Saturday, November 30, 2013

Mind/Gut Dissonance

My mind and my gut are in disagreement.  There is something gnawing in my gut that says this market rally is overdone and needs a correction.  While a 5% correction is almost always a good thing for the market in the long run, my gut is telling me we are overdue for a 5-10% correction or drop in the market.  However, history does not support that conclusion.  Take a look at the market since 1900 or the last 113 years:

Chart of the Day
As you can see, the market has fallen 30% or more thirteen times over the last 113 years, averaging every 8.7 years.  Our market last hit bottom in March of 2009, suggesting there is still a long time before we re-visit the bottom of a bear market.

This chart plots the length and duration of the those thirteen recoveries.  If you look along the bottom, you'll see the current recovery.  It is both shorter-than-average and weaker-than average.  History suggests we should not be worrying about a significant bear market retreat.  (That means that growth investors will be happy, while income investors will be less happy.  Income investors will be happier than growth investors when the bear market does arrive.)

Reinforcing this notion, the appointment of Janet Yellen as the new Chairman of the Federal Reserve assures the market that the "punch bowl" of easy money will not be taken away anytime soon.

The one big difference between this market recovery and all the others is our increased vulnerability to sudden market drops due to the secretive nature of derivatives, "dark pools," and high-frequency trading.  I've characterized those events as non-fatal heart-attacks.

My gut is not happy with my mind's conclusion that the bull will continue running, but in the spirit of cooperation, the mind has agreed to keep my finger on the SELL button.

Thursday, November 28, 2013

Thanksgiving Thanks

For this Thanksgiving, I give thanks for the things in my life:

a nice home, a nice car, a dry bed, good food & wine, nice clothes and things that don't really matter.

I give thanks for the people in my life:

my friends and clients who allow me to see the world through their eyes, 
my long-term friends & family, who age before my eyes, just like fine wine,
my parents, whose courage in the face of misery inspires me everyday,
and, my lovely wife, whose love of absurdity always keeps me smiling inside.

I give thanks for the freedoms in my life:

financial freedom, freedom of religion (or not), freedom of speech, the freedom to discuss neither religion nor politics, the freedom to study whatever I like, the freedom to associate with whomever or whatever ideas I choose (within reason), and even the freedom to choose NOT to live at all.

I give thanks for the intangibles in my life:

good health, the uncertainties of life that keep it unpredictable & interesting, and the ability to learn, as well as the continuing desire to learn.

And, I give thanks for the burning question  in my life:

why does complaining get 364 days a year, while thanksgiving only gets one? 

Wednesday, November 27, 2013

Graph Envy

Readers know I've long supported a "Grand Bargain" approach to solving our economic malaise.  This means making everybody suffer . . . but only for a short time.  While Estonia has been my favorite example, Eastern Europe in general has done a far better job of ripping off the scab from the global financial crisis five years ago.

They have cut entitlements.  Yes, even some grandmothers have been put into the street, hopefully into the care of family, churches and charities.  Yes, expensive medical treatments have been denied to the terminally ill, who died anyway.  Yes, they have increased taxes, especially on the "rich."  And, it has paid-off!  Look at the sharp rebound in their economies:

GLobal Resources Fund Sees Golden Cross

As we continue to slog through our long, slow recovery, we should remember there is an alternative.  Our economy is growing at an anemic pace, compared to Eastern Europe, and will continue to do so.  We're waiting for the scab to just fall off naturally someday.

Democrats will wail about the poor grandmothers, forgetting about the unemployed who could have jobs during the economic recovery.  Republicans will wail about the increased tax burden, forgetting about their increasing wealth during the economic recovery.  The rest of us will just shake our heads in wonder . . . impatiently waiting for the economic recovery.

Tuesday, November 26, 2013

Northern Light?

Northern Trust is a huge Chicago-based money manager that successfully styles itself as home for America's blue-bloods, i.e., the extremely wealthy and discerning.  Like all big money managers, they brag about their proprietary investment research department, as if that was something unusual.  Their forecasts are obviously written by economists and strategists for other economists and strategists, not the average investor.  But, their latest forecast is somewhat more interesting than usual:

1.  Referring to the confirmation hearing of Fed Chairman designate Janet Yellen, there was a "noticeable lack of animus from Republican senators, which may be a reflection of evolving political strategy" . . . hum?  Is something going on?

