* Inflation: The Next Scourge?

I have included the following article with the permission of Bert Whitehead, the author.

Inflation:The Next Scourge?

Bert Whitehead, M.B.A., J.D. © 2009 – May 9th

The stock market (S&P 500) closed on May 8 ahead of where it was at the beginning of the year. Since the low point on Mar. 9 it has risen 37%. Keep in mind that the stock market is a leading indicator. If recent trends are not a ‘false bottom’ the recession should end in 9 to 18 months, based on historical performance. Of course, we have been reminded that history is not a trustworthy predictor of future results…

There are other signs that the economy is starting to bounce back. Unemployment isn’t rising as fast as it has been, some companies are showing a profit. Consumer confidence is rising. Those are positive factors.

Nonetheless, we are still mired in deflation. Prices are actually dropping (social security recipients are startled that they are not receiving a cost of living adjustment this year). Every month there have been fewer people employed. More companies are going broke, real estate is still in crisis, banks and other financial institutions still haven’t been resuscitated. Now we are seeing state and local governments get in line for federal bailouts. The rest of the world also seems to be caught in this deflationary vortex.

Just as it seems like we might be turning the corner, the pundits are already spooking us about inflation. Inflation may be our next challenge, but further deflation is more likely for the near term and very possible for even the next 10 years. It looks like two of the auto companies are going to end up being owned by the unions and the government, and the financial industry has been in effect ‘federalized.’

Skeptics question whether business decisions will now be politicized, and determined by political considerations rather than by market forces. This could result in many new cars built to be small and energy efficient, which the government wants. But in the past buyers have spurned those in favor of larger vehicles. Will overseas auto companies move in to fill the demand? Unless gasoline prices go back to $4-5/gallon, most Americans want to buy their SUV’s. If Detroit won’t make them, someone else will.

If everything keeps falling in place, and recovery is in sight, we will have to deal with the trillions of dollars in government debt. The fed has been issuing a huge increase in Treasury bonds to fund the Stimulus programs. The concern is that, if and when we do pull out of this deflationary spiral, the world will be awash in US dollars.

This could result in higher interest rates which the government would have to pay to induce people to buy US bonds. Right now, the feds are buying bonds themselves to keep long-term interest rates (and hopefully mortgage rates) down. But at some point we will have to pay the piper. That means that this increase in the money supply will create higher inflation. Or will it?

As with most economic issues, there are too many variables to predict with certainty the outcome. If the dollar drops relative to other currencies, which we would expect with inflation, our goods become cheaper for people in other countries and our exports would increase. Because imports would be more expensive here, we would reduce our trade deficit.

During the 90’s Greenspan was baffled by the low inflation we experienced relative to the growth in the money supply. When he left office, he pinned it on the higher productivity the US enjoyed because we were able to outsource low productive jobs abroad. Generally high productivity which we typically see during recessions holds down inflation. During our current recession we have seen productivity increase, as companies shed less productive jobs.

Another factor is the savings rate of citizens. Japan had virtually no inflation in the 90’s when they increased their national debt exponentially to stimulate their economy. But because their savings rate increased, the extra money supply wasn’t spent and prices stayed level. We are now experiencing a significant increase in consumer savings, and we see a reduction in debt (partly because it’s too hard to get a loan now!). Unless the increased money supply is actually spent, there aren’t more dollars chasing too few goods.

The reality is that inflation will be our next threat if the government keeps spending at the rate they have been. There are factors which may absorb the impact of inflation, so it is not certain how much it will affect us.

In balancing portfolios to protect clients against inflation, we focus on the asset classes which provide the best buffers. Cash and inflation adjusted savings bonds are effective as their yield increases along with inflation. Mortgaged real estate is one of the best protections. While real estate is a long-term inflation hedge, it is too regional to reliably provide much protection unless it is mortgaged at a long-term fixed rate. Unhedged foreign equity mutual funds can be a buffer, except (as we have seen lately) world currencies have been moving up and down together. In some situations we recommend clients buy gold bullion coins.

Inflation is likely to drive interest rates higher, so some clients become concerned because the nominal value of their Treasury bonds drop. Not to worry: the bond will be worth its face value on maturity, and that is what we count on to provide the guaranteed cash flow for your retirement.

