Eligibility is limited to those with high deductible health care plans.

HSA funds can be saved over the years. Flexible spending accounts are somewhat similar but that money can not be rolled from one year to the next. The idea with HSA is you can save money in good years so you have money to pay health care expenses in years when you have them.

Health Savings Accounts are meant to cover deductibles, co-pays, uncovered health needs etc. that those stuck with the current USA health care system have to deal with. HSA are best used by people who are healthy, as the idea is to save up money during healthy years so there is a cushion of funds to pay health expenses later.

Health Savings Accounts are not a substitute for health care insurance. The health care system in the USA is so exorbitantly expensive only the very richest could save enough even for relatively minor health needs that are free to all citizens in most rich countries. HSA are legally available to you without health insurance but doing without health insurance in the USA is a disastrous personal financial action in the USA.

And the system is even worse in having ludicrously high charges that all insurance companies get huge discounts on. But if you try to use the USA health system without insurance the unconscionable charges that no insurance company pays will be billed to you. Even if your insurance company paid nothing, the reduction in fees just due to providers not charging the massive uninsured premium charges is critical.

Your HSA contribution is taken out of your paycheck on a pre-tax basis and grows tax deferred.

Withdrawals from an HSA for qualified medical expenses are free from federal income tax. At age 65, you can withdraw money from the HSA to use in retirement for expenses not related to health care. You will owe taxes at this time, but no penalty.

Related: 2015 Health Care Price Report, Costs in the USA and Elsewhere – Health Insurance Considerations for Digital Nomads – Personal Finance Basics: Health Insurance

Early on I was a bit worried by how often the loan defaulted with only 0, 1 or 2 payments made. Sure, there are going to be some defaults and sometimes in extremely unlucky situation it might happen right away. But the amount of them seems to me to indicate LendingClub fails to do an adequate job of screening loan candidates.

Over time the rates LendingClub quoted for returns declined. The charges to investors for collecting on late loans were very high. It was common to see charges 9 to 10 times higher as the investor than were charged to the person that took out the loan and made the late payment.

For the last 6 months my account balance has essentially stayed the same (bouncing within the same range of value). I stopped reinvesting the payments received from LendingClub loans several months ago and have begun withdrawing the funds back to my account. I will likely just leave the funds in cash to increase my reserves given the lack of appealing investment options (and also a desire to increase my cash position in given my personal finances now and looking forward for the next year). I may invest the funds in dividend stocks depending on what happens.

This chart shows lending club returns for portfolios similar to mine. As you can see a return of about 5% is common (which is about where I am). Quite a few more than before actually have negative returns. When I started, my recollection is that their results showed no losses for well diversified portfolios.

The two problems I see are poor underwriting quality and high costs that eat into returns. I do believe the peer to peer lending model has potential as a way to diversify investments. I think it can offer decent rates and provide some balance that would normally be in the bond portion of a portfolio allocation. I am just not sold on LendingClub’s execution for delivering on that potential good investment option. At this time I don’t see another peer to peer lending options worth exploring. I will be willing to reconsider these types of investments at a later time.

I plan to just withdraw money as payments on made on the loans I participated in through LendingClub.

Related: Peer to Peer Portfolio Returns and The Decline in Returns as Loans Age (2015) – Investing in Peer to Peer Loans – Looking for Yields in Stocks and Real Estate (2012) – Where to Invest for Yield Today (2010)

Apple gained an amazing $284 billion in market cap since my February 2016 post. Only 12 companies (including Apple) are worth more than $284 billion. Amazon soared $204 billion (a 78% increase). Alphabet (Google) gained $156 billion in market cap.

Samsung soared $163 billion (a 107% gain) and Tencent soared $144 billion (a 85% gain) to move from outside the top 20 to become the 9th and 10th most valuable companies and the most valuable based outside the USA.

Facebook gained $126 billion and Microsoft gained $117 billion. GE lost $60 billion to drop out of the top ten. Wells Fargo also dropped out of the top 10.

The next ten most valuable companies:

Market capitalization shown are of the close of business May 12th, as shown on Google Finance.

In the 20 most valuable companies list there are 13 USA companies, 4 Chinese companies, 2 Swiss companies and 1 Korean company.

Alibaba (China) soared $131 billion (78%) and climbed to the 11th spot (from outside the top 20 last time). Bank of America soared $105 billion (up 79%).

