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REFLECTION AND RESOLUTION By Mike Gasior As I sit down to write the 72nd edition of this monthly newsletter, I cannot help but marvel how much has transpired since I wrote my very first issue. Of course there is simply the passage of time, which I wish could be slowed down just a bit for a variety of reasons. Also staggering to me is how much writing I have done to get this newsletter out to my readers seventy two times. When you consider that my average issue ranges around 8 pages, and then do the necessary multiplication, one arrives at a hefty 576 pages of single spaced text. More proof of the old adage; that if you do a little bit every day, a lot will get done. And since another year has come and gone I thought it proper to reflect on what has taken place during 2005 and see if we can fashion some resolutions for 2006. Of course, we will also take a look back at my predictions from last December and see how much of a fool I've managed to make myself look like yet again as well as laying the 2006 predictions on you. BRAND NEW WEBSITE I am extremely excited to announce a totally redesigned website, and I would love everyone to stop by and take a look. We think it is much more functional and easier than ever to use, not to mention pretty darn good-looking too. All the old newsletters are archived on their own page, along with all past video commentaries and radio programs. Also exciting is the schedule of programs for 2006, which include 4 sessions in both Bermuda and Grand Cayman, along with all our most popular seminars in New York City. Coming soon, the website will be able to accept registration for programs, and either allow you pay with a credit card, or immediately present you with a printable invoice to submit for anyone wishing to pay by check. We hope this makes the registration process more efficient, plus I figured it was time to be pulled, kicking and screaming, into the 1990's. It is our expectation that this feature will be operational before the end of January. So please give us a visit and putter around a little. The link is: Lastly, I am often asked to speak at conferences or in front of groups and I can usually fit only four or five such speaking engagements a year into my schedule. If you might be interested in having me give a speech to your group, simply give my office a call at (860)347-6568 to find out my availability. THE DECEMBER VIDEO COMMENTARY IS UP Many of you have written to express how much you enjoyed these short lessons on a variety of financial topics that we've covered in the videos and I appreciate your kind comments. We have been making our way through a variety of Derivative topics and this edition is dedicated to Swaps and Swap Derivatives. It has been fascinating to watch the market for these products explode in the past 15 years, and I hope I can make some sense of them when you view the video. You can watch both "high-speed" and "low-speed" versions of the commentary by visiting our new "Video Commentary" webpage at: http://www.afs-seminars.com/v-commentary.html I should also mention that you can view all my prior videos, and listen to my radio programs by visiting the archive page at the following link: http://www.afs-seminars.com/v-commentary.html AN OBSERVATION I WANT TO SHARE Although I don't get to do a lot of consulting
engagements, I am currently in the middle of an extremely interesting
one, and it is going to last into the first few months of 2006.
I've never had much use for consultants and frankly find a lot of
them not worth their weight in spit, so my tendency has been to
avoid such work, not to mention I've already got a pretty good gig.
If I'm going to accept a job I want the organization to REALLY need
my help, and I then need to have the appropriate time available.
