A Time to Reflect on
the Past 108 Days - December 31, 2008
I've done quite a bit of writing in my "Weekly Tip"
over the past four months about the financial issues we've
all faced recently. I'd like to invite you to go back to the
"Weekly Tip" archives and re-read the tips from
the past few months; I think it's a good time to reflect on
these ideas and to see how far we've come, despite all the
bad news that's out there right now. Click "Weekly
Tip" archive to read.
It may amaze you to re-read the topics we've discussed and
the things we have all been through in just the past 108 days!
The perspective you gain should be of interest and give you
some insight that things have slowly been getting better.
Clearly, I don't know what the future brings, but what I do
know is that, as we enter 2009, things are more stable than
they were just three and a half months ago: indicators have
improved, with respect to interbank lending; mortgage rates
are down (and should be down more in the not-too-distant future)
and the financial markets are far calmer than they were during
September, October and November. There's more to write about;
however, I think it's easier to review my tips over the past
four months.
In the meantime, Steve, Stephen and I would like to take
this opportunity to wish everyone a healthy and Happy New
Year! I look forward to writing this tip next December
with the hope of better times ahead, as we turn an eye towards
2010.
Apprvd.BBDP
Three Top American Funds
Managers Review 2008 and Look into 2009 - December 23, 2008
In today's Weekly Tip, I am providing a link to six video
clips (approximately 21 minutes total) of interviews with
three of American Funds' most-experienced money managers and
executives, in which they review 2008 and look forward into
2009.
I found all of these videos to be worth the time to watch;
they were also very helpful in continuing to gain an investment
perspective, going forward. Without a solid, information-based
perspective, people make decisions based on emotion…and
history has shown, time and again, that emotions make a poor
methodology when it comes to financial decision-making.
I wish you and your family a happy holiday season!
David, Steve, and Stephen
Apprvd.BBDP
Be On the Lookout for
Mortgage Rates Between 4% - 5% Soon -
December 17, 2008
The Federal Reserve Bank has stated their position: they
are going to do whatever it takes to get credit moving again.
This was huge news yesterday. It moved the financial markets
in a very positive direction.
One of the results of their continued work to get the real
estate markets moving again is to move long-term mortgage
rates down. Just three weeks ago or so, they were hovering
around 6 ½ %; they are now getting close to 5.00%.
The Fed has indicated that they'd like to see those rates
in the 4% - 5% range.
The Fed plans on purchasing lots of mortgage securities on
the open markets. This should create more demand, resulting
in lower mortgage rates. (They are also talking about purchasing
other types of bonds to move other parts of the credit markets
as well.)
If rates continue to drop, everyone with a mortgage rate
of 5% or higher should be in contact with their mortgage broker
so that they can look into refinancing. I have already contacted
the person I work with to let them know I'd like to be on
a short list of people they'll contact, if rates drop to 4.5%
or less. The Cryden family mortgage is currently 5.25%.
Historically-low mortgage rates should also help the real
estate markets, as buyers will be able to finance home purchases,
which are already pretty deeply discounted, with lower interest
rates making the whole package even more attractive.
If you are like me and you're thinking that all the bailouts
are really outrageous and totally unfair to those of us who
have been responsible, I see these lower interest rates
as a means of helping us out. You might say they are our share
of the bailout. Now it's our personal responsibility to take
advantage of them. Why not lower your costs so that you can
use your cash flow in other ways?
Keep in mind that these lower rates are a part of the ultimate
formula which will get us out of this mess. There are still
other measures needed, one of which is the stimulus package
that is expected to be passed by the new Congress and President
next month.
Until next week…
Apprvd.BBDP
Let's Talk About Timing
the Market- December 10, 2008
It's always easy to second guess what to do when the financial
markets get tough. Emotions get in the way as people try to
avoid a bear market. The problem with this scenario is that
it's just plain difficult to time market tops and bottoms.
Let's take a look at what you would have had to do to avoid
this bear market and time it just right.
You would have known that you should get out of the markets
in October 2007. As with most bull markets, I am betting that
most of my clients would have wondered why I would suggest
getting out when their investments are reaching all time highs.
What sell high? They would have wondered if they could do
even better by staying in.
Conversely, the markets may have bottomed in early October
or late November. We won't know exactly if this is true until
we can look in hindsight. Most people have been afraid to
buy investments when they are down. What, buy low? I said
it last week, and I'll say it again, I am in the only business
in the world where people won't buy when things are on sale.