Verizon was one of 2 companies in the top 20 to lose value in the period, Verizon declined $23 billion (over 10%) and dropped out of the top 20.

The total value of the top 20 gained $1.3 trillion since my February, 2016 post: growing from $5.9 trillion to $7.2 trillion. Remember, the companies making up the top 20 has changed.

Related: Global Stock Market Capitalization from 2000 to 2012 – Stock Market Capitalization by Country from 1990 to 2010 – Historical Stock Returns

A few other companies of interest (based on their market capitalization):

China Construction Bank, China, $225 billion*
Procter & Gamble, USA, $220 billion
Visa, USA, $215 billion.
Novartis, Switzerland, $209 billion.
Royal Dutch Shell, Netherlands, $205 billion.
Anheuser Busch, Belgium, $203 billion.
Chevron, USA, $200 billion.
Pfizer, USA, $196 billion.
Petro China, China, $194 billion.
Verizon, USA, $186 billion.
Coca-Cola, USA, $186 billion.
Oracle, USA, $185 billion.
Bank of China, China, $177 billion*
Toyota, Japan, $173 billion.
Walt Disney, USA, $172 billion.
Merck, USA, $172 billion.
Citigroup, USA, $169 billion.
Agricultural Bank of China, China, $164 billion*
PepsiCo, USA, $161 billion.
Sanofi, France, $129 billion.
China Life Insurance Company, China, $109 billion.

NTT, Japan, $94 billion.
Gilead Sciences, USA, $85 billion.
Novo Nordisk, Denmark, $80 billion.

Market capitalization figures were taken from Google finance. ADRs were chosen, if available (so I get the cap reported in USD).
* market cap taken from Google finance based on the Hong Kong exchange (no ADRs option was available) and converted to USD.
** market cap taken from Google finance based on the Korean exchange and converted to USD.

My belief is that there has been a fundamental change in the valuation of stocks. Long term data contains a problem in that we have generally realized that stocks are more valuable than realized 100 years ago. That means a higher based PE ration is reasonable and it distorts at what level stocks should be seen as very overpriced.

It also depresses expected long term returns, see my original post for details.

Jeremy Grantham: The Rules Have Changed for Value Investors

I believe he is right. I believe in the value of paying attention to historical valuation and realizing markets often go to extremes. However, if you don’t account for a fundamental shift in valuation you see the market as overvalued too often.

Again I agree. Our political parties have aided big business in undermining market through monopolistic market control and that has been consistent (and increasing) for decades now. It makes stocks more valuable. They have moats due to their monopolistic position. And they extract economic rents from their customers (granted they put a large amount of those ill gotten gains into executives pockets but even so they gains are large enough to increase the value of the stocks).

On top of these strong forces we have the incredible interest rate conditions of the last decade. This is the one that is most worrisome for stock values in my opinion. It servers to boost stock prices (due to the poor returns for interest bearing investments). And I worry at some point this will change.

There is also likely at some point to be a political return to the value of capitalism and allowing free markets to benefit society. But for now we have strong entrenched political parties in the USA that have shown they will undermine market forces and provide monopolistic pricing power to large companies that provide cash to politicians and parties in order to have those parties undermine the capitalist market system.

I believe the stock market in the USA today may well be overvalued. I don’t think it is quite as simple as some of the measures (CAPE – cyclical adjusted PE ratio or market value to USA GDP) make it out to be though. As I have said for several years, I believe we are currently living through one of the more challenging investment climates (for long term investors seeking to minimize long term risk and make decent returns over the long term). I still think it is best just to stick with long term portfolio diversification strategies (though I would boost cash holdings and reduce bonds). And since I am normally light on bonds and high on stocks, for someone like me reducing stock holding for cash is also reasonable I believe (but even doing this I am more in stocks than most portfolio allocations would suggest).

Related: Monopolies and Oligopolies do not a Free Market Make – Misuse of Statistics, Mania in Financial Markets – Interview with Investing Blogger John Hunter

That shows how quickly things changed. The industrialization of Europe and the USA was an incredibly powerful global economic force. The rapid economic gains of Japan, Korea, Singapore, China and India in the last 50 years should be understood in the context of the last 200 years not just the last 100 years.

A central point Richard advocates for in the book is realizing that the current conditions are different from the conditions in which traditional economic theory (including comparative advantage) hold. The reasoning and argument for this claim are a bit too complex to make sensibly in this post but the book does that fairly well (not convincingly in my opinion, but enough to make the argument that we can’t assume traditional economic theory for international trade is completely valid given the current conditions).

