Who’s Responsible?

Ulli Uncategorized Contact

Many readers have complained about the poor handling of the credit crisis by the government along with the bailout orgy involving many industries at tax payer’s expense.

Who is really at fault for the problems that plague this country? To get closer to the truth, the following was sent in by a reader referencing an article written by Charlie Reese, a former columnist for the Orlando Sentinel Newspaper (sorry, no link):

Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered why, if both the Democrats and the Republicans are against deficits, we have deficits?

Have you ever wondered why, if all the politicians are against inflation and high taxes, we have inflation and high taxes?

You and I don’t propose a federal budget. The president does.

You and I don’t have the Constitutional authority to vote on appropriations.

The House of Representatives does.

You and I don’t write the tax code, Congress does.

You and I don’t set fiscal policy, Congress does.

You and I don’t control monetary policy, the Federal Reserve Bank does.

One hundred senators, 435 congressmen, one president, and nine Supreme Court justices 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.

I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator’s responsibility to determine how he votes.

Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The president can only propose a budget. He cannot force the Congress to accept it.

The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? She is the leader of the majority party. She and fellow House members, not the president, can approve any budget they want. If the president vetoes it, they can pass it over his veto if they agree to.

It seems inconceivable to me that a nation of 300 million can not replace 545 people who stand convicted — by present facts — of incompetence and irresponsibility. I can’t think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it’s because they want it unfair.

If the budget is in the red, it’s because they want it in the red.

If the Marines are in IRAQ , it’s because they want them in IRAQ .

If they do not receive social security but are on a n elite retirement plan not available to the people, it’s because they want it that way.

There are no insoluble government problems.

Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exist disembodied mystical forces like ‘the economy,’ ‘inflation,’ or ‘politics’ that prevent them from doing what they take an oath to do.

Those 545 people, and they alone, are responsible.

They, and they alone, have the power.

They, and they alone, should be held accountable 100% by the people who are their bosses provided the voters have the gumption to manage their own employees.

We should vote all of them out of office and clean up their mess!

It’s hard to argue with his viewpoints; however, I would add that changes will never happen because I don’t see any way where you could get 545 people to agree on anything. Even if they were all replaced, pretty soon we would be back to business as usual.

Reaching ZIRP

Ulli Uncategorized Contact

Even though it might have been the worst kept secret of the year, The Federal Reserve, in an unprecedented move, set its key interest rates at 0% to 0.25%—the lowest level in history.

This makes the U.S. the first country to actually implement ZIRP (Zero Interest Rate Policy). Surely, others will follow as the global recession deepens. Like a drunken sailor, the stock market took ZIRP as a confirmation that this is a good thing and rallied to higher levels. Never mind, that this desperate move by the Fed signals that, economically speaking, the worst is far from being over.

Additionally, the central bank said that they would pump more cash into the economy, a process that is called quantitative easing. The money spigots are now wide open in an attempt to stimulate growth and find a floor for the housing market. Only time will tell if this approach will have the desire effects. If mortgage rates follow suit and take a steep drop as well, you might see a flood of new refinancing applications and qualified buyers taking stabs at buying real estate.

Nobody can be sure about the outcome because we are in un-chartered territory. As I said before, short-term the market trend is up; long-term we are still in bearish territory by -9.38% according to my Domestic Trend Tracking Index (TTI).

We have now been out of the market since our last sell signal was generated on 6/23/08, a date from which the S&P; 500 has now dropped over 30%. Having avoided this haircut affords us now the luxury of not having to desperately participate in bottom fishing to attempt to make up losses. We are in now in the enviable position of being able to wait until a major trend reversal has occurred before returning to equities.

Spam Issues

Ulli Uncategorized Contact

Technology is wonderful but, unfortunately, not always perfect. After installing a new spam filter, I noticed that most of my messages were automatically moved to the Junk email folder rather than into my Inbox.

If you’ve emailed me sometime within the last week and did not get a response, I most likely did not get your email. That would also apply to blog comments.

The problem seems to have been resolved, so please re-send your messages.

History Repeats Itself

Ulli Uncategorized Contact

Some mutual funds are being sold as the ultimate answer as to how to invest your future retirement assets. This has been the case with target-date funds, which I first wrote about during the last bear market in 2002 in an article titled “Do Lifestyle Funds Provide Greater Security?

The problem I had with Lifestyle funds then is that they are misleading the public into thinking that they are “safe” investments no matter what the market does. People are being lulled into a false sense of security. Apparently, my concerns from 6 years ago are still valid today as MarketWatch reports in “No time to lose:”

If you were expecting your target-date retirement funds to keep your nest egg on track, you’ve been off target this year. Some of these investments have saddled shareholders with stiff losses, and probably no one feels more on edge than investors in their 60s who intend to stop working in a couple of years.

