Invesra, Invest in your Future

Over thirty years ago, I had a European history teacher who was loved and respected. She taught us to think about history, not just recount it.  Despite her many years living in the U.S., she spoke with a heavy German accent, making her even more formidable. While her classes have faded from my memory, I recall her prediction of the next major world conflict. She told us that the next war would be driven by our dependency on oil. It sounded quite ominous.

Looking back, it was a logical prediction given the fact that we were experiencing our first energy crisis. Oil prices spiked, gas lines grew long and the rationing of fuel was happening right before our eyes. Unlike our parents who lived through the Great Depression, we baby boomers asked, “These things aren’t supposed to happen here in the U.S., are they?”

But lessons are often taught more than once because we don’t “get it” the first time. While 1973-1975 was a painful time, we put it aside as simply a lesson about the evils of wage and price controls. It was obvious that an oil shock could cripple us and yet we failed to face that simple truth.  Our dependence on oil continued without any meaningful commitment to the development of alternative energy sources.

Due to converging problems, too many and too complex to enumerate here, we now face a second lesson. We may have a chance to change our patterns of behavior.  Oil remains abundant in Russia and the Middle East. We can buy it. But the game is different now. The number of consumers has increased dramatically as the developing giants, China and India, compete for the same nonrenewable energy source.

What does this have to do with retirement savings? Intellectually, the average person knows that a lack of savings today will impact the quality of life at retirement. Sadly, that average Joe fails to act in the face of the obvious.  Just like the crisis in 1973, the U.S. government and private industry failed to initiate a meaningul plan for the development of alternative energy sources It’s about foresight and action. It’s about the ability to look ahead and to take actions today that can create a better future.

Spending tomorrow’s money today will bite us when tomorrow’s money is no longer there. We have begun to see that tomorrow’s money (i.e. home equity) is drying up. As for oil, we still have access, but the end of tomorrow’s oil may now be within sight. The world needs viable alternatives to fossil fuels. Consumers need to save more.  The time for change is today, not tomorrow.

Get foresight. Get saving today.

Do you know what the Presidential contenders are saying about taxes?

We have summarized some of the information on their positions. While this is by no means comprehensive, it is a  side by side comparison of the candidates’ basic views.   The Candidates and Taxes

Regardless of who gets elected, the inherited economy for the next President will challenge even the brightest  mortals as they use fiscal and monetary tools to unwind the consequences of the subprime mess and at the same time, prevent the economy from inflating. The looming national debt creates more issues that will not easily be corrected.

The capital markets are reacting with a great deal of volatility to the recession that may have arrived today or will wake us up tomorrow. According to Bill Gross, manager of the largest fixed income mutual fund in the world, the policies that are being put into place to prevent a recession will  be of little consequence. In his latest written commentary for February, he writes, “To provide a stable recovery path, government spending needs to fill the gap – not consumption. Public works programs, badly needed infrastructure repairs, as well as spending on research and development projects should form the heart of our path to recovery.”  For more reading from the guru of interest rates and economic outlook, go to Read the full article here.

The January effect is when stocks begin the year with a rally.  Sadly, there was no January effect for 2008. The U.S. equity markets started the year with a 10% sell-off  through mid month.  Things were looking bleak for investors as the economic reports were gloomy: GDP’s paltry 0.6% growth rate,  weak retail results, and soft employment data.

With recession looking more and more likely, the Fed took an aggressive posture with a 75 basis point rate cut on January 22nd and again another 50 basis points on January 30th.

The Fed’s action sparked a rebound from those mid-month lows, but the S&P 500 still ended January with losses across the board.  Financial stocks posted gains as these were immediately boosted by the Fed’s actions.  In particular, banks and REITs gained for the month.

Technology stocks were hurt and one of the main drivers was Apple which fell over 31%. But Apple’s decline is a mere fraction of this past year’s increase, which resulted in its market cap exceeding that of both Citigroup and IBM.

The other news is that Congress put party lines aside to approve the President’s $150 billion fiscal stimulus package aimed at putting money back in the hands of the consumer.  The Senate now needs to approve the package. This also helped boost the markets higher at month end.

So far, 2008 has been bumpy ride for investors. Fasten your belts.

We do a lot of reading and listening about the markets and about the economy. There is clearly no shortage of opinions. We thought it might be fun to pull some together.  Take a peek at who thinks what about the state of the U.S. economy.

What the Experts are Saying

The Fed has cut interest rates in a dramatic fashion to head off a recession. Over the weekend, foreign markets dropped dramatically in a reaction to Bush’s proposed plan to boost the sagging economy. This set the stage for a major selloff today in the US markets. And in steps the Fed, prior to the market opening this morning, and cuts rates by 75 basis points.

Does it feel like the ‘hair of the dog that bit you’? We got into this mess with easy credit and low rates with the home and credit card as the cash machines to support the consumption. There is a notion that more and more spending will avoid a recession. That is probably true, however, sustainable growth needs more than just a shot in the arm to the consumer. The U.S. cannot have a growing economy with a large debt hangover in our homes and in our government. There is the short term and there is the long term. Unfortunately, we seem to manage only to the short term.

Let’s hope this juggling act of boosting the economy while keeping inflation under control does not produce longer term undesirable consequences.

Flashback to WIN

The 1970’s was a period when higher energy prices led to inflation but also recession was in the waters too. At that time, the Fed’s focus was to prevent a recession and meanwhile, inflationary pressures continued. While inflation continued to be a problem, unemployment was rising to levels above 10%. Inflation was so bad that President Ford crafted a whole grassroots campaign with WIN buttons: “Whip Inflation Now”. There is a button for sale on eBay for $3.99 (not including shipping costs). Assuming the lucky seller bought it in 1974 for a dime and he sells it today, he will have really whipped inflation with an estimated 11.5% annualized rate of return over the past 34 years!