Sushi Money

The market has made amazing gains over the past two days, and posts the biggest 2-day gain in five years. Pretty amazing numbers. We’ve been here before, but are we staying for awhile or not? And how many people took money off the table over the past few weeks? No surprise there- with all the financial turmoil many of us have become a little more conservative these last few months. But as I was looking over the market yesterday morning it just looked ripe with opportunity, hence yesterday’s post. Now the financial pundits will really be out in force debating the merit of this weeks market gains.

Through last week the Dow was down almost 10% from it’s high a few months earlier. The Wall Street Journal declared a correction a few days ago, looking ahead at the possibility of another 10% down indicating a bear market had returned. But after the last two days, are we out of the woods, and is the Bear still in there hiding? Sure looks like it, but that financial Bear is a wily creature. A lot of smarter folks than I expect all the negative news to have significantly more impact to the markets than we have seen lately. And a possible recession, meaning that many folks think we’re just not there yet. We don’t have that “feel-good” factor going! With the subprime and mortgage mess reaching a peak in mid-2008, there’s still lots of negative news to go around.

But you know what? I think there’s a whole lot of fund managers and investment firms competing to show some healthy gains for investors. With the hedge fund derivative losses this year I suspect a lot of smart folks are re-examining just what risk means. Maybe some of the good quality stocks are pretty decent investments after all. Maybe we don’t have to go looking for the “next best thing” or crazy combinations of risk in order to show decent returns for investors. Maybe dividends and solid year-over-year growth is not a bad place to be over time. Maybe a lot of folks will return to the fundamentals on stocks.

Then again maybe fear will continue to run amok and the markets will crash. Who the heck really knows where the market’s going? Certainly not me, but I did put a chunk of money in some key areas yesterday that look even better today. Looking ahead I see the Fed cutting rates a quarter point, the holidays making us all feel pretty good, and the election cycle really kicking in for 2008. Maybe we’ll even make more progress overseas, and start bringing some troops home. Some folks see market forecasts intertwined with the election cycle… and a Democrat in the White House next time. I don’t know what that means, except perhaps higher taxes on everything.

Something I do know…. markets go up and down, and change is the only certainty. It’s just the name of the game… a game in which I try to keep madness and the risk of emotions out of the way. Ten years from now my only memory of this day will be this post, if it still exists. Looking back ten years ago, I have no idea what I was doing…. Oh wait! Yes I do remember… I was having too much fun and not saving or investing nearly enough! Sometimes I wasn’t having any fun, and still not saving or investing enough. Now I know better… just keep plunking money in the pot, and try not to get too excited whether the market’s up or down. But up certainly is better than down isn’t it?!

     So what do you think of the market action lately?  Lots of seesaw but I don’t think we’re finished with the all the negatives seen lately in financials.   Enjoyed watching Jonathan Hoenig this morning… the Capitalist Pig who offers insight on the daily market action.  He’s generally pretty negative about current market opportunities, but has a really interesting perspective.  Today he mentioned the Wall Street Journal’s article on pension funds.   Seems some of the largest pension funds in the U.S. are divesting a good percentage of U.S. held stocks and shifting overseas, some cutting domestic stock percentages from 50% to 24% while moving into the international markets.   But as Jonathan pointed out, pension funds decisions are akin to investing by committee.  Just maybe this is an indication of where not to put your money right now.

     Either way, how much international exposure do you like in your portfolio?  I’ve held a consistent 15% to 20% over the last few years, certainly wishing I had a larger stake in retrospect.  Inflows to international stocks and mutual funds over the past year have been increasing at a record pace.  So what to do now?  I’m not going to chase the internation markets at this point- I still like 15% to 20%.  I may miss out on some good opportunities over the next couple of years, but I like the U.S. markets.  Here at home however, the news is pretty darn negative on the U.S. economy with the challenges we face with the credit crisis, housing and financial market prospects, consumer sentiment, the dollar, yada, yada, yada.   The financial news continues to show that many economists and investors are expecting the Fed to cut rates in a few weeks:

“The gloomier mood increases the likelihood that holiday sales, which account for a fifth of retailers’ yearly revenue, will be disappointing. Federal Reserve policy makers and private economists have cut growth forecasts as the housing slump enters its third year and jeopardizes consumer spending.”
“This is a strong indication that consumers are going to pull back sharply and growth is going to be very weak,” said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. “The message to the Fed should be that they need to keep cutting rates.”

