The Future is Your Decision

From our July 2011 Creating Confidence Newsletter.

Last Tuesday the 12^th, I spent the morning at the Vistage All City meeting. Our speaker was Brian Beaulieu, a respected economist from the Institute for Trend Research. Brian’s talk, The Future is Your Decision, offered perspectives for CEOs and individual investors based on his trend research.

I found his information useful and have summarized his thoughts below.

Overview

There are 3 mega-trends to be considered when making decisions about your businesses or when investing:

1. Demographics, the World and the US have increasing population. More people = economic growth
2. Inflation, not hyperinflation, but easily 4.5% to 6%
3. Taxes are going up

2011 and 2012 will be periods of modest growth, with continued high unemployment. At the same time, it will be increasingly difficult to fill certain knowledge based positions because our workforce is a) immobile due to being unable to sell their existing homes and b) inadequately trained for the type of jobs available.

2013 and 2014 will likely be a modest recessionary period like the early 1990’s but not as deep as 2008.

Commodity prices are on a temporary rest. 2012 will see increasing commodity prices on items such gold, copper, oil and agricultural products.

The US represents 26% of the world economy. While we are the largest economy in the world, our share of the pie is growing smaller and opportunities exist in emerging economies for investment and doing business. Think Brazil, Australia, and India.

There will be ongoing weakness of the US dollar.

Housing will no longer be in recession but will not be in recovery. Over the next 5 years people will rent and not buy.

Interest rates will remain low and may creep up in 2012 and 2013. A 2014 recession may provide a temporary restraint on rates. Currently we have the lowest rates we will see in our lifetime. Borrow long term, taking advantage of fixed rates now and repay with cheaper inflated dollars.

Remember that normal today is tomorrow’s abnormal.

For Businesses

Look for customers in these growth segments:

• Exporters
• Alternative Energy
• Health care
• Professional services such as law and accounting
• Higher education
• Overseas in India, Brazil, Canada and Australia

Inflation will hit the labor market in 2012. You will need a strategy to employ a mobile workforce. Training programs are more critical than ever, given that you may not be able to find the skill you want in the workforce.

This is a good time to buy other businesses. If you have not positioned your business for sale, you likely do not have time to do so before the next recession. The next good selling season will be 2017 and 2018. Position now to be ready.

Do not let the pain of the past color your vision for the future. Find a sector of your business that is entrepreneurial and expand that segment.

In periods of inflation, metrics and monitoring are critical.

If you cannot raise prices, sell that business unit. Raise prices more frequently and in smaller increments. Think 1% to 1.5% per quarter instead of 4% a year.

For Individuals

The stock market will continue to be volatile thru 2011. Brian is bullish on 2012 and then expects a lackluster market. Position portfolios to take advantage of the 3 megatrends noted earlier.

Invest globally and position your portfolio to include commodities and other investments that do well in periods of rising interest rates and inflation.

Refinance your home if you have not already done so. If you are young and have equity in your home, consider borrowing the equity and investing it outside your home.

Summary

Brian closed with a quote from Dr. W Edwards Deming. “It isn’t necessary to change, survival is optional.”

That sort of says it all. If you can’t love change, at least accept it and position yourself for it. As with any of these ideas, it is best to a) run the numbers for your personal situation and b) consider the impact based on your personal goals.

As your Wealth Advocate, we are here to guide you and your business thru the coming changes. If you have questions or need our assistance, please contact me at Mackey@MackeyAdvisors.com or our team at 859-331-7755.

May prosperity be yours,

Mackey

Fixing Social Security

From our July 2011 Creating Confidence Newsletter.

These days, as Congress debates the debt ceiling issue, Social Security is suddenly front page news again. If you want to see the lighter side of the debate, click here: http://www.youtube.com/watch?v=OAnI6y-xC84&feature=related.

The first thing to understand is that there IS a solvency problem with Social Security. Alice Munnell, Director for the Center for Retirement Research at Boston College University points out that, according to the Congressional Budget Office, the Office of Management and the Budget and the Government Accountability Office, the benefits promised to future retirees exceed the scheduled taxes that are projected to be taken in. In fact, last year, Social Security began paying out more in benefits than it received in payroll taxes--years earlier than projected, due to the 2008 Great Recession.