In addition, if you are out of the markets, it's not at all
uncommon to have them bounce nicely off the bottom when they
turn. The problem is how to know you're at a bottom and about
to turn. If you wait a relatively short while, you may lose
out on a great deal of the market recovery. Since World War
II, history shows that if you miss the first 40 trading sessions
after a market turns, you may miss roughly one-third of the
market's recovery. That's a big loss and chance to take by
trying to time when to get back in again.
The problem with trying to time markets involves a huge amount
of guesswork and luck. And, you have to be able to right on
both ends of a market's top and bottom. You also need to be
able to do it regularly. If you can't, you may very well lose
what you gained when you happened to get it right.
Finally, many of the things that create market tops, bottoms,
or turns are not very readily noticeable unless you have a
crystal ball or can look back in time.
As James Rothenberg, Chairman of Capital Research and Management
Company says, "they don't ring a bell at market tops
or bottoms." Somehow I don't think that's going to change
anytime soon.
Apprvd.BBDP
Huge Job Losses Could
Be Signal That Worst Is Over - December 5, 2008
Here's an interesting take on the job markets and today's
unemployment report. (Please refer to my November 12, 2008
Weekly Tip about unemployment and the economy.) The following
link is to an article on CNBC.com talking about today's unemployment
and the recession. Its title is the same as this bonus tip,
Huge Job Losses
Could Be Signal That Worst Is Over.
Today's jobs report is the 41st worst ever, as a percentage
of total workers in the economy. It may also be a direct reflection
of the shock received by the economy from the credit crisis
which began September 15, 2008. There are thousands of people
in the financial markets who are losing jobs. This is likely
also reflected in today's numbers.
I'd love to hear any feedback you have on this or any of my
other weekly tips.
Apprvd.BBDP
Could Your Portfolio
Ever Go To Zero? - December 3, 2008
In tough markets, I'll inevitably get calls from clients
asking if their portfolio could ever be worth nothing; in
other words, if the value of all of their holdings would have
no value at the same exact moment in time.
I've thought about this, over the 25 years that I've been
practicing financial planning, and have a few thoughts to
share.
I suppose it's technically possible for a portfolio to be
worth nothing; however, I believe it would take a catastrophic
event to bring that about. If an asteroid hit our planet and
killed almost everyone, I believe that our portfolios could
be worth nothing or close to that. I think the same could
conceivably be true, if we had a total global thermonuclear
war; that could very well kill everyone or almost everyone.
That, too, should make all portfolios worth zero.
I believe it would take a huge catastrophic event to make
everyone's portfolios valueless. That's saying that everything
is worth nothing at exactly the same moment in time.
Suppose your portfolio is made up of hundreds of the largest
companies in the world; they have inventory, cash, real estate,
etc., all of which has real value. Don't you think someone
would want to buy these companies, if the price kept dropping?
This is one reason I find it so difficult to truly see portfolios
becoming totally valueless.
To be worth nothing, you'd have to either have the planet
stop existing or the utter collapse of the financial system.
The collapse would have to be so bad that there were no buyers
left. You'd have to be in a position where even cash had no
value. That's the equivalent of saying that there would be
no one on the entire planet who was able or willing to pay
at least something for entire companies.
As long as life goes on, there will be buyers of food, services,
equipment, etc. The day that life stops is the day your portfolio
has no value; until then, keep in mind that our economy is
naturally inflationary in the long-term. This tends to drive
up costs and profits, and higher profits long-term should
equate to higher portfolio values.
As the global economy heals, we'll have continued growth
in the emerging markets. They comprise roughly 6-billion people
in economies that should continue to grow long-term at rates
faster than what we'll see in the United States or the other
economies around the world. Despite this economic downturn,
I believe there is a promising future ahead. I believe we'll
make money on our portfolios again.
Investments and economies, as in life, are cyclical; they
have good times and bad times. The bad times may seem
longer but, historically, they have not been as long as the
good times, which have historically outperformed the bad.
It's important to keep perspective when investing. Don't
get caught up in short-term thinking or emotional decision-making.
I believe the financial markets will heal from the problems
of today. I believe they will be better off, as a result of
the cleansing process we are going through. It may be painful
and necessary, but it should be fruitful; after all, when
we are done, the world should be a financially healthier place.
Finally, keep in mind the simple tenet when investing; "Buy
low, sell high." It may not always feel good, but it
generally works long-term.
