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Dissecting Bernanke’s June 22nd News Conference

Jun 23 2011

By: Michelle Price
Categories: Money & Washington

Federal Reserve Chairman Ben Bernanke held a news conference on June 22nd shortly after 2 pm, following the Fed’s policy meeting. As usual, the market vividly showed it’s opinion of Mr. Bernanke’s comments:

Oh Ben. In fairness, there hasn’t been a heck of a lot of happy news for him to share. Nevertheless, why can’t an aide of Ben Bernanke’s set his watch 2 hours behind so that he delivers his comments after the market closes?

Ben spoke to several salient points. Let’s take a deep dive into each:

Inflation: ”I have been a longtime proponent of an inflation target…[snip] There’s nothing imminent, but again we will continue to discuss this and as appropriate we will be consulting about it.”

Interest rates have been kept extremely low for several years now to not only enable banks to lend to each other cheaply, but to also encourage growth in the stock market (and as a side effect, business growth). Nevertheless, it’s been unnatural to keep interests rates low for such an extended period of time. So whether it’s irrational or not, many are concerned over what may happen to the inflation rate and economic growth once the Fed beings to raise rates again. The market doesn’t like uncertainty over inflation, so -1 for Ben.

The Pace of Economic Growth: ”Part of the slowdown is temporary and part of it may be longer-lasting. We do believe that growth is going to pick up into 2012 but at a somewhat slower pace from what we had anticipated in April. We don’t have a precise read on why this slower pace of growth is persisting.”

I do, and so does most of America: jobs. Or even more accurately: household debt, which keeps consumers from spending, which keeps businesses from hiring because the demand isn’t there. I agree to expect growth in the latter half of 2012 — in particular, since banks appear to be using IPO’s to make money this year which may help discourage a double dip this year. Nevertheless, institutional investments may not have the power to keep the market growing. It’s steady investments by individuals over the long term, yet individuals are increasingly lacking the money to invest. -1 for Ben.

The Labor Market: ”As of last August…inflation was low and falling, and unemployment looked like it might be even beginning to rise again. [snip] I think we are in a different position today, certainly not where we would like to be but closer to the dual mandate objectives than we were at that time.”

The Fed started talking about QE2 in August 2010, and implemented that strategy by buying debt instruments (government debt, mortgages, commercial loans, etc.) a few months later. Last August in terms of jobs was more bleak than this August may be. So while it’s frustrating and demoralizing to many Americans to not be able to find a job nor to be able to afford to train themselves for a job in a new industry, and while job growth is slower than many feel it would be than if the issue of household debt were directly addressed, prospects are better than last year. +1 for Ben.

On QE3: ”With respect to additional asset purchases, we haven’t taken any action, obviously, today. [snip] I think the point I would make, though, in terms of where we are today versus where we were in August of last year when I began to talk about asset purchases is that at that time…many objective indicators suggested that deflation was a nontrivial risk and I think that (QE2) has been very successful in eliminating deflation risks.”

I would agree that the cash infusion helped ward off deflation, yet was a very nonsensical policy to hardworking individuals who watched banks’ coffers fill with cash. Deflation during a period like this is like putting a nail in the coffin when it comes to job creation. Deflation is usually associated with a decrease in prices, and if companies aren’t earning what they used to from consumer purchases they certainly won’t hire additional staff (nor be able to provide pay raises). While deflation pressures subsided, it may have been sensible at that time to direct part of QE2 to Main Street to purchase debt on household books as well. So Ben is even here.

The Greek Crisis: ”(The Federal Reserve) did discuss it, and it is one of several potential financial risks that we are facing now.”

We’re going to witness more crises in the future as municipalities run out of money. So it’s smart for Ben to monitor the situation in Greece, yet not overreact. So +1 for Ben.

The Slow Recovery: ”The reduced pace of the recovery partly reflects factors that are likely to be temporary. In particular, consumers’ purchasing power has been damaged by higher food and energy prices and the aftermath of the tragic earthquake and tsunami in Japan has been associated with disruptions in local supply chains, especially in the auto sector. However some moderation in gasoline prices is now a prospect and the effects of the Japanese disaster and manufacturing output are likely to dissipate in coming months. Consequently…the committee expects that the pace of economic recovery will pick up overcoming quarters.”

