AskDong

I don’t know if you caught the “breaking news,” the Dow Jones Industrial Average posted it’s 4th consecutive day of gains.  Woohoo, good times are here again.  If you can’t tell I’m be sarcastic.  I think it’s great that the Dow is up 4 days in row, but it means absolutely nothing.   The U.S. and the rest of the global economy has not forded the current financial and consumer crisis.   We are waist deep in the rapids.

While the immediate cause of the current crisis is the collapse of the housing bubble, we in some ways can stop worrying about the cause and really just concentrate on what that collapse has wrought.   

• The Banking Sector is still in shambles.  The banks and everyone else is still being tightfisted with their cash.  Is this the wrong thing to do?  Not for any individual bank, but a disaster for the economy.
• Job losses continue to mount.
• Consumer Spending is down and continuing to drop.

Until the factors above start easing, we will not be out of the rapids.   Personally,  I’ve been very apprehensive of the calls for another economic stimulus.  I’m both leery of additional debt, and not a fan at all of tax rebates (the form of the last stimulus package).   Long term economic growth does not come in the shape of an flat screen TV.   However, I do see a need to restore confidence.   Sometimes, you have to kick a economy in the pants to get it started or else it migh slump over in depression.

On the investment side, I’m personally not substantially getting back into equitities.  I’m keeping my hedges (puts) in place, and only selectively adding.    I’m a bit more in cash now than I was 3 months ago.   I’ve sold quite a few shares, shares that I thought I would not sell before retirement, to harvest tax losses.   Until, I observe a solid economic base formed, I’m sticking to conservative plan with the exception of my speculative brokerage account in which I’ve been buying a fair number of put options.

p.s. I haven’t forgotten about Thanksgiving.  I hope everyone is spending the holiday with family and friends, and enjoying what is still very much a country of plenty.

Today I overheard a few people on the locker room of the gym talking about their upcoming holiday party - it wasn’t happening.  This was quite unusual.  I rarely go to the gym.  I wasn’t surprised to learn that a holiday party had been canceled.  Perks like those are often the first to go.   My company when it went through some very lean times severely downsized it’s holiday party from the usual elegant catered affair to a few beers and pretzels at a college bar.  In the current economic environment, I’ve heard many stories from family and friends on cuts that the companies have or are going to make.

The financial crisis has been the grinch of this Christmas season.   It’s not only the corporate offices making cuts both on perks or more drastically by letting go of people.  Individuals and family seem to be getting in on the action as well.  Planned Christmas shopping is at a millenium low.

I’m a little afraid.  I’m all for cutting out personal excess, and would even go as far to say that sometimes corporate layoffs are good.  Ideally when layoffs happen, companies become better and individuals have the opportunity to find work that’s a better fit.   I fear this is not what’s happening in the current economy.  The magintude and depth of layoffs imply that gainful employment will be hard to find.   This is a problem.    Despite my personal beliefs that the nation is better off shedding some of it’s consumerist attitude, and return to thrifty ways, the nation cannot handle a sudden dropoff.   Ultimately the belief that the economy is in dire straits makes for a self fufilling prophecy.   I don’t believe we’re there yet, but black friday will be very telling.

Fortune a few weeks ago had an article on the plight of the HENRYs (High Earners Not Rich Yet), the AMT set.   These are folks and their breathren, the Richs (Replete In Cash and Holdings), are in the bullseye of the Obama tax plan.  If I had to include myself in some class group I would fit pretty well in this group.  Personally though, I wouldn’t call myself not “Rich Yet.”  The fact is, I’m plenty rich as I think most of these HENRYs actually are.  There’s always more money to be had.  If there’s one plague that modern Americans are afflicted with it, it’s the propensity to always want more.

I certainly have my own personal stand on taxes.  I don’t like them very much, and think they need to be as low as possible to provide all the services required by Americans without adding to the national debt.  Yeah, I’m ok with higher taxes (though raising them in the current economic environment is probably a very bad idea).  That said, I think it’s very reasonable to demand lower taxes.   High or Low, I think most reasonable people understand taxes are not a goal unto themselves.  They are the tool of broader government policy. Be it smaller government, or universal health care.

I may not agree with some of these HENRYs on taxes, but what I find really irksome is the whining on the part of some of these HENRYs.  They’re doing really really well, and I find the “if you had to walk in my shoes” attitude a little more than offputting.   I live in a expensive city, work hard, and pay alot in taxes.   But, I also realize at the end of the day many of the activities I enjoy are luxuries for most people.  There are likley 7 billion people in the world willing to switch places with them, and have the choice to put $4,000 into retirement.

All that said, I think much of the angst these HENRYs have are worrying about how to provide for their children.  I don’t have children, so I can only intellectually empathize.  It’s funny how often succesful people who’ve pulled themselves up by their own bootstraps are often inisistent that their children have all the advantages and privileges that they themselves never had.   Still, everyone should be able to step back at least a little and realize what a privilige is to be able to send their kids to the best private schools, and individual piano lessons.  Even though I’m not a parent, I think good kids will turn out well regardless of the dollars spent as long as the actual parenting is good.

Like many other personal finance bloggers, I am curious if others are feeling the pinch of economic downturn. Almost everyone I know has had an “all hands” meeting at work.  Many of these meetings has been to calm the nerves of uneasy employees.  Still, many others have been to announce that layoffs are coming or that have come.   In my limited career of 10 years, I have witnessed my fair share of layoffs.   I saw the tech bubble crash around me.   I also experienced the ripples of the Enron collapse cascade through the energy industry.   This downturn, however, has had an auspicious start.  Few industries seem safe.  Not banking, not manufacturing, not technology, maybe health care.

So what any of us to do in these uncertain times?  There is always one investment that is always worthwhile, and that is the investment in yourself.

• Learn New Skills - these could be related to your job making you more valuable, but it could also completely unrelated.   A hobby can sometimes turn into a new career.
• Get reaquainted with a forgotten colleagues.    You might not be looking for a new job, but networking is best started when you’re not looking.
• Start working on plan B.   Doesn’t matter where you are or how you’re doing, everyone should have a plan B.
• Be optimistic.  I firmly believe that economic downturns offer unique opportunities for those who are willing to persevere.   Down markets offer great opportunity for investment.   This is when the chafe gets separated from the wheat.

Michael Lewis of Moneyball and Liar’s Poker fame has an excellent article in Portfolio magazine detailing the fall of subprime.   For him, he has come full circle.  Mr. Lewis’s writing career tookoff on the back of his autobigraphical experience detailed in Liar’s Poker.  He was a bond salesman, specifically a mortgage backed bond salsman at Saloaman brothers in the heady days of the 80s.

In the 80s, he wrote of the excess, greed, and blind risk taking that marked days when “greed was good.”  I like Gordon Gekko do believe generally speaking that “greed is good.”  However, I feel greed is best when balanced with integrity and compassion.   Warren Buffet is greedy.  He’s built an enormous financial empire upon his own ambition and greed.  Warren Buffet, is also however, a man who believes in integrity and compassion for his fellow men.  Greed need not live an isolated existence.

Michael Lewis returns to Wall Street and realizes in his time away that nothing has changed.   The problem is not greed alone, and never has been.  The fundmental problem has always been that bankers on Wall Street bet with other people’s money.   Gordon Gekko was right.   Company executives do not serve the interest of their shareholders, and too often shareholder are not interested in long term profitability because too often their positions are only transient.