2.  The "economy is in a slow-growth, low-inflation environment". . . well, duh!

3.  There is "a supportive environment for high yield investments," which is a prime building block for income portfolios and is a good thing for income investors.

4.  The "U.S. stock market during the last 85 years shows a pattern of strong years being followed by another positive year.  Specifically, we have had 31 years of greater than 20% stock market gains in this period, and in 22 of those instances, the following year showed another positive return from equities."  (Those are great betting odds, if history means anything, but does it?)

5.  "We also continue to believe that the risks of fiscal problems in Washington, D.C., and uncertain policy progress in Japan and Europe, remain manageable."  Re-assuring, yes!  But, why?  Did the Congressional cry-babies suddenly grow up?

My sense from reading the full report is that there may have been a fundamental shift in the Republican strategy for dealing with President Obama.  They didn't get specific but implied less confrontation and more negotiation.  I hope so!

Sunday, November 24, 2013

Paging Miss Manners

"No smoking, no drinking, and no cussing."  That was the first advice I can remember as a boy.  Then, I learned the Ten Commandments.  Still, the best advice I ever received was to "NEVER discuss religion, politics or the proper way to raise children."  (Only your spouse should know such intimate things about you.)

While attending Infantry Officer Candidate School, I recall a three-hour class on etiquette, one morning shortly before graduation, learning the importance of standing when a lady approaches, opening the door for her, and helping her with her chair.  When working at SunTrust, I attended another three-hour class on etiquette, re-learning that civilized people will delay eating until everybody at your table has been served and to ALWAYS keep elbows off the table.  When working at Bank of America, I attended yet another three-hour class on table manners, re-learning the proper way to place eating utensils on the plates, when finished eating (tips down, blade away, at 45 degree angle) and the importance of thank-note notes.

No, I don't why etiquette training always comes in three hour bites, but my wife wonders why I needed more bites of such training than most people, suggesting some inner-barbarian that badly needed it.

Now, I wonder if the purpose of all that training was simply to avoid friction with other people.  If friction slows things down, does that mean it will be easier/faster to get through life, if one is well-mannered and therefore has less friction with others?  Is that a good thing?

I think of all the good and decent people I know.  Do I need friction-protection from them?  I think of all the other old soreheads I know.  Friction with them is a good thing, a badge of honor, isn't it?  Or, is it?  Who is etiquette for, anyway?

The classic existential book by Samuel Beckett called Waiting for Godot contains the memorable line that "Hell is other people."  He begs the question of whether Hell is in Death . . . or in Life.  That question is obviously above my pay grade, but etiquette training might be helpful in both places?  Therefore, I guess that etiquette is for everybody?

But, I still like enjoy my inner-barbarian . . . and yours, too!

Friday, November 22, 2013

Portfolio Polarity . . . and pimples

Investors may be tall or short, male or female, black or white.  The possibilities seem endless.  However, we tend to categorize them as growth investors, income investors, or capital preservation investors.  As a practical matter, 99% of investors are either growth or income.  (Most capital preservation investors leave their money in FDIC accounts.)

Generally speaking, the appropriate investments for each type of investor are very different.  For growth investors, we buy them lots of tech stocks, for example, or stocks that produce no income but are expected to appreciate substantially in value.  Of course, they may also depreciate substantially during the inevitable bear markets.

Traditionally, we buy lots of bonds for income investors, because most bonds pay interest income to our income investors every quarter.  With interest rates so low currently and with  bonds expected to lose so much value when interest rates finally start rising, we now buy high-dividend stocks for income investors instead of bonds.  Like Willie Sutton admitted to robbing banks "because that's where the money is," we buy high-dividend stocks because that's where the income is.  But, these stocks behave somewhat like bonds.  Their values do fall somewhat when interest rates rise, and their values don't rise as much as growth stocks during a bull run.  There is also solid research that they don't fall as much as growth stocks fall during the inevitable bear markets.

This polarity in investment objectives actually works quite well, except for one problem.  Income investors are unhappy when the market is rising, because their portfolio is not increasing as rapidly as the portfolio of growth investors.  They feel bad at cocktail parties.  Conversely, growth investors are unhappy when the market is falling, because their portfolio is falling more than the portfolio of income investors.  They also feel bad at cocktail parties -- but not at the same time as income investors feel bad.  They alternate feeling bad!

