It may be a surprise to you if I were to tell you that we (you and I) make investment decisions daily – we don’t have to be a player in the stock market to make investment decisions.
Don’t believe me? Just think of what you had to do today.
Most likely, you woke up to the sound of your alarm clock – that reliable bedside gadget that greets you each morning with a loud jarring noise or, preferably, with some soothing sounds to ease you into your day. It was a tiny but necessary investment and, in addition to the cash you had to spend, you probably had to invest some time to test the ring tones on a number of alarm clocks before you found the one that you liked.
Having rubbed the last bit of sleep from your eyes, you headed for the showers and invested time in prepping your body for the day. You took care of your oral health, the way your hair looks, and, if you like to deepen the mystique, the ‘je ne sais quoi’ or the ‘something in the air’ about you, your daily routine ended with your dabbing on some cologne, after shave or eau de toilette.
Your decision on the clothes you wore was likely influenced by your knowledge of the type of meetings or occasions you have on your schedule for the day. If a meeting or an occasion was important enough, you would choose to put on an outfit with matching accessories – an ensemble that would make a statement - for which you had invested a handsome amount of money and set aside for just such events.
I think you get the drift. We are always investing – consciously or subconsciously – and if we think of our daily actions as such, we would most likely be smarter about our choices because we would be forced to think about the payback.
Investing in a healthy, balanced daily diet will yield us years of good health and fewer visits to the doctors for all kinds of preventable ills. Investing in our continuing education and awareness of the changes in the world around us will keep us one step ahead of our competitors and prepare us for the challenges ahead. Investing time with family, friends, colleagues and social networks (religious, professional, etc.) will enrich our lives together and our ability to interact and react, and to accept each other, warts and all. Investing in cleaning up and keeping our environment healthy will allow us and future generations to live and breathe on this earth for many, many more years. Investing in teaching love and respect for ourselves and for others who are less fortunate and in need of a helping hand will help counter the actions of those who chose to teach fear, hate and bigotry, perpetuating wars and needless killing.
If we learned anything in 2008, it is clear that we cannot afford to sit idly and quietly, and hope that the near collapse of the financial, insurance, auto and other industries due to weakened controls and accountability will not happen again. As investors in the many companies that the government has bailed out (whether or not we were for it), we have a duty to require of those in whom we have put our trust to give a clear accounting of their actions and results. Our economy, our country and our future depend on us being wise investors.
When I was in my early teens, I had a plain looking poster that had an image of an apple with a good chunk bitten off the top right corner. Beneath the picture were the words “Today is the First Day of the Rest of Your Life”. It conjures up the image of Adam and Eve taking a bite from the fruit of the tree of knowledge of good and evil and forever lost their innocence. I think that sums it up nicely – what we chose to do today will have a bearing on the rest of our lives and the lives of those around us.
As we head into the New Year, it is my hope that we can and we will think of our decisions and actions as investments in the future and that we will do so wisely. We all had a bite of that bitter fruit in 2008 and we are no longer innocent.
Tuesday, December 30, 2008
Thursday, December 18, 2008
To B or Not To B
High on everyone’s minds these days is the question of whether or not the government should bailout (the "B" in the title of this piece) the big three US auto-manufacturers. Everyone has some sort of an opinion, and arguments have been put forth from both sides of the aisles as to what is good and what is necessary and what is fair.
It amazes me that some opinion leaders would summarily dismiss bailing out the automakers without offering any alternative suggestions at all; opting to cling to the purest capitalistic dogmas (let them fail and go into bankruptcy) and ignoring the social responsibility that we have towards one another, especially in such difficult times.
Without a doubt, a bailout composed purely of injecting cash into the US auto-manufacturers will not work other than as a temporary fix to stem the bleeding. The single biggest factor behind the current crisis they are facing is the sharp drop in demand for new automobiles. This is evidenced by an escalating number of new vehicles sitting in inventory - you can see the gleaming new vehicles in the ports and in the parking lots of automakers - and the dismal sales numbers reported by all auto manufacturers, including the foreign owned ones. We don't hear of the foreign automakers going to Congress for a bailout only because they are foreign owned, not because they are not hurting, probably just as badly.
