For Your Consideration

Given our recent proclivity to nationalize financial “pain”, it seems that it’s only a matter of time before those very well-heeled hedge funds (and their very well-heeled investors) taken in the $50B Bernard Madoff ponzi scheme will formally request a bailout of their own. I suspect it will happen very shortly after January 20, 2009 and just might be one of the first national policy “tests” of our new President, Treasury Secretary and SEC Chairperson.

From this recent Newsday article, “There’s no doubt that hearings will be held on this, and some government aid is a very logical request,” said Robert Schachter, an attorney with New York-based Zwerling, Schachter & Zwerling, which is representing several Madoff victims. “If we’re bailing out Wall Street and the auto industry, maybe these individuals should be bailed out too.”

When the time comes, will you blame them for making this, using Mr. Schacter’s own words, “very logical request”? Especially in light of the SEC’s own press release on the issue which reads in part…

“The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.”

Well if that isn’t a prima facie admission of negligence, I don’t know what would qualify….

In fact, read for yourself the SEC “Case Closing Recommendation” which plainly states that the SEC staff “found no evidence of fraud” as of November 21, 2007.

….This has not gone unnoticed by the legal community as Phyllis Molchatsky has filed an “administrative claim” against the SEC for damages due to its alleged failure to protect investors.

Luckily for the SEC, like most government agencies, it operates under the doctrine of sovereign immunity, which means that for all intents and purposes, “the king and queen can do no wrong” and cannot be sued under most circumstances.

But such claims against the SEC will provide “cover” for the politicos who’ll support the notion of a Madoff claimant bailout. And thankfully for them, they don’t have to look very far for the potential sponsor of such a bill: Senator Frank Lautenberg of New Jersey, who entrusted his family’s charitable foundation to Madoff. According to the Senator’s attorney, Michael Griffinger, the extent of the foundation’s losses is not known as yet, but “that the bulk of its investments had been handled by Madoff.”

………

Still, I am struck by some of the most basic and glaring risk management deficiencies as the facts of this matter emerge…

In the risk analysis phase of the risk management process (once risks have been identified), assessments of potential impact on the firm are reviewed. If done comprehensively, both quantitative AND qualitative analyses are performed. Quantitative analysis deals with so-called “hard numbers” and includes a review of things like projections of loss, cost/benefit analyses and net present value calculations.

Well-trained financial “quants” on Wall Street get paid “the big bucks” to do these type of analyses, and their reports are usually quite impressive on paper.  The problem is that too many financial and business decisions are made on the basis of these “impressive” reports/projections alone.

Without a concurrent review of the qualitative risks undertaken, the risk analysis is INCOMPLETE and can lead to unforeseen and financially disastrous results as evidenced by the recent collapse of so many financial services firms.

Qualitative risks are by definition, difficult to define as they are not “hard number-oriented” and rely to a great extent on the experience, judgment and intuition of the members of the risk management team.

I think the primary reason I see almost no discussion of qualitative risk analysis undertaken is because IT IS HARD TO DO. It is also time-consuming. It requires a thorough understanding of the business, its processes, and its place in the physical, organizational and socioeconomic environments the business operates in. It requires people who are TRAINED IN RISK MANAGEMENT TECHNIQUES, not just financial wizards who can make a report read however management wants it to read. Finally, it requires corporate management support, which is notoriously difficult to get (and keep).

………

Despite the political grandstanding that is likely to happen when this matter is undertaken by Congress, we cannot legislate greed out of existence and scams like this will come to light in the future.

In Errol F. Moody Jr.’s discussion of “Investment Malfeasance and Breach of Fiduciary Duty” (which is an excellent read and is VERY highly recommended reading), he makes the case that for all intents and purposes, matters such as Madoff all come down to the same issue: “a failure to gauge risk”.

Clearly, the risks posed by Madoff were either not identified or analyzed properly by investors and a price for failing to properly manage risk shall be exacted.

The stack of stuff I want to share seems to be growing by the day… too much stuff and not enough time! So instead of writing fewer/longer pieces, here are a few succinct words of advice/counsel on each subject in one “omnibus” post. Hopefully, you’ll find a “nugget of joy” that’s of use to you and I can start to cut through my growing stack of stuff. So, let’s get to it…

1. Putting money in bank CD’s may seem like the safest choice today, but it might not be. You’ll be told that these things are “riskless”. They’re not. The one primary risk they don’t tell you about and that you retain (and it’s a biggie!) is inflation risk. Very simply. when the inflation rate is higher than the CD’s APR, you’re losing money. Historically, the one asset class which has a real return ABOVE inflation is equities. With stocks “on sale” at about 40% off, you might consider “buying low” today if you have the time to wait until the market recovers. I suspect that 10 years from now, you’ll wish you put every dollar you had in now.

2. Every personal insurance policy should be reviewed annually to make sure it still meets your needs. Take some time to do it. You might find that coverages can be eliminated, deductibles can be increased, insurers can be changed, etc. to reduce your insurance cost.

3. Every small-business owner should review their insurance program annually as well. If your business operates on a 10% operating margin and you save $10,000 in premium, the savings was not just $10,000- The real savings is $100,000 in gross sales you didn’t have to make just to pay the insurance premium.

4. The “annuity vultures” are out in full force. They usually take the form of “investment advisors” working for insurance agencies and especially prevalent in poor economic times, such as today. They prey on your fears that you’ll run out of money before you die which they cryptically call “longevity risk”. There’s 3 main reasons you should shun: 1. These are extremely complex insurance contracts. Most come with a 200-300 page prospectus. Unless you read and understand all those terms and conditions, be ready to get hurt. 2. Annuities are guaranteed by the issuing insurer- want to make any bets on which insurer(s) are going to survive? 3. COSTS. Depending on the insurer and the particular product being promoted du jour, the underlying costs of the annuity are outrageously high. Remember, the agent needs to be compensated for selling you this complex contract. You’re the one paying the freight.

5. If you have a private disability (DI) policy, look to increase your “elimination period” (which is a essentially a deductible measured in time, not dollars) to decrease your cost. I recently changed the elimination period on one of my DI policies from 30 days to 90 days. When the policy was originally written, I could barely afford to be without an income for 30 days. Blessedly today things are a little bit different. I saved over 25% in making this one change.

6. Our preconcieved notions and the media shape perceptions of risk. Do you really think that Congress knows how to “fix” the economy? Do you really have faith in their stewardship? Should we allow government to grow or would you prefer that industrious, entreprenurial Americans be tasked with our economic recovery?

7. Turn off CNBC. Stock market-timers have to be right not only once, but twice. Even Warren Buffett can’t do it. The stock market-timers “Hall of Fame” is an empty room.

8. Remember, it’s all relative. All assets are being repriced. Globally. There’s no place to hide. Forget U.S. Treasuries with their 0.01% interest rate. Invest in your own education. You want security? Look in the mirror. It’s the only place in this world that you’ll find it.

9. Worry only about the things you can DIRECTLY control. Everything else will take care of itself and you’ll save yourself a lot of heartache.

10. Continue to fund your 401k. If enough people opt-out, these tax deferred programs will go away and that’s not a good thing.

11. If you’re in business (or work for one), don’t forget to advertise and market the goods and services you provide. Your competitors aren’t and it’s a great time to steal market-share from them.

