Patience & History

"Teachers teach because they care. Teaching young people is what they do best. It requires long hours, patience, and care." - Horace Mann

As a child, I remember hearing this quote, and for whatever reason, it has always stuck with me. Being married to an educator, I have seen firsthand how educators must be patient and caring while spending their time and usually money on students. It is obviously a very honorable thing to be part of and see, and when the student succeeds, it makes it all worth it.

Thinking about patience, how patient are you with your investments?

When the market moves lower, I can see and hear people rushing for safety. The problem I have always had with that approach for educators is that as educators with pensions, most of you already have a very sizable safety net. This is not the same for "business people," so any advice to them may be somewhat different.

Over the past few weeks, I have received a few e-mails asking me about getting back into the market now since things have stabilized. Most of these individuals had been completely in cash because they were worried about losing money even though all of them were fairly young educators. The issue here is long term, long term, long term and diversify, diversify, diversify!

The stock market has moved up roughly 50% from its March lows, and the S&P index is up 13.95% for 2009. Most investors (whether old or young) should have had at least something invested during 2009.

Going back to previous posts of mine from January (2009 Investment Options for Your 403(b)), March (Current Investment Options), and April (Is History Repeating Itself? - Looking Forward on the Market) regarding the market and investments, the emphasis has always been on looking forward by looking back through history.

We teach our students by explaining to them what has been learned throughout history. Whether the subject is math, science, English, or history, the knowledge that we have gained to teach our students has been through a progression of time. For example, Archimedes and Pythagoras for math, Newton and Einstein for science, Shakespeare and Dickens for English, and well, everything for history.

The stock market and the economy are somewhat the same way. The market looks forward, unemployment lags, etc., etc.

One of the best minds we currently have working for us is Federal Reserve Chairman Ben Bernanke. As an academic scholar in the 1980's Bernanke studied The Great Depression from causes to effects and how the system could have behaved better. In fact, back in 2007, there was a blog from The Wall Street Journal, Real Time Economics, that discussed how Bernanke's past experience may help us in the future - Why Bernanke’s Great Depression Research Matters Today.

I mention all of these things not to discuss what you should have done earlier this year, but to explain how all of us can learn from this past market for future markets. My job requires me to learn from past successes and mistakes, so that I can do better in the future for my clients. I know as educators each of you also learn through the years about various ways to teach. Please use that same approach in other areas.

Remember the lessons of the past year for the future years. The market can be a great teacher in its own right.

Back to School & Points of View - August 7

It is the last "pre-school" weekend for my wife. Basically, she is in organization mode to get ready for the planned invasion on Monday morning. I always wonder if she is going to make it through the onslaught of battle on Day 1. As I heard one of colleagues say to a new teacher, there are only 30 "first days" in your career, but they set the tone for the entire year.

Yes, Monday morning the kids go back to school in most systems here in Georgia, so the tension, excitement, new clothes, and all will explode on Monday in what has become a global phenomenon... the back-to-school traffic jam.

If you don't work in education or have kids, either leave to get to work early or go in at least an hour late... either way, unless you like reading bumper stickers over and over and over again, you'll thank me. I admit it. I have made the mistake numerous times myself, but I have finally had it drilled into my brain. Atlanta traffic is bad DAILY, but add in the first day of school, and it looks like the rush to get the latest, greatest kid's toy for Christmas at the one store in town that has it.

The main point I want to make though - Good luck this year to students, parents, and educators!

Points of View

I heard from a number of people about how much they enjoyed reading the various editorials on education "all in one place" versus trying to sift through everything themselves. Since this seemed to be something that many of you liked, I will try to do this every month or so as the number of articles warrants.

Since everyone is probably busy with back to school issues, I have put numerous articles here for you to print, read, and enjoy when you have some time. Whether you agree or disagree (tried to get some varying opinions), hopefully the articles give you something to think about and discuss with your colleagues as everyone heads back to school.

Washington Steps Up on Schools - The New York Times - "The federal government talks tough about requiring the states to improve schools in exchange for education aid. Then it caves in to political pressure and rewards mediocrity when it’s time to enforce the bargain. As a result, the country has yet to achieve many of the desperately needed reforms laid out in the No Child Left Behind Act of 2002 and other laws dating back to the 1990’s."

Obama’s ‘Race to the Top’ - The Wall Street Journal - "The Obama Administration unveiled its new “Race to the Top” initiative late last week, in which it will use the lure of $4.35 billion in federal cash to induce states to improve their K-12 schools. This is going to be interesting to watch, because if nothing else the public school establishment is no longer going to be able to say that lack of money is its big problem."

Letters to the Editor: Tennessee Is a School Reform Leader - By Bill Frist - The Wall Street Journal - "Your July 31 editorial, “Obama’s ‘Race to the Top,’  ” highlights the ongoing struggle to reform our nation’s schools and some of the hurdles President Obama and Education Secretary Arne Duncan may encounter from established education advocates, particularly teacher unions. Systemic and meaningful reform cannot occur without all stakeholders working together."

Administration Takes Aim at State Laws on Teachers - By Sam Dillon - The New York Times - "The Obama administration took aim on Thursday at state laws — adopted after heavy teachers’ union lobbying — barring the use of student achievement data to evaluate teacher performance."

Pay Your Teachers Well - The Wall Street Journal - "The conflicting interests of teachers unions and students is an underreported education story, so we thought we’d highlight two recent stories in Baltimore and New York City that illustrate the problem."

Racial Gap in Testing Sees Shift by Region - By Sam Dillon - The New York Times - "... black students have made important gains in several Southern states over two decades, while in some Northern states, black achievement has improved more slowly than white achievement, or has even declined, according to a study of the black-white achievement gap released Tuesday by the Department of Education."

As Charter Schools Unionize, Many Debate Effect - By Sam Dillon - The New York Times - "Labor organizing that began two years ago at seven charter schools in Florida has proliferated over the last year to at least a dozen more charters from Massachusetts and New York to California and Oregon."

Opportunity for Politicians’ Children - By John Fund - The Wall Street Journal - "My vote for the worst scandal in America right now is the education monopoly that keeps poor, inner-city kids trapped in failing public schools. Special mention here goes to the politicians who oppose giving these children the choice to escape even as they send their own kids to private or elite public schools."

Market Update - August 2009

My firm, Rollins Financial, has a daily blog that deals more with general market news and information, but at times, we also focus on the past month, quarter, etc. Since we have been talking about a variety of topics outside the market (it has been doing very well), I wanted to pass along our most recent take. This is essentially just a summary of items, but it points out some very good things to think about...

August 2009

The U.S. economy has posted negative growth over four consecutive quarters now, which is the first time in over 60 years that such a string has occurred. However, the second quarter 2009 GDP was only negative by 1%, beating most analysts’ expectations. And most are forecasting positive economic growth in the 3rd and 4th quarter, some even predicting rather robust growth of 3% on an annualized basis for the third quarter. Housing prices also showed some stabilization, as the index showed a slight rise in housing prices from April to May. This was the first positive monthly change for the index since the housing crisis began.

Equity markets have been the most glaring beacon, pointing to encouraging economic trends in the near future. Stocks continued their five month advance during the month of July, even in the face of some ominous news. Unemployment closes in on the 10% mark and the aforementioned persistent negative economic growth has consistently been in the headlines. Stock markets typically start to rebound long before there is any evidence of an economic turnaround. This market action sometimes puzzles analysts and investors who are focused on the current economic numbers, although the same pattern has emerged time after time. The recent market surge has added nearly 50% from the March lows. This compares favorably to the average 24% gain that has historically followed recession lows in the stock market.

The Dow Industrial Average reached the 9000 level for the first time since last October. While the recent turn in the markets feels good compared to where we were in March, we are sure that investors are well aware equity levels are still roughly one-third of the record highs of October 2007. In essence, we will need to see considerable economic progress before we get back to those lofty levels.

Almost all asset classes marked gains for the month of July except for oil and gold, which are off their highest levels of the year. But most categories of stocks, bonds and other commodities all posted varying degrees of gains for the month. The standouts for the month were developed international stocks and emerging market stocks, which gained 10%, and 11%, respectively, for the month of July. Emerging market stocks have outperformed nearly every other class, posting a gain of 44.4% for all of 2009.

