The consumer confidence index fell in September, according to preliminary figures released this week by the Conference Board. That decline was largely because of lower expectations.
A rise in consumer confidence, and/or a resurgance in business investment (calling all animal spirits!), would turn an anemic recovery into a robust one overnight.  FDR was speaking pure economics when he said, “The only thing we have to fear is fear itself.”

Political Prattle
Responding to a CNBC interview in which famed former General Electric CEO Jack Welch discussed the risks of the Obama administration’s “anti-business” bias, Daniel Gross, economics editor for Yahoo Finance makes the counter argument that the administration is actually following a much more moderate course than the overheated rhetoric might suggest.
 
He starts with a historical note, reminding us that former Bush advisor Michael Boskin declared in a March 2009 Wall Street Journal article that “Obama’s Radicalism is Killing the Dow.”  That was when the Dow stood at 6,600, before proceeding to rise 79% to its current level.
 
By highlighting this article, we’re not trying to take sides in a political debate so much as suggesting that the sour and sometimes apocalyptic tone of public pronouncements on all sides is no guide to the current state of the economy (though a sad commentary on the current state of political discourse in this country, to be sure).  Read the rest of the article here: finance.yahoo.com/banking-budgeting/article/110813/why-jack-welch-is-wrong-about-obama?mod=bb-budgeting
 
Recession-Proofing Your Life
While we believe the risk of a “double-dip recession” is remote, and growing more so with every passing day, it seemed like a good time to revisit an article Dave published in Boomer Living last year on “recession-proofing your life.” The advice contained therein is as sound as ever for anyone wishing to build some resilience into their financial lives.
boomer-living.com/2009/01/recession-proofing-your-life/
 
Stretching a Dollar
And speaking of financial resilience, one of the most powerful things you can do to take control of your finances is a solid focus on cash flow.  We all have “leakages” that slip by largely unnoticed, like that addiction to a daily Caramel Macchiato that quietly adds up to $1,600 a year.  A great site for learning how to get by on less is The Dollar Stretcher (stretcher.com).  The site contains everything from tips for teens to sources of free firewood, not to mention the hidden costs of everyday items.  Our friend Dick Wagner once said that at its most basic, financial planning boiled down to “spend less, save more, and don’t do anything stupid.”  Dollar Stretcher can certainly help with the first part of that equation.

Yeske Buie in the News
Dave was quoted by Kathleen Pender in an SF Chronicle article asking the question: “Is the flight to bonds inflating the risk?”  Here’s an excerpt:
 
Early last decade, “clients were asking me why they shouldn’t take all their money out of the stock market and buy real estate. Now they all want to go into the bond market,” says David Yeske, managing director of Yeske Buie. “It sure smells like tech stocks in 1999 and real estate in 2006.”
 
Read more here:
sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/09/12/BUID1FBH1E.DTL

Yeske Buie has a new website!
If you haven’t already seen it, visit our new website at yebu.com.  Our site has been completely revamped with a new look and feel in both the main site and our Client Private Pages.  As always, our site is a work in progress and exists to serve you, so please share any comments or suggestions you may have.
 
What’s in your kit?
We’ve long recommended that everyone prepare for disaster by “making a plan and making a kit,” whether your biggest risk is the next hurricane or the next earthquake.  Our prescription for the emergency kit was always long on first aid kits, flashlights, food, and water.  However, a recent Red Cross sponsored email from Jamie Lee Curtis reminded us that there can be a lot more to a kit than that.  Here are some of the responses she received when she asked members of the American Red Cross community, “what’s in your kit?”
 
“iPhone and charger, food to share, books and more books, sweats!” – Sue, NJ
 
“Pack food and any needed medications for your pets.” – Judy, NC
 
“Bible, bed pillow, family pictures, etch a sketch to be creative.” – Carol, IN
 
“Personal items that remind you of home, such as family pictures.” – William, MS
 
“Cash in small bills and coins.” – Dennis, IL
 
So, what’s in your kit?  Share your special ingredients with us and we’ll pass them along in a future edition of the Live Big Digest.  And find more information at redcross.org/domore

Early last decade, “clients were asking me why they shouldn’t take all their money out of the stock market and buy real estate. Now they all want to go into the bond market,” says David Yeske, managing director of Yeske Buie. “It sure smells like tech stocks in 1999 and real estate in 2006.”

read Kathleen Pender’s full column

As always, the true pattern is only perceptable when looking back over months or years, but the daily noise is ceaseless.  While the long-view is the hardest perspective to maintain, it is surely the one that serves us best.  And with another 9/11 anniversary upon us, it might be a good time to indulge in some contemplation of that long-view.

Here’s wishing you a pleasant and restful weekend!

