Last week I teased you with information that I perhaps was making a career move and this very report might in fact be my last.   Hence, with bittersweet news, I in fact will be reentering the world of advising…a passion which this weekly report has supplemented this past year.  But, my writings go back further than my first blog – which was St. Patrick’s Day in 2009 – I did write to many of you in a more limited format each week during my tenure as a Private Advisor with that large bank in America.  Additionally, for an even smaller number of you, I have been a weekly mainstay reporting on life-subject topics going back to the summer of 2001…just before one of the most changing historical events in our history.   Hence, writing is in my blood and therefore I hope to find a way to continue the financial muses…but we will see, for as much I love and appreciate my readers, job security is more important! 

However, as one person told me, I have a gift and I could write about virtually anything and still provide thoughtful reflection for my readers.   Therefore…. The Farrell Chronicles could live on…any theme suggestions?  Comment and let me know.

Now, onto the weekly report…

Last week I spent almost a whole report talking about cash…or the fact there might not be that much on the sidelines.  As I documented, there might not be that much…per se.  What I did not mention last week, but I did converse with readers over the past week, was there is cash out there…it’s just in an area not easily tracked.  The cash, which is hidden, is the cash presently invested at private equity firms.  Given the lack of credit available to finance deals, this cash is not working, and will not be working, until we get back (if ever) credit availability.  Hence another subject…credit.

If you listen to what the real economic gurus, the deans of industry, are saying these days, they will always be sure to identity that the true restriction to our expansion is the lack of financing available.   Cash is nice but leverage is better.  Sooner or later, but sooner is the preferred time frame, this recovery will need reliable, multi-source, credit.   Now, I’m not advocating a return to our recent past, with exotic, multi-tiered financing schemes, bundled together and resold as reliable long term investments (a.k.a. …derivates).  Those days hopefully are long gone (or at least until the general public forgets and these instruments resurface under a different name), but as someone who started his career in the credit field as an analyst, and then spent over 24 years administering and reviewing credit deals, prudence goes a very long way.   The challenge is the general business community doesn’t like prudence.  Prudence, as I had been told a few times in my career, is an anti-business practice.

Prudence, in recent times, has been re-phrased and commonly referred to as “Due Diligence”.  Due Diligence was supposed to be the fancy words to indicate that a buying firm (in a merger and acquisition – typically a private equity deal) looked at all the numbers behind the deal and made sure that everything was “clean”.   The challenge is we have come to learn that Due Diligence didn’t extend itself very cleanly to the investment world.  Hence, when all those securities were being bundled, the investors didn’t practice due diligence.  And when I refer to investors, I’m not referring to the general public.  I am talking about institutional investors, the huge insurance and banking conglomerates, the managers of corporate and public pension funds, all with very financially sophisticated, highly intelligent people working for them analyzing their investments; yet still these people lost their direction, and most importantly their underlying business principles, and well… you know the rest of the story. 

All the above are functions of easy credit, where no cash out of pocket rules the deal.  These days are limited in the future (hopefully) and prudence (or fear) will prevail for a long period.   

I take this theme, as this being perhaps my last report, as I cannot stress enough the challenge we have at hand to recreate trust.  Why aren’t the banks lending, why isn’t there ample alternative credit sources?  Simply, and very simply, trust isn’t there.  Trust in the “deal”; trust in the numbers supporting the deal, trust in the future.  

The same goes for you and your friends.  Where is your trust?  Take a field I know well, financial advisory.  Why are people hesitant to take input from their financial advisor without thinking twice – lack of trust.  This lack of trust has a lot to do with the reasons mentioned above but also could stem from the advisor’s ability, priorities and product steering which might be creating doubt…or lack of trust.

So, I leave you to re-start my career creating trust.  Hopefully over the time you have read these pearls of wisdom (I never said I was modest!) trust has leaked its way into your thinking.  Trust that your friend Greg wouldn’t steer you wrong, that he has reported what’s on his mind, sometimes not politically correct, but nonetheless, sincere and thought provoking.   I thank you for reading and I hope I can find a way to keep these lines open each week, in some format or another, but “trust me” they will come from the heart – for isn’t that really where trust dwells?

Be good.  Enjoy life.  And most importantly…. stay connected…for I have been and will be “connected” for you.   Greg

Just about a year ago our markets were at rock bottom.  Ironically, in that stretch from Thursday, March 5, 2009 to Monday, March 9, 2009, my personal situation could have been described as rock bottom from a professional perceptive.  My last day of work at U.S. Trust was March 5, 2009.  It had been the first time in my professional career I was literally…out on the street.   Coincidence in timing? Heck no, reality of the times.

But, as the market stopped it bleeding at the end of business on March 9^th, my life too would go on.  And for the millions of other American’s in a similar position to me, their lives would also go on.   Granted, for most of us, life isn’t quite the same; adjustments were made, jobs hopefully were secured – most not at the level of prior employment – but life went on.   However, as we approach the anniversary of the abyss of the second worst financial crisis to hit this country, how many people have almost forgotten the day?  As is the American custom, memories have a limited time span.

