Gratitude, better than a bail out

Tis the season for gratitude. Thanksgiving has always been my favorite holiday. What I love most about it is the simplicity of purpose, to give thanks. Of course, I adore the food too.

Recently I came to a new realization about gratitude. When you are present and fully participating in gratitude, fear is absent. You cannot be grateful and fearful at the same time.

Today’s financial crisis has many roots, but none as deep as credit that was too easy and lax or nonexistent regulation. The leaders of our country are working on the macro solutions to these macro problems. Other than making our views known to our elected officials, we personally can do little to change our plight at this macro level.

So where is the point of personal responsibility we each share in moving out of this crisis? We as individuals are lengthening and making the economic downturn deeper each time we turn our attention to fear. Fear is contagious. As we focus on fear we tighten up, physically, emotionally and mentally.

Fear can take over our thoughts and put us in a place of inaction. If we focus on eliminating fear, we just get more fear as anything we attend to increases in our lives.

That is where gratitude comes in. It is easy to find hundreds of things in every moment to be grateful for. Gratitude is free. It is easy. It is simple. We can participate in gratitude in our cars, in our home, at the office or in the shower in the morning. The more we practice gratitude the more good things expand in our life. As gratitude expands, we reduce the opportunity for fear to live and grow within us.

This is a way we can each take personal responsibility in making our economy better. Focus on gratitude. Fear will naturally fall away. And worst case scenario, let’s say my theory about the relationship of gratitude and fear is incorrect. Then you still win, your life will be more pleasant and happy as you focus what you DO have to be thankful for.

May prosperity be yours,

Mackey McNeill, CPA/PFS IAR
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com

Too big to fail

Yesterday the government decided Citigroup was too big to fail. I woke at four this morning thinking about this. Too big to fail. I guess that means once a company reaches a certain size, regardless of mismanagement, lack of leadership, lack of innovation, poor strategic judgment, or of any of the countless ills possible, it is entitled to a perpetual life.

I understand it would be scary, devastating to thousands of employees and their families and have countless consequences that we cannot predict if Citigroup were to go under.

What I am struggling with is what this really means. Does that mean that we not only have government entitlements, but we also have corporate entitlements? Do the taxpayers pay for both?

What is the scale at which one arrives at “too big to fail?” Who defines this?

How are the CEO’s of “too big to fail” companies held accountable?

The former CEO, Charles Prince received a 12.9 raise in 2007, just last year, to bring his total compensation to $25 million. Click here for the Market Watch 2007 story

Ok, in fairness, Prince lost his job. And most of us would be fine with losing our jobs if our final paycheck was $25 million.

A few people are now talking about forgoing bonuses for top executives as a condition for the government assistance. Which means the government now controls CEO pay in “too big to fail” companies? Read the Reuters story here

I am not saying I have the answers. I do have lots of questions.

New times, new territory. I would love to hear your comments.

May prosperity be yours,
Mackey McNeill, CPA/PFS IAR
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com

What to do now?

Wouldn’t it be nice to turn on the news (or if you are like me, open your web browser) and get some normal, sane, understandable market results for the day?

Instead, yesterday the S&P 500 plunged to an 11-1/2 year low. Both the DOW and NASDAQ closed at their lowest points since March 12, 2003, which was just above the low of the last bear market.

Markets tend to over react at the top and at the bottom. I remember in the late 1990’s thinking, how can this be happening? Technology stocks were so over priced. Their valuations made no sense from a perspective of investment fundamentals. Fast forward to 2008, I find myself thinking the same thing in reverse. Stocks are so undervalued, why are they still plummeting?

When I teach my investment seminars, I say that the stock market, in the short term, is the emotional temperature of the collective. Valuations, P/E ratios, free cash flow and the hundreds of other fundamental measurements of stock prices, do not matter in the short term.

The only thing the market tells us on a daily basis is the whether the collective is optimistic or pessimistic about the future.

What is clear today is that the collective is pessimistic about the future.

In the long run, stocks trend toward the economic fundamentals. Earnings, cash flow and rational measures of value, clearly drive long term stock prices.

The second big truth of the market is that the past is clear. The future is always unpredictable. Timing the market is akin to attempting to determine if your spouse if going to be happy or sad today. Anyone’s guess is a good one and someone is going to be correct.

