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THE BLUE MONEY REPORT.
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The Blue Money Report
"Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy."
~ Groucho Marx (1890 - 1977)
Welcome to the Blue Money Report
Today's Commentary: 11.22.02
There was a time when we, in America, didn't realize that we lived in troubled times. I'm not necessarily talking about the underlying threat of terrorism that has permeated the fabric of daily life like the smell of a smokey nightclub on your clothes. I am not even referring to the constant posturing that seems to be Washington these days on the importance of engaging war with Iraq. I am more concerned that we have somehow lost our voice, our ability to vote with our hearts, talk with our feet and demand that our dollar mean something.
My daughter is now employed by a company that has negotiated a contract with a union. Protected by a pension trust, enrolled in a good health care program, and earning a living hourly wage is just part of the benefits she currently receives. In addition to all of those enviable benefits, she is also eligible for a 401(k) plan.
There was a time, in the not so distant past, when there were differences in the plans received by salary employees and those that were union. Salary folks were eligible for plans that provided matching funds a incentives to save for retirement. Union employees could only take advantage of the pre-tax benefits provided by these types of plans. Corporate cuts evened the playing field, unless you bought company stock. But the offer was still attractive for anyone in their early twenties. The power of compounding was thumping in my head.
But I failed to ignite her interest. Finally she caved, brought the informational packet over and had me look through it. She had only one requirement. She did not want to be invested in any fund that purchased any company that was not earth friendly.
I knew from a cursory inspection of the funds available to pick from that none would find her rule of purchase their rule of thumb. There simply were no green funds in the bunch. None that were socially responsible.
That missed opportunity has bugged me for over a year. Enrolling in an IRA would require more discipline and paycheck that she had and I knew her well enough that she would not stay with the time-honored notion of paying yourself first.
A 401(k) would have fit the bill perfectly. She could have found the exact percentage of withdrawn money to keep her net paycheck unchanged. It would have been one of those things that, had I been able to convince her to drop her high handed views and invest, she would be thanking me years later after I was dead and gone as she dug into a healthy nest egg of savings.
That situation has yet to change. The company has yet to offer a fund with the right charter style to match her principles. But something has changed me, or at least made me curious. Are socially responsible funds finding companies that are profitable enough to keep them on an even playing field with their eco-villian brethren?
Socially responsible investing is nothing new. It has been around for years developing a philosophy of investing that is designed to be a mesh of personal ideals and values, concerns about the planet and the societies that depend on it. These funds and the companies they invest in where the pioneers of corporate responsibility and self governance.
According to the folks at the Social Investment Forum, a non profit membership organization, the idea of promoting socially responsible investments is feasible in concept, practice and growth.
Companies are screened for more than their use of the environment and the safe, useful products they might produce for a profitable bottom line. These companies are also held to an extraordinarily high standard for employee relations, involvement in their communities and their commitment to human rights. Mutual funds, such as Ariel Appreciation (CAAPX), screen these companies first for financials and then they are socially screened. They specifically invest in no company that is involved in military or weapons production or tobacco. they also follow their asset managers criteria for the environment, employment, equity and community relations.
Domini, perhaps one of the premiere names in social investing, has crested an index of their own with 400 companies that meet these tough criteria. Their belief that investing should earn you money but also create a healthier community as a result of your involvement as what they refer to as a "stakeholder". The "triple bottom line" approach of investing in companies that are financially viable, socially responsible, and environmentally friendly smacks of hippy investing but given the current state of affairs both in Washington and on Wall Street, is providing an alternative to the current blind trust we are asked to accept. A blind trust basically is an orientation that those elected are doing the right thing; those they appoint will take care of business; and those that are in business have our best interest at heart.
If you are looking for break from the pack performance, this group of funds has done surprisingly well during this current market turmoil. The nonprofit Social Investment Forum, which tracks their own picks from this small group noted that for the third quarter of this year, 12 of the 18 screened funds (67 percent) tracked with a $100 million or more in assets received top marks for performance from either or both Morningstar and Lipper for the one- or three-year periods ended September 30, 2002. (To see a list of the equity and bond funds that we found attractive, click here.)
Could these funds be the answer to our disrupted social consciousness? Quite possibly. If you are are having reservations about what is happening corporately and politically, and many are since the GOP have taken control of the decision making in Washington, these funds may just hold the answer to sleeping better and investing wiser.
