Thursday, February 28, 2013

College Graduation Rates ... Truth-in-Lending?

Student loans outstanding now exceed $1 trillion. And much of that money is owed by people who didn't graduate from collge. Other substantial sums are owed by people who can't get jobs that pay sufficiently high salaries to repay the student loans in a timely fashion.

Yet we encourage everybody to enroll in college and assume loans for doing so. Here are some facts to consider.

Only Half of First-Time College Students Graduate in 6 Years tells the story of college graduation rates:

"As we’ve covered here many times before, there is an abundance of evidence showing that going to college is worth it. But that’s really only true if you go to college and then graduate, and the United States is doing a terrible job of helping enrolled college students complete their educations.

A new report from the National Student Clearinghouse Research Center digs deeper into these graduation rates. It finds that of the 1.9 million students enrolled for the first time in all degree-granting institutions in fall 2006, just over half of them (54.1 percent) had graduated within six years. Another 16.1 percent were still enrolled in some sort of postsecondary program after six years, and 29.8 percent had dropped out altogether.
Source: National Student Clearinghouse Research Center. Source: National Student Clearinghouse Research Center.

As you can see, many of the students who ultimately graduated did so at a different institution than the one where they had originally enrolled. Of the whole cohort of 2006 matriculants, 42 percent graduated where they had first enrolled, and another 9.1 percent graduated from a place to which they had transferred. . . .

The report also looked at the state-level completion rates for students who are “traditional” (that is, age 24 and younger) versus “nontraditional” or “adult” (over age 24).

Not surprisingly, in almost every state, traditional-age students starting at public four-year schools had higher completion rates than nontraditional-age students. . . .

For more on this release, check out the Chronicle of Higher Education’s neat interactive visualization of the study."

Summing Up

The most important decision we make about college is whether we're prepared to enroll, do the required academic work, graduate in a timely manner and be prepared to take a job which will prove to have been worth the years of effort involved in attending and graduating from college.

And if we do decide to go to college, whether we are going to get the most bang for the buck both by taking a low cost approach to getting a degree which will provide us with a good opportunity to secure a high paying job in the career of our choice.

It's all about OUR return on OUR investment. Our investment of both time and money and our return on that combined investment of our time and money.

Not the college's investment of time and not the borrowed money provided by a lender.

That's my take.

Thanks. Bob.

J.C. Penney ... Customers Go Elsewhere

The difference between a private sector company and a public sector monopoly is one of simple choice. Customers choose whether or not to buy what the private sector company is offering for sale at the prices offered.

Customers are in charge. They're the real bosses. Occasionally a CEO tries to outsmart customers and the formerly loyal customers react by voting with their feet. They take their money, go away and don't come back. That's exactly what's been happening at J.C. Penney. And the developing situation is getting ugly --- real ugly.

Penney Posts Large Loss as Sales Sink Further has the details on the sinking ship at Penneys:

"The bill for J.C. Penney Co.'s first year under Chief Executive Ron Johnson is in, and it's about $4.3 billion.

That's how much sales at the department store chain dropped in the 12 months after the former Apple Inc. executive cut back on discounts and rolled out a plan to fill stores with dozens of branded boutiques.

Declines worsened through the year, with sales down 28.4% from a year earlier in the fourth quarter, which spans the crucial holiday selling period. The company reported a fourth-quarter loss of $552 million, its worst of the year, and held $930 million in cash on Feb. 2, a decline of 38% from a year earlier.

For the full fiscal year, Penney had a loss of $985 million, compared to a $152 million loss the year before.

The results are a comedown for Mr. Johnson, who arrived with great fanfare from Apple in November 2011 with ambitions to remake a chain that had sold inexpensive clothes to middle-American shoppers for decades.

The CEO warned investors when he announced the turnaround strategy a little more than a year ago that the changes would involve some pain at first, but he said at the time that the back half of the first year would be stronger than the first and predicted the company would turn a profit during the first year of the transformation.

With those targets blown, his key tasks are stopping the slide in sales and making sure the company has enough cash to complete the job. On Wednesday, he backtracked significantly on his plan to limit discounts, telling investors the company will start holding regular sales.

"We'll offer sales each and every week as we move forward," the CEO said on a conference call to discuss the results. . . .

Customers exit a J.C. Penney store in the Queens borough of New York.

Mr. Johnson has rolled out a new ad campaign that stresses Penney's prices. The CEO said it is gaining traction with customers.

Showing sales growth should be easier for the company in the quarters ahead, when results will be compared with the past year's dismal results. Mr. Johnson hasn't been specific when pressed when he expects to see improvements."

Summing Up

Penney's shares are off more than 16% in pre-market trading this morning.

One thing I know for sure. A company can't manage to achieve any satisfactory level of profitability without stable and growing sales over time.

Another thing I know for sure is that customers are in charge. They decide whether to buy from any single company, another company or no company at all.

It's their MOM and it's their choice. Always.

That's the way free markets work.

And that's why we need more MOM based behavior and not more government control in our economy and those institutions that serve the American public.

It's a free to choose thing where free people are in charge. That's always the best idea.

Thanks. Bob.

More Government Schools a Good Thing? ... LBJ's Head Start Program Revisited? ... Education and Government "Help" ... The President's Free Universal Preschool Idea

I attended public school in a small town in central Illinois from K-12 and graduated from high school in 1961. That was before government mandated "improvements" in America's public schools became a serious nationwide effort.

But despite the absence of the federal government's 'assistance,' we all had the opportunity to get a solid education in that small central Illinois town. The local community, parents, teachers, administrators and local school board all made it happen. And local property taxes paid for it.

And then the federal government got going in the mid 60s and things have never been the same. Are they better now? No, they're not. But they're lots more expensive, and the rest of the world has largely passed us by in the field of education. So what's President Obama proposing? More government, of course. Isn't that always his answer to our problems, even if it's nearly always the wrong one?

Oh well, at least he's popular. But let's take a look at the facts, at least as I see them as a former Illinois K-12 youngster and now a Georgia based oldster. And by the way, I also attended and graduated from schools in Nebraska and Colorado along the way to adulthood.

President Johnson introduced Head Start in 1965. President Obama wants to bring it back in a modernized form in 2013. Why?

We've had No Child Left Behind "help" and now we have Race to the Top "help."

We've had lots of government help with college student loans and stimulus spending related to K-12 schools.

And since the 60s, we've received lots of help and advice from public school teachers unions, too.

In the private sector, government has enacted legislation that requires Truth-in-Lending and Truth-in Advertising from companies. Why don't these same requirements exist for public schools and universities that receive billions of dollars in taxpayer aid?

In my state of Georgia, nearly 1 of 3 students drops out of high school. And many of those who do manage to graduate haven't received much of an education.

Head Start for All is subtitled 'Universal preschool and a government that won't admit failure.' Is more government the answer to our educational shortcomings? Of course not, and here's what the article has to say about it:

"Government failure is hardly new, though President Obama has given it a characteristic new twist: A program's proven inability to do the things it is supposed to do is now an argument for expanding it. In our new progressive era, no program can ever end because the only reason government fails is that there wasn't enough government in the first place. . . .

There may not be a better illustration of this contradiction between intentions and results than Mr. Obama's new demand for free universal preschool.

Speaking last week in Decatur, Georgia, Mr. Obama said that "education has to start at the earliest possible age" and cited "study after study" that purport to show public preschool for every child results in lasting academic gains and other cognitive and social improvements. He also claimed universal pre-K can lead to higher wages later in life and less crime and dependence on government....

"Hope is found in what works," Mr. Obama added. "This works. We know it works. If you are looking for a good bang for your educational buck, this is it right here."

The President was in Georgia because since 1995 the state has subsidized free preschool, regardless of family income. Some 59.3% of four-year-olds were enrolled in the 2010-2011 school year, and Mr. Obama is right that the state is a good example of what universal pre-K can buy.

