An event in the news this past week was the tuition fee hike in California Universities. The Youtube title and address is below:
UC Davis Students Protest Fee Hike
http://www.youtube.com/watch?v=yWBa20tygk0
Tuition was raised by about 30% for in-state tuition to about $10,000/year for California State Universites. This increase created a tremendous amount of protest by students as well as teachers. Look at the youtube clip for yourself to get the sense of injustice felt by the people impacted by this decision.
My thought was these protestors are out of touch with reality. Their state is on the verge of bankruptcy paying state workers with IOUs and having emergency sessions on how to balance the budget. If you have to pay someone with an IOU things are pretty bad. Then it struck me that the same thing is going to happen to retirees in the future.
How did California get in this mess? Years ago it use to be that tuition was free for in-state tuition so it became an unrealistic expectation, a right perhaps. Unfortunately, the state went into an economic downward spiral of raising taxes and losing jobs with raising of taxes and losing jobs and the cycle continued. Eventually, reality sets in and the party ends. The bottom line is that many people did not prepare.
Why is this important for retirement planning? Because we as a country are in the same position as California with budget problems, raising taxes, and losing jobs to other countries. The people who will be protesting will be us in the future who are receiving Social Security benefits and Medicare benefits. It is inevitable that benefits will be cut to a level that is inconceivable by economically justified.
Given that neither political party, Republican or Democrat, has stepped up the plate in the last 10 years to solve the problem it is very unlikely that we will avoid this fate. We continue to have more people retire with people living longer and the ratio of the number of people paying into the system relative to the number of recipients continue to decline. Regardless if the Health Care Bill passes or not Medicare benefits are going to be reduced. AARP is in support of the new Health Care Bill so that the organization can sell more Medigap policies, a business decision good for the organization.
What can you do about it? You can prepare and be ready for retirement and you can encourage people who you care about to get prepared. Everyone needs to have a retirement plan.
Sunday, November 29, 2009
Friday, November 27, 2009
Happy Thanksgiving
I hope and pray that you were blessed today and am wishing you a Happy Thanksgiving. Below is my top 10 list of financial things to be thankful for:
10)Waking up to news on the radio that does not include how the overseas markets have dropped
9) Glad to check accounts to see how much they have risen
8) An economy that is growing
7) A 401(k) is now a 401(k) instead of a 201(k)
6) A drop in the stock market is viewed as a buying opportunity
5) Not hearing the phrase "global financial crisis" in the news
4) Low interest rates
3) The word rebound being used other than a basketball game
2) People acting happier wtih less stress
Drumroll please:
1) Clients to help
God Bless and Enjoy Life,
10)Waking up to news on the radio that does not include how the overseas markets have dropped
9) Glad to check accounts to see how much they have risen
8) An economy that is growing
7) A 401(k) is now a 401(k) instead of a 201(k)
6) A drop in the stock market is viewed as a buying opportunity
5) Not hearing the phrase "global financial crisis" in the news
4) Low interest rates
3) The word rebound being used other than a basketball game
2) People acting happier wtih less stress
Drumroll please:
1) Clients to help
God Bless and Enjoy Life,
Sunday, November 22, 2009
Global Economy
About 2 weeks ago, I was an instructor teaching a class on coaxial cable at the International Wire and Cable Symposium in Charlotte, NC. During the symposium top executives from 5 companies, including CommScope, gave their input on the state of their business, the US economy, and the global economy.
The underlying view from the 4 companies that are predominantly US businesses was that the USA and Europe are at half time. While 2009 was not as bad as anticipated it is believed that 2010 will have revenue flat to down slightly with a recovery in 2011.
The company with a global view, CommScope, painted a different picture with overall growth being in the high single digits for 2010. While 2009 was a year to be efficient, 2010 and beyond offer a period for growth. Global wireless demand is growing rapidly with 4.3 billion people using a wireless device and that Africa has more cell phone users than the USA. Africa is a high growth area for Wireless communication with the current focus being a voice call and in the future capability will be added like internet access. WWEE continues in developing countries.
Their overall message was that the US and Europe are flat for 1 more year while globally, especially in developing countries, the stimulus efforts were more effective and things are growing. An organization called the OECD provides information on the global economy. This week, they increased their forecast economic growth projection for 2010 from 0.7% to 1.6% and project a growth of about 3% in 2011. A 3% growth rate would be a relatively normal number.
For the US economy it appears to be a mixed bag. The index of leading economic indicators showed a 0.3% increase for October such that in a 1 year period this index has grown by about 4%. In fact the last time this happened was in 1982 before the stock market made a huge run. While this gives a very positive picture other indicators like the index for coincident and lagging indicators are down about 5% year over year.
It appears that the US economy has some parts that are starting to move. It also appears that given the number of shoppers at stores that this Christmas season will probably top expectations as people feel better about the future.
Commodity prices that have increased during 2009 also indicate that the global economy is growing. These prices will maintain current levels as a foundation and will most likely continue to rise because of higher demand.
What is the bottom line? Owning a mutual fund that invests in developing countries is a good thing to do. The US economy is recovering so relax about the future.