That said, we still don’t have rampant investing, hence maybe the American investing public might have deviated from its Alzheimer’s trend and taken the latest memory enhancing drug.   Part of that lack of investing still gets credited to a statement I hear made by many a financial advisor of “there is still tons of cash on the sidelines…. and when it gets invested….look out.”  Well, let’s have a little reality check about that theory.  First off, where are these people getting their statistics?  Presumably they are getting their “logic” from various sound bites, financial soothsayers, and mad financial commentators.  But how much is true?  Well, read on and I’ll tell you!

In analyzing 50 years of Federal Reserve monthly money supply figures (that’s 600 numbers) would you be surprised to hear that the money supply (I’m using M2 which includes savings accounts) has increased virtually every month of those 600 measurements?  Well, in fact that is true; with approximately only 20 incidents where the supply retreated from the month before (but I’m talking fractional differences which are barely measureable).  When I took a broader look at the numbers and clumped together periods of 29-months to each other (which also historically cover a business cycle) the numbers are a bit more revealing in terms of flows.  For instance, from May 2007 to Sept 2009, M2 increased 16.5%.  Okay, perhaps argument for money on the sidelines when you look at the 29-month period prior of December 2004 to April 2007, whereas M2 only increased 12.53% during this period of flat to modest growth in the Dow. 

But before you start hitching the wagons to the horses for a runaway market, perhaps you might like to know about some of the other 29-month periods.   In the July ’02 – Nov. ’04 period, M2 went up 14.2%.  That market was terrible in the later months of 2002 but then bounced back through 2004.  Analyzing a bit deeper, during this period, the supply retreated for two months in the 3^rd quarter of 2003; perhaps signaling money going back into the market.  But those retreats combined only accounted for one half of one percentage of the money supply.  In the two 29-month periods prior covering from Sept. 97 –Jan. 00 and then Feb. 00 to Jan. 02 the INCREASES in the money supply were 17.3% and 18.7% respectfully.  Therefore, I’m not seeing any concrete evidence pointing to historical cash hording and then opening the vault doors to invest in the equity markets.   So, don’t hang that hat to dry – or fly – if you think globs of cash will be flooding back into the market, because your hat might get a bit wet and it sure won’t be flying off the hook.

Just to put it in perceptive, if…and that’s a big if, we had 2% go back into the market, we are looking at approximately $200 billion dollars.  Big number generally, but considering the US equity markets are around $15 trillion….and that’s only the US…the cash (if it flowed into US equity markets) would only account for about 1% of total market capitalization.  Double the cash in from 2% to 4% – EXTREMELY unlikely and about zero percent of happening as our cash goes up historically and never has it retreated by anything more than 1 tenth of 1% –  then we are only still looking at about 2% of domestic market capitalization.  Long story short, our markets will gain only from market activity and growth of balance sheets; not from mystery dollars “on the sidelines”. 

So, back to short memories.  As I write this column I was just offered yesterday a position back in the world of investing as a Wealth Advisor.   This position came to me, as I have been happy, and very grateful to the University for their acceptance of me into their world of philanthropy.  But, like many of my fellow American’s mentioned above, our roads have been long and bumpy, and along the way you meet many people.  In my case (and many others I’m sure) you tend to have a long trail of interviews over that course of time.  For me, this position which presented itself is the product of months of incubation and fine tuning, as many firms accessed their business models over our tough economic climate and created new ways to address their marketplace.   For me, the firm knew when I interviewed with them 9 months ago that I would be a good addition to their firm; it was just a matter of time of creating the right role.  Thankfully they remembered my charming personality and gave me a call a full 9 months later- in a strange way I feel I like just gave birth!  In light of all the talent out there, I’m honored. 

Hence, when you read this column next week, I might have a formal announcement (trust me…I’m not crazy, the University knows of the offer hence I’m not spilling any beans).  However, if all the details are agreed upon, and I pass the bodily fluid tests, then this might be one of my last weekly economic reports as my potential new employer would prohibit me from gracing you with my pearls  – the reason being is fine print – and financial regulation….do we have that????  LET’S HOPE SO after all that mess! 

But until I take my last breath in blog heaven, comment freely and look for some cash!  Have a great week.  Connected to you for you.  Greg

Last evening I was doing currency exchange 101 with a daughter who is going aboard to the “homeland” to study in a matter of a week.   We were having a crash course on Euro to Dollar quick conversion ratios.   In getting some quick data about current FX rates, I found out that Tuesday’s down market was triggered by poor consumer confidence ratings….and a strong dollar! 

So, good news for the youngster…she might benefit from a stronger dollar, hence those pub purchases won’t dent the purse as much and maybe there might be some souvenir money.   Bad news for the economy…the dollar is up.

So what’s the beef?  Shouldn’t we be jumping with joy that our dollar is increasing, showing the world we are a power to be reckoned with again?  The world order is restored. 

But ironically our market is down a hundred points for the Dow when America is King of the World with Gold, Silver and Bronze.  But, other commodities of steel and cooper today decided to take 4^th and 5^th place in the race and not place for a medal…or is that metal?  It just doesn’t make sense. 

About a year ago, cries were heard from near and far about the weakness of the dollar.  The headlines all read ‘strengthen the dollar; strength the economy’.   Now we have an improving dollar and the market is crying.  We can’t have it both ways!  While every politician will never admit in public, they all secretly want a lower dollar as it helps tremendously with exports, improving the trade imbalances, and creates jobs domestically through as a result of higher production levels.  However the flip side is a stronger dollar improves profit margins as a result of cheaper raw goods acquired globally and hence earnings improve for American companies.  So, the question begs…what do you want?  