Income investors are happy during the inevitable bear markets, because their income remains relatively stable despite falling stock prices.  But, just try to remind income investors of that right now, after a great bull run!

Because people are people, they want to be growth investors when the market is going up and to be income investors when the market is going down, which is like having your cake and eating it too.

Bottom Line:  Investors are people too, and that's why I love them . . . pimples and all.

Thursday, November 21, 2013

The Unfaithfulness of Numbers

Like all human relationships, my love affair with numbers has its "ups & downs."  Numbers are a useful shortcut thorough the blizzard of words that bombard us almost every waking minute.  But, when numbers become as vague and contradictory as words, the love affair suffers.

I've been trying to identify why the market has been so strong this year.  One strong possibility is that "The Great Rotation" has begun, meaning that investors believe interest rates will rise soon, which will drive down the values of bond funds, which means it is time to sell bonds and buy stocks.  Some of this is undoubtedly true as bond fund outflows spiked in Summer, when it was believed tapering of quantitative easing would begin in September.  But, the bull started running in the early Spring.

Another strong possibility is that the small investor is returning to the stock market, after fleeing during the financial collapse in 2008 -- five years ago.  However, the numbers aren't convincing either.  It looks more like the average investor, who remained in the market, is just increasing their account balance, not that the timid investor is returning.

Related to that, trading volumes have remained quite low, suggesting investors are not returning.  But, the ratio between BUY and SELL trades has shifted with more BUY orders and fewer SELL orders.  Sellers have slowed down considerably, but why?

Another possibility is that consumer confidence, while volatile, is still up for the year, as consumers become increasingly callous to the ideologues making Congress so impotent and are paying less attention to that set of event-driven risks.

The only thing we know for sure is that the rise in stocks has been much greater than the rise in corporate earnings.  The relationship should be much closer.  Maybe, investors suspect a substantial rise in earnings in the near future.  This is the more normal relationship, but doesn't seem to fit this year.

Maybe, it is just a weakness of numbers-lovers to look for an identifiable, quantitative reason for everything.  Maybe, it is time to accept that there will always be "unknown unknowns" that are not knowable and just enjoy the ride.  But, the search for a faithful, meaningful number never ends . . .

Wednesday, November 20, 2013

The Wisdom of Vampire Squids

You don't have to trust Goldman Sachs in order to respect their research department.  Here are their latest forecasts:

1.  GDP growth in 2014 will be almost 3%, which is a big improvement.  They expect both consumer spending and capital spending to pick up sharply.

2.  Congress will avoid the next round of sequestration, partially explaining the improved growth rate.

3.  Unemployment will average 6.6%, and the Fed will lower its trigger to end QE from 6.5% to 6.0%.

4.  While oil has stabilized, gold and copper will continue falling.

5.  Interest rates will finally make their move next year, with the benchmark 10-year Treasury rising from 2.7% to 3.25%.

6.  The Yen will continue to weaken, while the Euro has stabilized.

7.  Inflation will remain quiet.

8.  The S&P 500 will end next year at 1,900 -- up from 1,780 where it is now.

Tuesday, November 19, 2013

No Love For Google . . . or NSA

I have not been able to contribute to my blog in five days.  Once again, Google was denying me access, presumably because it didn't like my downloading their newest Chrome . . . I guess.  This is not the first time they have shut me down.  Once they denied me access because I was using Explorer, which is owned by Microsoft, instead of Chrome, which is owned by Google.  Although they have never written a word on the blog, they act like they own it.  Maybe, they do . . . technically.

Did anybody notice Google agreed to pay $17 million to 37 states for violating privacy of people who use Apple's operating system, Safari.  Oh, that was on top of the $22.5 million they agreed to pay the FTC for the same thing.  If you or I violate the privacy of our neighbors, we're likely to spend some time in jail.  If Google does it, they pay a fine that is insignificant to them.  So, why wouldn't they do it again and again??

Let's see . . . Google makes money by selling advertising.  They sell advertising by telling advertisers which internet users are interested in which types of products.  They have that information from planting "cookies" in YOUR computer to track your movements.  They have a monumental, obtuse, dense privacy agreement that everyone must agree with, in order to use anything remotely Google.  If you look for a new set of golf clubs, you get bombarded with advertisements selling golf clubs.  So, is Google doing you a favor??

