Friday, April 25, 2008

Living in Dollar Land

“When the music’s over
Turn out the lights
Turn out the lights
Turn out the lights”
- When the Music’s Over (The Doors)

Is anybody paying attention? The music is about to stop. Will we be able to keep the lights on?

The once mighty U.S. dollar – the world’s reserve currency - is going down the proverbial rat hole.

· The Euro could become the new reserve currency for the world, in spite of the unhappiness in the Euro Zone countries with the fiscal and monetary policies needed to support the common currency.

· Iran recently started up a bourse (exchange) for trading petroleum priced in Euros and other non-U.S. currencies.

· Meanwhile, the U.S. Federal Reserve is feeding the dollar’s decline by reducing short-term interest rates in what looks like an increasingly desperate attempt to head off a recession that has probably already begun.

If you live in the U.S. you are long the dollar. You are paid in dollars, earn interest in dollars, invest with dollars and pay all your bills in dollars.

How can you preserve the purchasing power of a declining currency? By going short.

You may ask: How can I short the dollar when I live in Dollar Land? In particular, how can I do this without a lot of headache?

Here are four relatively painless ways:

· Buy investments outside the U.S. – even if your investment is denominated in dollars you have more dollars after the currency exchange (assuming your investment choice is successful, of course).

· Buy commodities traded in dollars – the prime example is oil. The recent run-up in oil is in part due to the decline in the dollar (the higher price to the producer offsets the lower value of the payment).

· Buy foreign currencies – but be sure and avoid currencies pegged to the U.S. dollar.

· Buy investment funds that short the dollar.

There are mutual funds and exchange traded funds (ETFs) that follow these strategies. And, they are easily accessible to the average investor.

Some places to look:

http://www.rydexinvestments.com/

http://www.ishares.com/

http://www.pimcofunds.com/

http://www.statestreetspdrs.com/

http://www.powershares.com/

Most, if not all of the products offered by these firms can be purchased through brokerage accounts at the major do-it-yourself investor marketplaces: Charles Schwab, Vanguard, Fidelity, TD Ameritrade, ETrade, etc.

Questions? kimm@sweetwaterinv.com

Complete lyrics: http://www.sing365.com/music/lyric.nsf/When-The-Music

Generation Boomer

The Bejing Times World Edition, dateline: January 15, 3050
© Fox News

People’s Republic archeologists digging through the ruins of Old Los Angeles unearthed a previously unseen script for a United Consumer States television show that was apparently never produced. While the manuscript is undated, the naïve themes of free will, personal initiative and democratic rights for all sentient beings expressed would seem to place it in the latter half of the 20th century. Due to server-space limitations as a result of publication of the latest 9 Month Economic Restructuring Plan, we can offer our viewers only one page of the manuscript. We think you will find it quaint and amusing.

Generation Boomer

A tele-play in 4 acts.

Episode 1, Act 1, Scene 1

[T.V. science fiction show theme music begins]

Voice over: “Retirement, the final frontier. These are the voyages of Generation Boomer – whose continuing mission is to seek out new thrills, spills and chills. To boldly go where no generation has gone before! Warp speed!”

[sound of grinding gears, power down, etc]

Helmsman: [Russian accent] “The ship is not responding Captain!”

Captain: [arrogant accent] “Engineering – what’s the matter?”

Engineering: [Scottish accent] “We’ve run out of power!”

Captain: “First Officer – analysis!”

First Officer: [detached accent] “It appears that Generation Boomer is broke, Captain. In all the years of seeking new thrills, spills and chills, we forgot to save anything. In fact, we’re going to crash on that dim looking planet over there.”

Captain: “You mean Planet Poorhouse?”

First Officer: “Yes, I’m afraid so.”

Captain: “What can we do? There must be SOMEthing?”

First Officer: “Hmmm, well yes, there is one thing. Do you recall the films we saw in grade school when we were all afraid of The Bomb?”

Captain: “Well, yes, but what does that…?”

First Officer: “Do you remember what you were to do in the event of an attack? Crawl under your desk, bend over and kiss your …”

Captain: “N-O-O-O-O-O-O-O-O-O-O-O!!”

[cut to first commercial]

It’s never too late to do something about it!

Questions? kimm@sweetwaterinv.com

Wednesday, April 23, 2008

Word 'o the Day: Fiduciary (ABC's of Financial Planning)

“Thou shalt have no other gods before me.”

- God (The 10 Commandments #1)

There’s a lot of flim-flam in the investment management / financial advice industry. One of the articles I share with prospective clients is titled “8 Things Your Financial Advisor Won’t Tell You” by Liz Pulliam Weston (link at the end of this entry). Look it up and read it – it may raise the hair on your neck – and if you are shopping for a financial advisor, it should.

Number 2 on her list is “I have no obligation to put your interests ahead of my own.” In many cases in this industry, she is absolutely correct. Registered Representatives (aka “Stock Brokers”) are legally obligated to place their employer’s interests first – as for their customers, they are only required to treat them “fairly” and provide advice that is “suitable”. Other than this squishy limitation, the customer and her money are fair game. And if there is a dispute, virtually all brokerage company agreements include a mandatory arbitration clause that the customer must agree to before they will open an account.

In contrast, Registered Investment Advisers and their affiliated Investment Advisory Representatives are held to a fiduciary standard. The U.S. Securities and Exchange Commission (SEC) enforces the Investment Adviser Act of 1940 (Act), the legislation that governs the conduct of Registered Investment Advisers and affiliated persons. The SEC interprets the Act as meaning that a Registered Investment Adviser (and affiliated persons) is a fiduciary to its clients and owes those clients a duty of undivided loyalty and utmost good faith (italics added for emphasis).

Powerful words. It reminds me of the cliche: “It’s the 10 Commandments, not the 10 Suggestions”.

Questions? kimm@sweetwaterinv.com

http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/8ThingsYourFinancialPlannerWontTellYou.aspx

Thursday, April 17, 2008

Never Fall in Love

“What do you get when you fall in love?
A guy with a pin to burst your bubble,
That's what you get for all your trouble,
I'll never fall in love again,
I'll never fall in love again.”

- Dionne Warwick (“Never Fall In Love Again” by Burt Bacharach)

How many times have you heard the expression “I fell in love with it / him / her / them”? Or how about “I couldn’t help myself – I fell in love”? Like my kids used to say, “Like infinity times, Dad”.

Falling in love should only apply to people. When someone falls in love with an investment, they are headed for nothing but “pain and sorrow”. Love affairs are only for the heart, not the wallet. Of course, human beings are imperfect and they frequently attach their emotions to physical objects and intangibles like investments.

See if any of the following sound familiar: “I love that stock!”, “I would never sell that stock.”, “I know that company.”, “I work/ed for that company – I know what’s going on.”, “I know the markets.”, “I know where this is going.” Conviction in the face of uncertainty is a sign of character, but conviction based on nothing but “love” is a sign of cluelessness.

Don’t get me wrong, I want my investments to go up in value as much as the next guy. But I’ve learned – sometimes the hard way – to divorce how I feel about an investment from the decision to buy or sell that investment. I have become indifferent to the specific investment of my money by focusing on two things: “Are the costs of buying, owning and selling reasonable?” and “Does this fit or not fit into my overall allocation plan?”. Of course, once in a while I will take a flyer on something just for the hell of it, but in those cases I am acting with intention i.e., I know I’m taking a flyer and deliberately choose to do so.

Loving an investment is unrequited. The investment will never love you back. It’s a one-way street and no matter how fervent your love, the investment is not going to drive down the street the wrong way to meet you.

Act with intention and leave the emotion out of it.

Questions? kimm@sweetwaterinv.com

(complete lyrics here: http://www.lyricsmode.com/lyrics/b/burt_bacharach/ill_never_fall_in_love_again.html)