I think that Ben started to grow weary at this point and could have used a shot of espresso. This quote reiterates clearly than Ben Bernanke thinks more like an economist than someone with down home common sense. Consumer purchasing power has been damaged, but it’s not as correlated to higher food and energy prices as it is to household debt caused by decreasing wages and the lack of jobs. I think Mr. Bernanke is a smart and thoughtful person, but desperately needs an Elizabeth Warren or even a real business owner in his orbit versus textbooks and other economists. -1 for Ben.

It’s not easy to right a ship that exploded just over 3 years ago, but the right words would have made a much better effect on confidence. While I feel he and the Fed have done a good job in preventing deflation and an unemployment spiral, it’s clear that the administration needs fresh perspectives to help spur the country into a new phase of real growth fueled by middle class jobs and individual investors.

Have You Gone Global on Twitter Yet?

Jun 21 2011

By: Michelle Price
Categories: Wealth 4.0

One of the best things about Twitter is being able to connect with individuals in other countries. Yet despite Twitter and other social media platforms connecting us in unprecidented ways, some say the world isn’t getting as small as we would believe.

It was natural for localization (as opposed to globalization) to occur when economies plunged in 2008, as countries turned inward to figure out how to rebuild. Nevertheless, the ability for individuals to reach across country borders to have their voices heard despite their countries explicit or implicit decision to hunker down pushed relatively new technology platforms from infancy to adolescence, and created fuel for the slew of IPO’s and mergers this year.

Skype, Twitter, and Facebook have replaced handwritten letters, broadcast journalism as our only (and quickest) news source, and even email to a certain extent.

These and other platforms have enabled us to learn from the reaction of citizens to austerity measures in the UK and Greece, to see the honest truth of revolution in Egypt, and even to hear one person’s perspective on sounds in the middle of the night that turned out to be the US raid on Bin Laden’s compound.

Revisiting old patterns of thinking and hearing the same opinions from within the same circles will not move technology, innovation and thought forward — and subsequently, growth. It’s engagement with other people who have different points of views, and different issues to solve, that may help foster innovation and growth.

It was exciting for me as a intern at Texas Instruments to connect with an intern in South Africa. We exchanged letters and pictures, and thoughts on current events in the 90′s. I’m sure this created new neuropathways that made for better critical thinking and more unique ideas for products.

As Washington asks us to do our part in fueling the recovery, one step may be to globalize your Twitter list. You may find that it’s like walking into a huge candy store like Dylan’s, except this candy will nourish your brain.

Keith Olbermann’s Investable Moment

Jun 20 2011

By: Michelle Price
Categories: Your Gain Plan

Keith Olbermann completes the move of his show “Countdown with Keith Olbermann” from MSNBC to Current TV on Monday June 20th, 2011.

Pollsters and pundits are watching over the next several weeks with their fangs dripping in anticipation over whether or not Olbermann’s audience will follow him, translating the conversation into one about the strength of branding in today’s society.

Keith Olbermann’s move is, to a great extent, a brand conversation. However, it’s also an “investable moment” that may spur demand in related industries.

Current TV crosses broadcast TV and online social media, integrating traditional network programming with viewer-created content. It’s the cannonball-into-the-water hybrid when other channels are still clumsily wading carefully in the integrated online social media pond.

Success for Keith Olbermann may translate into increased demand for bandwidth and speedier in-home internet infrastructure, as well as internet-ready televisions and possibly other connected appliances. It may institutionalize communications platforms like Twitter, and increase demand for everything from home video cameras to improved video compression technology.

On the flip side, a successful move for Mr. Olbermann may also decrease the need for traditional media items such as a cable as viewers are increasingly drawn to the on-demand (and free) capabilities of the internet. I have friends who’ve already cancelled their cable service and made the switch to internet-based TV.

Most impactful is the potential to transform the idea of businesses being a collection of employees into individuals providing services to a collection of businesses or platforms. Imagine not being able to languish within the bosom of a corporation, but rather having to have the skills and scrappiness to generate income consistently as an individual.

The past few years since approximately 2008 have been characterized by collisions of traditional media with social media. Visibility and dollars have flowed from corporate entities into the hands of pioneering individuals and technologies, changing how the world is viewed and what is visible in the world.

Is a successful move by Keith Olbermann another collision-type moment, prompting demand for new types of technologies and services? Let’s watch and see.

