Where do er go from here? (Who will lead us???)

Just a quick post of a recent meeting where US Treasury Secretary Timothy Geithner admits to Representative Paul Ryan that the current proposed budget plan is a sort term plan at best. That sounds fine until you realize that it is really a matter of kicking the can down the road.....that this is NOT leadership. That is is exactly how we got into the mess we did in 2008.....that this is the problem that was laid out for us by Ross Perot and Morrie Taylor back in an election primary in 1996!

At that point I can see why people resisted getting excited about it all....but we have just survived a problem decade, are living with an imploding Europe as I type and have our debt problems staring us square in the kisser.....the TIME IS NOW for action!

Now what? I suggest we deal with out problems and not bury our heads in the sand.

As for what we personally do besides vote for people addressing things.....I suggest diversification of assets and around the world!

Now what am I doing......where have I been!?!??

Well, I suppose I simply slipped away from my computer and perhaps ended up too attached to things like FACEBOOK.

But, I have never left my life of following the investment world, the economy and the employment scene.

I remain employed by the same company.....well, except for it being acquired by Oracle Corporation.....so honestly, things have changed significantly since they bought us, but for the most part, for the better. We are making money and that was tough for us when we were Sun Microsystems.

My investments have changed a bit too....I added a 2nd Financial Advisor and I have taken some of my money under my own wing. No, no...I am not day trading. No, I simply play in a different arena, and a place I can't find an advisor to play in so I do it to broaden my diversification.

Without using money, let me toss out my investments as they sit today.

Financial Advisor #1:

Holds about 45% of my money
Invests in Bond and Equity funds

• 70% Bond Funds
• 20% Equity Funds
• 10% Cash

Financial Advisor #2:

Hold about 20% of my investments
Invests in three different REITs and Annuity of Equities and Bond funds (started as a 50/50 split and I consider the REITS to be my toe into real estate)

Work 401K Fund: (self directed)
Holds about 20% of my investments

• 70% in Bond Funds
• 30% in Equities including maybe 15% in Oracle Stock

My Self-Directed Currency/Commodities Investments:

Holds about 15% of my investments

• 70% of it are in currencies or CD's in other currencies
• 30% of it is in Gold

I hold the following currencies (I mostly consider this CA$H)

• Brazilian Real
• Swiss Franc
• Australian Dollar
• Euro
• Chinese Yuan
• US Dollar

I like this level of diversification as I have it spread across investment people, across asset classes, and across products / markets. Right now my Gold is holding it's own because I made a huge gain on a sum I bought at about $800, but I recently about in at about $1720 as I think world economic issues will get less stable and GOLD might be a harbor for safety....but one never knows because it has been on a ride straight up for a long time.

I feel I have been doing well...but I also feel inflation is low. I worry that inflation is really on the rise, and staying still means losing. Also, I think the future of taxes is uncertain.....let me revise and extend that remark, I think it is more certain that I'd like to think....TAXES for people who have ANY money will go up. They have to, because our country is in debt people w/o money can't exactly pay. (makes me feel STUPID for being a saver at times)

Jim Rogers is getting worried about the Dollar.....

Roubini makes a nice summary of out path to the present issues in our economy....

Noriel Roubini outlines a very straight forward description of the events leading up to our present situation. He notes that the regulators have solved the excesses of one bubble by creating yet another. "Serial bubble makers".

According to Roubini, if the economy is a party, the fed is the controller of the punch bowl.....and when the fed saw the partiers getting a little to drunk and going into an unsustainable bubble position, they should have taken away the punch bowl....but they instead added volka and whisky...causing us to "fix" that bubble with yet another and larger one somewhere else.

He thinks we might be out of places to build bubbles, and it might be time to address the problem.

The US Economy Apparently Continues to Slide....

BTW...the economy is still sliding, though the stock market is at least going in a sort of sideways trajectory now going up some days, and down others.