I’ll tell you what I want – not much…relatively speaking.  How about a few dollars in my pocket (weak or strong, I’m not picky),  a decent stock market to grow a retirement, quality yet affordable health coverage (no endorsement of any plans here, just wishes), good health (so I don’t have to worry about the aforementioned), peace of mind that my children don’t face hardships,  good friendships.  I’m sure there are a few other things but how different am I than my neighbor…anywhere in America?

We find ourselves, virtually a year later from the abyss, a bit more conservative financially and still wondering which way this “recovery” is headed.  We reflect upon the year and ponder our moves.  Did we get the right advice, making timely portfolio adjustments to prevent loss while enhancing gain at the appropriate times?  Did we, or do we, trust the advise (if any) from our advisors? Maybe it’s time to use those dollars….and make some decisions.

For those who are faithful readers, I’m sure you know by now, but I write this column for you.  With all the noise out there in the financial reporting world, I strive to make this weekly report a realistic dose of common sense, giving you current market information in hopefully an easier digestible method.   Call it the acid reliever of financial journals which are filled with insider jargon.   In any regard, I do enjoy the therapeutic relief it extends to me…regardless of the fact no dollars are earned…hence…I frankly don’t care whether they are strong or weak for now (except I do expect a nice Guinness souvenir, therefore I better say I want a strong dollar for now!).  

Have a great week.  Comment freely.  Connected to you for you.  Greg

Now that the humor session is over, what do you think about Toyota?  Do you think the Grim Reaper has got his hook in them?  If there ever was a ‘perfect storm’ of issues, this company seems to have sailed right into the heart of the storm (or in their case – accelerated – Ba-Da-Bing).   But, as time goes on, this perfect storm will be the business school case example for years to come.   How did a foreign company, which overtook every domestic automaker and became the #1 auto brand in America, fall from grace?  Was it the American labor pool building cars here on domestic soil which brought down the foreign giant?  You know, there was the day, when they shipped all those Corolla’s over on freight boats and stacked them in ports of call in California, NY and Miami.  But, as they got the taste of American dollars, and their currency devalued itself from a decade-plus long recession, it was necessary to build cars in the U.S. to keep their margins in check (and of course some marketing shrewdness to understand the advantage of diffusing the political hot potato by employing American workers, in American plants, to gain market share and pretend this was a U.S. company – now perhaps disguised in sheep’s clothing.)

But the story here isn’t so much the perfect storm of manufacturing malfunctions, but more of the blatant cover up, or better put, the refusal to take action (action which obviously would cost billions).   These recent problems are anything but recent to Toyota.  They have known of the floor mat and accelerator problem for years.  The problem is they choose to sweep it under the mat, so to speak, and instead hope the problem would go away or was ‘contained’.   It wasn’t until serious intervention by the National Transportation Secretary, and his department, put “extreme pressure” on Toyota did they buckle under and now have the largest recall…of multiple lines and models…of any auto manufacturer (the Ford Edsel probably would have rivaled Toyota but there weren’t enough made).

All that said, they will come back, just like Audi did with a similar issue (however, in the case of Audi, it was not that big of a mechanical problem and recall, but the press got a hold of it and almost put the manufacturer out of business as a result of water cooler chat which suppressed sales for years.  Ironically, they now are the fastest growing luxury car).    However, on the other hand, FIAT never did truly come back in the US, and I still recall the humorous acronym for the automaker…Fix It Again Tony.   Now that truly deserves a   Ba-Da-Bing…and no disrespect intended for my Italian friends in the above FIAT reference or the urban slang.   But FIAT’s story isn’t all that much different from Toyota.  They grew too fast here in the US, chasing profits, and couldn’t service their lines; hence they gained the reputation as a manufacturer with unreliable workmanship.  Even their CEO, who took the reins in 2004, knew of the laughing stock reputation and pledged to recreate the brand.  Now, they are returning to favor in their homeland, and actually might have some models for the U.S. soon.  But it was a long, long, period of digging out of the trenches and one has to wonder if Toyota is going down the same path?

Now to switch gears (lame auto reference pun….Ba-Da-Bing), my avid readers might recall last week when I was beating my chest saying that a month ago I was on target predicting our next Dow downturn.  In last week’s report I stated (from memory) that I thought the market would retreat to 9200.  Well, in reviewing the facts this week, I found that I actually stated in my January 20^th report that the Dow would retreat to 9600.  That said, predicting is a sure way to failure, akin to predicting you have the best built cars in America, hence you seldom see any business reporters or analysts step out into traffic and make a prediction.  However, I’m still considering this a successful predication, as I made my predication during the day of the recent period high of 10763 and the market did fall  to a low of 9882 last week (February 8^th, 2010); a decline of (8.2%) over the course of 3 weeks.  I’m here to tell you, that’s not too bad of a prediction.