The decline in demand stems from problems we are experiencing around the country where significant job cuts are being announced almost on a daily basis. Until there is a turnaround in the economy and the spate of bad news and worrisome layoffs ends, the auto industry has little hope of surviving (even if it were to enter into an orderly bankruptcy) if help is not forthcoming. The danger that we face as a nation is that the livelihood of countless numbers of families that are tied to the auto industry directly and indirectly will be lost.
While cost cuts can be achieved through restructuring, stimulating demand for new cars in a drawn out economic recession is a whole different ball game. Consumers who would be in the market for a new car under normal circumstances will, in these uncertain times, defer the purchase till they see some silver lining on the economic horizon. Further complicating the problem is the hesitation of banks and financial institutions to provide credit or to lend money – consumers needing a new vehicle are hamstrung by the new and higher credit score requirements they need to show in order to get a loan.
Even with the proposed bailout money, production will have to be cut significantly till the excess inventory of unsold cars is absorbed by a recovery in demand and, like it or not, further production cuts will mean more lost jobs.
A better option may be for the government to issue vouchers to subsidize the purchase of vehicles – with conditions attached of course, including for example, a requirement that the new vehicles must be manufactured in the US and must meet certain gas-mileage standards. If the subsidy is attractive enough, there will be a renewed demand and the industry will have the breathing room they need to retool and renegotiate costs to be more competitive.
Divide the proposed bailout of $14 billion by whatever makes sense as the subsidy value of each voucher and you get the answer to how many new, US made vehicles that can be sold as a result of the stimulus. Just as an example, at $5,000 per voucher, it could generate a demand for 2.8 million new vehicle sales. Using the rule of thumb that a new vehicle loses 20% in value the minute it leaves the car dealer’s lot, the subsidy should be capped at 20% of the price of the vehicle so that any temptation to abuse the system by using the vouchers to buy new vehicles and reselling them at a profit is eliminated.
With the assurance of a resurgence in demand for new vehicles, banks and financial institutions that are currently hesitant to lend to the US auto-manufacturers will be more willing to step back into their role as lenders.
The vouchers would also benefit consumers as they will need less credit to complete the purchase and the risk exposure for the lending institutions will be equally reduced as a result. Of course, not all taxpayers will be able to benefit from the vouchers unless they are in the market for a new vehicle and are prepared to pay for the remaining price of the vehicle that the vouchers do not cover. In the broader picture, everyone will benefit from the fact that more people remain employed and they, in turn, will consume goods and services that will keep more people employed. We are all inter-connected – what goes around comes around.
Part of the cost of the vouchers can be borne by the auto-manufacturers and dealers themselves – they already are offering the kitchen sink to lure potential buyers into their showrooms. They have nothing to lose by participating in a scheme designed to keep them afloat.
Until the new administration can start to put into place whatever package they have planned to stimulate job growth and spending, it is hard to see how else the auto-industry can recover. The vouchers are effectively still a bailout but a more palatable one, helping not just the US auto-manufacturers but taxpayers who are prepared fork out the money to buy a new vehicle.
It is time to think ‘outside-of-the-box’ and to come up with more intelligent solutions.
Challenging? Yes. Impossible? No.
This is America. This is the land of ideas and creative thinking.
It amazes me that some opinion leaders would summarily dismiss bailing out the automakers without offering any alternative suggestions at all; opting to cling to the purest capitalistic dogmas (let them fail and go into bankruptcy) and ignoring the social responsibility that we have towards one another, especially in such difficult times.
Without a doubt, a bailout composed purely of injecting cash into the US auto-manufacturers will not work other than as a temporary fix to stem the bleeding. The single biggest factor behind the current crisis they are facing is the sharp drop in demand for new automobiles. This is evidenced by an escalating number of new vehicles sitting in inventory - you can see the gleaming new vehicles in the ports and in the parking lots of automakers - and the dismal sales numbers reported by all auto manufacturers, including the foreign owned ones. We don't hear of the foreign automakers going to Congress for a bailout only because they are foreign owned, not because they are not hurting, probably just as badly.