The Good Old Bad Days

The U.S. economy remains almost comatose.  … The current slump already ranks as the longest period of sustained weakness since the Great Depression.  … Once-in-a-lifetime dislocations … will take years to work out.  Among them: the job drought, the debt hangover, the defense-industry contraction, the (banking) collapse, the real estate depression, the health-care cost explosion and the runaway federal deficit.That’s how Time described the dismal state of the U.S. economy – in September 1992 . The passage has been making the rounds in financial circles, a token reminder that today[s pessimism – the forecast of a “lost decade” for U.S. employment by Pimco CEO Mohamed El-Erian, for example – may turn out to be too extreme.

Almost before that Time article reached the recycling bin, the U.S. economy was humming again. Real gross domestic product rose 4.3 percent, both in the fourth quarter of 1992 and on a year-over-year basis – and for the rest of the decade America never looked back. The recession that officially ended in March 1991 lasted just eight months, one of the shortest U.S. downturns ever; it took another year to produce consistent job growth. Soon, however, the jobless recovery that helped elect Bill Clinton in 1992 ushered in a decade of prosperity, with 23 million new jobs created. By the spring of 1997, unemployment had fallen below 5 percent – a 24-year-low – yet inflation was holding steady at around 3 percent, with consumer confidence near an eight-year high. No wonder Clinton was beginning a second term.  (Businessweek, September 9-12, 2010)

——

The above are the opening paragraphs of an interesting piece that appears in the latest issue of Businessweek.  The article goes on to highlight the many ways in which our current conditions differ from those in 1992, but it serves nonetheless as a timely reminder that the future that seems so obvious in the present moment will likely prove a surprise.  Read the rest at businessweek.com/magazine/content/10_37/b4194004949598.htm

Quoted

“It’s time to recognize that many balance sheets in the U.S. are not just illiquid.  They are insolvent. And you cannot make large levels of this private debt disappear just by waving your hand.”-          Carmen Reinhart, professor of economics, University of Maryland, on the debt crisis in America.

“There’s an awful lot of positive stuff here in our numbers today.  … It generally takes four or five years to stabilize the whole (housing) market. We’re into about four now.”-          Karl Case, co-creator of the S&P/Case-Shiller home-price index.

The pace of economic recovery is slowing.  Second quarter economic growth in the US was revised downward last week from 2.4% to 1.6%.  At the same time, unemployment moved up a notch and home sales moved down a notch (or two).  Fed Chairman Ben Bernanke, observing these developments from the monetary policy meeting in Jackson Hole, suggested on Friday that a little more fiscal stimulus might be welcome.  He knows, of course, that this is currently a political non-starter.  Writing in yesterday’s New York Times, meanwhile, Laura Tyson, UC Berkeley economist and past chair of the president’s council of economic advisors, made the case for why the slowing recovery calls unambiguously for a second stimulus.  And just to round things out, Nobel Laureate economist Paul Krugman has declared that this is not a recovery in any meaningful sense of the word unless the pace of growth is fast enough to bring down the unemployment rate quickly and significantly. Few are predicting that the economy will resume such a pace this year.

The news is not all dire on the policy front, however.  Notwithstanding the lack of consensus for a second stimulus, the White House is pressing forward with several initiatives that could help.  None are anywhere near the scale of last year’s stimulus package, but each could have an incremental impact.  And, while noting that the Fed does not possess unlimited power to regulate economic growth, Chairman Bernanke nonetheless observed that the central bank still has policy options in its toolkit and made clear its commitment to using any and all of them to keep the recovery on track.

One of the things holding down the pace of recovery is the “savings binge” that consumers have engaged in as they work to pay down the excessive debt levels acquired during the real estate boom.  Businesses, likewise, are holding back on new hiring and fixed investments that could create a much needed boost.

While the “animal spirits,” as John Maynard Keynes termed business sentiment, have left American business people in a pessimistic mood, sentiment can change suddenly, dramatically, unpredictably. In this vein, it’s worth noting that American businesses are now sitting on a record $1.6 trillion in cash reserves, the deployment of which would cause a dramatic shift in direction for the economy.  Consumer and investor sentiment is likewise subject to unpredictable swings.  In the long run, I suspect that one counts out the American consumer at one’s peril.  Today, in fact, it was reported that consumer spending had risen in July, after four months of decline.

The real point of enumerating the foregoing pluses and minuses is this: I don’t know what’s going to come next for the economy.  No one does.  No one you see speaking on TV and no one you see quoted in newspapers or magazines knows what’s coming next.  There is sometimes an illusion of prescience, created by the fact that every possible outcome is being predicted by someone, every minute of every day.  As we look back at how events have unfolded, inevitably someone will have “called it right.”  That in itself isn’t particularly impressive.  What would be more so is if the same person got it just right again and again and again.  There’s not much evidence for that.

Of course, if someone did possess perfect foresight, they would never diversify.  Diversification is only a reasonable strategy in the absence of such prescience.