President Barack Obama plays a learning game while visiting children at College Heights Early Childhood Learning Center in Decatur, Georgia.

Georgia's fourth- and eighth-grade reading, math and science scores all trail the national average, and the spread between white and black or Hispanic students is 25 points. Nearly one of three teenagers drops out of high school, the third worst rate in the country. All of this is consistent with the phenomenon known as "fade out," in which any tangible gains from preschool dissipate as students progress through elementary school.

Careful work by Maria Donovan Fitzpatrick of the Stanford Institute for Economic Policy Research looked at student achievement in Georgia as its pre-K program phased in. While she found some modest gains, she also concluded that the costs outweighed the benefits by a ratio of six to one. Nearly 80% of enrollment is "just a transfer of income from the government to families of four year olds" who would have attended preschool anyway.

Nationwide today about 1.3 million kids, or 28% of all four-year-olds, attend state-funded pre-K, a leap from 14% in 2002. The empirical case for this expansion—the evidence that universal preschool "works," as Mr. Obama put it—rests on two academic studies, the Abecedarian and Perry projects, conducted four and five decades ago. . . .

These experiments showed vast returns on investment, the source of Mr. Obama's claim that every early education dollar generates $7 down the line. Yet Abecedarian and Perry cost between $16,000 to $41,000 per child per year (in current dollars), the higher end comparable to Ivy League tuition. Georgia spends $4,298 per child.

The extra money was required because these were very intensive interventions that included home visits, parent counseling, nutrition, health care and other social services. They were micro-enterprises run by the most experienced early education experts and impossible to replicate. Mr. Obama is simply pocketing their results and pretending that this can be extrapolated to the entire population. It can't even be replicated in Georgia.

For this reason, what "study after study" really suggest is that government-funded pre-K programs are best when they are targeted at low-income, disadvantaged or minority children—those with the most need. Such a modest, practical reform may lack Mr. Obama's preferred political grandeur, but the other reason he didn't propose it is that the government has already been doing it for a half-century.

That would be Lyndon Johnson's Head Start program, birth date 1965. In December of last year, the Health and Human Services Department released the most comprehensive study of Head Start to date, which took years to prepare. The 346-page report followed toddlers who won lotteries to join Head Start in several states and those who didn't through the third grade. There were no measurable differences between the two groups across 47 outcome measures. In other words, Head Start's impact is no better than random. . . .

Counting Head Start, special education and state-subsidized preschool, 42% of four-year-olds are now enrolled in a government program. Federal, state and local financing for early learning is closing in on $40 billion a year, double what it was a decade ago. But can anyone say that achievement is twice as good—or even as good? . . .

The public schools fail the poor, but reforming them is hard and would upset the unions. So instead liberals propose Head Start to prepare poor kids for kindergarten. Head Start has little to show after 47 years, but rather than replacing it, the new liberal solution is to expand it to everyone.

Meanwhile, pundits who claim to be empiricists lecture Republicans to agree to all this so they don't appear to be so hostile to government. Everyone pretends that spending more on programs that have demonstrably failed is a sign of compassion and "what works," government expands without results, and the poor are offered only the false hope of liberal good intentions."

Summing Up

Government control of education doesn't work well. Not at all.

Except for the teachers unions, school administrators and the Democratic Party, of course.

The facts are clear, and the evidence is irrefutable. Our schools are getting worse.

Why can't We the People control how our money is spent and where it is spent on educating our children?

Why aren't we insisting on vouchers and school choice?

Why do we allow the government to keep all this information about the failure to improve our educational system largely in the dark?

Why are we such wimps?

Thanks. Bob.

Wednesday, February 27, 2013

Stock Market on a Roll ... Two Important Things to Keep Top of Mind

The stock market is on a tear so far this year. It's up more than 100 points again today.

My own swag is that it will reach an all time high sometime later in 2013. Of course, it may fall before then, and it may not reach a new high until next year or even later. But to the long term investor, that's not all that important.

As the saying goes, the only two prices that matter are what the buy price is and what the sell price is. All the rest is noise. Unsettling noise perhaps, but nevertheless just noise.

Of course, my crystal ball predicts that a Dow 30,000 is in the cards during the next ten to fifteen years as well. That said, prices will undoubtedly drop precipitously from time to time. Nothing goes straight up.

And to realize that 30,000 target, we really need to be concerned about just two people, one of whom is unnecessary --- ourself and our paid financial adviser.

Along those lines, Two easy ways to lose big in 2103 contains solid investment advice well worth heeding:

"The stock market has been kind to investors lately, and despite the failures of our government, optimism is stronger than pessimism. Here's a warning to investors: Look out!

Despite the generally cheerful tone in the media and on Wall Street, thousands of investors will lose their shirts this year. . . .

There are lots of ways this could happen, but today I'm going to focus on two. . . .

Perhaps the most common way investors get into deep trouble is by trying to beat the market. The cruel truth is that such attempts rarely succeed except by accident (which is another way of saying luck). And yet the very attempt to beat the market turns would-be winners into real-life losers.

In my 2011 book, Financial Fitness Forever, I devoted a whole chapter to the perils of beating the market. Here are five:

1 - When you try to beat the market, you're bound to focus on performance, especially short-term performance. You're in a race to win, and (just like any good sports fan) you want to know the score, and you want to know it now. What you want emotionally is a good score now; but what you really need as a long-term investor is a good score some decades from now. . .

2 - When you focus on performance, you are likely to ignore the most powerful factors that build favorable long-term results: Expense control, tax efficiency, diversification and risk control (to name only four).

3 - When you're hellbent on beating the market, you are likely to latch onto dreams of “a new era” that supposedly will bring wealth to people who get in on the ground floor. Remember the dot-com investment boom of the late 1990s? Successful investing almost never depends on new-era fantasies.

4 - Logically, beating the market is a terrible goal. If you make 20% in a year in which the Standard & Poor's 500 Index goes up 30%, you have to consider yourself a failure. If you lose “only” 40% of your retirement nest egg in a year when the index loses 50%, you have to be willing to congratulate yourself for successfully beating the market. (Will your spouse or partner see it that way?)

5 - Your quest to beat the market is likely to lead to emotion-based buying and selling decisions. You'll follow the herd, buying high and selling low, exactly the opposite of what successful investors should do.

And what's so bad about following the crowd? The majority of mutual funds fail to beat the market. . . .

Don’t be a pawn

Finally, trying to beat the market makes you a pawn of Wall Street. That leads me to my second point.

In the next 10 months, lots of investors will lose lots of money because they have bad financial advisers or follow false gurus. The investment industry always has something up its sleeve to entice investors and separate them from their money. It may be initial stock offerings. It may be gold or some other commodity. It may be a high-paying “safe” substitute for bonds.

Despite the hope and hype, in the sales-driven culture of Wall Street, “the house” always wins, and the investor sometimes wins. This is summed up in a familiar adage: “The broker makes money, the firm makes money and the client…well, two out of three isn't bad!". . .

If your goal for 2013 is to lose money, I've just shown you two easy ways to do so."

Summing Up

He's right, of course.

Taking what the market gives us and not giving brokers a chunk of those rewards is the best individual investing advice to follow.

Let the market do the work for you.

Be a lazy investor that owns shares of solid companies that pay growing cash dividends over time.

It may be boring, but what's wrong with that?

Thanks. Bob.

Politics Makes for Strange Bedfellows ... Keystone Pipeline and Big Labor

We need jobs in America. We also need good paying jobs. We also need jobs provided by the private sector that taxpayers don't have to subsidize.

Unions like to have their members employed and paying dues. Unions also support a raise in the minimum wage. They also support President Obama and the Democratic Party in a big way.

President Obama says we need more jobs, more good paying jobs, less unemployment and greater energy independence. He also wants to save the middle class. He also recommends an increase in the minimum wage to $9 per hour by 2015 from the current level of $7.25.

