Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Carl from Chicago 
I was recently reading through Barron’s when I came upon this career advertisement for a high ranking position. Let’s read it.
“We’re looking for a proactive leader who can motivate others, one who can embrace and represent the mission, values and goals of the IRS”.
At Life in the Great Midwest one of the most popular posts is an analysis I prepared on iBonds. iBonds are offered by the Federal government and information can be found at their official site www.treasurydirect.gov.
iBonds are a fixed income security where the principal is guaranteed by the US Government, which basically means no risk. If you invest $5000 (their current annual maximum) you will get your $5000 back at maturity, unless the US Government collapses in which case we likely will have other problems. In addition to receiving your principal back, the securities pay a “base rate” that is between 1% – 3% depending on when you purchased them (currently at 1.2%) and you receive a semi-annual inflation component which tracks the CPI… this component is now 1.53% for six months or approximately 3.1% for the year. Thus 3.1% plus 1.2% equals a rate of approximately 4.3%, which is pretty good right now since Treasuries are yielding 2-3%.
You used to be able to buy iBonds at a rate of up to $30,000 / year per SSN (or $60,000 for a married couple) but now the Federal government has limited it to $5000 / year per person since they were a great deal compared to other alternatives (I am speculating on this, but they did reduce the amount you could purchase). With the rate down to $5000 / year they are good for gifts or kids but not a serious investment vehicle anymore.
One of the first things Dan and I agreed on about blogging is that we wouldn’t go after the “easy” targets like Krugman because that kind of “fisking” is already all over the web and we aren’t adding anything to the discussion that hasn’t been done before.
However, this “free pass” does not apply to journalists. In general, we believe that most journalists are uninformed about the topics that they write about beyond a superficial level and as a result often miss the entire point of the issue. There are exceptions, of course, such as Michael Lewis, who wrote the great books Moneyball, Liar’s Poker and the Blind Side about baseball, finance, and football respectively. Michael Lewis represents the pinnacle of journalism in that he inhabits and deeply understands the topics that he writes about and weaves together a gripping tale of individuals that illuminates rather than obscures his topics.
In 2007 I attended a seminar on journalism sponsored by the Chicago Council on Global Affairs that I wrote about in this blog post. At the seminar I asked the journalists how they could compete against bloggers who wrote about a narrow range of topics that they understood exceedingly well while the journalists were mostly generalists who skimmed the surface and threw in “the human element”. Their basic answer is that the reader couldn’t trust someone like me because they don’t know my motivation but the journalist in the paper or through the official channel was a trustworthy professional by comparison.
While I thought then (and still do) that this answer is mainly bullsh*t it was a pretty thoughtful and effective answer on their part, because this cover of objectivity is better than trying to engage bloggers on their own terms who understand the topics that they write about (on good blogs, that is) far better than the journalist ever could.
In addition to blogging I have some other side projects. One of my side projects is the web site www.trustfundsforkids.com (I’m not really plugging anything because there are no advertisements on the site and it is a simple, single page site with down loadable schedules) which describes the process of setting up a trust fund and the performance of the three trust funds that I have set up (so far) for my nephews and nieces.
The three portfolios invest in stocks. Portfolio one has a market value of about $16,000, Portfolio two has a market value of about $8500, and Portfolio three has a market value of about $1500. The size of the portfolio is driven by how many years of contributions have been made (7, 4 and 1 respectively).
About half way down the page (or you can use this link and jump there) each of the three portfolios has a single page that summarizes the key information. I put these schedules together manually from a variety of sources and have refined it annually.
How to Organize Your Stock Portfolio
It is actually quite difficult to put together a simple, single page worksheet that tells you what you want to know about your portfolio. While investing firms are getting better and better each year in formatting information and adding new organizational layouts (and of course it is so much better to download forms rather than have reams of paper), they still don’t easily tell you what you want to know, which is why (for now) I am creating my own formats. Here is what is contained:
A lot of people throw around terms and assumptions without questioning them deeply. One of the most common assumptions is that stocks beat bonds (and beat the heck out of cash) “over the long haul”.
The basis in fact for this assumption is the long term equity records in the USA, the UK and Canada. These markets, over the long haul, have provided returns beyond bonds and cash.
Why only these markets? Because the rest of the markets (Germany, Japan, China, etc…) had some sort of cataclysmic event (World War, hyperinflation, or takeover by non-capitalist regimes) that make comparisons “over the long haul” useless. Even in these markets it is hard to see how wealth could have been preserved; cash (currency) was debased and debts were reneged upon, so all bets were off.
One key element of the “returns beat bonds and cash” is the assumption that you stay the course through horrendous market periods, hold on to equities, and then ride the upward ticks. If you act as many people do and sell when the market gets difficult, you are apt to be out of the market when it shoots upwards. Some of these bear markets are very lengthy and you have to have nerves of steel to ride them out.