Sushi Money

What can you say after weeks of stock market losses?  It’s sad, awful, ridiculous and downright scary for a lot of folks.  And if you’re like most people these days, you’ve just stopped looking at it.  Why bother, right?  Maybe you’re a long term investor, and nothing that happens now really matters over the short term anyway.  Or maybe the words “long term investor” don’t mean very much right now.  Or maybe after feeling stressed from watching days of hundred point losses, it just doesn’t make sense anymore.

So is there anything we can really do about it?   Not unless it bothers you so much that you can’t sleep and your life’s a wreck.  Most people in that situation have already sold out long ago.   Me?  I’m just watching in rapt amazement at the carnage wrought by institutional selling.  Hedge funds, private investors, mutual fund redemptions, tax loss selling- all are putting relentless downward pressure on stocks, dropping indexes  to levels not seen in over 5-10 years.

“The Standard & Poor’s 500 index fell 6.7 percent to its lowest close since April 1997. The Dow Jones industrial average, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003. The decline brings the Dow’s two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.”

I don’t know what the market or the economy is going to do in the weeks and months ahead.  If I had some extra cash laying around that I didn’t need for 5 years or more, there are some incredibly cheap stocks out there.  But we are where we are… and like most of you I’m just along for the ride at this point.

So… what did I do today?  I went shopping.  A local grocery chain had a great sale going on and I picked up a 20 pound turkey at .67 cents a pound- almost half price.   Then I filled up the car.  Gas was around $1.69 per gallon.  Is that amazing or what?  And wouldn’t it be nice if gas prices stayed low for a while?   There’ll be a lot of drivers on the road next summer if gas prices stay low- especially with airline fees through the roof.   And since we’re in a cash crunch and consumers have cut back on spending, the stores are also offering all kinds of deals right now.

I’m not advocating spending money you don’t have, or investing in the market in stocks you don’t know.  But if you’re in the market for a house or a car or you like a particular company as an investment, is there a better time to buy?  It’s a buyer’s market out there folks.  How long it stays that way is the real question.

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How does a well educated middle-aged registered nurse end up losing $400,000 to scam artists?  For the life of me I can hardly understand how this is possible, especially because it’s such a well known internet scam and involves the red-flag word “Nigeria”.   This otherwise intelligent (maybe not) woman emptied her husband’s retirement account, and took out loans on their house and car all to continue sending money to thieves half way across the world.

“It turned out to be a lot of money up front, but it started with just $100.  The scammers ran Spears through the whole program. They said President Bush and FBI Director “Robert Muller” (their spelling) were in on the deal and needed her help.“

Ahem… well, you see Presidents and FBI Directors don’t ask regular people for help.  Unless they’re behind in the polls for re-election perhaps… But important people have, you know- other people to do that kind of stuff for them?

“They sent official-looking documents and certificates from the Bank of Nigeria and even from the United Nations. Her payment was “guaranteed.”  Then the amount she would get jumped up to $26.6 million – if she would just send $8,300. Spears sent the money.”

“More promises and teases of multi-millions followed, with each one dependent on her sending yet more money. Most of the missives were rife with misspellings.”

Okay, I guess if someone’s going to give me a lot of money I won’t hold their spelling problems against them. 

“When Spears began to doubt the scam, she got letters from the President of Nigeria, FBI Director Mueller, and President Bush. Terrorists could get the money if she did not help, Bush’s letter said. Spears continued to send funds. All the letters were fake, of course.”

Oh boy.  Even worse, she was told it was a scam by relatives, friends and other professionals, and was advised to stop- and still she kept sending money.  No offense Ma’am, but I hope your nursing judgement is better than your everyday, ah, money handling judgement.  

This type of “Nigerian” scam is a called “advance-fee fraud” and it has been around for a long time.  Even worse, it’s reaching an epidemic level and people keep falling for it!   What’s the best way to avoid it?  Just don’t reply to any email or letter than has anything do with Nigeria for one…  more importantly think about these words from the Federal Trade Commission:

If You Receive an Offer

• If you’re tempted to respond to an offer, the FTC suggests you stop and ask yourself two important questions: Why would a perfect stranger pick you — also a perfect stranger — to share a fortune with, and why would you share your personal or business information, including your bank account numbers or your company letterhead, with someone you don’t know?
• And the U.S. Department of State cautions against traveling to the destination mentioned in the letters. According to State Department reports, people who have responded to these “advance-fee” solicitations have been beaten, subjected to threats and extortion, and in some cases, murdered.
• If you receive an offer via email from someone claiming to need your help getting money out of Nigeria — or any other country, for that matter — forward it to the FTC at spam@uce.gov.
• If you have lost money to one of these schemes, call your local Secret Service field office. Local field offices are listed in the Blue Pages of your telephone directory.(I never knew that!?).

Admittedly some people get involved in a scam and it becomes an obsession to fix it, get their money back or it becomes some type of self-denial.  That’s such a shame, and it must border on psychological issues sometimes.  But apparently the woman in the article above would like other people to know her story so maybe it can prevent someone else from falling into this trap.  Good for you lady, and thanks for sharing it.  It’s too bad you couldn’t have done so earlier without losing so much money.   

It also upsets me that our government, and the governments of Nigeria or other countries cannot do something to prevent or remedy this type of situation.   It’s bad enough when we’ve lost 36% over the course of a year in the markets- but to just give our life savings away to scam artists?   Don’t fall for it!

For More Information

More information about Nigerian Advance-Fee Loan scams is available from the U.S. Secret Service (www.secretservice.gov/alert419.shtml).

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. 

That’s pantry fellas, okay?  You know, that closet or cupboard where you keep your food and canned goods?  I looked around ours recently and discovered we’ve got a lot more food on hand than we realized.  Maybe not fresh foods like milk and eggs, but if push came to shove we could probably go a month without a major shopping trip.  That’s not even counting what’s in the freezer.   With thoughts like these it’s no wonder we’re reading about consumer spending taking a huge dive last month:

“The Commerce Department reported Friday that retail sales fell by 2.8 percent last month, the biggest drop on record, surpassing the old mark of a 2.65 percent plunge in November 2001 that occurred after the terrorist attacks. The October sales decline was led by a huge fall in auto purchases, but sales of all types of products suffered as consumers, worried about their jobs and the market turbulence, cut back sharply on spending.”

“The dismal report on retail sales was worse than the 2 percent decline that analysts expected. It marked the fourth straight decrease, the longest stretch of weakness on record. Retailers are braced for what could be the worst holiday shopping season in decades with economists forecasting a recession that could turn out to be the steepest since the 1981-82 downturn.”

“A survey of the nation’s big chain retail stores found that retailers suffered through the weakest October in at least 39 years even though they tried to gin up more sales by a frenzied round of price cutting.”

Of course there’s a bright side to a retail downturn…  discounts and sales everywhere.   Now retail doesn’t usually include grocery stores, but I know folks are cutting back there too.  The stores are quieter and emptier.  Except for Wal-Mart.  I made the mistake of going to Wal-Mart on a Friday a week ago- holy cow!

Having grown up through the ‘81-’82 downturn, I’m not sure I learned anything of significance either, especially because I was young and single, and didn’t have a family or home to support.  But we scrambled with multiple jobs and did what we had to do… worked, saved and pinched pennies.  I do remember running out of gas a few times… that was embarassing, but more a reflection of my lack of foresight than anything else.   You know what else was lack of foresight?  Not investing on a disciplined basis each year at the time- I probably gave up a decade or more of investment returns over the length of the 1980’s bull market.   But that’s another story.

As I ponder the current state of affairs it strikes me that most of us have a lot more resources at hand than we may realize.  And that’s also because most of us plan ahead a little bit, and try to stay prepared for whatever might come.  If I look in the pantry, the garage and a few other places, I realize we have a lot of stuff.  Some of it is even useful.  If things get really tough, we’ll be fine for a while.  We’ve already cut back, and we have room to cut back more if we need to.  Admittedly lots of other folks may not, and we’ll need to help them where we can. 

All across America starting this weekend the Boy Scouts and Cub Scouts have their annual food drive to gather donations and help people.  So many of the local food pantry and shelters really need the donations.  Looking at our household pantry I know we have a lot of cans we can give to help another family with Thanskgiving this month.

But if you’ve read Sushi Money at all before, you know I’m not one who believes we’re falling into another Great Depression.  Heck they haven’t even called it a recession formally yet.  But when they do (oh, they most assuredly will!), the recession will probably have started around the middle of 2008. 

We don’t know when this recession will end.  We don’t know how deep it will be, or what will help trigger the turnaround.  But to get the nation moving and growing again means we’ve got to foster business and public works.  And James Stewart’s approach to How Obama Can Fix the Economy makes as much sense as anything I’ve heard from Congress or the Treasury Secretary.  The new President will have a full plate, and a lot of motivation for changing the economic course we’re on right now.   I don’t envy his job, but is there a better time to be a new President than with the economy on the ropes?  Looks like opportunity to me.  

Today is a day of remembrance and thanks for the Veterans who have served the nation in the armed forces. So many of us have family and friends that have served, and are still serving today.  We are better for their service, and sacrifice. 

