POLITICAL SOLUTIONS vs ECONOMIC TRADE OFFS

“The question on the minds of many in Congress and the White House is this: What they should be doing to keep the economy on track? The right answer: absolutely nothing.” Gregory Mankiw, Harvard professor and former chairman of the Counsel of Economic Advisors.

How About Those AIG Executive Bonuses! These bonuses were given out with taxpayer money to people who did little to deserve them. The bonuses are disgraceful but who was responsible? The answer is Congress. The bill that they passed contained specific language that allowed bonuses for which the company was contractually liable. The problem was that the bill was over 1000 pages and few, if any who voted on it were able to read all of it prior to the vote. This is a perfect example of stage one thinking which considers only the immediate consequences of a proposed solution. What happens in subsequent stages in which the company executives continue to take unrealistic compensation and further attempts by Congress to rectify the situation interfere with the operations of what should be a private enterprise? What about the next proposed Congressional solution which involves using the IRS to confiscate these executive bonuses? Will they be coming after your “excessive compensation” next. In his book Applied Economics, Thomas Sowell writes that politics proposes attractive solutions but economics permits only trade offs.

Did You Lose Patience and Get out of the Market Two Weeks Ago. If you did you missed out on a rally of 18.76%. Some of the stocks that I follow increased even more. Bank of America was up 148% and AT&T was up 23.9%. As I mentioned before, it is appears to be too late to sell but too early to by aggressively. For the most part, I am limiting my investment activity to stocks with attractive option premiums that can give me a bit of an edge. While this doesn’t always work, I believe it does provide me with some downside protection and interim cash flow. I don’t know in which direction the market will move next but I believe the upside potential is greater than the downside. My objectives are little different now than it was before the market dropped: Preserve my capital and do what I can to coax current income from my portfolio.

What is Your Most Important Asset? A recent article in Time says that it is your job. I tend to agree, especially if you are younger than 70. I have always said that the best investment you can make is in your ability to earn income. Despite being a year past 70, I still consider my knowledge of personal finance and my ability to generate income as the most important financial asset I have.

Looking At Another Trip To Colorado. I have reservations for a trip to Colorado in mid April. If you want to schedule a meeting give Susan a call at 720-449-0200.