Free Enterprise

This is what happens when you are in debt: “WASHINGTON – The Treasury Department on Thursday is expected to order seven companies that have not paid back last year's government bailouts to halve their top executives' average compensation. The cuts apply to the 25 highest-paid executives at banks and other companies that received the most assistance, with salaries being slashed by as much as 90 percent, according to a person familiar with the matter. The seven companies are Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial. Smaller companies and those that have repaid the bailout money, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., are not affected.” Everyone knows that the capitalist free-enterprise system is designed to reward those who strive, but one little drawback is that even when you are super rich, nobody can tell you when you’ve had enough. Where does ambition end and greed begin? Where would you draw the line? Is that why Buffett gave most of his money to the Gates Foundation - to ease his conscience? All I know is, this topless woman has nothing to feel guilty about. She only has $200 in her back account.

Nonsense

Does anyone really know the stock market? Of course not. Nearly 600,000 jobs were lost in January and the market went up by more than 200 points. If someone with an invisible hypodermic needle went around injecting investors with a good dose of optimism, the market would go up no matter what. That's what happened this Friday, no?

DEBT

From a prescient newsletter: By Porter Stansberry: "This is how America ends – with the lie that we all can live at the expense of our neighbor and borrow endlessly. Rather than simply face a downturn in the economy, we plan to borrow trillions of dollars our children and grandchildren will be forced to repay. Rather than let all those people and institutions that took on too much debt (like GM) be liquidated and restructured, we plan to risk a hyperinflation. Rather than insist homeowners who can't afford their mortgages lose their homes, we would jeopardize the credit rating of the country. It is all madness. None of the government's bailout plans will solve any of the problems. The government can only shift the burden of the failures. Instead of bondholders and shareholders being wiped out, taxpayers are put on the hook. These actions will temporarily resuscitate the economy – but cause a permanent decline in the value of the dollar." If the first and second lienholders foreclose on the U.S. Treasury, we can all go wash dishes in China and Russia and Quatar and other foreign places in order to work off the debt to them. No problem.

Executive pay

From an investor advisory newsletter, don’t ask me which one: “In fact, American executives could learn a thing or two from some of their counterparts abroad. Just look at Haruka Nishimatsu, CEO of Japan Airlines Corp. for example. Each morning, Nishimatsu gets down to business immediately after his morning commute to the office – on a city bus. His desk – like those of all the other Japan Airlines employees – sits in the middle of an open office. I know this from personal experience, having sat at a desk just like that when I’ve worked in Japan over the years. He eats lunch in the company cafeteria and hopes – like all Japanese employees – that he’ll have time to eat his meal before it gets cold as he stands in line waiting to pay. This hardly sounds like the life of a corporate CEO, especially when you consider that JAL is one of the world’s top airlines. Nor does the fact that when JAL cut back and asked many of its employees to take early retirement, Nishimatsu first eliminated every one of his own corporate perks, including his own pay – which, at a mere $90,000 (U.S.), is below what JAL’s pilots get paid.” There’s something to be said for modesty and reality checks. Even the woman at left knows this. I have no clue who she is but she appears to be working hard.

Don't panic

A few ideas that parallel mine - from people who know a lot more than I do. Enjoy!!

By Dr. Steve Sjuggerud: Some call legendary money manager Jeremy Grantham a "superbear." Back in 1998, when stocks were soaring, Grantham made a prediction: Stocks will lose 1.1% a year over the next 10 years. Investors, expecting 20%+ returns a year, took their money out of his fund. He wasn't promising enough compared to his peers. In hindsight, Grantham was exactly right. (It took 10 years and three days to equal his prediction.) Whenever Grantham writes something or grants an interview, I pay attention. He's one of Wall Street's few independent thinkers. I think guys like Grantham are always worth reading. I may not always agree. But I value their opinions because I believe they're not sugarcoating anything. Grantham has been quite vocal lately, in the Wall Street Journal, Barron's, The Economist, and most tellingly in his quarterly letter to shareholders. In his letter, Grantham explains he's optimistic about stocks: "For an unparalleled 20 years, global equities, especially U.S. equities, have been overpriced. Now, finally, they are cheap and likely to get cheaper. Likely, I believe, to set up a once-in-a-lifetime investing opportunity (or maybe twice in a long career)." Ever humble, Grantham says he suffers from the Value Investor's Curse: "I said as far back as 1999, while suffering from selling too soon, that my next big mistake would be buying too soon." Grantham thinks the economy still has a ways to fall. In a Wall Street Journal interview, he said, "We are in the teeth of the biggest financial crisis since the Depression and the early days of the broadest economic slowdown since 1982."
But Grantham is quite OK with being a bit early buying stocks. He's a long-term investor. Every quarter, Grantham publishes his seven-year forecast for the investment returns on all major asset classes. In this quarter's forecast, Grantham expects high-quality U.S. stocks and stocks in emerging markets to return more than 10% a year over the next seven years, under a good manager. While everyone was bullish a decade ago, independent thinker Jeremy Grantham was practically the lone superbear – to the detriment of his firm. But he was right.
Now, "the crowd" is scared. And Grantham is nearly alone (except for Warren Buffett) in buying stocks. I'll put my money on Grantham and Buffett over the crowd any day. At current prices, stocks could earn you double-digit annual returns over the next seven years if Grantham is right. Here's hoping he is..." END OF STORY