Barring any near-term recoveries, 2008 is likely to be one of the worst years in history for stocks (domestic and foreign) since the great depression. Unfortunately, other asset classes such as real estate, commodities and even many bonds have done poorly. While it is highly unusual for so many asset classes to fall at once, it is the current reality. Of course, this isn’t news to most of you. The question is how much further until the market hits the bottom and what to do now?

While there are many opinions, no one knows the future. The question for most people is what to do given what has happened and given the uncertainty of the future (especially near term). Much depends on your time frame and emotional constitution.

Previous bear markets have averaged 16 months. We are now 13 months into the current downturn.

The longest recession since WWII has been about 16 months. Assuming this recession started early in the year and it matches or slightly exceeds the longest postwar recession, it might be late spring to late fall 2009 before economic recovery begins. Since a stock market rebound typically precedes economic recovery, the market could rebound before then (historically, it's turned up 60% of the way through a recession). As with all observations, no guarantees are given or implied.

While it would be nice if we were at or near the bottom, there is a possibility that it could get worse. The stock market decline has probably anticipated a significant drop in corporate earnings but when revised earning estimates (likely lower) and actual earnings reports come out over the next month or two there may be further declines. Also, it’s normal for the stock market to overshoot on the downside (as it does on the upside).

It is helpful to look at what seasoned investors are doing. Here is a sampling.

Warren Buffett is buying.
Here are more details: Learn from Warren Buffett

Steve Leuthold, considered a perma-bear is bullish on stocks
Here is more information. Click here for Barron's article

Jeremy Grantham of GMO says, “…the odds are roughly two to one that stock prices will sink to new lows next year.” And he is buying because he does not attempt to time the market in the short term.
Click here for the complete article. Read NY Times, Market Bottom? piece


So what’s this all mean to me?

• Continue to stay out of the emotion of the day.
• Call your advisor (hopefully that is us) to review your needs and your portfolio.
• Look carefully at your personal situation. Is your job secure? Do you have any upcoming major expenses that can be deferred? What is your withdrawal rate from your portfolio?
• Keep the long term view.

As you know, staying power is an critical component to developing an investment strategy. Before anyone should commit money to the stock market, they need to have adequate reserves set aside for emergencies and financial commitments. One's time horizon should really be 5 to 7 years (or even better, the rest of your life).

Has this downturn made you realize you aren’t as risk tolerant as you thought? If so, it is time to change your stock/bond allocation? In general, if you're able to wait (financially and emotionally) we suggest not making any drastic changes now.

What we're doing now:

For retired clients, we will temporarily hold off on further rebalancing. Thus a 50/50 (stocks to bonds) portfolio which may have drifted to a 45/55 or 40/60 due to stock declines will be left as is, effectively making it a little more conservative for now.

For more aggressive clients who remain growth oriented and still have a long-term horizon, rebalancing probably continues to make sense.

For conservative and moderate growth clients, following a discussion of your personal situation, we are tweaking the fixed income investments and getting a little more conservative (giving up some longer term potential benefits in exchange for reduced short-term volatility).

We have looked at every client account for opportunities to harvest unrealized tax losses (losses that can be used to offset any gains or up to $3,000 or ordinary income). We are looking at opportunities to transfer funds from IRAs to Roth IRAs (for clients who have little income or significantly less income than normal this year). We are considering the estate planning opportunity of gifting.

The clients most impacted by this economy and stock market decline are those that are retired.

A prudent withdrawal rate is 3-5% depending on age, etc. One strategy for retirees drawing on their portfolios is to tap those assets that haven't declined significantly first (i.e. draw from money funds, short-term bond funds, longer-term bond funds).

We have run projections for all of our clients taking periodic or sporadic withdrawals to see how long-they could tap fixed income assets before having to sell equities based on the current withdrawal rate. On average, these clients could tap their fixed income investments to cover their monthly withdraws for 3 to 10 years (before having to sell significant portions of their equities in a down market). Of course, this strategy will gradually make the remaining portfolio more aggressive as the fixed income portion is a smaller portion of the portfolio.

If you are withdrawing funds from your portfolio (either periodically or sporadically) consider how the market decline has increased the rate of withdrawal. If you have been taking out more than 3-5% before the market decline, that rate (as a percent of the current value) is now higher. If you've exceeded our recommended withdrawal rate and have been taking out more than 5% (before the recent stock decline), we strongly recommend that you look for ways to cut back on expenses (particularly any discretionary spending). This is not sustainable for a long life expectancy.

If you’re not sure about your withdrawal rate, please call us. For those of you giving money to adult children, carefully weigh the impact on your own finances (if your withdraw rate is too high your money may not last as long as you do). We believe in Mom & Dad first, adult children second, and realize this is a hard pill for many to swallow.

After all this discussion, it is best to prepare for this decline to be longer than the norm and one of the worst markets in our lifetime.

Now more than ever is the time to consider a Prosperity Plan™. I have found no more effective tool to put and keep things in perspective that this. If you have a Prosperity Plan™ and we are managing your portfolio, updates are free! We encourage you to come in and review your goals, investment policy and spending. Whether the news is good or bad, putting it all into perspective for your life is the best way to sleep at night.

I know that market declines take an emotional toll. Please call us at any time. 859-331-7755

For after hours assistance, try one of these options (my current favorite is 7)

If you are obsessive-compulsive, please press 1 repeatedly.

If you are codependent, please ask someone to press 2 for you.

If you have multiple personalities, please press 3, 4, 5, and 6.

If you are paranoid, we know who you are and what you want.
Stay on the line and we will trace your call.

If you are delusional, press 7 and your call will be transferred to the mother ship.

If you're schizophrenic, listen carefully, a small voice will tell you which number to press.

If you are depressive, it doesn't matter which number you press. No one will answer you.

If you are dyslexic, press 6-9, 6-9, 6-9, 6-9.

If you have a short-term memory loss, please try your call again later.

If you have low self-esteem, hang up. All our operators are too busy to talk to you.

If all else fails, chill.

Please forward this blog on to friends, colleagues or anyone who might benefit from it. We welcome new clients who are looking for the kind of disciplined approach we offer.

May prosperity be yours,

Mackey McNeill, CPA/PFS IAR
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com

Giving in the land of plenty

Over 2 billion people live on less than $2 a day. Think about it. $2 a day. From this perspective, the US financial crisis seems like a minor inconvenience for most of us.

I love the holidays and lots of presents under the tree are just plain fun. Over the years I have changed my buying habits, focusing more on the practical side of life. A few years ago I added in the tradition of making a tin of homemade cookies for each of my kids and their significant others. In many ways, they look forward to the cookies more than the presents. There is just more giving when it gets that personal.

This year I am adding another new twist to the holidays. I am honoring each family member with a MicroPlace donation. MicroPlace takes donations and investments and creates micro loans around the globe. These are small loans, say $20 or $150, allow people in poverty to start small businesses. They may buy a cow or buy inventory to begin a basket making business. I like the idea because it isn’t a hand out, it is a hand up.

Hand outs disempower people. Being a charity case does not engage pride or personal responsibility. A hand up, a micro loan, allows a person to lift themselves out of poverty. Empowering the individual to feel that sense of accomplishment and pride that naturally comes to us when we make our own way.

For more information on Microplace:
https://www.microplace.com/

For more information on world poverty:
world bank statistics

May prosperity be yours,
Mackey McNeill, CPA/PFS
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com

Keeping perspective

The wild daily swings of the market make it difficult to keep perspective. We are certainly in a cycle of deep fear, as evidenced by the daily market volatility and continued downward trend of virtually every asset class.

A recent article in Fortune magazine by Brian O’Keefe offers keen insight backed by hard data. Brain offers good reasons to stay out of our emotion and keep focused on the long term.

Read the article

May prosperity be yours,
Mackey McNeill, CPA/PFS
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com

Imagination, the forgotten gift

Imagination is the greatest gift you give to yourself. Yet, our culture that does not encourage or support imagining.

We are taught from an early age to “get real.” Remember back to your early years of crayons and blank paper? You were taught to draw what is, not what was possible. Ever try coloring the sky purple or a tree trunk blue? Likely you were quickly corrected and set on the “right” path.

Albert Einstein said, “Imagination is more important than knowledge. For knowledge is limited to all we know and understand, while imagination embraces the entire world and all there ever will be to know and understand."

What keeps us from imagining? Fears of failure, feeling unworthy of success, or focus on the “doingness” of life are all possible causes.

In this moment my own life is one of pure blessing. I have deep and loving relationships. I am financially secure and prosperous. My health is better than it has ever been in my life, and I am 53! And this is not where I began. Having quality relationships was not something that came easy to me. Prosperity too has been elusive. My health has been hampered by my environment and my history of childhood illness.

In each of these areas of my life, I had to put aside what I thought I knew. Not in a gentle way, but in a tear it down and haul it to the dump kind of way. After clearing out what I “knew” about relationship, prosperity, and health, I began to imagine new possibilities.

Out of this space of imagination, I began to put structure and form in place. Gradually just like building a home, each piece built on the other until my dreams began to form solid structures that I now experience every day.

Imagination is even more important in these challenging economic times. It is easy to be caught up in the news of the day, or the negativity of your partner or neighbor.

Your life today was created by the choices you made in the past. Your life tomorrow will come into being with the choices you make today.

Are you going to limit your choices today to what you know? Or are you going to listen to the wisdom of Einstein and imagine the possibility of your life?

Nothing bigger was ever created without first imagining a bigger possibility. Is there anything in your life you would like to change? Imagine it so.

May prosperity be yours,

Mackey McNeill, CPA/PFS
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com

Creating Community

Yesterday we created history. We elected the first African American President of the United States. I grew up in the segregated south in a time that now seems light years away. Thankfully so. Things needed to change then. And they need to change now.

The headlines today are filled with the challenges facing our new President. Certainly there are many, healthcare, financial reform, widening federal deficits, the Iraq war, just to name a few. And yet, to me the most important change we need is to recognize we are all in this together. We need to create community.

I am not talking about the kind of community where you notice who is living next door. I am talking about creating the kind of community where we begin to understand that we are interdependent organisms. Community, where there is an appreciation and respect for the common good. Where every action isn’t just about my personal welfare and my pocketbook.

We have been living in a time of tremendous me-ish. What is in it for me? How much money will I make? How does this affect my pocketbook?

For if we understood, deep down in our bones, that we are interdependent, how would we behave differently?

Would you volunteer at the local soup kitchen? Stop by to see your neighbor when they are sick? Become a big brother or big sister? Reach out to our co-worker when they are having a bad day? Be willing to ride the bus to work one day a week or once a month?

I remember when Jimmy Carter was President. In an address to the nation he laid out his concern for our national security given our dependence on foreign oil. The fastest path to short term energy reduction was conservation. To that end, we were asked to drive 55mph on the highway, and turn our thermostats down. The idea was that we would all sacrifice for the common good.

Here is the clip of that address:
http://www.youtube.com/watch?v=-tPePpMxJaA

Sadly, the next President, Ronald Reagan, reversed all of the conservation efforts President Carter had implemented. More importantly gone was the idea that we the people would individually inconvenience ourselves for the greater good.

All good things come home to roost. Let’s renew the idea of community. Let’s renew the idea of the common good.

Perhaps John F. Kennedy said it best, “Ask not what your country can do for you, but what you can do for your country.”

Enoughness

It would take six to nine planets to supply the natural resources necessary for everyone on earth to consume at the rate that we in the United States take for granted. We have only 1 planet. Everyone in the developing world wants to live like we do in the US. This is a problem. Many would say it is a crisis. Certainly our consumptive lifestyle is a major contributor to global warming, a fact that can only be reversed by intense and rapid changes in our patterns of living.

What is the missing link? It was a year ago at the SRI (Socially Responsible Investing) Conference that a Native People’s representative introduced the idea of enoughness. She was speaking about the values system differences between western cultures and native people’s culture. She said, “In the native people’s culture, we have a concept called enoughness.” Once you have enough, you quit taking. You leave the rest for later, for your use later, or for your children or their children.

We are now facing a recession, which will clearly be deeper and longer if we reduce our consumption. And isn’t it about time?

Human beings rarely make fundamental change until faced with an intense challenge. Perhaps one of the functions of this time in economic history is to delink our prosperity and our consumption. Perhaps we are being called to consider the idea of enoughness.

What if one of the possibilities of this time is to create an economy built on sustainable ways of living? Ideas like sustainable agriculture where we use the land in ways that don’t need massive amounts of chemicals and water to grow our food. Ideas like renewable energy where we use the unlimited resources of wind and sun to produce our energy needs rather than investing in coal, natural gas or oil, all natural resources with finite quantities. Ideas like buying food from local farms, rather than trucking food 1500 miles to a grocery store. Ideas like preserving green space. Simple ideas like using recycled glass instead of granite for our new kitchen counter top.

What if this economic challenge we now face is blessing us with the opportunity to ask, do we have enough?