It’s Time To Think Outside The Box – Part 1

As an alternative to the stock markets, we suggest a specific type and structuring of Whole Life insurance.  Now, before you close down on that title, “life insurance”…

“Cash value life insurance” has been used to accumulate savings for retirement, college funding, and other needs, for well over 100 years.  Prior to the 1970’s, it was quite common for people to own these life policies. It was the late 1970’s when money started following and aggressively rolling into the stock market with “Buy Term & Invest the Difference”.

The 20 year period of 1980 – 2000 (“The Roaring Twenty”) was a time of great wealth expansion in the equity markets, with previously unequaled growth rates.  The cumulative rate of return (CROR) was just under 14%!  During that period it became conventional wisdom to invest in the market for retirement and for funding other financial needs.

You may remember the “Tech Bubble” collapse in 2000-2001, and the “Real Estate Bubble” collapse in 2007-2009.  The markets have been quite volatile since that 2000 collapse, yet many people believe (or hope) that the stock markets are as robust and upwardly-directed as they were before 2000.  The reality is that since 2000, the Standard & Poor’s index (S&P) has had a cumulative rate of return (CROR) of close to 4.25%, hardly robust in comparison to what many imagine.  Yes, we’ve had a good last few years, but in a recovery from low levels.

During the period 1980 – 2000, “infrastructure” grew throughout society. Corporations, retail, housing, and almost everything else became bigger as the stock markets expanded, and wealth was created. That infrastructure is now a partial source of the market volatility as society tries to regain a solid footing. Empty storefronts and vacant homes are displays of some dislocations as that footing is sought. It looks like the volatility and societal adjustments will continue for some time.

There were a number of unique factors that contributed to The Roaring Twenty.  We had Baby Boomers, tax code restructuring (1981-1986), desktop computerization, a change in perception of “below investment-grade risk” (Michael Milken at Drexel Lambert), the introduction of 401(k)’s, and more. One might suggest that The Roaring Twenty will not return in any close form without a similar confluence of factors, which looks unlikely.

Volatility may be an exciting part of the investment experience, but that is the last thing you’ll want in retirement, as you withdraw cash from your account to pay bills.

Whole Life Insurance of a specific structure is utilized and provides a range of exceptional benefits.   We will continue later…

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Annual Review Items for your Financial Well-Being

Wish to make God laugh?  Tell him your plans…

Our lives change quite unexpectedly, don’t they?  That’s why life, auto, and other forms of insurance exist.  

Our financial well-being often depends on occasional updates.

What we set up in the past, for the future, might need a tweak or an overhaul as the years go by.

Here is a minimal list of annual review items for you and your family:

1 – Ensure that a complete list of assets, accounts, insurance policies, and important documents (with locations) is available and that a family member or “Trusted Party” is familiar with the location.  Do not assume anything; be clear and concise.  Think medical emergency or worse.

2 – Confirm that all family documents such as Will, Living Will, Health Care Proxy, and Power of Attorney (POA) are up to date.  Have children or a special-needs dependent? Pay particular attention to any “guardianship” designation.

3 – Update beneficiary designations on all assets, accounts, and policies.  Over 20% of life insurance benefits are paid to unintended beneficiaries!  Think divorce, pre-deceased, change of heart, etc.

4 – Have an insurance “audit” performed on all of your policies; ensure that they fit your current situation.  Special Note: If there is a change in home occupancy due to age-related or actually any issues, follow up on appropriate insurance coverage.

5 – Review and ensure the accuracy of your social security status.

6 – Check for “Unclaimed Property” with all states in which you (and family members) have resided.  You might be shocked at the funds held for someone in your family.  The states will not hunt for you.

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8% isn’t always 8%…in fact, rarely! Arithmetic Averages are Deceiving

“Arithmetic Average” and “Straight-Line Projections” — frequently applied to investment gains, losses and marketing by Investment Advisors or financial sales people.  These “results” are not indicative of “actual” returns.

Perhaps you’ve wondered why the returns on your investments don’t seem to match the claims made by advisors.

These investments might be in a 401(k), an IRA, an investment account at a Wall Street firm, Variable Life Insurance, etc.  Let’s take a look at how some of these claims of achievement come to be.

   Let’s try a little game:

   In the first year of investing, you’re up 60%.  In the second, down 50%.  So, what’s your return, or average return?

   Up 60, then down 50…so, 60 – 50 = 10 (“net”), divided by 2 (years) = 5% per year, true?      Certainly that’s how many people tend to look at it.

   Now let’s try that with money:

   $100 invested, up 60% in year one = $160.  Second year, $160 goes down 50% = $80.     $80!  Not a “gain” of 5%/yr, but a net loss!

   The point?  Advisors, investors, most people tend to discuss or exclaim results as      percentages, and averages, but these are based on market changes.  Just a little misleading, right? 

Now, for more depth, we’ll break the analysis and explanation into 4 parts:

Part 1, Averages.

Let’s imagine that we want to invest some money, and that we are told an average return of 8% is possible.  Now, our first thoughts might be that 8%, over years, would be… Well, what would it be?

$100 invested, and the gains/losses are as follows:

100    x     8% gain  = 108

108    x     8% gain  = 116.64

116.64 x   8% gain  = 125.97

125.97 x   8% gain  = 136.05

136.05 x  8% gain   = 146.93

So, to get the average gain, sum the gains and losses (here expressed as percentage changes):







+40, now divide by the five years…

40/5 = 8% avg.  This example result?  146.93 with the straight-line 8% average.

(Is this how the stock market behaves?)

The advisor’s statement: “The investment returned an average of 8% over five years!”

Average is average, right?

Let’s try it again, but with what looks like market volatility:

Same $100 invested, but with gains/losses as follows:

100    x    16% gain   = 116

116    x     0% (no loss, no gain) = 116

116    x     8% gain     = 125.28

125.28 x -24% loss   = 95.21

95.21   x 40% gain   = 133

Again, to get the average, sum the percentage changes:







+40, now divide by the five years…

40/5 = 8% avg.      This result?  133 with an irregular 8% average, but the same advisor statement!  “8% average!”

Part 2, Actual Returns.

Let’s review the dollar results from the averages above:

Different results, 146.93 and 133.     Hey, what’s up with that?

Both “8% average” according to the advisor….why the difference in investment results?        Both reflect arithmetic averages, but one is irregular (possibly “actual”), the other “straight-line”.               

Now, let’s look at the Standard & Poor’s index, and the market “moves”:

Real Returns vs. Straight-Line Projections

Standard & Poor’s index levels*, year-end 2000 – year-end 2014

Year          Index level        % Change       $100 investment is now:

12/31/00     1320.28                                                $100.00

12/31/01      1148.08                       -13%                  $87.00

12/31/02       879.82                       -23%                  $66.99

12/31/03       1111.92                  +26.4%                  $84.67

12/31/04      1211.92                        +9%                  $92.29

12/30/05     1248.29                     +2.9%                $ 94.97

12/29/06     1418.30                   +13.6%                 $107.88

12/31/07      1468.36                     +3.5%                $111.66

12/31/08       903.25                    -38.5%                 $68.67

12/31/09       1115.10                   +23.5%                 $84.80

12/31/10       1257.64                    +12.7%                $95.57

12/30/11      1257.60                       -0-                      $95.57

12/31/12      1426.19                     +13.5%                $108.47

12/31/13     1848.36                    +29.6%                 $140.58

12/31/14     2058.90                    +11.4%               $156.60 (this is the “actual                                                                                    _____                                              return”)

                                        Total % = 71.2


“Arithmetic Average” of percentage gain = 71.2% / 14 yrs = 5.08% per year.   It’s just adding the (percentage) gains and losses, and dividing by the number of years.

So, how is this used?

The market changed an average of 5.08% during the timeframe above.  Many use that as “the market returned an average of 5.08%”.

This is done partly because the actual calculation of the return is not performed, however a marketing statement applicable to the investment vehicle’s percentage changes (again, using arithmetic average) is assumed to apply to the dollar results.

Part 3: Projections.

What if we were able to look at the history of the index, i.e. as above, and say “the average returns over fourteen years was 5.08%, so lets use that in projecting the next many years…”    

Using the same starting money, over the same number of years, we should get the same results, right?  $156.60?  And if we get that result, we’d have validation of using the historical average for a reasonable projection.

If we take $100 here (to start) and assume those 5.08% gains annually, we’d get:

after yr 1: 100 x 5.08% gain  = 105.08

              2: 105.08 x 5.08%    = 110.42

              3: 110.42 x 5.08%     = 116.03

              4: 116.03 x 5.08%     = 121.92

              5: 121.92 x 5.08%     = 128.11

              6: 128.11 x 5.08%     = 134.62

              7: 134.62 x 5.08%     = 141.46

              8: 141.46 x 5.08%     = 148.64

              9: 148.64 x 5.08%    = 156.19

            10: 156.19 x 5.08%     = 164.12

            11: 164.12 x 5.08%      = 172.46

            12: 172.46 x 5.08%     = 181.22

            13: 181.22 x 5.08%     = 190.43

            14: 190.43 x 5.08%    = $200.10

Well, we didn’t get validation.

In Part 2, irregular changes, 5.08% average, investment result = $156.60

In Part 3, consistent changes, 5.08% average, investment result = $200.10

A point of fact:

This is a “straight-line” projection based on an arithmetic average of percentage gains/losses from some history.  As we see from the actual returns, the use of an arithmetic average of percentage gains/losses can be wildly misleading.

This projection is actually displaying a “Cumulative Rate of Return” (CROR) in its consistent 5.08% rate, building upon itself, year after year.

Oh, and the (real) Cumulative Rate of Return (CROR) on the $156.60?  3.25%  

Wait!  What?  S&P, over 14 years, up 3 percent?  And taxable?  I’m hearing at least 5% from my broker, my advisor!  Huh…

What is the danger in straight-line projections?  Straight-Line projections are typically used to express what become expectations.  Unfortunately, the securities markets are not consistent, but are volatile.   Straight-line is wishful thinking.

Straight-line projections are used regularly in the financial world for convenience and necessity; after all, how would volatility be projected?  But it’s still wishful thinking.

Actual returns of any investment that has inherent volatility will not perform in line with straight-line projections over time; the longer the timeframe, the greater the potential variation.

Part 4: Friend-to-friend examples.

One more thought on the use of averages and, in particular, percentages:  Gravity wins!

What do we mean by that?

Let’s imagine you have $100, and you invest that money.

In the first year, you gain “10%”.  Your Financial Advisor tells you you’re up 10%.  That should give you $110.

In the second year, your advisor tells you you’re down 10%.

So, up 10%, then down 10%.  “Even”, right?  Back to square one?

$100, up 10% = $110.

$110, down 10% = $99.  Yes, 10% off of that bigger number, 110.

How about the other way?

$100, down 10% = $90.

$90, up 10% = $99. The 10% gain on a smaller number.

Gravity wins.  Not “even”.

Let’s try our opening question again:

In the first year of investing, you’re up 60%.  In the second, down 50%.  So, what’s your return, or average return?

Up 60, then down 50…so, 60 – 50 = 10, divided by 2 (years) = 5% per year, true?  Certainly that’s how many people tend to look at it, because it seems arithmetically correct.

Now let’s try that with money:

$100 invested, up 60% in year one = $160. Second year, $160 goes down 50% = $80.  $80!

Clear?  Advisors, investors, most people tend to discuss or exclaim results as percentages, and averages.  Just a little misleading, right?

In the real world, the use of “Arithmetic Averages” can’t be totally, or even largely avoided.  The expectations created are off, to say the least.  Throw in fees (rarely, if ever, incorporated into expressions of results) and taxes, market buys and sells (timing…) and you will probably not get what you hope for.

*S&P History Resource:

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The Magic of 1980 – 2000, “The Roaring Twenty”

Here is a link to a chart displaying the Dow Jones Industrial Average (DJIA) for the period October 1928 to January 2016.

You will notice a climb for the period 1980 – 2000.  Let’s focus on that.  On January 2, 1980, the DJIA stood at 824.57.  On December 31, 1999, the DJIA was 11,497.12  The cumulative rate of return (CROR) was about 14%.  Not bad!  There were several factors that we can pinpoint.

The Revenue Act of 1978 included a provision which became known as the Internal Revenue Code sec. 401(k).  The law became effective on January 1, 1980.  You can imagine as the law was applied and brought into various corporations nationally, investment money was channeled (at increasing volume) to the stock market; the result would be an updraft in volume and price over time.

The IBM 5150 was introduced in August of 1981 and, even though there were previously-sold small computers, the IBM proved more popular.  As Wall Street saw the utility of the machine (and similar…), “quants” and mathematicians were hired and told to find a way to make money.  This was a factor in the eventual derivatives market (mid 1980’s through mid 1990’s).

Ronald Reagan changed the tax code/structure in the period 1981-1986. The deductions an individual could take advantage of were decreased to mainly two: mortgage and margin interest on investment.  The highest marginal tax rate was decreased from 70%!  You could make an argument that there was increasing amounts of cash directed to the markets.

In the early 1980’s, Michael Milken and his employer Drexel Lambert had a significant effect on the perception of investment value and cashflow into securities.  Mike took a look at the investment community’s perception of risk as resulting in default and bankruptcy of the companies in the High Yield market. He pointed out that the statistical probability of default for a “junk” company was about the same for quality companies.  He then pointed to the amount of yield or gain the investor left on the table by ignoring the High Yield companies.  How does that matter for the stock market’s climb?

Let’s assume that you’re a securities analyst assigned to a sector within the “junk” market.  In 1980 you review XYZ company that has a cost of capital (amount of interest that the lender, as in bond buyer, demands to buy your bonds) of 13%.  That is, for the company in question, that company wishes to sell 10 year bonds, and to do so, they must agree to a 13% rate of interest on that bond loan to be paid to the bond investor.  You see that XYZ company is making money, even at that cost of capital.  You (as an analyst) make a recommendation to your investor audience to buy the bonds.

In the early 1980’s, Mike Milken convinced investors that the XYZ company and others of the sort were a good risk, much better than anyone had noticed.  As buyers flocked in, the bonds, becoming more popular, enjoyed increasing prices. As the prices went up, yield went down; investors were less concerned about the risk and demanded less interest/income for their money.

Some years later, say, in 1986, you’re reviewing XYZ company and see that now, their cost of capital has decreased to, let’s say, 9%.  You recommended the company some time ago when their cost of capital was 13%, and now it’s 9%!  Likely you’ll recommend more strongly now, knowing that XYZ is much more likely to turn a profit (their interest costs are lower), and actually become less risky as their cost of capital goes down.

But that’s not all!  Now consider the options of XYZ company: they have a growing number of comfortable analysts and investors; a fan club!  Now the company might issue stock instead of bonds, which has no interest (or “coupon”) expense.  The company therefore adds operating capital, decreases their operating expense, and stock comes to the market.  The issuance of stock, of course, must be met with willing buyers, but the company is increasingly viewed positively and the 401(k) phenomenon is moving nicely.  Now multiply this many times.  Mike had a big effect.

We mentioned derivatives earlier.  Rather than get into minutiae, consider that the various types (CDO’s, CMO’s, etc.) essentially came to be and evolved from the mid 1980’s to recently.  Initially the “hedging” aspect of the derivatives allowed for growth in securities purchasing, leading to more issuance and, well, the players grew in numbers and size of holdings.  After the mid-1990’s, the growth in the issuance was considerably higher as trading occurred more for trading’s sake (as opposed to hedging), but the change in complexion of the securities markets was seemingly effecting issuance of stock.

We had the tech interest and beginning of the bubble in the 1990’s, we had low interest rates, creative mortgages…

The first 100,000,000 share day on the New York Stock exchange was in 1982.  The first 1,000,000,000 share day was on October 28th, 1997.

What does all of this mean?  My belief is that the period 1980-2000 was a remarkable period in our history.  The belief that stocks go up, on average, ~10% per year (with fair consistency) seemed to be real then, and was.  But it wasn’t true before that period, and it hasn’t been since.  There is enormous volatility in the world’s markets.  Regardless of the reasons behind that volatility, if we were able to remove it, what would your expectation of the market be?  Would you expect a return on investment of 10% or 4%?  I view the 1980 – 2000 as an aberration.  While the factors that created that period won’t be repeated, I don’t have a crystal ball to suggest never seeing similarly strong factors again.  But again?



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Here’s that question again: do you have a will?

Here’s that question again: do you have a Will?

In financial planning, the question of the Will is standard. Why? Well, do you have assets? Do you have under-age children? Do you have a spouse? These are just a few basic questions to give direction to your thought process.

If you (and your spouse) were to disappear tonight, what would happen to these “things” you presumably hold dear? Without a Will, a court decision as to guardianship, or distribution, etc. could be the result of your lack of planning. Do you find this acceptable?

Estate planning documents such as a Will, Living Will, Durable Power of Attorney, etc. are essential for everyone. This is particularly true for unmarried couples; the law assumes inheritance passes to next of kin!

You can download documents or scribble on a yellow pad, and this would be marginally better than nothing, but an attorney (specializing in estate planning) should be consulted. Additionally, these documents should be updated (at least) every 5-7 years as our lives inevitably change.

Here are some documents to be created for your (and your family’s) well-being

Will.  The Will describes your intentions; what you would like done with your property after your death, and designates by whom. This is particularly important when young children are involved.

Durable Power of Attorney (POA). This gives another party the “power” to make decisions on your behalf if you become incapable of doing so.

Living Will. This states what measures you want taken (or not) if you are in a vegetative state, and unlikely to recover.

Health Care Proxy. This lets medical personnel know who is empowered to make (medical care) decisions if you are unable to do so yourself.

This is not an exhaustive list but provides the basics to be discussed with an attorney.

Additionally, there are pieces of your financial life that should be addressed and reviewed at least every few years, but annually is highly preferable:

Beneficiary Designations. Are the beneficiaries listed on your life insurance, your “period certain” annuities, and your various “financial instruments” (where applicable) current and correct? Has there been a change as to whom you want to receive your assets?

Most Important: A listing of policies, accounts, assets, instructions, and their locations. Any system that not only lists all information, but also provides a system to update should be found, created, and used religiously throughout our lives.

We are encouraging people to investigate as a receptacle and program for both cataloguing the information mentioned, and updating as well. The author is a founder of Heir Atlas, Inc. and wholeheartedly believes in its purpose. See if you agree.

Helpful links:



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Should you be looking for Unclaimed Property?

We’ve all heard of Unclaimed Property, but did you know that there is $12 billion in New York alone?  Of course, there is much more nationwide.  (I am in New York).


Here’s what happened to me:

My aunt died in December of 2010.  Sometime afterwards in 2012, as executor, I looked for “unclaimed funds” at

The National Association of Unclaimed Property Administrators (NAUPA) maintains a website which acts as a portal to the 50 states’ websites, accessing information on unclaimed property held by those states.

My search found a small number of dollars linked to a hospital.  After my aunt’s death, the hospital had attempted to reimburse her for an over-charge but received an “address unknown” return (of the check) from the post office.   I put off contacting the hospital, and was fortunate in doing so.

Why was I fortunate?  In contacting the NY Unclaimed Property administrator’s office to confirm the forms necessary to file a claim, I was told that there were now six items!  Had I collected the one item earlier, I’m not sure I would have looked again.

How is it possible that more items arrived?  The laws pertaining to unclaimed property provide time limits for how long any given entity (i.e. bank, employer, investment firm, insurer, etc.) can hold on to the property; the specific type of property can determine the timeframe.

In NYS, bank accounts, checks and savings would be held for five years (by the bank) before being turned over to the state as unclaimed.  Stocks, dividends, and distributions would be three years.  Some travelers’ checks are 10 years, some 15 years.  IRA’s and retirement accounts have no specific provision!

What does this have to do with you?  Have you ever known of an illness or death of a relative or friend which exposed uncertainty?  Maybe “I know she had a bank account; I just don’t know where to look”.


Insurance policies add another dimension.  Life policies, Disability and Long-Term Care insurance can evaporate or disappear just when they’re needed.  We will focus on this in the near future.


We clearly have two concerns: the first is to catalogue all of our information, and to update the information religiously.  In this way, we can prevent accounts, policies, etc. from being lost or forgotten.  Second, we know that some items such as a hospital reimbursement may be unavoidable; we have to understand how unclaimed property works, and how we can retrieve what is ours.


In my case, I waited, and then assumed one item was all there was.  I’ve learned a lesson: for those family members no longer with us, the correct approach is to re-check the unclaimed property administrator at least annually for over 15 years! And for family members still with us?  Annually and forever!

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Busy, Not Now

Is it odd that people seem to be busy when the opportunity to discuss and deal with their finances or insurance arises? Who wouldn’t try to be too busy to attend to what is difficult, rarely explained well, and forgotten easily?

“My calendar is full; maybe in a couple of weeks”… So many of us put off this part of our planning for the future.  We spend more time, dedicate more attention to our next vacation than we do our personal finance and retirement years.

The financial industry has evolved in silos, and the layman has been positioned to (awkwardly) try to coordinate all that he can handle.  The result is that the investor and/or client is rarely well served.  Our goal is to shed some light on the industry, its products, and help.

A major problem is that we’re bombarded with truisms and what passes for wisdom.  We’re told to invest in 401(k)s which, in concept, are helpful to save for retirement, but only occasionally do we (maybe) hear of the various and multiple fees.  We’re rarely, if ever, warned of volatility and its nasty effects in the distribution phase of our financial lives.  Do we ever get insight into the use of “arithmetic averages” that the financial industry uses to market their products?  So much to look into…

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Fear of the Stock Market

The link is to an article in the New York Times dated 5/28/2012, “After Facebook, More Fear of Stock Market”.   In referencing a previous article regarding decreasing volume and investor participation since 2008, the article suggests that investors are losing confidence in the stock market, and the growth they previously thought it would afford.

There are many reasons we might suggest to understand the situation, not the least of which is the current economy.  In our post “The Magic of 1980 – 2000”, factors were laid out that were part of the market’s dynamic.  The flow of investment dollars from the 401(k) explosion, the junk bond phenomenon, the tax law changes, advancing computerization, derivatives, all and more created a great deal of stock market growth.  The bond markets also appreciated the various factors and encouragement to grow in size of issuance, trading, and resulting investment.

There is an assumption of inevitable strong growth on the part of many investors.  How many times have we heard the “sophisticated” retail (i.e. small) investor say “yeah, it’s lower, you have to buy it (the market), it’s going up”.  In the professional markets, it’s all too frequent that the phrase “it’s too cheap” is heard.  (Those in the know realize that things change; when something gets cheap, it’s often a good idea to find out why).  What seems like inevitable and near-term strong growth, accepted on massive assumptions, could lead to frustration.

The problem is that in either the retail or professional investor ranks, there are many, many players who believe in the inevitability of the upward move.  We do too.  BUT, it’s a question of timing, consistency and velocity that separates the herd.  The question we asked in a previous post was what should you expect?  If we accept that we’ve just had a very volatile decade of investment returns, that we’ve had a high rate of stock market growth in the roughly 20 years preceding the last decade, that we had clearly lower rates of growth before that, what is reasonable to expect?  If we could suddenly remove volatility, what should we expect of the stock market?

Maybe it’s time to think about how to get away from stock market volatility.  The Facebook IPO certainly exposed some negative attributes of the investment markets.  The idea that some investors get information that others might not, not new but certainly uncomfortable.  The performance of the Lead Underwriter (Morgan Stanley) and the performance of the stock, again not comfortable.  The fact that the exchange (NASDAQ) experienced some glitches was bad, just bad.

There is risk in investing.  To assume otherwise is both naive and wishful thinking.  The stock market has been particularly volatile for years now, and it should strike the investor that portfolio structuring should involve some level of volatility immunity.