Better make that “intended.” Target-date funds geared to a 2010 retirement had lost 27% on average for the year through Dec. 11, according to fund-tracker Lipper Inc. That’s painful enough for someone nearing retirement, but investors in the most aggressive of these portfolios have seen one-third or more of their savings evaporate — stripping the shine off their golden years and possibly forcing them to work longer. Shareholders of more conservative 2010 funds have fared relatively better, down 25% or less.

Target-date retirement funds have been billed as “set-it and forget-it” investments. These one-stop shops blend a fund company’s stock and bond offerings into a single all-purpose portfolio. Allocation to stocks and bonds is automatically rebalanced over time, and the fund is supposed to ratchet down risk gradually as retirement nears.

Target-date funds have proved enormously popular with retirement savers, and the U.S. Department of Labor has even green-lighted them as “qualified default investment alternatives” for 401(k) plans.

Yet a crucial shift in the design of some of these funds has profoundly impacted investors’ fortunes in the bear market.

A couple of years ago, leading providers boosted the equity portion of these portfolios and decided to hold this stock-heavy line well into people’s retirement years.

The strategy is rooted in the belief that retirees should have substantial amounts of money in stocks to get through old age and not outlive their money. The average 2010 target-date fund had about 48% of assets in stocks at the end of September, according to consulting group Financial Research Corp.

Fidelity isn’t the only leading fund company to have reworked its target-date funds. Vanguard Group increased stock allocations, also in 2006, while T. Rowe Price Group Inc. has always channeled more to stocks in its retirement-oriented funds than its peers.

“We think in terms of long time periods,” said Jerome Clark, manager of T. Rowe Price’s retirement funds. “The vast majority in our modeling of the outcomes are going to be better served by a higher equity, growth-oriented approach.”

But this answer to so-called longevity risk has been costly in the bear market. The alterations that were made during a more bullish time have added to target-date funds’ troubles as the market melted down.

T. Rowe Price Retirement 2010 Fund, for example, commits about 57% of assets to stocks; it’s down 29% so far this year.

Fidelity Freedom 2010 Fund, meanwhile, keeps 47% of its portfolio in stocks and has lost 28%, while Vanguard Target Retirement 2010 Fund, with 54% in stocks, is off 23%.

The longevity argument also doesn’t fully account for investors who can’t handle gut-wrenching volatility, particularly with retirement in sight.

“There are funds on the edge in terms of their asset allocation that have lost a pretty large amount for someone close to retirement,” said Greg Carlson, a fund analyst at investment researcher Morningstar Inc. “We’ve been wary of funds like that.”

Oppenheimer Transition 2010 Fund is a prime example. The portfolio recently had 65% of assets in U.S. and international stocks, with 30% in bonds and about 5% in cash. The fund’s Class A shares are down 44% for the year, according to Morningstar.

Alliance Bernstein 2010 Retirement Strategy Fund is another stock-heavy offering, with 65% in equities, 32% in bonds and 3% in cash. Investors in its Class A shares have been hit with a 36% loss year-to-date.

Other target-date funds where shareholders have suffered above-average declines include John Hancock2 Lifecycle 2010 Fund, down 33% year-to-date, Principal LifeTime 2010 Fund, off 37%, and Putnam Retirement Ready 2010, down 30%.

Of course, there’s no way for investors to undo the damage of the past year. But the bear market proves that people close to retirement especially have to be proactive about stock-heavy target-date funds and take a hard look at whether or not they should continue to invest in them or find a more palatable alternative.

“Equities don’t guarantee anything,” said Zvi Bodie, a professor of Finance and Economics at Boston University. “The problem with target-date funds is they are designed to let people sit back and not have to worry. If you’re told that is the proposition, you’re going to assume you’re not exposed to any significant risk — and yet you are.”

The investment insanity simple continues on. To hold a bullish investment, no matter how safe it may appear, in a bear market is simply asking for trouble. While some target funds may have lost slightly less than your typically diversified portfolio, it still represents a severe loss to a segment of the population (heading towards retirement) that had not counted on any losses.

Sadly, many will pay a price for this ignorance. As one investor remarked “I finally figured out a plan that allows me to safely retire in 2032. The problem is I am 64 years old.”

The lesson is that no matter what type of investment you select, you can never let your guard down. This simply means you have to constantly be aware of the (changing) trends in the marketplace and be willing to exit your positions should they go against you by a pre-determined percentage.

In other words, those investors who don’t pay attention and continue to buy-and-hold blindly will again (as in 2002) seriously jeopardize their retirement future.

Sunday Musings: An Executive In Need

Ulli Uncategorized Contact

In these times of mass layoffs, bailout programs and stimulation packages, some executives still get the short end of the stick. While this blog does not promote any support, I thought you might enjoy the heartwarming story in the following short video clip:

[youtube=http://www.youtube.com/watch?v=qDC0qcf0kzE]

I wonder if this was really sponsored by the Treasury… 🙂