I took a week off to catch up on, and reflect on, a few things.  Those of us who didn’t vote for President-elect Obama may be feeling a little out of touch these days.  Generally I look at life in a hopeful and constructive manner, living each day in a positive manner. Most of us do, and I don’t think that’s going to change in the months and years ahead.

But I think there are different considerations now, especially if you don’t agree with certain actions or the economic philosophy of our political leadership.  If we’re not careful we may find ourselves caught up in a negative cycle of news and frustration.  Whatever direction the nation takes politically however, I have to believe that the leadership, by and large, has the best interests of the American people at heart.   And even if I don’t want to pay attention, we must stay involved and aware of the changes that will take place ’cause it’s going to affect us most in our wallets. 

The stock market has been wavering dramatically in recent weeks, even ringing up the worst post-election loss in history.  Say what you will, a lot of folks are realigning their portfolios based on perceived (and real) threats of increased taxation at both the personal and the corporate levels.  We have even seen that based on fears of an Obama administration, firearm and ammunition sales have skyrocketed as never before in history.  And why not?  President-elect Obama may not “take our guns away,” but the Democrats in Congress can certainly make it difficult, and very expensive, to purchase ammunition. 

So will potential tax hikes and increases to capital gains and income taxes affect the stock market?  Absolutely.  But hopefully not right away.  Yet the real significance for tax policy at the individual level is the affect it has over the long term on wealth creation and investment. It may not affect the average investor now, or in two years.  But over a working lifetime it’s a huge impact. If there’s one thing President-elect Obama can do to strengthen the nation economically, and the investment climate, it would be to not raise taxes on anyone, anywhere.  Heck, we’re still facing too many uphill financial challenges, so I’m sure the Democrats are smart enough to wait for a while.  Well, I’m not sure but I sure hope so.   

“Speaking in terms of individual taxpayers’ bills, that’s good news for high-income earners. “I don’t think there are going to be any tax increases in the next year or so,” said Len Berman, director of the Tax Policy Center.” 

But you watch- the Democrats and Obama will “cut taxes” in a few months and shout from the rooftops that they’re giving Americans a tax cut for the middle class.  It will be there somehow, even if most of us don’t get it or notice it.  Yet Alan Reynolds from the CATO institute thinks taxpayers have short memories. 

“Armed with that lucrative blank slate as the looming new baseline, a Democratic president and Congress could magnanimously agree to preserve only the fiscally wasteful “feel good” aspects of the original Bush bill–the hugely expensive 10% tax rate and child credit, for example–while letting more than just the top two tax rates go back up, and lifting the estate tax rate, too. All in the name of fiscal responsibility, of course.”

“Higher tax rates always fail to raise the revenue their proponents are counting on. When that happens, we know where Democrats will look to raise more. And that is to reach even deeper into the pockets of any remaining profitable businesses or (even rarer) successful investors.”

“For those looking beyond one year, the biggest risk to both individual and corporate taxpayers is not that the new president will make good on his promises to raise a few tax rates and close a few loopholes. The biggest risk is that he will make good on his grander promises to enact all those tax-based entitlement programs disguised as “tax credits.”

“If millions more voters become accustomed to paying nothing for government (not even for their own Social Security benefits), and instead to receiving a bundle of Treasury checks, it will become almost as difficult for any future president to end those programs as it will be for taxpayers to pay for them.”

And how are we going to pay for those programs over time?!  There’s only one way… those who add spending programs must get the money from somewhere.  That somewhere is the U.S. taxpayer.

Certainly those of us in the middle class may see a tax cut over the next couple of years, at least if you don’t earn too much, or have too many investments, or even entreprenurial thoughts…  Maybe a larger child tax or other credit. But Obama has stated he wants to see an increase of tax on income and dividends from investments.  I’ve read some as high as 40% tax on dividends and income!  Can you imagine?  How will that help folks save and invest for retirement?  Not something we’ll see over the short term, but that’s a “heck of a dinger” for retirees down the road.

“Still, tax hikes are coming - eventually. Obama’s plan is to allow the Bush tax cuts to expire for high-income earners in 2010, but make those cuts permanent for taxpayers in the lower tax brackets. That means the top income tax rate will likely rise to 39.6% by 2011.”

“According to Deloitte’s analysis, a married couple with two children under 17, household income of $1 million ($500,000 of it from capital gains or dividends) could see their tax bill rise by $34,900. “That’s a real increase,” Stretch said, with that couple’s effective tax rate rising to about 28% from about 24% now. “It’s higher than the Bush years but where it was in the Clinton years.”

“Eventually, higher-income taxpayers “will definitely be paying higher taxes,” Baker said. “I can’t imagine [Obama] turning back on that.”

“Obama has also said he’ll increase the capital gains tax rate for higher earners to 20% from the current 15%, though many agree that won’t happen soon. “If he decided to raise capital gains tax rates right now, the financial markets would probably go crazy,” Berman said.