I don’t expect this blog post to convince people. I don’t even think his book will. But he makes a case that is worth listen to. And I believe he is onto something. I have for years been seeing the strains of “comparative advantage” in our current world economy. That doesn’t mean I am not mainly a fan of freer trade. I am. I don’t think complex trade deals such as TPP are the right move. And I do think more care needs to be taken to consider current economic conditions and factor that into our trade policies.

Richard Baldwin uses 3 costs and the economic consequences of those changing over time to show globalizations history, where we are today and where we are going.

It isn’t very easy to follow but the book provides lots of explanation for the dramatic consequences of these costs changing over time.

One of his themes is that mobility of labor is still fairly costly. It isn’t easy to move people from one place to another. Though he does discuss how alternatives that are similar to this (for example telepresence and remote controlled robots to allow a highly technical person to operate remotely) without actually do moving the person are going to have huge economic consequences.

The “high spillovers” are the positive externalities that spin off of a highly knowledgable workforce.

In my opinion, it is likely politics is going to be the biggest factor going forward. This is going to provide huge benefits to countries that have relatively well managed governments (being led everywhere by politicians) such as Singapore, Norway and New Zealand big advantages. The practices in the USA of blowhards subverting government and rational policy is going to be very costly. The enormous wealth the USA has is a huge benefit that allows it to prosper even while managing itself poorly. At some level of bad policy and practice it will overcome the huge wealth advantage the USA has. At what point that happens, it is hard to predict.

I agree that protectionism is a very bad idea. I wonder if he is as confident our politicians (that we foolishly elected) will avoid plunging us into such bad policies today as when he wrote this in 2016?

The complexity of the economic consequences of international trade require knowledge, skill, patience and practical thinking to create economic gains going forward. I am worried about the foolish leaders we are electing in many of the rich countries recently. They do not appear to understand complexity or value the importance of expertise, uncertainty and implementation of economic policy. The complexity today requires more understanding, study, learning and care than was required last century but instead we are electing people with less wisdom than ever (and we were not electing incredibly wise people very often in the past).

Related: Economic Measurement Issues Arising from Globalization – How to Balance the Benefits of Foreign Workers and the Potential Damage to Citizen’s Job Prospects (2013) – The USA Doesn’t Understand that the 1950s and 1960s are Not a Reasonable Basis for Setting Expectations – The Future is Engineering (2006) – Historical Stock Returns – We Need to be More Capitalist and Less Cronyist

Warren is not a fan of market timing, for good reason. I do think he may be a bit overly-optimistic. It is not something innate about the geography of the USA that means whoever is within that area will prosper over the long term. Our actions as a society materially impact our long term success. Yes, we have done very well economically and we have many factors continuing to make that likely to continue. But it is not certain.

Those willing to challenge rosy projections serve a useful purpose. But investors must be careful not to lose out on gains. Timing the market is rarely successful. Even in the cases where people do reasonable well getting out of a highly priced market they often fail to get back into the market until after they lose money on the effort (they may save a bit on the downside but then don’t get back in until they missed more upside than they saved on the downside).

Must of Berkshire Hathaway’s success is due to what seem like fairly easy things to do. For example, what Warren discusses here. This reinforces a point that is often overlooked which is the management philosophy that has helped Berkshire Hathaway achieve their success. Every year Warren Buffett praises the senior managers at various Berkshire Hathaway companies for good reason.

The fairly simple idea of hiring trustworthy, capable and ethical people and giving them freedom to manage for the long term seems too easy to provide an advantage. But it does. Warren Buffett is very careful to pick people that are more concerned with providing value to customers over the long term than promoting themselves and seeking massive short term rewards for themselves. This simple act of hiring people that are willing to put customers and shareholders before themselves allows your organizations to function in its long term best interest.

In so many other companies short term incentives destroy value (Warren’s point 4 above). This failure can extend to companies Warren is significantly invested in: such as the long term and deep seeded mismanagement at Wells Fargo due to very poor leadership at that company for years. But in general, Berkshire Hathaway is much better at avoiding these toxic behaviors driven by very poor executive leadership when compared to other companies.

The importance of Berkshire Hathaway focusing on the long term and not getting distracted by short term financial measures is vastly under-appreciated.