Many clients are taking advantage of the lower stock prices now to increase their dollar-cost-averaging into stocks. We are recommending to others that it is a good time to refinance their homes at lower rates to decrease their needed cash flow. When we meet with you next we will look forward to reviewing your portfolio relative to your current situation. We are proud that our clients’ portfolios have weathered this ‘storm of the century’ relatively unscathed and look forward to moving on with you on your journey to “FIPOM” (Financial Independence and Peace of Mind)!

* Are We Turning the Corner Yet?

I have included the following article with the permission of Bert Whitehead, the author.

Are We Turning The Corner Yet?

Bert Whitehead, M.B.A., J.D. – 27 April 09

Finally we have seen some positive news on the financial front, and many optimists think we have hit the bottom and the stock market bounced off its low-point. It’s nice to be able to take a breath from the brutal onslaught of bad news over the past year.

We have been preaching about the dangers of being out of the market, even when it is falling, While it has been psychologically stressful to maintain equity positions over the past year, recent market activity points to the reason to refuse to market-time.

Interestingly, the average gain for the S&P 500 in the 1 year following the low close for the 8 bear markets that occurred in the last 50 years is +36.5%. The current bear market is the 9th bear market of the last half century. The closing low point (so far) of this 9th bear market was 677 and it took place 7 weeks ago on 3/09/09. In the last 7 weeks, the S&P 500 has gained 28.5% (not counting the impact of reinvested dividends.

Our clients pay us to ‘watch their backs.’ So without being an outright pessimist I think that we are still in a perilous financial situation. The future of the auto industry is teetering and we may see 2 of the ‘Big 3’ bite the dust in the next few weeks. The economic reality goes even deeper than that. We are restructuring our national economy to be able to participate in a global economy.

Our prosperity over the past 15 years was based on a world-wide spending spree, fueled by cheap credit and over-leveraged real estate. The current government nostrums are designed to spur more spending, but no meaningful programs have addressed the banking and real estate collapses. We see the impact of these issues everyday in the ‘For Sale’ and ‘For Lease’ signs in almost every neighborhood and commercial area.

Each client’s situation is different, and so the approach best suited to you depends more on what is going on in your own life. If the breadwinner in your family is out of work, or you have kids in college, or are faced with disability, or are retired (or hope to be soon) – these are the key factors in your investment allocation. While the stock market may look great, it is a mistake to be kicking yourself for having missed out on the steep increase recently.

For clients in transitional or distressed situations, we want to maintain an extra cash cushion. If your life situation is stable and your bond ladder is on-track, dollar cost averaging into the stock market is very advantageous. Now that tax season is over, we have scheduled appointments with each client to review your portfolio and make adjustments as appropriate.

It is a mistake to conclude, based on the past 2 months market activity, that you should now jump in with both feet. It is likely that we may not hit bottom until next year, and then it may take a couple of years to fully recover. Market timing is a futile waste of energy.

Treasury bond rates are low, and the feds are buying bonds to keep long term rates down, so it will be advantageous for many clients to refinance at lower rate (unless you owe more on your house that it’s worth). Jumbo mortgages (i.e. more than $417,000) however still carry very high rates and it is seldom worthwhile to refinance those.

This experience of living through the worst economic period since the Great Depression of 80 years ago will have a lasting positive impact on most of our clients. The losses will ultimately be recouped, and we are able to outlast even a continuing downturn. More importantly it has made many of us aware that we were frittering away money on things we didn’t really value. This lesson I think has to be re-learned by each generation as we discover that our Schwab statements aren’t the scorecard for our real wealth.

* A Richer Life Joins Character Fort Collins

A Richer Life Financial Planning is pleased to announce that we are now a Business Member of Character Fort Collins.

Character Fort Collins advances and promotes the community-wide character initiative in all sectors of the community. It exists to encourage, support and resource individuals, businesses and organizations in their efforts to lead, develop and model good character. Because good character is the foundation for all lasting success, business owners, teachers, coaches, families, and government officials have discovered that investing in efforts to develop and integrate a standard of good character in all aspects of their jobs and personal lives is resulting in more harmonious relationships, improved morale, increased productivity and a sharp reduction in frustrating problems that cost everyone a lot of time and energy.

