There's Never Enough

The response to last week’s video commentary has been phenomenal. It received by far the greatest amount of positive feedback of any update I have done. The comments included several helpful suggestions, which I plan to incorporate into future videos.

This week, I’d like to relate a quick story about the relative importance of money.

While volunteering at the 17^th annual Blue Ridge BBQ and Music this past weekend, I had the opportunity to work with the outstanding young people of the Foothills Community (Mennonite) Church, who did an admirable job handling parking duties for the event.

Rob Painter is the youth group’s adult leader. During a break, we talked a bit about our respective professions. Rob provides counseling services for individuals and couples, and when the conversation turned to the troubles people have with money, Rob shared the following anecdote:

A young couple came to see him with money worries. They were just starting out, and had a modest income of about $21,000. They confided to Rob that it just wasn’t enough; they needed a little more than that. Rob inquired as to the level that they thought would be sufficient; after thinking for a moment, they answered that they believed they’d be able to make it on about $28,000.

The next week another young couple came to see Rob. Their circumstances and problems closely paralleled those of the first couple. They also were not earning enough to get by, but as it happened, their income was $28,000—precisely the level to which the first couple aspired.

I see the same issues in my practice. The amounts may be different—and my clients often worry about their investments as much as their income—but the basic situation is no different. For many people, it seems there’s not quite enough to provide the sense of security they seek.

I have news. There’s never enough. It’s been said that the more you’re used to having, the higher the level at which you feel poor. That holds true whether you have $28,000 or $28 million. You may have a hard time believing that, but I’ve seen it played out many times with many different people from all walks of life. Rare indeed is the person who is content with what they have.

The moral, of course, is simple: Put money in its proper perspective. Spend less than you make. And above all, realize how fortunate you are, and count your blessings.

Have a great week!

Playing on Fear in the Marketplace

This week's blog is on video. Take a look:

Putting the Market into Perspective

May was a topsy-turvy month for the stock market, with the emphasis on the turvy. Although the S&P 500 finished last week’s wild ride with a tiny gain, it lost nearly 9% on the month (the stock market isn’t open today). That is the worst monthly loss since February of last year.^A

A decline of this size officially qualifies as a “correction.” Here is a more precise definition:

“Stock market correction is usually when the stock market, usually the Dow Jones Industrial Average, declines 10% or less in a relatively short period of time….A stock market correction can help the stock market catch its breath and hit even higher peaks.”^B

Yes, well, maybe. All bear markets start out as market corrections, and we won’t know for several months which one we’re dealing with at the moment. But for what it’s worth, if one subscribes to Millard’s axiom that markets always overdo their movements regardless of the direction, I’d say we had this coming. That’s because the recovery moved with breathtaking speed and force.

In other words, we overdid the recovery, so it was time for a correction. But then, if Millard’s axiom holds true, we will overdo the correction as well. But hey, what do I know? About as much as anyone else, which is to say, not much at all.

Now here’s a thought that puts this conversation in its proper perspective: Today is Memorial Day. Generations of gallant young men and women have paid the ultimate price so that we can live in a free and open society. Let’s not waste too much of this precious life talking about market corrections.

Have a great week.

A - http://blogs.wsj.com/marketbeat/2010/05/28/data-points-us-markets-249/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fmarketbeat%2Ffeed+%28WSJ.com%3A+MarketBeat+Blog%29&mod=marketbeat

B - http://useconomy.about.com/od/glossary/g/Market_Correcti.htm

Good News and Bad News About a Strong Dollar

As I write this, my son Drew is in Sevilla, Spain visiting a friend en route to a summer-long study and internship in London. Europe’s economic woes have, in this case at least, come to our family’s aid in the form of a stronger dollar versus the euro and the British pound.

When we visited Great Britain in 2007 for Drew’s high school graduation trip, a U.S. dollar would buy only about half a British pound, and we groaned about the sky-high prices (the equivalent of $20 for a hamburger). In today’s reality, however, a dollar buys almost seven-tenths of a pound. That means that Drew’s purchases will cost about 27% less than they would have three summers ago.

While a strengthening dollar is good news for Drew and anyone else traveling abroad these days, it could be bad news for our country’s overall economy. A stronger dollar means that our exports become more expensive for other countries’ consumers, which could lead to further reductions in our manufacturing base. It could also lead to a resurgence of imports into the US, which could worsen our trade deficit.

This economic stuff can be tricky, can’t it? Good news can be beneficial in one respect while being harmful in another. Whaddya gonna do? From a selfish perspective, I’m grateful that Drew’s summer abroad will be a little less expensive than it might otherwise have been, and my national pride likes the idea of a strong greenback. But as an American pulling for the recovery to continue, I’d like to see foreign consumers buying goods and services that we create in the Land of the Free.

Enjoy your week!

A Stomach-Turning Drop

Last Thursday’s fast and furious drop in the stock market appears to have been influenced—at least in part—by a typographical error. The Dow plunged 1,000 points in five minutes before it partially recovered. A number of trades had to be cancelled because of errors related to technology problems.

