Financial & Retirement Planning Doesn’t Work. The computer and the internet introduced us to an age where people can learn how to do just about anything without going to the library or relying on the know-it-all next door neighbor. You can learn what’s the best cement for your driveway or that loose back molar just by cranking up the HP. In the old days if you wanted to know how long your eggs would stay fresh you’d have to call mom or the local chicken farmer. Today there is a web site that tells you that plus how long you can store liverwurst before it spoils. The same with investing. There are a ga-jillion web sites on the best way to manage your money and where to invest. The computer has evened things out. Everyone can now be smart about pert near ‘everything’ just by clicking a mouse.
The first computer I was introduced to was in 1966 in a Philadelphia life insurance company home office. It literally filled an entire room and its capabilities were less than the five dollar hand held calculators that are currently sold at office supply stores. What that computer did, besides payroll, was provide a financial profile for people. A salesperson would write in customer ages and income and the computer program projected inflation, future income and social security to give that person an idea if they would be able to retire in comfort. It also told them how much more money they needed to save if there was a shortfall to their goals.
Today we have much more sophisticated computer tools to inform us on how much we need to save, where to save and the risk and efficiency we have in our investments. I know firms that have built their entire fortunes providing people with financial plans and the investments that fund those plans.
Unfortunately, it doesn’t work. There are tools out there being sold to corporations to hand out to their 401k employees that manage their investments strictly by computer based algorithms. The reason this and other programs are worthless is because there are too many moving parts between when the plan is completed and the the day of retirement. There are just too many assumptions and not enough absolutes. Life is like that.
Yes, you can manage your investments efficiently by daily reviewing, culling, adding and reallocating. But you cannot manage the managers who manage. You have no control over macro economics, the Federal Reserve or even your local Congress person. Interest rates, global tantrums, hurricane, earthquakes and political wars and other micro infestation that cause manufacturing to go bust, inflation to rise or fall and things to go bump all at the least opportune time are not and have never been something that anyone can control let alone input and calculate as an absolute. Just as you may have popped the bubbly when your manse hit a triple digit gain back in the early 21st century, it soon came to earth and beyond. And it did all that before the bubbles in the glass went flat.
The new retirement planners sell peace of mind and plans for the future. They doll it up with fancy names like ‘financial security’ or other such crapola but the fact is it doesn’t work. Any wonk with their salt will tell you that projections are that and nothing more. No one knows what’s awaiting us the next week and no plan, amount of ink or expensive computer program will work to tell us the absolute future. Add such intangibles like illness, accident, divorce, parents-moving in, job loss, embezzlement or just plain bad luck and you cannot plan for tomorrow with any certainty.
There are things you can control and count on but your future financial security and knowing where you or your investments will be with any certainty is not one of them. Understand that. Next week comments on why the highly touted 3 Bucket approach to investing is under investigation by the SEC.
Speaking of Algorithms…the rise of algorithms 
has been directly proportionate with the increase in the amount of computer power and the ability to store information . Those super fast computers that are hooked directly into Wall Street use an algorithmic function to make investment decisions so fast that before one trade is completed another is being ordered. Basically an algorithm is a program that dictates ‘if this happens do this or buy this if this happens..’ According to Bloomberg there are four extremely influential algorithms that run our lives. (1) Black-Scholes that prices options (2) Swarm- getting softball sized robots to act in unison (3) Bin Packing- that’s the elevator random walk program (4) The Fast Fourier-created 2 centuries ago to study heat transfer is now used in billions of applications a day. oddly I can’t think of a one…
Facebook Has 80% of Internet Time for Users 13-28. This is one of those things I read on the internet (Bloomberg, in this case), and as you 
know everything you read on the internet is true. If even slightly true FB is building a layer of consumer that knows only one significant place to go each and every day.
GM Financial is now marketing $1.1 billion in bonds backed by auto loans. The surge in business made them do it.
The Hartford is Out of The retirement plans business. if you own an annuity or variable life product from the Hartford you may want to watch for this announcement. Call me for info on what to do.
Best Performing Companies First Half 2012
- Apple
- eBay
- EOG Resources
- PACCAR, Inc.
- Aflac
- National Oilwell Varce, Inc.
- Priceline.com Inc.
- Caterpillar Inc.
- Starwood Hotels and Resorts
- Google
Markets were lower across the board on Monday.
Doctor Copper in China is a surplus. When analyst Judy Zhu made her rounds of copper warehouses in China she was surprised to find 20% more copper being stored than the last time she looked. Copper is looked at as a gauge of economic growth. Analysts at Deutsche Bank wrote in August that against such high inventories any rally in copper prices was unsustainable. It would seem that the weakness in the Chinese economy is real.