I don't think the market can go any lower, considering it's been hovering around 8500 for two months or so. Just make sure you invest conservatively then take the rest of the day off - go to the beach - but take your cell phone with you.

Media Panic

The Dow sits at about 8500 as we speak. By how the media is portraying the market, you would think that the sky is falling. I have already said that 8500 is about the lowest that the market will sink. Yahoo! news is writing something about the Dow "plunging." Is 150 points a plunge???? Give me a break. I strongly suspect they exaggerate (HYPE) everything just to get people to read their news articles. How unprofessional - really!!!! They have become tabloids and nothing more. I don't think they want the economy to improve since they favor a certain candidate for office (the one who wants "change"). If you have any money at all, now is the time to buy - the market can only go up. Buy 100,000 shares of anything that looks conservative and safe and in six months you will be happy you didn't panic like everyone else. Of course, if you don't believe me, get a second opinion.

Simple Finance 101

Herewith, a few words of advice for dealing with the recession and personal financial losses. I copied it from I don't remember where. Buy lots of cheap stocks too, if you have the money. Stocks can only go up, in the long term. My simple formula for financial security? Always, always live below your means and save the difference.

Deal with Debt: If you have debt, pay it down. Better still, eliminate it completely. Going forward, pay cash for everything you buy. That may keep you from making some purchases; if so, that's good.
Downsize Your Life - Before it Downsizes You: Differentiate between things that you want, and things that you actually need. By streamlining your life, you'll rediscover that some "things" (time with your family) are more important than other things (a plasma TV).
Stay in, Don't Cash Out: If you're a decade or more away from retirement, everything we know about market probabilities and recorded history suggests the better option is staying in the market, as opposed to cashing out. But don't go crazy, either. We also know that balanced funds, hard assets and a solid emphasis on income offer the best shot at higher returns over time.
Be Real: If you're already retired, and your "nest egg" has been eviscerated, conduct a realistic appraisal of your financing needs. If you realize you can't risk losing part - or all - of the money that you still have invested in the markets, talk to your financial advisor immediately. It may be better to pull out of the markets and move on to safer choices.

Stocks

Take a good look at the man in this picture. One can almost feel the same relief he is feeling at seeing the numbers go up on the board at the NYSE. I hope you bought lots of stock when I advised you to buy a few days ago. I knew the market would go up soon - it simply couldn't go down any further. I will never hesitate to tell you "I told you so." The economic troubles are not solved by any means, but at least the market has been stabilized. The other side of the coin is that the government has gone into debt. That will cause problems, but not for another two or three years. Enjoy the upturn, and don't forget to save as much as you can.

Hemlines coming down

So, what happens now??? This is turning out to be a bigger financial mess than anyone ever anticipated. The bailout bill has been approved, the Federal Reserve is stepping in with huge amounts of money to help bolster the credit markets (the banks), President Bush is making speeches to reassure the public and still the market tumbles. Am I the only one who has not panicked??? Fear is gripping the populace - big investors are playing it safe. Huge sums are going abroad. I have said it before - there is absolutely no reason to panic. What everyone of you should be doing is buying huge amounts of stock - now that they are so cheap. They can only go up. In the meantime, since the economy is drifting downward, so will hemlines. I don't know if I like that.

Didn't I tell you?