We all agree that our nation should strive for energy independence and remain strong allies with Canada, our next door neighbor.

So how about immediately approving the Keystone Pipeline project and requiring that the newly created jobs all pay 50% more than the minimum wage, or at least $10 hourly, Mr. President? Maybe even $12 hourly or higher, if that's what it takes. I'm sure the energy companies already plan to pay much more than that anyway for those new jobs.

AFL-CIO Leaders Endorse U.S. Pipeline Expansion says this about the position of Big Labor:

"Leaders of the AFL-CIO backed the expansion of the nation’s pipeline infrastructure, but stopped short of explicitly endorsing the controversial Keystone XL oil pipeline, suggesting organized labor is still divided over the project.

The heads of the nation’s biggest labor unions passed a resolution at their annual meeting in Florida Tuesday, saying they supported new pipeline projects that could create up to 125,000 jobs a year between now and 2035.

“The AFL-CIO supports the expansion of our pipeline infrastructure and a much more aggressive approach to the repair of our more than 2.5 million miles of existing pipelines,” the federation statement read in part.

Even though the statement omitted any specific mention of Keystone, the building trades department of the AFL-CIO immediately praised the decision and explicitly linking it to the project, which it has long supported.

“Shovel-ready projects like Keystone XL and other energy infrastructure projects are badly needed,” said Sean McGarvey, president of the Building and Construction Trades Department. “The construction of this project represents an immediate opportunity for 20,000 union members to get back to work.”

A number of unions that belong to the AFL-CIO have strongly opposed the project in the past, including the United Steelworkers. Other unions that would stand to gain jobs from the project, such as the Laborers International Union of North America, which is not part of the AFL-CIO, have argued that the Obama administration should pursue it.

The Keystone pipeline would carry heavy crude oil from Canada to refineries on the U.S. Gulf Coast, and has been widely opposed by environmental groups.

A spokesman for the steelworkers union declined to comment."

Summing Up

To repeat, politics makes for strange bedfellows.

That said, we need good jobs, more tax receipts and greater energy independence in North America.

We also could use lower gasoline and other energy prices, too.

That would put more money in consumers' pockets to be spent on other things, thereby helping our stagnant economy to grow.

What not's to like, Mr. President? Are the greenies the only people who really count with you?

As the old saying, goes, we can hear what you say, Mr. President. But we're able to learn more, much more, about you when we take the time to watch what you do.

We're all watching, Mr. President.

Thanks. Bob.

FACTS About the Sequester ... The President is Making a Mockery Out of a Serious Budget Problem

The federal government spends more money each year than it collects in taxes. We now have a national debt in excess of $16.5 trillion and an unfunded entitlement liability of another $100 trillion.

The "disaster sequester" scenario will reduce federal spending by $44 billion this year if it takes effect this Friday, which it will.

Phil Gramm: Obama and the Sequester Scare is chock full of relevant FACTS:

"President Obama's message could not be clearer: Life as we know it in America will change dramatically on March 1, when automatic cuts are imposed to achieve $85 billion in government-spending reductions. Furloughed government employees, flight delays and criminals set free are among the dire consequences the president has predicted. . . .

Scare tactics such as these are similar to the ones that were made when I co-authored the first sequester legislation in 1985, the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act. The 1986 sequester was triggered anyway, but the predicted disaster never came. The nation survived then. It will now.

The president's response to the sequester demonstrates how out of touch he is with the real world of working families. Even after the sequester, the federal government will spend $15 billion more than it did last year, and 30% more than it spent in 2007. Government spending on nondefense discretionary programs will be 19.2% higher and spending on defense will be 13.8% higher than it was in 2007.

For a typical American family that earns less than it did in the year President Obama was elected, the anguished cries and dark predictions coming out of the White House should elicit not sympathy but revulsion. . . .

The most recent estimate by the Congressional Budget Office for this year's sequester is that nondefense spending will be cut by 4.6% and defense spending will be cut by 7.9%. While the sequester will reduce spending authority by $85 billion, the actual cuts that will occur in 2013 will be $44 billion. That is a mere 1.2% of total federal spending this year. . . .

While history shows that a divided government can enact significant spending cuts as an alternative to sequesters, that doesn't appear to be the path Mr. Obama intends to follow. Instead of protecting civilian defense workers, the president will continue to force the Pentagon to buy biofuels at $27 per gallon to promote his green agenda. Instead of protecting children from cuts in nutrition programs, the president will continue to allow $2.7 billion of fraud and mismanagement he has identified in the food-stamp program. Instead of protecting Medicare from a 2% cut, the president will ignore $62 billion in annual waste that his administration has identified in Medicare and Medicaid.

But governing is not about blaming someone else—it is about choosing.

While Mr. Obama may choose to make the cuts ordered by the sequester in the most painful way possible, the best alternative—which is practiced every year to some extent—is allowing federal agencies to transfer funds among individual programs with congressional approval or by rearranging priorities as part of the March 27 resolution to fund the government for the rest of the fiscal year.

That doesn't sound like a herculean task to Americans who make hard choices every day. Their choices have become harder and more frequent because the country's political leaders seem unwilling to do the same in Washington."

Summing Up

Politics sucks.

But it's not about leadership.

It's about popularity --- and divisive rhetoric.

So to the politicians I say the following:

(1) Let the $44 billion in "non-cuts" to government spending and the smaller than planned government spending increases begin;

(2) Then find another few hundred billion dollars in additional "cuts" to make each year thereafter, so we can get our nation's financial house in order; and

(3) Most important, take a whack at future entitlements spending promises, too.

That's my take.

Thanks. Bob.

When We Near or Enter Our Retirement Years, Our Investing Approach Needs to Be Different Than When We're Younger

Owning stocks for the long haul is a winning investment approach. The historical record clearly demonstrates that over time stocks always outperform all other forms of investing by a wide margin.

It's also clear that market timing is a fool's game, albeit one played by the pros and brokers in an effort to get individuals to trade frequently and entrust the management of their money to them. In other words, investment professionals and brokers earn their livings by taking a "cut" of what individuals otherwise would keep to themselves via a  DIY approach.

Simply stated, a buy-and-old approach doesn't maximize the earnings of pros and brokers. As a result, they often encourage individuals to trade frequently. That's good for the pros and bad for the individuals.

In any case, when we get older, even the recommended "all-in-stocks" individual investing game changes. As we near or enter retirement, it's wise to consider taking some money out of the market and placing it in a more "protected" or diversified asset portfolio, meaning that the oldster owns fewer stocks as a percentage of the whole.

For oldsters cash, at least in part, becomes king, if only because markets fluctuate and a downdraft can hit at any time and for any number of reasons. And when it does hit, it's always a surprise.

Thus, oldsters are both required and able to have a shorter investing time horizon than younger folks. It's a birthday related thing.

Retirement investing is different covers the bases well for those nearing and also for those already in oldster status:

"The Dow Jones Industrial Average recently broke 14,000 and the Standard & Poor’s 500 Index plowed through 1,500 — happy days are here again! . . .

Yup, it's time to get invested again. Or is it?

Maybe not. Maybe the time to get invested was months ago, when values were much more attractive and stocks may have had less downside risk. This conclusion would be especially apt during retirement, when managing downside risk is of paramount importance.

Retirement investing is different

But investing is investing, right? No, not really. Not when you're retired or within five to 10 years of retirement.

When you're young, you've got time on your side. You can handle a bear market decline of 50%; eventually, the market will bounce back for you. Besides, you don't need to pull funds from your portfolio to pay the rent and medical bills. You can just sit in stocks and let it ride.

Retirement investing is an entirely different animal. A bear market can wreck your retirement. Think of it: those 50% declines in stocks we've seen twice in the past decade require a 100% return just to make it back to even. But if you're pulling out capital to fund your retirement, you're multiplying your losses and you're probably going to need even more than a 100% return to get back on track.