By focusing managers and CEOs on actually running the business Berkshire Hathaway again does well compared to their competitors. Far too many companies spend the time of executives on playing financial games to divert huge payments to themselves that they then try to claim are not really costs. This is enormously costly to investors and our economy.

Diversification and keeping down fees are the investing strategies that will help more investors than anything else.

Related: Warren Buffett’s 2011 Letter to Shareholders – Warren Buffett’s 2010 Letter to Shareholders – Warren Buffett’s 2005 Shareholder Letter

However, we humans often compare ourselves to whoever is better off than us and feel jealous. So instead of appreciating good roads, food, shelter, health care, etc. we see where things could be better (either our parents had it a bit better or these people I see on TV or in this other country, etc.). It is good to see how we could improve if we then take action to improve. To just be frustrated that others have it better doesn’t do any good, it doesn’t seem to me.

There are significant ways governments can help or hinder the economic well being of their citizens. I am a big believer in the power of capitalism to provide wealth to society. That isn’t the same as supporting the huge push to “crony capitalism” that many of the political parties throughout the world are promoting. The “capitalism” in that phrase exists for alliteration, the real meaning is the word crony.

street scene in Seoul, South Korea (photo by John Hunter)

These Are the World’s Most Innovative Economies

These type of rankings are far from accurate, what does most innovative really mean? But they do provide some insight and I think those at the top of the list do have practices worth examining. And I do believe those near the top of this list are doing a better job of providing for the economic future of their citizens than other countries. But the reality is much messier than a ranking illustrates.

With that in mind the ranking shows

1. Korea
2. Sweden
3. Germany
4. Switzerland
5. Finland
6. Singapore
7. Japan
8. Denmark
9. USA

One thing that is obvious is the ranking is very biased toward already rich countries. When you look at the measures they use to rank it is easy to see this is a strong bias with their method.

China is 21st. Malaysia is 23rd and an interesting country doing very well compared to median income (I am just guessing without actually plotting data). Hong Kong is 35th, which is lower than I imagine most people would have predicted. Thailand is 44th. Brazil is 46th and even with their problems seems low. Brazil has a great deal of potential if they can take care of serious problems that their economy faces.

In a previous post I examined the GDP Growth Per Capita for Selected Countries from 1970 to 2010, Korea is the country that grew the most (not China, Japan, Singapore…).

Related: Leading Countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Economic Consequences Flow from Failing to Follow Real Capitalist Model and Living Beyond Our Means – Easiest Countries in Which to Operate a Businesses (2011)

The data, from IMF, does not include China or India.

The chart shows data for net debt (gross debt reduced by certain assets: gold, currency deposits, debt securities etc.).

Viewing our post on the data in 2014 we can see that the USA improved on the expectations, managing to hold net debt to 80% instead of increasing to 88% as expected. Nearly every country managed to take on less debt than predicted (Vietnam took on more, but is very low so this is not a problem).

Taking on debt to invest in valuable resources (building roads, mass transit, internet infrastructure, education, environmental regulation and enforcement, health care, renewable energy…) that will boost long term economic performance can be very useful. The tricky part is knowing the debt levels doesn’t tell you whether the debt was taken on for investment or just to let current taxpayers send the bills for their consumption to their grandchildren.

Also government debt can become a huge burden on the economy (especially if the debt is owed outside the country). The general consensus today seems to be that 100% net debt level is the maximum safe amount and increasing beyond that gets riskier and riskier.

And it isn’t at all that this is a universal truth. Economically weaker countries have greater risks. And to me, if they go above 75% that starts to get very risky. The USA and Japan have extra latitude that others would be wise to realize. Taking on the same level of debt would be very troublesome for most countries. Japan has a huge percentage of their debt held internally which makes a huge difference (it is much safer).

Taking on government debt (at acceptable interest rates) and investing in economically productive projects is wise. There is a huge risk of taking on the debt given that reasonable business case but then spending in foolishly which creates big economic problems in the long run. If the investment don’t pay off the grandchildren of those taking out the debt will be stuck paying it back. But if the investments are wise the grandchildren will inherit a strong economy and benefit from the wise use of debt that was invested well.

I don’t think it takes much imagination to worry about all the ways taking on debt could result in bad long term results. I do believe in the value of wise government spending. I also do worry about politicians just rewarding those that pay give cash to them (their “campaign funds,” show a history of paying former politicians as lobbyists etc. when they leave…) instead of fulfilling their obligation to the country.

