POLITICS AND YOUR PORTFOLIO

Your Check Will Soon Be In the Mail. Hey! Let's send everyone six hundred dollars. That will solve our economic problems. It's doubtful that many investors believe that. If the stimulus package is an example of how the government is going to solve our problems, I prefer the problems. In my last post, I was critical of those who believe the declining value of our homes and our 401k plans is more important than international conflicts. One of my readers reminded me that a lot of folks are in "survival mode" and are so worried about their financial situation, they have little energy left to worry about anything else. I can understand that. I've been there. In reality, it is difficult to separate what's going on in the political arena from what's taking place in the financial markets. The government has little power to control the markets and their attempts to try have consequences that are often different from those intended.

We've Been On A Binge. In an attempt to encourage home ownership and full employment, as well as mitigate the economic consequences of 9/11, the FED lowered interest rates to unrealistic levels. Investors seeking high yields bought sub-prime mortgages. This allowed borrowers, who could barely afford to pay rent, to buy homes they couldn't possibly afford long-term. Buyers who needed a 1500 square foot home bought 3000 square feet with adjustable mortgages and low initial interest rates. The party is over but no one wants to go home. How can we prolong the party? Sending everyone 600 dollars that we borrow from China will only add a few hours and we will still have to go home and sober up. Allowing congress to change the terms of existing mortgages might save a few homeowners from the horror of foreclosure but it will also discourage lenders from making new loans without higher profits. The bottom line is that we will have to solve our own problems and not depend on the government for solutions. Betty and I will donate our $1,200 to Wounded Warriors and pledge to make sure we live within our means. We will continue to practice prudent investment strategies that emphasize cash flow over capital appreciation. We will keep an eye on the markets and government policies in an effort to preserve capital and obtain a reasonable rate of return.

It's A Cold, Clear Day In East Texas. Looking out my window I see Azaleas blooming, green grass, and Magnolia trees with glossy green leaves. I am indeed fortunate to have survived 70 years on this beautiful planet. I know I can't predict what tomorrow will bring but I am extremely thankful for this day.