Apprvd.BBDP
A Few Updated Economic
Thoughts As We Enter the Holidays
- November 26, 2008
1. Many of us are global investors because we believe that,
long-term, many economies will grow around the world and that
growth is expected to be at higher rates than we'll see in
the United States. While this looks to be in place for the
years ahead, we are finding investors flocking to the US dollar
as a safe harbor during this financial storm. This is not
new; it has happened many times in the past and will happen
again during another bear market. As with times past, I believe
that we'll see people go back into other investments (i.e.,
common stocks, real estate, etc.) when things settle down,
which should result in a lowering in the value of the dollar.
Many people call the move to the dollar, or US government
securities, as a "flight to quality."
I also believe that the dollar should decline in value as
our deficit increases.
In the short-term, this has meant that some international
and global investments have been affected by the increase
in the dollar: their value has declined. I believe we should
see an additional increase in the value of many international
holdings over time, as the dollar declines with the improvements
in the financial crisis; this, along with improvements in
the holdings themselves, should help with a strong recovery.
In other words, we may enjoy an increase in value of those
overseas holdings, because of the dollar declining in value,
in addition to an increase in those holdings, as their value
goes up with a market recovery; finally, we may see increases
in value as their businesses improve with the growth in the
global economy.
2. Yesterday, the Federal government announced a couple of
new programs (which are technically called "lending facilities").
These lending facilities will loan out $800 billion to improve
the mortgage markets and the consumer markets; two areas that
are still experiencing trouble getting credit out. A sign
that the financial markets liked this action was reflected
in a huge improvement in mortgage rates. Last night, I heard
that 30-year conventional mortgage rates dropped one and one-eighth
percent (1-1/8%) in a single day from roughly 6 5/8% to 5
½%. To me, that says that the markets liked the program
in a strong way, which should help consumers and potential
home buyers become interested and more engaged in borrowing.
3. The financial markets have been experiencing low trading-volume
during much of the financial crisis. This means that many
fewer people are actively trading common stocks and bonds.
As a result, small amounts of trading are moving the entire
market; these moves can be exaggerated because there is less
activity and balance in the trading.
4. If you are taking systematic withdrawals from your funds,
we may want to talk about a short-term reduction in the withdrawal
amount. Be conservative during this period, if it's possible;
it certainly can't hurt.
5. I look out my office window at the many retail stores
in our area; those having sales should gain more business.
I think to myself, as I have during past bear markets, that
I have to be in the only business in the world where
people don't want to buy when things are on sale.
If you believe the world will exist tomorrow and that life
will go on, it seems to me that buying low isn't a bad idea
at all. Are we at the bottom? We won't know until it's over.
What I do know is that we are nowhere near the top, and that
governments worldwide are aggressively acting to get through
this crisis. Buying low may not feel good, but it is generally
where you stand to be the most profitable in the years ahead.
If you own mutual funds that pay dividends, focus on their
dividend reinvestments. You are buying more shares at lower
prices with this option.
Lastly, it's the holiday season. While the economy may be
in the throes of a tough period, it is still important to
set these things aside and enjoy time with your family and
friends. As one NYSE floor trader put it, in an LA Times news
article last month, "You have your health; this is just
a side show."
Happy Thanksgiving from the Cryden Team (David, Stephen and
Steve)
Apprvd.BBDP
Words of Wisdom from
Two Money Managers I Highly Respect
- November 19, 2008
Many of you have heard me speak of the great respect I have
for how the American Funds manages money. You may also have
heard me speak of Dr. Mark Mobius. He manages the Templeton
Emerging Markets Funds. I've interviewed him many times over
the years on my radio show.
Today, I am sending you video links to interviews done with
Jim Rothenberg, Chairman of the American Funds management
company, and Dr. Mark Mobius. There are a total of 7 links
to video clips with these men, which range from 1:30 minutes
to 4:30 minutes in length. Both of these men are responsible
for managing billions of dollars. In the case of Jim Rothenberg,
he is responsible for the management of over $1 trillion.
In my opinion, you'll get some perspective on the times we
are living through and see ideas of how we are going to get
out of them.
They say it's always darkest before the dawn. I think we
can say this is what we are going through right now.
Click the links below to view the messages from Dr. Mark Mobius
and Jim Rothenberg.
Converting to Roth IRAs
in Down Markets - November 14, 2008
If you qualify to convert your Traditional IRA to a Roth
IRA, down markets make a great time to do so. The reason is
that you can convert more assets while paying lower taxes
in doing so.
