Financial Myth Busters: A Look Back at 2012

Michael McTague |

Financial Myth Busters: A Look Back at 2012Over the past tumultuous year, we tackled many subjects, busting or confirming myths. Let’s see how well we did. Several of the entries will be difficult to assess, such as “I Buy My Straw Hats in The Fall.” Good advice from Bernard Baruch, but difficult to assess. Several others lend themselves to an update.

Real Estate in the Doldrums

One piece debunked the myth that one’s home is their best investment. As the year winds down, real estate continues its crawl. In September, Ben Bernanke referred to housing as “one of the missing pistons in the engine.” This must appear strange to those who live by the myth. The Federal Reserve must be frustrated also. Interest rates are amazingly low, about 3.5% for a thirty-year fixed loan. As with other parts of the economy, low interest rates just do not stimulate demand the way they are supposed to.

In September, home prices in the U.S. drifted back up to their 2003 levels, a nine year stretch, which in itself debunks the home-is-your-best-investment myth. The myth rests on the idea that massive appreciation allows the home owner to buy bigger and better homes. The news gets worse. Foreclosures now account for nearly one fourth of home sales. In addition, hedge funds have latched onto the plight of the American home, scooping up houses in economically weak areas of the country. This means that the anemic sales and droopy prices are inflated by activity in the most distressed portions of the real estate market. Meanwhile the Federal Reserve can only stand on the sidelines and watch as basement bargain interest rates mainly attract hedge fund oracles.

Leaders Stumble in ‘Leading’ Employees

In the article, “You Can Lead A Horse To Water But You Can’t Make Him Drink,” we looked at the situation between employees and managers and found that it is more accurate to say that you can make a horse drink than lead him to water. Managers and leaders just do not command much admiration these days. As reported in the article, The Conference Board states that recent job satisfaction levels are the lowest in 22 years of surveys.

The trend rolls on across corporate America. According to a recent report from the Roper Center for Public Opinion at the University of Connecticut, only 10 % of those surveyed reported “a lot of confidence” in major companies. Among the most hated industries in the survey were Oil and Gas, 61%; Banking, 53%; Health Care, 42%. And with a blow to stand-up comedians, lawyers fell to 37%, a meager seventh place on the hated industry list. Those lawyer jokes just won’t sound the same by inserting a hated industry. Question: “What do you call 500 oil and gas executives at the bottom of the ocean?” Answer: “A good start.” Don’t expect to hear this one on Jay Leno or David Letterman.

Technology and Savings

In another myth busting piece, we asked if technology always saves money. Recent snafus tend to confirm our conclusion that technology does not always yield big savings. Windows 8 rolled out late this year. While the news lacks clarity, early sales appear disappointing. In fact, the personal computer (PC) industry is in the midst of a revolution in which mobile devices are cutting into tasks that used to be the domain of the PC. Beyond disappointing sales, which hardly supports the myth, it seems that Windows 8 relies on better design rather than improving productivity. It also appears that Windows 8 appeals more to consumers than to corporations.

If these views are correct, billions will be spent on a better product, but little money will be saved and productivity will not spiral upward. Windows 8 does not appear to do more things, more productively; it offers a better design for similar tasks.

Technology also took a hit on recent events in the stock market where a glitch cost Knight Capital Group $440 million in a few minutes. The mishap relates to triggering too many sales covering140 stocks. (Does this remind you of the mini-crash of 1987, brought on by triggered sell offs?) Now a wave of fear has run up and down the spines of traders at the London Stock Exchange or Deutsche Boerse according to The Daily Mail.

Today’s dizzying trading speed has led to a discussion of controlling – maybe by redesigning – software that triggered the massive losses. It seems fair to say that technology may save money, but not always.

So, as the year winds down, it appears that our myth busting activities remain on target. Stay tuned – another myth will be “busted” next month as the new year opens a Pandora’s Box of myths to be examined. Please comment on this myth and let us know which myths need exposure.

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Michael McTague, Ph.D. is Executive Senior Vice President at Able Global Partners in New York.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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Symbol Name Price Change % Volume
HRMNU Harmony Merger Corp. Unit 10.49 0.00 0.00 0

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