Now - everyone is coming out and saying that the financial bailout of Wall Street was not meant as an economic stimulus - it was just a bailout of the banks. Now, if we behave ourselves, the banks will again start lending us some of our own money. Thanks a lot Congress. All this time, just as I said, the major investment banks were living from paycheck to paycheck.

Never mind

Never mind. The fiscal-financial-economic-credit emergency is not over. I guess lots of representatives heard from the constituents. They voted the deal down. Amazing!!! Unfortunately, the bailout is still necessary whether we like it or not. Even Warren Buffett said so. Not that he knows anything, but still, he's older than we are.

Timid Reporter and Warren Buffett

TR: Good afternoon. Are you Warren Buffett?
WB: What would happen if I said “no?”
TR: I would politely remind you that you are.
WB: You wouldn’t doubt my sanity?
TR: No sir, I wouldn’t.
WB: Why do you call me “sir” if you’re older than I?
TR: You heard.
WB: Yes – the word’s getting around. Bill told me you said you were born in 1777.
TR: It’s true.
WB: Can you prove it?
TR: Most certainly I can.
WB: Where were you born?
TR: In Florence – July 7, 1777.
WB: You’re Italian?
TR: Not at all - just like you’re not actually English, I’m not Italian. I’m half Austrian and half Gypsy, or the other way around.
WB: You’re right. I have no ancestors in England, but I can trace my lineage all the way back to the Norsemen.
TR: My grandfather still tells me stories about the mighty Roman Empire.
WB: Is he still alive?
TR: Yes. I’m getting thirsty.
WB: I hope you brought change. I have a Coke vending machine in the den.
TR: Never mind.
WB: You say you can document everything about your old age and background?
TR: I’m timid, but I do not lie.
WB: Well, I’m somewhat at a loss. You may be telling me what you think is the truth, but you might also be insane - just like so many economists I know.
TR: Yes sir, but I didn’t come all the way to Omaha to talk about me.
WB: This magic potion you claim to have – it could make you the richest person on the planet.
TR: Richer than you?
WB: Yes.
TR: It’s not what you think.
WB: Let me have a shot at this secret, whatever it is. You can have 51% of the partnership without lifting a finger.
TR: This formula slows down your metabolism so that you age at only 3% the rate as everyone else.
WB: How has it been kept secret so long?
TR: It also induces you to keep your mouth shut.
WB: So how many people know about it?
TR: Seven.
WB: I don’t believe a word of this. You’re a shyster and a fraud.
TR: I’m not selling anything.
WB: You’re a con artist trying to set me up.
TR: I’m not a consultant and I don’t sell gold. You started this.
WB: I don’t even play Bridge with Jimmy Cayne because….
TR: He cheats?
WB: I didn’t say that.
TR: His butler told me.
WB: This just doesn’t square. If you’re so old, how come you’re not wealthy? How come you’re still timid?
TR: I have known people who have been born poor and died poor. I have known people who never learned to read or write in a lifetime. Time does not necessarily equal progress. It’s not given to every man to write a symphony or to invent a light bulb. Besides, why do you scold me if I have yet another two thousand years to make a little money? I might even get over my timidity. If you wait long enough….
WB: You’re not as timid as you appear.
TR: I have observed several generations over the span of more than two hundred years and have concluded that life is about eating and drinking and not much else.
WB: Then I have been fortunate. Not everything has gone smoothly, but I’ve learned to adjust to reverses that have come along from time to time. I’m a happy man.
TR: How is it that the richest man on earth can also be relatively modest?
WB: I have everything I need. I even have a private jet.
TR: Do you have any poor friends?
WB: I can’t say that I do. What good would that do me?
TR: You are a great philanthropist but you don’t personally know any of your beneficiaries?
WB: It’s best not to know. Bill gives me charts with numbers – that’s all I need to be aware of.
TR: Wouldn’t it be satisfying to actually see a person whose life changed because of your philanthropy? They wouldn’t need to know who you are.
WB: Do you know such a person?
TR: No.
WB: Could you find one for me?
TR: I’m still very thirsty.
WB: Here, I’ll lend you the seventy five cents for my vending machine.
TR: No, thanks.
WB: It’s time for my nap.
TR: …just one more question.
WB: Yes.
TR: Why did your wife Susan leave?
WB: What can I tell you? She wanted to sing.
TR: Thank you, sir.