There are a couple general rules of thumb to follow in deciding
to convert from a Traditional IRA to a Roth IRA:
1. You have to have a Modified Adjusted Gross Income of $100,000
or less. If you are above that figure, you are not eligible.
2. You should be prepared to pay the taxes from savings; not
your investment account. Taking the money from your investment
account tends to lessen the real value of the conversion as
a whole.
If you have any questions, give a call or feel free to write
back.
Apprvd.BBDP
Unemployment and What
It Means In a Recession - November 12, 2008
In reading an article online last Friday, it was interesting
to note that unemployment didn't stop rising during our last
recession until June 2003, and it peaked at 6.5%. This was
roughly 20-months or so after the recession had ended
in November 2001. It's not atypical for unemployment to rise
for six- to twenty-four months after a recession ends.
You may wonder how it's possible that people can keep losing
jobs when a recession has ended and the economy is better;
also, what might this mean in the context of the economy and
jobs today.
The rules of economics say that employment is a lagging indicator
of the economy's health. Conversely, the stock market tends
to be leading indicator of the economy and its health.
Here's why the preceding statements seem to ring true time
and again:
When the economy is slowing, employers will try to hold
onto employees as long as possible. They hate for people
to lose jobs. They also hate to lose talent, so they hold
out as long as possible; therefore, job losses tend to happen
once the economy has already been in decline. In fact, job
losses can occur well into a recession - or even into the
recovery - as a part of this lag.
Once the economy begins to recover, employers will tend
to make absolutely sure that their businesses are again
strong before they begin to hire. This can be well into
a recovery period before those new employees are brought
into the fold.
The stock market has always tended to anticipate the economy's
direction. In the current bear market, the market began
to decline in October 2007. The markets saw difficulties
in the credit markets back then and started dropping from
their highs.
When the financial markets begin to see the light at the
end of the tunnel, they should begin to rise again. The
rise generally can be six- to eight-months ahead of the
recovery of the economy. Investors see better earnings coming
and begin to push stocks back up in anticipation of this.
Clearly, no one knows exactly when this will happen; in my
mind, it's not a matter of "if," it's a matter of
"when". We will likely continue to see rising unemployment
in the foreseeable future. At some point, while unemployment
is still rising, we'll also probably see the stock markets
begin to rise, as they look to better times again.
Today's final thought: After 25-years in the
financial planning and investment business, I am still bewildered
by the fact that people have such a difficult time buying
investments when they are on sale. It always seems easier
for them to buy a sweater on sale than an investment at 30%
or more off. These opportunities don't come around too often
(and the sweater will depreciate in value and wear out over
time); conversely, good investments should grow in the years
ahead, albeit not in a straight line.
"Buy low, sell higher." People have been making
money using that simple and effective investment axiom for
years. Markets are clearly nowhere near their record highs.
An investment now should get you better prices and values
than we seen in a long time.
Apprvd.BBDP
Barack, TED & Warren
- November 5, 2008
Today's tip is a combination of three different topics which
happen to come to mind. The similarity between the three is
that they all have a positive thought attached.
1. We have a new president elect. The country has spoken.
Studies have shown that the financial markets in modern times
have performed better under a Democrat than a Republican.
Either way, the financial markets do not like uncertainty.
Now that the election is over, there's one less thing on our
list of uncertainties. No matter who you voted for, it's important
now that we all support our new leader. I certainly hope we've
elected a great leader or statesman; our nation needs one
now, more than ever. (Sorry about the small bit of commentary
here…I rarely do it and I am hopeful, as we move forward
as a nation.)
2. TED refers to what's called the TED spread. It's the difference
between the three-month LIBOR (London Interbank Overnight
Rate) and the 3-month US Treasury rate. It's normally less
than one percent (1%). When it's in that territory, it means
lending has essentially gotten back to normal. It had gotten
up to almost five percent (5%) during the height of the credit
crisis. This meant that no one was lending money and, if they
were, you were paying a lot for it. Thanks to the programs
put into place by the Treasury and Federal Reserve Bank, the
TED spread has come down to 2.1054%. That's a huge improvement,
but we're not there yet. This improvement has happened in
the past couple weeks or so. Here's
a link to follow the TED spread if you'd like to see how
things are shaping up in the credit markets. These markets
are essential to the normal functioning of our economy and
others around the globe. I check this link daily. It won't
drop in a straight line, so don't be disappointed if it goes
up sometimes; it's the nature of the beast.