Wealth Transfer Techniques

Jun 16 2011

By: Michelle Price
Categories: Live More Today

Given how each president more often than not tweaks the country’s tax rules as well of other related policies after entering the White House, it’s a good idea to revisit certain techniques in order to reconfirm their effectiveness in a new policy environment. One set of techniques centers around wealth transfer.

A common question that recurs every few years is what are ways to pass money to future generations in the family without increasing the donor’s nor the beneficiary’s tax burden?

Below are five techniques to consider:

Life Insurance: While it’s slightly more common to use life insurance to support surviving family members after the death of a loved one, it also may be used to pay taxes on estates. And if the insurance is payable to beneficiaries through an irrevocable trust, you may avoid having the proceeds count towards the value of your overall estate.

Business Buyout: Many families in this economy are launching their own businesses. Retiring shareholders can sell their portion of the business to younger generations in the family in an internal family buyout. The retiring shareholder then receives cash to help fund retirement, and the family sustains the independence of their family’s company while receiving potentially substantial tax benefits if the buyout is structured correctly.

Account Beneficiaries: Adding a beneficiary to your 401K/IRA/Life Insurance/et al enables beneficiaries to have more choices in how they receive the proceeds from an inherited account instead of forcing a family member to receive a lump sum and an immediate ordinary income tax bill.

Gift Transfers: “Giving while living” has the benefits of reducing one’s taxable estate while leveraging the kinder gift tax rules to transfer wealth. This technique may generate estate tax savings upwards of 25%, and in some cases even more savings may be possible.

Transfer on Death: Non-retirement accounts may be enhanced with a transfer on death policy, which may be beneficial if your non-retirement account has securities bought at a much lower price than the present day value (e.g., low cost basis securities). The basis or purchase prices of your securities are adjusted to their fair market value upon your death, which may provide your beneficiary with tremendous capital gains tax savings if this results in a step up in basis.

Regardless of the method, talk with a qualified advisor to help ensure that your wealth transfer strategy reflects the latest policy changes.

Summer Reading List 2011

Jun 15 2011

By: Michelle Price
Categories: Your Gain Plan

J.P. Morgan has been curating a summer reading list for the past two decades. It’s usually an eclectic mix of business books, books based in countries where their clients may be invested, books about family or business dynasties, or thought-leader books.

Expect a list like this from Price Capital. But until then, let’s take a look at what J.P. Morgan recommends for the long summer ahead:

The Startup Game: Inside the Partnership between Venture Capitalists and Entrepreneurs

She Walks in Beauty: A Woman’s Journey Through Poems

Cleopatra: A Life

The Longevity Project: Surprising Discoveries for Health and Long Life from the Landmark Eight-Decade Study

Little Bets: How Breakthrough Ideas Emerge from Small Discoveries

The Hare with Amber Eyes: A Family’s Century of Art and Loss

On China

Feast for the Senses: A Musical Odyssey in Umbria

The Corner Office: Indispensable and Unexpected Lessons from CEOs on How to Lead and Succeed

America’s Medicis: The Rockefellers and Their Astonishing Cultural Legacy

Happy reading!

5 Things Ronald McDonald Can Teach Us About Job Security

Jun 13 2011

By: Michelle Price
Categories: Wealth 4.0

Of all of the people we would never expect to lose his or her job, Ronald McDonald recently had his job threatened when the healthcare industry raised serious concerns over having him as the entertaining draw for food that they consider to be unhealthy.

Although Ronald McDonald’s exit interview was imagined, it has nuggets of truth that may run through every person’s mind when the prospect of losing a job becomes real.

Is there anything that we can learn from Ronald’s misfortune before it happens to us? Actually, there are at least 5 lessons:

1. Keep Your Skills Fresh: In his exit interview, Ronald pondered working in payroll or Web development as an alternative to wearing a clown suit everyday. Every position has a timeline that ends. By using job boards to regularly search for which positions have open interest by headhunters and by taking classes or reading books to keep your skills marketable, you may be able to transition to a new venture when the timeline on your current position ends.

2. Keep a Ear on the Pulse of the Job Market: As mentioned above, job boards are a great source for understanding what skills are marketable in a particular field. For example, Ronald McDonald could have conducted a search on open positions in the restaurant industry to understand what other skills he could develop before being asked to hang up his clown suit. Also, keep your contacts fresh and recent by staying connected via social media or in real time. If Ronald had played a recent golf game with Rep. Steny Hoyer, perhaps he would be in the running for the potential open position in the House.

