THE ENTERPRISE
THAT WAS THE DECADE THAT WAS--NOT SO GOOD AFTER ALL
Investment advisors warn of those periods when the stock market doesn't perform as well as its long term average. Most of the time they harken back to the 1970-1980 era. Here's a statistic that will perhaps surprise and amaze many readers. From the end of 1999 thru June 2008, the total return for the Standard & Poor's 500 was an annualized 0.1%. That's right. Almost zero growth. The 500 Index funds showed a gain of 0.0%. The stock market has been in a "trading range" for some time now, just jumping up, down, all around based on the latest earnings reports, government reports, oil price changes, and so forth.
However, according to Vanguard Funds, if you were wise enough to have invested in these areas on 12/31/1999 and looked at your results on June 30, 2008, the annualized returns (on these Vanguard funds would have been quite a bit better: Precious Metals and Mining 27.7%, Energy +24.7, Emerging Markets 12.5%, Health Care 9.9% and Long Term Treasury 8.1%--right, a bond fund. So, if you look at your retirement stash and it is looking a bit flat, you are far from alone. One caveat; avoid the error of the typical amateur investor. What's that? The old saying is that the way to make money is to buy low and sell high. Unfortunately many amateurs panic in troubling times and do just the opposite: they sell low, and then have to "buy high" during a recovery.
I don't have any magic crystal ball, so I won't try to give any advice. I will make some observations, however. In the long term, we will need lots of Energy--from all kinds of sources. The population of most developed countries is aging, and the older we get, the more Health Care we need. Inflation is knocking on the door loud and clear, driven by energy, food (aggravated by stupid ethanol subsidies), and a notable increase in costs of anything coming out of China (and a lot of stuff comes to the USA from China).
NEAR TERM--LOTS OF DARK CLOUDS, FEW SILVER LININGS
August 22, 2008 from Vanguard's Economic Week in Review: Inflation heats up as summer cools--Good news is scarce. (© The Vanguard Group)
Good news was hard to find in this week's economic reports. Inflation at the wholesale level rose at a worrisome pace in July, even excluding higher prices for energy and food. One bright spot was the decrease in initial claims for unemployment insurance. The Producer Price Index (PPI) for all finished goods was +1.2% in July from June and +9.8% from last year. Even excluding more volatile energy and food prices, the "core" PPI rose more than expected—up 0.7% in July over June, the largest monthly advance in 2008. Compared with year-ago levels, core finished goods prices were up 3.5%, a 17-year high, and the core PPI understates the real impact of inflation.
Prices increased in every area: raw materials, intermediate materials/components (such as chemicals and plastic resins), finished products and services all rose. The potential inflationary impact of rising producer prices on consumer goods prices is difficult to predict, as businesses find it more challenging to pass along higher costs in the face of a slowing economy and soft consumer demand.
The Conference Board's index of leading economic indicators declined 0.7% to 101.2 in July, the second decrease in the past three months and the largest one-month drop since October 2007. The downward trend suggests there are few bright spots on the economic horizon. Five of the index's ten indicators lost ground in July,
Housing starts declined 11.0% in July from the previous month's misleading level (June figures were inflated by a rush to begin construction on multifamily apartments in New York City before new building codes took effect on July 1). July's annualized rate of 965,000 units was nearly 30% below LY, and the lowest monthly rate since 1991. Other housing activity indicators also dropped. The continued sorry state of the housing market reflects an inhospitable combination of a weak economy, lenders' tighter reins on mortgages, rising rates, and a large inventory of unsold homes. Since a great deal of US production output and labor go into the components of new homes, this decline ripples through many segments of the economy and labor markets.
For the week ended August 16, initial claims for unemployment insurance benefits decreased 13,000 to 432,000, better-than-expected. The four-week moving average of claims is a truer gauge of activity—rose 7,250 to 445,750. At least part of that indicator's increase is due to greater awareness of the extended benefits under the Emergency Unemployment Compensation program (approved by President Bush on June 30).
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A KEEN SENSE OF MORALITY--OR A WARPED ONE?
As the Democrats go to their "coronation convention," they seem to have suddenly developed a keen sense of morality. John Edwards has been banned from making a speech at the democratic convention for having an affair and lying about it. In his place Bill Clinton will be speaking. At least Barack Obama and his VP choice Joe Biden have several things in common. Both, of course are Democrats. Both have also been accused of plagiarism in their lives. Biden's was proven. Obama's was "finessed" like so many things in his remarkable campaign.
