PiggyBankWritingPersonal Money Planning's

e-Newsletter for December 4, 2010

(to look at past issues, click here)
Also In This Issue
QUOTES
Seminar Announcement
Sunday Columns
FYI: Electrical Cord Safety
The Economist
Facebook Postings
parting thoughts: A Warning Shot (continued)
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   "QUOTES"
 
Be greedy when others are fearful and fearful when others are greedy. 
 --Warren Buffett

We make a living by what we get, but we make a life by what we give.
--Winston Churchill

Disclosure

 

This newsletter is produced by Gary Silverman, dba Personal Money Planning, a registered investment advisor located in Wichita Falls, Texas.

Information in this newsletter is believed to provide accurate and authoritative information in regards to the subject matter covered. However, the accuracy, timeliness, or applicability of the information is not guaranteed and is provided with the understanding that we are not rendering legal, accounting, tax, or other professional advice or services.

This publication should not be construed by any consumer and/or prospective client as Personal Money Planning's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Nor should links provided to other sites be construed as the recommendation of the services or products mentioned on those sites. If such services are required, the help of a competent professional should be sought.

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Historical performance results for investment indexes and categories generally do not reflect the deduction of transaction or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results.

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Personal Money Planning does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Personal Money Planning's web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

 
 Gary Silverman, CFP
topA Warning Shot

You may have heard recent controversy over the U.S. Federal Reserve Board buying Treasury bonds--$600 billion in all--and wondered what all the fuss was about.  You may even have wondered why one branch of the government is buying bonds from another one.

The headlines say that this is a "stimulus" measure, which basically puts more money into the U.S. economy without costing the taxpayers anything.  This is true, up to a point; buying Treasury securities means the central bank is essentially creating new money.  Other analysts say that creating new money is inflationary, which also tends to be true.  However, the Stratfor Global Intelligence service has pointed out that creating $600 billion over eight months is not dramatically more than the Fed's normal actions in managing the money supply, and with $8 trillion in circulation (the M2 money supply figure, which does not include CDs and institutional money market fund balances), dollars are not going to suddenly become dramatically more plentiful.  And in a $14.3 trillion economy, the stimulus is not likely to turbo-charge the next round of employment figures.  It probably won't even show up in GDP.

So what gives?  Looking at the global economic picture, right before the G20 economic summit, Stratfor notes that export nations like Japan and Germany have linked their recovery hopes to selling more to U.S. consumers.  The more they sell, the more they drive up the difference between U.S. imports and exports--or, in economic terms, widening the current account deficit and diverting money from our economy into theirs.  To do this most effectively, they need their currency to be weaker than the dollar so that their manufactured items look like a bargain.  Stratfor notes that Japan has been openly intervening in currency markets to drive down the yen.  Germany, meanwhile, doesn't have to: it has benefited from a weakened euro--the result of well-publicized debt problems in Greece, Spain, Portugal and most recently Ireland.  An article in the November 5 issue of the Wall Street Journal says that not only Japan, but also Brazil and South Korea have taken actions to depress their currencies against the dollar. 

So what might this mean? Click to the Final Thoughts section for more.


--Gary
 
Gary Silverman, CFP
 

Seminar Announcement

 

     This Tuesday:

      Free Seminar

Two Topics:

�    Year-End Tax Update

�    Review and Forecast of the Market 

 

December 7 from 5:30 p.m. to 7:30 p.m.

Courtyard by Marriott Wichita Falls

 3800 Tarry Street

(across from Walmart on Lawrence Rd, behind Jack in the Box)

 

Join Gary Silverman, CFP, and David Welch, CPA, as they discuss current issues crucial to wrapping up your financial year and starting 2011 on the right track:

 

        David will discuss tax issues important to be aware of as you prepare for the upcoming tax season.

        Gary will spend his time looking back at what has happened in the market in the past year and share his thoughts on where it is heading next.

 

We will be serving light refreshments and will have handouts, so please RSVP to 940-692-6885 or [email protected]. This will help us ensure we have enough of both.

 
gary's Sunday newspaper columnSunday Newspaper Articles You May Have Missed
From the Wichita Falls Times Record News
 
The Puzzle of Personal Finance
Gary breaks down the pieces of the big money picture.
   

You're Rich
Don't believe it? Compare yourself with the rest of the world and find out for yourself.

Balance Your Own Budget
A couple's recent windfall won't cure their budget woes. Here are a few tips on ending the cycle of overspending.


  FYI

 

Electrical Cord Safety
Safety Tips for Christmas Light Season
Now that many of us are indulging our inner "Griswold," it's important to pay attention to how we treat our electrical cords. Thanks to Billye Ruth and Hank for sharing this information.


Article links from

The Economist


Government Austerity Plans: Good or Bad?
This article says that despite a lot of research, nobody really knows.  A Harvard University study suggests that deficit-cutting should focus on spending cuts rather than tax increases, and others cite the Canadian experience in the mid-1990s when the deficit was cut by reducing spending by around six to seven dollars for every dollar raised in additional taxes.

On the other side of the argument, economists point out that the U.S. was expanding its deficit while Canada was paring back, and the U.S. GDP grew far more rapidly than its northern neighbor.  Also bolstering the argument against austerity in a recovery, the International Monetary Fund has recently determined that fiscal contraction tends to reduce GDP and increase unemployment.  Spending cuts are best combined with interest rate cuts, but most developed countries have now set interest rates about as low as they are likely to go.


The Global Monetary System
Nobody is happy with today's international monetary system--particularly the dominance of the dollar as the world's reserve currency.  More than 80% of foreign-exchange transactions take place in dollars, and dollars make up more than 60% of world international reserves--even though the U.S. accounts for only 24% of global GDP.   This article says that global foreign exchange reserves have grown to $8.4 trillion--14% of world GDP, two-thirds of it in the hands of emerging economies.  That means poor countries, who should have abundant investment opportunities of their own, are lending cheaply to richer economies like America--which makes no economic sense.
 



mfrom gary's facebook pages
Facebook Stuff You May Have Missed: from Personal Money Planning and Gary Silverman

Facebook
  
  
 
Flexible Body, Flexible Mind?
Maybe. This article discusses the benefits for yoga for managers.
 
Your Business Idea: Not So Nutty After All
Before you toss that business idea aside, read this article. One example: the idea that became FedEx earned a failing grade at a business school because it was considered impossible. 

  
Sometimes, those forwarded e-mails have merit
Gary received one of those e-mails that you would expect to be false and inflammatory. This caution about Best Buy's policies about  restocking fees, however, is true. With the Christmas shopping season upon us, this is good to know.
 http://www.snopes.com/politics/business/restock.asp



  
Links from Gary:

Gary hints for Christmas gifts:
How about a simple Apple? The $250,000 price tag may seem a bit steep, but I think I'm worth it. --Gary
http://www.eweek.com/c/a/Desktops-and-Notebooks/Apple1-Computer-Could-Auction-for-Almost-250000-136151/?kc=rss

 OK, I can understand your reluctance, given the current state of the economy. How about this? It's much cheaper. I could get a lot done with a jet pack. --Gary


bottomparting thoughts
  
A Warning Shot (continued)

Because Japan, Brazil and South Korea have taken actions to depress their currencies against the dollar, the Fed's action can be seen as a warning to the other nations that the U.S. is capable of protecting its currency and export industries from these raids on its economy.  The $600 billion purchase probably won't affect the value of the dollar, but they show that the Fed is well aware of the actions of the other countries.  As U.S. representatives negotiate to stop currency manipulation at the G20 summit, the rest of the world knows that if there is no agreement, the U.S. is capable of fighting back.  Sure enough, The Wall Street Journal quoted finance ministers and economists from Brazil, France, South Korea and Germany, all criticizing the purchase and calling for a cease fire in the currency wars.

Should we worry about inflation as these negotiations drag on?  At a time when the worst-case economic scenario is deflation, a few small nudges in the inflation rate might not be the worst thing to befall the U.S. economy; today's rate is well below the 2% target informally set by the Fed.  Should we worry about a falling dollar?  If you're traveling abroad, or buying a foreign car, then you might have to pay a bit more if the dollar weakens against the currency of the nation you're traveling to or where the car was made.  But foreign stocks, bonds and mutual funds are always a little more valuable--in dollar terms--whenever the dollar declines in value, so your international holdings could get a small boost in return.

But the most likely scenario is that the Fed's demonstration will keep everybody at the negotiating table.  And you'll continue to hear the conventional interpretation: that this is all about stimulus back home--which, to the extent that it keeps other countries from raiding our economy, it is.


 
Gary Silverman caricature



Gary


Gary Silverman, CFP
Personal Money Planning
 


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