Events such as this emphasize the futility of trying to predict the short-term direction of the market. We also shouldn’t read too much into this regarding where we’re going. As I have said many times, we’re entering a new economic era. We don’t know exactly what it will look like or how long it will take to get there, and many factors will contribute to the process. We just have to position ourselves as advantageously as we can, and let the process run its course.

Have a great week!

Mad at Madoff

You may be aware of the current efforts in Congress to reform our financial system. You might want to pay particular attention to how the lawmakers treat the enforcement of financial frauds, because up to now, investors appear to have enjoyed very little protection from financial crooks.

I recently listened to the audiobook No One Would Listen: A True Financial Thriller by Harry Markopolos. It tells the story of how Markopolos and a small team of investment professionals discovered the Bernard Madoff fraud and reported it to the Securities and Exchange Commission (SEC) repeatedly, beginning as early as 1999. But, as the title suggests, no one at the SEC would listen.

Madoff, as you know, is the man who pulled off the largest Ponzi scheme in history, and is estimated to have robbed investors of upwards of $60 billion. The lives of thousands of innocent investors were turned inside out by this charming monster of a human being.

Markopolos describes himself as a “quant,” a math whiz who is able to recognize patterns and relationships in numbers that most of us can’t. He worked for a Madoff competitor, and his employer tasked him with discovering—and replicating—the secret to Madoff’s too-good-to-be-true returns. It didn’t take Markopolos long to discover that Madoff’s claimed returns were mathematically impossible to achieve.

Despite repeatedly laying out a clear case to regulators, Markopolos was routinely ignored or treated as a pest by SEC investigators. While the SEC jealously protected its turf and shuffled papers, Madoff managed to reel in sucker after wealthy sucker as he funded a lavish lifestyle that included making many apparently generous charitable donations. At the same time, in a cruel irony, Madoff was accepting massive deposits from many charitable foundations. He was certainly aware that he was guaranteeing the eventual bankruptcy of every foundation that invested with him.

The only thing that brought Madoff to justice was the tumbling stock market of 2008. As investors withdrew their money to pay for other obligations brought on by the national financial crisis, Madoff quickly ran out of money (he had spent it all, of course) and abruptly turned himself in to the FBI.

In appearances before Congress and on 60 Minutes following the debacle, Markopolos excoriated the SEC for its arrogance and incompetence. The agency suffered well-deserved national humiliation, and has promised to reform itself. That possibility may be out of its hands, however: Congress may well restructure the SEC, or possibly replace it with an entirely different organization.

Stay tuned, and have a great week!

The Scary, Dangerous Sideshow That Was Huey Long

Last week I wrote about two interesting biographical audiobooks, Genghis Khan and the Making of the Modern World by Jack Weatherford and Kingfish: The Reign of Huey P. Long by Richard D. White, Jr. Most of my commentary concerned the somewhat shrouded and largely misunderstood Genghis Khan. Huey Long was a different breed of cat.

Huey, (friends and enemies alike called him by his first name) was Louisiana’s Governor (and later U.S. Senator) during the Great Depression. He never graduated from high school, but was considered (by himself, at least) to be the best lawyer in Louisiana. Ruthless and colorful in his insatiable quest for power, Huey never shied from a fight. “Always hit the big man first” was his motto, and he followed it ferociously.

As governor, he used his influence to get supporters elected to the state legislature so he could enact his reforms, which many Louisianans will still tell you greatly benefitted the state. He openly believed that the end justified the means, and he frequently fixed elections. Often, his chosen candidate received more votes in a particular community than there were registered voters.

Once, he even had a vocal member of the opposition kidnapped just before an election. His henchmen (people often talk about politicians having “henchmen,” but Huey really did) took the irate victim fishing for a few days. When he resurfaced just after the election, he been converted into an enthusiastic Huey fan—and was, most likely, a good bit better off financially than he had been before.

While such stories can be amusing, Huey could be downright evil. FDR called him one of the two most dangerous men in America (the other was Senator Joseph McCarthy). Never satisfied with a fair fight, he would stack the deck in his favor. Just a few examples:

He started his own propaganda newspaper and required all state employees to subscribe via mandatory deductions from their paychecks. He stacked the state Supreme Court by adding seats and appointing supporters (a ploy tried unsuccessfully by President Franklin Roosevelt). And he would draft several dozen bills, many of which granted him outrageous powers, call the legislature together for a special session, and force passage of all twenty or thirty bills within a day or two, before the lawmakers even had a clue about what they were voting on.

Beyond stacking the deck, Huey was cruel and vindictive in punishing his opponents. He would have opponents—as well as opponents’ entire extended families—fired from their jobs. In some cases where the enemy owned his own business, Huey would have the very business outlawed by the legislature.

Despite all this, Huey was wildly popular among the poor people of Louisiana because they thought of him as poor and downtrodden, just like they were. He made no apologies. “We’ve always had graft in Louisiana,” he once said. “At least with me, they have roads, too!”

Have a great week!