3. I wrote a tip a couple of weeks ago about a New
York Times Op Ed article written by Warren Buffett. If
you've lost a little bit of your long term investment perspective,
this is a terrific piece for investors to read to help reset
it. I want to give you the link again.
As always, if you have any questions you'd like me to address,
don't hesitate to write or call. In addition, if you have
family, friends, or colleagues who need another opinion or
help with their finances, they are always welcome to contact
me.
Apprvd.BBDP
Writings from a Friend
- October 29, 2008
I've got a friend, Gary, whom I met on a trip a couple of
years ago. He is a Canadian who lives and works in the Caribbean.
He is the Chief Financial Officer for a bank there, as well
as a board member of two Caribbean banks.
We've exchanged emails since the trip where we met and have
been especially active over the past few weeks, given the
turmoil in the economic markets.
I've cut excerpts from his emails to share with you, as I
think they are interesting. I have added a few thoughts, in
parentheses, below.
Gary: 10/29/08 Bottom. I think we are at it. Maybe not
a total rise from a bottom but a bounce along the bottom.
I don't see things as lower but I have real concerns short
term about hedge fund redemptions choking a sustained rally
for a little while.
David: (The de-leveraging or reduction of debts by speculators
and hedge funds is causing the market to drop whenever there
is a rally. In other words, they are selling into the market's
rise. This should eventually end when they are done selling.
I think it is the cause of a fair amount of the volatility.
I also don't think it should last for a long time.)
Gary: 10/28/08 I also upped my company share ESPP plan
(Employee Stock Purchase Plan – David) from 6% to 10%
of my base (I get 3% free regardless).
David: (He is buying low by increasing his investments in
his company's retirement plan. I think the ESPP must be somewhat
similar to a 401k or stock option plan. You make money when
you buy low and sell higher. Things seem to be very much on
sale now.)
Gary: We always have doomsayers. Every so often they are
right. Usually it is luck. And they have to say the right
thing at the right time.
Gary: 10/27/08 I've got both of us allocating $ monthly
to invest so we will be averaged down and will hopefully gain
rather than just break even from the recovery!
David: (Again, buy low, sell higher. People have a tough
time buying low. But, it's generally how you make money and
it usually doesn't feel too good.)
Gary: 10/26/08 What is obvious about all the economists,
including those on that video, is they don't know. No-one
does. We have brilliant people predicting everything from
a massive spurt of growth to a complete global collapse. Personally
I think we are bouncing along the bottom waiting for the hedge
funds to stop liquidating against redemptions, choking off
rally after rally.
Things aren't clear and the world has changed radically
in a very short time. Alan Greenspan is probably the Keynes
of our time and he admits that his model failed. Why? Economists
have history to use to predict their models but there isn't
much history. A few centuries wouldn't catch all the potential
events. And what we use for money supply and technology has
changed so radically that even the history we have isn't accurate.
Keynes failed to predict Stagflation -Why? Because it had
never happened before!
Look at every period in history - they have a meltdown
or two. We've had the NASDAQ meltdown and now the big credit
crunch. Go back - the South Sea bubble, the tulip crash, the
Great Depression. None of those fit into conventional models.
Wars change stuff, climate, and overpopulation - over the
years we will be tested once and again. I will say that when
resources really start running out - about 2035 when China
becomes the #1 economy - we have to be very conservative as
at sometime I think our consumption of resources is a bit
of a bubble in itself.
I'll give you my gut feeling. The markets precede the economy.
The collapse in the market predicts a pretty miserable recession.
But results for a lot of companies have been good. A lot of
the drops in earnings and charges have been very sectoral.
David: (In the end, mankind will live on and survive this.
In my mind, it's not a matter of “if,” it's a matter
of “when”. Bear markets and financial crises will
come and go over time. When this is over, you can count on
another tough period, somewhere down the road; undoubtedly,
it will test the will of some and present opportunity for
others.
Apart from these notes, I think it's really important to
stay focused, as a long-term investor, and not get caught
up in the day-to-day news that can lead to short-term decisions.)
Apprvd.BBDP
Even the Financial Markets
Have "Honey Do" Lists - October 22, 2008
I recall a time, about twenty years, ago when the savings
and loan industry was imploding. The headlines were terrible.
The real estate market was terrible for roughly 6 - 7 years.
