The Financial Chaos In Greece. Volatility has increased dramatically in our markets and many financial observers have blamed this on the increased risk that Greece will not be able to live up to its obligation to service the government debt. While this debt is indeed excessive, it might be more manageable if their citizens could accept the fact that they may have to give up some of their huge government entitlements, pay higher taxes, and reduce other government expenditures. Sound familiar? If we don't do a better job of controlling our own expenditures we might be facing a similar fate in the future. You can only depend on government borrowing to fund citizen benefits for so long before it becomes almost impossible for your government to borrow enough to pay those benefits. I don't know when, but I anticipate we will find it increasingly difficult to borrow money in the future. One result of this is bound to be increased interest rates throughout our economy.
Energy Prices. Accidents in the coal mines and off shore drilling rigs have upset the energy market. The funny thing is that the price of oil has dropped rather than increase as I would expect. These accidents have caused many environmentalists to call for increased government scrutiny of domestic energy companies and the President has announced a moratorium on new offshore drilling in the Gulf of Mexico. Terrorist activity has also increased in recent months and, although none of the attempts have been successful, increased anxiety could put further pressure on domestic energy production. My bet is on increased oil prices in the future.
Increased Cost of National Security. Although we have announced plans to remove combat troops in Iran, we have a ways to go in Afghanistan. My main concern is Iran and it appears that there is little we can do to avoid a major crisis there. If we continue to do nothing, Israel has promised to bomb the Iranian nuclear facilities. The result is almost certain to result in a major military conflict in that area. Even if I am overly pessimistic, it appears that we will have to devote more and more resources to national security. The cost of remaining diligent is getting more and more significant. Just today, there was a major disruption in Times Square because of a cooler containing bottles of water in front of a hotel. Whether or not we achieve major spending cuts. a tax increase of major proportions is inevitable. Look for these to be levied against higher income taxpayers. The rest of us won't get away unharmed either. The fact that 47% of Americans pay no tax can't be overlooked. This is a situation we simply can't afford.
How Do We Cope With these Realities? I know we would all like to anticipate getting higher returns on our investments. I believe we can do this; however, just like the Federal Government, we might not be in a position to do this with increased revenue alone. The safest way to assure your survival is to reduce your living expenses. For every $100 a month in reduced expenses, the amount of capital you need to fund your lifestyle is reduced by $20,000. It is likely that many of us will be forced to cut expenses before this is over. The more you can do this in an orderly manner, the easier it will be to accomplish. In the meantime, I believe the best way to increase your investment returns is to concentrate on companies in the technology, energy, or commodity sectors. The increased volatility in recent weeks will make it more profitable to write calls against our existing positions.
Its Been Awhile Since My Last Post. I have had a recurrence of back problems and Betty has had surgery to remove 12 inches of her colon. Both of us are much improved and I am thankful for the support we have received from friends and family.
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