Here is a video report of what the Federal Reserve thinks......still not a pretty outlook saying that the "potential downside risk for the end of 2009 is significant".

Three Dr. Doom's give their 2009 outlook

The Market is so Fickle....and looking for reasons to go up!

Check out the market the past few days....it is going up, and pretty quickly too.

One can never be so sure....because the market has shown "counter tendencies" in the past....as recent as the first quarter of this year.

I guess the news today was that the credit crisis is loosening up....and the federal government is talking about yet another stimulus package.

So the market is going bonkers......

I looked at the Wall Street Journal and other news outlets of the past few days and I see the trajectory of things isn't quite as positive from my perspective.

• Retail sales numbers are down big time in September.
• Wholesale prices drop for the 2nd straight month!
• Japanese exports are down 52%.
• US Factory output is down the most since 1974.
• World car makers suffer greatly from the crisis!
• Circuit City my cut 150 stores in order to avoid bankruptcy.
• Linens and Things goes Bankrupt. (sales begin Friday)
• Yahoo plans budget cuts and layoffs
• NBC Universal outlines a plan for $500 million budget cut
• Signs of Hollywood slowdown
• Talk of he demise of the US Automakers
• Talks of layoffs all over.....
• The company I work for is reported to be looking at a big loss this quarter.

So the market seems a little off to me again.....perhaps a way to make money by shorting the index in some way. I don't know.

OMG: $700 billion isn't enough?

This afternoon the Senate version of the $700 billion bailout bill passed the house....and at that moment the stock market decided the take it's 20o point gains for the day and slide them into about a 158 point loss.

What happened? I thought there was much need and interest in this package by Wall Street.....I thought that until I read this article titled - "Credit markets to Washington: Bailout isn't enough".

What is going on here folks....have we just been had?

Was all this a sham....made up to extract $700 billion from taxpayers? I don't believe it.....or as the article notes.....perhaps the mass population of people (read that majority) who thought the bailout was wrong....well, maybe they were actually right!

We shall see.....hopefully we are finding our way out of the woods.....in the mean time, I'm thinking of investing in Mattress Makers......and perhaps coming up with a special patented design that remains comfortable being stuffed with greenbacks.

What some others think of our Present Situation and the Bailout.....

Pat Buchanan isn't conviced it is the right approach....he writes "Bailout For the Big and Stupid"

Alan Keyes conference call labels it "...a transformation to Socialism".

Chuck Norris says we need to go back to the values of our countries founding fathers.

Ron Paul isn't happy.....

Jack Welsh...."We need this bailout."

Warren Buffet talks about the bailout and how it might be a windfall for some getting it!

President Bush Says what others have been saying....does that make it sink in more havinfg the President say it?

PRESIDENT BUSH OUTLINES THE PROBLEM WITHOUT EMOTION:
The speech by President Bush was actually a lot less emotional than I thought it would be. I wondered exactly how he would approach it...I mean, he certainly made it clear that we are in a heap of trouble....operating in an area we never have.

But for my money, he was almost monotonic....non-emotional about the whole thing. I expected one of two things....I expected a worried, tone....or a "Let's pull together and win one for the gipper" sort of approach.

I heard the words....and they are the same words I have heard over the past few days from all kinds of other economists and others close to the situation. The USA, in fact the global economy is sitting at a point where things could go very very badly....and no one is really sure if what we are about to do will really fix things.

But even so, they also know that doing NOTHING will clearly end up in a meltdown.....so as my father used to say, "do something even if it is wrong.....just try!"

So this is our government trying.....and I suppose it might be such an important point in history, that approaching it calmly and with focus and thought might be far better than with worry or bull-headed action. Maybe the President approached it perfectly....only our future will be able to properly judge that.

I hope he did for all our sakes.

JACK WELSH WANTS ACTION:
On another program, I saw Jack Welsh, former superstar head of GE getting all charged up and demanding government action. He wasn't sure that $700 billion was the right amount, but he was sure that inaction was no solution....not just no solution, but EXACTLY the wrong solution.