Facebook an Investment! 
Surprised? Me, too! After the Bell on CNBC Guy DeSanti startled his buddies when he said he owned Facebook and it was for a long-term investment. No one said anything but looked at a loss for words. It’s almost like admitting you’re a closet smoker. Tuesday Zuckererberg, Facebook CEO, appeared at his first press conference since the IPO and seemed to acquit himself and the company fairly well explaining the company is on its way to (1) 950 billion members (2) Will connect with everyone on the planet by 2015 (3) Mobile is the way to go (4) Mistakes were betting on HTML (4) No Facebook phone, it wouldn’t move the dial (5) Search is a very real possibility. Shares moved UP 3% in after hour trading. Cody Willard adding to his position. Wrote in his blog that he bought at $26 and that was wrong and is adding at around $20.00.
Me thinks Moody’s is over compensating….? The ratings firm is making noise about cutting ratings on the United States. The reason is the fiscal cliff, coming soon to Washington and again politicians are more concerned about healthcare reform than they are about the business of balancing the checkbook. Moody’s which made some egregious errors in plastering AAA on mortgage bond bundles that went kaput is noisily being a pest when it shouldn’t.
Gold closed at $1745 Tuesday. But fell Wednesday- seems the stuff is following the market. Up again by the end of the week…
12 Million Consumers Ignore Banks! 
Totally upset over fees and overdraft charges and the mess banks lead the economy into in 2008 consumers are finding ways to avoid doing business the way they used to. Prepaid credit cards are picking up the slack and the bank debit cards are being ignored. According to FDIC consumer borrowing also shrank. Once when not having a bank account was considered a stigma it seems having one now is not something the middle-to lower income earners are concerned about.
It Was All About Apple Wednesday. The company had an aggressive rollout of their new iPhone along with a new nano iTune. Innards of the iPhone are 
highly attuned to interface with Facebook mobile. ‘After the Bell’ panel on CNBC discussed options trade that had Apple stock fall during and after each new product rollout, instead shares popped almost $10.00. Talk also that the sale of new iPhones could add 1/2 of 1% to the U.S. GDP. MarketWatch remarked that Apple is set for the Holidays. Next to be announced will the the iPod and the mini-iPod. Share price on Apple moved by analysts to over $800 while some still think shares can increase to $1,000 in the next year. (That from Cody Willard who is uber-Bullish on Apple). The stock is widely owned by institutions and funds so that you may have Apple in your portfolio and not know it.
It Was All About The Ben Bernanke Thursday! 
QE#3 was announced! Which means the United States will be a buyer of mortgage bonds to the tune of $40 billion a month. The object is to drive the price of mortgage loans down- and give a boost to home buying which in turn would cause people to start buying ‘stuff’ and this buying would create more products which would demand that companies would need to hire people! Housing would also stabilize causing home values to increase giving folks a better feeling about where they are financially. Convoluted I know but no one said passing economics was easy. This could cause the 10-year bond yield to fall from 1.75% to about 1.10% over the next several months. And how long will The Ben and his buddies keep doing this? It is said that they will keep buying even if the economy gets better and will certainly keep buying all the way through the middle of 2015. The Fed Chairman is due for re-appointment in January, 2014 and we know nothing will change (well, almost nothing), through next year. A new president could ask The Ben to resign and change philosophies but this is highly unlikely since Ben Bernanke just boosted the President’s chance at re-election by about 3 1/2% on Thursday!
Markets Soared on QE3 News Thursday! Poor earnings or not, buying stocks, bonds, real estate is just about the best place to be. (at least today!)
For The Week U.S. Stocks to 2007 High! If you want to call stock-traders mooches be my guest. Opportunists is something I would prefer since betting along with the Fed is something people in my business have grown to love and cherish. The recent rally means nothing- absolutely nothing- has changed in the real world. Business will still report less than stellar earnings, unemployment will still be in the stratosphere and the growing shadow of political uncertainty will be there through the elections. What the Ben Bernanke and crew did this past week you’d think they had ties to investment bankers and were more concerned with broker bonuses than slashing unemployment, keeping interest rates low and goosing the housing market. Sectors that were at best described as morass in polite society and toxic behind closed doors were rejuvenated. U.S. Steel, 
Caterpillar and commodity shares in such sectors such as coal jumped. Banking and technology added to their 2012 gains. It was a good week! I can only thank the Fed for their early Christmas present…how about you?
Finally- Like all good things, and bad, they don’t last forever. While there is juice to this rally expect traders to pull back at some point and take profits before going higher.
Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money. Need a friend in the business call Paul and tell him your problems and get back on track.
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