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A Quick Look at the News You Need
I was sitting down with a cup of coffee today when get asked the same question that everyone who has tied their names to financial information get asked: What do you see the economy doing?
This would be a great question if somehow I could see beyond the trees to view the whole forest. But it is a little like the blind men who are asked to describe an elephant. One touches his trunk and assumes that the animal is all trunk. One touches an ear...and so on. None of the blind men get the true picture because they only have what they can touch to help them see. The economy is no different. The rate of debt among consumers continues to grow. This scares the heck out of those that watch that kind of stuff. Unemployment is still rising with companies announcing enormous layoffs in the face of restructuring businesses that somehow got out of control.
If you listen to this stuff long enough you begin to hear the same refrain: too much inventory, too little spending, too strong of a dollar, too little too late in the interest rate category, too much time bouncing along a stock market bottom, and too many people trying to predict what only tarot card readers can predict.
Cars and houses are selling, and there seems to be little signs that inflation has taken hold, although fuel and food are more expensive than last year. At the end of the day, Mr Greenspan told the Congress last week, everything seems to be working out. And on those words, the stock market took another drop.
In last Saturday's Barrons, the esteemed publication of capitalist everywhere, the caricature of C.W.Barron is quoted like this: "Now that gasoline prices have come down a bit, my $600 tax rebate check might just fill up the tank of my yacht."
The Investment Company Institute, a Washington based mutual fund group has come out in a letter to the Securities and Exchange defending the right of mutual fund companies to play their hands close to the vest. The letter is in response to mutual fund companies complaints that revealing their holdings often would reduce their ability to move quickly in the marketplace.
When a mutual fund company reaches $100 million in assets, they are required to make 13F filings listing their funds holdings. Professional traders have used these filings to move ahead of the markets and profit before shareholders in the mutual fund. The ICI would also like to see the frequency, currently done each quarter, reduced to every half year or less. twice a year, fund companies must disclose all of their holdings for public scrutiny. The movement towards more information is being hotly argued by the biggest firms saying that the information is not in the best interest of shareholders. Mercer Bullard of Fund Democracy believes that without this information, shareholders will be put further into investment darkness.
This doesn't mean that fund companies don't report voluntarily. 42% Do according to the ICI with 92% saying that they disclose the funds holding twice a year.
The new SEC chairman has not been named (although he has been nominated by President Bush: Harvey Pitt). Expect this issue to be among the first taken up by the new chairman. The ICI continues to encourage fund firms to release at least top holdings every quarter while including more charts and graphs to make the information more available.
Although they date back to the early nineties, Life Cycle funds have begun there whispered returns. These funds are designed for the new investor who doesn't want they bother of picking from the basket load of mutual funds that are available because of two reasons: Too, too many to choose from, and to difficult to pick.
Life Cycle funds are tailored for a variety of age stages. Billed as instant diversification with low expenses, these funds will spread the risk involved over different allocations of cash, bonds and stocks. Many company's including Vanguard and Schwab, offer funds of funds that buy a variety of funds creating a portfolio steeped in diversification.
These life cycle funds are the mainstay of many 401(k) plans, skipping the education process altogether, offering a blanket of investments. Falling out of favor during the rapid rise of the late 90's, their single digit returns are suddenly looking pretty good after the past year. (To see the general return on many of these funds, click here. To see how 401(k) allocations have trended, click here
Are they right for you? Maybe. If you have been hanging around this web site for any length of time, probably not. If you do decide to invest in these no-brainers, beware of the hidden fees in some of the fund-of-funds (fees in these can hide within the funds that the fund owns) and that your outlook is truly long term.
Updates, part 3
Unemployment...
Last week the rate came in at around 4.4% suggesting to those that invest, that the bottom of this recession may have been reached. There was certain need for some good news, and this seemed to be it. But could it be just a cloaked number?