He sure seemed excited about the problem....if anyone wasn't sure we were in need of action, all you need to do it watch Jack Welsh talk about the problem for about 30 seconds, and you will be convinced that this isn't a small run of the mill issue.


WHAT SHOULD WE DO?
What do people like you and I do in the mean time? That is the $64,000 question I suppose.

I'd say you watch the economic situation unfold and try to jump into the right place at the right time. I think this kind of spending means printing money. I think this means inflation...devalued dollars.

I have some money in foreign currency and CDs at Everbank. I also have some Gold....all told, about 12% of my investments are there....with about 80% in about 5 high quality bond funds....and a smattering of money at my work 401K in money markets, bonds and some stocks.

I have Chinese Yuan, Euro, Swiss Francs and as I noted, some gold.

Is the the right thing to do.....I have not a clue, but it fits the several visions of what I think will happen now....this isn't a business as usual time.

Two news reports from a local NH TV station that describe the condition of the economy

The Whitehouse assesment of the state of the economy is one full of positive spin. I suppose this is what you would expect for anyone trying to make the job they are doing look good....so I suppose we might want to just consider that when we read it.

But there were two articles that came across my email today that make me wonder how things are going. I don't know if they are leading or lagging indicators....but I assume that might be the latter.

The first talk about the number of homeless in NH doubling in the latest "one day count" just recently taken. The state apparently takes this count on the same day every year in an attempt to have a standard metric of measurement. The count of homeless is taken on January 30th, and this year's count showed 2600 people vs 1300 for last year. (with 484 of them sleeping on the streets and not in shelters) A two fold rise is a significant increase for sure, especially since the article noted that the numbers have been essentially FLAT for the past 3 years. What's going on? The winter wasn't that warm that people flocked to NH to be homeless here as opposed to a southern state.

The second article I read today talk about the increased debt load that college students are now taking on as opposed to students in the past. It turns out the the average student has about $20,000 in debt upon graduation.....with credit card debt averaging about $3300. Several "experts" noted that they felt today's students had too many credit cards and too much card debt.

The article noted:

Overall, 46 percent of students and 55 percent of former students were reported delinquent on credit card payments. Lowe said she was surprised that 21 percent of college freshmen were at least four months behind on their credit card payments. She also said she was shocked that 42 percent of students had at least six open major credit cards, not including store-issued cards or gasoline cards. "The delinquency shows that they really don't know the consequences of what happens when they don't pay their credit card bills," Lowe said. The consequences include lower credit ratings, which could affect their chances of renting an apartment, getting a job, getting another student loan, or after graduation, buying a home.

Six credit cards.....yikes, I have two and never use one holding it as a back-up. It sounds as though some of them are going from one to the other in order to juggle between them. That seems like financial quicksand to me!

Even with the $3300 credit card debt, it would take 11 years to pay that off with minimum payments. (and not adding at all to the amount....so much longer if you do)

Again....is this a leading or lagging indicator.....you decide.

Yikes......here is a pretty negative article......are people catching on to the situation?

I only skimmed this article, and I didn't research any of the facts....but it doesn't take a deep read of it to see he is pretty negative about our countries situation.

Wow....I've seen a lot of negative stuff written lately...yet the stock markets seem to hold firm.

Could it be that money is fleeing all kinds of other investments, and needs a "home"....so stocks are it for now?

I don't think people like the idea of holding cash, so perhaps they move it from one thing to another.....

What to do is a good question......and when to do it is perhaps a better one.

Roll the Dice?

So here we are looking into an uncertain world of investing.....at least as I see it.

I have to admit that I am NOT a investment guru, and not even good enough to consider being a day-trader. So how is it that I can sit here and even ask the question about "rolling the dice"?

Well, talk is cheap....and typing is not much more expensive.

I'm just thinking that even though I am not much of a gambler, I like the idea of putting my buck into the lottery when the rewards get over say $150 million.......you can't win unless you play!