    Sounds pretty ugly doesn’t it?  Even still, online shopping continues booming to new year-over-year records.  I guess the brick-and-mortar stores will have a harder time.   But personally, if the stock market presents another 5-10% pullback over the next few months I think that’s a great opportunity to really go long.  I’m sticking with it, and continuing to invest over time.  Maybe I’m crazy… heck, maybe it’s almost the contrarian position to look at stocks in the U.S. markets right now?    I just think ugly markets present many opportunities for a patient investor.  Even if the economy struggles along for the next year, the credit crisis will wane after we get tired of hearing about foreclosures and ARM resets.  Fund managers and financial company managers are going to find ways to increase profits and improve margins.  Gold will probably continue higher, and commodities are still doing well in this climate.  But a year or two from now, the sentiment is going to be vastly different.  I’ll even say that at some point in the next 5-7 years the U.S. dollar will come back very strong to the chagrin of many around the world.   Could be wrong, but I’m not betting against ‘ole Uncle Sam for the long term.    Over the short term?  Think I’ll stick with Mizzou this Saturday against the Sooners!

     I was asked recently how someone could really gain financial knowledge… to learn about financial issues, saving, investing and managing finances successfully to achieve a secure retirement.   It’s a question that a lot of us have asked at one time or another in our lives.  Heck, it’s a question we keep asking isn’t it?   Do we ever really know enough?  It seems like the more I do learn, the greater awareness I have for how much I don’t know.  If that makes any sense…

     Sure, some people have an interest or passion for financial issues, and keep after it throughout their lives.  Others just fall into it as a career option, or expansion of business and management.  A good education goes a long way no matter what you do   The statistics specifically show that with increasing education comes increasing wealth.  Knowledge about financial issues often grows with the responsibility for managing that increasing wealth for many people.  Yet for countless millions, financial literacy remains a challenging concept… something that is not “applied” in their lives, and may never really be well understood.    How many bad decisions are made in terms of loans, credit, debt, scams and frauds are tied into lack of awareness and knowledge of financial matters?   

    I am always amazed that we still have enormous numbers of people living in poverty in the U.S.  Take a look at this chart from the U.S. Census Bureau:

     These are statistical numbers based on Census Bureau calculations of Poverty Thresholds.  They are used to calculate a poverty rate and comparisons of the number of people in poverty in the U.S.  The Poverty Thresholds are based on income per family size, and if the income is below the poverty level, then the entire family is considered to be living in poverty.  The official Census Bureau poverty definition is updated for inflation using the CPI, and only uses pre-tax income, not including sources such as capital gains, subsidized housing, food stamps, medicaid, etc. 

    The Poverty Thresholds are different than the U.S. Poverty Guidelines calculated by the U.S. Department of Health and Human Services.  But the Poverty Guidelines are very important, because they are the numbers used to determine qualification for a host of federal programs such as school breakfast and lunch programs, WIC, food stamps, Job Corps, subsidized Medicare, State Children’s Health Insurance programs, Head Start, etc. 

    Regardless of the approach to defining poverty, the results are fairly close:  For a family of four today, they are living in poverty if their annual income is around $20,600 or below.   What if there’s one spouse working at a minimum wage job, the other spouse not working, and two school-age kids?  That’s a pretty difficult economic situation for a family, and they would be challenged to earn more than the poverty level.   What about those living alone?  A one-person household is living in poverty if their income is around $10,000 per year.

     Many of the government programs tied to the poverty guidelines are used primarily by families with children, which brings up an interesting point.  Children under 18 years old have the highest rate of poverty in the U.S.  Some people find that surprising, but it’s not when you think of the number of poor children in some families.  It’s not against the law to be uneducated, to be poor and to continue to have many children, but that is a reality in many parts of the nation… and world of course.  Unfortunately, lack of education goes hand-in-hand with reduced economic well-being, just as we cited the opposite as being a reality:  Greater education results in greater long-term wealth, and fosters improved economic well-being.

