Sushi Money

Catching up the past few weeks on some much needed organization, and a little more focus on priorities at home.   Most of those priorities involve looking very hard at our financial picture.   Congress is doing the same thing, but I’m not sure their priorities are all financial.  It’s politics after all, and the stimulus plan has now become a political spending platform.  Lately it seems that Congress wants to spend billions on a host of programs that may or may not help over the short-term, or that we may not see for decades.   Economists know that Components of the Stimulus will Vary in Speed and Efficiency.

“Devising any economic stimulus plan is tricky: initiatives that can be carried out relatively fast, like tax cuts, tend to provide less bang for the buck in terms of generating jobs and economic growth, while initiatives likely to spur more robust activity, like public works projects, can take so long to get under way that they arrive too late.”

But the country is trying to claw it’s way out of this recession, and today’s news reflects the magnitude of the challenge with the largest drop in GDP since 1982.   Now the debate is whether we’ve seen the worst, or that this drop in GDP is just a preview of worse economic conditions to come.  Consumers have really tightened their belts:

“Hit by tight credit and soaring job losses, Americans slammed the brakes on spending in the quarter.”

“Consumer spending fell at a 3.5% annual rate, which was the seventh biggest drop on record. Spending on big-ticket durable goods plunged at a 22% pace, the largest decline since 1987. Consumer spending accounts for more than two-thirds of overall economic activity.”

“But it wasn’t just consumers pulling back. Fixed investment in equipment and software, taken as an indication of business spending, plunged at an annual 28% rate. That’s the biggest drop in 50 years.”

So this certainly gives momentum to the stimulus package.   Honestly, most Americans just want the government to do whatever is necessary to get our economic engine restarted.  Exactly how you define the “whatever” is the problem.  Increase spending?  Cut taxes?  It’s the age old debate, and even Rush Limbaugh opines in the Wall Street Journal that there could be compromise… we could do a little of both.  

“There’s a serious debate in this country as to how best to end the recession. The average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they’re left alone. What can make the recession worse is the wrong kind of government intervention.”

“Keynesian economists believe government spending on “shovel-ready” infrastructure projects — schools, roads, bridges — is the best way to stimulate our staggering economy. Supply-side economists make an equally persuasive case that tax cuts are the surest and quickest way to create permanent jobs and cause an economy to rebound. That happened under JFK, Ronald Reagan and George W. Bush. We know that when tax rates are cut in a recession, it brings an economy back.”

“Recent polling indicates that the American people are in favor of both approaches.”

“Notwithstanding the media blitz in support of the Obama stimulus plan, most Americans, according to a new Rasmussen poll, are skeptical. Rasmussen finds that 59% fear that Congress and the president will increase government spending too much. Only 17% worry they will cut taxes too much. Since the American people are not certain that the Obama stimulus plan is the way to go, it seems to me there’s an opportunity for genuine compromise. At the same time, we can garner evidence on how to deal with future recessions, so every occurrence will no longer become a matter of partisan debate.”

I believe we need to do whatever fosters business and job growth- expanding economic activity- and both spending and tax cuts can achieve those goals if used effectively.  What effectively means is the real question.  Between job insecurity and the challenges of winter, energy costs and taxes- consumers have got enough to deal with over the next few months.  Let’s hope our elected leaders get it mostly right.

It’s a new day, a hopeful day, a day of change- and America moves forward again.  Regardless of anyone’s political views, it is heartwarming to see democracy in action in our free Republic, and to see the spirit and pride of millions of Americans on this day that President Obama takes office.

The older I am the more I appreciate the timelessness of all that I’ve been privileged to witness in my life, and that we see in America.  And I am proud that through all the challenge and chaos of our lives, we can find strength in the values upon which our nation was founded, and for which we stand together today.

So many people have bearish and near-catastrophic views of the nation and the economy that you would think the world was ending.  It very well may be, but not anytime soon.   The economy and recession in the late 70’s and early 80’s was far worse, and people didn’t seem to be as negative about it then.    The pendulum will swing, times will change- slowly- almost without recognition and we will come out of this just as we have before.  That’s my view, and it may be early, but if there’s one thing that life and the market teaches you, it’s patience. 

If you’re facing challenge and hardship, I wish you strength and opportunity- it will come, hang in there, and don’t give up.  And if you’re enjoying success and security from years of hard work, I wish for you peace and a chance to help others where you can.  

Where we are as a nation may seem a reflection of the immediate external economic realities we face each day.  But the nation is stronger and bigger than what we see each day.  We will move on, we will grow stronger, we will prosper and we will restore opportunity within America in the months and years ahead.  

“Out with the old, in with the new” as the saying goes.  Timely words for welcoming a new year that will hopefully be a far cry from last year, at least financially speaking.    For many of us the new year also means a new commitment to getting rid of debt and increasing savings.  In short, through circumstance or necessity, many of our priorities have changed.  