The underlying view from the 4 companies that are predominantly US businesses was that the USA and Europe are at half time. While 2009 was not as bad as anticipated it is believed that 2010 will have revenue flat to down slightly with a recovery in 2011.
The company with a global view, CommScope, painted a different picture with overall growth being in the high single digits for 2010. While 2009 was a year to be efficient, 2010 and beyond offer a period for growth. Global wireless demand is growing rapidly with 4.3 billion people using a wireless device and that Africa has more cell phone users than the USA. Africa is a high growth area for Wireless communication with the current focus being a voice call and in the future capability will be added like internet access. WWEE continues in developing countries.
Their overall message was that the US and Europe are flat for 1 more year while globally, especially in developing countries, the stimulus efforts were more effective and things are growing. An organization called the OECD provides information on the global economy. This week, they increased their forecast economic growth projection for 2010 from 0.7% to 1.6% and project a growth of about 3% in 2011. A 3% growth rate would be a relatively normal number.
For the US economy it appears to be a mixed bag. The index of leading economic indicators showed a 0.3% increase for October such that in a 1 year period this index has grown by about 4%. In fact the last time this happened was in 1982 before the stock market made a huge run. While this gives a very positive picture other indicators like the index for coincident and lagging indicators are down about 5% year over year.
It appears that the US economy has some parts that are starting to move. It also appears that given the number of shoppers at stores that this Christmas season will probably top expectations as people feel better about the future.
Commodity prices that have increased during 2009 also indicate that the global economy is growing. These prices will maintain current levels as a foundation and will most likely continue to rise because of higher demand.
What is the bottom line? Owning a mutual fund that invests in developing countries is a good thing to do. The US economy is recovering so relax about the future.
Sunday, November 15, 2009
Investing and Road to Socialism
The idea for this newsletter came from a recent conversation concerning the leaders of this nation trying to head us down the road to becoming more socialistic. We hear about the health care debate including a public option and get concerned about what it means. In addition, we see an unemployment rate over 10% and wonder what it means. We hear about having a weak US Dollar and wonder what this means. The question is what should we do with our investments?
The answer is to follow the plan of business cycle investing. When all else fails, always remember the #1 rule of business cycle investing follow the lead of the Federal Reserve. The Federal Reserve sets monetary policy that controls the growth rate of our economy. The health care debate, unemployment rate, and strength of the US Dollar have an impact on the actions of the Federal Reserve and monetary policy. Just keep it simple and follow the actions of the Federal Reserve.
How should we be investing right now? We are entering a growth phase in our economic business cycle which means that investments should include: US and International equities, commodities, and short term corporate and mortgage backed bonds.
The previous weekend, the US House of Representatives passed a health care bill, that included this public option, and the stock market rose the next few days. This health care bill had little impact on the US Stock Market prices. It appeared that it was a relief to finally have it over and people were glad that it was not worse.
On Thursday the US Stock Market went down, why? News was published on late Wednesday and early Thursday that Market Breadth had weakened and that the rally was weakening and now was a good time to take profits. However, on Friday the US Stock Market went up almost as much, why? News was published late Thursday and early Friday that we were still in the midst of a bull market rally.
Why did we have these downs and ups? My opinion is that brokerage houses like Ameritrade, Scottrade, etc... need people to trade to make money so news, actually opinions by supposed experts, is published to get people trading. Remember that a brokerage company makes money only if people trade, buy or sell, and works hard to get people to trade regardless if a profit is made. If you follow things on a daily basis and try to rationalize why things to up and down it might just drive you a little crazy.
Rule #1: Follow the lead of the Federal Reserve.
Ignore the noise and keep your focus on the good things of life.
The answer is to follow the plan of business cycle investing. When all else fails, always remember the #1 rule of business cycle investing follow the lead of the Federal Reserve. The Federal Reserve sets monetary policy that controls the growth rate of our economy. The health care debate, unemployment rate, and strength of the US Dollar have an impact on the actions of the Federal Reserve and monetary policy. Just keep it simple and follow the actions of the Federal Reserve.
How should we be investing right now? We are entering a growth phase in our economic business cycle which means that investments should include: US and International equities, commodities, and short term corporate and mortgage backed bonds.
The previous weekend, the US House of Representatives passed a health care bill, that included this public option, and the stock market rose the next few days. This health care bill had little impact on the US Stock Market prices. It appeared that it was a relief to finally have it over and people were glad that it was not worse.
On Thursday the US Stock Market went down, why? News was published on late Wednesday and early Thursday that Market Breadth had weakened and that the rally was weakening and now was a good time to take profits. However, on Friday the US Stock Market went up almost as much, why? News was published late Thursday and early Friday that we were still in the midst of a bull market rally.
Why did we have these downs and ups? My opinion is that brokerage houses like Ameritrade, Scottrade, etc... need people to trade to make money so news, actually opinions by supposed experts, is published to get people trading. Remember that a brokerage company makes money only if people trade, buy or sell, and works hard to get people to trade regardless if a profit is made. If you follow things on a daily basis and try to rationalize why things to up and down it might just drive you a little crazy.
Rule #1: Follow the lead of the Federal Reserve.
Ignore the noise and keep your focus on the good things of life.
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