Today's Commentary: 11.19.02
"George W. Bush's administration is spending domestic money faster than Clinton, faster than... Bush, the elder, faster than Reagan. You have to go back to the Ford administration to find a time when domestic spending has risen so fast. That's not including defense spending; that's not including the prescription drugs plan that's about to be passed," David Brooks of The Weekly Standard said on the NewsHour. "It's not just Bush; it's the Congress. Fiscal discipline has just disappeared in the past year or two..."
The question is whether that is really such a bad thing.
Too often we look to our leaders for examples of fiscal responsibility, using complicated economics to govern our everyday lives when in fact we should first understand the principles at play first. Running a deficit is not such a bad thing from a governmental standpoint. Can it be bad for your family and your budget?
A deficit is simply spending more money than is brought in the form of income. Without going back too many years, deficits have brought much debate to Washington as party lines have divided on what exactly is "too" much. George Sr. lost his bid for reelection based partly on his increase of taxes to wrestle a growing federal deficit. Clinton, in 1993 saw deficit reduction as fiscally responsible and passed a deficit reduction plan in 1993. George Jr. claims his deficit spending will stimulate the economy. Is any debt okay?
Long ago, when I first entered into the working world, the true test of a person's worth was the amount of credit they were given. It was thought that you had achieved a certain level of responsiblity when lending institutions found you able to repay any loans they may have granted. The credit they extended came with as a result of your employment and the knowledge that there was a balance between the two. In other words, they knew you had the means to repay the debt.
When the government runs a deficit, it is attempting to borrow from the private sector to finance sudden and unpredicted budget oversights. They do this by financing their needs through the issuance of public debt, literally borrowing from you and I. Now remember, it is you and I who have graced them with the first round of cash, that because they have not anticipated correctly, has proved insufficient to operate the government.
When the first President Bush raised taxes, the federal deficit had exceeded 5% of the Gross Domestic Product. Real GDP is the output of goods and services produced by labor and property
located in the United States. In the second quarter, real GDP increased 1.3 percent. The figure in terms of dollars was in the vicinity of $10.486 trillion. The final numbers on the third quarter are still facing revision but it has been suggested that the GDP increased at an annual rate of 3.1 percent in the third quarter of 2002. These advanced estimates are released by the Bureau of Economic Analysis.) The current President, faced with post 9.11 security measures has pointed out that our deficit spending could exceed $200 billion per year without any real damage, given the continued growth of the economy.
In the budget you run for your family, the scenario plays itself out quite differently. Spending in excess of what you bring in forces you to borrow to make ends meet. The lender will allow you a certain percentage of what you make, your personal GDP, to accomplish whatever need you have to spend more than you earn. There is very little likelihood that you are using the money for the same reasons that the government does.
In the past, deficit spending by Washington was considered fiscally irresponsible. The public had an obligation, a the popular rhetoric of the times suggested, to the future of the nation by running zero deficits. But it is important to understand that zero deficits become more of an ideal rather than an actual attainable goal. Deficit spending, done in moderation can actually stimulate the economy through job creation, a function that a less than healthy economy may not be able to do in the private sector. On the other hand, it removes money from the capital markets that may have created those very jobs.
So who is right? Those that preach fiscal austerity or those that see running a deficit in the here and now as sound economics. Both are. There is the factor of low inflation. This makes the money worth more and therefore more attractive to borrow from the citizens through the capital markets. Using the money to extend unemployment benefits, train workers whose jobs have been removed by the changing economy, creating a revised Social Security based on matching contributions in a progressive savings would find the money well spent. Using the money to further tax cuts for specific groups of citizens or losing focus of homeland security would be a poor use of money that would otherwise be spent on fixing an economy that is stumbling along.
On the home front, using borrowed money to remodel your home, send a kid to college, or consolidate loans that were made with poor judgment are signs of good fiscal responsibility. Borrowing for a big screen television, a vacation that cannot be paid for from the regular GDP of the household, would be signs that you have not considered the long term effect of what you are doing.
Running a zero deficit may be an ideal that is not feasible right now, but it shouldn't be lost in the shuffle of spending on projects that have no long term benefit.
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