We believe that Character is important in all aspects of life and are trying to make A Richer Life Financial Planning a Business of Character.

You can read more about Character Fort Collins at their website.

* Life Planning – A Winner

In his Blog titled “Life Planning – A Winner In The Financial Crisis”, Andrew Gluck wrote an interesting article about Life Planning – and published his interview with George Kinder, the man behind the Kinder Institute for Life Planning and my trainer and mentor during the process of becoming a Registered Life Planner (r).

I have included a small bit of the article here, followed by a link to the complete article.

While the economy has escaped the most frightening doomsday scenario, the financial crisis is far from done with us. Department stores and malls remain practically empty in Long Island most weekdays. Getting into fine restaurants on a Saturday night no longer requires reservations weeks in advance. Workers at my local Home Depot are so fearful of losing their jobs that they’re actually friendly and service-oriented now.

Meanwhile, in our corner of the economy, many advisors worry that over the next couple of years clients who have been disappointed by their portoflio’s performance will fire them.

However, the setback suffered by clients in their retirement portfolios and the rampant distrust of financial advisors unleashed by the Madoff scandal are likely to cause advisors to rethink the way they practice. Advisors will reinvent the financial advice business. As with earlier financial crises, change will follow. Progress will come inevitably. And a winner when this crisis ends is likely to be Life Planning.

You can read the entire article here:


– Everyday Greatness

I found the following article by Lloyd J. Thomas, Ph.D. , very useful.

As a society, we seem to be obsessed with “greatness.”  We call a person “great” if he or she has performed a single skillful act (e.g.
Captain “Sully” safely landing his airplane in the Hudson River).  We call a person “great” if he or she survives a life-threatening situation (e.g. Captain Phillips surviving his ordeal at the hands of “pirates”).  Now, I’m not diminishing the greatness of an unusual or highly skillful action.  I am saying there is another way of defining “greatness” that is more useful.  It is what Stephen R. Covey calls, “Everyday Greatness.”
We often associate greatness with notoriety, fame, prestige, wealth or position.  We often fail to associate greatness with the character or personality of a given individual.  Covey writes, “Everyday Greatness is a way of living, not a one-time event.  It says more about who a person is than what a person has [or done].  [It] is portrayed more by the goodness that radiates from a face than the title on a business card.  It speaks more about people’s motives than about their talents; more about small and simple deeds than about grandiose accomplishments.”

Covey goes on to say, “Occasionally the world witnesses a heroic feat or discovers a person with rare talent… Such singular events and accomplishments often appear in sizzling media headlines under the banner of “greatness.” But most people know there is another type of greatness that tends to be more quiet by nature, one that generally escapes the headlines. Yet it is a greatness that in my opinion is deserving of higher honor, even more respect.”

You don’t have to be the next Martin Luther King Jr., or the next Abraham Lincoln or Mother Teresa in order to demonstrate everyday greatness.  You do have to have certain timeless character qualities within your personality to be described as “great.”

In an earlier book (The 7 Habits of Highly Effective People), Covey distinguishes between what he calls the “personality ethic” and the “character ethic.”  The personality ethic includes the skills and techniques one may learn and display as their public image, their “personality,” or attitudes one may have that result in temporary success.

The character ethic assumes that there are some absolute principles that exist in all humans, upon which all true and lasting greatness is built.  According to the character ethic, it is more important to focus on integrating those timeless principles of effective living into one’s personal character.  It is the nature of your character that makes you great!…or not.
What are some of those “timeless principles?”  They include qualities such as: Truthfulness; Compassion; Integrity; Perseverance; Dependability; Generosity; Gratefulness; Humility; Responsibility; Justice and yes, Love.

We all have the potential to become great in character.  The question of “greatness” then becomes, “Are you living your life in harmony with these timeless principles?”  If you have incorporated them into your personal character, and your actions are rooted in them, certainly you can be truly considered “great.”
Dr. Thomas is a licensed psychologist, author, speaker, and life coach.  He serves on the faculty of the International University of Professional Studies. He recently co-authored (with Patrick Williams) the book: “Total Life Coaching: 50+ Life Lessons, Skills and Techniques for Enhancing Your Practice…and Your Life!” (W.W. Norton
2005) It is available at your local bookstore or on Amazon.com.

