The Week in Review

Today's Commentary: 02.15.02
It's important note the numbers. More than just gauges of quantity, numbers are not what they seem. There are two reports out that are supposed to, at least on the surface, resemble good barometers of the health of the economy.

The first is the Consumer Sentiment Index. This report done by the University of Michigan is part of the a total report titled "Leading Economic Indicators." This report is often used by investors to determine the value of the market and whether or not to invest. But the Sentiment Index, not to be confused with Confidence Index, surveys the consumer about the state of their finances. Richard T. Curtin, Director Surveys of Consumers, reported that consumers still have a relatively grim outlook for their current financial situation. He noted that: ³Consumers expected a substantial improvement in the financial situation during 2002, despite the fact that their assessments of their current finances were the worst in ten years.²

The report also continues by saying that consumers were optimistic that recovery was underway. Their expectations of lower inflation and that, despite unemployment, which they expected to increase slightly before it stopped, they were in a better mood about their financial health than they were six months ago when the index recorded severe lows after September 11. This expectation of lower inflation has made, according to curtain, expectations higher than they have been in fifty years.

This attitude, which is an important part of this survey, found consumers not as eager to buy homes, cars or durables. Which also means that these same consumers are concerned, and rightly so, about the amount of debt they are currently carrying, and how much that debt is costing. To see the actual questionaire that the survey uses, you can click here but you will need Acrobat Reader to view it.

Consumer Confidence takes a slightly different approach, numbers-wise, and has found that folks are feeling better about economic recovery. "While the economy has not turned around yet, the worst may well be over," says Lynn Franco, Director of The Conference Board's Consumer Research Center. "The upturn in confidence is being driven by growing confidence about the business outlook and job prospects. Consumer expectations for the future are now higher than they have been in more than a year."

But the report also noted that consumers did not feel as though their paychecks would increase throughout 2002. Consumer Confidence is based on the feeling of wealth. If you still have a job, or maybe dodged the latest round of layoffs, your confidence will be up slightly. If you have seen the last two years of market downturns as over, you will feel better about the balance in your retirement savings plans. Believe it or not, folks look to their value of their 401(k)s as a sort of wealth meter. If the balance is good, then they feel better about taking on debt in the form of additional spending.

Today's Commentary: 02.14.02
Happy Valentine's Day

Today's Commentary: 02.12.02
It depends on who you want to listen to. There was once a chance that the fiscal responsibility that we have to future generations and to those who will depend on Social Security, would come to some sort of fruition with the elimination of the federal debt. There was once a chance, this generational equity would be a reality in my lifetime (I'm 44 years old old).

If you listen to the Republicans, they make a valid point. They believe in small government. They believe that the market will take care of itself, and when that happens, the economy improves. When they economy improves, surpluses return with the prospects of good budgets. they also believe that that end result is not possible with a concentrated focus on the surplus. tax cuts, and more tax cuts, are the GOP answer to the problem of sluggish economies, even if the cuts are skewed away from the consumer and placed firmly in the hands of big business and the wealthy.

Listening to the Democrats make their point about long term interest rates having a negative effect, also carries a validity that is worth a listen. Although the Republicans point to the lack of evidence in that argument, the Democrats stand fast in their belief that when deficits exist, the federal government is in competition with the private sector for money to borrow. That, they contend, drives up interest rates. That, they contend, is a hidden tax. This hidden tax comes in the form of increased costs for borrowing for homes, cars and college. And this cycle is likely to continue for the next ten years as the deficit is increased due to costs incurred through military spending, and of course, the permanence of the $1.35 trillion tax cut passed last year.

Granted, 9.11 changed things. But a year ago, the White House said that the elimination of the public debt would be gone by 2011.

Commentary: 02.11.02
You have got to hand it to them. They, or their predecessors, are mostly responsible for the mess that companies like Enron caused those poor investors who worked for the company. Congress is well known for rolling over to the needs of big business. They are well known for helping ease regulatory hurdles so the ingenious accounting methods would become commonplace.

And after a decade of "looking the other way", suddenly everyone wants reform. The current target is the way 401(k) regulations are being applied by companies. The federal government provides tax incentives to these plans for both employees and their employers. From a Congressional point of view, or at least from the point of view of Senator Jon S. Corzine (D. New Jersey), this is money spent. What the government doesn't collect is $70 billion in taxes. Senator Corzine wants to provide some sort of cap on how investors should use their 401(k) plans.

Stop already.

Companies have been allowed to induce their employees with stock as part of their 401(k) plans because the incentives to do so are too much for the company. Why actually part with cash, when you can provide an investment in the company.

Elaine Chao, Labor Secretary doesn't want the cap for a good reason, but she's not telling us the whole story. What everyone in Washington would like you to believe is that caps are bad for employees and companies alike. They are only bad for companies.

Employees, the very ones who vote, have seen the evidence for diversity play out before their eyes in the last months. Putting too much of your retirement savings in one place should be lesson enough for every worker. But if they want to continue to subject themselves to this foolhardy philosophy, then they should be allowed to do so without governmental intervention.

If employees are faced with only one option of matched funds provided by the company, then they should chose whether they want to take the gamble or not. In light of recent events, the word gamble is an understatement.

There is a saying: 'Don't throw good money after bad." Simply, if the plan is not that good, then participate elsewhere. It is the fiduciary responsibility of the company to provide choice. Often those choices are not the best, but there is bound to be something better than tying up you hard earned cash in a bad plan.

The mentality of wealth with great ease should not be part of the equation. The days of conservative (historic averages) returns have returned. Enron employees made several critical mistakes is buying up additional shares of their company's stock. The lock on the sale was something that they were all aware of. The thieves at the top of that entity were not so well known.

Bush would like a three year cap on company matched shares. Even that is too much intervention. The best solution form our point of view: eliminate the option of purchasing company stock as part of a subsidized plan. If the stock is such an incredible value, then purchased in any form would be better than risking retirement savings.

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