12. You may have noticed the increase in advertising by gold sellers, I know I have. Before buying, understand that gold has a ZERO expected rate of return, as it produces NOTHING. Gold has no intrinsic value, only the value we ascribe to it. You’re also going to need to buy A LOT of it to make it “worthwhile”. Where you gonna put it all?

13. Taking medications (legal ones, that is)? Want to try to save some dough? Live in NJ? Try www.njdrugprices.nj.gov for an online prescription drug registry. Prices for a one month supply can vary widely, even within the same zip code. It works surprisingly well.

14. According to John Montgomery, Founder and Portfolio Manager of Bridgeway Funds, there have been nine bear markets since 1940. The average time for the stock market to “recover” to its previous high is 13 months (excluding this current bear market). 13 Months- a little over 1 year. Of course, this time may be different but know that historically speaking, if you can keep your head when everyone has lost their’s, you’ll be well-rewarded.

15. THIS IS NOT THE GREAT DEPRESSION, PART TWO. We do not have 25% unemployment and the only thing we stand on lines for are HDTVs, not bread! Don’t “buy” the doom and gloom the media is “selling”. It’s all meant to manipulate.

Go live your life. Smile and be grateful.

“What we anticipate seldom occurs; what we least expect generally happens.”- British prime minister and novelist Benjamin Disraeli.

Risk managers understand that there is a price (or cost) to uncertainty. For example: money spent on a loss which did not occur was still spent. But you don’t have to be a “risk manager” to understand this, we know this from our own daily experience. Almost any variety of insurance expense incurred that went “unused” such as life insurance (because you didn’t die yet) or auto insurance (for a loss which did not occur during the policy period) was still spent. It is gone, ostensibly to pay for someone else’s loss (plus a portion for the insurer’s operating profit). This doesn’t nullify the need for the coverage, it just means it wasn’t “your turn” at the insurer’s trough.

Similarly, anticipated (projected) future losses may be worse than projected. They can be better (meaning “lower”) than expected but this seldom occurs in the wild. This usually occurs when a loss that happens today is not paid out by an insurer for years, which usually occurs with liability exposures. For example, take a situation where someone is injured severely in a car accident you caused and litigation ensues. The litigation process alone can take years to resolve. In the meantime, the prudent insurer has to put aside the money that it expects to pay for the loss, or hold it “in reserve” until the claim is resolved and the loss is ultimately paid.

As you can imagine, the process of reserving losses is just as much art as science. Most of my actuary friends (very, very smart numbers people) agree as these are the folks who are brought in to review these future losses regularly and to make sure the entity has the money to pay for the loss at that future date.

One of the factors used in their quantitative loss analyses is called an “uncertainty factor“. Think of it as (to paragraphrase ex-Defense Secretary Donald Rumsfeld), the “unknown unknown“. Most people know this term from their daily lives as the “fudge factor”, used when a variety of outcomes could ensue from a single event. Because all types of activity entails a certain level of risk, (including getting out of bed this morning to go to work), we can deduce that all activity contains an element of uncertainty.

I strive to keep political discourse here to a dull roar, except where it directly intersects the discussion and application of risk management techniques. For the past two days, the pundits are wondering why our financial markets have dropped about 10% since the results of the election. It’s uncertainty in action, folks. No one knows how President-Elect Obama will govern and perhaps a sense of buyer’s remorse is in play.

Added to this, is the stark realization that the $850B bailout isn’t necessarily going to help in the near term and that the federal government (that’s us guys!) may soon be in the business of bailing out individual state governments, instead of forcing them to live within their means. Of course, these events will only continue to destabilize and debase our currency because all we have left to do is print more money to “pay” for these bailouts, since no foreign government seems to be interested in buying our debt today.

We also don’t know the rules of the bailout lottery, as in why do some companies get bailed out (AIG, Bear Stearns) and some don’t (Lehmann Brothers)?  We had a perfectly good remedy for companies that could no longer operate, it was called bankruptcy. It was messy, it took time, but it worked and we as a society understood it. Now we’re in unknown waters as no one can explain to us how the rules of the bailout lottery work. This apprehension breeds more uncertainty.

And as uncertainty grows, our economy, financial markets and society weaken.

Back in 2002, I was spending my time full-time educating myself as to the academic underpinnings of markets. I was uncomfortable investing with alleged financial experts without having a basic understanding of the language of and the basis for their investment ideas and techniques.

One of the very first things I learned was that according to academic research, over 95% of all investment returns was determined by your asset allocation. It should not surprise that a portfolio of 80% stocks and 20% bonds has a greater *EXPECTED* return over time than a portfolio constructed of 60% stocks and 40% bonds, yet this simple illustration eludes many.

Of course, because the 80/20 portfolio has higher EXPECTED returns, (by most commonly used risk measures) it is also more “risky” than the 60/40 portfolio.  One can slice and dice these portfolios (US vs. International Stock, Large vs. Small Stock, Growth vs. Value Oriented), but that is not the subject for today.

What I wanted to share was some insight and assistance in choosing an equity percentage from some of the finest academic-oriented financial authors, both of which I have listed in the Reading Room.

Authors William Bernstein (WB) and Larry Swedroe (LS) have published some guidelines relating to this issue. Both agree on two major points:

1. Determine your maximum tolerable percentage loss from the following tables,
2. Use the LESSER of the amounts shown to determine your maximum equity exposure.

Maximum      Maximum
Tolerable      Equity
Loss             Exposure
———- ……  ———-
5% …………….. 20%
10% …………… 30%
15% …………… 40%
20% …………… 50%
25% …………… 60%
30% …………… 70%
35% …………… 80%

This first table deals with a “stomach acid test“. If your heart starts palpitating at a 10% stock market loss, according to the first table, your maximum equity exposure should be no more than 30%. However, the “stomach acid test” is only the first gauge- we need to think in terms of time.

Accordingly, a person needs to consider the time horizon as to when funds placed in the stock market need to be “repatriated back” for use as originally intended. Both authors have a slightly different take on this issue as shown in the following table:

.                     Max Equity
Investment     Allocation
Horizon           WB … LS
———- ………. —– … ——
1 year ………. 10% .. 0%
2 years ……… 20% .. 0%
3 years ……… 30% .. 0%
4 years ……… 40% . 10%
5 years ……… 50% . 20%
6 years ……… 60% . 30%
7 years ……… 70% . 40%

So, if you need the money that you’ve invested in the stock market in four years, William Bernstein recommends no more 40% allocated to the stock market. Larry Swedroe is much more conservative, advising no more than a 10% stock allocation.

My personal belief is that Swedroe is right, as four years is simply not enough time for the stock market to recover ground in the event of a severe downturn. You may need to sell at a most inopportune time (like today), negating the market’s historical long-term benefits. Of course, you would lose the opportunity for gain if the market trends higher over that hypothetical four year period.

So when you hear/read about those people “soon to retire” who now have to postpone retirement due to the state of the U.S. stock market today, ask yourself: Were these people getting the “right” advice on asset allocation?

It appears they were not.

Recalling a prior post (which recalled the “Death of Equities” from a prior era) is instructive if you can keep your wits about you. While pop psychologists and new agers repeat the oft seen “Danger + Opportunity = Crisis” it isn’t quite so. Risk is real. Market risk is real. And what we are seeing in the markets these last few days is the repricing of that risk.