That's a pretty tall order. Portfolio losses and regular withdrawals are like oil on fire: they can lead to a downward spiral in your net worth and, worse yet, a diminished retirement lifestyle. The math can be diabolical, and so can your loss of sleep.

Disciplined investing is mission critical

When you're retired or planning to retire in the next five to 10 years, it's time to change your approach to investing. . . . From this day forward, investing is serious business; you're playing for keeps. One bad mishap can have lifelong repercussions.

Discipline is now mission critical. . . . When you're retired, the winner is no longer the genius who discovered the next Google — it's the investor who avoids the brunt of bear markets and generates consistent returns year in and year out. Yes, the game does change.

Focus on value

To be a winner in retirement investing, focus on value. Determine an asset allocation of equities and bonds that fits your objectives and risk tolerance. Rebalance around the asset allocation based on extremes in value. Be a contrarian. As Warren Buffett says, "Be greedy when others are fearful; and fearful when others are greedy." . . .

Investing is not an exact science. You don't have to pick the tops and bottoms. As a retiree, you just need to maintain a reasonable asset allocation, generate the returns you need, and avoid the big losses as much as possible. Of course, that's easier said than done. Value can be assessed in many ways, and one investor's bargain may be another's sell. That's when it pays to be a contrarian. Extremes in market emotion can offer clues about value: high optimism suggests overvaluation, while deep panics are usually associated with undervaluation.

Think like a business buyer

. . . The U.S. has solid fundamentals and a good future. But sometimes it faces difficult times. Two recent examples are in 2002 and 2008, when stocks plunged and valuations were extremely low — those were good times to buy. Now think back to 1999 and 2007, when stocks were soaring, investors were euphoric and valuations were high — those were opportune times to rebalance, take some profits and perhaps trim your equity holdings. . . .

At a time like today, when your friends are boasting about their gains and stock prices are at five-year highs, maybe it's time to exercise some discipline. Rebalance your portfolio. Take some profits off the table. Keep a reasonable allocation to stocks, of course, but do a reality check on whether your equity exposure is in line with your risk tolerance. If not, maybe you should reduce your downside risk.

Sure, the market may go higher, perhaps much higher. . . . But retirement isn't a time for heroics; it's a time for discipline. Eventually, valuations will return to more reasonable levels and your discipline will be rewarded.

In the meantime, you'll keep on track with your financial plan and sleep a lot better."

Summing Up

Returns on stock ownership and time are closely correlated. In the short term, anything can happen.

The longer the period of ownership, however, the greater the assurance of solid returns.

That said, stock prices are chock full of near term volatility as well. They go up and they go down, and without any forewarning. The definition of a surprise is that it's not foreseeable, and surprises are what cause unforeseen big market moves.

So as we get older, we need become more disciplined about buying and selling stocks.

As you may know, my own view is that we're likely to see the Dow hit 30,000 within the next ten to fifteen years.

In the interim, we're highly likely to receive cash dividends on those stocks which will pay more than interest on bonds will pay and which will at least offset the effects of inflation.

But if we're going to need to cash out, in whole or part, during the next several years, it's always a good idea to consider taking some 'winnings' off the table periodically.

Why not?

Thanks. Bob.

Tuesday, February 26, 2013

Popularity v. Leadership ... Our Popular President

According to a new poll released today, President Obama is much more popular than either Democrats or Republicans. He's seen as working to unify the country in a bipartisan way. WOW!

I wonder how well the popular President would poll if he were to recommend a serious change in either how we finance or derive benefits from our existing unaffordable entitlements programs.

Oh well, we should never confuse popularity with leadership. Silvio Berlusconi is still very popular among lots of Italians, too.

Poll: Obama Tops GOP on Unifying the Nation summarizes the poll's findings:

As President Barack Obama and Republicans in Congress face-off over upcoming across-the-board spending cuts, Americans give sharply different marks on which of the two is working to unify the country or is simply pursuing partisan aims.

By a more than 2-to-1 margin, Americans say Mr. Obama is doing a better job overall than Republicans at attempting to unify the country in a bipartisan way, a new Wall Street Journal/NBC News poll finds.

The poll found that 48% of respondents see Mr. Obama as trying to unify the country, compared to 22% who said that of Republicans and 37% who said that of Democrats.

By comparison, well over six in 10 Americans said Republicans are emphasizing a partisan approach that does not unify the country. Even among self-identified Republicans, 45% said their party was putting partisanship above trying to unite the country.

The share of those dinging the GOP for partisanship was still higher, at around 70%, among college graduates, moderates and people earning over $75,000.

That said, while Mr. Obama fared well on the partisan question, his party did only marginally better than the GOP. Nearly half of all Americans said Democrats emphasize a partisan approach."

Summing Up

Unifying the 'many' in the country behind the idea of asking the relatively 'few' so-called rich to pay a little more in taxes is a popular political ploy.

So is providing unfunded and unaffordable benefits to the  current oldsters without asking the current generation of taxpayers to pay for them.

Another popular approach is to refuse to recommend to the American people that we must make the hard decisions to bring federal spending and our nation's finances under control.

As long as We the People as taxpayers are content to borrow money in order to incur additional national debts of hundreds of billions of dollars each year for things like a perennial money losing U.S. Postal Service and a failing public education system, I guess we'll have a popular American in the White House. After all, he's trying hard to save the middle class.

But all that hard work is nothing compared to the approximately $100 trillion in unfunded benefits he'll leave to future Presidents and We the People to raise to pay for all the future commitments related to Medicare, Medicaid, ObamaCare and Social Security.

I guess it's just another example of the buy now, pay later, "Don't worry, be happy," put it on the tab, credit card, student debt, redistributionist, borrow it from the Chinese, all American way.

Politics sucks.

Thanks. Bob.

The Sequester and Lessons From Italy on National Health Care, Big Government and "Entitlementitis"

Italy is a mess. It's tempting to say, "That's just Italy." Tempting perhaps but untrue, too.

Ok, maybe it includes Greece, Spain, Portugal and perhaps even France, you say.

But how about the U.S.? What lessons are there to be learned from the Italians that We the People should internalize before we end up in a similar predicament?

Roman Decadence, American Sequester reads in pertinent part as follows:

". . . the center-right coalition led by Mr. Berlusconi—convicted only last October of tax fraud and under indictment for paying for sex with an underage girl—scored a respectable second-place finish in Italy's lower house and may have won a blocking plurality in the Senate. The ostensible winner of the election, Pier Luigi Bersani of the center-left Democratic Party, is an ex-communist whose chief recommendation for office is his cultivated colorlessness. And running a close third is Beppe Grillo, a professional comedian and real-life clown.

How does this happen to a country?

The easy answer is to shrug: Isn't that just Italy? . . . Tim Parks, an English novelist who lives in Verona, ascribed Mr. Berlusconi's abiding popularity to Italians' "collective determination not to face the truth, which again combines with deep fear that a more serious leader might ask too much of them.". . .

In its analysis of the Italian economy, the Organization for Economic Cooperation and Development noted that in 2010 the public sector accounted for a whopping 49.1% of total gross domestic product. Since Italy's technocratic Prime Minister Mario Monti came to power in late 2011, taxes have only been going up, including a value-added tax that is now 22%. The typical Italian employee loses 47% of his wages to fund various social protection schemes.

Italian employers have it no better: A labor reform promoted by Mr. Monti did little to ease the biggest problem employers face, which is the near-impossibility of laying off workers. The grip of unions is overpowering: The OECD notes that Italian industrial productivity is declining even as industrial wages have risen throughout the financial crisis.

None of this can be accounted for by some intrinsic defect of national character, except in the sense that people tend to respond to the incentives they are given, not least the incentive to evade high taxes, retire early, and take all the vacations to which they are legally entitled. Nor does the problem lie with Italy's adoption of the euro, or Mr. Monti's short-lived attempts to impose fiscal "austerity."

