2006 New Years

by Wendell Cayton

What’s not to like about this economy … especially looking forward to next year? Considering hurricanes, soaring energy prices, higher interest rates, and a war that won’t go away, the overall performance is a testament to the willingness of both consumers and business to spend and invest. According to Moody’s Economy.com®, the economy should enjoy a real GDP growth of over 3.5% this year. By their figuring, this will translate into the creation of over 2 million jobs and a 5% unemployment rate. They note that this in not on par with the 3 million jobs created annually during the latter part of the 1990s; labor-force growth has slowed, indicative of an increasing rate of retirement from the workforce.

As a nation, we are growing stronger balance sheets, both on the business and the household
sectors. Corporate profitability is up. And helped by historically low interest rates, corporations have strengthened their balance sheets and have plenty of cash on hand.

Household net worth is growing even more quickly and will soon hit an all-time high, six years
after the previous peak. Naysayers who continue to point to increasing consumer debt as the engine fueling consumer spending are neglecting to factor in increasing household incomes, increased retirement plan account values, and higher real estate equity.

Fears of higher inflation caused by higher interest rates and increasing fuel costs are perhaps
overblown, as core consumer price inflation is only 2% and the federal funds rate target and fixed mortgage rates hover around 4.25% and 6% respectively—both low by historical standards.

Looking forward to 2006, we see more promising signs of continued economic growth, with some bumps to be avoided.

The domestic auto and airline sectors can be described as anemic at best. Bankruptcy plagues both industries, leaving investors scratching their heads, wondering if they will ever return to profitability. Personally, I believe airlines will be increasingly impacted by the proliferation of broadband Internet and the spread of inexpensive video conferencing capability.

Speaking of inexpensive video conferencing, if you haven’t been in an Apple® store recently, treat yourself to a demonstration of their capabilities. With a setup in Grandmother’s home and one in your house, you can have everything you need to stay in touch (except for the cinnamon rolls and hugs) without the hassles and expense of air travel.

The combination of increasing interest rates and higher energy prices could also put a damper on the 2006 party. A disruption in supplies, or a colder than average winter, could drive oil and gas prices to much higher levels, which in turn puts pressure on economic growth. Lest we forget, higher interest rates in the home mortgage market could continue to drive down housing affordability and cool off the hot housing market.

Aside from the “bumps,” on the plus side we have increased business productivity, as growth in labor compensation has not kept pace. Moody’s points out that businesses are generating more than enough cash to cover their projected investment needs.

With cash to spend, it is a good bet we will see increased business investment spending, which should result in expanded payrolls and more jobs, which means stronger consumer spending.

2005 New Year's Resolutions for Investors

by Wendell Cayton

Since this is the time for New Year’s Resolutions, I considered a few for the investment-minded. Calling them resolutions, goals, or objectives makes little difference - following them will make a difference!

1. Save first and spend what’s left
   The road to riches is paved by discipline to live within one’s income. Those who learn to pay themselves first by saving before they spend will have capital to invest. It is this creation of capital that will buy economic freedom.
   
   Unfortunately, U.S. savings rates are at an all-time low. Economists believe that this is somewhat the result of generous stock market returns creating a sense of wealth that is muting the incentive to save. Keep in mind that the stock market is where savings should be invested, not where savings are created. A disciplined approach to “saving first and spending what’s left” will give you the capital to benefit from the stock market.
   
2. Maintain a diversified portfolio approach to investing
   Having all of one’s eggs in one basket, so to speak, is a high-risk strategy that can cause sleepless nights. With a rapidly rising stock market the temptation is to buy the hot stock(s) or own the hot mutual fund. Think back to September when the same stocks or funds plunged. Wouldn’t it have been nice to have owned some stodgy, government bonds that shot up in price at that time? Those who did were in a position to sell the bonds and buy the stocks that went on sale at a 40% or greater discount!
   
3. Buy low and sell high
   Makes all the sense in the world, but it is very difficult to execute. Nevertheless, look for good companies that you would want to own whose price has been pushed down by bad news about its industry and whose fundamental business is solid. Buy at a discount. The time to sell is when you reach a point where you would not buy the stock for that price. . . too expensive. Sell if you have a better idea where to put the money.
   
4. Think long-term when investing
   Buy good companies that you would be proud to own years from now. Market timing is terribly tricky and even the pros do not do it well. Buying and holding quality stocks or the mutual funds that invest in high quality stocks will help you ride out market swings like those last fall with confidence.
   
   Recall the September headlines in the financial press? The financial world as we then knew it was teetering on the brink of extinction. . . a crash equal to ’29 was imminent. Those who suddenly became short-term investors, and who listened to the pundits, sold and missed the moves up that took the stock market back to new highs in November. Keep your long-term perspective, regardless of short-term market volatility.
   
5. Avoid the “Urban Myth” stocks
   These are the stocks you hear about from your neighbors at the local coffee shop. They know somebody who knows somebody else whose son works for the company that is about to bring out the product/service that will end all of mankind’s woes. . . and the stock is selling for $.50 a share! How can you go wrong? Simple, buy into the myth. See resolutions #3 and #4.

Have a Happy New Year and may this one be the best of the century!

2004 New Year

by Wendell Cayton

Let’s make 2004 the year it all comes together!

We believe that no other system or collection comes close to The Macaulay Group’s Comprehensive Wealth Management System.

To fully understand THE SYSTEM, you must understand its six strategies. Together, these strategies and their tactical implementation make up The Macaulay Group’s system. Five of the strategies are operational; the sixth is a “Master Strategy” that governs the implementation of the other five.

The result is a Comprehensive Wealth Management system that, we believe, will best allow the achievement of your financial goals. To the extent that you are achieving your goals and raising the bar to even higher standards, you are doing these things—your choice is simply whether you want to develop them yourself or buy them.

1. Computerize your business. That’s right, I said business. It’s important that you under­stand that we view each client household as a business. You are obviously the president; we want to be your CFO. Business owners would not dream of running their operations without a monthly balance sheet, cash flow statement, statement of changes in financial position, and a tight grasp on where they stand at any given time with inventory, credit lines, payables and receivables.
   
   It has always amazed me that when we sit down with our clients’ personal affairs, they make decisions with a collection of unconsolidated monthly statements. Furthermore, they have no idea of the net after-tax, after-fee return on investment. They have outdated wills, trusts, and insurance policies, and they have not run multiple scenarios with state-of-the-art professional planning software. My group invests a lot of money to make all of these resources available to all of our clients as part of the added value we bring to the table.
   
2. Build a Team. By definition, Comprehensive Wealth Management must be very different for any two people. Depending on your situation, you may have a need for experts in financial planning, estate planning, business valuations, liquidity options and strategies for owners of closely held business or large real estate holdings, insurance and long-term care planning, charitable giving, taxes, legal matters, borrowing money, selling a business, ESOPs, option grants or investment management. While we are certainly not experts in all of these areas, we do work with individuals who are. When you hire The Macaulay Group, you immediately have access to the whole first string.
   
3. Protect and preserve your existing wealth. Our clients are already wealthy—they have made their money building a business or practicing medicine or law or playing baseball or climbing up the executive ranks of a successful public company and saving their money. The last thing they want is someone new coming in trying to be a hero. We focus on getting our clients competitive returns while helping them to avoid landmines:
   
   a. We are ruthless in keeping fees down.
   b. We hold managers accountable for performance and buy/sell decisions.
   c. We pride ourselves on finding and cutting out unnecessary fat.
   d. We bring modern investment techniques to the table to help protect the downside.
   e. We do a complete insurance needs analysis (life, disability, and liability).
   
4. Planned Giving and Estate Planning. Bottom line . . . what is the most tax-efficient way to get your assets from you to wherever you want them to go? There are two separate and distinct facets of this equation (while you are alive and after you’re gone), yet they need to be coordinated—not only with each other, but also with your entire Wealth Management plan. We have done an unusually high level of work with clients who have a large percentage of their net worth in a closely held business or practice, clients with large IRAs or qualified plans, and clients with quite a few stock option grants.
   
5. An Organized Set of Checks and Balances. If you buy a Mercedes but don’t perform scheduled maintenance, you will have problems. If you are in a situation where you have built a substantial net worth and are faced with some of the issues I have mentioned in this letter, you cannot simply review things “once in a while.” There should be a yearly, monthly, weekly, and daily service checklist.
   
6. Master Strategy. This is the strategy we employ to implement the preceding five operational strategies. It includes a “Launch Strategy” designed to get your custom-designed system off the ground with minimal disruption to your current financial life. We then proceed to build on your customized system in a very structured manner, focusing on one operational strategy at a time and working to create a stable, productive environment.
   

2003 New Year’s Resolutions

by Wendell Cayton

As the New Year rolls around, we once again face the celebrations, both festive and serious, that mark the end of an old year and the beginning of a new one. For investors, the old one wasn’t so bad, but as a culture driven by change and opportunity, we still look forward to a better New Year.

New Year’s Resolutions symbolize our desire to make a fresh start. This custom goes back many centuries, and it has become a ritualized way of reviewing the past year and looking toward the future. It’s appealing because it gives us the opportunity to imagine changes we’d like to make.

Our calendar starts the New Year in the month Julius Caesar named after Janus, the god of gates, doors and beginnings. Janus had two faces—one looking forward, the other backward.

The Indians of the North American forests and plains celebrated the New Year by burning their old food stores from the year before and allowing the fires to go out, after which they were rekindled to symbolize a new beginning.

Cleaning has been a recurring symbolic idea. In ancient England, chimneys were swept so that good luck could more easily descend and stay. Germans still hold that one should live the first day of the year the way every remaining day should be lived; among other things, the hausfrau spends extra time making her home spotless. Housecleaning is also traditional in Japan, China and Africa.

Eating pork on the first day of the year became a tradition in nearly every country because pigs root in a forward direction, symbolic of a fat, plentiful future. The custom of making noise with horns, bells and other devices goes back to the ancient practice of using noise to drive evil spirits away.

Looking forward, perhaps I can share a few resolution thoughts with you.

Instead of rushing out to buy a membership to the local gym, go to www.RealAge.com. Take their age test, giving answers that reflect how you live now. The results will compare your biological age to your chronological age.

At the end, there is an Age Reduction Planner you can use to see yourself as you would like to become . . . ten pounds lighter, adding more exercise, etc. The object of this “game” is to reduce your biological age by improving your lifestyle. The new results should decrease your biological age—and if they do, then those changes you hypothetically made become your guideline for developing a new lifestyle resolution.

On the financial side, an easy resolution to make that is fun to keep is to develop the habit of saving a little money each week for a slush fund, whose purpose may be nothing more than paying for a special night out at the end of the year. This can be done with as little effort as keeping a jar in your bedroom and depositing all your pocket change into it each night. You’ll be amazed at how fast the jar fills, and you may also find that it stimulates you to get really serious about saving and increasing the amount you put away in your retirement account.

Finally, be kind to the bears. They’ve had three years in the sun, forcing bulls to run off and cower in their sheds. They have only been able to make this claim twice in the past twenty years—and now they have retreated to their lairs. As in nature, everything moves in cycles, and the bears will return. This is not a time to gloat; rather, it is a time to be thankful they didn’t eat us all.

May you enjoy a Happy New Year and good investing!

2002 New Year’s Resolutions

by Wendell Cayton

New Year’s Resolutions . . . we make ’em and break ’em. We humans are as alike as we are different. Here’s one resolution we all have made, at least once in our lives, which we shouldn’t break.

No, I’m not talking about the resolve to never purchase another “can’t miss” IPO stock. It’s a foregone conclusion that the next time our neighbor turns a $2,000 investment into $20,000 in a matter of weeks, that itch will be back.

I’m talking about the resolution that most of us make to get our bodies back into shape. Over the years, as my clients have aged . . . and I have aged . . . I have become increasingly aware of the fact that a successful retirement is really about quality of life. That has more to do with how we take care of ourselves physically than how much money we have piled up.

Last week, I found a most intriguing website devoted to aging and health: www.realage.com

The site directs you to take the RealAge Test. The test consists of numerous questions regarding lifestyle . . . what you eat, your physical condition, how much you exercise, your family health history, your health history and so on. The test is designed to measure your real age as opposed to your chronological age. If people take very good care of themselves, their real ages are equivalent to those of younger people. If they abuse themselves, their real ages are likely to be that of older people. The site also provides a number of suggestions on how to make yourself younger.

I took the test as I live now and then retook it as if I kept all my resolutions to get in shape, eat breakfast and green vegetables, drive a little slower and always wear my seatbelt. I materially added years to my life!

I challenge you to do the same. Take the test both ways—first honestly as you live today, and then again as you would like to live. While you’re at it, hit the nearest bookstore for a delightful and provocative book on aging: Breaking the Rules of Aging by David Lipschitz, MD, PhD.

As a geriatric medicine specialist, Lipschitz became increasingly aware of how poorly doctors treated patients over 50. Their immediate medical conditions were treated, but the doctors seemed to be interested only in those immediate problems and not the future lives of the patients. Lipschitz’s book deals with the future and how one can learn to live with aging and still enjoy life. He notes that an average 70-year-old is likely to live another 16 years, but a really healthy person of the same age could easily live to 100.

He also explores a number of myths about aging, like “a little weight as we age helps,” “heart tests and treatments will save your life,” and my favorite myth, “walking is the perfect exercise for older adults.” Dr Lipschitz says strolling doesn’t cut it—we need to pump iron, put a little physical stress on our bodies. That matters . . . regardless of how old we are!

I challenge you to take the RealAge Test. Then read Dr. Lipschitz’s book. Doing so should put a little resolve into that resolution.

Have a happy and prosperous New Year!