And, to follow up on that predication, I’m fairly convinced we have now covered our peak to low and therefore I believe it’s time to call off the bears and take a ride up, at least for a period time (exact ride length to be determined later).  But…as my email invitation says in fine print each week…All views expressed herewith in, and linked, are solely the views of the author and are not intended as investment advice.   Ba-Da-Bing.

Just to give you some insight into my on- the- spot literary genius,  my intentions for this week’s report were to talk about some creative marketing successes, derived from people (and companies) challenged and responding in these hard economic times, but I will save that for next week (if nothing else pops into this crazy mind of mine).  Have a great week.  Comment freely.  Advancing Tomorrow Today.  Greg

I don’t know about the rest of you, but Mother’s birthdays supersede all others, including spouses (sorry honey), children and Spot the dog.  Don’t ask me why, it’s just the order of the universe.

So, I have tons to report upon and several observations to be made this week.  First, how about that Super Bowl?  It turned out to be a great game which was wonderful for viewership.  Apparently it was the second largest television audience every – M*A*S*H final show is still the all-time first.  The two million dollar, 30 second investment, made by many firms probably seemed like a good idea.  So, let’s talk commercials.  First off – the Snicker’s Betty White and Abe Vigoda spot – sweet.   Already there have been protestors against cruelty to seniors… I’m serious.  I’m betting the 88 year old Betty and 88 year old Abe aren’t protesting as they wheel their cash to the bank.  If it was so offensive, then I’m sure they would have turned down the role.  Hence, give me a break.

Plus, the Doritos’ owner/dog collar commercial.  How good was that?  It actually was produced by a viewer in entirety.   Originally it was going to be $100K to the winner.  I’ve heard they raised it to $600K.  They should pay him a million as it was so good. 

All my Super Bowl fun came this past Sunday in the City of Brotherly Love.  I arrived in Philly mid-morning on Super Bowl, just hours after their 2^nd biggest snow storm ever.  I left mid-day on Tuesday as they were bracing for another 18 inches.  My departure was planned at that time, but I was going to Metro NYC for appointments the next few days.    Well, those folks were calling and emailing me suggesting they would probably be working from home on Wednesday as the city area was calling for 10-20 inches.  Two observations:   First, working from home. This economy (or lack thereof presently) is so virtual that a vast majority of the jobs today can be done from home…or anywhere.  That is great news.   On the other hand, this virtual economy is bad news as where is the manufacturing?  Do we need to concern ourselves?  I’m thinking Yes…

So you say “finally he’s talking about the economy”.  Well, does anyone recall where they heard a few weeks ago that our financial markets were headed for a correction and our market could dip down to 9200?  If you don’t recall, it was HERE.  Ironically I bring this up on a day in which the market is up triple digits.  However, the trend has been down, closing down the past few weeks on a weekly cumulative.  It is also amusing that the market surge today is tied to leading news that the country of Greece is virtually bankrupt and needs a bailout.  Sure, take profit from other’s misfortunes.  Effectively it is positive news to the market as it shows there is global support available (European Union and specifically Germany) to ‘bailout’ Greece.  But mark my works, this is a short-lived, as other Baltic countries are in similar pain and Germany can’t commit to bail them.  Sound like AIG and Merrill and Bears and Lehman’s all over again?

I made my predication several weeks ago, before the recent downward trend, strictly based upon my interpretation of two year charts.  We were due, and in fact, the markets are charting exactly as I predicted.  While I’m beating my chest here like a Super Bowl hero, the biggest test will be is 9200 the current floor as I suggested weeks ago?  If I was able to call the current downturn from chart movement, I don’t see why I can’t call the bottom.   I will cover my “call” by saying I personally find it easier to pick out peaks to retreat from versus bottoms to buy.  However, I still believe this is an interim downturn as a primary market signal is up – temporary hiring.  In all rebounds, temporary staffing increases are one of the first indicators of future economic activity. Also, shipping news– the Baltic Dry Index is climbing (barely, but nonetheless climbing) – I heard iron ore and copper are being shipped to China and hence are bidding up freight rates.  If you’re a follower of the Weekly Economic Report you will know I am partial to the BDI and cooper as very good signals.  Good news and stay tuned (the international issues above are a slight concern, but they don’t come close to the amount of debt the U.S. had/has in September 2008, so they will be ripples).

Ending today’s report, in a peer to peer conference I just attended (which included much discussion on estate planned giving), I’m hearing out of the Congressional Record that Washington finally has had substantiate discussion regarding gift and estate taxes.  Apparently late last week the Senate reviewed and passed onto Congress a continuation of the 2009 estate tax at $3.5 million with the 45% maximum tax.  I also heard there was positive news regarding some of the 2001 tax incentives which expired last year.  Both of these are good news, but it is a trade off, from what I’m reading, for votes on a jobs bill.  Politics as usual. 

Have a great week.  Enjoy your friends, kiss your Valentine next Sunday, and of course comment freely.  Advancing Tomorrow Today.  Greg

First, before I start talking about the land of make-believe, let’s put this coming Sunday into perceptive.  It’s probably the first time in a couple of years that we have some genuine, season long, favorites playing in the Super Bowl (disclaimer to my close friends who are Giants and Steelers fans).   The fact of the matter is these two teams combined hard work and smart play all season long to end up in the big face down.  The other great thing is we have some solid citizens here who are excellent role models to our children in form of Drew Brees and Payton Manning.  Additionally, the New Orleans Saints are a Cinderella story due to their comeback after Katrina.  It’s Supercalifragilisticexpialidocious – in the land of make-believe.