Here’s a chart showing historical poverty by age group:

     So it brings up the question of where the poor are getting help in terms of financial knowledge and education?   If someone has very little money and is struggling from paycheck-to-paycheck, how much time do they really have to learn and plan for long-term financial needs?   Probably not much.  Financial planning is simply not going to be the focus for so many struggling families- they are simply trying to make do from month-to-month and survive, especially with children.  And the financial services industry doesn’t really help- everything from brokers, fund managers, financial planners, accountants, financial counselors… what type of clients do they really serve?    Mostly it’s clients with money.   No matter how altruistic their motivations, these professionals are in business to make money.   Sure, there are exceptions such as the many counselors and social workers who do serve lower socio-economic markets and clients, but it’s a challenge, especially with liability insurance and other professional costs of being in business.  

    That’s why I believe so strongly in education and financial literacy.  All the government programs in the world are simply “stop-gap” measures aimed at helping people get by.   People must receive practical, applied training and education in order to pull themselves out of poverty!  The old axiom about teaching someone to fish rather than simply giving them a fish is very true.   The government should give them a few fish along the way, but it is possible to get an education and improve economic well-being.  It is possible to learn how to manage financial matters.  We can help people do that… and make a huge difference in the lives of those in need, especially children.  And we need to start at younger ages… teach children about saving and using money all throughout public school, especially the hazards and use of credit cards and debt.

     And just maybe we are finally looking at these issues as a nation.  Did you know there was a U.S. Financial Literacy and Education Commission?  In 2002 the U.S. Treasury Department established the Office of Financial Education, and soon after created the financial literacy focus.  In 2006, the website MyMoney.gov went live as a place chartered to “provide financial education and resources to all Americans.”  It’s a decent site filled with helpful information and references for many different financial topics.  One of the key strengths of the site is how they’ve integrated government resources such as Social Security information into the topical areas. 

     By the way, what was my answer to the question about how to gain financial knowledge?  Just good ‘ole fashioned effort and discipline primarily.  Take a few classes at a community college or university on budgeting or investings.  Stay away from “get rich quick” ideas and investing seminars.  Read and learn as much as possible… use the internet and the local library for all the fantastic financial books out there.  Stay with it, and keep learning over time.  Meet with an objective fee-only financial planner and talk about the future.  The bottom line and best advice I’ve ever heard?  The simple answer of starting to save and invest as early as possible… Time is on your side if you start young.  It’s hard to make up the older you get.

     I wish there was a better prescription for learning financial  ”stuff” but it just takes time and effort.  How do you do it?  Is it because you enjoy handling financial matters?  What do you think our country can do to improve financial literacy and education in the U.S.? 

    I see financial literacy as an increasing imperative for many nations around the world.  I just don’t think we can leave the details of our financial future up to someone else.  If you’re fortunate to have the resources to let a professional manage your financial well-being, that’s great… but seems to me it’s still important to stay in touch and continue learning along the way, not to mention a responsibility for educating others.   How many billions of dollars are spent providing aid to those who may have been able to do better for themselves, if someone had helped educate them earlier?

     There are many other people that need our help of course, and especially family members who are counting on our knowledge, or at least guidance.  I never even heard of a mutual fund until my father introduced them to me years ago.  If I had followed his advice at the time I would be a lot further ahead right now financially.  But he does receive the credit for pointing me in the right direction.   And I’ve learned something else along the way…. it’s never too late to start!

     I hope today finds everyone with good food, family or friends.  Or perhaps a day to enjoy some time to yourself.  Sometimes I treasure the days when I can find just a little time to reflect, and think about things.  It’s like catching your breath, and catching up with yourself.  But personal reflection can also bring out feelings where we think about the challenges we face.   This week it might involve questions like “What the heck is the market doing!?”  For which, of course, there are a million opinions, and few real answers. 