The second thing to understand is that Social Security is not going away; too many people today and in the future depend on it for a crucial part of their retirement income. Munnell notes that Social Security accounts for 87% of non-earned income for the poorest third of households over age 65, 70% for the middle third and 37% for the highest third.

So the question becomes: how can Congress bring Social Security back into revenue balance. To help illustrate some of the trade-offs, the American Academy of Actuaries web site includes a game that allows all of us to fix Social Security--you can make your own adjustments here: http://www.actuary.org/socialsecurity/game.html and discover a variety of ways to balance the books, some more painful than others. You could, for example, move up by one year the day when people have to wait until age 67 to claim maximum benefits, and after that index the retirement age to maintain today's ratio between expected retirement years and work years. This, alone, would solve 20% of the funding problem, and some would argue that it should have been done years ago.

As an alternative, you could reduce the annual cost of living adjustments in Social Security payments by half a percentage point. This would reduce the projected deficiency by 40%. Of course, it would also erode the purchasing power of elderly people who count on Social Security for a significant part of their income.

We could reduce benefits by 5% for future retirees, which would solve 31% of the problem.

Or we could reduce the benefit formula for the top half of earners, who theoretically are less dependent on Social Security in retirement. That would solve 43% of the projected Social Security deficit. It would also mean that people who are able to fund a comfortable retirement will get much less out of the system than they put into it.

On the other side of the ledger, we could incrementally increase the revenues going into the Social Security system. For instance, if we raised the payroll tax rate from the current 6.2% to 6.7% for employees and employers, 48% of the shortfall would go away. As an alternative, we could tax Social Security benefits like we do IRA and pension benefits, which would make up 14% of the projected shortfall.

As you can see, none of these proposals, by itself, will bring Social Security back to fiscal health. If you're looking for an out-of-the-box solution to add to the mix, consider an article in the Christian Science Monitor, where former U.S. Secretary of Labor Robert Reich notes that a big (and largely undiscussed) problem with Social Security is the shifting balance of workers paying into the system to retirees collecting from it. Forty years ago, he says, there were five workers for every retiree; today, there are three. In 20 years, perhaps less, the ratio will be 2:1--that is, every two workers in America will have to pay whatever is required to support one retiree's Social Security benefits.

How would you fix this problem? Reich proposes that we allow more immigrants into the U.S.--that immigration reform

As the deficit debate goes forward, you'll hear a lot more about how to "fix" Social Security. Consider this a cheat sheet on the options that various parties will eventually put on the table. We would love to hear your thoughts on how to solve this and other issues. During our planning process we put our heads together to come up with solutions that make lives better and more successful. Let’s encourage our government to do the same. If you have a good idea, let us know!

Sources:

Alice Munnell: http://blogs.smartmoney.com/encore/2011/07/11/saving-social-security-raising-taxes-vs-cutting-benefits/?mod=wsj_share_twitter

Robert Reich: http://www.csmonitor.com/Business/Robert-Reich-s-Blog/2010/0411/Immigration-Could-it-solve-Social-Security-Medicare-woes

Business Strategy for Turning Lemons into Lemonade

Every economic climate has its gifts and its challenges.

The negatives - lower sales, decreased cash flow, and lower receivable and inventory turnover must be managed and monitored. Manage the challenges using tools such as appropriate credit policies, extended vendor terms, consistent and open communication with your bank, lowering margins where appropriate to maintain market share, and launching “can’t miss” new services or products. Monitor the challenges using tools such as cash flow projections, trailing 12 month KPIs (Key Performance Indicators), daily cash monitoring, weekly KPIs at the team and individual level, and relevant and timely internal financial statements.

Both management and monitoring are necessary. The biggest mistake I see small and mid-sized businesses make is their failure to monitor. When the going gets tough, the tendency is to make a knee-jerk reaction with blinders on, and then to wonder why the expected result was not achieved. My experience of monitoring is that it not only pays for itself, but it increases profitability, owner return and cash flow. If you do not have an effective monitoring program, our Shared CFO™ program is just the ticket to help you.

A) Identify what to monitor, based on your strategic objectives

B) Develop appropriate systems and procedures for tracking the success level of your management strategy.

The gifts of the recession take a bit more time to discover. And it takes strategic thinking to develop an action plan to take advantage of the gifts.

Let’s take a look at a few of the biggest gifts of the recession.First is the opportunity to upgrade your team. Good people are the life blood of any business. And over the last several years, recruiting good people has been a challenge. In many cases, even finding someone to work was difficult. The search and expectation for an excellent candidate was often reduced to searching for an adequate candidate. With unemployment rates up and rising, now is the time to assess weak team members, free them up to find a new path, and move your company ahead with a re-energized top-tier team. Jim Collins, in his landmark book Good to Great, calls it “getting the right people on the bus.”

Second, look at the opportunity to lock in lease rates at rock bottom prices. Or if you have the capital and cash flow, look for your own building. Real estate is being offered at record low prices, and you can use this to gain a competitive advantage for years to come.

Third, if you are adequately capitalized, you should be able to find financing for projects over the next six to twelve months. The exception appears to be speculative real estate where credit markets are all but dried up. Now is the time to assess your fixed asset needs and to take advantage of rock bottom prices, extended terms and to lock in favorable long term interest rates.Finally, upgrade your technology. Buyers are in short supply everywhere, so if you have the cash flow to support a technology upgrade, software or hardware, now is a good time to consider it.

If you don’t have the funds now, but know you need to upgrade, use this time to assess your needs, sort through your options and get your decision in hand so you are ready to buy when cash flow eases.

Now is the time to be strategic, and to build your foundation for the recovery.
Our Shared CFO™ program offers an affordable, variable cost solution to managing and monitoring recessionary challenges, as well as taking advantage of the strategic opportunities.

May prosperity be yours,

Mackey McNeill, CPA/PFS
President and CEO

Mackey Advisors

www.CultivatingProsperity.com

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

Take Personal Action

Want to be a part of the solution? Are you ready to make a difference?

When we went to war, the President called for us all to assist in the effort by buying more stuff. Well, hopefully we are all clear now that buying stuff is not a way out of this mess.

For those who are ready for action, here are two ideas for what you can personally do to strengthen our economy.

1. Lobby Congress to allow for loan modification in bankruptcy. We must stem the tide of foreclosures if we are to reverse the current negative economic cycle. This recommendation comes from The Center for Responsible Lending. http://www.responsiblelending.org/
   Your personal interest is aligned with the greater good in this case. With every home in your neighborhood that goes into foreclosure, your home loses $3000 in value, on average. Learn more at:
   http://www.responsiblelending.org/issues/mortgage/subprime-mortgage-crisis.html
   
2. Ask lenders you do business with to tell you their home owner’s preservation rate. Hold lenders accountable for their actions.

May prosperity be yours,

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

Feel the Fear

Have the market events of the last few months given you pause? Has the media convinced you that the Great Depression II is at hand?

The press is saying, “This time is different, the market will never recover.”

Are they correct? Possibly

I have spent the last 6 days around some of the best minds in the investment industry. Universally they are saying, “This is a buying opportunity unlikely to repeat in our life time.”

Are they correct? Possibly

As much as we would like to, we do not know the future. What is coming is uncertain.

What I see is unprecedented opportunity. However, it may not be the kind of opportunity you are focused on. Ponder these ideas as possibility.

• We demand accountability and transparency at all levels of corporate governance.
• We no longer accept the premise that investing in Altria and then donating to an anti-smoking campaign makes sense. We insist on going good AND making money and no longer see these as mutually exclusive options.
• We hold corporations accountable for their social record.
• We recognize that no or lax regulation does not work. The ethical players in the industry come together to produce meaningful regulation that provides consumer protection from excessive greed and fraud.
• We live in world where one of the fundamental principles is living within your means. Saving money is the cool thing to do. Excessive debt, at every level, personal, corporate, and government is frowned upon.
• We focus our attention on breaking our dependence on consumption to drive our economy. Instead of buying more stuff, extracting more limited natural resources to put things in our homes we may or may not use, we focus those resources on rebuilding our aging infrastructure, educating our youth and building a green energy economy.

What do we need to do to attain this possible future? Feel the fear. Do not react to the fear. Feel the fear and let it pass thru you, like a gentle breeze. Take the energy that was fear and use that energy for the greater good. Use your imagination. What would you like the new financial world to look like?

Be a part of the solution, not a part of the problem.

This is a time of change and possibility. Carpe diem!

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