Friday, November 21, 2008
Everyone wonders why we got into this mess. One place to look is tax policy.
Back in the ‘80s, we lowered the tax rate and eliminated a lot of deductions. But a few stayed. Specifically, mortgage interest is deductible for consumers but corporate dividends are not deductible for companies. Since that time, mortgage debt has exploded and corporate equity has contracted a percent of our economy.
This isn’t an issue of national irresponsibility. This is a matter of getting what we pay for. Washington has decided to subsidize home ownership and to penalize corporate dividends. Is it any wonder that we have an surplus of mortgage debt and a dearth of corporate equity in this country? Now we’re seeing some of the unintended consequences.
The national scolds all say that we’re headed for a time of national retrenchment, with consumers increasing their savings because they’re “supposed to.” But I don’t see it unless and until Washington stops subsidizing debt and penalizing savings. Because, when it comes to our money, taxes speak louder than words.
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You Get What You Pay For [1:04m]:
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Thursday, November 20, 2008
When markets get scary and volatility gets crazy, you need to adapt your attitude.
An ancient Chinese curse goes something like, “may you live in interesting times.” Well we’ve been living through interesting markets. But they don’t have to be a curse if we have the right mind-set.
And that’s rule #5 for whitewater investing: enjoy the ride. We have to change our approach to the market if we want to profit from today’s turmoil. Some compare a bear market to a sale at an investment store. We can buy the same, name-brand merchandise for half the price we used to pay. And in many cases, those companies are just as profitable, if not more so now, than they were before the downturn. If we get energized by a sale at our favorite retailer, why not get excited about finding Wal-Mart in the bargain bin?
The ups and downs of the market don’t need to be frightening if we see them the right way. If we view investing as a journey and we learn to enjoy the ride, getting there can be half the fun.
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Whitewater (Part 5) [0:59m]:
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Wednesday, November 19, 2008
Whitewater rules are different than flat-water rules. And if you want to survive and even thrive when things get rough, you need to adapt to the new conditions.
Rule number four is to be flexible. Your strategy may not need to change, but your tactics probably do. Rapidly changing investment conditions may make some securities extremely cheap or expensive. You may need to adjust your thinking to take advantage of them.
An example right now would be TIPs, inflation-protected bonds issued by the Treasury. Right now the expectations for future inflation are so low that TIPs are very cheap. In fact, in order to justify holding regular Treasury bonds versus TIPs, you’d have to expect inflation to average less than 1% for the next 10 years. With the Federal government printing so much money to get us out of the financial crisis, it’s a pretty good bet inflation won’t stay that low for very long.
Roiling markets can splash up some real bargains now and again. When the market changes, you should, too.
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Whitewater (Part 4) [1:01m]:
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