    What a strange time this is… the Dow is just about at its lowest point since April 2007, and tomorrow U.S. consumers will flock to the stores and malls for the biggest shopping day, and weekend, of the year.  I always try to avoid shopping on this weekend… too many people!    But the holiday season has begun in earnest, and it is a hopeful time of the year.  And an expensive time of the year.   I’m trying not to give in to the many temptations of the season… spending too much money over the holidays, eating too much food over the holidays, and worrying about- or even selling- stocks and funds over the holidays.

    Since the market has retraced almost 10% from its high of the year, we find some folks looking for the bear to rear its head.  Others think we’re just improving the fundamentals of the market, and presenting opportunities over the next year and beyond.  I don’t know where we’re going, but I’m going to keep plugging away… saving, investing, rebalancing, and looking out 10-15 years.   For that money I need in the next 3-5 years?  Well, that keeps going in a good safe money market account.  A little money in the emergency fund is also worth far more in terms of the security it brings.  

    Speaking of emergency funds and challenges, we can really help others at this time of year by giving food to a local pantry or church, or donating money for those in need.  It never ceases to amaze me that even with such economic prosperity, there are far too many who are struggling each day.   I think giving promotes opportunity, and opportunity promotes economic well-being.  Quite simply, that helping others helps ourselves and the nation as a whole.

     So I’m thankful for the opportunities we have, and thankful for being able to handle the challenges we face.  There will no doubt continue to be challenges ahead both personally, and for the nation as a whole.  I think challenges also promote opportunity in different ways- the opportunity to learn, to grow, and to leverage what is for what might be.  I’m an optimist at heart, and I think we’ll handle things just fine economically, and otherwise. 

    With that, it’s time for a little eggnog.  And we even saw a little bit of snow on the grass this morning!  Our 7 year old didn’t know what it was… I went out and scooped up a handful and his eyes lit up with excitement… “Snow!”   It’s great to see how simple things can bring such joy.  Happy Thanksgiving!

    What a busy month!  Between finals, case studies and typical family business I’ve been treading water this week.  I’ll stay busy for another couple of weeks, and then have more time to write.  We’re coming down the the end-of-year flurry of activity, especially for tax planning.  Now’s the time to make those financial decisions that can help the most for tax purposes- visit Kiplinger.com for a review of 10 Smart Year-end Money Moves.  And don’t forget to maximize deductions between now and the end of the year.  If you itemize deductions on your return and pay interest on a mortgage loan, consider paying the January mortgage payment in December before the end of the year.  Yes, it balances out over time, but I like to count as much for deductions in the current year as possible.    It might not be a bad idea for a quick review or phone call with your CPA or tax advisor either.  

     The Holidays begin this week here in the U.S., and if you’re driving it’s going to be more expensive this year with fuel prices.  This article is interesting however, and talks about how $3 gas really isn’t having the effect that many people thought it might.   That may be true, but it’s sure affecting choices for how often, and far, many people drive these days.  I’m just hoping fuel costs won’t be as high next summer when we take a vacation driving across the country!  Probably shouldn’t get my hopes up…

     When did raising children ever become an issue about money?  Sure, many of us held off having kids at certain times because we wanted to do some things first, or wait until we were settled in our careers.  And for some of us, it just “happened” and we marched steadily forward in our lives with kids in tow. 

     Now it seems we find information everywhere about people questioning the “value” that children represent to a family, or how much kids “cost” over time.  Business Week drummed up the attention grabbing headline ”Is Raising Kids a Fool’s Game?“   It’s an informative article that weighs the economic realities of having kids.  But it also bothers me though…  what kind of question is that?  Is raising kid’s a fool’s game?  Not on your life!   Kids might make you feel like a fool, but I hope I don’t become so economically cold that I start analyzing the financial relationships between my son’s growing up and our household budget.   

     Maybe we all do that in some ways, it’s only natural… “No son, you can have single scoop of ice cream… not a double today, and no we’re not putting money in that stuffed-animal claw machine and you don’t need bubble gum again!”  But I could never question what it actually costs to raise kids as some comparison to the perceived or emotional ”value” that having children represents. 