Things were not good, then.
What I recall thinking was that each day that passed was
a day closer to the end of the problems we were facing. I
also recall thinking that each individual problem that was
handled was one single step closer towards a total resolution
of the times and problems.
In effect, each of those problems that were solved could
have been placed on a checklist -- or a "honey do"
list -- for the financial markets, that had to be completed
before everything was resolved. The same type of thinking
can be used today; there's a "honey do" list out
there that has to be ultimately resolved. Here are a few of
the items I see as being a part of the list:
1. The opening of the credit markets again. Based on the
actions of the Federal Reserve Bank, and others of its kind
around the world, we are beginning to see signs of the credit
markets beginning to thaw.
2. Banks are beginning to loan to each other again.
3. There are people or entities that made huge leveraged bets
on various investments and lost out. As a result, they have
to sell assets to cover those losses. This is happening and,
indeed, can be attributed as a part of the cause of the current
volatility in the markets.
4. Interest rates being charged to corporations to borrow
money had to come down. They are doing just that. The closely
watched LIBOR (London Interbank Offered Rate) has come down
from over 4.80% to around 3.50% in about a week or so. It
posted its first decline since July. This needs to continue
to come down to form a more normal interest rate environment.
5. Regulations need to be re-examined and rewritten to help
prevent what we're going through from happening again.
6. New regulations need to be examined, as a result of unregulated
areas of the financial system which created problems we are
unwinding today. In my mind, this could or should include
derivatives and credit default swaps, which have zero regulations
to adhere to.
7. Consumers, some hedge funds and other entities who had
taken on mountains of debt. These entities and people are
in the process of unwinding that debt. Getting those debts
to healthier levels will be of great help in normalizing the
system.
8. The presidential election needs to happen. This one is
only 13 days away.
This list encompassed some large and important items, though
I am sure it's not a complete "honey do" list. In
time, this list will be handled and things will get back to
normal. The financial system will be so much stronger once
we are done with these issues. People will again go back to
basics. The interesting thing is that financial markets tend
to be anticipatory; we may very well see them recovering before
all the items on the "honey do" list are completed.
(It's not uncommon to see this happen as much as six- to eight-months
prior to full recovery).
As a final thought, Warren Buffett wrote a piece in the New
York Times on October 17, 2008. In the piece he wrote, "A
simple rule dictates my buying: Be fearful when others are
greedy, and be greedy when others are fearful." Certainly,
this is not a market of greed; it's a market of fear. Buying
low doesn't feel very good but, if you can, it usually pays
off. Read the full article here: New
York Times.
Apprvd.BBDP
Irrational Markets -
October 15, 2008
In my tip two weeks ago, I sent you a message written by
Jim Rothenberg, Chairman of Capital Research Management and
Company, who are the managers of the American Funds Group.
The assets they manage amount to over $1 trillion dollars,
which makes them one of the largest money managers in the
world. Jim has 39 years of experience in this industry and
is in charge of this massive investment effort.
In his message last week, Jim made several references that
I believe to be very relevant to today's tip:
You can literally immerse yourself in financial information
about the financial markets 24 hours a day. There will be
conflicting opinions that make it difficult to build a consistent
message about what is happening economically and how it is
being resolved.
Many people are losing sleep because they have been watching
the swings in the markets during times like this.
If you find yourself watching these reports intensely, you
may become very nervous and possibly drive yourself into a
true state of panic.
In the 25 years that I have been in the investment and financial
planning business, I have never seen good financial
decisions made in a state of panic. The general rule of thumb
is to make financial and investment decisions using a well-reasoned
and informed thought-process while sticking to your long-term
plans - not short-term moves or situations.
Try to remember, as we go through this period, that nothing
goes straight and nothing "only" goes down. This
will end. Life will go on. For me, it's not a matter of "if,"
it's a matter of "when."
While I haven't checked, I believe the last time I wrote that
statement was in the darkest days of the post-"dot.com"
bubble. That ended, too. (Ironically, it ended 6 years
and 6 days ago...right around when people thought that it
would never happen).
Then, as now, I encourage you to keep your long-term perspective.
Apprvd.BBDP
Irrational Markets -
October 15, 2008
In my tip two weeks ago, I sent you a message written by
Jim Rothenberg, Chairman of Capital Research Management and
Company, who are the managers of the American Funds Group.