And, who violates your privacy the most -- Google or the NSA?  Google does it for profit, while the NSA does it with abandon.  At least, Google knows what they will do with the information they get for violating your privacy.  They will sell it to the highest bidder.  The NSA gathers more information they can use, so leakers like Snowden can do what leakers do . . . leak it!  So, is Snowden the last leaker??

Maybe, it is time to go gently into the night, surrendering any appreciation for individual privacy.  If there is no place for chivalry in modern life, maybe there is no place for privacy either.  Every time you meet a new person, you have to wonder how much information he can immediately find out about YOU!  Will they know about your last medical procedure?  How about that embarrassing little social disease you picked up at age 18?  How about that time you typed in child proof furniture and somehow found yourself on a child porn website?  How much do you want strangers to know about YOU??

Thursday, November 14, 2013

A Known Known at the Fed

Janet Yellen has been nominated by the President to be Chairman of the Federal Reserve System in January.  With all due respect to Ms. Yellen, I agree with Warren Buffet in wishing the President had re-nominated Ben Bernanke for another term.

Yellen will be grilled today by the Senate Banking Committee, as part of the nomination process.  More is already known about her economic views than we knew about Bernanke's views when he was confirmed.  For example, she clearly has a more dovish attitude toward inflation than most economists.

Every central banker in the world has a single goal, i.e., control inflation.  Our central bank, however, has two, i.e., control both inflation and unemployment.  The Fed was given this dual mandate when economists believed in the "Phillips Curve," which says there is a trade-off between unemployment and inflation.  In other words, if you want to lower unemployment, you must accept higher inflation.  Conversely, if you want to lower inflation, you must accept higher unemployment.  We have now learned the connection between the twin evils of unemployment and inflation is more loose than anyone expected many years ago.

A Fed Dove is a Fed Governor who accepts higher inflation more readily than a Fed Hawk who accepts higher unemployment.  By all accounts, Yellen is a dove.  What does that mean?

Inflation may rise.  Deflation becomes less likely.  Unemployment will fall or rise less than otherwise.  Money supply will continue to rise quickly.  The dollar will weaken.  Exports will rise.  The price of imports will rise, thereby reducing imports.  Both our trade deficit and our balance of trade will improve.

One can argue that the Fed is already doing all that, and they would be correct.  The difference is that nobody knew Bernanke would take us down that trail, but I believe Bernanke was a solid Republican pragmatist who was willing to do anything to keep the Great Recession from becoming Depression II.  Going forward, the difference between Bernanke and Yellen would be that Bernanke would limit monetary stimulus like quantitative easing sooner than Yellen.

Since Yellen is an extremely qualified economist, since she will be the first woman ever appointed to be Chairman of the Fed, and since I think she is the first Vice-Chair of the Fed to become Chairman, she is both exceptionally well qualified and well experienced.

As a footnote, it is simply stupid for Senator Graham to put a hold on her nomination until he gets satisfaction, if that is ever possible, on Benghazi, which Yellen knows nothing about.  If he thinks the Fed had anything to do with the tragedy in Libya, he is too stupid to serve.  Holding up anybody's nomination to be Fed Chairman because of Benghazi is as stupid as holding up the nomination until the government tells us "the truth" about UFOs in Roswell.

Tuesday, November 12, 2013

A Brave Perma-Bear

Readers know I have been mildly bullish about the economy for some time, despite its being constrained by our politics.  While recoveries from financial crisis are almost always longer than recoveries from recessions, this particular recovery has been painfully slow.  But, the economy clearly has the potential to grow much faster.

There is an old Wall Street adage that anybody can be a bear, but it takes courage to be a bull.

So, imagine my surprise that Dr. Doom himself (AKA Nouriel Roubini) has turned bullish.  He famously predicted the 2008 crash.  Because he has predicted so many dire events, he has been known as a "perma-bear," always full of gloom.

As reasons for his change of mind, he cites:  "One was the reduction of tail risk of a eurozone disaster, a reduction of tail risk of a U.S. massive fiscal cliff, a reduction of  tail risk of a Chinese hard landing, and a reduction of tail risk of a war between Israel and Iran."  (Tail risk is a favorite term of statisticians and refers to low-probability events that can be highly destructive.)  With an economy slowly improving and uncertainty falling, the markets logically begin rising.  

While he doesn't seem to share my concern about a sudden "Jim Fixx" moment or an economic cardiac event from our dark pool of derivatives, it is comforting to imagine that Dr. Doom may become Dr. Boom?

Sunday, November 10, 2013

A Substitute Addiction

Ken Burns is arguably the greatest film documentary producer in our history.  Your perspective is always richer after viewing one of his films.  After viewing Dust Bowl, I was fascinated by the failure of science in causing this disaster.  Now, I just watched Prohibition and was fascinated by the failure of economics.

One of the tenets of classical economics, which was dominant at the time, was that, if you want more of something, you subsidize it and, if you want less of something, you tax it.  Intuitively, that makes sense.

As the perceived dangers of alcohol increased, the government kept raising the tax on it.  But, consumption kept increasing, along with government revenues.  At one point, taxes on alcohol were 70% of Federal revenue.  What a wonderful revenue source -- it was voluntary!  People were not forced to buy alcohol.  But, why were people drinking more, even with higher taxes?

What classical economists didn't know was called the "inelasticity of demand" or how will demand for a product increase or decrease in response to a change in price?  Take the case of cigarettes:  It is addictive, and addicts will pay almost any amount to have a cigarette . . . or alcohol  . . . or "illegal" drugs.  Increased taxes does not significantly reduce demand.

But, the government found itself in a paradox.  Taxing alcohol did not reduce alcohol consumption, but the government itself became addicted to alcohol taxes.  So, how to reduce alcohol consumption without bankrupting the government?  Obviously -- create a substitute addiction for the government to replace its addiction to alcohol and instead become addicted to something else.  The revenue had to be recovered!

And, the income tax was born.

Saturday, November 9, 2013

Tortured Logic

On Thursday, we learned that GDP was stronger during the third quarter than we expected, with an annualized growth rate of 2.8%.  Interestingly, it was not because of improved consumer spending, which was 1.5% of the 2.8%.  Improved exports contributed 0.31%.  But, the most surprising increase was inventory levels, which contributed 0.83%.  That could be because businesses are not able to sell existing inventory, but it is more likely because businesses see greater sales opportunities ahead.  This is a good!

With this strong economic data, it was not surprising that futures on Friday morning indicated a 30-point jump in the Dow at the opening.  At 8:30 AM, the October Jobs Report was issued and was also stronger than expected, with 204 thousand jobs being created, far above the 125 thousand that were expected.

With that good economic news, you would expect futures to strengthen and gain more than 30 points at the opening.  Instead, the futures market immediately dropped 60 points.  Why?  Because an improving economy means reducing quantitative easing sooner.  Because the market faces withdrawal from the "sugar high" sooner, if the job market is stronger.  More jobs means less sugar!

Sure enough, the market opened weakly.  However, as analysts dug into the Jobs Report, the labor market didn't look so good after all.  As it turns out, almost half the jobs were minimum wage jobs in hospitality and leisure industry.  The number of government workers continues to decline.  There was scant improvement in the number of part-time jobholders who could not find full-time jobs.  Businesses are unusually reluctant to hire full-time workers for this stage in the recovery.  But, the most inexplicable number was the 720 thousand decrease in the labor force, reducing the Labor Force Participation Rate to a 35-year low of only 62.8%.  It is hard to believe so many baby-boomers retired in October or that many young mothers chose to be stay-at-home mothers or so many people gave up and opted for continued poverty.  Bottom line:  the numbers in the latest Jobs Report raise too many questions.

Sure enough, the market realized the Fed would continue quantitative easing longer after this confusing Jobs Report, and the Dow jumped 167 points to a new all-time high.

The teaching point is that the stock market does not reflect economic conditions solely but also measures those conditions against expectations.  That's why good economic news is sometimes bad news.

Got that?

Friday, November 8, 2013

Beware This Bull Indicator

Technical indicators are always interesting but not necessarily trustworthy.  It is a very bullish technical indicator when the 50-day moving average crosses above the 200-day moving average.  That just happened for gold.  Take a look at this:

GLobal Resources Fund Sees Golden Cross

Despite what all the commercials on Fox News promise, gold is not about to spike upwards, UNLESS you believe we are about to experience hyper-inflation or governmental collapse.  As we have discussed here before, we will not experience hyper-inflation until the velocity of money returns to some more normal level.  And, while we obviously face a real prospect of government paralysis, but I see no realistic prospect of governmental collapse.  Even if the government were to collapse, it would not happen in the middle of the night before we have a chance to buy all the gold we can afford when the market opens at 9:30 AM five days a week.

At the same time, I don't see gold going much lower either.  The nations that consume the most gold are China and India, both of whom have seen their economy strengthen this year.  While silver has gained some fashion status in India, as an alternative to gold, that is not apparent in China.  Goldman Sachs predicts gold will drop another 25-30% or so by the end of next year, but I don't expect that large a drop.  The nicest thing I can say about gold right now is that it is "dead money" -- doing nothing for awhile.

Technical indicators are interesting . . . but not your boss.

Thursday, November 7, 2013

Just More Feckless Politicians ?

While nobody would ever confuse me with a Tea Party supporter, media analysis of the Tea Party's dismal performance during Tuesday's elections remind me of the quote attributed to Mark Twain about reports of his death being greatly exaggerated.  I hope so, because we still need the Tea Party . . . a little, maybe!

Born during Bush's $5 trillion increase in national debt and coming of age during Obama's $6.5 trillion increase, the Tea Party exploded into our national consciousness in 2010, producing the biggest realignment in the House of Representatives since 1948.

If every Tea Party member dropped dead today, they have already changed America.  Past discussions of deficit reduction quibbled about the need to increase taxes . . . but no longer.  (Obama was forced to make permanent the ruinous tax cuts of Bush, except for those earning over $400 thousand annually.)  Deficit discussion is now focused solely on cutting spending, with no discussion of tax increases.  The Tea Party should be happy, because, since 2010, the deficit has fallen more rapidly (percentage-wise) than any three year period since the demobilization after World War II.

But, I know of no economist who doesn't believe that current fiscal policy, frozen in place by the Tea Party,  is retraining growth of our GDP, anywhere from 0.5% to 1.5%.  This may sound small until you realize we're only growing about 1.5% to 2% now.  We could almost double our GDP growth, if we had a "grand bargain" and eliminated the deadening uncertainty we have now.  What would a doubled growth rate do to unemployment?  I believe the Tea Party stands in the way of any "grand bargain."

The Tea Party fancies themselves as fearless, and it is true they have little fear of other politicians, but they are as cowardly as other politicians on the subject of cutting entitlements.  All the spending cuts caused by the Tea Party and their sequestration program are cuts to discretionary spending.  The majority of this is muscle, not fat.  We're scalping Defense spending, infrastructure spending, and laying off food inspectors, for example.

Nobody suggests that grandma needs to be thrown in the street, but the growth in entitlements must be contained.  By 2038, entitlements will consume the entire Federal budget, that is 100% -- with $0 left for the military and food inspectors.  Most cuts are easy, such as cutting Social Security payments for people like myself and limiting heroic end-of-life treatments.  Finding the courage is not easy.

If the Tea Party really wants to do something fearless and actually constructive for a change, they should stand up to Seniors like myself and introduce a discussion on entitlements.  Without that, they're just routine, run-of-the-mill, everyday political cowards, that we already know so well. 

Wednesday, November 6, 2013

Wisdom of Sir John

Investment legend Sir John Templeton is best known for his emphasis on international investing.  However, he also said "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria."  And, of course, he is right!

So, where are we today?  While I see a lot of political pessimism, I see even more economic optimism, especially on Wall Street.  But, I see no euphoria . . . yet.  Frankly, I don't expect to see any euphoria until some time after the politicians strike a "grand bargain." 

Monday, November 4, 2013

Lee Greenwood Is Right

With our daily deluge of negative news, it is easy to think America is falling apart.  Maybe, it is, but there are some places that are far worse.  If you think we have problems, consider the case of Greece:

1.  They are still in recession after six long years.  We've been a "weak" recovery for four years already.
2.  Their GDP has fallen an unbelievable 26%, while we're still growing about 2% a year.
3.  Unemployment is a staggering 27%, compared to our rate of "merely" 7.2%
4.  Greek wages are 30% less than 2008 levels, including some government workers.

The Greek economy is finally showing some signs of life.  They predict some minor growth next year, for the first time in seven years.

Still, there is much pain ahead of them.  23% of the workforce still works for the government, which is insane. Many thousands will have to lose their jobs in that small country, before Greece receives any additional financing.

Can you remember Lee Greenwood's pop classic "I'm Proud to be an American"?  He should re-record it as "I'm Thankful to be an American."

Remember this on Thanksgiving, November 28th . . .

What's Not To Like ?

Amid the love fest taking place on Wall Street, it was easy to miss the good ISM (Institute of Supply Management) reports of underlying economic data last week.  We learned that manufacturing improved nicely in October, with the ISM Manufacturing Index coming in at 56.4.  (Anything above 50 indicates an increase.)  While production increased 2% in the third quarter, most economists expect a 5% annualized gain in the fourth quarter.  This is big!

Also, foreigners strongly increased their orders from U.S. manufacturers, with the ISM New Orders Index rising from 52.0 to 57.0, and that is the eleventh straight month they have ordered more from us.  This is a very positive leading economic indicator.

Lastly, the ISM Prices Index showed only minimal inflationary pressure.  Just 8 out of 18 industries reported higher input prices.  This is very comforting, especially to the Fed.

Let's see:  production is up, foreign demand is up, inflation remains low, tapering of QE is postponed until Spring, China has avoided a hard landing, and unemployment is dropping, albeit slowly.  The love fest on Wall Street seems justified.

However, Wall Street is considered "smart money," and it seems unconcerned about the continuing charade in Washington, as well as the under-capitalized banks in Europe.  There is even talk of a dangerous "melt-up" in stock prices, when stock prices rise at an unsustainable rate.  While I'm aware that a "melt-up" merely lays the groundwork for a subsequent "melt-down," I don't think we're close to that yet.

So, I like it . . . for now . . .

Sunday, November 3, 2013

More Than Money

It doesn't matter if you believe you are fortunate because you are a "doer" or "job creator" from the mind of Ayd Rand, or if you believe God has just blessed you (but not others), or that you had the good foresight to pick a rich father, or that you believe it was simply blind luck or even all of the above.  However, reflecting my natural Calvinism, I believe the more fortunate have a responsibility to help the less fortunate, period.  With money, of course, but also with more than mere money.

Through good organizations like Rotary and Kiwanis, I've been fortunate to help make repairs to the homes of the elderly, to repaint the abused women's shelter and the homeless center.  Once, we spent a day planting dune grass (which was a real back-breaker) to protect the critical sand dunes that protect us.  Once a month, we still deliver meals-on-wheels to "shut-ins," which also serves as a monthly reminder that we are indeed blessed.

The vast majority of financial advisors enter the business to make big money.  However, some of us see the need to do more and serve the "whole" client by becoming certified.  Yesterday, a dozen of us participated in Financial Planning Day, hosted by the City of Virginia Beach at their convention center.  It was designed to help the less fortunate who have no access to serious financial planners.  I was expecting to meet with the desperately poor and "welfare queens."  I was wrong!

Everyone I helped was female, and I saw the other financial planners helping very few men.  Just like the stereotyping joke about men not asking for traffic directions, they apparently don't ask for financial direction either.  Also, everyone I helped already had a job.  They were not the desperately poor, just the working poor, who are seldom welcomed by financial planners or even by financial advisors.

One person was genuinely despondent that she lacked the discipline to save.  My first conservative instinct was that her personal problem with self-discipline should not be a problem dropped on taxpayers.  Then, I realized she was reaching out for serious help.  Nothing in all my financial planning training prepared me for a situation like that.  Like an alcoholic who must first admit they have a problem before they can be helped, here was a woman admitting her problem and asking for help.  After much discussion, I suggested she start small and put the money where she could not get it, except for emergencies.  Because she had complete trust in her mother, she agreed to give her mother $5 weekly to hold for her.  I will pray for her.

One 59-year-old woman was remarkably well-prepared financially, showing up with all her bank statements, a rough balance sheet, and tax returns -- a very detail-oriented lady, indeed.  She didn't trust financial advisors but still wanted somebody who was both well-trained and impartial to tell her if she was prepared for retirement.  With no children, no inheritance, and, importantly, with no divorces, she and her husband were able to save, truly save by practicing self-denial, almost $600 thousand.  I was proud of her.

Helping the less fortunate should be more than mere self-serving, sanctimonious, smug "do-gooder-ism."  You may recall I recently reviewed the great existential film Ikiru, in which a dying bureaucrat learns that death is just the expiration date for your opportunity to do something good, something with meaning.  Amen!