So my musings here are simply that.....but who knows.....given my life changes in the last year, I might just go for broke with a little chunk of change.

But what would I invest in? I'm not sure.....I guess I might take risks and try to short things.....given my thoughts that things will eventally pull back.

But I admit that I have no crystal ball and have no idea as to when, never mind IF things will slip.

How about realestate? No way....not for me. I might consider buying something for possible rental income, but I would never consider the value of the realestate itself will do anything but go down.

But again.....I never owned a crystal ball, and my magic 8-ball is at home right now....sorry....I guess I'm not much of a gambler.

Will there be an Economic Tipping Point?

I read in Warren Brussees BLOG that he thinks is theory about a depression in 2007 is coming closer into view. He admits that he might be as much as a year off, but he is still seeing his prediction from his book unfolding.

His BLOG seems to imply a sort of economic "tipping point"....a point in time where one characteristic of the economy changes past a sort of inflection point whereby any further change in that parameter causes a much larger change (an avalanch of sorts) in another response.

He sees the credit crisis, and crashing cost of the housing market as the catalyst for a fast decline in consumer spending, which kills our GDP quite quickly (since it accounts for 70% of it) and sets off a series of chain reactions which further closes down credit....etc....etc.....we have a closed loop cycle that now feedsback on itself.

Is he right?

Who knows....all I know is that it seems to me that the death of an economy is probably much like that of a human, and I hope you don't get grossed out by this, but I witnessed someone very close to me pass away, and they did not go easily.

No, they obviously loved life, and wanted so much to keep it....and their struggle was very long and hard. They eventually were overcome and passed on, but thei very last breaths were not easy and I could sense their final struggle to stay with us.

I see the economy in the same way.....it isn't going to go easily. It is going to try every way it can to survive and grow healthy again. It is probabably not as dynamic or resourcefull as the human body, but it surely isn't any more willing to roll over and die either.

But I'm thinking that the death throws of an economy will be no less violent than that of a human holding on to their last breath.....for our economy is after all still driven by humans. There are enough of us who don't give up easy...so I expect any downturn to be perhaps fast.

Like the depression in 1929....or even some of the other market crashes and panics before and after.

Let's hope Warren is wrong....let's hope he is WAY OFF and in his assesment.

And if he is right....let's hope all of us have the common sense to know that money doesn't make the world go around, and that there is still so much more to live for. Many people didn't know that around 1929....I'd like to think we can learn from the past.

I think I have entered the Investment Twilight Zone.....

I was looking at the news flash of the past few days and instantly said to myself.....

"Eeek, our economy is slowing way down. Perhaps I should be worried."

What am I talking about you ask.....

• It started with this report that mortgage foreclosures were way up.
• Then there was this report that the federal government is stepping in to protect us from the increases of forclosure.
• Then there was this news that producer prices have dipped because of a poor outlook for sales and home builders are gloomy.
• Then...I see the Federal Reserve making a bigger then expected rate cut.....ouch, the economy seems to be on the slide to me. They are normally very slow, deliberate and conservative.....this worries me.

So at this point I'm thinking.....yikes, slowing economy, recession.....what do I do with my stock and bond investments?

• But what happens instead......first I see this report where Wall Street seems to love this news with the Dow going up a record amount....the highest single day increase in 5 years!
• But if housing loans are a problem.....we must be stressed for credit, right.....YET, this report shows that credit card stocks are on the rise!
• Maybe I have my mental model wrong....surely housing stocks can't be up, right? WRONG....check out this report as they too seem to have risen today.

How does all of this work? Is this the twilight zone?

What am I doing wrong here? Where can I go to learn how to read the market?

People say the market is the best judge of things.....am I missing something?

----- CONFUSED and WORRIED -----

How is our economy doing?

Warren Brussee wrote a book called The Next Great Depression 2007, and I reviewed it a while back in this BLOG.