3. Stay Portable: In the recession, we saw how jobs in a handful of cities shrank dramatically. If opportunities dry up in your current city, would you be able to move to a new city to work? Luckily, many jobs these days are portable. Even Ronald could have transferred to an alternate McDonald’s branch (although it appears his job was threatened across the company).

4. Brand Yourself (to the Extent that Your Current Job Allows): Insiders are starting to predict that corporate structures will one day be obsolete, and commerce will be centered around individuals. Even if this doesn’t happen, you chances of finding a new position are significantly raised if you have a brand to offer a new firm or to serve as a platform for your own venture. This is good news for Ronald McDonald, whose iconic status and followers are the new type of job currency.

5. Have Emergency Savings: Most importantly, have 4-6 months of emergency savings (if not more in this economy) to help pay your living expenses between jobs or while starting up a new venture. Even the most secure position can slip through your fingers tomorrow. Having savings may help buy you time to start something new, which these day may take up to a year.

Your strategy for keeping you and your family financially secure should include ways to keep your income flow secure. Perhaps Ronald McDonald taught us more than just catchy jingles and how to not fear all clowns after all.

Your Home Fire Safety Financial Checklist

Jun 09 2011

By: Michelle Price
Categories: Your Gain Plan

Country star Trace Adkins and his family just endured a devastating home fire. What thankfully saved them was having a home fire safety plan. It involved determining a meeting place ahead of time to gather, which lowered the chances that a family member would hide in an unsafe place and become unaccounted for.

The same kind of planning can also occur with your finances. No one expects to wake up in the middle of the night to a fire that destroys your home. But it can happen, and rare things tend to happen these days. If you take the time to prepare even the slightest plan, your future self may thank you.

Here are 5 things to consider for protecting you and your family financially in the event of a home fire:

1. Insurance: Naturally, insurance makes the top of the list because it may provide you with the money to get temporary shelter and to replace damaged property. Insurance carriers can offer you a policy to cover a variety of calamities includes fires and floods. It’s important to take pictures of your belongings and to store those pictures in a safe place in order to have a smoother claims process.

2. Emergency Fund: Insurance doesn’t provide you with money to replace your belongings and find temporary shelter right away. While undergoing your claims process, an emergency fund with 4-6 months of living expenses may help lower short term stress due to money.

3. No or Low-Interest Credit Card or Line of Credit: In the absence of an emergency fund, a no or low-interest credit card or line of credit may help provide you with the money to get your family to safety without losing money on high interest fees. Once your claim is processed, it’s key to pay these off.

4. Offsite Backups: Carbonite and other brands of backup software can automatically store the contents of your computer offsite from your home. You ideally want to get your computer to state where losing your hard drive wouldn’t be catastrophic, and its contents can be easily restored onto a new hard drive — including purchased software.

5. Residual Income: We all wish that we didn’t have to work 8-10 hours per day or more in order to generate income. However, if you’re able to position your income so that you’re able to take 4-6 weeks off to rebuild your life without losing your income, that may give you the space to focus on rebuilding your life faster. Alternatively, ask your employer about your company’s personal time off policy to address family emergencies and plan ahead around it.

We often neglect to plan for the financial side of unexpected events. Adding items like these to your fire safety checklist may help you have a more well-rounded plan for surviving catastrophes and putting the event behind you quickly. As with life, hope for the best but plan for the worst.

Baby Boomers May Be the New Winners

Jun 08 2011

By: Michelle Price
Categories: Live More Today

Baby Boomers have nine lives. As teenagers, they benefited from profound yet positive social change in the 60′s and 70′s. As young adults, they profited during the “Greed is Good” era of the 80′s. As adults approaching middle age, they fluffed their nest eggs during the startup boom in the 1990′s and the reduction in taxes in the early 2000′s.

Not all has been rosy for Baby Boomers. Nevertheless, of all the generations alive today the average Baby Boomer who played his or her cards right in past decades may actually have the most economic stability of them all. So while 50 to 60 year old Baby Boomers are not only the new 40, they may also be the new winners.

For example while all of our retirement accounts have been impacted by multiple market hits over the past decade, the average Boomer has been invested for a longer period of time than investors in Generations X and Y. As a result, a Baby Boomer investor may have a lower cost basis on his or her investments as well as greater diversification which may have helped temper risk and volatility.