If we accept Modern Portfolio Theory (see previous post) as a basis, we know we need to deal with non-correlated assets.  Simply put, that means that if some part of our portfolio goes down, some other part doesn’t, or even goes up.  If the parts were correlated, they’d both move in the same direction as effected by whatever factor is the cause.

In the normal portfolio structuring, stocks would be offset by bonds.  The textbook says interest rates down, bonds go up.  If bonds go up, stocks go down.  The reality is that both moves are sometimes based on economic expectations and both may move in concert.

What to do?  Tune in next week….


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Economic Recovery: To What Level?

What is the level of business any merchant on Main Street can expect?  Let’s assume you have been running a popular retail clothing store for the last 20 years, 1992 – 2012.  You would have experience with an expansionary period (1992- 2007) and a not-so-expansionary period following that.

During the course of your business, your store would have presumably grown in line with your needs.  Your store would likely be sized in correlation with your display and storage requirements.  When you analyze your sales every year, you would go through the requisite comparisons of year-over-year and determine the level of comfort you reach, thereby.

Now, you’re in 2012.  You’re hearing about economic recovery, economic slide.  There is volatility in the markets as well as the economy.  Here is the big question:  what is your expectation?  At what level is recovery achieved?  I suppose that the real question is what level of recovery would be too much to ask for?  Should you downsize, maintain, close your store?  No easy answer, and I haven’t given sufficient facts to determine that.  But…

Our national economy is 66+% consumer-based.  One of the strongest points made by economists in explaining the consumer’s behavior until 2008 was that there was an ability to tap into increasing real estate values and easy credit to purchase more and more.  If you agree that the period 1980 – 2000 was an aberration in our economic history (see post: “The Magic of 1980 – 2000”), and that that period allowed and encouraged a vast amount of consumerism (continuing into 2007 – 2008), you might also agree that the period after 2008’s financial collapse created a very different reality.

After 2008, many people have become unemployed, many have seen their incomes reduced, and many have become more fiscally cautious.  We have become aware of the mortgage mess and derivatives debacle (which hasn’t disappeared).  Prior to 2008, many employers grew their businesses and employment numbers based on the results of the “Magic of 1980 – 2000” and its aftermath.  Even though we may realize that all of the above is legitimate, we tend to look for the return of the business volumes of that period.  All things considered, is that likely?

Many retail operations have found continued existence in this environment to be difficult.  In addition to the economic factors, the web has presented competition (i.e. the local book store vs. Amazon) that clearly affects traditional brick and mortar retail (brick and mortar = physical buildings, or store fronts).  While I have no hard evidence that web business presents less economic boost to the overall economy than brick and mortar, I do believe that the web business has a net negative effect on local economies.

We tend to hope and believe, don’t we?  We tend to assume things will go the right way.  That is appropriate, but timing is everything.  Will the stock market go up tomorrow?  Next week?  When?  Is it possible that the rate of improvement will be lower, long-term, than was the case pre-2000?  The points made in the post “The Magic of 1980 – 2000” and in this post lead me to believe that the stock markets should, once the world calms down, grow at a rate of 2.5 – 5%.  The much-assumed 8 – 10% per year was a phenomenon not likely to be repeatable on a consistent basis.  The level of business our companies can expect to recover will likely not be at the capacities reached or demanded pre-2008, for some time.  We already see that in the number of unemployed.

What we have seen for the last 50 years has been a transition period, and most notably the period 1982 – today, of computerization and technological explosion.  The economic expansion noted above was a wild subtext of the transition (for another day’s post).  The fiscal stress we’re experiencing on an individual level is most clearly a transition from the economic euphoria of the recent past to current mess and depression we’re in.  As we adjust, I do not assume we get back to levels of growth seen pre-2008.  I also don’t believe the suggestion that employers are waiting for something to create “confidence” before hiring will begin in earnest.  I do believe that employers are waiting for buyers of their products to create demand for additional employees.

Much of the record corporate profitability we have seen over the last 2 – 3 years has been due to increased efficiencies, not record sales.  If the sales numbers are not what we’re used to in creating the record profits, perhaps the unployment numbers are likely to persist?  Is that in line with current realities?

So what does all of this lead to?  Let’s talk about personal finance next.

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