But not raising taxes is not very likely in the years ahead.  Even the Terminator in California is proposing huge tax increases (and spending cuts) because they have to.  Realistically, we’re going to face some large spending cuts and tax increases as well.   Within the next year, President Obama and the Democrats may simply say, “We’ve tried to get by without tax hikes, but we really need to raise them now…”    How will that affect older investors and retirees?  Maybe not much at first, and we could even see some quick action in key areas:

“One tax perk related to the financial crisis is expected soon for retirees: Some form of help to avoid required minimum distributions from their individual retirement accounts. “We think there will be a very serious effort to put some provisions in [a new stimulus bill] to take care of the RMDs,” said Clint Stretch, managing principal of tax policy for Deloitte. “People are very sympathetic to the plight of retirees who are forced to take money out at the depths of the market.”

“Another tax change expected in 2009: The estate tax. Under current law the estate tax completely disappears in 2010, so look for Congress to act in 2009. Lawmakers may opt for a quick solution — a one-year patch that holds this year’s exemption amount and tax rate in place - or they may put in place a permanent estate tax law. Obama’s proposal: A permanent estate tax rate of 45% and a $3.5 million exemption.”

Remember President Bush’s efforts to remove the estate tax altogether?  Forget about it- that’s history.  Kind of a shame in my view, not that I have any reason to benefit from it!  But at least we’ll keep a lot of financial planners, estate tax lawyers and CPA’s in business for years to come.  Somehow I think the tax code is going to become a lot more complicated rather than less complicated over time.  And overall I’m not excited about the direction of economic or tax policy.

Call me crazy, but I can’t help but think that the Democrats economic and taxation policies will provide long term disincentives for entreprenurialism, investment and market gains over time.

Let’s hope the focus of our new political leadership is first and foremost on the economy.  What I’ve read lately however does not inspire confidence.   Giving U.S. dollars to international agencies for “family planning” (i.e. abortions),  giving civil criminal trials to foreign terrorists on U.S. soil, jeopardizing national security through drastically cutting defense spending and procurement… we may see a laundry list of policies and executive orders that a lot of folks were unprepared for. 

Overall, I don’t know how an Obama Administration will affect the average guy on the street, or in the market, but I’m willing to give it the benefit of the doubt for now.  Historically the market has done very well under Democratic administrations, and maybe it will again.  The nation, and the economy, will eventually gain traction and once again the business cycle will return to a more profitable footing, with job gains instead of losses.  Unfortunately that may take a while, and the taxation picture for the years ahead looks pretty bumpy. 

My next goal?  Try to figure out an ideal portfolio and investment strategy that minimizes taxes while protecting (and growing) long term wealth.

It’s an amazing day as President-elect Obama sweeps to victory, winning both the largest and the key states in the nation.  The electoral vote signaled a huge margin even as the nation still faces the red-blue popular split that divides much of America.   Yet winning the Presidency is an historic moment filled with change and promise as never before.  His victory speech was positive, hopeful and strong.

“I just received a very gracious call from Senator McCain. He fought long and hard in this campaign, and he’s fought even longer and harder for the country he loves. He has endured sacrifices for America that most of us cannot begin to imagine, and we are better off for the service rendered by this brave and selfless leader. I congratulate him and Governor Palin for all they have achieved, and I look forward to working with them to renew this nation’s promise in the months ahead.”

President-elect Obama framed his victory describing his vision for the future in bright, hopeful words.

“What began twenty-one months ago in the depths of winter must not end on this autumn night. This victory alone is not the change we seek – it is only the chance for us to make that change. And that cannot happen if we go back to the way things were. It cannot happen without you.”

“So let us summon a new spirit of patriotism; of service and responsibility where each of us resolves to pitch in and work harder and look after not only ourselves, but each other. Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers – in this country, we rise or fall as one nation; as one people.”

We don’t know where the nation is headed, but for many voters, change is the key, and the new President has called for a great new direction.

“…This is our chance to answer that call. This is our moment. This is our time – to put our people back to work and open doors of opportunity for our kids; to restore prosperity and promote the cause of peace; to reclaim the American Dream and reaffirm that fundamental truth – that out of many, we are one; that while we breathe, we hope, and where we are met with cynicism, and doubt, and those who tell us that we can’t, we will respond with that timeless creed that sums up the spirit of a people:”

“Yes We Can. Thank you, God bless you, and may God Bless the United States of America.”

There is much to be proud of in America. Not only the wonder and strength of our democracy and the free electoral process, but for the hopes and dreams of so many, for so long. Regardless of our disagreements, we must continue trying to work together for a better future. Congratulations President-elect Obama!