I thought it was an interesting analysis of what was going on, and I wasn't sure whether it was correctly viewing the future.

You see, I think the world and US economies are very complex things. They are hardly the simple supply and demand curves we all learned about in our Macro-Economics classes. They have all sorts of active influences that are not always logical....but often emotional and irrational too.

But the two things that have struck me personally in the last few years are the lack of savings (we have become a credit culture) and the various bubbles that seem to have grown and at times burst.

The savings rate is documented in the graph in this post. It has now been negative for a couple of years.....and I don't think this can be sustained forever.

The latest bubble that is slowly deflating is the housing bubble. Over prices houses....but this is a huge problem......people rely on those increasing values to fund all kinds of things. They take out second mortgages to spend the money. The other problem is that when people get "upside-down" on a house, they can't sell it for they have no savings anywhere else to pay the loss they have.

ARM loans adjustments have been going up with the interest rates these days, and people often find their monthly payments going way past what they planned.....making them cut back in other areas.

A full 70-785 of our economic activity is based on spending.....with depressed spending levels comes dramastic decreases in economic health. So we are encouraged to spend.....new financing techniques are invented when the old one's become impossible to use.

But we are only delaying the inevidable slide....would it not be better to slide than to "fall"?

Oh well....I suggest people save. Save for a rainy day, and do so with great diversification, because if things begin to slide...or God help us FALL, we will want to make sure at least a part of our money is in a place that is not affected. (lest we lose everything...as some did in the '29 Depression)

Back to long-term money thinking.....

I have started to come back around and think about the long term investment outlook a bit. I was talking to my financial advisor and he made a comment that perked my ears up.

He noted that the market was still going up. It initially perked my ears up because I had just decided to go from a 70%-30% equity to bond portfolio to a 50%-50% mix.

I perked up because I thought I was making a mistake, and I guess I looked worried to him because he instantly shot back and said "This is when I start to get worried about the market. When everyone in the world thinks it's hot is when I start to worry that it is at some sort of a top." (which made me feel better)

But let me not give you the wrong impression....I am not a market timer. At least not with the majority of our money. (I have a very small amount that I had initially had in Vonage stock that I have since moved into two Chinese telecom stocks....but even that money has been sitting there inactive.....and I have no idea how that is doing!)

I am certainly more of a buy-and-hold person. I think I made one rebalance in the portfolio in the past year....and I went from about 60%-40% up to the 70%-30% I mentioned above......and just a couple of weeks ago down.

I guess I have been a bit pessimistic for the past year, but the markets seem to continue to be fairly strong. (except the housing market that is)

So I'm starting to get re-energized about thinking long term again.

Here are a few online calculators to help you think about the long term affects of interest and money growth.

First, this one I find interesting because it lets me easily calculate what a million bucks in 1980 (when I graduated College and dreamed of such things) is today. (how much I need to have to have the buying power of a millinaire in 1980)

Then this Yahoo calculator lets me type in my current financial situation, play with projected interest and load rates, and calculate my worth in future years. (in net and constant value dollars) That is a lot of fun because it gets me charged about about saving and long term growth.

Of course, being the visual person that I am, I love to look at this online graphing program that lets me watch money growth of particular situations. You pick all ins and outs of your investment and expense money flow and it graphs the growth....albeit with a static year to year model. (such is life....no model is perfect)

So I guess I suggest that you start playing with these tools and put yourself in a mindset of Rip Van Winkle awakening from a nap in 10 or 20 years.....then put your investment on autopilot until then. (doing an analysis and perhaps rebalancing every 6 to 12 months)

Low savings rate for 2nd year......should we worry.....should we save?

I read an article in my local paper (here it is in another) that reports that in 2006, the personal savings rate was again negative. It was over twice as negative as it was in 2005......-1% vs -0.4%.

This is also only the second time there have been two years in a row of negative savings....can you believe it! Only the second.....but the worrysome thing is that the first time was back in 1932/1933....that's right, back in the great depression when there was a 25% unemployment rate.