Related: Government Debt as Percent of GDP 1998-2010 for OECD – Gross Government Debt as Percentage of GDP 1990-2009: USA, Japan, Germany, China

1. Top 10 Countries for Manufacturing Production in 2010: China, USA, Japan, Germany… (posted in 2011)
2. Manufacturing Output as a Percent of GDP by Country (1980 to 2008) (2010)
3. Default Rates on Loans by Credit Score (2015)*
4. Stock Market Capitalization by Country from 1990 to 2010 (2012)
5. Investing in Peer to Peer Loans (2015)
6. Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany (2013)


Chart of manufacturing production by China, USA, Japan and Germany from 1999 to 2011. The chart was created by the Curious Cat Economics Blog using UN data. You may use the chart with attribution. All data is shown in current USD (United States Dollar).

7. The 20 Most Valuable Companies in the World – October 2015
8. Manufacturing Output as Percent of GDP from 1980 to 2010 by Country (2012)
9. Monopolies and Oligopolies do not a Free Market Make (2008)
10. Government Debt as Percentage of GDP 1990-2009: USA, Japan, Germany, China… (2010)
11. USA Individual Earnings Levels: Top 1% $343,000, 5% $154,000, 10% $112,000, 25% $66,000 (2012)
12. Nuclear Power Generation by Country from 1985-2010 (2012)
13. Oil Production by Country 1999-2009 (2011)
14. Long Term View of Manufacturing Employment in the USA (2012)
15. The USA Doesn’t Understand that the 1950s and 1960s are Not a Reasonable Basis for Setting Expectations (2011)
16. Chart of Largest Petroleum Consuming Countries from 1980 to 2010 (2011)
17. Global Stock Market Capitalization from 2000 to 2012 (2013)
18. USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP (2015) (
19. Buybacks, Giveaways to Executives and Non-GAAP Earnings (2016)*
20. Cockroach Portfolio (2014)

* 2 posts appears this year that didn’t appear in 2015; one from 2016 and first published in 2015.

As with my other blogs the most popular posts show that old posts stay popular for a long time. Number of top 20 posts by year of publication:

2016: 1
2015: 4
2014: 1
2013: 2
2012: 5
2011: 4
2010: 2

2008: 1

Related: 20 Most Popular Posts on the Curious Cat Investing and Economics Blog in 2015 – 20 Most Popular Posts on the Curious Cat Investing and Economics Blog in 2014

Chart by Curious Cat Economics Blog using data from the International Energy Agency (IEA) and the US Department of Energy. Chart may be used with attribution as specified here.

The 2014 and 2015 data on this chart is from IAE report for total installed photovoltaic (PV) solar capacity. See previous post on chart of Solar Energy Capacity by Country from 2009 to 2013. Different data sources for different year (and/or countries in the same year) is not ideal but for the purposes of this data in this post is sufficient.

Installed PV capacity is even more questionable that much other economic data. Economic data are always approximations of reality but with PV you have additional questions. The same plant located outside London or Rome have different capability to produce (and there are many factors that contribute not just the most obvious such as how much sun shines in a particular geography). Installed PV data is based on the capability of the equipment regardless of the solar potential of the location.

So even with the same investment it is likely Italy gets more production than Germany. The IAE report attempted to determine what was the likely ability of the solar PV capacity to produce for each country as a percentage of total electricity needs. They estimate Italy has the largest percentage of electricity needs capable of being produced by installed PV systems at 8%, with Greece at 7.4% and Germany at 7.1%. Japan is ranked 5th at just under 4%, UK is 12th at 2.5%, China is 22nd at 1%, India 24th and the USA 25th at close to .9%. They estimate the total global percentage at 1.3%.

These figures also show the huge power needs of China and the USA. Even with huge investments in Solar they us so much electricity that it is slow to make large gains in the percentage of total power generated by solar.

In the USA in 2013 solar energy capacity was under 1% USA total electrical capacity. In 2013 hydropower was 6.8%, wind was 5.3% and biomass was 1.3%. The increase in solar capacity should continue to grow rapidly and is making significant contributions to the macroeconomic energy picture (even if it doesn’t appear dramatic).

Related: Chart of Global Wind Energy Capacity by Country from 2005 to 2015 – Leasing or Purchasing a Solar Energy System For Your House – Nuclear Power Generation by Country from 1985-2010 – Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany