News & Commentary 8.16.12
"Everything is changing. People are taking their comedians seriously and the politicians as a joke.” Will Rogers
Presidential elections are always important, and this one perhaps even more so. The campaign rhetoric from both sides will only become more pointed. Don’t lose your sense of humor, and let’s keep it civil, folks.
“There is nothing wrong with America that the faith, love of freedom, intelligence, and energy of her citizens cannot cure.” Dwight D. Eisenhower
Perhaps so, but Full Faith & Credit isn’t what it used to be! It’s been over a year since the US lost its coveted AAA credit rating by Standard & Poor’s. So how have markets reacted since then? Stocks declined during the third quarter for 2011, but since then have rallied despite angst over the domestic economy and European woes. The returns in the bond market have been even more surprising. At the time of the downgrade, the 10 year US Treasury bond yielded 2.56%. Since then, the value of that bond has increased, reducing the yield to 1.80% today. We would normally expect both stocks and bonds of a country to decline after a downgrade. While things are certainly not rosy in the US, we remain the worlds “cleanest dirty shirt.”
“The cult of equities is dying”
So said bond king Bill Gross of PIMCO, as well as that stocks “operate like a Ponzi scheme.” This sentiment, from the man who made his name and fortune in bonds, should perhaps not come as a surprise. Gross points out that stocks have averaged a 6.60% annual inflation adjusted return since 1912, but feels that due to slower global economic growth that rate is not likely to be duplicated in the future. This prediction remains to be seen, but all the more underscores the benefits of holding broadly diversified assets with reduced correlations and different expected return streams.
“Seventy-six trombones led the big parade, with a hundred and ten cornet close at hand ...”
As the financial world expects rescue from the Federal Reserve and European Central Banks, some are reminded of Harold Hill from The Music Man. In this musical production, Harold Hill convinces the citizens of River City, Iowa to buy band instruments and instruction from him, and they blindly agree believing this will solve many of their town’s problems. The problem is that “Professor” Hill cannot play a note… Are our central bankers today’s music men, and are we desperate enough to believe that they can rescue the world with another monetary tune? Though their intentions were good, instead of producing growth the Fed may have become part of the problem. The ripple effects of extended low interest rates continue to impact the nation’s consumers, savers, and retirees. Not to imply that Bernanke and his music men are deliberately attempting to con the public; they truly are trying to conjure up growth. But like the citizens of River City, perhaps it is partly our own fault that we allow ourselves to be fooled because we want so badly for their promises to be true.
The Six Things Most Important Things I Must Do Tomorrow
Around 100 years ago, Mr. Charles Schwab, president of Bethlehem Steel, wanted to increase his efficiency in managing the massive steel company. Mr. Ivy Lee, a well-known efficiency expert of the time and associate of John D. Rockefeller, approached Mr. Schwab.
Lee promised to increase the Schwab’s efficiency if allowed to spend only fifteen minutes with him. Better yet, this offer would cost Bethlehem Steel nothing up front.
Lee offered that after three months, Schwab could send him a check for whatever he felt the services were worth. Schwab dubiously agreed to the deal.
The following day, Lee met with Schwab, asking him first about his vision for Bethlehem Steel. Lee then asked him to write down the most important tasks he had to complete the following day directly linked to achieving this vision. He assigned that for the next ninety days, before leaving his office at the end of the day, Schwab would make a list of the six most important things he had to accomplish and number them in their order of importance. This consultation took only 10 minutes of Schwab’s time.
Lee told Schwab: “Scratch off each item after finishing it, and go on to the next one on your list. If something doesn't get done, put it on the following day's list."
Schwab followed Lee’s instructions. Three months later, Schwab studied the results and was so pleased that he sent Lee a check for $35,000 – a princely sum considering at the time the average worker in the US was being paid $2 per day.
If Schwab, one of the smartest businessmen of his day, found this advice so valuable, I decided I would follow it, too.
Each night before going home, I put together my list for the following day. If I don't get something on my list accomplished, it goes on the next day's list. I put the hardest or most unappealing task at the top of the list. This way, I tackle the most difficult item first, and once it's out of the way, I feel my day is off to a good start.
This is known as the Ivy Lee Method, and I hope it is helpful to you!