Wealthtrack for July 5th 2009

This week Wealthtrack's Consuelo Mack had a sit-down with PIMCO's co-CIO Bill Gross. This was part of a new series of interviews with great investors. It was an interesting episode where Consuelo Mack pointed out some of the clear and present dangers for the United States of America:

1. An increasing reluctance on the part of large foreign nations to take on more treasury debt due to the lack of good real returns and the lack of strong returns on the US investments.

2. Increasing debt levels of the United States being rather sticky since the only way to really combat them is to re-inflate the economy and then pay down the debts with cheaper dollars.

Interestingly, Bill was asked the question whether or not there were any investments that he was excited about long term and he answered with a resounding "No." When the conversation drifted into why that was the case, it seemed that the "mean" return for investments long term would be in the 6-8 percent/5-7 percent range.

But on the other hand, it seems that there are other options for investors who are still seeking double digit returns, according to Gross. He pointed out that with his own personal money (and for his "poor" relatives) he'd recommend bank preferred stocks and closed end funds (some of which are managed by PIMCO and invest in corporate debt). These would offer double digit returns.

As always, I found that this was particularly interesting because it points out something that I've personally wondered about for a long time: does it make sense to hold large amounts of government backed debt or even government backed savings? I have an interesting take on this, so consider whether or not you have the correct level of savings. I'll talk about this more in an upcoming post.

Madoff madness

One of the more interesting things that happened in the news recently is hat Bernie Madoff was finally convicted in what was basically a shut case. Many people have decried the punishment he received though: a hundred and fifty years in prison. His representatives were taken aback by this judgement but it seems reasonable to me. 

According to the article I read online, there was not even a single person who wrote to the judge prior to sentencing in support of Madoff. Not his family. Not his friends. In the end it seems that Madoff is utterly alone. 

Unfortunately Madoff took a lot of people. And certainly some of these investors should have known better. But, if you even ignore that, aren't we forgetting the people who probably were otherwise involved? I will be much happier when I find out that the acomplices are brought to justice also.
http://voices.washingtonpost.com/economy-watch/2009/06/possible_madoff_co-conspirator.html?hpid=news-col-blog


All that this story does is underscore the fact that people need to be responsible for their own actions. No one else will watch your money for you. And if you end up like madoff you will need to have at least some friends to write letters!

Old Friends and Maintaining Networks

Today I ran into an old friend from a previous job. I think that given the state of things, now more than ever, it is important to maintain the network of past colleagues. Unfortunately, I haven't been taking the time to do that, but it is definitely something that I want to do.

If you have a group of people at your workplace, it might even be worthwhile to start some sort of regular meeting with them outside of work so that as people leave and move on to other pursuits that everyone can stay in touch. I have done this with the people from one job and I think that it is very helpful.

Enduring the down economy

I'll confess, that now, as we are easily in the midst of a down economy (some would say we're coming out of it), it is easy to become somewhat down. For me, this has not been a simple matter of just putting my head down and becoming more of a hard worker. Instead, this has made me realize a few things. Perhaps you have had these observations as well, in which case this will be somewhat of a confirmation of your ideas.

First, this economy hurts more than just the people who have lost their jobs. In many ways, this down economy hurts the people who still have jobs in several ways. First, in families that are usually dual income homes, there may be a sole bread winner now. This adds to the stress for that individual where there is fear that there could be a job loss.

Second, in all situations, there are people who are still working at some companies where there have been layoffs etc. As a result, there is just as much work but fewer people to do it. In fact, due to hiring freezes etc, there are situations where there is simply not enough mobility within the company. People cannot be promoted, hired, and sometimes (for fear of not being able to replace the resource) fired. So, here we are with resources not being allocated correctly.

Third, there is simply less opportunity for investors. Very little is happening in terms of the velocity of money. Whereas a dollar went from your paycheck, then was spent and passed through something like 8-12 hands before it was sunk back into a bank account, now we're still seeing a serious decrease in economic activity as unemployment nears 9% nationally and those who are still working are saving.

All of this has me somewhat nervous. But given my timeframes, I am still investing in my 401k for retirement in nice diverse mutual funds. I look at what I expect to be slow, and perhaps even anemic returns over the next 12-36 months and I still feel ok about investing. I know that at some point, I will get paid off for being patience. I can see the wisdom of this especially given that I play poker...another place where you're paid to wait.

But even more than that, I am focusing on good places to spend my money. I am looking for bargains now for things that I need. I know that the inflation is going to come back; even gasoline has jumped a dime per gallon in the past week. So if you have projects that you're interested in taking on, I would start shopping for prices now. I don't expect to see much in the way of higher bank account interest rates as an incentive to save. And I do expect to see real destruction in terms of purchasing power.

But most of all, I have hope. I feel that I will learn from this some key lessons about self reliance and what I really need versus what I want. I think that most people like to say that they don't live an extravagant life or have many luxuries, but I think that this economy, and these times have shown that nearly all of us have something that is a luxury. Perhaps this will teach me to be even more grateful for what I have. Maybe as a country and a society we'll become more grateful as well. Here's hoping....

Buying a Car

Recently, the unexpected happened. One of the cars broke and started to feel like it was going to completely break down somewhere on the side of the road when there was no one around to help.

Personally, I am not a huge fan of living with stress. In fact, I'm nearly 100% convinced that this is the cause of many health problems. So, when I can avoid the stress, I do. In this case, having a car that was unreliable and just waiting for a final breakdown was not appealing to me.

So, after deciding on a car and what we thought would be a reduction in sticker price and trade-in, we went and found the car dealership closest to where we live, walked in, test drove, and finally bought a car. In short, we did it in a single trip, single transaction. Fortunately, we were able to afford it and had good credit. Other people are not so lucky.

The big lesson learned is to not wait until the last minute. The car had already started showing signs of getting worn down and needing repairs. A repair bill from only about six weeks ago topped 1000 dollars. So, it would have been much better to trade it in before those types of bills started cropping up because the trade in value probably would not have been much different.

I would follow the advice over at Free Money Finance on getting a car. It certainly seems like solid advice. So, like many things in life, the longer you wait to deal with the problem, the worse your situation will be.

There were many positive aspects though. And I think that one of the best things that you can do in life is to focus on positive things.

1. The car is brand new, eye-catching, reliable, and will hold its value better than the old car.
2. The monthly payment is easily affordable and is 100 dollars less than the old car payment.
3. We'll easily be able to pay it off early and finally be in a positive rather than negative equity position when we trade it in.
4. There will be savings on repairs as well as cost of fuel. So overall, a good deal.