December 23, 2008


The past few weeks have been a blur, so I wanted to pass along some of my thoughts on different issues:
  • Madoff Comes Clean - I am all about telling the truth in financial matters, but the revelation the Bernie Madoff had a $50 billion Ponzi scam was too much. In a year when investors are already not trusting the stock market, something like this is just plain absurd. The problem here is that Madoff's firm held the money, invested the money, accounted for the money, and sent the statements. He was the advisor and broker-dealer. The SEC just fell asleep here.
  • Investing - I have recently heard from some neighbors that were questioning whether to ever invest again. I think that the interesting thing here is that most of them have benefited from the growth of the stock market, and now, they want to change that mind set. When I discussed many items with them - 401(k) investing, stock options, company matching of 401(k) contributions, and the lack of return on money markets and CDs - they suddenly decided that we must indeed still invest in the market, but we must "fix" it.
As someone that loves history, I have gone back through everything that I can find, and the issues of 2008, may indeed end up being a positive. If we go back and look at the problems of the late 70's and early 80's, there was a drastic need of change.

Inflation was absolutely out of control. Fed Chairman Paul Volcker set out to get it back under control by raising interest rates to unheard of levels. The "prime rate" for the best borrowers hit 20% - compare that to 3.25% today. This action killed the economy, but it brought inflation under control, and it helped lead to the "bull market" of the late 80's and 90's. What is interesting here is that this was the last time you could have your money in CD's and actually get a decent rate of return (15%+), but with inflation at 18%, you were still losing money.

The main thing I am trying to point out is that the problems of today should be resolved within a short time period. This is not to say the stock market will go straight up, but if the financial system and economy can be "realigned," the country and world economy should start to be back on track. If you remember my last post, all of the programs that came about after the Great Depression - FDIC, Unemployment, Medicare, Social Security, etc. - were in response to that financial turmoil. These are all things that have now benefited the citizens and economy currently.

It has been a tough year in the markets, but with negatives can come positive adjustments. The housing markets and mortgages will be fixed, the financial system restabilized, the automakers (hopefully) revamped, and a system that will benefit both the free markets and government sectors.

If President Elect Obama does come in and spend money on education, it will be a positive both today in terms of jobs and funding, but additionally in the future with better equipped children. Educators are at the forefront of society literally making a difference day in and day out, and there must be a system in place to allow them to continue to succeed.

I wish your families and you a Safe and Happy Holiday season and a prosperous Happy New Year!

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