“These are the times that try men’s souls” a phrase written over 200 years ago by a founding father, Thomas Paine, who knew a thing or two about risk. In his December 23, 1776 discussion of the our recent declaration of independence from Britain, he wrote about panics:

“Yet panics, in some cases, have their uses; they produce as much good as hurt. Their duration is always short; the mind soon grows through them, and acquires a firmer habit than before. But their peculiar advantage is, that they are the touchstones of sincerity and hypocrisy, and bring things and men to light, which might otherwise have lain forever undiscovered.”

Yes, our world is changing below our feet, but that doesn’t mean the end result is ruin. The market is gripped in panic, but it appears our final capitulation bewitching hour is nigh. I suspect this because the media has finally called the bottom with this gripping headline: ‘The World As We Know It Is Going Under‘.

Which to my eyes looks like this headline from AUGUST, 1979:

Now that the US taxpayer is now bailing out Fannie Mae, Freddie Mac and the home-debtor speculators (not to mention all the banks that are being liquidated by the FDIC) it might be a good time to ask this question: Who’s going to bail out the US taxpayer?

But wait, there’s more!  Why not bail out Lehman Brothers as well?

It just wouldn’t be “fair” if Lehman is denied the bailout status Bear Stearns, Fannie Mae, Freddie Mac, the banking industry and the home-debtor speculators have been afforded by our elected politicians from *BOTH* sides of the aisle.

It’s absolutely laughable that after 18 years at the Fed, ex-Chairman Alan Greenspan is warning not to use the Fed as a “magical piggy bank“. There apparently is no shame left in America.

In fact, why don’t we just nationalize the entire financial pornography services industry like our pols want to do with our health care industry? I’d wager there’s more fraud and wrong-doing in the financial services biz than in health care.

The US taxpayer might get a fairer shake then.

In a prior post, I mentioned that the US government debt is not $9 trillion as is most commonly reported by the main-stream press, but $53 trillion. Some of you asked for an outline of the difference:

It’s ugly. And it doesn’t include the most recent bailout numbers. Perhaps it would be better if Congress took off the next 4 years so we could catch up with the damage done.

Five short minutes containing audio of the late comedian Bill Hicks, video of Carl Sagan, and some Hendrix against a down-tempo, ambient dub music backdrop. Enjoy.

The game is to find out what you already are.

Today, the New York Post ran a story that simply mystified me. It was entitled, “Samaritan Trucker Fired” and tells the story of a man named John Acheson who was fired from his job at Sid Wainer and Son  a Massachusetts based specialty food purveyor, for essentially being a good samaritan.

According to the news report:

1. On August 4, Mr. Acheson witnessed a fatal shooting and was delayed after assisting the NYPD in tracking down four suspects in the shooting; and

2. On August 19, Mr. Acheson witnessed a woman strike a livery driver with a hammer and flee. He called 911, chased the woman into an alley and assisted police in arresting her.

3. On August 20, Mr. Acheson was fired from Sid Wainer and Son. His boss (who is unidentified in the story) is quoted as saying, “John, I gotta let you go. You don’t know how to mind your own business”

Simply astonishing.

I’m not sure the founder, Sid Wainer, would’ve approved of Mr. Acheson’s firing. According to the company website, Sid Wainer’s “code of ethics, his strength of character and his resolve to be a positive influence on all those around him” were ideas and concepts Sid Wainer taught his son and current President, Dr. Henry Wainer.

I’m not beating up on Sid Wainer and Son the company, I just think they missed a heck of a marketing and publicity opportunity by not parading the courage of one of their own in the media. They also missed a great human resources potentiality. In an industry where it is difficult to find quality help (truck drivers), Mr. Acheson could’ve become a symbol of “the type of quality employees the company hires”, and used that good-will to attract more and new employees.

Listen, any company that has it’s roots in the depression-era (it opened in 1914) that survives today has my awe and well-wishes, but unless there’s something to Mr. Acheson’s story as reported that we don’t know, they blew it on this one.

That being said, I believe Mr. Acheson has the opportunity to parlay this unfortunate situation into something better for himself. It is obvious that he is special in some way. Perhaps these incidents were cosmic tests of some sort. Perhaps he should consider driving for a paramedical organization or a hospital. This would fulfill his obvious need to assist others in distress and plays to his vocational skillset. Perhaps in doing so, if he has the smarts for it, it will lead him to a career in medicine, or as an EMT.

It is obvious to me that Mr. Acheson is meant for something more. I hope he realizes it too.

“Ursus Head” would make a great name for a garage band, wouldn’t it?  The name’s from a small cape located in the bucolic Kenai Peninsula, near Iniskin and Pile Bay Village in southcentral Alaska. (If you click on the link, “zoom out” about 8-10 times and click on the “satellite” button for full effect!) It’s where I’d be right now if I had my druthers…

For those of you who have been wondering as to my whereabouts, I offer (in my own defense) a quick update on the progress of my studies:

1. I’ve passed 3 of the 5 Certified Risk Manager (”CRM“) certification exams, and am awaiting for the results of my third examination. Based upon the timing of the required courses, certification completion should be achieved in the first quarter of 2009. Each course is 20 hours of intensive instruction followed by a 2 1/2 hour short answer, essay examination. These institutes are by far the most rigorous and doing well on the exams requires the most thorough and complete understanding of risk management concepts. The CRM material also provides the most useful “real-world” information and is pretty much all hands-on. Insidiously, I like these courses the most!

2. As of November 1, 2008 I’ve passed all 3 of the Associate in Risk Management (”ARM“) certification exams and now am authorized to use the ARM designation. Each part of the material is tied to a 400 - 500 page academic text for which proficiency in the material is required to pass. While you can (theoretically) take classes on the material, I did this certification completely self-study. It’s heavy on theory, which is why I can’t get too excited about most of the material. That being said, it’s fundamentally a good thing to explore and understand the theoretical underpinnings of risk management and is a great adjunct to the CRM material. However, being exposed to both the CRM and ARM material at the same time, the ARM material alone feels incomplete.

3. I’ve passed 3 of the 5 Certified School Risk Managers (”CSRM“) certification exams and based on the timing of the remaining required courses and exams, the time frame for completion of this certification is the 1st quarter, 2009. I usually get the question, “Why school risk management?” Because it’s entree into the issues and complexities of public entities. As compared to for profit enterprises, public entities have vastly different capitalization issues and legal liability exposures which affect risk control activities and risk financing options. So basically, I want to take what I learn about school risk management and apply the concepts to other disciplines- doing this forms the basis of the sparks of creativity!

So, assuming all goes well on the timing outlined above, there’s a bit more education I have planned for myself. The “ARM-P” designation is the “Associate in Risk Management for Public Entities” designation and is earned by completing one additional course/exam in addition to the ARM material. Late 2008 is my planned completion date for this certification. UPDATE: Got it and am currently waiting for my diploma!

Reaching out to more traditional educators, New York University has 2 risk management programs I’ve found of particular interest: one is a “Certificate in Financial Risk Management” program and the other is a “Graduate Certificate in Enterprise Risk Management” program. Both provide the “meaty” risk management graduate level material I’m looking for without having to suffer through the entirety and hellacious expense of a “formal” MBA program.

The only remaining question is what I’ll wind up doing with all this… Till next time, enjoy what’s left of the summer!

UPDATED RESULTS AS OF 12/6/08.

To borrow from Nancy Sinatra (of “These boots were made for walking” fame), “These times were made for new business startups!” It’s absolutely true: Ironically, times of economic slowdown are some of the best times for starting up a new business. I know it sounds counter-intuitive, but let me make my case with the following “big-picture” points:

• 1. Competitors are generally weakened
• 2. Employee supply pool is large (and scared)
• 3. Vendor payment terms are much more flexible
• 4. Office lease/rental costs far lower than average
• 5. Many initial startup expenses can be had on the cheap

If we accept the premise that business and economies have predictable cycles, then the above should be “obvious”. Right now, our economy and businesses in general are in “contraction mode” and we are struggling through a very difficult time of burning off the excesses that were “built up” over the last 6-7 years. Despite what you hear in the media, it’s not only normal, but a good thing for us all. This process thins out weakened competitors and strengthens those companies that are and have been managed well. It positions our economy for the next cycle of expansion, which brings us the goods and services we want and need at competitive price points.

Which brings me to point number one above. New businesses can take advantage of weaker competitors and those that are ill positioned for growth going forward in the near-term. They do not suffer from excess “weight”, baggage or balance sheet deterioration. They are nimble and can act fast and react smartly to the current economic reality. They do not fear losing market share.

Point number two: Wow, are people scared about their future, their jobs, etc. I think it would be more fascinating to explore what people *weren’t* afraid of! This mindset can be advantageously by the new business owner. Those owners that can foster a sense of security for their employees will have fruits of their efforts returned several fold over time. Right now, not only is talent easier to find, but it costs less. A win/win for the business owner.

Point number three: Vendors of all types (all other businesses that are not your direct competitors) are weakened by a one-two punch of loss of quality business and bad debt write-downs. Those new businesses that can establish a good working relationship with their vendors quickly will reap the rewards long term. Remember, good “terms” from your vendors are not necessarily just financial, they can (and should) be on the service side as well. A vendor may well pay better attention to a new business relationship where future growth potential lies than a long-standing one that is stagnant.

Point number four: Office space is *cheap* and a properly constructed lease can be written to provide the new business with not only a very low initial rental cost (relative to a few years ago), but can (and should) take into consideration at least a five year rental plan. I personally prefer a one year lease with 4 successive one-year renewal options, for a total of 5 years. This way you are locking in a lease cost lower than market average rates, but not locking yourself into the space should it no longer meet your needs. Oh, and one more thing: no personal guarantees! If the landlord insists on a personal guarantee, find other space.

Point number five: I love a good bargain. I can’t remember a time when so much technology can be purchased for so few dollars. Whether it’s computer equipment, office equipment, office tables, chairs, cabinets, etc., deals can be found as companies liquidate to generate cash. Setting up the infrastructure for your new business will cost you far less today than it would’ve just 2 years ago.

So, anyone got any good ideas on our next new business?

People tend to see the world in a “half-empty” way, tending to focus on the negative rather than the positive. I suppose that’s just a human nature thing and it’s not going away anytime soon. And we’ve all got good reason to feel this way right now: we’re in a political and financial malaise and if you listen to most of our major media outlets, America is “in decline” and not relevant in the 21st century, in essence “talking us out” of recovery.

Quite frankly, it’s easy to see their “point” as there are many signposts indicating decline:

• The loss of our manufacturing base, the economic engine of the 20th century;
• Pictures and video of people living out of their cars in defacto barrios after losing their homes;
• Energy and food products costs (the costs of our basic living) rising exponentially;
• Recent freefall of our financial markets;

…among other things….

I submit to you that while the threats are grave, we hold the keys to our own recovery and prosperity. That doesn’t mean it will be easy; quite the contrary, it will be hard. It will be hard to fix the problems that our parents left us with and that we ourselves helped create. It will be painful to “fix” our broken systems be they governmental, health, economic, or energy. In some cases, the broken system will not be able to fixed, it will have to be scrapped. The pain will be broad-based, but since I live in the real world, I know that some will feel the pain more than others. 

But I don’t subscribe to the theory that our problems are insurmountable. I’m not willing to give up that ghost yet. It’s true that we as a society will be forced to change, and it will change. Our economy will change. Our government will change.

To turn a phrase from a well-known song, what the world needs now is not love, it’s courage. Courage to make the hard decisions about what we want our future to look like and then the courage to face the trials and consequences of our decisions. Indecision is not an option, as there are grave consequences for indecision.

Perhaps most of all, our expectations will need to change. The general sense of “entitlement” we exude must (and will) erode. We are not “entitled” to anything in this world, except for those rights prior generations fought overwhelming tyrannical forces for. Those same rights, quite frankly, we have begun to take for granted. 

I’m sure it’s been a long time (or maybe the first time), so go read our Bill of Rights and thank a vet.

We have limited time on this earth and some of us see fewer years than others.

It’s comforting to know that no matter the “anguish of the moment” we are going through and how insurmountable it all appears, this too shall pass. But it’s also a warning when the inverse of that proposition is analyzed: No matter how *well* things are going at the moment, no matter our glory, no matter our earthly status, this too shall pass. It’s how we balance these two “swings of the pendulum” that creates the tapestry of our lives.

You have a choice. It is obvious and distinct. You can either choose to create chaos in your life and in the lives of others, or you can create harmony for yourself and in the lives of others. This is no tree-hugging hippie-crap, it’s the nature of the universe. 

It takes as much effort and energy to act selfishly as it does to act selflessly. Nature abhors a vaccuum: If you do not choose to act on your own accord and create a harmonious reality for yourself and those around you, others will define you by your inaction and you’ll likely be cheated out of great joy.

We live in a universe of creative destruction. If Einstein is right (and science has yet to prove him wrong), then matter and energy cannot be destroyed, only converted from one form to another. This reality is temporal and we need to consider the effect of our choices when building a life. A positive change needs to be made today in order to “live the benefit” tomorrow.

No one ever regrets being nice. No one ever regrets feeling genuine empathy for others. Being nice does not make you an idiot nor does it indicate that you need medical attention or pharmaceutical aid. But most people are afraid to drop pretenses, because they believe it gives them power- power over others and others’ circumstances. 

You can buy into that load of manure if you want, or you can smile knowingly and opt yourself out. It’s all a facade and one day it all evens out. This is evidenced by the fact that the hearse is never followed by the armored car.

If you’re concerned about your place in the world, change it. God (or whatever deity, higher power or “source” you believe in) does not take cash, checks or credit cards. And for those of you who believe in “nothing” or “an absence of anything”, this must also logically be true.

Have you been to the grocery store lately? Erosion of the value of the dollar is not only present in the increase in the cost of energy, but also in the dramatic increase in the cost of our basic family food needs since late last year, as our economy started to unwind.

Like almost everyone I know, I’m trying to stretch the value of every dollar available. I’m still a net buyer of equities as my investment policy statement dictates- while most are unnerved (panicking?) by the gyrations of the stock market, I believe that our current economic slowdown is *temporary* and not representative of a systemic breakdown. But my family cannot eat future stock market performance today.

So I’ve been considering taking some short-term emergency fund savings (where we’re earning about 2.25% annual yield and losing money after the effects of inflation) and stocking up on non-perishable food and related supplies as a hedge against what is reasonable to expect: higher prices tomorrow.

It’s not a grand plan, but today every little bit counts; and it’s less about “math” and more about logic: The idea is based on the premise that I *expect* food prices to increase at a rate greater than 2.25% over the short-term. There’s limited downside if I’m wrong:

We’ll always use the toilet paper.

P.S.: Remember, there’s more literary goodness to read on the main page here.

This post marks the end of my trilogy of modest proposals dealing with our oil dependency.

This morning I was reading new forum posts on brokeroutpost.com. This website is a for mortgage professionals - it’s very enlightening to see the mortgage crisis from the mortgage broker perspective.

One of the forum posts was on the topic of the prices of gasoline at the pump around the country: As expected, prices ranged from $3.75 to well over $4.50. The posts then drifted to alternative fuel sources: veggie oil, plug-in hybrids, etc.

Then, one of the posters calling himself “neo-logic” chimes in with the following suggestion: “Someone should make a car that runs on b.u.l.l.s.h.i.t. That’s a renewable resource.”

True dat!

It’s been a while since we’ve added a new state to the union (Hawaii in August, 1959). Lately I’ve begun to think that maybe we should start thinking about the political process of adding Iraq as our 51st state. Let me plainly state my case:

1. It would solve the “pesky” and on-going problem of the Iraqi’s having to set up their own government.

Our military leaders tell us that Iraq suffers from *political* issues, and not necessarily military ones, which is why we have to stay there “for the forseeable future” (Which I think we can loosely translate to 50-60 years, like Germany and Japan, places we still maintain a military presence after WWII). Well, we can fix this problem: our constitution has worked well for us for over 200 years, so no need for the Iraqi’s to continue to try to start from scratch.

2. It’d be a heck of a solution to our current oil woes.

Instead of us continuing to pour money into Iraq (that we’ve stolen-borrowed from our children and our children’s children without asking, I might add) without reward, we could now monetize our investment for our children. It would be like adding Alaska to the union (with its huge oil reserves), only in one of the most geopolitically sensitive areas of the globe. As I said, we’re going to “be there” for a generation anyway!

3. Having $1.00/gallon gas in the U.S. for at least a generation would sure silence the anti-war crowd.

I don’t think this requires any explanation. Oh, and don’t forget to “short” the oil company stocks…

4. Our enemies would be forced to stop accusing us of being “imperialist”.

Sure this proposal would peeve the Islamic extremist jihadists, so I say let the Iraqi’s vote on it. And no rigged elections this time: if they honestly want us to leave, we should. If they want to be Americans, they should be allowed to be Americans. And this gift keeps on giving- a “free” Iraq as a state of the United States would be Syria’s and Iran’s worst nightmare. Not to mention China, who competes with us for every barrel of oil available to support their burgeoning industrial economy.

With oil prices currently at around $125 per barrel, it is difficult to believe the US government’s calculation that inflation is currently at 3.98%.

It occurred to me that if our wages were indexed to the price of oil, perhaps it wouldn’t be so bad. So, imagine if you will, that you were making $100,000 when the price of a barrel of oil was $100. (which happened “way back” between February and March of this year).

The cost per barrel has increased 25% in roughly 3 or so months. Now imagine, if you will, your salary increasing by the same percentage. In our hypothetical example, you are now being paid $125,000 today for the same job you were doing in February.

Sweet!

It could almost make you wish for $200 per barrel pricing.

To be very specific, what happens to a life when it ceases being a relentless pursuit of money? I think back to my church confirmation classes and remember being taught that the “love” of money is the root of all evil. But we’ve learned that money is nothing more than a storehouse of value and a method of exchange. In today’s world, it’s nothing more than ones and zeroes contained in a computer database/ledger. It also begs the question: Who’s in charge or control of the “ledger”?

Our money can “disappear” at any time- as it has in America before. Does anyone remember confederate currency? Because it was a fiat currency (meaning it had no intrinsic value, just like our current dollars) and was backed by a government that ceased to exist, confederate currency collapsed and had no value at the end of the Civil War. Those who were “rich” by confederate currency standards were left penniless. I guess the moral of that story is having “more” shouldn’t necessarily make you feel more secure and that you should never assume the unlikely is impossible.

Actually, the disappearance of money doesn’t even need to be so draconian or dramatic as followed by a governmental collapse. Inflation is a hidden danger and stealth destroyer of monetary “wealth”. Inflation is the general level of prices over time. I like to think of it as a general *increase* in the cost of a “basket” of goods and services over time. For example, I would need $661.92 in 2007 dollars to buy what $100 could buy in 1965, the year I was born. A loaf of bread cost a whopping 21 cents then- compare that to today!

Reasonable people ask why this is. It’s because our money supply is manipulated by a financial cartel in the form of the Federal Reserve. As more dollars are injected into the money supply and “made available”, the value of the dollars already existing in circulation *falls*. Therefore, you need increasing amounts of dollars to buy the same amount of goods and services over time.

Recently I was referred to a 60 Minutes segment about David Walker which was broadcast originally back in March, 2007. Don’t know who David Walker is? Don’t feel bad, neither did I. Up until March of this year, he was the US government’s top accountant, the Comptroller General of the Government Accountability Office. He pegs our national debt at $53 TRILLION dollars, not $9 TRILLION and paints a picture of our country’s economic future so grim, it’s as compelling as it is utterly chilling. I consider it a “must see”.

I’m left pondering whether the “endgame” plan is the bankruptcy of the United States (with its corresponding debt default and monetary collapse) to “make way” for something new- I believe George Herbert Walker Bush (41) called it a ” New World Order”.

Wouldn’t that be a hoot? I wonder how the people who spent the entirety of their lives in the sole and relentless pursuit of money are going to feel?

Well, just a flurry of activity today, isn’t it? I’m going to be away on vacation until late April/early May so I wanted to commit a few ideas that I’ve been mulling over lately to the site before I either forget them or get caught up in other things. Some concepts I have “in development” as of today that’ll have to wait for my return:

1. A line item breakdown of variable annuity costs - OUCH!

2. Why stock market timing is a bad (but pervasive) idea;

3. A discussion of “senior” seminars and the art of the “sale” - beware the siren call of the “free” steak dinner!;

4. The allure of fixed index annuities and when they are suitable;

5. Long Term Care Insurance Objections (and rational responses);

6. Within every small business owner lies the soul of risk manager;

7. Moral and ethical obligations of a fiduciary;

8. Legal considerations of the sale of securities by “captive” financial advisors/insurance agents;

9. Exploration of the concept of “Personal” Enterprise Risk Management;

10. How to reduce health insurance premiums through exposure analysis;

11. Matching bond fund durations to meet a 1-5 year financial need;

12. “If investing *isn’t* boring, you’re doing it wrong”; and

13. An exploration of personal risk control techniques.

Just a little “light” reading, huh? Also, if you haven’t already done so, please consider registering your email address (or send me an email at md at marcd.com and I’ll register for you!) so that the site updates will be forwarded automatically to you by email. Consider referring a friend to the site - we need more friends! Thanks again for your support and I’ll see you in about a week.

Being tax time, I’m reminded of a piece of sage advice I’ve acquired along the way that I’ll share with you. At one time many years ago, there was an ice cream parlor in my town called “White Mountain Creamery”. It made some of the best ice cream I ever tasted and was always packed with people. By all outward appearances it was a thriving small business. Until one day, that is, when it closed without warning.

I always wondered what happened behind the scenes. Was it the sudden death of the owner who lacked a buy/sell agreement? Was it a lease renewal negotiation that soured? But if that was the case, why didn’t the business move and reopen at a new location? What would cause a seemingly very successful business to shutter “overnight”?

I came to learn it was simply a matter of too much money going out and not enough money coming in. And it simply doesn’t matter how much you’re earning, whether it’s $30,000 a year or $30,000 a month. It’s not what you make, it’s what you keep.

So remember the lesson of White Mountain Creamery whether you’re evaluating new business opportunities or simply living your life. It’ll never let you down.

My father was a small business owner. As I think back, I suspect this happened out of necessity and not by choice. You see, at the age of 14, he was forced to start working to help support his family after a construction accident took the life of his father at a young age. My father was first generation “off the boat” that came through Ellis Island in the early 1940’s.

His family was very poor and no one had the benefit of a formal education. As I understand it, my dad was exceedingly bright and well-liked at school and despite receiving several offers to go to college, he started work full-time straight out of high school to continue to help support his family. At the time, I don’t think he gave it any thought. He just did “what he had to do”.

Before he died, he told me that he had 2 regrets, one of which I will relay here. He said that looking back, he regretted not being able to stay in school and always wondered what the tapestry of his life would’ve been had the circumstances allowed him to go to college after high school.

I think all of us can look back to specific moments in our life and see the proverbial “fork in the road”, where life offers us choices. They seem so clear in hindsight. I view them in terms of “IF…THEN…ELSE” computer language programming branches. “If I make choice “A”, then the likely result is “X”; If I choose “B”, I’ll likely end up in a completely different place.

In short, I try to explain to my kids that each successive choice we make leads us to different possibilities and (accordingly) to different successive choices (If, then, else branches). Some are small choices, and some large. It’s how our futures flow.

We all live with our previous choices, the choices that were made for us and the choices of our parents. All of these accumulated and conspired over time to bring us to our current “place”. Now comes a point of decision: If you want a different “place” (result) for yourself today, you will have to actively make some new and different choices. You cannot “undo” what has been done, but you can take that experience and change your future. It’s like “hacking” your own life.

Sometimes I wonder if our founding fathers would recognize their country. Why is it that government officials, be it local, state or federal, always announce major new directives on Friday afternoons? No need to answer - the answer is self-evident.

Yesterday the Bush administration announced a proposal that would give sweeping new regulatory powers to the Federal Reserve, (which is not a government agency despite its name), according to this AP wire.

Is everyone asleep?

Most rational explanations of how the credit crisis evolved includes the Federal Reserve as a major factor. The concept is that when the Federal Reserve lowered interest rates and infused cash into the monetary system (increasing liquidity) in the days and months after September 11, 2001, it made money “cheap” and plentiful. These decisions at the very least, helped create the current monetary environment.

Banks were encouraged and expected to make loans available (to both businesses and individuals) who may have been affected by the 9/11 event. People were encouraged to “go shopping” to keep the economy afloat. And as it turned out, many people, in fact, did just that. A good question to ask at this point is how exactly did we finance this?

Many used their homes as an ATM, because it was “easy” money.

Banks were lent “easy” money by the Federal Reserve, and then in turn re-lent this “easy” money to others. Loan underwriting standards were lowered dramatically. People who couldn’t qualify for a Discover Card were given new mortgages, which in turn fueled the housing boom. People with current mortgages were encouraged by banks, lenders and mortgage brokers to take equity “cash-outs” because their home equity was just “sitting there”, not doing them any good.

Is there any other way this could have ended?

And now, we are asked to give the Federal Reserve more power. While I understand that the American people want a solution and a “quick-fix”, I think that this proposal is taking us in the wrong direction.

We all know the answer to that one: the stork (oops, right answer, wrong question). Really, have you ever considered where money comes from? Got visions of the US mint printing dollars or pressing coins? You’re not alone. I needed a legitimate resource for this question in preparation for my upcoming “Money and Investing” Girl Scout workshop.

Online research leads to many unsubstantiated conspiracy theories- not very helpful. And then I found a copy of “Modern Money Mechanics: A Workbook on Deposits, Currency and Bank Reserves”, originally written by Dorothy M. Nichols of the Federal Reserve Bank of Chicago in May, 1961. Now we were getting somewhere! I was able to obtain a pdf of the February 1994 revision and have made it available for download here. Sadly, this workbook is currently out of print. I would *love* to see the original 1961 edition for comparison purposes.

Without question, “Modern Money Mechanics” is a remarkable document. As a resource, it is “pure” and conspiracy-free. It quite adequately explains the basics of money creation and our modern fractional reserve banking system. It explains that money can be viewed “simply a tool used to facilitate transactions” and that in the US “paper currency nor paper deposits have value as commodities” and that, “Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries” (Emphasis mine).

In what makes money “valuable”, the text explains: “Money, like anything else, derives it’s value from its scarcity in relation to its usefulness” (Emphasis found in the original text). That makes sense: the more money that’s available, the less “scarce” it is and therefore the less “valuable” it is.

It further explains that “Control over the quantity of money is essential if it’s value is to be kept stable” (Again, the emphasis found in the original text). This is because “Money’s real value can be measured only in terms of what it will buy.” This time the emphasis was mine.

One can begin to understand why this document might no longer be available.

So where *does* money come from? According to “Modern Money Mechanics”, the “actual process of money creation takes place primarily in banks“.

Each time a loan is made, new “money” is created. Essentially, it is conjured into existence by the borrower’s promise to repay the loan and his/her pledged collateral. Taken to it’s logical extreme, if there was no debt, there would be no money.

In a recent issue of the “Journal of Indexes” (January/February, 2008), author Burton Malkiel (who’s book “A Random Walk Down Wall Street” can be found in the Reading Room) discussed the importance of culture on developing economies. He recalls that Nobel Laureate Sir W. Arthur Lewis used to tell him that “if you want to know why some countries develop economically and some don’t, look at the culture.” The four characteristics that drive economic development outlined in the interview?

• Reverence for education
• Entrepreneurial Spirit
• Risk Taking
• Hard Working

Malkiel’s point was that China, as a culture, fits this profile and is likely to be the “largest economy in the world in the 2020’s”. Of course, we don’t know what we don’t know and there are many possible outcomes. I would have liked to ask him if he felt the same way about the United States today. Thinking back 200 years, when the US was an “emerging market”, I think we fit the profile very well.

Today, however, I think well-reasoned arguments can be made that we don’t fit the profile quite as well as we did then. The entrepreneurial and risk-taking spirit remain, in large part, intact. Our workforce is, on the whole, very hard-working. Where I see a potential issue is in the “reverence for education” department.

But there exists a fifth issue that affects economic development: a country’s regulatory environment. We live in a country that includes the “pursuit of happiness” as an inalienable right, specifically enumerated in our Declaration of Independence. To the best of my knowledge, ours is the only country in the world that provides for and includes such a right in one of it’s founding documents. There is simply no other place in the world that offers individuals the opportunities this country provides daily.

What plays out in China’s relationships with Tibet, Taiwan and Hong Kong will be instructive, each for a different reason. It cannot become the world’s largest economy without trading partners. The world is looking for a normalization of relations with Tibet and Taiwan, not more violence. One can reason that Hong Kong’s capitalist roots will be helpful in tempering old habits.

In large part, if China *does* become the largest economy, it will *only* happen because the world has allowed it to happen. But I’m not ready count the US economic engine out just yet.

My wife gently ribs me from time to time, saying that I view the world as if the “sky was falling”. Well, blessedly the sky almost never falls (but the risk is there that it might), and sometimes it actually does. Well, it *feels* like it, anyway. I try to remind my children that life is messy business and no one gets out alive.

So, I promised some info related to my CRM Principles of Risk Management course that I recently attended. The instructors were bright, articulate and engaging and as a result, the 20 hours of instruction went by fairly quickly. As you may deduce from a “Principles” class, the essential focus was the basics of risk. The class was a fairly large one, with about 90 people. It was also a very highly credentialed group, with about 120 designations granted to these folks. Definitely no slouches here.

The first risk concept explored is an identification of the three generally accepted types of risk, each with their own unique characteristics. They are:

• Pure Risk;
• Speculative Risk; and
• Gambling.

Pure Risks are those where there’s a chance of loss *only* with no possibility of gain. An example of this might be an airplane falling out of the sky wiping out a city block or the death of a loved one. With respect to individuals, insurance does a good job of protecting against many pure risks we face in our daily lives.

Speculative Risks are those where there is a chance of a loss OR a gain. These risks include a *variation* of outcomes where profit is possible. An easy example of this is investing. We invest money in stocks, bonds, commodities, etc. with the hope of a positive result (profit), but where exists the possibility of loss. To spin this concept to financial academia, having the majority of your investments in one company or one industry group, is called “speculating” (and not investing), and we all know how dangerous that can be!

Starting and operating your own business is another form of speculative risk. For my money, this is, for most individuals,  the most “risky” speculative financial risk. Since I have been a “serial entrepreneur” (stop me before I start another business again!) all my adult life, I guess this is why stock market investing seems nowhere near as risky as the commitment and deployment of capital in my own business.

The last risk group is gambling, where there is the chance of loss or gain, but the probabilities strongly favor a loss. I highly doubt this type of risk needs any explanation. Anyone who has ever been to Las Vegas or Atlantic City (or watched CSI: Las Vegas on television) understands this type of “risk”. In the real world, I’m not sure that gambling is really a form of risk. I don’t consider shooting craps or “putting it all on red” to be forms of risk, as I think it’s a virtual certainty that a loss will occur.

I think it’s fair to say that one of the areas traditional risk management gives short-shrift to is the area of “personal” risk management. Sure, major corporations employ risk managers and teams of experts to assist them survive the myriad of risks present to the “enterprise” but where’s the love for individuals?

Even the risk management educational material I’ve reviewed focuses almost entirely on corporate risk management (I guess it’s because that’s where the money is). This lends credence to my point of view, but my position isn’t set in stone. If there is a wealth of personal risk management educational material available that I’ve somehow missed, let me know. When the data change, so do I.

Let’s face it, the general public depends on insurance salespeople to act as risk managers because:

• A. The general public (and most insurance salespeople) thinks “risk management” is the same thing as “insurance”; and
• B. Most people, who are busy living their lives, don’t consider risk management concepts and techniques.

Professional risk managers wince and take a real dim view of the perception that “risk management = insurance”. They’ll tell you that insurance has a role to play in risk management, but as a financial tool to be used, nothing more. If you can only solve risk management problems with insurance, you ain’t much of a risk manager!

There’s a problem, though - insurance salespeople aren’t particularly versed in risk management techniques. (There, I said it.) They can talk to you all day about life insurance, car insurance, house insurance (you get the point), but to have an intelligent discussion on how to apply risk management techniques to *your* LIFE is not one you’re likely to be engaged in any time soon.

There are exceptions of course, but not many. While a person can obtain a Masters degree or Ph.D in insurance, they’re usually relegated to academia (or locked away, somewhere far away!). These are not your garden-variety insurance salespeople types. The industry attempts to compensate for this education gap, in part through designations such as CPCU, CLU, CIC and CRM. Admittedly, it’s a confusing alphabet soup for the general public.

I would urge you when choosing your next insurance broker or representative, strongly consider those people who have passed the rigorous education and testing requirements required to obtain the designations shown above. You’re much more likely to be able to have a conversation on risk management concepts and techniques if you do.

I first considered an insurance career in the months between 1987 -1988. Like 99.999% of all insurance industry workers, I didn’t grow up *wanting* to be in the insurance industry. Perhaps that’s the reason why so many in our industry are so seemingly dispassionate, they’re not in it ’cause they love it. But that is a subject for another day.

In the late 1980’s I was running several trucking companies: a messenger service, an airfreight cartage operation and a hazardous materials hauler. (No wonder I was tired!) During that time the transportation industry was in the midst of severe regulatory change and I wasn’t sure we were capitalized well enough to keep up. I also wasn’t sure if I wanted to dedicate the next 20 years to the industry. I was burned out and run completely out of ideas. To stagnate is to slowly die. So I started talking to my insurance agent, Richard Augustyn, about his business.

By the end of October, 1989 I started my insurance industry career in sales (on a $450/week draw against commissions) with a small retail agency on the cusp of great things. I was able to leverage my transportation industry and small business ownership experience for the benefit of my new customers immediately. Those were fun days, but I was dangerous by what I *didn’t* know. A new insurance license can be roughly equated to a motor vehicle learner’s permit. I was so “sure” of everything in those days and it is only in hindsight that I understand how much incomplete (not necessarily “wrong”, just incomplete) counsel I gave.

I learned how to run an insurance agency: operational aspects, the special accounting methods, premium finance, policy marketing, sales and service (they are all different skill sets) and the absolute importance of renewal business to agency survival. It was a brave new world for me and I enjoyed learning *everything*.

Then the agency opened an insurance “program” division, writing inland marine business countrywide. I learned about program and broker administration, managing insurer expectations, policy creation and insurer underwriting guidelines and standards, the “why’s” behind the insurance contract.

Well, all heck “broke loose”. Staff grew from 7 to about 35 in less than 12 months. My role had morphed from operational VP and sales to what amounted to being “mother-hen” and “fireman”, keeping tabs on all my chicks and responsible for putting out all the fires in the office.

Ugh. I began not enjoying it.

nataliedee.com

That’s how I felt. Within 2 years, the small business ownership bug had bitten me again and I had the *audacity* to open my own retail insurance agency in July, 1991. The parting of ways was not amicable as I recall. It’s always been a regret, although in hindsight there was probably no way to avoid it. I must admit I was amused and flattered (in a really weirded-out way) when I found out my ex-boss went through the trouble and expense to put me under surveillance after I left. That being said, I am especially grateful to Richard Augustyn for being my friend and guide in those years. It is not an overstatement that without him I would not be where I am today. That experience laid the foundation for all that was to come and is today.

In getting ready for the “Got Money?” Girl Scout workshop, I thought it might be neat for the girls to look at stock market volatility and returns in action. I chose (at random) six NJ publicly traded companies: Campbells, Bed Bath and Beyond, Commerce Bank, Johnson and Johnson, A&P and Prudential Financial.

I’ll ask the girls to “team up” for each company and tell me why they think the company is a good stock “pick”. Should be illuminating to hear the thought process. After we go through a little discussion, we’ll take a look back to 12/31/2005 where they’ve been “given” $1000 to “play” the stock market. We’ll chart the progress of each stock through March 12, 2008. This simple chart will illuminate the way:

GS - Value of $1000 Example

The main points I’d like to address:

• Volatility: What’s the likelihood of them holding Bed Bath and Beyond past 2006 (where the decline in value was of over 22%);

• Uncompensated Risk: Buying one stock or a few stocks is very risky as you do not get “compensated” by the stock market for holding a non-diversified portfolio; and

• Returns: Only 1 of our 6 stocks beat the Wilshire 5000 (Campbells) during this period. All others lost. How likely is Campbell’s out-performance likely to continue?

After about a decade of trying to get me involved in Girl Scouts, my wife can *finally* claim victory! She has been a troop leader, “nut” and “cookie” mom, service unit manager…. Ugh! I had valiantly evaded previous attempts to get involved due to other pressing involvements, but I couldn’t in all good conscience evade any longer. I had the time, the knowledge and the inclination. Recently I was asked by the Girl Scouts to teach 2 workshops for teen girls, one on money and investing and the other on business ownership - topics I am no stranger to and I believe we are not adequately teaching young people.

This lack of financial education has far-reaching effects. One of the problems of course is that parents (at least of my generation) lack basic financial literacy themselves. The learning has all been “seat of the pants” and it isn’t always pretty to watch. Consider the increases not only in credit card usage but in average credit card balance amounts. Consider our appalling low savings rates. Consider that once America was the world’s largest creditor nation and are now it’s largest debtor nation.

I think one of the answers is financial literacy.

The Girl Scouts have 2 workbooks for use in these workshops entitled “Got Money?” and “Mind Your Own Business”. While they provide a good overview of the topics, they’re awfully dry. I have a couple of ideas on ways to make the topics more interesting so I don’t lose my “victims”, oops I mean “students” and I’ll share them here in the coming days. Maybe they’ll be of help to you.

Yes, I updated the site’s “look and feel” to make it a little more easy to read. I also tweaked a few words here and there. Sorry for the lack of posts, I’ve been busy attending at my first Certified Risk Management professional designation course in Windsor CT last week. I look forward to sharing some of that experience in the coming days.

I think I know how you feel: everyone wants a piece of you and you can’t trust a soul. I bet you’re not feeling like you’re in a good place.

It struck me recently that while you make news for just walking down the street and everyone says “they hope you get better”, no one to my knowledge has ever offered a plan to help you. Except maybe Dr. Phil, but that just smacked of being self-dealing. Well, that struck me as a bit unfair, really. The other day my wife and I were doing a little shopping and this subject came up as a topic of discussion. I had been thinking of ways you could take control of your life again. It will take time. It will take work. I outlined my plan to my wife over a hotdog and coke lunch. Perhaps you could consider the following:

1. Sell one hour blocks of your time to all the media outlets willing to pay $250,000 per hour for a print interview. If they want to videotape it, the cost would be $500,000 per hour (No limit!). Have them make the checks out directly to your favorite charities. I look at it this way: They’ve been making all this money off of you for years, it’s time to make them pay up. I figure this is good for several million dollars in a very short period of time.

2. Invite the press to cover you hand-delivering each of these checks as you receive them. Spend at least a day or so with each charity, doing additional fund-raising on-site. You’ll not only get positive press for each check, but you’ll be turning their industry on itself, using that machinery to generate more positive publicity! Even better, invite your kids and ex-husband as well! You’ll gain continued strength and the press will lap it up.

3. Advise the court through your legal representatives that you will not fight your father for conservatorship of your estate. Cease any current or planned litigation. It’s a time, life-force energy and money waster which is why you’re not likely to get this advice from the attorney handling that aspect of your legal issues. Listen, your Dad has a legal obligation to “conserve” the money in the estate so you need not worry that he will blow any of your hard earned wealth. Consider that it might be better in the long run while you get other things in your life sorted out. You’ll be sending a strong message to the court that you’re starting to “get it” and most people will begin to believe that your growing up. Make sure your publicity people get this out the press. Let the paparazzo know that they could get an exclusive to discuss this issue with you for $250,000. See #1 and #2 above for what to do with the money.

4. Advise the court through your legal representatives that at this time, you accept the terms of present parental visitation situation. Your antics are making people believe your ex-husband Kevin is the father of the decade! Have the good sense to stop giving your enemies ammunition to use against you. Popular opinion and consensus says you’re not well enough to take care of your kids at this time. I’m not saying they’re right, but at this point, you’ll have to prove them wrong. It’ll take time and effort. I promise you this, it will be worth it.

5. Get up to date with any outstanding legal issues. It’s a noose around your neck and time to get rid of it. If the court asks that you attend counseling, attend counseling. If they ask you to appear for deposition, appear for deposition. Again, it’s not going to be easy, but in order to get control of your life, you’ve got to give in. In time, these issues will disappear. Stop feeding the frenzy around you.

6. Cautiously and adamantly guard your privacy. This may seem to be in contradiction to what I’ve previously written, but it’s not. You have a personal life and it’s time to reclaim it. Your path is a public one and it was created at your choosing. You cannot expect that the industry that’s been built up around you to suddenly go away because it won’t. But you can start the process. After the media outlets have paid their millions for exclusives with you, send out a press briefing that for the foreseeable future, you will live in a local Southern California hotel (with a large enough meeting hall) and invite them to an 8 hour press conference every work day (less one hour for lunch) for the foreseeable future. That’s right: 5 days a week, 7 hours per day. It’s your new job: making them sick of seeing you. Britney, at it’s core, it’s supply and demand theory. Now that you’ve made them pay for access to you, give it away now! Nothing will make you less attractive for the paparazzo than access to you for 35 hours a week! Put no timetable on how long you will continue this. Basically, keep it up until they get tired of being there. It is in doing this that you begin to control your image and through it, your life. Few things will be as empowering.

7. Make certain you make clear in this time with the media, that you are looking forward to reconciling with the loved one’s in your life: your parents, your kids, even your ex-husband. As you begin to look like you’re regaining your balance, it will soon become a self-fulfilling prophecy. You will begin to regain the balance you’ve lacked in your life.

8. Begin to understand that we all have a role to play. Yours is unlimited access to media. With that, you can make a difference in many people’s lives. Instead of fighting against it, embrace it. Enjoy it. Accept it. Use it to make other people’s lives better. You can do it. It will make you stronger, it will make you feel better about yourself.

9. After the paparazzo have grown weary of you in your hotel meetings, tell them you’re going to travel abroad for awhile. Invite your kids and ex-husband along. Maybe even your parents - Invite them to join you, too. Gain strength from your family. Be forgiving to the point of selflessness. You can arrange it so that additional fund-raising can be done. You’ll see the world like few have ever seen it. Take your time. No one owns you and over time you’ll learn to be focused on the moment.

10. Consider additional creative outlets. Return to music and acting. You will be in a different place than where you started. You’ve changed, you’ve grown in experience and in life. Embrace the changes. The well of goodwill you’ve filled is important and no one will be able to take it away from you. You’re wiser and will be better equipped to tell the difference between those that care about you and those that are inclined to use you.

11. Consider learning about your own finances. Be mindful of your abilities but lessen your need for alleged financial professionals. It’s not all that difficult and you’ve already attained “critical mass”. You don’t need to worry about getting it all correct, you just need to make sure you miss the big mistakes.

If you’ve followed this bouncing ball to this point, your legal issues will be minor and manageable. By this point, you’ve understood that it is a “process” to be completed so make the best of that meat-grinder with the knowledge that in terms of a lifetime, it’ll be over soon.

Britney, I wish you the best of luck!