So, back to make-believe.  For a couple of weeks I have been holding you at bay regarding previous comments I have made regarding portfolio construction, or lack thereof.  Yesterday (and frankly everyday lately) I have been seeing two series of commercials.  The first is “the green line” from that monster retirement asset company.  Their latest commercial yesterday had a couple in bed and the green line appeared (ok…I guess  that is as good as any other place to talk about retirement funds…what are they thinking??).  Anyway, the theme was about a young couple discussing the “advantages” of a fund which automatically becomes more conservative as they grow older.  Essentially they are taking about a “target” fund which many of the mutual fund companies came out with about 4 years ago.   This is the pinnacle of preeminence in my protest against alleged financial planning.

My alliterations stress my frustration with the vast majority of financial planning these days for the general investing public.  It’s all about ease and staying out of jail.  Yes, you read that right.  Target funds are a core standard now in virtual every company’s defined contribution plan (401k/403b).  The reason is very simple – they keep the plan trustees out of jail.  You see, whoever is responsible for the plan at the company, has the burden of fund selection and making sure they are acting in the best interest of all participants.  Hence, they need to make sure a good selection of funds are available for self allocation models, and they have to make sure the funds are best in class (in relative terms).  Therefore, with the emergence of target funds, the burden is relieved. 

The problem I have with these funds are when a professional, who allegedly works for you, uses them to construct your “customized” plan.  It’s basically the equivalent of “dine and dash” or “wham bam”.  I don’t like to use that last phrase but the use of these funds by professionals is nothing short of cheating your client.  It’s almost like saying, “I will never again have to bother with this client as this fund will keep them satisfied…or at least I will tell them that whenever they call me”.  

These funds are like many of the Modern Portfolio Theory allocation models which hundreds of thousands of “advisors” use for their clients.  MPT is the core investment philosophy used by practically every single firm.   The inventors of MPT won a Noble Prize for its construction.  In short, it’s the framework of every allocation model, which effectively employs a system of checks and balances to keep your assets supposedly protected.  The theory is mixing some stocks with some bonds.  Portfolio balance allegedly is achieved as when one goes up, the other typically, and inversely, goes down (and vice-versa).   These models, while they might take a little involvement upfront by the advisor to pick the funds, are also a “walk away” method of portfolio management for the advisor. 

I mentioned another commercial I have been seeing.  In fact it is virtually the same commercial format used by two different companies.  They both employ human caricatures talking about investment theory and their advisors.  I have no investment commentary here other than what is the point of caricatures?  Who are they appealing to?  I would hope we all have a higher standard of ourselves than a caricature, but perhaps that’s how these companies envision us, just puppets….in the land of make-believe.

So, now that I’ve aggravated virtually every investment manager (and company) in the free world, where do you, my reading public, go to get more active portfolio management?  Are you ready for technical analysis management versus traditional fundamental analysis which so many advisors employ?  This is a whole other report which I will have to ask you to hold tight on.  The purpose of today’s report was to let you know that a good share of you have been in the land of make-believe but you just didn’t quite know.  And in the land of make-believe, advisors might be prone to making up excuses, or theories, which really have no real world practicality – essentially “Supercalifragilisticexpialidocious”. 

Have a great week.  Enjoy your friends and family on Sunday. Comment freely.  Advancing Tomorrow Today.  Greg

I bring up Mitch Miller for a couple of reasons.  First, he is a marvel of American achievement, hailing from Rochester NY, graduating from the University of Rochester’s world acclaimed Eastman School of Music, and eventually becoming a household name with his above show (that was only a side gig as his main contribution to the music industry was his leadership at Columbia records during changing times from big band and ballad singers to the emergence of Rock ’n Roll). The most amazing thing is Mitch is still alive at the age of 98!  How do I know that?  I saw his ‘younger’ brother, Dr. Leon Miller, age 96, walking down one of our hospital corridors, all decked out in his pressed white lab coat, tie knotted perfectly at his neckline.  And you wonder why we have such high unemployment – we have 96 year olds keeping jobs from 69 year olds….(obviously just kidding and no disrespect to Dr. Miller – God Bless him and a career of service to others!)

So, follow the bouncing ball is what I’m figuring I’ll be watching in a matter of moments (the President just took his place in front of the House and Senate and is starting his speech……).   The Future is anything but uncertain…America prevailed in the past, again we are tested…

Tonight, I’m watching the ball, because it’s bouncing fast – bouncing from small business tax credits to dreams of full employment by refusing to accept “second place” for America and promoting innovation, especially in the field of energy, through incentives.  Plus, we will double our exports over the next two years and gain two million jobs (got everyone to stand up on that one!).  We are investing in education, because a good education ends poverty – but a high school education isn’t enough, we need college more affordable, so we are going to give a $10,000 tax benefit and we will forgive loans after a certain period of time – hell…where was this guy 7 years ago when I started my paying out “a Lexus a year” in college tuition? 