The assets they manage amount to over $1 trillion dollars,
which makes them one of the largest money managers in the
world. Jim has 39 years of experience in this industry and
is in charge of this massive investment effort.
In his message last week, Jim made several references that
I believe to be very relevant to today's tip:
You can literally immerse yourself in financial information
about the financial markets 24 hours a day. There will be
conflicting opinions that make it difficult to build a consistent
message about what is happening economically and how it is
being resolved.
Many people are losing sleep because they have been watching
the swings in the markets during times like this.
If you find yourself watching these reports intensely, you
may become very nervous and possibly drive yourself into a
true state of panic.
In the 25 years that I have been in the investment and financial
planning business, I have never seen good financial
decisions made in a state of panic. The general rule of thumb
is to make financial and investment decisions using a well-reasoned
and informed thought-process while sticking to your long-term
plans - not short-term moves or situations.
Try to remember, as we go through this period, that nothing
goes straight and nothing "only" goes down. This
will end. Life will go on. For me, it's not a matter of "if,"
it's a matter of "when."
While I haven't checked, I believe the last time I wrote that
statement was in the darkest days of the post-"dot.com"
bubble. That ended, too. (Ironically, it ended 6 years
and 6 days ago...right around when people thought that it
would never happen).
Then, as now, I encourage you to keep your long-term perspective.
Apprvd.BBDP
A Discussion with American
Funds Executive VP - October 9, 2008
I
was
able
to
arrange
a
special
meeting,
held
yesterday,
for
the
financial
planners
and
the
licensed
support
staff
of
Blakeslee
&
Blakeslee
with
Michael
Johnston,
Executive
Vice
President
and
Senior
Partner,
Capital
Research
and
Management
Company.
I've
gotten
to
know
Mike
over
the
past
15-years,
as
he's
been
kind
enough
to
do
a
regular
annual
financial
update
on
my
radio
show.
(There
are
two
interviews
with
Mike
on
my
website
from
last
January
and
June.)
Click
Here
to
Listen.
Mike
is
extremely
bright
and
well-connected.
He's
been
in
the
financial
business
for
approximately
40
years
and
is
a
true
pleasure
to
speak
with;
he
is
a
great
resource
to
have
in
our
court.
There
were
many
things
discussed.
Here
are
a
couple
of
highlights
from
our
meeting
yesterday
afternoon:
1.
The
stock
markets
today
are
extremely
irrational.
You
can't
necessarily
connect
the
behavior
of
the
markets
with
the
events
happening
in
the
economy.
The
markets
will
simply
run
their
course
and
change
when
you
least
expect
it.
(See
last
week's
tip
for
more
on
this
topic.)
2.
The
actions
being
taken
by
the
Federal
Reserve
Bank,
the
Federal
government,
healthy
companies
taking
advantage
of
opportunities,
and
other
governments,
will
take
some
time
to
really
have
an
effect.
He
thinks
that
we
may
see
the
credit
markets
beginning
to
show
more
signs
of
normal
behavior
in
the
next
few
weeks,
as
the
many
programs
being
implemented
begin
to
kick
in.
3.
Some
people
expected
immediate
results
on
the
day
the
vote
was
taken
last
Friday,
when
the
Fed
said
it
was
getting
involved
in
the
commercial
credit
markets,
or
when
they
lowered
interest
rates.
When
there
were
no
results
and
the
program
hadn't
even
started
yet,
the
market
dropped.
This
shows
you
the
disconnection
between
the
markets'
behavior
in
opposition
to
the
positive
actions
being
taken
to
fix
and
solve
the
problems
we
are
facing:
fear
vs.
economics.
Rather
than
having
a
favorable
effect
on
the
markets,
they
dropped.
4.
There
is
an
artificial
wall
in
lending
that
the
actions
being
taken
by
all
the
parties
involved
are
working
to
resolve.
Mike
believes
these
actions
are
positive
and
a
step
in
the
right
direction.
The
latest
Federal
Reserve
move
to
get
involved
with
commercial
paper,
or
short
term
borrowing,
may
have
more
impact
before
the
rescue
package
is
felt.
5.
When
we
saw
the
savings
and
loan
debacles
in
the
late
1980s,
there
was
no
single
watershed
event
signaling
that
the
problems
had
ended;
at
first,
there
was
nothing
but
bad
news,
then,
slowly,
the
news
subsided
until
the
news
wasn't
nearly
as
heavy.
People
had
begun
to
relax.