China, Brazil and India have weathered the financial crisis better than some might have expected and have also benefited from rebounding commodity prices. China, for instance, is sitting on $2 trillion in reserves, with which they can use to invest and stimulate their economy. It’s nearly unimaginable for Americans to consider the envious Chinese position, holding all of those savings just as assets across the globe are on sale.

The broadest U.S. stock market index measured by the S&P 500 gained 7.6% for the month of July and is now positive by 11% for the year, through July 31st. The technology focused NASDAQ advanced 7.9% for the month and an impressive 26.2% since December 31, 2008. Technology companies’ strong balance sheets and relative earning resilience has transformed the once speculative sector into a safe haven for investors. The Dow Industrial Average managed to make it into positive territory for the year, posting gains of 8.8% for the month and 6.6% for the year.

High yielding corporate bonds as well as high grade corporate issues have also rebounded well throughout 2009. High yield bonds posted gains of 7% just during the month of July and have advanced by 18.1% for the year. Investment grade corporate bonds achieved a gain of 4.6% for the month of July and 9.3% from the start of the year. Corporate bonds of all stripes were all sold down last year as the threat of economic distress and massive defaults seemed imminent. U.S. treasury bonds, last year’s safety trade, are one of the lone losers this year. Long-term treasuries are down 19.1% for the year, medium-term treasuries have lost 5.9% for 2009, and even shorter-term government bonds have posted small losses year to date.

There is much debate about what the U.S. treasury markets price action means this year. We saw investors flood into the safest investments (U.S. treasuries) denominated in the safest currency (U.S. dollar) on earth as the financial crisis was unfolding. This was evidenced by the historic rally in treasury prices in 2008, accompanied by a surging U.S. dollar.

As the crisis abates, we are seeing those same investors move capital into riskier assets denominated in riskier currencies. These other investments are priced to offer higher potential returns than good old U.S. treasury bonds. This, in our opinion, is the most significant influence – treasury prices and the U.S. dollar. The enormous supply of new treasuries will undoubtedly send yields somewhat higher, all else equal. But we take recent market action as evidence that investors’ appetites for risk, and inflation expectations, continue to be the most significant drivers of interest rates required on U.S. government debt.

As we have said, we are encouraged by the recent rally in the stock markets. In our view, the rally since March has largely been a product of simply avoiding a Depression scenario. A Depression was never a likely outcome considering the unprecedented, while controversial, actions of the Federal Reserve and the Department of Treasury. In addition, there was constant chatter about a collapsing banking system or the only apparent alternative, a nationalized banking system.

There are consequences to these extraordinary measures and bailouts, which most likely saved the economy from even higher unemployment and even slower economic activity. There will be the endless hearings and concern over who benefited more or less in addition to some new regulations and reinstatement of some old regulations. Some additional financial institutions deserved to die, some Wall Street bankers continue to receive grotesque bonuses, and the government influence during this period can make us all uncomfortable.

This environment of bailouts and unprecedented government intervention is not the norm, however, and isn’t likely to be standard practice in the future. Capitalism will survive and thrive, just as it has post the Great Depression when new regulation and many of the government programs we take for granted were created. American style capitalism has been proven as the best economic system in the world, and is likely to remain the model of economic success in the years to come.

Tax-Free Holidays - Don't Miss Them!!

How do you know the summer is over? Check the stores and if they are packed... it must be a tax-free holiday for back to school items. It happened this past weekend in Georgia and Mississippi, and it is important to try to make the most of it.

Some counties in Georgia actually start school TODAY. My wife's county, Gwinnett, has pre-planning this week, then school starts next Monday. Yes, as she always says, "The party's over..."

For those educators around the country, plan your supply shopping around the tax-free weekends if possible because even though you only save on the sales tax, many retailers are also using it as a way to promote sales of other various items.

Below is a list of the states with tax-free weekends, the dates, and a link to each state website giving details on how you can save. Good luck!

• Alabama - August 7-9
• Connecticut - August 16-22
• District of Columbia - REPEALED - Canceled due to legislation
• Iowa - August 7-8
• Louisiana - August 7-8
• Missouri - August 7-9
• New Mexico - August 7-9
• North Carolina - August 7-9
• Oklahoma - August 7-9
• South Carolina - August 7-9
• Tennessee - August 7-9
• Texas - August 21-23
• Vermont - August 22
• Virginia - August 7-9