What does all this mean? Should those of us who save worry? Should we stop savings for fear that money will ultimately become worthless, or should we instead make sure we have at least some of our investments in a place where they are at least inflation protected?

I like the latter case because I think that there will eventually be a time when the American Dollar might fall off it's high horse and we will have to have some sort of hedge against that.

Where should we hedge? You've got me....right now a dollar crash would affect everything.....so it would seem there would be very few places to hide....but as the dollar continues to soften, there will be places that become naturally strong.

Some thing the Euro will be it....who knows. Perhaps some other small currency we don't have our eyes on.

I'm going to continue to try and save....but not in my mattress, that's all!

Who funds our debt when the world isn't so dependent on us in the future?

I admit to being an Electrical Engineer and in no way an economist....so my ideas of how the world works may not exactly line up with reality.

I have noticed that I sometimes do not have a good perspective on how "fast" certain things tend to take....basically because the economic systems are so much bigger than I tend to imagine. (there is a huge inertia....sort of a big flywheel effect)

So when I read this article about how this US recession would not really affect the growth and health of the European and Asian economies....it caused me to go back to one of my personal predictions that the giant and growing economies of China and India are sort of "loaning" the USA the money we need to buy their goods. I felt that they NEED us because we are the big consumers, and in order for them to become the big producers, they need consumers.

Given the imbalance of trade, they quickly accumulate wealth from us...and by buying our debt with their savings, they keep us buying more and more. (and also going more and more into debt)

Apparently the US delegation to China this month seems to have come to some agreement on both counties working to lower the imbalance, but this sounds like "saving face" talk to me.

I don't think it is a fluke that China keeps their money valued low and tied to the dollar...this way it makes their goods cheaper to us and we ultimately can NOT resist them! (and in fact are going further into debt with every purchase)

But the above article sort of indicates that our slowdown is not slowing them as much as might be normal....so it seems that they are beginning to become almost "Self-sufficient"....and by that I mean that perhaps their middle class has about built up enough wealth to support the growth of their own production.....so may be they need us less and less as things go on.

Could this be why the Chinese signaled to the world that they were going to start thinking about diversifying a higher percentage of their $1 trillion cash reserve in other currencies besides the dollar?

Now I'm not predicting a crash of total melt-down of the dollar and therefore our economy....that would make their $1 trillion dollar reserve evaporate....that's not what the Chinese want either....but perhaps this might be the start of a slow "backing away" from the dollar by the world who now looks at the dollar as being better than gold.

I worry that our country needs to fix things NOW....while we still have the ability to do something. Our debt to the world is already of record size....but our country and currency still has very good standing in the world, and we need to get our house in order before we lose that too.

Does a falling dollar cause inflation? Will the Fed care?

The following thought that came to mind is a simple one....does the lower dollar cause prices increases that result in increases of inflation that the Federal Reserve will work even harder to squelch?

First, I have heard that our new Fed Chairman is the kind of person who "targets inflation" as the main way to judge the need to stimulate or slow the economy. The idea is that a "hot" economy would stimulate demand for labor that might the be in shortage which would cause wage and shortly thereafter, prices to rise.


Second, I think everyone can plainly see that a vast sum of common goods for sale here in the USA are made elsewhere. If the dollar continues to weaken, it means other currencies are getting stronger and this means that the price of goods being imported is going up. If this is true, then I would think that companies selling these products can only able to absorb those increases for a short amount of time...and will than begin raising prices.

It would seem to be that those price increases would result in ever increasing inflation which is what the Federal Reserve would be triggering on.

Would the Federal Reserve see this increase and automatically decide to try to slow the economy down to counteract the price increases. Could those attempts show it down more than it really should be.

I am sure the Federal Reserve takes a large number of facts and figures into consideration....they probably release simplified remarks to us because releasing more would not benefit most of us.