Jim Citrin looks at Getting Back to Basics in 2009, describing how changing priorities have affected business perspectives:

“The era of unchecked consumerism and financial excess had the insidious effect of devaluing everything. Why save money when you could borrow to get whatever you wanted? Why hang on to clothes and appliances when you could just go to the store and buy new ones? Why make structural improvements to your business operations or deepen customer relationships when you could push more stuff to get the growth that Wall Street demanded?”

“In one fell swoop, these attitudes have ground to a halt. They’ve been replaced by millions of healthier conversations in conference rooms and around kitchen tables about how to save, conserve, and prioritize.”

The article looks for a silver lining, examining how we can reconnect and make the best of the difficult times we live in.  I appreciate his views because it makes the simple point that we have a choice with how to respond to the current economic environment.  Sit around and wring our hands?  No. We need to get up and do something about our situation, and work to improve our lives and fortunes.

Admittedly the really tough part of the economic challenge we face is how far it has reached into people’s lives.  Between housing, the stock market and the credit crunch, the financial challenges have touched every level of the socio-economic spectrum.   For those who have lived too long on debt and excessive borrowing, the money faucet has been turned off.  Now they’re struggling to save, get by and get rid of that debt.  Others are struggling with layoffs and trying to find a job.  And even for those who saved and invested diligently through the years, the stock market’s downward spiral has demoralized investors into wondering why they ever invested in the first place.

A lot of frugal and industrious folks today are wondering if they should have just spent more of their money when they had it, instead of scrimping and saving through the years only to watch it disappear in a few months.

Most of all it’s just hard to feel confident about our choices right now.  And we’re shocked when reading about financial scandals and corruption.  It’s no surprise that many people have moved their assets to cash in CDs and savings accounts, deciding that something is better than nothing.   Nothing wrong with that, especially if you need the money in 3-5 years, or you are already retired and may need that money for healthcare or living expenses.   But the rate of return on those accounts is really low, and most planners will still target a growth or dividend component in the overall allocation mix if possible. 

Dividends are also king right now for investors, and there’s nothing like getting paid to hold a good company in stock.  Fixed income investments also may offer some of the best opportunities in the next few years.  Cash-wise I’m at least putting some money into a good quality high-yield savings account such as with ING, and money market accounts such as Vanguard Prime.  If you want treasuries (who doesn’t!?), Vanguard also has several treasury mutual funds.

And I’m certainly still investing in mutual funds and selective stocks, taking advantage of low prices and increasing savings and investments where I can afford it.  Is that a gamble?  Not for me, since I don’t plan to need the money for 10+ years.  If you feel like it’s gambling, then that should tell you something about your risk tolerance, and you should look for a more conservative asset mix. 

But if you’ve got decades until retirement, there’s no better time than right now to accumulate investment shares.  As long as your financial life is in order of course.  I call it my Big Three, and they remain the central focus of our financial lives:  Cut Spending, Pay down Debt, and Increase Savings.  After the first two are under control, then I think about investing.

If you’re feeling bad about your mutual fund losses, most of us can be glad we didn’t join the Dubious 60% Club, and that’s not 60% up…  Bill Miller was a high-flyer for about 15 years as a leading mutual fund manager, but for the past few years- well mostly last year- he has crashed and burned.   It just goes to show that anyone can make poor choices and lose money in the market.  Does that mean he’s sulking in some corner office, licking his wounds?  Absolutely not.  He’s still in their fighting and even managed to beat the S&P 500 for December 2008.   

As we ring in the new year, there’s a host of excellent pracitical advice out there.  Here’s a rundown on some of my favorites:

• The Wall Street Journal offers an eclectic mix of insight for How to Fix Your Life in 2009.  “Exuberance and excess have made way for prudence and pragmatism. Frugality is, once again, a virtue. To help you settle into this strange new world, our reporters have dug deep into their beats…”

• SmartMoney.com shows us 7 Ways to Save in 2009.   “Reducing monthly expenses and saving more money is the must-make resolution for 2009.”

• Kiplinger.com offers a classic article from a few years go reviewing 8 Keys to Financial Security. “Pay yourself first. Protect your loved ones. Borrow sparingly. And don’t go for the home run…”  What a great, timeless article.

• Laura Rowley takes an heady look at the psychology of Understanding Money Behavior in a Financial Crisis.  “One of the keys to surviving the economic crisis, at least from a psychological perspective, is recognizing what you can and can’t control. And not doing destructive things while you’re powerless.”

I wish you a healthy and prosperous new year for 2009.  Sushi Money is two years old this month, and it’s been a grand experiment in the personal finance blogging world.  I don’t how long I’ll continue to write here, and I may look for a different financial niche.  But its been a lot of fun.  One of my goals includes are greater focus on philanthropy.  I’m in little position personally to make significant philantrophic gifts, but I am very thankful for the time and resources I do have available. Maybe there’s some kind of venture in the making.  

In times like these it’s important not to forget those who are struggling.  The economy will gain traction slowly, but there will be many who are left behind.  As we strengthen our own financial lives, it seems a good time to try and help a few others along the way.