March 9, 2018
What We’re Reading This Week
Most people know, or at least suspect, that exposing their children to video and phone screens can have serious emotional and intellectual consequences. Most concerning is the recent trend in Silicon Valley to limit or ban screen time for kids.
“”You can’t put your face in a device and expect to develop a long-term attention span,’ Taewoo Kim, chief AI engineer at the machine-learning startup One Smart Lab, told Business Insider.”
Also interesting is how tech companies have pushed to make their programs and hardware more accessible to kids. Google, in particular, has worked hard to get its suite of programs into schools.
Increasingly, tech companies have studied how to win people’s attention and gain greater market share. Tristan Harris, a former Google executive, explains some of the more egregious tactics in his Ted Talk.
Developing an addictive product and rolling it out to children is not a new concept. It works. From fast food restaurants to drugs, hooking kids early has proven to be a lucrative business model. Notably, as Business Insider points out, tech companies don’t necessarily think of themselves as dangerous.
I like to believe they do question what they are doing when they read stuff like this:
“One in 3 British children age 6 to 17 told pollsters last year that they wanted to become a full-time YouTuber. That’s three times as many as those who wanted to become a doctor or a nurse.”
Usually, I get to be my regular old cynical self when it comes to fiduciary standards. My general theory is that consumers want to believe that investment companies care about them and of course, investment companies want consumers to believe they are cared for, but this lie allows the industry to sell more to unsuspecting clients. I also think there is way too much money on the line for consumers to ever really get a level playing field. Regulation in recent years has only worked to blur the line between salespeople and true advisors, making it easier for financial companies to turn client money into company profits.
Strangely, the industry did push fairly hard to suppress the new rules. Not because it means less in profits, but mostly because it means more paperwork. It sounds trite, but more paperwork means more paper pushers and therefore, more cost to the company.
Enter the New York Department of Financial Services. Maybe the devil you know is better than the devil you don’t. While the current administration has done its best to suppress and delay the new fiduciary standard, they created a void for another regulator to fill. New York has a long history of being tough on insurance companies. Specifically, annuity companies. Now they are continuing that tradition with an additional eye on life insurance.
“N.Y. Governor Cuomo sounds like he means business, ‘As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field.’”
He even said my line, “level playing field.” I like this guy!
The official document states that they will require insurers to:
- Reasonably inform consumers of the various features of an annuity contract
- Explain to consumers if a replacement contract is suitable
- Make sure the consumer has the ability to afford the policies
- Not allow insurance salespeople to call themselves financial planners unless they have the proper licensing
- Mandate procedures to prevent financial exploitation and abuse
Possibly the most surprising aspect of this is that we need new laws to make sure that stuff happens! However, in a world in which one of the country’s largest annuity companies misrepresents 30% of its annuity sales, maybe it’s time to rethink the strategy?
I know, for a financial planner I spend surprising little time here talking about markets. The truth is, they are only fun when someone is caught insider trading. Even then, part of the fun is watching regulators feign indignation. Mostly because it’s an unspoken truth that our current system supports “insider trading” as long as it’s subtle. There are whole departments dedicated to it. Why else would a large company have an investor relations department that you can call? Isn’t all the material information supposed to be public?
Anyway, whenever the market loses money, the media, your coworkers, and your mailman have an opinion on why that happened. Most of the time, they try to tie it back to the economy. Most people have a hard time divorcing the two concepts.
“The human brain is wired to structure knowledge around narratives in which we can tell if and how A (and B and C) causes X. We tend to be uncomfortable with the notion that an economy’s fundamentals do not determine its asset prices, so we look for causal links between the two. But needing or wanting those links does not make them valid or true.”
Mostly, that’s ok. Simply put, if you believe that the market is a subordinate to the economy, you will keep investing in the market as long as you believe the economy will continue to grow. As the economy grows, your investments grow. However, when the market drops, you get some really odd commentary. Things that are sometimes good become bad.
So, what’s really going on? Well, for one, computers:
“The widespread use of machine-driven trading is likely making all of this worse. The algorithms used vary, and are becoming much more complex. But, to the extent that they contain a stop-loss element – and they often do – they will cause bouts of selling into declining markets, and that in turn will amplify volatility.”
Martin Shkreli could be sentenced to up to a decade in prison. This seems…excessive. I’ll first say, I don’t like this guy. However, 10 years feels like a heavy sentence for being unlikable. Remember, he’s being sued for securities fraud. According to the court proceedings, he lost his investors $10.4 million. However, he did give those investors that money back. The judge’s ruling is based on the amount of the loss, the loss she claims is $10.4 million. Shkreli’s lawyers argued there was not a loss…because Shkreli paid them back. This doesn’t negate his illegal activity; he still repeatedly lied to his clients and the SEC, I’m just saying, it seems like a lot.
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