2012

The first week of the year is behind us and the initial economic indications look pretty good. The topic is the investing game plan for 2012 and the reasoning behind the decision. The first section is the weekly recap from Vanguard. The last section is titled Watches which is an interesting story about an entrepreneur.


Vanguard

The U.S. economy kicked off 2012 with encouraging employment numbers resulting in the lowest unemployment rate since February 2009. Combined with economic reports that beat analysts' expectations in the areas of construction spending, manufacturing, and factory orders, the first week of 2012 showed signs of hope for the long-struggling economy. For the week ended January 6, the S&P 500 Index rose 1.6% to 1,278 while the yield on the 10-year U.S. Treasury note rose 9 basis points to 1.98%.


2012 Investing Game Plan

We know that the US deficit will continue to grow which means that spending on entitlements has to go down in the future. This means that Social Security and Medicare benefits are going to come under pressure in the future. It is prudent for everyone who has the ability to continue to prepare for the future and contribute to a retirement plan.

The growth rate of the US Economy has returned back to the level of April 2011 before the earthquake and tsunami that hit Japan and tornadoes that hit Alabama, Missouri, and other parts of the country. Because of this, I am looking to adjust accounts back to normal when US Stock indexes reach this April 2011 level.

Many smart people have given their 2012 forecast with a diversity in predictions. I am not smart enough to make an accurate prediction. The only thing that I am sure of is that each forecast is wrong the question is how far wrong? What we know is the US government will continue with a fiscal policy that is pro-growth and will continue to have an annual deficit of about $1 Trillion. The Federal Reserve will do everything they can to get the economy growing and interest rates will stay low. The Chinese government has agreed to allow their currency, Yuan RMB, to appreciate by 4% during the year which will help US manufacturing and increases inflation. All of this means that we have a presidential election year and the Obama administration is doing everything to improve the economy and get re-elected.

With an improving economy, low interest rate, improving housing market, pro-growth fiscal policy, pro-growth monetary policy, improving automobile market, improving employment rate, and positive consumer confidence one would think that the US Stock market would be going up, interest rates would be going up, commodity prices would be going up, and the news would be happy. The anvil on this helium filled balloon of good economic news is the European crisis and a concern about slower growth in China. If you can predict when the European crisis will get better then you can predict when the US Stock market goes up, interest rates go up, and commodity prices go up.

For a long term investor, take advantage of the situation and buy at these low US Stock prices and make some larger purchases at these low interest rates. Enjoy the lower cost of natural gas, gas, and oil. For a short term investor, take advantage of higher US Stock prices to take profits. The overall strategy is to use an Investment Cycle strategy to determine when to make investment changes.


Watches

If you were in the market for a watch in 1880, would you know where to get one? You would probably go to a store, right? Well, of course, you could do that, but if you wanted one that was cheaper and better than most of the store watches, you went to the local train station! Sound a bit funny? For about 500 towns across the northern United States, that's where the best watches were found.

Why were the best watches found at the train station? The railroad company wasn't selling the watches. The telegraph operators sold them. Usually the telegraph op-erator was located in the railroad station because the tele-graph lines followed the railroad tracks from town to town. The rail line had already secured the shortest dis-tance between towns and the right-of-ways.

Most of the station agents were also skilled telegraph op-erators as that was the primary way they communicated with the railroad. They would know when trains left the previous station and when they were due at their next station. In fact, for a period of nine years the telegraph operators sold more watches than all of the retail stores combined.

A telegraph operator named Richard arranged all this. He was on duty in the North Redwood, Minnesota train station when a load of watches arrived from the East. It was a huge crate of pocket watches. No one came to claim them.

Richard sent a telegram to the manufacturer and asked them what they wanted to do with the watches. The manufacturer didn't want to pay for the return freight, so they wired Richard to see if he could sell them. Richard sent a wire to every agent in the system asking them if they wanted a cheap, but good, pocket watch. He sold the entire case in less than two days and at a handsome profit.

That started it all. Richard ordered more watches from the watch company and encouraged the telegraph opera-tors to set up a display case in the station offering high quality watches for a low price to all the railroad passen-gers. It worked! It didn't take long for the word to spread and, before long, people, other than travelers, came to the train station to buy their watches.

Richard became so busy that he had to hire a professional watchmaker to help him with the orders. That person was Alvah. And the rest, as they say, is history.

Their business took off and they expanded into many other lines of merchandise. Richard and Alvah left the train station and moved their company to Chicago -- and it's still there. It’s a little known fact that for a while in the 1880's, the biggest watch retailers in the country were train stations.

It all started with a telegraph operator - Richard Sears and his partner - Alvah Roebuck! Sears & Roebuck Co.