My office is But the project I am on now has put me in the middle of a very large company on a full-time basis and has given me the appropriate vista to make a surprising observation. I began this company back in 1989 and have had nothing but the world's largest organizations as my clients. Also keep in mind that my entire adult perception of the business world was learned on Wall Street, which is an amazingly efficient, pragmatic and Darwinistic place. One quickly learns when working there that if you are not making an adequate contribution to the bottom line you will find your belongings in a cardboard box at your desk with a security guard ready to escort you to the building lobby. That applies to literally every level of the organization, from the newest trainee to the CEO. Yesterday does not matter. All that matters is "what have you done for me lately?" With all that said, I was pretty surprised 17 years ago when I began, because I would visit some of my huge clients and it would seem to me that there would be about 5 people employed to do, what appeared to be one person's work. I couldn't understand why so much redundancy was necessary or even desirable. Sure, a little cushion is always nice, but things seemed kind of ridiculous. Flash forward to 2005. While this observation was not exclusively formed at my current client, this consulting engagement gave me the chance to interact in a close way with those people in the bowels of corporate America who get the work done. It is extremely clear to me now: There is now one person doing what seems to be the work of five people. I know this isn't the reality only in the U.S. either, since I've seen very similar circumstances at clients in Bermuda, Cayman and other places. While probably not the most profound thing you've ever heard, especially since many of you are doing the work of five, it is a fairly impressive revolution to have occurred in the span of only 17 years. What one must wonder is how much further we can push that envelope without compromising quality, accuracy, or both. Or are we already doing just that? ONE RESOLUTION WE SHOULD ALL MAKE FOR 2006 I have no real choice here but get right to the point, even at the risk of being abrupt: You're probably not saving enough for your retirement and your "Golden Years" are unlikely to look anything like you envision. You need to change your habits immediately. To make my point in perhaps a more poignant way, let me start off your 2006 with a brand new statistic that will vividly illustrate the point I want made clear. It was just released that Americans in 2005 spent $39 billion more than they earned during the year. The last time that Americans spent more than they earned was in 1933 in the bowels of the Great Depression and the United States faced a 25% unemployment rate. Statistically, the statement that you're likely not saving enough is true for 9 out of 10 Americans and also accurate for residents of most of the other industrial economies. I will take into consideration that my reading audience is much better educated, successful and financially savvy than the population at large, but my statement is probably on target for 8 out of 10 of my readers. This is sad and I truly feel a deep sense of urgency to address the matter this month in an honest, brutal and serious way. It has always made me somewhat squeamish when I seem more concerned about other people's money and future than they seem to be, and this may be another case of me doing just that, but the topic is important and timely. Although many people tend to resort to hand wringing and lament when faced with a difficult challenge, the truth is that the answer to SOOOO many problems is often elegantly simple. The part that so many struggle with is the discipline and effort required to get the job done. This is also true with regard to your retirement also as I will discuss in more detail shortly. Before I start burying you under an avalanche of facts and figures, let me remind you one more time of the "Mike Gasior Secret of Life": --Successful people are willing to do the things that unsuccessful people aren't willing to do. While it might have seemed a flip comment to make
in one of my video clips last year, I really cannot understand or
fathom how the dieting industry is actually a multi-billion dollar
franchise. It truthfully baffles me. If you want to lose weight,
here is the secret: PUT THE SANDWICH DOWN! I've received tons of
emails during the past year telling me how much weight people have
managed to lose on the "put the sandwich down" diet. But
it is the perfect analogy for the conversation we're going to have
regarding your SOME PENSION HEADLINES FROM THE PAST MONTH I have dedicated at least some space in a dozen of my past newsletters to the near crisis that is pending in the pension markets for both the public and private sectors. Rather than improve, the condition of many pension plans only seem to keep deteriorating. This situation applies to corporate and government pension funds, along with many government sponsored Social Security type programs around the world. For someone who tries to keep himself abreast of all things financial, and also a person acutely interested in the subject of retirement programs, imagine my attitude when I read the following headlines in just the past week. --Britain to Gradually Increase Retirement Age to 68. --New German Chancellor Angela Merkel to Propose Increasing German Retirement Age from 65 to 67. --State of Montana State Employees Retirement Plan Under Funded by $1.46 Billion. --San Diego County Employee Pension Under Funded by $1.38 Billion. --State of New Jersey Public Employee Retirement System Under Funded by $12.1 Billion and Considering Raising Retirement Age from 55 to 60. --City of Minneapolis Teacher Pension Fund Under Funded by $972.6 Million. --The Pension Benefit Guaranty Corporation Reported a $22.8 Billion Deficit for 2005 and Faces Exposure to $108 Billion in New Claims. --The Labor Department Estimates U.S. Corporations Under Funded Their Pension Plans by $450 Billion in 2005 Alone. --Barclays Global Investors Estimates that U.S. Public Pension Plans are Under Funded by $760 Billion. This Does Not Include U.S. Government Pension Obligations. --150,000 Former K-Mart Employees and Retirees Reach Settlement To Receive $11.75 Million for Pensions instead of $300 Million. WHAT TO DO Save more. I'm not trying to be a wise guy, but this goes back to what I said earlier, that the answer to most things is often quite easy and this is one of those times. The amount that you should be saving for your retirement is 10% of your income. Period. Paragraph. If the way you arrive at the 10% is a combination of you putting 7% and your employer matching 3% is fine. Whatever combination gets you to 10% will be just perfect. It doesn't matter how you get there, just do it. That is the first thing you do. If your next question
is what you should invest this money in, well that is none of my
business and ALL of your business. I will say that it needn't be
anything complex or exotic. All I If some of you are already bellyaching that the 10% amount I suggest is outrageous and there is no way you could ever put that amount away, then some of you need to examine your lifestyle decisions. There are certainly people who truly do barely survive on their income with money only going to pay for the necessities of life. There are many, however, who might want to examine their BMW leases, $5.00 cups of coffee, extravagant cell phone and cable television plans, and many other things before deciding what is ultimately more important to you. Having these things right now or a secure future. That's enough of this lecture since I'm sick of giving it and many readers are probably even sicker or hearing it. THE 2005 RESULTS ARE IN I'm not in the mood to sugarcoat anything, so why don't we just look at each of my predictions from last year and see if I got close on any of them. Here goes. PREDICTION - Dow Jones - Unchanged at, or below 10,500. Definitely not higher. RESULTS - Dow Jones - 10,717.50 Had I not been obnoxious and added the "definitely not higher" remark, I would be basking in the glow of being pretty dead-on with this one. There seemed to be very few people last year predicting stagnation or decline so I was part of a pretty small group and I don't think I did badly here. PREDICTION - NASDAQ - Unchanged at, or below 2,175. Definitely not higher. RESULTS - NASDAQ - 2,205.32 Ditto my remarks from my Dow prediction. PREDICTION - Ten-Year Treasury Note - Unchanged at 4.25%% or lower. Not higher. RESULTS - Ten-Year Treasury Note - 4.39% Although there certainly seems to be a little trend occurring here, those "not higher" words are really haunting me now. But is being off by 217 Dow Jones points, 30 NASDAQ points and then 17 basis points honestly constitute being actually "wrong" or is really more of a rounding issue? Just asking. PREDICTION - Fed Funds Rate - 2.75% with the Fed tightening two more times in 2005. RESULTS - Fed Funds Rate - 4.25% with the Fed tightening eight more times in 2005. This one is probably my biggest clunker, and while I'm surprised at how off I was, I do not disagree whatsoever with the moves made by the Fed this year. There certainly was plenty of evidence of inflationary pressures and the economy was showing substantial growth. Most likely the two biggest causes of me being this far off was the surprising resilience of the American consumer and overall robustness of the global economy. While there doesn't seem to be any economy we could describe as "red hot" (with perhaps the exception of China) most of the industrial economies were making forward progress, which resulted in good momentum. PREDICTION - Yield Curve - Becoming even more flat. RESULTS - Yield Curve - Almost tabletop flat, bordering