A better place to look is the growth of Italy's entitlement state. In 1950—the beginning of Italy's Miracolo Economico—GDP per capita stood at €4,407 (in current euros). By 1978 it had nearly quadrupled to €16,596. But afterward it began to stagnate. Per capita GDP has now been essentially flat since 1998.

What happened in 1978? Funnily enough, that was the year Italy adopted universal health care. The Italian economy did continue to grow in the 1980s, nominally becoming the world's fourth-largest economy in the late '80s. But it did so on borrowed money. In 1982, the debt-to-GDP ratio stood at 51%. By 1990 it was 102%. Since then there have been a variety of attempts to curb the growth of government and loosen the shackles of over-regulation, none of them especially serious. Italy's debt now stands at 126% of GDP, second only in Europe to Greece. . . .

Italy simply has an advanced case of entitlementitis. And summoning the political will to overcome it is never easy.

Which brings us to the sequester in the United States. Yes, it's a hatchet not a scalpel. Yes, it will hobble our defenses. Yes, it avoids making cuts to the entitlement programs that are the real drivers of our national debts. And yes, President Obama will want to game the cuts to his political advantage, regardless of consequences. All true. Then again, U.S. government spending is now 41% of GDP. We, too, are in Italian territory.

The sequester is going to hurt. But when else will we be able to summon the seriousness to cut? To judge by what just transpired in Italy, they've long since passed the point of no return. Has the United States?"

Summing Up

The Europeans are trying to teach us a lesson so that we won't have to learn it the hard way.

Especially the Greeks and the Italians, although the French and English appear headed to oblivion as well.

Let's hope ALL the members of the government knows best gang in Washington are watching the action in the rest of the world. 

It's a lesson very much worth learning, if only for the sake of future generations of Americans.

Thanks. Bob.

Optimism from Home Prices, Home Depot and Macy's

We have lots of reasons to be concerned about our nation's and world's economies.

And right here at home, we have even more reasons to be concerned about our government knows best gang. But we also get some much needed good news from time to time as well.

So here goes. Despite all the silly stuff coming out of Washington these days, private sector companies are managing through the economic crisis very well, and consumers are beginning to return to the market to give a much needed lift to business.

In turn, that increased consumer demand will result in additional economic growth and more jobs. Not as much as would be created if the government aristocrats decided not to help us all out so much, mind you, but at least enough to enable us to keep growing modestly and manage to escape another downturn anytime soon.

And maybe -- just maybe -- in the meantime, the gang in government will somehow get the message that saving the middle class will only come from letting the private sector do its thing. Not by government assuming ever more control of our daily lives.

And if you want to watch just three things that would evidence we're finally headed in the right direction, I'd say pay attention to the discussion on (1) reining in entitlements spending, (2) reforming our tax code and (3) allowing things like the Keystone Pipeline to become reality down the road. The rest of the crapola is pretty much useless noise.

So let's take note of the good news concerning higher home prices and solid earnings reports from Home Depot and Macy's this morning.

We'll start with Annual home price gain best in seven years:

"U.S. home prices rose in December, as last year saw the best improvement in seven years, according to a closely followed index released Tuesday.

The S&P/Case-Shiller 20-city composite posted a 0.2% increase in December, following a 0.1% decline in November. After seasonal adjustment, home prices rose 0.9% in December.

“Home prices ended 2012 with solid gains,” said David Blitzer, index committee chairman at S&P Dow Jones Indices.

Looking at longer-term trends, December’s prices were up 6.8% from the same period in the prior, with increases in 19 of 20 cities. That’s the best calendar year gain since the 15.5% jump in 2005. . . .

Despite housing-market gains, prices remain about 29% below a bubble peak in 2006, according to Case-Shiller data. . . .

While the housing market remains far below peak levels, home construction, sales and confidence among builders have all been gaining, according to recent data reports."

Next up, Home Depot's Profit Surges Amid Housing Revival has this to say:

"Home Depot Inc.'s quarterly earnings jumped 32% as the home-improvement-products retailer was helped by a comparison with a year-ago quarter that included one fewer week, pushing results above Street estimates.

Home Depot, like its peers, has been benefiting from recent improvements in the housing market. The broad revival has made the retailer a popular choice with investors, pushing the stock up 36% in the past 12 months.

"We ended the year with a strong performance as our business benefited from a continued recovery in the housing market coupled with sales related to repairs in the areas impacted by Hurricane Sandy," Chief Executive Frank Blake said on Tuesday.

The company also raised its quarterly dividend 34% to 39 cents a share. Home Depot's board also authorized a $17 billion share repurchase program, replacing its previous authorization.

For the quarter ended Feb. 3, Home Depot reported a profit of $1.02 billion, or 68 cents a share, compared with a year-ago profit of $774 million, or 50 cents a share. . . . Sales rose 14% to $18.25 billion.

Analysts polled by Thomson Reuters had most recently forecast earnings of 64 cents on revenue of $17.7 billion. . . .

Same-store sales rose 7%, reflecting a 7.1% increase in the U.S. The average ticket was $55.46, a 5.6% rise from a year earlier.

For the 2013 fiscal year, Home Depot said it expects per-share earnings of about $3.37—below the $3.49 recently expected by analysts—on same-store sales growth of about 3%."

And here's the morning's good news in Macy's Issues Upbeat Outlook:

"Macy's Inc. said its fourth-quarter earnings fell 2% on debt-related expenses, but the department-store operator gave an upbeat outlook on continued sales growth.

For 2013, the company projected adjusted per-share earnings of $3.90 to $3.95, above recent estimates of analysts polled by Thomson Reuters for $3.81.

Macy's has been a star in recent years, with its focus on local tastes, a combination of outside brands, exclusive merchandise and in-house brands producing a formidable combination.

"We continue to see significant upside opportunity ahead in those strategies that have worked so well since we reorganized the company in 2009," Chairman and Chief Executive Terry Lundgren said Tuesday."

Summing Up

Now all we need is a little less silliness and political posturing from the Washington politicians.

If they surprise us and actually do something useful sometime soon, consumers and businesses will then decide to spend and invest even more in our country's future.

As a result, (1) employment will increase, (2) tax receipts will grow, and (3) government spending on unemployment and related programs will decline.

All contributing to an improved U.S. economy, a healthier budget outlook and a better future for We the People. And that would be a nice development indeed.

What's so hard to understand about that?

Thanks. Bob.

When Markets Fall ... There's Safety in Investing Knowledge ... Self Knowledge, That Is

After weeks of nothing but big and persistent increases in stock prices, the U.S. stock market got hit hard yesterday afternoon. It's the Europeans' turn today.

The Italians voted against austerity and in favor of gridlock in their government. As a result, all hell has broken loose in the world of daily 'investing,' aka trading. The reason for the big declines could just as easily have been something else, such as "reversion to the mean" selling, of course, but in this specific instance the Italian voters seem to be the culprits.

See Messy Italian Election Shakes World Markets which describes the fluid situation this way:

"ROME—In a national election meant to push Italy further down a path of economic reform, voters delivered political gridlock that could once again rattle Europe's financial stability. . . .

In early trading, stock markets in France, Germany, Spain and Italy were each down more than 2%. Hardest hit was the Italian benchmark, which traded down around 4%. Italian banks suffered particularly. . . .

The Dow Jones Industrial Average swung nearly 300 points Monday, ending with its worst day in almost four months, as the prospects of a stable government appeared to drop.

 A majority of voters endorsed parties that had promised to tone down or even reverse the financial sacrifices Italy has promised its European partners, giving surprise lifts to both the center-right coalition of former premier Silvio Berlusconi and a party of protest led by a former comedian.