     Some people do raise those questions however.  Phillip Longman, author of The Empty Cradle: How Falling Birthrates Threaten World Prosperity and What to Do About It, looks critically at the economic costs of raising kids.  I haven’t read the book, but quotes like these give what appears as a too realistic, or perhaps mechanical view of human life:

“Child rearing is fast becoming a sucker’s game. Though the psychic rewards remain, the economic returns to individual parents have largely disappeared, while the cost of parenthood is soaring.”

       It’s not something I think we can, or should, make comparisons about.  Kids are amazing.  They’re a reflection of who we are, of generations of people just like us.  Kids are the future…. they’re our future.  When we are old and gray, the “kids” will be running the store.  They may even be helping us with a few things, and hopefully doing a pretty good job.  But I think having kids is more than that… it brings something out that we would not see or realize about ourselves otherwise.

Children are the living messages we send to a time we will not see.  John W. Whitehead

     In some ways, I don’t think one can fully understand what it is to be human without being a parent and raising children.  And not even biological children-  I think one can adopt children and feel the same incredible joys and sorrows of being a parent, and being humbled by ourselves.  In many ways that’s really what we find… an experience in which we begin to learn more of who we are, how we grew up and what has shaped our lives along the way.  We find out so much more about ourselves when we give to someone else as a parent and help them grow in their own life.  It’s hard to describe… but is a wonderful and revealing journey.  I believe we are even helping to shape the world that will be simply by imparting our values and experiences to our children. 

     Yes, children and higher birth rates do contribute to the economic realities the world faces… but we are not robots or machines simply breeding and mechanically contributing to the species year after year.  What kind of view of life is that?  And is having kids expensive?  Oh my goodness, yes- there’s no question about that.  I don’t know how families with 4-5 children get by honestly.  Or what about the Duggar family in Arkansas… an amazing family with 17 children!   Wow.  How do they do it?  I couldn’t even imagine.

      Children are like non-stop consuming and mess-making machines.  While they’re young, it doesn’t really end… just keeps going as they keep growing, and the minute you think you’ve got it figured out- they get sick, or throw some other curveball at you.  It’s a full-time, grown up job.  Something that takes discipline, maturity and yes- money.  Lots of money over time.  Today the cost of raising one child can be more than a quarter of a million dollars. 

Take a look at the real estimates of what it costs to raise children- this is from the U.S. Department of Agriculture’s Annual Expenditures on Children by Families for 2006.  It’s a detailed annual publication with lots of infomation- (here’s a link to the annual report if desired, but it’s a large PDF file).

   The journey of being a parent is so full of surprises.  This morning my 7-year old son woke up, saw me in the hallway, and ran up to give me a great big hug.  He said, “This is the best week I’ve had since I was a baby!”   ”It is?”  I asked, surprised, but not understanding.  “What’s so great about it?” I asked.  He said, “I don’t know… it just is, and I love you.”  

   That was worth any amount of money I could ever have… and I’ll probably remember it the rest of my life.  We get back far more than we ever put in to raising children.  Today our son dragged his mom around picking up canned goods for charity for the Cub Scout’s annual food drive.  All together our little group of kids gathered over 2500 food items for a pantry at a local church.  They said it would support local families for 3-4 months during a challenging season.  He really enjoyed helping other people, and learned a lot from participating.    After that all the kids gathered at the cub scout meeting for the space derby race, where we “raced” the rockets and spaceships that we spent the last few weeks making.   

     Everybody’s busy though… tons of other stuff needs done, the house is a mess, there are leaves to rake, and more.  But it was his time this morning.  The joy we see in a child’s eyes holds the reflections of all that is simple and beautiful about life.  We see ourselves in those reflections.  We see joy and beauty in places we never even dreamed about.  A fool’s game?  Nope.  Not even close.

    

     Looks like the WSJ Online is going to be free… that is wonderful. I love the site and the depth of analysis and commentary it provides.  News Corp. Chairman Rupert Murdoch understands that they are going to increase readership exponentially over time.

“We are studying that and we expect to make that free, and instead of having 1 million (subscribers), having at least 10-15 million in every corner of the earth.”  Rupert Murdoch