* Our Moms Taught Us Well

This is how we were raised and we turned out ok……………..

1. My mother taught me TO APPRECIATE A JOB WELL DONE .

‘If you’re going to kill each other, do it outside. I just finished cleaning.’

2. My mother taught me RELIGION.

‘You better pray that will come out of the carpet.’

3. My mother taught me about TIME TRAVEL .

If you don’t straighten up, I’m going to knock you into the middle of next week!’

4.. My mother taught me LOGIC.

‘ Because I said so, that’s why.’

5. My mother taught me MORE LOGIC .

‘If you fall out of that swing and break your neck, you’re not going to the store with me.’

6. My mother taught me FORESIGHT.

‘Make sure you wear clean underwear, in case you’re in an accident.’

7. My mother taught me IRONY

‘Keep crying, and I’ll give you something to cry about.’

8. My mother taught me about the science of OSMOSIS.

‘Shut your mouth and eat your supper.’

9. My mother taught me about CONTORTIONISM .

‘Will you look at that dirt on the back of your neck!’

10. My mother taught me about STAMINA.

‘You’ll sit there until all that spinach is gone.’

11. My mother taught me about WEATHER.

‘This room of yours looks as if a tornado went through it.’

12. My mother taught me about HYPOCRISY.

‘If I told you once, I’ve told you a million times. Don’t exaggerate!’

13. My mother taught me the CIRCLE OF LIFE .

‘I brought you into this world, and I can take you out.’

14. My mother taught me about BEHAVIOR MODIFICATION.

‘Stop acting like your father!’

15. My mother taught me about ENVY.

‘There are millions of less fortunate children in this world who don’t have wonderful parents like you do.’

16. My mother taught me about ANTICIPATION.

‘Just wait until we get home.’

17. My mother taught me about RECEIVING .

‘You are going to get it when you get home!’

18. My mother taught me MEDICAL SCIENCE.

‘If you don’t stop crossing your eyes, they are going to freeze that way.’

19. My mother taught me ESP.

‘Put your sweater on; don’t you think I know when you are cold?’

20. My mother taught me HUMOR.

‘When that lawn mower cuts off your foot, don’t come running to me.’

21. My mother taught me HOW TO BECOME AN ADULT .

‘If you don’t eat your vegetables, you’ll never grow up.’

22. My mother taught me GENETICS. ‘

You’re just like your father.’

23. My mother taught me about my ROOTS.

‘Shut that door behind you. Do you think you were born in a barn?’

24. My mother taught me WISDOM.

‘When you get to be my age, you’ll understand.’

25. And my favorite: My mother taught me about JUSTICE

‘One day you’ll have kids, and I hope they turn out just like you.’

* The Scream of the Lizard

By Bob Veres

(I loved this article and wanted to pass it on)

I don’t know about you, but I’m feeling just a little beat-up at the moment, and not totally because of the stock market.

Today’s returns, trickling in all day, reminded me of a time years ago when I foolishly allowed my children to talk me into accompanying them on a roller coaster ride at a theme park called Sea World. For most of the day, we had been staring at sharks that were safely housed behind thick glass, and polar bears behind even thicker glass, chilled in the penguin area and splashed while watching the killer whales throw their trainers 20 feet or more in the air.

It was a good day, and I still felt good about it as the roller coaster ominously rose into the air, but the people who built it were really clever, and after we crested and fell, nobody noticed that the dip was only about half of the distance we had climbed up, and I was breathing a sigh of relief while my children were pouting in disappointment.

Then the rollercoaster climbed again, and as we crested this second time, I looked down and saw that the rest of the park was inhabited by tiny creatures who were either ants or fellow humans who were dangerously far below, and I had just enough time to consider the implications of this and work up a good anticipatory fear when our car crested the top, and fell straight down and–this is the truly scary, fiendishly clever part–WE COULDN’T SEE ANY BOTTOM. The designers had created a fall where the bottom was invisible to us until we actually splashed into the water.

The park had an automatic camera which took pictures of the people in the cars on the way down, and the expression on my face closely resembled that of a heart attack victim, except for the greenish skin tone. My kids looked overjoyed.