I’m going to take an aside here – what the heck is with that last promise?  I do the right thing – I pay for my kids’ education, and suck it up for years, and now everyone else gets a free ride (so to speak).  I buy a Chevrolet last December (08) when Detroit was on its knees and a month later they are giving away free interest and rebate after rebate.  I lose my job for 8 months, I meet every obligation I have, we sell our home….where is my thank you Mr. President?  Ok, I’ve vented…

Back to the bouncing ball, what about our economy?  So the above credits and incentives will stimulate the heck out of our economy and we will recover.  Perhaps, but not to the value we were before.  Now, it must be said, that “before” was artificial, but nonetheless, it was a reality.  They say we have 10% unemployment.  As I have stated here before, the 10% is really close to 20% of FULL employment.  We have people like me, fortunate to have a job, but who made the choice to accept a job at a significantly reduced pay, or those who have taken part-time employment to get by (hence pulling them off the unemployed roster).  Or those who have just given up….No matter how you add it up, We STILL HAVE a long way to go to “Carry the Dream Forward”.

Things have changed and when we start the decade NEXT YEAR – yes next year, we should be on better ground, for we still are finishing the “lost decade”.   But, for now, 2010 will be bumpy.  As our President recognizes, we still have political divides which prohibit the core of cooperation.  Until we get commonsense, we will still be challenged.  However, tonight our President announced that all earmarked spending will be disclosed on a special website.  ALL.  This got a full room standing.  Maybe there is hope…  (By the way, regarding the misunderstanding regarding the decade starting in 2010, consider this: When the world started…or thereabout, did we have a calendar date of January 27, 00?  I don’t think so; it was 1/27/1. Hence the decade will start in 2011.) 

So, the ball is out there, bouncing around….but I’m sure Mitch and Leon have seen a few in their lifetimes and they are still proudly doing their jobs…this too shall pass….if we all live to our 90’s!  (I know I promised some discussion on portfolio managment – I promise next week – it will be about trend following and my association with an innovative group in the field). Until then….

Have a great week.  Comment freely.  Advancing Tomorrow Today.  Greg

If you recall, the Frank Abagnale, Jr. story made its way to the big screen in 2002 under the title of “Catch Me if you Can”.  The film’s star was Leonardo DiCaprio as Frank Abagnale and the persistent law man was played by Tom Hanks.  For those who enjoyed the movie, it will be on TNT this Sunday, January 24^th at both 1am and 5pm (I’m here for you in so many ways!!).

The reason for my movie bypass has multiple reasons.  First, I was reminded of the movie today after the third time in 2 weeks where someone assumed my identity to be other than the famed weekly economic/philanthropic professional I am.  Two weeks ago I was mistaken as a doctor…that’s a first for me.  Last week I was visiting with an attorney in my professional capacity as he assumed I was an attorney likewise.  Then today, I entered a meeting hall and was mistaken as the guest speaker, the deputy chief of the Federal Reserve of New York.  I know I don’t look like Leonardo DiCaprio, but one has to think a scam is easier than one might imagine.

So, what’s with all the foreshadowing here?  As I ponder Impostors, it started to occur to me that we might in fact have a fair amount of impostors with whom we encounter daily.  The first on my list would be our economy.  Right now, in the longest recession in post-war history, we actually have an impostor of a bull market.  We continue to ride up from March 9, 2009 (how couldn’t we?) but the fact of the matter is we are at 10,725.  If you believe in trends and charts (I fully do) we are inches away from a correction.  Our last “drop” into the oblivion started in late September 2008 as the Dow was hovering around 11,000.  In a matter of week and a half the market was in the 8000’s and eventually made it down to the mid 6000’s.  We have been climbing back out of that canyon, rather rapidly, so don’t be surprised if a few rocks slip from under our feet and we dig down to 9600 (only to work its way back up again later).   Impostor…

The next Impostor du Jour might just be our elected officials.  One year ago we had our leader sworn in amidst cries for change (along with a whole slew of cronies being sworn in likewise).  Independent voters (not all!) were a powerful force in saying we needed change.  Presently, approval ratings for “change”, are dropping heavily.  Granted we had a few dramatic issues which needed to be addressed, but the impatient public is starting to react.  Most significantly, as I write this, the legacy Democrat state of Massachusetts appears they will elect a Republican Senator….which will swing the power hold in Washington.  Change is happening…again.

My other Impostor might in fact be your financial advisor.  I know, I’m tough on these folks, but think about all you have been through.  Other than speculative assumption and post-reactive responses, what more have you received other than ‘educated guesses’?  I can’t fully blame these folks, because they have been trained to be sales people for the most part.  Given their portfolio management styles, it’s impossible to actively manage the hundreds of clients they possess.  Instead, they leverage priorities, and utilize passive portfolio modelers to mitigate risk.  However, are these models efficient?  I argue not at all.  Allocation models were developed in a dark room to help advisors hunt for more clients (or golf or fish more).  Their design, via model portfolio theory, was to limit downsize, and upside, and produce a range of return which was within the clients risk tolerance.  But, as 2008/9 proved, these were not the cure-all as designed.  Hence, millions, billions, trillions, were lost.  Impostors…

Finally, as I write this, I’m listening to Warren Buffett and Bill Gates answer questions in a town hall setting from Columbia business students (Warren is an alum).  While in their own right they are business geniuses, Warren stated that what he admires most about Bill is Gates (and his wife’s) understanding that they are beneficiaries of their wealth and believe that every human is the equal of every other human – worldwide.  Henceforth, as we all know, Warren virtually gave all his wealth to the Gates Foundation as “they know what to do with it”.  Now…there is NO impostor. 

