INFLATION OR DEFLATION??

March 2009 Newsletter by Joseph W. Harowski, CFP

We have been on a roller coaster the past several months concerning everything from food and gas prices to the stock market to certificate of deposit rates.  Volatility is what happens when the country operates in crisis mode.  No one really knows what to do or what is coming next.
The recent slide in food and gas prices has certainly been a welcome relief to consumers and investors as $4.00 gasoline was starting to crimp discretionary spending levels of every consumer.  Now oil (as of February 19th) is trading at $36 a barrel.  Much like the recent stock market slide from 14,100 on the DJIA to 7300, is $36 oil real and sustainable?  Probably not.  My belief is that both the stock market and oil prices will stabilize and find a level somewhere between the two extremes we have seen recently. The fact is, stocks do nothing most of the time, it is only during these periods of extreme volatility (both up and down) that we pay attention.

So what are we looking at….inflation or deflation?  Again, with all of the volatility out there, one can make an argument for both.  What if inflation rises but wages stay the same and consumer spending stagnates?  What if inflation drops, consumers continue to keep their wallets shut and prices decline?  Both of these scenarios would be troublesome for the economy as both inflation and deflation causes pain for consumers and investors alike.

The stimulus spending the government has undertaken to stem the economic slide seems to suggest inflation is sitting around the corner somewhere in our future.  I recently spent a few days in Las Vegas listening to economists discuss the recent government actions and none of them were too optimistic about a recovery in 2009.  I also heard T. Boone Pickens speak on alternative energy.  He believes the Obama administration will get our  dependence on foreign oil cut dramatically and he sees our sudden abundance of natural gas as a savior for our  energy needs in the future.

With all that has happened over this past year, it may be a good time to review your planning and investments as we prepare to ‘re-shuffle the deck’ in the investment landscape.  If we have not had a review in the past year or so, let’s get together.  I know it has been discouraging over the past months and you may be in a state of shock and denial, as many folks are, but this is no time to stick you head in the sand.  Drop me an e-mail or give me a call and let’s review and plan what’s next for you.  You may receive a postcard from me as a friendly reminder to schedule an appointment.  There is no ‘magic bullet’ out there and your portfolio will not be salvaged by buying the next hot investment product.  You will benefit, however, by paying attention now and finding the asset allocation that is right for you as we move forward through this bear market.

Take care,

Joseph W. Harowski, CFP

THE BRAVE NEW WORLD

May 2009 Newsletter from Joseph W. Harowski, CFP

Cycles come and cycles go, that is the nature of investing.  We have been living through a seventy, eighty or  hundred year selloff, depending on your timeline, and it has been extremely painful as anyone invested in just about anything knows.  Whether we are through it now or another leg of the downturn is about to slam us is a debate currently playing out in the markets.  What we do know for sure, is that we are in unchartered territory when it comes to government deficits.  The numbers are staggering.  If the US government spent one billion  dollars in deficit spending a year since the birth of Christ, they would not have come close to reaching the  number of dollars the Obama administration has authorized to spend to stimulate this economy.  This is the brave new world of government policy and control and what it means for investors will be spelled out over the coming decade.  As I have mentioned in the past, this is not the time to stick your head in the sand as an investor.  We will be seeing things develop in the economy that possibly no one has seen before nor can accurately predict.  What this means for stock market investors is to be sure your dollars allocated to equities are truly for the long term as volatility will prevail for a few more years.  Nothing can change until housing stabilizes (people can’t spend home equity they don’t have) and this too is probably still a few years away.   The recovery for the ‘lost decade’ in equities may possibly end up being another decade away.

The trap for investors is being set by the media through the multitude of advertising put forth by the brokerage and insurance companies pushing and pulling investors towards their products as the changes in the economy unfold.  Active management will be sold as the only way to navigate this storm and garner profits.  Trading the ups and downs of the market will be touted as the only way to get ahead and long term investors will be told long term investing is dead.  Watch any recent entertaining ‘Mad Money’ telecast with Jim Cramer on CNBC as an illustration of the media steering investors away from their long term goals in the hopes of short term profits.

To all of this I say, “don’t be fooled!”  Markets cycle up and down and sales organizations are always there to ‘help’ you through it offering their products as the answer.  What they are really after are the commissions and fees wrapped into their product ‘solutions’.  Long term investing is not dead.  This is simply the cycle we are living through having been born when we were.  Getting whipsawed in and out of the markets will not get you ahead,  it will only generate a boatload of unnecessary costs.

Smart Choice is focused on the only important goals,  your goals.  Let’s try and ignore Wall Street’s marketing machine.  Smart Choice will keep your investing costs low and help keep you in  position to benefit when a turnaround comes.  Remember, the vast majority of the time markets tend to coast  going neither up or down in any meaningful way.  Unusual highs and lows of any asset class come around sparingly and these are the times Wall Street looks to take advantage of you.  Right now they are preying on fear as investor’s emotions are running hot.  Have you seen any full page ads to invest in gold or to buy your old gold jewelry recently?

December 2009

Surprise, surprise, surprise!  The Dow is up roughly15% year-to-date as of mid-November, this after a 27% drop early in the year, and continue to push upward.  Stock prices fooled investors through the tough September/October period and are just 40 days and a possible new healthcare bill away from a positive year.  The Fed’s ‘easy money policy’ is both a blessing and a curse for stock and bond investors alike.  The longer rates stay at rock bottom levels, the greater the potential for future pain.  Asset bubbles can be nurtured by easy money.  The Fed has an interesting year ahead deciding when, and how much, to increase rates.  Higher rates have to happen because the US government has a very large deficit and will need to refinance a very large amount of debt soon.  The foreign governments that buy our debt will need to get some interest on their investment or they will look elsewhere to place their money.  The US dollar is crashing against worlds’ currencies.  Higher rates would help to stabilize the dollar.  Rates have to move up sooner or later.

When rates rise, the angst of stock investors begins and the markets will start to play a guessing game on when the fed will stop raising.  Raise too much and the stock market will crack; don’t raise enough and that opens the door to high inflation.   Investors, and savers looking for higher CD rates, are left guessing…feeling lucky?

December marks the end of year billing period for Smart Choice Financial Planning.  I realize it has been a  difficult year for everyone.  Smart Choice operates on razor thin margins, as you might guess from my relentless talk about low fees.  As I mentioned at the start of 2009,  for compliance reasons, I need to show uniformity on fee-based clientele.  Any adjustment to your fees are noted on the enclosed invoice.  Call or email if you have questions or concerns.

My value proposition to you is to invest and monitor your portfolio as a fiduciary without the inherent biases of sales and  commissions.  Many times, patience is needed when investing, and sometimes, doing nothing is the right thing.  Brokers will always find a reason for you to invest now in order to make a sale.  And, there are plenty of advisors out there that will gladly charge you 1% or more of your assets.  Investors pony up because they don’t pay attention or think there is no alternative.   I recently had lunch with a broker from a firm downtown.  He was getting 2.25% for money management!  Think of the size of your investment account and then multiply it by .0225.  That’s a lot of money folks, year-after-year.

This letter goes out to folks that I monitor portfolios for as well as others whom I may have met through a get   acquainted meeting.  If you do not wish to receive these letters, please let me know either by phone at            219-682-7544 or email at jharowski@smartchoicefinancialplanning.com.  Also, perhaps you would rather receive any future correspondence via email.  If this is the case, again, let me know and I will make the changes.

Have an enjoyable Thanksgiving!   Joseph W. Harowski, CFP