Early Tuesday, the left-wing coalition led by the Democratic Party's Pier Luigi Bersani appeared to have gained a razor-thin victory in the lower house of parliament over the center-right coalition headed by Mr. Berlusconi—29.6% to 29.2%, final data from the Interior Ministry showed. By leading the vote count in the lower house, the Democratic Party will automatically get the majority of 340 out 630 seats and, therefore, will likely receive the mandate to form a government.

The Senate, however, appeared headed for political impasse. The Democratic Party was the leading vote-getter in the upper house as well, by less than one percentage point. But its 31.6% result fails to provide its coalition with a majority to pass legislation. If a new government isn't able to guarantee clear parliamentary support, Italians could return to the polls within months. . . .
Messrs. Grillo and Berlusconi both gave voice to Italian anger over tax increases and pension cuts introduced by the emergency government of Mario Monti, whose own Civic Choice coalition ended up with about 10% of the national vote in both houses, according final data.

"The situation looks ungovernable, and that's the worst outcome you can imagine," said Guido Rosa, president of the Italian Foreign Bank Association.

The result is that Italy may, over the next few weeks, try to form a temporary government backed by a grand coalition of left and right-wing forces with the sole aim of changing Italy's electoral law and then going to a vote again as early as summer. It isn't clear who would run such a short-lived government, however.

Italy's elections close the door on more than a year of emergency government that was ushered in during the fall of 2011, when investors led a mass selloff of Italian bonds, threatening the country's solvency. Panic was widespread because Italy is considered too big to allow to default in the way that Greece did."


When Markets Fall

Until yesterday's news from Italy, the U.S. stock market had virtually gone straight up during the first several weeks of the new year.

What does yesterday's fall suggest that individual investors should do now? Nothing, I would suggest. Nothing at all. So let's discuss that.

When investing, taking the time to know thyself is a good rule of thumb.

Another good rule of thumb is that we should take the time to learn as much as possible about anything that's important to our financial well being. And being somewhat knowledgeable about the basics of investing is important to each of us.

That knowledge provides comfort in the face of uncertain times and will assist us in making an appropriate decision, or non-decision, when the circumstances so dictate.

All that said, investing is as much about our individual temperament as much as it is about knowing how financial markets function. Still, the more we know about how the market really works, the better able we will be to make appropriate investing decisions during adulthood.

You're Not as Good an Investor as You Think You Are contains several interesting tidbits for us to consider:

"Markets have been rising and investors returning to stocks, thanks to cheap money from central banks, a rash of takeover deals, the glimmers of economic recovery—and an epidemic of amnesia.

Are those who can't remember the crash condemned to repeat it?

Many investors have been behaving as if the bloodbath between October 2007 and March 2009, when the U.S. and global stock markets lost at least 50%, had never happened. More worrisome, investors are forgetting the agonizingly real fear they felt during the financial crisis.

That could lead some to take more risk than they should and incur losses they can't withstand. So it is vital to evaluate whether you suffer from investing amnesia and, if you are, to counteract it before it is too late. . . .

People are revising their memory of the financial crisis, as if they were looking into a rearview mirror made of rose-colored glass. Financial planners report that clients are increasingly saying 2008 and 2009 were no big deal. . . .

You might think memory works like an engraving plate onto which events are carved in stone and preserved for decades until they fade with age. In reality, psychologists have shown, memory works more like an Etch A Sketch, on which events are traced but then often altered or erased entirely.

Elizabeth Loftus, a psychologist at the University of California, Irvine, says people are prone to "spontaneous distortions of memory that make us feel better about ourselves." Studies have shown, for example, that people remember voting regularly in national elections even when they haven't cast a ballot in at least six years and that 71% of students who earned D grades in high school later recall getting higher marks.

"One thing that might make some investors feel better about themselves," Ms. Loftus says, "is remembering that their losses were smaller or their gains were bigger than they actually were."

That's exactly the kind of polishing of the past that seems to be going on in many investors' minds right now. . . .

You shouldn't trust your recollections of how you felt in 2008 and 2009. Instead, ask your spouse or a close friend how afraid you were . . . . The best guide to how you will act in the next market downturn is how you did act in the last one.

The great financial analyst Benjamin Graham wrote in his book "The Intelligent Investor," after which this column is named, that "the investor's chief problem—and even his worst enemy—is likely to be himself."

If you can't remember the pain you felt in the past when you lost money, you will have no one to blame but yourself if you end up feeling the same anguish all over again."

Summing Up

Well said.

Know thyself is the best investment advice possible.

That said, learning more about how things really work is also worthwhile investment advice.

And well worth knowing is that owning the stocks of solid companies, while inevitably involving periods of market volatility, will provide individual investors with substantial financial rewards over time.

Finally, the knowledge that it pays to keep individual investing costs low and that the KISS method of investing is always in style is further indispensable knowledge.

That way we'll always know why we own what we own and will make the correct decision to stay the course when the fit hits the shan, which it definitely did yesterday.

But this Italian political stuff du jour shall pass. As will the U.S. sequester and countless other political "crises" down the road.

That's my take.

Thanks. Bob.

Monday, February 25, 2013

A Debt Free College Education Opportunity is Within the Reach of All ... And With Money Left Over to Buy a "Thomas Edison State College" Sweatshirt

There is an abundance of silliness and unnecessary costliness surrounding the preservation of the status quo in many of our government affiliated institutions. The government directed medical care system and K-12 public education programs are just two of the more noteworthy examples.

But lest we forget, there's also the growingly burdensome high cost and unaffordable debt associated with attending college. And to make a bad situation even worse, upon graduation the lack of solid job opportunities often awaiting the heavily-in-debt new graduates.

Thus, while the students obviously suffer from this sorry existing state of affairs, lots of college administrators and professors continue to enjoy high paying jobs that don't demand all that much effort.

Accordingly, the inevitable conclusion is that the current system of higher education in America works exceedingly well for the providers but exceedingly poorly for far too many of that same system's customers.

But wait, say the officials at Thomas Edison State College and similar institutions of higher learning. We have a better idea. There's a low cost way to get a debt free, affordable, high quality college degree.

In other words, according to officials at Thomas Edison State College, help is on the way. An outmoded and terribly costly and inefficient system of higher education in America that must change to survive is now in the early stages of that much needed transformation.

So let's take a look at how this 'brave new world' of getting a low cost, affordable, debt free, high quality college degree works.

Adults Are Flocking to College That Paved Way for Flexibility has the details:

"In September, Jennifer Hunt of Brown County, Ind., was awarded a bachelor’s degree from Thomas Edison State College in New Jersey without ever taking a Thomas Edison course. She was one of about 300 of last year’s 3,200 graduates who managed to patch together their degree requirements with a mix of credits — from other institutions, standardized exams, online courses, workplace or military training programs and portfolio assessments.
Years ago, fresh out of high school, Ms. Hunt had finished enough advanced work to enter the University of Texas at Austin with sophomore standing. But after a year, homesick, she returned to Virginia. . . .      
About a year ago, at 39, she resolved to complete a degree. In a kind of a higher-education sprint, she took a number of college equivalency exams, earning 54 credits in 14 weeks.
“I tried to do an exam a week at the University of Indianapolis test center,” where the exams could be proctored, she said. “Each test cost about $80.”
Ms. Hunt estimated that her degree in business administration, plus a simultaneous associate degree in applied science, had cost her $5,300, including books and fees. There are almost as many routes to a Thomas Edison degree as there are students. In a way, that is the whole point of the college, a fully accredited, largely online public institution in Trenton founded in 1972 to provide a flexible way for adults to further their education.
“We don’t care how or where the student learned, whether it was from spending three years in a monastery,” said George A. Pruitt, the college’s president, “as long as that learning is documented by some reliable assessment technique.” . . . 
At a time when student debt has passed $1 trillion, such institutions seem to have, at the very least, impeccable timing. Thomas Edison, New Jersey’s second-largest public college, and two like-minded institutions — Charter Oak State College in Connecticut and the private, nonprofit Excelsior College in New York — are all growing. Thomas Edison’s graduating class last fall was a third bigger than the class five years earlier. And the idea of measuring students’ competency, not classroom hours, has become the cornerstone of newer institutions like Western Governors University in Utah. At Thomas Edison and the other such colleges, almost all students are over 21, many are in the military, and few have taken a direct path to higher education. . . . 
Thirty years ago, when Dr. Pruitt became president, the Thomas Edison approach was controversial. Some academics, in particular, were skeptical, he said, almost believing that “if we didn’t teach it to you, you couldn’t have learned it.”
Results have quieted most naysayers, Dr. Pruitt said. For example, Thomas Edison graduates had the highest pass rate on the exam for certified public accountants in New Jersey, in the latest national accounting-boards report. . . .      
Most Thomas Edison students arrive with some credits, at times earned many years earlier. Others get credits by submitting a portfolio of their work or passing standardized exams like the College Level Examination Program, administered by the College Board. Many complete online college courses from Thomas Edison or “open courseware” sources like the Saylor Foundation. Many bring transcripts from the American Council on Education’s credit recommendation program, certifying their nontraditional programs. . . .
David Esterson, 45, of Whittier, Calif., started taking college classes while in high school, attended the University of Washington for a year, was a photographer in Los Angeles, then started a music business. About three years ago, when his nephews began talking about college, Mr. Esterson decided he should complete his degree.
He took online courses at the University of Minnesota and the University of Phoenix before trying a couple of California community colleges and an acupuncture school. He finally earned a bachelor’s degree in liberal studies from Thomas Edison in September.
“It sounded like a scam, but the fact that it was a state school, and accredited, made it more real,” Mr. Esterson said.
And it has been real, he said: “Nobody I contacted about graduate programs seemed to look down on the Edison degree, and I got into every grad school I applied to.”
Now enrolled in two graduate programs — an online master’s in leadership at Northeastern and a dual-degree executive M.B.A. program from Cornell University and Queen’s University in Canada — Mr. Esterson is a booster for his alma mater. “I’ve never been there, but I did buy a sweatshirt,” he said."
Summing Up
The time is long overdue to tear apart the prevailing high cost and low quality way to acquiring a college degree in America.

Japanese car manufacturers long ago taught American auto makers and consumers that higher quality and lower costs naturally go together. This "miracle" is accomplished by providers focusing on the customer and offering improved products through innovation and ongoing productivity gains.
Accordingly, equating cost with quality is a wrongheaded way of looking at things. Stated another way, discovering new ways to do old things by eliminating inefficiencies is the key to attaining "perfection by subtraction."

Or if you don't like the phrase perfection by subtraction, then substitute the term that Joseph Schumpeter used and which is labeled "creative destruction."

In either case, the status quo represents that which is being destroyed. Whatever it's called, the basic idea is to discover new ways of doing old things and by so doing, eliminate waste -- wasted time, wasted effort and wasteful habits. And much lower costs will result, often accompanied by higher quality outcomes as well.
Of course, that's the very reason those vested interests who will benefit from continuing to do things the way they've always been done will strenuously resist improvements to the way work is done.
For examples as to how this fierce support of the status quo works, just consider government agencies, unions, public schools and other entrenched bureaucracies, for example.

Schools like Thomas Edison State College represent an idea whose time has come.
That's my take.
Thanks. Bob.

The Ongoing Jobs Disaster and Why We Need The Keystone Pipeline's Approval and All Other Private Sector Job Creating Measures as Well

We're getting used to high unemployment, big government and huge and unsustainable national debts and deficits. Sadly, it appears to be the 'new normal' and needs to be challenged by all of us.

It's time to face the facts about the lack of job growth in America today. Let's set the record straight. The more government "assistance" that's provided, the worse the situation gets.

And keeping future Medicare and Social Security benefits on the "Do Not Touch" list during the sequester and budget discussions in Washington won't help resolve our financial mess. By refusing to attack the unaffordable entitlements issue, the politicians are ignoring the needs, if not the wishes, of We the People.

Our political system is broken, and that's having a direct and worrisome impact on private sector job creation and consumer demand. Of course, increased payroll taxes and high gas prices aren't helping the consumer's confidence and spending either.

By Any Measure, the Jobs Disaster Continues has the jobs story:

"Jobs! President Obama has set a record. In his (State of the Union Address), he uttered the word "jobs" more than in any of his previous four State of the Union addresses. His 45 mentions were more than double the references to any of the other policy ambitions encapsulated in his speech by such words as health, education, immigration, guns, deficit, debt, energy, climate, economy, Afghanistan, wage, spend or tax (the runner-up).

If only the president's record on unemployment were as good.
The country isn't confronted daily by scenes of despair like they were in the 1930s. However, the jobless are still there.

After four years America remains in a jobs depression as great as the Great Depression. But the crisis isn't seen in that light because the country isn't confronted daily by scenes of despair like the 1930s photographs of bread lines and soup kitchens and thousands of men (very few women then) waiting all day outside a factory in a forlorn quest for work.

But the jobless are still in the millions across the land, little changed in their total since the 1930s: 12.3 million today officially fully unemployed compared with 12.8 million in 1933 at the depth of the Depression.

Yes, the U.S. population is much larger now, but 12 million out of work still means 12 million lives devastated. And that number masks the true vastness of the modern disaster.

The jobless today are much less visible than they were in the 1930s because relief is organized differently. Today in the "recovery," the millions are being assisted, out of sight, by government checks, unemployment checks, Social Security disability checks and food stamps.

More than 48 million Americans are in the food-stamp program—an almost incredible record. That is 15% of the total population compared with the 7.9% participation in food stamps from 1970-2000.

Then there are the more than 11 million Americans who are collecting Social Security checks to compensate for disability, also a record. Half have signed on since President Obama came to office.

In 1992, there was one person on disability for every 35 workers; today it is one for every 16.... For many, this disability program has become another form of unemployment compensation, only this time without end.

But the predicament of our times is worse than that, worse in its way than the 1930s figures might suggest. Employers are either shortening the workweek or asking employees to take unpaid leave in unprecedented numbers. Neither those on disability nor those on leave are included in the unemployment numbers.

The U.S. labor market, which peaked in November 2007 when there were 139,143,000 jobs, now encompasses only 132,705,000 workers, a drop of 6.4 million jobs from the peak. The only work that has increased is part-time, and that is because it allows employers to reduce costs through a diminished benefit package or none at all.

The broadest measure of unemployment today is approximately 14.5%, way above the 7.9% headline number. The 14.5% reflects the unemployed and three other categories: the more than eight million people who are employed part-time for economic reasons (because their hours have been cut back or because they are unable to find a full-time job), the 10 million who have stopped looking for work, and those who are "marginally attached" to the workforce.

The labor-force participation rate has dropped to the lowest level since 1981. It reflects discouraged workers who have dropped out of the labor force. If it were not for the dropouts, the formally announced unemployment rate would be around 9.8%, not the headline 7.9%.

Sometimes the employment numbers that are announced are simply not understood. January was supposed to have seen 157,000 jobs created.The news provoked relief and even enthusiasm in some quarters. But the supposed hiring was based on seasonally adjusted numbers—numbers adjusted to reflect regularly occurring shifts in employment, such as increased hiring of farm workers during crop harvests or retail employees after Thanksgiving. The real, unadjusted figures for January show that nearly 2.8 million jobs disappeared, which happened to be worse than the 2.63 million lost in January 2012. Even though the 157,000 jobs created were fewer than the 311,000 of January 2012, many commentators cheered because they don't understand the effects of seasonal adjustment.

So there is no solace in the statistics. Job seekers are only one-third as likely to find work as they were five years ago, and a record number of households have at least one member looking for a job, which affects everyone. And most of the newly available jobs don't match the pay, the hours or the benefits of the millions of positions that have vanished.