So, coming back to my opening question:

How are we to know what to do when times are so scary?  The answer, prosaic as it may sound, is to show up with a plan from the start.  And then stick to it (scuba divers like to say “plan your dive and dive your plan;” a good motto for our financial affairs as well). There’s a reason this is so hard to do, however.  As I’ve noted in prior writings, neuroeconomists have established that the prospect of financial loss activates the part of our brain called the amygdala. The amygdala is where our “fight or flight” responses live, so, naturally, when this part of our brain lights up, we feel the urgent need to DO SOMETHING!  This is certainly a functional response when one is being physically attacked, but far less so when it involves one’s portfolio.  As long as there are sufficient cash reserves to serve as an emergency fund, and as long as there are sufficient stable bond reserves to meet spending needs in retirement for five or six years, there really is no reason to take action when it appears that the economy might be hitting a bump in the road.

So, the motto should be: Plan Your Life and Live Your Plan.  And the next time the doomsayers are splashed across the front page of your newspaper, put it down and take the dog for a walk.  You’ll both feel better for it. And as Roger Lowenstein, pointed out in Friday’s New York Times (Taking Stock): “it is generally more lucrative to sell prophecies of doom than to act on them.”

The Yeske Buie Team

For a quick refresher on how we got here, you might want to revisit our webinar from April of last year, “The Perfect Storm: How We Got Here and Outlook for Recovery” (yebu.com/resources/webinars/). Following that webcast, the markets began a steep recovery, with the Dow gaining nearly 60% from its March 9 lows by the end of 2009.  The index is currently off that year-end mark by about 7%.

One of the things we’ve always been clear about was that the dramatic recovery in the markets after the first quarter of last year was more about the “Armageddon scenario” being taken off the table than it was about immediate prospects for economic recovery.  Markets do a good job of processing information about the prospects for the economy in general and stocks in particular, but late 2008/early 2009 was a time when information about the true scope of the problem was in short supply.  Under such circumstances, investors often assume the worst.

Everything that followed was – and will continue to be – based on expectations for the pace of economic growth.  Which brings us to the recent turmoil in the markets, driven, at least in part, by renewed concerns that the recovery here and abroad will be anemic at best.  Even Federal Reserve chief Ben Bernanke has recently suggested that the projected rate of economic growth – estimated at 3.5% for 2010 - won’t be fast enough to provide rapid relief from high unemployment rates.

A slower than average recovery, however, isn’t the end of the world.  A few have suggested that we’re witnessing a paradigm shift, that “this time is different” from prior economic downturns and subsequent recoveries.  Well, in some sense that’s true, as every downturn and every recovery follows its own unique path.  But as Mark Twain famously quiped: “history may not repeat, but it sure does rhyme.”  The fact is that “the economy” is nothing more than the aggregation of the individual decisions of consumers like you and me and everyone we know about how to spend and save and invest.  It’s likewise the aggregation of all the collective decisions that you and me and everyone we know make as part of businesses and other enterprises in adapting to changing external conditions.  Human beings are ultimately creative and adaptable, which is why economies, absent major structural hurdles, tend likewise to be creative and adaptable. The isolated counter-example doesn’t disprove the fundamental truth in that statement.

How we manage risk in the face of the uncertain path of economic recovery has several components.  First, we ensure that you have adequate stable reserves to meet your projected needs in the short run.  These stable returns take the form of cash and bonds.  You may recall that we increased your allocation to bonds late last year when we updated your portfolio targets.  Next, it’s important to broadly diversify any allocation to stocks.  Stock allocations should be spread across different size categories (large, mid-cap, and small) and all around the globe.  You should also be broadly diversified within each of those categories.  Finally, there needs to be a disciplined approach to monitoring and rebalancing in place, so that we can exploit the subtle shifts among asset classes and continuously position the portfolio to capture whatever returns the markets choose to offer.  We use all of these techniques in positioning your portfolio for an uncertain future.  You can get an extended description of our philosophy and approach from our webinar “Sound Portfolio Management” (yebu.com/resources/webinars/).

As always, you will find extensive portfolio and tax reports on your Client Private Page.  Don’t hesitate to check in with us if you need help accessing it.

Take care and talk to you soon,

Dave

Es un indicador similar al que en su día creó Adam denominado Alfayate Buy Value (podéis seguir su blog aquí) pero que tiene en cuenta detalles que me gusta incorporar en mis análisis, como son las señales atlas y la cercanía a las subidas o caídas libres.

Como he dicho está todavía en fase de desarrollo porque un indicador así lleva mucho trabajo, pero ya os puedo traer alguna captura del mismo y los valores con mejor puntuación durante la semana actual y la pasada del USTech150.

Henkel (HEN):

AEDES (AE):

Un saludo!