Frankly, I'm not sure of Biden's circumstances, but they must have been serious. In these days of the Internet, Google, and "cut & paste" term papers, the line between original material and plagiarism blurs more and more. In this very edition of THE ENTERPRISE, I have used (and annotated) excerpts combining copyrighted material from Vanguard with portions of my own material. The important element is whose ideas the words portray. That is where we must be always vigilant.
SOME PEOPLE BELIEVE PARENTS & UPBRINGING ARE GOOD PREDICTORS OF THEIR CHILDREN'S TRAITS
Like father, like son? Do you think so? We all know the heritage of the two Presidential candidates. McCain, the son of Navy brass through and through--and rumored to be a bit wild before being shot down and imprisoned in Vietnam for years. Obama's father was a different kind of militant who died in an auto accident at age 46, so not a lot has been written about him. Click on this link and read about some concerning traits Obama may have picked up from his father. Judge for yourself.
http://www.ibdeditorials.com/IBDArticles.aspx?id=303952499910291&kw=like,father,like,son
Below are a few lines from Obama, in his own words, from his book, Dreams of My Father:
"I ceased to advertise my mother's race at the age of 12 or 13, when I began to suspect that by doing so I was ingratiating myself to whites."
"I found a solace in nursing a pervasive sense of grievance and animosity against my mother's race."
"It remained necessary to prove which side you were on, to show your loyalty to the black masses, to strike out and name names."
'I never emulate white men and brown men whose fates didn't speak to my own. It was into my father's image, the black man, son of Africa , that I'd packed all the attributes I sought in myself , the attributes of Martin and Malcolm, DuBois and Mandela.'
None of these are surprising reflections of a young man with mixed race parents, whose own skin marked him as more "black" than "white." However, a friend recently pointed out to me that most of the values and deep beliefs we gain from our parents and our upbringing are implanted in us early in our life--sometimes, very early. What is he in his heart of hearts. Perhaps that explains his tolerance for Rev. Jeremiah Wright's incendiary preaching. It may explain why his wife, an accomplish person in her own right, can just now be "proud of America." We don't really know what is going through his head, do we?
As I struggle to understand this highly motivated candidate for the highest office in the land, I have to admire him. He has come so far, in so little time. That part is remarkable and admirable. Then my logical self kicks in and asks a few questions. Just how much US Senate experience does Barack Obama have in terms of actual work days? Not much.
From the time Obama was sworn in as a United State Senator, to the time he announced he was forming a Presidential exploratory committee, he logged 143 days of experience in the Senate. At least that's how many days the Senate was actually in session and working. After 143 days of work experience, Obama believed he was ready to run for the office of Commander In Chief, Leader of the Free World, and fill the shoes filled previously by Abraham Lincoln, FDR, JFK and Ronald Reagan. Think yu know who this Obama is without the tele-prompter and talking points?
In contrast, I think about John McCain's 26 years in Congress, 22 years of military service (including 1,966 days in captivity as a POW in Hanoi) and I see a depth of experience that now seems more impressive than ever. With experience comes age (and vice-versa), and at 72, John McCain has both.
It think a lot was revealed in last weekend's Q & A with Rev. Rick Warren's in his Saddleback Valley Community Church. John McCain's answers were short, direct and unequivocal, like the man himself. Barack Obama's were wandering, nuanced and often, avoiding a real answer--as if he is still learning and making up his mind. And that's OK, but soon, the time for leadership will be nigh, and nuanced reflections are not the decisive positions a President of the US is forced to make. In many of them, there is not "right answer," just one that is "less wrong," or more consistent with the direction we must move as a company and a society in trying times.
WHERE AM I GOING WITH THIS? (LIKE OBAMA) I AM THINKING ALOUD...
Regular readers know I favor McCain, and his political leanings. Strangely enough, I like Obama and his inspiring speaking style. I am fearful that he learned too much of the "wrong stuff," too young, and he can't shake the prospect that the radical, racial, Socialistic, and Communistic influences in his early life will shape what he does and how he arrives at those tough decisions. Ditto the corruption of Chicago politics as an influence. When he speaks "unscripted" he often reveals his inexperience and naivete, although his intellect is there, and his oratory is still persuasive.
Young people will like Obama, because the "old politicians," and the ones in office lately have "poisoned the well." That doesn't mean the "other side" is better--it isn't--but it is a change. Adding Joe Biden to his ticket dilutes the "change" but strengthens the "experience," if a VP can do that. (The GOP tried it with Dick Cheney with questionable results.)
THERE IS A LOT OF TIME
Hopefully, the next 2+ months will help the American people make the best choice for a leader. We also have a lot of Congressional races that are important too. In government, as in business, strong leadership is essential. I hope we choose it this Nov.
Best, John
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