It typically takes 25 months to close the employment gap from the employment peak near the start of the downturn. Yet this time, more than 60 months after employment peaked in January 2006, nonfarm unemployment is still more than three million jobs below where it started. . . .

Ordinary Americans are looking for leadership and renewal. They know that a job is the most important family program, the most important economic program, and the most important national program that America could have. They also know that, by this standard, we have failed."

Summing Up

Lots of excuses but few jobs are being created.

This looks like it will continue to be the case throughout 2013.

How much longer than that, nobody knows.

Maybe the 'coach' needs to draw up some new plays.

Like letting the private sector call the signals instead of the government knows best gang.

That's my take.

Thanks. Bob.

Sunday, February 24, 2013

Whither Stock Prices? ... That is the Question: Time to Buy, Sell or Hold? ... And the Correct Answer is as Always, "IT DEPENDS"

The Dow hit 14,000 Friday and is approaching its all time high. Similarly, the S&P 500 has surpassed 1,500, approaching an all time high, too.

So is it time to buy, sell or hold? Well, like all accurate answers to interesting questions, the only correct response is, "It depends."

And depends on what, you ask? Well, it depends on whether you're a long term investor, an oldster finishing up his working career or a younger person working hard to accumulate an apprpriate nest egg for the day when you reach oldster status and retirement.

In any event, here's my long term guesstimate (or SWAG, which stands for Sophisticated Wild A _ _ Guess) as to where prices are headed over the next ten to fifteen years --- 30,000 on the Dow and 3,000 on the S&P 500 Equity Index. I also expect that dividends which now yield ~2.5% will at least double in dollar amounts as well.

That said, with all the bumps and potholes along the way, we'll probably see numbers like 8,000 on the Dow and 800 for the S&P along the way to these higher levels.

But trendwise, it looks good for a double from these levels over the next ten to fifteen years to me.

Now let me explain why I believe this, even though my crystal ball comes with no guarantees. In fact, for those familiar with stock prices over time and the rule of 72, it probably isn't any better than anybody else's crystal ball.

I'm simply basing my views on history, probabilities, logic, earnings, current valuations, inflationary estimates and the way markets tend to function over time. And by the way, because I believe in the free market system and limited government approach that Americans have long embraced and will again sometime soon as well.

Reasons to Avoid Buying Stocks, and Why You Should Ignore Them makes the case very well for the expected "double" from what appear to be these current lofty levels:

"THERE are always reasons not to buy stocks. Investors may think the Dow Jones industrial average is too high, as was the case in 1954 when the index topped 360. In 1941, there was Pearl Harbor. In 1962, the Cuban missile crisis. In 1997, the Asian financial crisis.

The list, adding up to 78 for each of the years from 1934 to 2012, was compiled by Bel Air Investment Advisors.
But the punch line to this list was that stocks went up by an annual compounded rate of 10.59 percent over those 78 years, with occasional plateaus, and that $1 million invested in 1934 was worth $2.4 billion in 2012.
As for the last three years, the list singled out the European financial crisis in 2010, the downgrade of United States’ credit rating in 2011 and the political polarization of 2012. Investors were, in fact, generally reluctant to buy stocks. Yet in each of those years, stocks either rose in value or, at worst, were flat.
The reason for such hesitancy is obvious. Investors are still scarred from the 2008 crash and they perceive stocks as risky, a feeling reinforced by a good bit of volatility in the markets in recent years.
Yet as stocks rallied earlier this year, money from individual investors began to trickle back into equity funds. This could be good for an intrepid few.
“The stock market is the same place it was in 2000 with double the earnings,” said Todd M. Morgan, senior managing director at Bel Air Investment Advisors. “Stocks are set to outperform bonds over the next three to five years.”
This may very well be true, but most people still think fearfully about stocks. What would it take to get more people to buy stocks? And by this, I don’t mean going all in as investors did in the late 1990s, but creating some semblance of a balanced portfolio.
Mr. Morgan and other advisers said that investors are being misled by talk about near-record levels for the Dow Jones and Standard & Poor’s 500-stock index today. When adjusted for inflation, the levels approached earlier this year are not true highs. A new high for the Dow, for example, would be around 15,600.
What is more telling are the earnings and dividends of companies. Niall J. Gannon, executive director of wealth management at the Gannon Group at Morgan Stanley, calculated that the dividends on S.& P. 500 stocks were $15.97 in 2000 and $31.25 in 2012. Earnings per share were $56 in 2000 and $101 in 2012. In other words, two major measures of a stock’s attractiveness have doubled in the last 12 years, but the index has not kept pace.
“A big mirage is going on in investors’ minds,” Mr. Gannon said. “They think stocks are expensive because they’ve used index levels as the measure.” . . .
There is an alternative view, of course, that says the unwillingness of people to invest in stocks now is completely normal and that what happened in the 1990s with stocks and in the 2000s with real estate were anomalies, at least for average investors. 

 “The alternative to investing or saving is spending today and that is always infinitely more pleasurable,” said Don Phillips, president of investment research at Morningstar. “Throughout the ’80s and ’90s, you had this amazing bull market and it gave you this immediate gratification that usually only spending gives you. Now we’ve been through a more realistic period, and people realize that is not always the case. The reward is deferred, and there may be severe losses.”
Mr. Phillips noted that if people were able to pick a winning stock 55 or 60 percent of the time, they would be remarkably successful. But in spending money on something they want today, their success rate is automatically 100 percent. . . . 
Greg B. Davies, head of behavioral finance at Barclays Wealth and Investment Management, said people could persuade themselves to increase their allocation to equities by joining investment clubs where the group, in theory, would be better at making a decision that was painful. People could also slowly buy the stocks they want, a process called dollar-cost averaging.
“The classical economics position on all of this is that it is irrational and you should ignore it,” Mr. Davies said. “That’s not very helpful advice. We do have an emotional response.”
He said he would instead encourage average investors to forget about maximizing their risk-adjusted returns and aim for their “best anxiety-adjusted returns.”
For those with more fortitude, the simplest solution is to take the long view — as in 10 or 20 years, which is a lot of delayed gratification.
“Whenever you’re having a discussion like this, time horizon is a key consideration,” said Bill Stromberg, head of global equities at T. Rowe Price. “Most investors have been conditioned to think the next six to 12 months out. It’s too hard for anyone to predict what’s going to happen then.” . . . 
It is entirely possible that stocks will lose value across the board this year or the stocks you pick will fall significantly. But that is why every adviser stresses diversification and a long view. What matters is how a portfolio’s returns look in a decade or two, not tomorrow."
Summing Up 
Stock prices are not "irrationally exuberant" today. They aren't as cheap as they were a few years ago, but when earnings and dividends are taken into account, they are about 50% lower than they were in 2000.
The U.S. economy will gather strength during the next decade and enough government aristocrats will come to their senses about the need for the private sector to take the lead, if only because government leading the way never works. Accordingly, out of necessity we'll change direction and allow the free market and free risk taking individuals and companies to demonstrate once again the wonders of our free enterprise system.

And if the pols don't "get it" on their own soon enough, We the People will insist on the change in direction at some point soon, because losing isn't fun, and our economy and citizens have been losing the economic game for no good reason and for far too long. We can't eat empty promises.
Freedom and entrepreneurialism are essential parts of our nation's moral DNA, and free markets have provided us with the highest standard of living on the face of the earth and the history of the world. We'll never give those freedoms up.
And that's why reaching 30,000 on the Dow and 3,000 on the S&P 500 within the next ten to fifteen years along with a doubling of cash dividends from their current amounts look like easily achievable targets to me.

It's merely a "lapsed time free market rule of 72 thing at work," if nothing else.

And best of all, getting that kind of exceptional performance only requires that we "amateur" investors not panic and stay the course while investing in a low cost passive S&P 500 Equity Index fund.
That's my take.
Thanks. Bob.