I’ll have more next week on portfolio management….

Comment freely.  Connected to you, for you, by Advancing Tomorrow Today, Greg.

Translating the above to my weekly theme comes out as Passion for one’s work is the driving force behind the ultimate customer service model.  When you care more about your client than yourself, you have now reached the pinnacle of societal utopia.  Heck, religions are founded on such a premise.  But, alas, I dream of nirvana, seldom witnessing.

But why do I witness seldom?  Why is it so hard to care for others (in the business world) more than we care about “Numeral Uno” (English translation: Ourselves)?  Has the corporate model become so constricting that it resists passion?  Have we become drones to our jobs – fulfilling tasks versus injecting creativity and concern?

As with all my gems, this insight is coming from some recent experiences which have me questioning (and you shortly) about some pillars of the corporate world. 

Imagine your surprise….this story starts with a big Bank in this great country of America.  As some of you know, I worked for a big bank in this great land.  As a loyal steward of the company brand, not only did I encourage people to do business with said bank, but I also invited family to engage in business, hence showing my loyalty to the company.  As the old phrase goes, you can’t sell it if you do not believe in it.  Hence, as this story goes, eldest daughter, out on her own in the big world and out of state away from the loving arms of Ma and Pa (bottomless) Kettle, needed to have a grown up girl banking account.  Hence I pointed her in the direction of my employer.  All was good – branches everywhere, online convenience, and a pretty solid reputation (this was pre-bailout…just in case you’re wondering).  Things were working….until last weekend.

Trying to transact some debit card purchases, eldest daughter was getting turned down at merchants, saying her card wasn’t good.  She was very puzzled, there was ample balance to cover the purchases; hence it all didn’t make sense.  So, she calls the land of customer service…on a weekend (for the uninformed, the land of customer service for the biggest bank in America just so happens not to be on American soil, but instead 8000 miles away, across many, many seas).  This call, with every fourth word understood by my daughter, translates into the card was cancelled.  The question is, by whom?

So, after some sleuthing on Monday, the magic carpet leads to the Dept. of Fraud.  The mighty bank assumes my daughter’s identity has been compromised as a new card has somehow been issued and the user (not my daughter) is enjoying spa sessions and movies from Blockbuster.  So, in the world of customer service, problem solved – we did our task!  But….Dear Bank, how the heck did the new card get issued?  Don’t you need to know double-secret-high-intelligence clearance information to deal with the bank for any issue?  Heck, and I’m not kidding here, (this will be case 2 of excellent customer service) I have been getting a statement for 73 cents (yes, that’s right) for YEARS from the “Follow the Green Line” retirement company.  Getting tired of their ridiculous pursuit to waste endless postage, I called to get rid of the 73 cents.  As you will imagine, I had to give my full name, address, SSN, my mother’s maiden, my first pet and my favorite teacher—all to just have a conversation about the 73 cents.  So, the question had to be asked of the bank, “how did someone come up with all that information on my daughter to get a new card?  Was someone in your mighty employ a bit task oriented versus passionate about their job and henceforth not ask all the Fort Knox questions and just cancel and issue a new card on the word of a stranger?  It had us wondering…..

Seems this question got this lil’ ole country bank thinking (I use this down-home analogy as during the “crisis” this bank’s former CEO said his bank wasn’t a big global bank, instead it just had a lot of local branches…ok Gomer!).  Anyway, with the fear of a security breach, or better yet, the possibility of the incident somehow becoming public (oops) they did some research and hence call back eldest daughter with the following story of charm….

Seems there was once a young lady…who just happened to have the same name as eldest daughter (believable) who also lived in the same state…(kind of believable) who also had the same birth date (stretching believability now!).   So, that’s their story and they’re stickin’ to it like Bar-B-Q sauce on a slab of ribs.

So, the point again, with the big bad bank and the ‘let’s send out statements every quarter for a 73 cent statement” retirement company is, who is caring for the “patient”?  Where is the passion to constantly stay on your game and deliver the best imaginable product?  Problem is it’s not there – for a number of reasons but principally due to the stock market (heresy you say).  The stock market has these companies so bottom-line oriented that they lost sight of their most valuable and biggest investment, their employees.  Once you start down the road of at-will employment, the love is gone.  Without Love, there is no Passion.  Without Passion…..well…crap in, crap out…Pardon my French.

Please do not take this by ANY MEANS as a blast on capitalism for I truly believe in its virtues.  Furthermore, there are plenty of passionate banks and retirement companies out there, just that the odds are they are a bit smaller, more nibble, and ultimately more in touch with their client base.  And I fully understand, given our global economy, smaller enterprises cannot afford the resources necessary to compete global and provide the product diversification or sophistication necessary for such trading.  However, what I think might be a better use of their talent, is if they serve in a wholesale capacity versus retail.  We still like the local shopkeeper (alas a dying species) as we gain personality exchange and attentiveness to our individual likes and dislikes.  But please, don’t tell me you are just a local bank with lots of branches…you still don’t know your customer.

On our economic and political front, I still urge caution as this economy is still fragile with limited growth becoming evident now.  Our “expansion” was dominated by expense control and very little productivity.  This is now coming to roost with earnings reports like Alcoa.  Furthermore, the administration is struggling with some issues now which have stretched beyond the stump speech stage and congress is gnarled in self-interest (the anti-passion I have been talking about).  A case in point bewildering some of us who deal in the estate and transfer world is the lack of addressing the estate tax prior to calendar year end.  Now, believe it or not, the law is no law (per se).  Die with wealth and pass it onto your heirs’ estate tax-free for 2010.  Hard to belief, but true.  Sure, there will probably be retroactive legislation, but it will be ugly.  And, if they do nothing, which might be the intent, then in 2011 we revert back to anything over $1MM is subject to estate tax.  Who knows, they might be playing chicken and defaulting to this ridiculous level.  If that is the case, the world of philanthropy should gain tremendously.  All in all, where’s the leadership, the passion?

Have a great week.  Comment freely.  Advancing Tomorrow Today, Greg.

But my dear faithful, I am here in 2010…with some thoughts about the year past and the year ahead.

First off, what can I tell you regarding 2009 that you haven’t already heard or read in the past few days?  Those last days of any given year are filled with ‘reflections’.  Reflections of where we have been as well as of those who have left us….including my favorite…Socks the Cat…the “First” first pet of the Clinton’s until he got shoved to the back room when Buddy the chocolate lab showed up on the scene.  As the phrase goes…curiosity killed the cat and I’m sure he got a little too curious for Bill’s liking (plus I think the RNC had a spy cam on his collar!).  He did die of ‘natural causes’ at the age of 19.

But I digress, as you have probably heard, 2009 was the worst year ever, financially speaking, for nearly 95% of the U.S. population (those age 80 and less).  We were inches from a Depression.  The markets were crashing, millions were (are) losing their jobs, and homes were (are) being foreclosed upon in record numbers.  Hope wasn’t in the air in early spring; Despair abounded.

But how fast we forget….the Dow cruised up like it was on autopilot from mid-July until yearend with very few bumps in the way ending at 10428.

2009 Dow Chart

It seemed like the very nemesis of everyone’s nightmares in the first quarter of 2009 (a crashing stock market) quickly became a long lost friend as it cruised to familiar heights.  In fact, consider this, we went from a Dow of 6440 (March 9, 2009) to 10,014 (October 14, 2009) in 7 months time.   The last time the Dow did that climb (6500 to 10K) it took 2 years (March ’97- April ’99).  However, the last time the Dow climbed 3500 points (like we just did) was from August ’05 to October’07 when it went from 10,500 to 14,000.  Both of those climbs ended up in declared recessions about a year later BUT it took TWO YEARS of steady upward movement before things started to go south (lulled you to sleep).  Right now we’re talking a MERE 7 months for this climb and a fair percentage of the public haven’t enjoyed the ride due to being scared silly from our crash last winter.  Hence, shall we start tightening the belt already just when we are starting to breathe again?

I’m not trying to be the Grim Reaper of 2010, but the last time we thought there was no end in sight we were right….just in the wrong direction.  But, that is the very subject of my discontent, and how will the investing public (if it is even invested) survive again?  If you have read this weekly column with regularity, and between the sarcasm, you should have picked up on my displeasure for conventional advisory practices, whereas I truly believe the general investing public is being underserved and not managed effectively.  The bottom-line, in my humble opinion, is losses are tolerated based upon the Advisor’s adage, “the market always returns”.  Well, technically that is a correct statement, as is evidenced by our present ‘bull’ market, but it is a marketing masterpiece created by the big boys allowing them to separate the wheat from the chaff (meaning…giving them time to put aside the smaller accounts to hunt for new blood or deal with big account issues).

The challenge here is how do we (general investors) avoid losing money and how do we know when to “get out” if we don’t have an advisor willing to take a stand?

Well, as most of you know, in 2009 I was involuntarily sidelined from those advisory ranks, but in retrospect, it proved to be a good thing.  One would argue 8 months out of work really wasn’t a good thing, and I agree from a financial point of view, but it gave me the chance to undo the brainwashing and understand I did NOT have to compromise client value statements to advance in the field.  Instead, it allowed me to investigate the industry, understand various methodologies (which are not commonplace), and realize it was possible to pursue multiple professional endeavors while also ‘managing a book’; managing a book which could actually react to market signals and hopefully give the client some peace of mind. 

The above isn’t common knowledge as most people don’t know of the various alternative ways to have a portfolio managed; hence they only understand what is fed to them via cartoonish features via national advertising.  I will tell you how this is possible; managing a budding philanthropic career while overseeing “a book”, but I will not be doing that this week (I need some hook to get you back!).   All I can tell you it that it is very possible to dedicate myself to my new passion in the world of philanthropy, which utilizes the values taught to me from my parents, teachers, faith leaders, coaches and mentors, while also helping others manage financial matters.  I guess the “time off for good behavior” came with a reward.  

Until next week, I truly hope 2010 proves to a very good year for you and all those you know.  Comment freely.  Advancing Tomorrow Today, Greg.