The decline in demand stems from problems we are experiencing around the country where significant job cuts are being announced almost on a daily basis. Until there is a turnaround in the economy and the spate of bad news and worrisome layoffs ends, the auto industry has little hope of surviving (even if it were to enter into an orderly bankruptcy) if help is not forthcoming. The danger that we face as a nation is that the livelihood of countless numbers of families that are tied to the auto industry directly and indirectly will be lost.
While cost cuts can be achieved through restructuring, stimulating demand for new cars in a drawn out economic recession is a whole different ball game. Consumers who would be in the market for a new car under normal circumstances will, in these uncertain times, defer the purchase till they see some silver lining on the economic horizon. Further complicating the problem is the hesitation of banks and financial institutions to provide credit or to lend money – consumers needing a new vehicle are hamstrung by the new and higher credit score requirements they need to show in order to get a loan.
Even with the proposed bailout money, production will have to be cut significantly till the excess inventory of unsold cars is absorbed by a recovery in demand and, like it or not, further production cuts will mean more lost jobs.
A better option may be for the government to issue vouchers to subsidize the purchase of vehicles – with conditions attached of course, including for example, a requirement that the new vehicles must be manufactured in the US and must meet certain gas-mileage standards. If the subsidy is attractive enough, there will be a renewed demand and the industry will have the breathing room they need to retool and renegotiate costs to be more competitive.
Divide the proposed bailout of $14 billion by whatever makes sense as the subsidy value of each voucher and you get the answer to how many new, US made vehicles that can be sold as a result of the stimulus. Just as an example, at $5,000 per voucher, it could generate a demand for 2.8 million new vehicle sales. Using the rule of thumb that a new vehicle loses 20% in value the minute it leaves the car dealer’s lot, the subsidy should be capped at 20% of the price of the vehicle so that any temptation to abuse the system by using the vouchers to buy new vehicles and reselling them at a profit is eliminated.
With the assurance of a resurgence in demand for new vehicles, banks and financial institutions that are currently hesitant to lend to the US auto-manufacturers will be more willing to step back into their role as lenders.
The vouchers would also benefit consumers as they will need less credit to complete the purchase and the risk exposure for the lending institutions will be equally reduced as a result. Of course, not all taxpayers will be able to benefit from the vouchers unless they are in the market for a new vehicle and are prepared to pay for the remaining price of the vehicle that the vouchers do not cover. In the broader picture, everyone will benefit from the fact that more people remain employed and they, in turn, will consume goods and services that will keep more people employed. We are all inter-connected – what goes around comes around.
Part of the cost of the vouchers can be borne by the auto-manufacturers and dealers themselves – they already are offering the kitchen sink to lure potential buyers into their showrooms. They have nothing to lose by participating in a scheme designed to keep them afloat.
Until the new administration can start to put into place whatever package they have planned to stimulate job growth and spending, it is hard to see how else the auto-industry can recover. The vouchers are effectively still a bailout but a more palatable one, helping not just the US auto-manufacturers but taxpayers who are prepared fork out the money to buy a new vehicle.
It is time to think ‘outside-of-the-box’ and to come up with more intelligent solutions.
Challenging? Yes. Impossible? No.
This is America. This is the land of ideas and creative thinking.
Thursday, December 11, 2008
Ignore At Your Own Peril
Lest it be misunderstood, the crux of my previous posting titled ‘Pointing Fingers’ was not to absolve those people in positions of power. By their callous and careless actions, they have created the gigantic sink hole we are witnessing – a crater filled with lost jobs, foreclosed homes and wiped out retirement savings. History will judge them for what they have done. Their reputation will turn out to be less-than-flattering when the book is closed on this chapter of our history.
The point is that we need to take responsibility for our individual actions because collectively ‘We the People’ have the power to determine the course of how things turn out. By our daily decisions on what we do and what we consume, we have the power to determine which services or products and, by extension, which companies succeed and which fail. Because what we can expect in the future is determined by what we do today, we have a duty to ourselves and to future generations to be more thoughtful and less ignorant of the longer term impact and benefits of our decisions.