Since Baby Boomers are starting to retire, they ideally have already positioned their portfolios into Large Growth or Value and dividend-paying stocks. If the market continues to be range-bound as we collectively attempt to determine which end is up, dividend-paying investments may help support portfolio growth while prices stay flat.

Boomers also generally began working prior to the introduction of 401K’s as the primary retirement savings vehicle for employees approximately 30 years ago, and thus may have the elusive pension plan. The jury is still out on whether states will be able to support pension payments given the state of the economy, but if local governments are smart they’ll figure out how. Regardless, a Boomer’s career is often characterized by consistent and long-term employment at one employer which may have translated to consistent 401k or IRA contributions.

Boomers also may have purchased their current home in the 1980′s or 1990′s, and may not be saddled with an underwater property.

All generations have their own troubles, but it’s no coincidence that it’s the Baby Boomers of the family whose shoulders other family members are generally leaning on in today’s economy. Money and economics are relative. So while Charlie Sheen may have declared himself as a winner recently, he may have nothing on the baddest generation of them all.

Is Sarah Palin Good for the Economy?

Jun 07 2011

By: Michelle Price
Categories: Money & Washington

It’s fun to watch Sarah Palin. From her ability to get the media to chase her bus tour like a gaggle of puppies to her soliloquies that aren’t quite right at times but nonetheless immensely watchable, she never fails to deliver a firefly-to-light quality news clip everytime she steps outside of her home.

Sarah Palin in this capacity — e.g., delivering commentary, being interviewed, and pondering a run for office — I’d venture to say is not a bad thing. She’s like catnip to the media, with the ability to become an instant headline or a story that absorbs almost a full segment of news. As a result whenever the media is covering Sarah Palin, as a side-effect they’re talking less about the market and the overall economy.

There are reporters who do an excellent job covering the economy. And we need those reporters to hold parties accountable. Unfortunately, there are others who dramatize drops in the market causing viewers heart rates to rise and confidence to drop.

Some folks may not admit the impact that media outlets have on the collective psyche of our people, but the truth of the matter is that the media still has the ability to alter the mood of the country with its reporting. In an area of the economy like investing, the mood and confidence of its investors makes the difference between buying and selling.

As the economy attempts to correct from almost two years of gains and adjust its footing as new industries are developed to replace obsolete ones, anything that distracts a news outlet from simplifying and dramatizing a complex situation can’t be bad. Once again, there are excellent reporters — but as with most things, there are players at the other end of the spectrum yelling fire for ratings.

Back to Sarah Palin. As long as she’s pondering a run, she’ll stay in the headlines and be the shiny ball that distracts certain news outlets from negatively impacting the mood of the country as the economy adjusts. Even if Sarah Palin decides to run, she’ll keep delivering addictive soundbites.

The closer she gets to being in the office, however, the more we may see unintended effects on the mood of the country since she can be a very divisive figure. As long as she stays in today’s sweet spot, the economy has a chance to adjust and correct without the kind of attention that could lead to a panic.

Economics and market operations should be kept a staid topic, and not made to be a caffeine-driven lead story. Right? You betcha.

Where the Jobs Are

Jun 06 2011

By: Michelle Price
Categories: Wealth 4.0

The May 2011 Jobs Report indicated that unemployment ticked up to 9.1 percent. This caused strong reaction in the media and the markets, just short of Mr. Howard Beale‘s iconic primal scream.

But are job seekers actually as discontent as reports like this would lead us believe they could be?

The Bureau of Labor Statistics regularly documents the level of discouraged workers — e.g., the number of individuals not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months. According to their statistics, the number of discouraged workers dropped this year in comparison to last (numbers are in the thousands):

There could be one of two reasons for this: either jobseekers have given up searching and made themselves unavailable for work, or they’re finding jobs.

Looking at another set of statistics, certain types of occupations are continuing to trend upwards — namely Management/Professional and Service occupations:

Production/Material Moving occupations are also seeing a reversal in its almost decade-long trend downward. Sales occupations are not surprisingly taking a hit — often a commission-based field, it’s not easy to sustain a living when consumers are primarily sticking to buying core staples.

With this in mind, choose wisely the path you take as a jobseeker. And avoid a return of the rage that Howard Beale released over a similar jobs situation a generation ago.