee is that GDP will increase overall by only 2.5% in 2012. 

Mr. Bernanke indicated that the target range for the federal funds rate remains at 0-1/4% and is expected to stay near that until the end of 2014. If so, mortgage rates should stay low and C.D. rates will be just slightly above zero for the next three years. He left the door open to a new program of mortgage-bond purchases to drive long-term rates even lower.

The Fed Chairman testified that a number of “constructive policy actions have been taken of late in Europe”. He continued, “We are in frequent contact with our counterparts in Europe and will continue to follow the situation closely.” One day after Mr. Bernanke’s testimony, the Euro-zone finance ministers said they were ready to give Greece the money it needs provided a bond swap that will cut the debt Greece owes it private creditors goes according to plan this week. At the same time, European economic data released on March 1st was grim. Overall unemployment hit a 15 year high, while inflation unexpectedly accelerated.

Zanny Minton Beddoes, of the Economist speaking on NPR’s Morning Edition last week, put the potential impact of the European problems on the America recovery this way: “In the past few months, the Europeans have successfully covered their festering sore with a massive, great Band-Aid. And, now the acute crisis has turned into a chronic one. With that, we can take off the table the risk of a financial catastrophe in Europe.” Let’s hope so. We’d like to keep the momentum going on our current U.S. recovery.

For more information:

Technology: Clicks and Bricks

Retail ecommerce salesLast year, online sales in America reached $188 billion, about 8% of total retail sales. Overall retail sales were flat, yet e-commerce sales are up in the double-digits. Online sales are expected to reach $275 billion by 2015.

Futurists have been predicting this shift for more than a decade. Today, people in their 20’s and 30’s do about 25% of their shopping online. Customers are buying more through their smartphones. Nearly one-third of Americans own a smartphone and fully 70% of them, according to the Economist, use the device to do searches within a store, usually to compare prices. 

Of course, the undisputed leader of online retail sales is Amazon. Last year, their sales were roughly $48 billion, fairly close to total sales at Best Buy. Yet, think how the profitability at the two compare. Amazon has no physical stores but rather a logistics network. And, it has roughly 1/6 of the employees of Best Buy. Certainly shopping online is more convenient, but it’s more than that. Amazon is truly focused on the customer. Larry Downes, writing in Forbes last month, characterized them this way: “Amazon lives and breathes the customer’s point-of-view. It completely engineers its business practices, its systems and its people to support it. When they make a mistake, they admit it and fix it.” You can’t say the same about Best Buy.

However, some bricks-and-mortar retailers do focus on customers. Macy’s, for example, says it is investing $400 million in the renovation of its flagship store on Herald Square in NYC. It will become the largest women’s shoe department in the world. The store will include 22 spots to dine and 300 extra fitting rooms. Its 130,000 sales people have received training in “MAGIC selling”, teaching them to be more helpful and friendlier with customers. Macy’s is trying to join those stores which have become more fun to visit, including Apple’s stores and the Disney stores.


Certainly, changes in retailing will continue. It is likely that physical stores will continue to shrink. However, showrooms that are fun, customer focused and feature products people want to touch, feel and taste before buying will survive. Online operations that focus on the customers will also do well. We, as customers, are certainly the beneficiaries of the new technology – both when we buy online and when we shop at the fun, customer-focused bricks-and-mortar locations.

 For more information:

Greek Rescue Approved- But Europe Not Out of the Woods

Greek rescue

Today Europe finally reached a Greek Deal. Yet, doubt remains over whether Greece will be able to meet the terms of the accord and what the future holds for the euro zone.

The finance ministers agreed to the long-awaited 130 billion euro ($170 billion) deal that would start to reduce Greece’s debt to 120.5% of GDP by 2020. Private sector creditors will take a write-down on their Greek bonds of 53.5%. In return for the new cash, Greece signed up for cuts in pensions, minimum wage, health-care and defense spending, sales of assets and layoffs of public sector employees. However, even with this latest agreement, concern exists that Greece will not be able to meet its future commitments.

The Greek economy shrank by 7% in 2011, 5% of which was in the last quarter. Analysts expect further declines of at least 4% in Greek GDP in 2012 due to the required austerity programs. These structural reform measures, on top of Greece’s already 20% unemployment, will only deepen Greece’s recession. To make matters worse, businesses are not investing in Greece’s future until the euro is secure. Suppliers are not extending Greek firms credit, which is worsening the current liquidity shortage.

Elsewhere in the euro zone there are glimmers of hope. According to the Economist, Ireland has regained competitiveness, Spain’s new government has been able to reform long rigid labor laws, and Italy has passed a pension reform and is soon to propose labor reforms of its own. Yet, austerity in the short-term causes more unemployment and reductions in spending and GDP. Italy, Spain and Portugal are all expected to see a sharp drop in GDP in 2012.

By the end of February, European leaders are expected to agree on a new, higher “firewall” for euro countries that get into financial trouble. A permanent 500 billion euro ($650 billion) fund, the European Stability Mechanism is expected in July. This could bring much-needed momentum to the euro zone.

Yes, Europe has reached a Greek deal. Yet, the road to recovery for the euro zone will still be long and hard.

For more information:

Knicks Star Jeremy Lin: Teaching Us Some Great Lessons

Last night, the Knicks won their seventh game in a row- after struggling all season. The big change has been point guard Jeremy Lin, was until ten days earlier, was sitting on the bench, waiting and hoping to get a chance to play.

Jeremy is unusual in three major ways.  He’s the first Taiwanese-American in the NBA. Only three Harvard grads have made it to the NBA before Jeremy. And, he was undrafted, unwanted and was almost shipped back to the development league two weeks ago. During the NBA holdout last fall, Lin was bunking with his brother; sleeping on the couch in his apartment and hoping for an opportunity to play in the NBA. 

Now, in the last five games, Lin has averaged 23 points, 10 assists, and 4 rebounds while playing almost 37 minutes out of each 48 minute. He is a worldwide sensation with over 200,000 followers on Twitter and 800,000 on Weibo, the Chinese version of Twitter and Facebook. His #17 jersey is the hottest selling item at the NBA store on Fifth Avenue in Manhattan. A sports blogger, Bryan Harvey suggested that the amazing thing about Lin is that “in a world of infinite data and endless observation, Lin has now broadsided us like an unseen torpedo, fired from a submarine we didn’t know existed.”

But this story is larger than basketball. Eric Jackson in Forbes last week recapped Jeremy Lin’s earlier struggles and now successes. Mr. Jackson believes all of us can learn ten important work principles from the Jeremy Lin story:

  1. Believe in yourself when no one else does.
  2. Seize the opportunity when it arises. 
  3. Your family will always be there for you, so be there for them. 
  4. Find the system that works for you.
  5. Don’t overlook talent that might exist around you today on your team.
  6. People will love you for being an original, not trying to be someone else.
  7. Stay humble.
  8. When you make others around you look good, they will love you forever.
  9. Never forget about the importance of luck or fate in life.
  10. Work your butt off.

Kudos to Jeremy Lin. We thank him for demonstrating important work lessons. Let’s hope his success continues- except, of course, when the Knicks play the Bulls.

More information: