Be Prepared
Every couple of years I go through the process of updating my will and checking to make sure all of my beneficiary information is up to date. To complete the ritual, I write a detailed "just in case" letter to my wife telling her everything she needs to know.
As much as I hate the process I'm very happy when it's done. In the first place, it forces me to make sure my ducks are in a row. It also affords me the opportunity to see where I may need to do more. But the ultimate reward is the calm I experience whether I'm stepping on a plane or conducting my day to day affairs. I know that no matter what, my family will be okay. So do yourself and your loved ones a favor -- take the time to assess your status. Make sure your
papers are in order. View the time as an opportunity to see where you're at, where you want to be and how you are going to get there.
Outlook 2007 - Follow-up
Housing. In re-reading my Outlook 2007 Letter, I realized that I may have left you with an incorrect impression of my views on home sales. The fact is, home sales account for approximately 6% of GDP. Compare that to consumer spending - approximately 70% of GDP - and you will begin to appreciate why I'm not all that worried about the decline in home sales.
Some of my research this week pointed to sub-prime lenders that are scaling back and sub-prime mortgages that are either late or in default. But, let's keep this in perspective – shall we? These are high credit risk mortgages to begin with. It stands to reason that the default rates would be higher and come early in the cycle.
I did discover a very interesting perspective while in San Diego...the housing market is flat, home values are declining and people are truly distressed over it. There's actually a radio station that has 24/7 programming on how to make money in stocks and how to bail out of bad mortgage situations.
One program was based on the theme, "How bad the Fed is for raising interest rates knowing that there are a lot of homeowners in distress because their adjustable rate mortgages are out of control!" That pushed me over the edge. But this radio station has a following; there are a lot of callers into these shows! Unlike infomercials, these are real people with real situations!
There are lessons here for all of us...
- Economics are cyclical.
- Adjustable rate mortgages adjust. Interest rates go up.
- If you want to make money buy low and sell high and,
- Never buy more then you can afford.
Sarbanes-Oxley
Further evidence that Sarb-Ox rules will be scaled back came last week when Mayor Bloomberg (R-NYC) and Senator Chuck Schumer (D-NY) unveiled a study showing that Sarb-Ox rules are hurting the NY financial sector. According to this political duo Sarb-Ox, left in its current form, will cause NYC to lose its place as the "financial capital of the world" within a decade.
In my estimation any legislation that revises Sarbanes-Oxley will likely come with a tax increase of some kind (think capital gains or estate taxes). It will be interesting to see how it plays out.
The Stock Market
Is the correction that I've so often written about finally at hand? I don't think so...not yet. Traditionally there is a large inflow of capital into mutual funds at this time of year. They stem from bonuses and IRA contributions. Fund managers must invest this money as fund rules dictate that only a small portion of capital be left in cash. So, while I am still committed to the idea of a 10-15% market correction, I don't think it's here just yet.
By the way...I don't know if I was specific enough in my Outlook 2007 Letter. I believe the market will end the year up 6-8% but the road there will be a bumpy one.
Now it's time for some other ramblings...
Delusions of Retirement Solvency by Nancy Miller
Think you're confused on retirement savings? Think that it's impossible to do? Do you think that you'll be working for ever? Evidently you're not alone! According to a Barron's article (title above), "Boomers deemed saving for retirement and quitting smoking as the most difficult things to do - harder than losing weight or working out."
I understand all too well how hard it is to quit smoking but when I thought about the analogy, I realized there were some valuable lessons to be had. Here are my top five...
- Set a start date. If you're not already saving, set a target date to start.
- Offset the loss. What we should do is figure our budget after we deduct savings yet we rarely do that. As a result it's hard to cut back on many of our fixed expenses. Look closely and try to find an expense that you can eliminate to pay for your savings.
- Reward yourself. For some of us, seeing that money grow is reward enough. But, if you don't fall into that camp pick a dollar target at which to reward yourself. Keep the prize reasonably priced. The idea here isn't to bust the bank, it's to remind yourself of how great it is to hit a goal.
- Assess your progress. Particularly during the first year it is important to look at your savings often - i.e. every payday.
- Focus on the rewards. Whether you're just waking up, driving to work or on vacation, you're making money -- only you're not working for it. Think about that...your savings is working for you.
And finally...
The New Third Rail of Public Discourse...
I am on the final leg of my return flight from San Diego. The views from 30,000 feet have been breathtaking. The landscape is filled with deserts, snow capped mountain ranges and farm land. From this height it is so clean and serene. I can see how small all of us really are. It is against this backdrop that I consider the United Nation's report on global warming.
Scientists are attributing it to the burning of fossil fuels and noting that, in the 150 years that we have recorded climate information, the last five have been the warmest. I know it's heresy to write this but I'm skeptical.
Let's think back on those 150 years for a moment. The birth of the industrial revolution with all manner of factory. Two world wars (not to mention the lesser wars) where all sort of armament - including two atomic bombs - were detonated. Rocket launches and moonshots by the score. Space shuttle after space shuttle. Coal fired furnaces ultimately yielding to oil fired furnaces. The oil well fires during Desert Storm. There was the dust bowl of the '30s and the smog of the 70s. Not only Global Warming but Global Dimming too. Bad winters, easy winters. Bad hurricane seasons and seasons with virtually none. All manner of volcano eruption, increases in sun spot activity and countless other events attributable to man and Mother Nature. Yet, the answer lies at the doorstep of man's use of fossil fuels.
It also appears that disbelievers are portrayed as uncaring custodians of this earth. They are (we are) the very cause of the problem. I don't know about you but I tend to bristle when my questions are answered with stereotypes instead of facts. And, I do have a few questions. My first question is to former VP Al Gore and the very scientists that craft these reports: tell me please, have you stopped driving cars? Are you chopping down trees and splitting the firewood that keeps you warm? Doubtful. Above all, when will we be able to see genuine
debates based on theories and hypotheses from both sides of the issue?
At the end of the day, in this space, it's about investing and as an investor there's good and cautionary news in all of this...
First, the good news: follow the money! We are beginning to see new energy companies come into play. In fact, just this month three energy related IPOs came out. Some of these companies will offer short term opportunities for positive investment returns.
An old Wall Street adage does provide my cautionary note: Buy the rumor, sell the news. That certainly will be the case for many of these new, alternative energy companies. We will use the tools we are familiar with to assess these companies and invest in the solid contenders.
A Final Note
So, San Diego is different. The roads are cut, like valleys through mountainsides. Rain tends to pool in various spots but with three quarters of an inch of rain, cars end up on their sides or doing somersaults. Here's what has me a bit troubled... I'm on a plane full of folks from San Diego that are heading for the Northeast! These people are going to get in cars and drive! If they can't handle rain soaked roads how are they going to handle snow and ice? LOL
Coming Up in The Fund Informer Letter...
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