Finally,
there
was
no
more
news
(good
or
bad)
about
the
problems
and
it
just
kind
of
disappeared.
I
would
not
be
surprised
if
this
happened
with
all
the
things
we
are
dealing
with
today.
(This
could
also
apply
to
the
tech
stock
bubble
and
other
tough
situations.)
6.
It
is
interesting
to
note
that
irrational
markets
can
become
a
reality
in
both
bull
and
bear
markets.
There
were
times
during
the
tech
bubble
when
bad
news
was
greeted
with
the
market
going
up.
Today,
we
are
seeing
positive
actions
being
welcomed
with
a
downward
move
in
the
markets.
Can
we
say
"irrational
markets"?
Can
we
say
"markets
being
driven
mostly
by
fear"?
There's
the
emotional
world
of
a
stock
market
where
the
news
and
events
almost
don't
seem
to
matter.
People
are
worried
and
panicked.
No
matter
what
good
things
are
being
put
into
play,
they
only
feel
the
fear.
When
we
see
this
type
of
behavior
with
investments
which
are
meant
to
help
people
over
the
long-term,
decisions
are
being
made
out
of
emotion
and
fear,
not
long-term
economics.
This
is
where
people
can
make
short-term
decisions
that
could
be
harmful
to
their
financial
health
in
the
long-term.
While
we
may
see
a
slower
economy
over
the
next
few
quarters,
I
do
believe
that
we
will
come
out
of
the
slowdown;
I
also
believe
that
we
will
come
out
of
the
market
downturn
we
are
currently
experiencing.
In
fact,
the
financial
markets
tend
to
move
“up”
in
advance
of
the
end
of
economic
turmoil,
as
the
markets
anticipate
recovery
and
a
return
to
greater
profits.
There
are
reasons
to
be
positive
now.
Our
mutual
fund
managers
are
finding
terrific
values
that
haven't
been
seen
in
quite
some
time.
If
you
consider
the
growth
of
the
world
economy
in
the
years
ahead,
that's
not
a
bad
scenario
for
the
shares
purchased
today
to
make
us
money
tomorrow.
Based
on
my
best
guess,
7
billion
human
beings
will
not
go
outside
tomorrow
and
find
the
world
we
know
today
to
be
gone.
It
is
more
likely
that
they
will
continue
to
buy
goods
and
services
as
usual,
continuing
to
bring
greater
revenue
and
profits
to
companies
we
have
invested
in,
both
for
today
and
tomorrow.
While
it's
not
easy
to
go
through
times
like
these,
it's
important
to
keep
your
long-term
plans
in
mind
when
making
important
financial
decisions.
There
may
be
irrational
markets
again,
in
the
future;
in
my
opinion,
there's
no
way
around
that
happening.
If
you
don't
let
fear
and
panic
control
your
decisions,
you
should
be
fine.
I
have
not
sold
any
of
my
holdings
during
this
period;
in
fact,
I
have
been
buying
into
it
over
the
past
year,
with
the
belief
that,
over
time,
those
assets
bought
at
lower
valuations
will
be
profitable
going
forward.
Apprvd.BBDP
American Funds and the
Current Market - October 1, 2008
Dear
Clients
&
Friends,
Recently,
Jim
Rothenberg
the
Chairman
and
Principal
Executive
Officer
of
Capital
Research
and
Management
Company
(the
parent
company
of
American
Funds)
wrote
a
letter
to
American
Funds
shareholders
regarding
the
current
markets.
Please
take
a
moment
to
read
his
message
to
you.
How Do You Spell Relief?
B A I L O U T? - September 25, 2008
How
do
you
spell
relief?
Is
it
bailout?
I
could
write
a
lot
about
why
we
are
in
this
position.
It
would
be
a
long
and
complicated
story.
The
fact
of
the
matter
is
that
we
are
here
and
there
needs
to
be
a
resolution.
Much
like
the
savings
and
loan
debacle,
people
and
businesses
got
over-leveraged.
For
good
measure,
investment
firms
found
even
more
ways
to
extend
their
leverage.
The
result
of
this
was
very
poor.
Those
results
really
hurt
their
corporate
balance
sheets
and,
ultimately,
their
financial
well-being.
The
bet
they
made,
using
huge
amounts
of
leverage,
turned
out
to
be
wrong.
Things
went
south
from
there
for
many
companies
all
over
the
country.
In
even
simpler
terms,
there
were
the
following
elements
involved
with
this
debacle:
