Making Sense of Political Nonsense

By David Brennan, Jr, C.F.S.

In the interest of creating a financially literate electorate, I will clear up some questions I hear from people I’m talking to. Since these issues fall into the “epiphany” arena, grab a friend and get comfortable.

Epiphany #1
I do not believe the deficit is a meaningless number; it’s just a highly overrated one. It becomes meaningless when politicians conjure up the deficit bogeyman to scare the public into thinking it indicates—even remotely—that our nation is in poor or “dire” financial health. It most certainly does not, and I am tired of politicians distorting this for political gain alone. Call me naïve.

Epiphany #2
Unfortunately, the way our government “keeps the books” makes the Enron accountants look like geniuses. This is not an indictment, but merely a call for change. Let me explain. As a rational, reasonable individual, you recognize that when you take out a $200,000 mortgage on your home, you are $200,000 in debt. But, when matching your income with your expenses, you only count your mortgage payment—not the entire $200,000. In other words, as individuals (and corporations), we recognize that when buying what economists call “capital items,” such as a house (or a multi-million dollar airplane, in the case of an airline), it is entirely appropriate and arguably necessary to borrow (call it creating a deficit) and pay off the loan as the item is used.

The government, on the other hand, makes no such distinctions. The government may borrow to pay for social programs such as welfare and Social Security benefits or to purchase an aircraft carrier. There is no distinction between the two. Donald Regan, the Treasury Secretary under President Reagan, was darn near laughed out of Washington for merely suggesting a separate budget for the big-ticket “capital items”—a basic economic concept that most foreign govern­ments as well as most Americans use in day-to-day life. Try this one on for size (new readers, this is one of those times where I am attempting to beat you over the head with my ideas . . . but hey, at least I admit it). If you have, say, $800,000 in your investment portfolio, and you take out a $200,000 mortgage, are you in poor financial health? No, not at all. In fact, you might be the envy of the neighborhood. So, why don’t we hear about our country’s huge asset sheet? For example, our country has extensive federal land holdings—nearly all of Alaska, Nevada and much of California. Politicians are telling you only part of the story, neatly clipping off the truth.

Epiphany #3
As we get closer to this year’s presidential elections, every economist seeking to advance his political agenda will invoke the dreaded deficit argument. Frequently, this is done through highly emotional words and phrases. My favorite repeated phrase among the lunacy of politically expedient thought is “the deficit represents the financial burden we are leaving our grandchildren.” I don’t know any trained economist (as opposed to an armchair economist) who would seriously argue that a nominal increase in government debt causes an increase in interest rates. Would the Democrats running for President of the greatest country on Earth please, please, please spend some time educating themselves on this issue? You may fool some of the people, but believe me, that dog won’t hunt as the economy continues upward in its Reagan-like advance. Nice try, though!

Epiphany #4
If we, as a nation, are truly serious about any “financial burdens we are leaving our grandchildren,” we must control government spending as we control spending in our own homes. I don’t care who or what entity you are. If you don’t control your spending by using a sound budget that clearly defines accountability, all the money in the world won’t solve your problems. As a practical matter, enforcing a national budget means someone in Congress needs to take responsibility—just one of the more than 500 members! (I know, but try to keep a straight face anyway.) Limiting government spending is not just one way to measure our country’s future . . . it is THE way! Both sides of the political aisle need a reminder of this.

Let’s not let a handful of vengeful politicians and their ever-present willing accomplices—the media and politically biased economists—define the debate. Heaven forbid you allow any of these elitists to define any debate for you, much less an economic one. It’s high time we the people work to understand the deficit’s importance (or lack thereof) to our homeland’s finances. When a politician decries the deficit, ignore him, for he just demonstrated his lack of knowledge in the area. Think about that for a moment. Should anyone be in a position of leadership in this country if he or she doesn’t understand the basics of something this simple?

I know some of you, primarily Democrats, will immediately “go to guns” in reading this. I humbly ask you to resist that temptation and submit your opinions on this issue to the mountains of historical evidence. I alone take responsibility if I did not answer all of your questions. We don’t have to agree on everything (how boring would that be anyway?), but for the betterment of our nation, we do need to agree on this.

Why Do the Rich Get Richer?

by David Brennan Jr., C.F.S.

This clarity came from spending uninterrupted time with my wife, Lisa, and our two little miracles, Alexandra and Aidan. I know most of you see right through that and know what I really mean is not shaving for days, napping regularly, eating ice cream as a meal, and generally ending the evening with a drink that holds one of those cute little umbrellas in it (for those of you in Mesquite, that means a margarita).

Anyway, with my refreshed and reconstituted brain cells, I find myself with an answer to a question that has plagued many a Democrat over the last few decades: Why do the rich get richer and the poor get poorer? Not to be a sandbagger, I have to say that I’ve known the answer to this question for years; I was just trying to find a way to talk about my vacation so I could relive the strolls on the beach, watching the sunset, ahhhh . . . oops, I’m sorry—back to my point. It is actually quite simple and, dare I say, eloquent.

Are you ready? Prepare yourself to be enlightened.

The rich in our country become and continue to be rich because (and here’s the real genius) they continue to do the things that made them rich. The opposite is also true, and your logical mind is probably already taking you in this direction. The poor typically remain poor because they continue to do the things that made them poor to begin with. In other words, the Democrats are right! Now, before you think I had one too many adult libations, take a moment to honestly consider what I’m saying.

Over the years, you’ve heard political pundits from the party whose symbol is a donkey spew forth. Usually in a ten-second sound bite on the local or national news, these geniuses keep telling us that the rich just keep getting richer while the poor just get poorer. In most cases, the tone is accusatory, as if what the politician really wanted to say was, “The rich keep soaking the poor and, if you elect me, I will save you from those pillaging kings.” I find this interesting, especially since I have spent the last fifteen years of my professional life talking to people around the country, from Fortune 500 companies to small church groups and everything in between, about money and investing. All of that experience has taught me a number of undeniable truths about money.

First, be very careful whom you call rich. Many, if not most, of the people you think are rich are anything but. Sure, they have all the trappings of wealth: the big house, new cars, private schools for the kids, expensive jewelry and so on. Unfortunately, these things are truly trappings—items that trap their owners in the hamster wheel of consumption. If one, or worse, both of the parents lose a job, the house of cards starts to fall.

Second, the truly rich in this country are not who you think they are. I’ve met plumbers who have accumulated a $500,000 nest egg and are deliriously happy with the $30,000 a year in income they are receiving from it. I’ve also had dinner with a billionaire who is miserable with his billions. The reality is, as Mark Twain so eloquently put it, “To be satisfied with what one has, that is wealth. As long as one sorely needs a certain additional amount, that man isn’t rich.” Tell the truth, Mr. Twain!

Finally, the rich (informed) investor will always stay ahead, financially at least, of the poor (emotional) investor. There are absolutely no exceptions to this rule!

The moral to the story is this: If you’re not happy with your current financial position, be a responsible steward of your assets and do something. This year is already more than half over. Have you fulfilled your financial New Year’s resolutions?

Or will the rich keep getting richer and the poor keep getting poorer in your house?

Supply Side Supreme Court

by Wendell Cayton

It’s just possible that John B. Roberts Jr. will be our first supply side member of the Supreme Court, according to Lawrence Kudlow, also well known for his outspoken, supply side views. As the hearings on Judge Roberts’ nomination to become the next Chief Justice of the nation’s highest court wound down, it was clear that his conservative views might just be the elixir business has been looking for in the court for years.

Supply side economics received a large burst of publicity in the 1980s as the Reagan economic team put the principles to work. Supply side theory contends that growth in the economy can be stimulated to a greater degree by unleashing entrepreneurial capitalists free to work, innovate, and grow businesses in a low-tax as well as a lower-regulatory environment.

According to Kudlow, “C. Boyden Gray, the key organizer of a business coalition that weighed in on the White House nominating process, told me Roberts believes that ‘government intrusion should be limited.’ In other words, in the economic area, Roberts is ‘likely to take the view that government should get out of the way and not pick the winners and losers; that government should work to level the playing field and trust markets to get the job done.”

It is ironic that just before the nomination hearings began, Jude Wanniski, journalist/economist, who coined the term “Supply Side Economics” died on August 29th. As an editorial writer at the Wall Street Journal® in the 1970s, Mr. Wanniski was part of a core group of young, revved-up conservative thinkers hired by editorial page editor Robert L. Bartley.

He was a hero of many economic/fiscal conservatives in part due to his role in publicizing Laffer Curve in mainstream media. The Laffer Curve, as promoted by Wanniski and economist Art Laffer, held that an economy would respond best and produce higher tax revenues for the government if taxes were reduced.

Frank Keating, the president of the American Council of Life Insurers and the former Oklahoma governor and federal prosecutor, told Kudlow that Judge Roberts believes that “the engine of commerce comes from individual creativity” and that Roberts “is likely to encourage enterprise through the creativity and genius of individual men and women to produce the next generation of jobs and growth.”

This would be a far cry from the liberal interpretation of the Commerce Clause that was behind many of the questions asked by the more liberal members of the Judiciary Committee during their grilling of Roberts. The Commerce Clause has long been a favorite of those advocating greater, rather than lesser, government controls on business and individuals.

Over many decades activist judges in the court system have expanded the Commerce Clause to create a regulatory state that has seized private property, taken over school systems and prisons, interceded in private-sector hiring and firing practices, ordered farm quotas and property-tax increases, and expelled God, prayer and the Ten Commandments from the public properties.

Judge Roberts responded to the incessant questioning by Democratic committee members by making it clear that he was there to interpret the law, not make the law. As he so eloquently stated in his opening address, he is there to call balls and strikes, not hit the ball.

In general I found his answers to be on point, logical and consistent with the views of those who believe judges do not make laws, rather they interpret and apply them. On the other hand, the Democrats, who will never find a Bush nominee to their liking, insist on politicizing the process, and will not recognize nor accept the role of the Chief Justice as apolitical.

Investment Scams

by Wendell Cayton

If I believed all the investment claims sent to me by snail mail and Internet, I’m losing out, big time. Yet, life experiences tell me that falling for such claims is like picking up a rattlesnake … best case, the bite will be small, worst case, I will lose my hand.

Yet, compared to the scams out there, losing a hand might be preferable to losing my investment poke!

Perhaps the most egregious scams are those showing up in email as spam. Generally these are “pump and dump” schemes, referring to a highly illegal practice where a small group of informed people buy a stock and then organize to promote it to thousands of investors.

Generally these are highly speculative, thinly traded, low priced stocks of companies whose businesses are difficult to understand or whose fundamentals are difficult, if not impossible, to verify. The promoters make claims of high multiple returns. Investors often see the stock price immediately spike up before the promoters “dump” their shares at a profit. The Internet has enabled these fraudsters to reach huge audiences by utilizing unregulated spam and Internet bulletin boards.

To add a layer of authenticity to “pump and dump” the promoters may utilize the power of an investment newsletter. Many of the websites engaging in this activity will reference a newsletter that is supposedly full of wisdom and investment tips. The offer of free, unbiased information can lure the unwary into thinking they have adequate research and justification for putting money on the table.

A less egregious form of newsletter might come by mail or Internet subscription. This is a well-written piece backed up with authoritative information advocating a specific investment strategy, which translates into selling something … a book, a subscription or a specific investment.

In 2003 I received an expensively produced piece in the mail titled, The Worst Economic Crisis Ever Known Is on Your Doorstep. Inside I found numerous quotes from more than a dozen economists and analysts ... none familiar to me … stating a plethora of economic maladies was about to descend upon us. Life as we know it would cease to exist … unless we buy gold and silver from the publisher of the newsletter.

I was acquainted with a group in Colorado in the early 1980s known as Western Monetary Resources. They preached the same sermon … I’m still waiting for their apocalypse … and I survived without buying any of their gold or silver. Good thing I didn’t give the folks in Colorado my money. Checking the Philadelphia Gold and Silver Index from 12/13/1983 to 08/12/2005, I would be down 7%. I would not have earned enough to cover inflation for my investment!

There is a certain skill involved in writing these newsletters. Favorite topics focus on those that arouse fear and uncertainty in the minds of readers. Most popular today are pitches for gold and silver, tales of the falling dollar, energy prices, and the coming housing bubble.

There are many good newsletters out there. The good ones advocate positions that can be tracked over time and are willing to accept some accountability for recommendations. An excellent resource for sorting the good from the bad is the website of Hulbert Interactive, a service of MarketWatch.com®. For a modest subscription you can view rankings of 188 investment newsletters based upon their performance over a period of time up to five years. The site will also sell you a detailed analysis of the newsletter and their past history of recommendations, as well as background information on the writers.

Before buying into any newsletter touting any investment, I highly recommend checking them out at this site. Keep in mind the advice of the Federal Trade Commission (www.ftc.gov), which suggests that investors look to the mainstream marketplace for ideas to imitate. Anything that sounds “too good to be true” generally is.

Labor Day Thoughts

by Wendell Cayton

For the last week of summer I thought I would pass along a few observations and factoids that you might find useful to stimulate conversations as you finish off the hamburgers on the grill. So, let’s start with housing.

A sure sign the housing market is in a bubble … our river raft guide on the Colorado River spent 10 minutes trying to convince me that I could buy anything in Vail, Colorado, get rich, and retire on my gains. At least that was his own plan!

Who do you believe? … An analyst for the oil industry at Morgan Stanley is predicting oil prices will crash as global growth slows … while competitor Goldman Sachs is predicting a spike in prices to $100 a barrel, according to Worth Magazine.

Just in case you were wondering if we were getting down to our last drop … A Rand® Corp. study reported in The Denver Post® says oil-shale fields in Colorado, Utah, and Wyoming could eventually produce 1.1 trillion barrels of oil, but it would take 30 years before commercial-scale production would produce enough oil to make a bump in supplies. That’s assuming those folks who live out there are willing to make the necessary environmental concessions.

If you are thinking of moving to a more wealth-friendly (read: lower taxes) state, the Bloomberg Wealth Manager® suggests Alaska, Wyoming, Nevada, Alabama, and Washington. You might want to make extra effort to avoid Rhode Island, Nebraska, Idaho, Wisconsin, and New York, where taxes are highest.

The Wall Street Journal® reports that wealthy Americans are borrowing more on margin, against their homes and businesses, to buy stocks. Their source was a report from the Spectrem® Group. Maybe they see something that a lot of others don’t in the stock market!

And from The New York Times® comes this tidbit: more than 9,000 American homes employ a private cook. We have one at our home … me … and I can report that my wife pays next to nothing for the service!

Climbing a 14,000-foot peak in Colorado should be challenge enough; however, now you will be trespassing on private property at the top of Colorado’s Mt. Lincoln. A fellow out there began buying up old mining claims, including one that extended to the top of the mountain. One day a lawyer hiked by and casually mentioned that there was a liability issue with people crossing his property. So he put up no-trespassing signs!

The latest energy conservation plan being batted around Congress and a few states would start taxing drivers on how far they drive, where they go, and when. Shades of 1984 … the plan would force all drivers to install surveillance devices in their vehicles. Oregon is testing a system that would relay information from the odometer and GPS device to the gas pump. Stop and think for a minute what it would mean for the government to know when and where you drive every minute! Believe me, I was joking when I said I would like something like that for my soon-to-be teenage daughter!

Finally, our hearts and prayers go out to the folks whose lives have been devastated by Hurricane Katrina. I have a great deal of faith in the American spirit and our ability to take setbacks like this and recover, to the betterment of all.

To borrow a line from a favorite Clint Eastwood movie, “We will adapt, adjust, and overcome.”

Do What You Want

by Wendell Cayton

“Of course I am a little nervous about what you do, what fills your day,” he added. “I will miss day-in, day-out competition. The reality is that I don’t ever have to work again, which is a nice reality. But that’s not my character. My character is to work and to be goal oriented.” Lance Armstrong, winner 2005 Tour De France, speaking about his impending retirement.

Doing what you want, when you want, without having to do it was the topic of conversation this past week between friends Les, Mike, my daughter Cathryn and myself as we worked our way up 6,500 feet of mountain to the top of Mt. Adams, Washington’s second highest peak.

As the financial planner in the group, I was the target for their simple question … what is retirement? Unfortunately, the noun retirement or the verb to retire carries with it the connotation of quitting. That may have been the case for our grandparents who did not expect to live beyond 65 or 70. But that is not going to be the case for the rest of us who are looking forward to living more years in the “retirement” phase of our lives than we spent working.
There is nothing like a strenuous hike with a pack on one’s back to stimulate a Zen moment as we pondered the meaning of retirement. When financial resources allow us the financial freedom to do what we want, when we want, on our own schedule, to retire takes on a whole different character.

Certainly finite financial resources will always provide an envelope within which we store our retirement dreams. But my experience leads me to believe that for most people, money is only part of the equation. The other parts are good physical and mental health.

I believe we should ditch the word “retire”…put it in the trash along with “can’t” … and come up with a new term. Keeping with the “Tour” theme, let’s call the next phase of our lives changement de vitesse, or changing gears.

I encourage those contemplating retirement to find something they like to do that has a goal or accomplishment factor by which they can measure their accomplishment or, as Maslow put it … “self actualize.” This helps keep the mind in gear, albeit a lower gear, and it also helps feed the ego and social needs we have to be recognized for our efforts.

Getting involved in activities that provide enjoyment and diversion can be an important method in freeing ourselves from the harness of work. Physical activity in its varied forms assists many people in the process of changing gears. Becoming a volunteer or taking up a hobby can also be rejuvenating. It’s beneficial to choose something that is quite different from what you are involved with at work. Try to include family and friends.

As my friends pointed out, step after step, finding that “something” is not easy, given the wealth of choices available.

A simple way to begin is to list all the things you would like to do in the latter part of your life, from the most outrageous to the most mundane, without the constraints of money as a factor. Next consider each item on the list in the context of family, pets, property or other responsibilities that would detract from the activity. Finally, look at the activities from the perspective of your health constraints. Keep in mind that the word “can’t” has been wiped from your vocabulary.

Then rank or prioritize your list. Not everything will be possible. There will be opportunity costs … trade offs … with some choices. Nevertheless, this exercise helps give some direction to changement de vitesse.

As for our hike, we were treated to a sunset behind Mt. St. Helens along with a puff of an eruption, Mt. Hood in the early morning sun, and a beautiful climb to the top. Actually, we were doing what we wanted, when we wanted to do it, and without a schedule.

Using Your Gut Instincts

by Bruce Fenton and Jake Mazulewicz Ph. D

From undergrad business classes to Fortune 500 boardrooms, today’s legal and business environment focuses on analytical thinking: cash flows, statistics and round table discussions.

But how do we explain the staggering difference between people like Michael Dell, who grew Dell Computer from his dorm room to $9 million in sales in his first nine months, and the rest of us? Surely Michael Dell was not simply better at crunching numbers. Some researchers believe one answer may lie in the area of intuitive thinking.

In the high stakes, fast paced world of Los Angeles litigation, celebrity divorces and philanthropy, Stacy Philips, managing partner of Phillips, Lerner & Lauzon, sometimes helps her firm and her clients by relying on her intuition in addition to just book smarts.

Philips calls the use of intuition “critically important” and says “good intuition and people skills are far more valuable than anything else when it comes to any person’s success in both personal relationships and career.”

She is not alone.

A growing number of respected academic researchers and business thinkers are starting to promote similar thinking. Since intuition is a faster working, older and more developed part of our cognitive functions than analytical thinking, research attributing effectiveness to “using one’s gut” may account for some of the rapid growth and effective management of many companies, like Dell.

Despite its advantages, there is little or no training for executives in the use of intuition. In certain circles, mentioning intuition as a decision-making tool might draw a similar reaction to tea leaves or Ouija boards.

Leading executives make extensive use of intuition and gut instincts in their decision processes, sometimes without even being aware of doing so. Perhaps it’s the trust level you feel for a new business associate or the hunch you have about a new office location being “right.” There is evidence that these instinctual reactions are actually be the result of years of training and observation that becomes wired in to your subconscious not unlike the grace of a highly trained athlete.

Philips notes that people are born with a certain ability to size people up as well as potential to improve those abilities.

“I also believe that intuition can be a product of experience – that a person can develop more keenly honed intuitive skills by living life and doing his or her job,” she says.

Whether juggling her time with her many board meetings, media appearances and work on her first book, Philips has become used to trusting her gut instincts.

“My intuition is usually on target. I use it with regard to work, friends and family,” she says. “I use intuition as a guide to know when to push and when to pull back. I also use it to read my audience, whether that is with regard to a client, opposing counsel and his or her client, as well as the judge.”

Perhaps one of the biggest challenges with intuition is knowing when and when not to listen to or act on it.

Philips says she “always” trusts her intuition – “but I don’t always rely on it. I take the time to think more deeply – to consider all sides of an issue – before I decide how to proceed to resolve it.”

Another challenge, particularly in the world of highly educated attorneys, is to step outside the box and trust your inner resources even though most formal training in America overlooks this area.

Philips is an example of an achiever who has balanced both: educated at Dartmouth College and Columbia Law, she has her share of conventional textbook knowledge but also learned from growing up with a lawyer parent that there are other equally important tools inherent to human beings.

“The woman who worked as my nanny when I was growing up wasn’t highly educated, yet she was very wise and had impeccable instincts,” she says.

Every executive knows a similar example; the instincts that separate the achievers and the super achievers are there, they just need to be used, developed and used some more.

If you feel uncomfortable using intuition for crucial decisions, there is still hope. First of all, take a look at decisions that you already make that use intuition. Sometimes, these are hard to notice because they are so obvious.

A lawyer who decides to alter a case’s course based on the non-verbal reaction of opposing council or even from the look in the eye of a judge is using intuition that in some cases is very highly developed. Outside the courtroom, experienced attorneys might unconsciously use intuition in the review of documents or handling of clients. An experienced estate planner or tax attorney may be able to sniff out a problem document in an instant because the document does not have the right “feel” for them.

It’s in these, intangible, difficult to explain areas that our greatest skills often occupy. On investigation, many managers find that their intuition was correct, particularly in dealing with people, an area so complex it is virtually impossible to make decisions using analytical means.

The next step to utilizing your inner natural resources is to track when your gut instinct tells you something and your subsequent action, over time, determine if there is a pattern. One way to do this is to keep a simple journal if you do not already do so. Entries list the date and might read “met potential employee, instinct tells me will work well even though salary request is higher than average” or “I have a feeling this client relationship could be a problem despite the revenue.”

With a couple minutes a day, after a few months you can accumulate an impressive and useable collection of data about our own inner natural resources. This data, perhaps some professional coaching and a keen sense of self awareness can form the foundation for making new use of a tool you have had all along and a tool that could be one of your greatest assets.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Barron’s Bear

by Bruce Fenton

I have to take my hat off to Barron’s columnist Alan Abelson, long-time writer of the column “Up and Down Wall Street.” If I lived in a bear den, as he must, I would probably be just as pessimistic; yet I find a certain perverse pleasure in reading his column and partaking of his acerbic comments.

I can rationalize reading Abelson with such relish as a way to keep my normally optimistic self grounded in the fact that there are others who see the glass half-empty against my half-full.
Each week, Abelson seems to find some facet of the financial world to skewer with his wit and cynicism. He also seems to find someone with a theory that calls into question anything approaching “irrational exuberance.” This past week’s column did both.

First, he took on President Bush for his lack of candor in dealing with economic matters. In this case, I agree with him. Instead of skirting the issues, Bush needs to make it clear that he and his administration did not cause the recession or the flabbiness of the economy. They inherited a bubble that was bursting from too much capital spending by business—something that will take a while to work its way through the system.

By defensively talking around the real issues of the economy, Bush begins to invoke an aversion to truth and reality—not a good trait for a President soon to seek reelection! Personally, I would like him to plainly confront the deficit issue: just say we’re going to be printing money for awhile, so we should get used to it. We can also stand the truth when it comes to the price tag for fixing the economy and, while we are at it, Iraq.

Just so the rising stock market doesn’t get everyone too excited, Abelson interviewed analyst Andrew Smithers of the London firm of Smithers & Co. Smithers and partner Stephen Wright just published a report with the catchy title, The Real Bear Market Hasn’t Happened Yet. Smithers is fond of using the Q ratio theories developed by the late James Tobin, a Nobel laureate from Yale. Tobin’s Q ratio is the total value of the stock market divided by corporate net assets at replacement cost. If the market is overvalued, the Q ratio will be greater than one, with the reverse being true for an undervalued market.

Smithers and Young are not ready to call an end to this bear market. They believe that bear markets end when prospective returns are significantly above their historic average. According to their analysis, despite the slide of the past three years, market returns are still overvalued.
Part of the overvaluation was caused by massive corporate share repurchases. This was simply a transfer of corporate assets to shareholders. Applying that to the Q ratio, the resulting reduction in corporate replacement values reduces the denominator in the ratio, and increases the ratio—or overvaluation assumptions.

Our friends from London argue that at its peak, the market was three times overvalued. Despite the fact that the market drop from the high has wiped away one-third of that overvaluation, we still have another third to go before fair value levels are reached. And, if that isn’t enough to get your attention, they point out that for the market to get back to “cheap as it was in 1974,” we would need to knock 60% off the current value.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Christmas Blessings

by Wendell Cayton

We still believe in Santa in our home. With a nine-year-old, we refuse to give up our collective childhoods. Taped to the fireplace is her note to Santa. She thought this year, since she wasn’t asking for much, she could dispense with a longer email and settle for what he has in inventory.

Cathryn’s main item on the list was a request to make our Sassy better. Sassy is our Tibetan terrier who almost became lunch for a couple of English mastiffs the other day. Santa has already delivered; Sassy is fully recovered—and resolved that the next time she asks her friends over for lunch, she will make sure they understand she’s not on the menu.

As for me, top on my wish list for Santa is that this up-and-down economy of ours will settle into a period of sustained growth so all of our neighbors can go back to work, our homes will retain their value, and our retirement accounts will grow.

Most of the framework is in place for this to happen. We just need a little help, a nudge you might say, to get things moving in the right direction.

The principal nudge might come from settling with Saddam, who once again seems to be using sleight of hand with his disclosures, thereby pushing us harder toward a military confrontation.

Markets don’t like wars, even short, easy ones. Certainly we can expect the markets to go down a bit—and if they behave as they have in the past, recover nicely if victory is a likely outcome, as it was in 1991. Nevertheless, war brings uncertainty, making forecasting a real shot in the dark.

Santa, let’s see if we can get this over with, hopefully without any shooting, for the benefit of everyone, including all of our neighbors in the Mideast!

That said, I would like to pass along a Christmas meditation that came from an Internet friend. Hard as I and my staff have tried, we can’t come up with a more accurate source than “Anonymous.” (One site attributes it to a Greek Orthodox priest, but he denies authorship.)

• If you have food in the refrigerator, clothes on your back, a roof overhead, and a place to sleep . . . you are richer than 75% of this world.
• If you have money in the bank, in your wallet, and spare change in a dish some place . . . you are among the top 8% of the world’s wealthy.
• If you woke up this morning healthy . . . you are more blessed than the million who will not survive this week.
• If you have never experienced the danger of battle, the loneliness of imprisonment, the agony of torture, or the pangs of starvation . . . you are ahead of 500 million people in the world.
• If you can attend a religious service without fear of harassment, arrest, torture, or death . . . you are more blessed than three billion people in the world.
• If your parents are still alive and still married . . . you are very rare, even in the United States.
• If you hold up your head with a smile on your face and are truly thankful for what you have . . . you are blessed because the majority can, but most do not.
• If you can hold someone’s hand, hug them, or even touch them on the shoulder . . . you are blessed because you can offer a healing touch.
• If you can read this message, you just received a double blessing that someone was thinking of you, and furthermore . . . you are more blessed than over two billion people in the world that cannot read at all.
• Have a good day, count your blessings, and pass this along to remind everyone else how blessed we all are.

Wishing you a happy and joyous season!

Goodbye to the Audi

by Wendell Cayton

It’s time to say goodbye to an old friend. It’s tough, considering all we have shared these past eleven years. But, as with other things in life, it’s time for a younger, newer model. After 301,000 miles together, the Audi that has been so much a part of my life will leave next week for a charitable cause.

You see, with those miles, no one would want to buy this car, although I can tell you that you could fill up the tank, check the oil, and make New York City in a long three days—no problem! Many times the Audi and I crossed Nevada and Utah on our way to visit the folks. Each time, we both marveled at how the Donner Party and those that followed could possibly cross the salt flats of Wendover and the Humboldt Sink, let alone the High Sierras.

I have to hand it to the Germans, they make fine carriages.

But modernity has doomed the Audi in our household. No one drives a stick shift any more; this means I’m the only one who can move it! The lack of a cup-holder is a particular safety hazard, as is only one airbag. And the list goes on . . . so bending to the wishes of those who make decisions around here, I am donating it to a charity in hopes that it might make a difference to someone else.

A number of times I have written in this column about the virtues of being frugal when it comes to car ownership. After all, cars are a depreciating asset and certainly not an investment. But you have to agree with me that those 301,000 miles—for the price of the car, 4 sets of tires, 2 alternators, a single fuel pump, and superb routine maintenance by the same local mechanic—was not a bad deal!

So, moving on, it’s time to explore the world of car purchasing and car financing. As you can probably guess, since I become attached to my cars, I tend to buy new and keep the car for a long, long time. Intuitively, leasing is not a very practical solution for me. However, in discussing this with several dealers, they are quick to point out the ways that leasing is a good deal for a business owner like me.

To the extent an automobile is used for business, lease payments are tax-deductible as a business expense, reduced by a small add-back number the IRS applies. However, if the car is financed, so is the interest for the auto loan, again to the extent the car is used for business, and you are allowed a limited amount of deductible depreciation. And when you’re done, you own the car!

When making the buy/finance decision, the factors are how long you intend to keep the vehicle, how many miles you intend to drive it, how you care for your car, the amount of business vs. personal use it will get, and your cost of money to borrow vs. capital cost rates charged by the leasing organization.

What I will miss most is how well the Audi was trained. Say “let’s go skiing,” and it knew the way to the mountains without a minute’s hesitation. “How about Los Angeles?”—I refuse to fly there because I’ve found driving to be faster and certainly more pleasant—and we were on I-5 in a twinkling of an eye.

Now I will have to learn how to use the new technology. I am faced with a retraining program, though I’m not sure which of us will be training the other. A friend informs me that the new cars talk to you, even tell you where to turn . . . sort of a stand-in wife, I guess.