After the concerned woman from in a park uniform had helped me into a seat and asked me if I thought I needed medical attention, I remember thinking that, in retrospect, it was obvious that there WAS a bottom, and that I would survive, and that nobody had reported a large pile of blood and bones that was the remnant of others who had experienced this particular ride. So why was I so scared? Couldn’t I have told myself that I would survive, that everybody else who had ever gone into this particular free-fall had survived, and simply enjoyed the trip?

No, I couldn’t–and I think that’s what I’m remembering now. As soon as the roller coaster car crested the top of the tracks and I looked down, the lizard-like part of the back of my brain took over total control of my thought processes, and it screamed, against all logic and against many things I knew to be true, that I and my children were about to die, and it sent a surge of adrenalin and signals of dread into my system so strongly and thoroughly that it was a few minutes before I could stand up, shakily, and go pet the sting rays.

This, of course, is what virtually all investors are feeling right now as we ride the roller coaster that is the investment markets, and whoever designed this particular free-fall was even better than the designers of that Sea World ride. I know that there is a bottom somewhere in front of me, and I know that the relentless tide of bad news will end and I know that at some point in the not-too-distant future, I will look at a graph of the markets and see a blip that started last Fall and ends somewhere, hopefully soon, and it will look as inconsequential and trivial as the October 1987 crash looks today, or the little jiggles that represent the 1930s, and I will wonder why we were all so damn worried.

And I will have forgotten–because we always forget this–that the lizard-like base of our brains sometimes decide to take control, and all our knowledge and all our intelligence is neutralized by a little lump of tissue that has no understanding at all of what’s going on, no perspective, nothing except an “on” switch which, when triggered, activates a complex, instantly powerful native algorithm which screams into our brains and throughout our bodies that there is a saber-toothed tiger right behind us and we should be running for our lives.

This, of course, is the voice in the ears of investors all over the world today and, to some extent, for the last several months. All of us know, in the cortical part of our minds, that we signed on for a roller coaster ride and that we will not die as a result of taking this ride down. But for most of your clients, for many investors, the game has suddenly gotten too tough, and their lizard’s shout is winning the contest against your calm, reasonable, measured tones, your facts and figures, your perspective and experience.

The hell of it is that we, ourselves, design these roller coasters; they are a product of mass psychology. When the lizard’s shout finally drowns out the last bit of reasonable perspective, the markets hit bottom because that is precisely when there is the maximum fear–by definition.

Then, again by definition, the markets begin to rally into what may be the next bull market or may be a sucker’s rally opportunity to sell a little bit at a little less of a loss in hopes of recognizing the next bull. The lizard’s shout becomes less loud, people become hopeful, they buy back in at a higher price than they sold, the market moves upward until either the lizard screams again in panic or–the sure sign of a bull market–it starts tickling peoples’
minds with a kind of panic that MAYBE THEY’LL GET IN TOO LATE as the roller coaster climbs again.

This, too, is our own creation, more tracks created by more mass psychology, aided and doubtless magnified by the echo chamber of the financial media and a thousand pundits who know no more than the lizard about where the markets will go tomorrow or next week.

I’m one of those financial media types, and also a pundit on occasion, and I can tell you that I can hear the lizard’s scream echoing across the financial landscape, so loudly that it’s hard to remember that stocks are on a fire sale now and they are certainly a hell of a lot less risky than the were last August, and that these rides are seldom fatal to those who stay in their seats, and they are usually at least harmful to those who panic, unhook their seatbelts and jump over the side toward the distant anthill below.

I can hardly wait to look back on those charts and wonder what the hell we were thinking getting so panicky about a blip, and I know at that time that the lizard will be giving me a different message: that if only I’d had the sense to buy when everybody else was selling.

This too shall pass, and 99% of your brain knows it. The market belongs to the lizard now, and I am ashamed to admit that I, the pundit, the media guru, still feel that sense of panic on the way down, irrational as I know it is. I feel it so much that sometimes I can barely hear the rational part of my mind over the screaming that echoes that are calling up from a deeper part of my consciousness. I would curse the designer of this roller coaster, as I did the fiend who put that damn thing up at Sea World, but I’m afraid this time it is us, collectively, who designed our own fear machine.

And this is the moment, here and now, when the picture is taken.


Bob Veres