I am afraid so. Ever since the first figures were tallied in the1870s in Massachusetts, the measurement has left something to be desired. First canvassing by the Bureau of Labor Statistics resulted in similarly skewed numbers as were represented in this past weeks figures. To be included in the 4.4% unemployment number, a person would have to be out of work and actively looking within the last four weeks. If you had for some reason ceased the search, you fell out of the labor force according to the stats and were counted among the children and retirees. Smaller numbers make governments look better than they actually are giving folks the impression that Washington is on their side. Economically, a pool of available labor is considered a good thing in free markets. There effect keeps wages in line which keeps profits in line. The tighter the labor pool, the greater pressure companies have in retaining the help they have causing a rise in wages.
If the number of folks who wanted to work were included in the figures just published, the unemployment number would double. Add in the number of part timers out there who want full time employment but can not find it and the number collapses under the weight of previous year's policies. With less time provided in the form of benefits, the unsure reaction of Greenspan's market strengthening, and the creeping rise in retail prices, there are not that many reasons to rejoice.
Perhaps a silent prayer to yourself that those numbers do not include you.
Updates
Social Security...
Mr. Moynihan has been an advocate for raising the retirement age and slowing
the inflation adjustments that are currently in place. This would be
politically unpopular but he doesn't seem to be able to get over this
notion, arguing that he doesn't really see another way.
The grim facts that are merely encouragement for the overhaul lay in the
fact that by 2016, payroll taxes will not be able to cover benefits.
Government bonds would have to be redeemed breathing an additional 22 years
into the program. And the President still plans to allow the creation of
personal accounts, which is something that is both costly to begin, and
full of hidden tradeoffs. Speaking of hidden tradeoffs...
Ironic that very folks who would benefit the most from this modest economic
infusion, those making less than $25,000, will not get what they thought
was promised. There are roughly five million households with children that
will receive nothing. But they will be able to take advantage of the new
lower tax rate some years down the line.
Additional comments on the subject of privatization of Social Security
can be found here
Updates, part 2
Inflation...
Federal Reserve Governor Laurence Meyer sees this as a warning sign. In
his model, wages rise and that puts pressure on business costs, which puts
pressure on pricing causing inflation. This causes unemployment numbers
to rise in an attempt to put a ceiling on wages. The Fed lowers interest
rates and in doing so causes an economic flash that only feeds the
inflation fire.
Prices will continue to rise as business tries to pass on their
over capacity and their increased energy costs. This economy is still
weakening and will continue to do so even if interest rates go lower. Bankruptcy...
There are problems that could cause the bill to die because of
disagreements over home equity caps. Texas and Florida have no caps on
equity in place allowing home owners with sizable equity to keep their
homes from becoming part of the payoff proceedings. In other words, a
million dollar estate would not be touched by creditors in either of those
states to pay for unsecured loans involved in bankruptcy. The Senate wants
to cap this exemption at $125,000. House Republicans from Texas plan on
fighting any such provision.
How about an anti-solicitation bill to keep those innumerable credit card
applications out of the mailboxes of those with less than worthy credit.
Deficit, Debt, What's the Difference?
"The budget should be balanced; the treasury should be refilled; public debt should be reduced; and the arrogance of public officials should be controlled." No that wasn't written by some politico who wanted to have his say on the debt. It wasn't spoken aloud by some Democrat who sees trouble on the horizon. No it was written by Marcus Tillius Cicero (106-43 B.C.)
But what is this thing we always refer to as the debt. The National debt is the total money owed by the Federal Government. It usually borrows from the Federal Reserve distributing the remainder of its debt among a variety of
institutions from Banks and Savings and Loans to Savings Bonds to foreign investments. The deficit, on the other hand, is the difference between what is spent and what is gained in the form of revenue. You will notice that debt has risenconsiderably over the last few decades and although we were making significant progress in paying it down, it continues to rise. From 1791, when the debt was $75 million, we now add that amount every half day.
The current debt stands at $5,643,447,136,559.84
and counting. With estimated population of the United States at 284,261,925, that makes each citizen's share of this debt is $19,852.98.
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