If we had not ignored the possibility that a finite supply of fossil fuels would result in ever increasing energy costs, we would have more aggressively pursued the development of technology to tap into alternative and renewable energy sources. We would not have abandoned the idea of the electric car and we certainly would not have bought into the deceiving appeal of gas guzzling SUVs. We would have severely restricted or discouraged suburban sprawl requiring longer commutes.
If commodity traders and hedge fund managers had not ignored the fact that oil prices above a certain threshold would have the impact of a sudden and massive reduction in consumption, companies would not have had to cut back production and factories would not have had to close or to lay off workers.
If executives in corporations had not ignored the impact (to the very consumers they rely on) of their relocating all types of jobs overseas, there would have been a less of a drain on the US consumers’ power to spend and there could have been fewer home foreclosures.
If bankers and housing developers had been less speculative and had not ignored the possibility of the housing bubble bursting, fewer new homes would be on the market and fewer sub-prime mortgages would have existed and fewer foreclosures would have resulted.
If home buyers had carefully weighed their income against their mortgage obligations and considered the effect of a change in circumstance such as illness, loss of job, decline in property values, they would not have taken risks they can ill afford or fallen prey to predatory lending practices.
A progressive society is one that has a conscience and does not chose to ignore the future consequence of its actions today. Ignoring tomorrow does not make it go away. We need leaders that are forward thinking and who understand that we can’t mortgage our children’s future for our own short term enjoyment.
We can learn to say “NO” and we can learn not ignore the danger signs. Some did and are surviving the present crunch. It was encouraging to hear on the news today that a small bank in Kansas stuck to its policies by not making risky loans in exchange for higher profits. In addition to remaining financially sound, it helped its customers by discouraging speculative borrowing.
Survival is a long-term game and ‘We the People’ are all in it together.
The point is that we need to take responsibility for our individual actions because collectively ‘We the People’ have the power to determine the course of how things turn out. By our daily decisions on what we do and what we consume, we have the power to determine which services or products and, by extension, which companies succeed and which fail. Because what we can expect in the future is determined by what we do today, we have a duty to ourselves and to future generations to be more thoughtful and less ignorant of the longer term impact and benefits of our decisions.
If we had not ignored the possibility that a finite supply of fossil fuels would result in ever increasing energy costs, we would have more aggressively pursued the development of technology to tap into alternative and renewable energy sources. We would not have abandoned the idea of the electric car and we certainly would not have bought into the deceiving appeal of gas guzzling SUVs. We would have severely restricted or discouraged suburban sprawl requiring longer commutes.
If commodity traders and hedge fund managers had not ignored the fact that oil prices above a certain threshold would have the impact of a sudden and massive reduction in consumption, companies would not have had to cut back production and factories would not have had to close or to lay off workers.
If executives in corporations had not ignored the impact (to the very consumers they rely on) of their relocating all types of jobs overseas, there would have been a less of a drain on the US consumers’ power to spend and there could have been fewer home foreclosures.
If bankers and housing developers had been less speculative and had not ignored the possibility of the housing bubble bursting, fewer new homes would be on the market and fewer sub-prime mortgages would have existed and fewer foreclosures would have resulted.
If home buyers had carefully weighed their income against their mortgage obligations and considered the effect of a change in circumstance such as illness, loss of job, decline in property values, they would not have taken risks they can ill afford or fallen prey to predatory lending practices.
A progressive society is one that has a conscience and does not chose to ignore the future consequence of its actions today. Ignoring tomorrow does not make it go away. We need leaders that are forward thinking and who understand that we can’t mortgage our children’s future for our own short term enjoyment.
We can learn to say “NO” and we can learn not ignore the danger signs. Some did and are surviving the present crunch. It was encouraging to hear on the news today that a small bank in Kansas stuck to its policies by not making risky loans in exchange for higher profits. In addition to remaining financially sound, it helped its customers by discouraging speculative borrowing.
Survival is a long-term game and ‘We the People’ are all in it together.
Tuesday, December 9, 2008
Pointing Fingers
The economy is in trouble and everyone is pointing fingers – well, almost everyone. I’ll make an exception for the children who are too young to know and for those who came through the firestorm with a handsome profit as well as those who had the foresight to anticipate the collapse of the markets and are likely to remain relatively unscathed by the troubles that are yet to come.
Find any man or woman on the street and ask, “Who is responsible for this mess?” and you’ll be bound to get an earful of that person’s thoughts and, I might dare add, venom for those whom they strongly feel have mismanaged and upset their hopes and dreams.
The list of the ‘guilty’ is long. The favorites (not in any particular order) include: overpaid top executives asleep at their jobs; unionized labor with guarantees and benefits that make American products un-competitive in the marketplace; the Administration and Congress for allowing the deregulation of the banking industry; the Fed for not raising interest rates early enough or high enough to nip the housing bubble in the butt, the Treasury Secretary for allowing one of the world’s biggest issuers of commercial papers to fail; commodity traders for pushing the world’s oil prices up to unsustainable levels; mortgage brokers for pushing loans to people who can ill afford home ownership; hedge funds and short seller for their bets for or against a company or a trend; corporations that looked only to short term gains and resorted to the mass-relocation of jobs to developing countries to the detriment of the consumer based US economy; and a media that is too tame to challenge the status quo.
There is no doubt that we're in a perfect storm that has been long in the making – all elements contributing to the disaster coming together at the same time while everyone at the wheel was caught sleeping.
What many commentators will fail to acknowledge is that when we point a finger at others, there are three other fingers on that same hand that point back at ourselves. We, as a whole, are equally to blame – we wanted more for less, we wanted the benefits without considering the consequences and, rather naively, we wanted to believe those who tell us that all that is possible.
Whether or not we agree that we are part of the cause, we cannot stand aside or do nothing and say, “Not I” or “Not on my dime”. While that would be a natural reaction, it is a self-centered one – the same type of “Me First” thinking that led us down this hole in the first place.
Knowing we are in a hole and we are in it together is the first step of the twelve step program to recovery. Kicking the addiction to short term gains requires acknowledgment that the habit is self-destructive.
When we next feel the urge to point fingers, we should look in a mirror. Hopefully, the face staring back at us is a wise one – one that has learned enough and has done enough so that pointing fingers won’t be necessary.
Find any man or woman on the street and ask, “Who is responsible for this mess?” and you’ll be bound to get an earful of that person’s thoughts and, I might dare add, venom for those whom they strongly feel have mismanaged and upset their hopes and dreams.
The list of the ‘guilty’ is long. The favorites (not in any particular order) include: overpaid top executives asleep at their jobs; unionized labor with guarantees and benefits that make American products un-competitive in the marketplace; the Administration and Congress for allowing the deregulation of the banking industry; the Fed for not raising interest rates early enough or high enough to nip the housing bubble in the butt, the Treasury Secretary for allowing one of the world’s biggest issuers of commercial papers to fail; commodity traders for pushing the world’s oil prices up to unsustainable levels; mortgage brokers for pushing loans to people who can ill afford home ownership; hedge funds and short seller for their bets for or against a company or a trend; corporations that looked only to short term gains and resorted to the mass-relocation of jobs to developing countries to the detriment of the consumer based US economy; and a media that is too tame to challenge the status quo.
There is no doubt that we're in a perfect storm that has been long in the making – all elements contributing to the disaster coming together at the same time while everyone at the wheel was caught sleeping.
What many commentators will fail to acknowledge is that when we point a finger at others, there are three other fingers on that same hand that point back at ourselves. We, as a whole, are equally to blame – we wanted more for less, we wanted the benefits without considering the consequences and, rather naively, we wanted to believe those who tell us that all that is possible.
Whether or not we agree that we are part of the cause, we cannot stand aside or do nothing and say, “Not I” or “Not on my dime”. While that would be a natural reaction, it is a self-centered one – the same type of “Me First” thinking that led us down this hole in the first place.
Knowing we are in a hole and we are in it together is the first step of the twelve step program to recovery. Kicking the addiction to short term gains requires acknowledgment that the habit is self-destructive.
When we next feel the urge to point fingers, we should look in a mirror. Hopefully, the face staring back at us is a wise one – one that has learned enough and has done enough so that pointing fingers won’t be necessary.
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