on an inversion any Sorry, but I have to give myself credit for this one because I think I was pretty on the money. PREDICTION - 30-Year Mortgage Rates - 5.50% or below. Definitely not higher. RESULTS - 30-Year Mortgage Rates - 5.70%. According to Yahoo Finance, the national average on 30-year mortgages on December 31st was 5.70%. I admit that I missed by 20 basis points here and those "not higher" words are beginning to give me a bit of a stomachache. But ask yourself how many people a year ago would have thought that mortgage rates would still be so close to their historic low. Then ask yourself who the smartest guy you know is. Thank you. PREDICTION - The Economy - Slowing gradually with no more than 3.0% to 3.25% growth. RESULTS - The Economy - It appears the 2005 number will show about 3.5% growth. Not horrible on this one and I wound up off due the exact same factors I mentioned above with my Fed Funds prediction. What is most impressive is that the economy grew more than I anticipated even with the brutal hurricane season and the spike in energy prices. Pretty amazing truthfully. PREDICTION - Real Estate - Both commercial and residential real estate experiencing continued softening with potential for melting down. RESULTS - Real Estate - Both segments softening but still no sign of a meltdown. I'm going to stand my ground here and stick with my feeling that this residential real estate market needs a lot more air let out of it. While it will certainly be better for me, and everyone else, if we manage to pull off a soft landing, I've been watching these markets for far too long to believe we've got that kind of luck. So superficially, my prediction seems decent, the honest truth is things are nowhere near as bad as I might have imagined. I couched my prediction with the word "softening". My mind and my gut were screaming "meltdown". PREDICTION - Oil Prices - Should drop to the $35 per barrel range. RESULTS - Oil Prices - Price in the $60 per barrel range. I've already admitted that my call on the Fed Funds rate was my biggest clunker, which is causing some you to wonder how that could be possible given this disaster. My prediction of oil prices dropping was based upon the premise of a slightly weakening economy and the expectation of overall milder weather. Since the economy remained stronger and because of natural disasters of Biblical proportion I was off by a mile on this one. Not due to any horrible flaws in my logic or methodology. I just chalk this up to substantial bad luck. I dare you to produce the names of the people who DID predict $60 and $70 2005 oil prices back in December of 2004. I suspect it will be a pretty thin list. PREDICTION - U.S. Unemployment - Largely unchanged at 5.5%. RESULT - U.S. Unemployment - Somewhat lower at 5.00% The same theme explains my miss here, and that was the stronger than expected economy. PREDICTION - U.S. Inflation - Low, with no more than 2.0% CPI. RESULTS - U.S. Inflation - Still low, at about 2.4% CPI and rising. This is what has made me somewhat off on so many of these predictions, but I simply did not anticipate any true inflation threat as I sat there last December. I've already admitted that the inflation in the economy is real and I agree with the actions of the Federal Reserve, and the pressure does not yet appear to be subsiding. AND JUST FOR THE SAKE OF SELF ABUSE I had been making predictions regarding Tiger Woods for quite a few of these year-end newsletters, but he kinda let me down in 2004 and I wrote the following in that year-end edition to reference my disappointment: *************************************************** 2004 PREDICTION - Tiger Woods - Two Majors (The Masters and U.S. Open) 2004 RESULTS - Tiger Woods - He sucks. I'm totally off the Tiger Woods bandwagon and will no longer even make predictions about him except this next one. I'll bet you he doesn't win more than four more majors in his entire life, and there is a damn good chance he might win two or less. Now, his wife is completely lovely and his bank account is even better looking, so I don't feel particularly bad for him. I'm just sick of him making me look bad...although he may make me look stupid one more time due to the predictions I just made. **************************************************** Now I'm not going to be adding any Tiger predictions
for 2006, but I no longer carry such venom and contempt and I'm
back to thinking he has a very decent chance at all the records
out there, including the career majors record held by Jack Nicklaus.
So while it might appear as though I'm as loyal a bandwagon guy
as Don Imus, I really appreciate getting to see this guy play golf.
Many people may disagree with this following comment, but I feel
privileged to live at a time that I feel is the golden era of sports.
No, I never got to see Babe Ruth, Knute Rockne, Bobby Jones, Bill
Tilden, Joe DiMaggio, Joe Louis or Man o'War. But I have gotten
to see Joe Montana, Lawrence Taylor, Wilt Chamberlain, Michael Jordan,
Jack Nicklaus, Wayne So people can say whatever they'd like, but it's been a pretty astonishing 40 years to be a sports fan. PREDICTIONS FOR 2006 Here we go, and I'm getting right to the point. Dow Jones - Below 10,000. There's a 25% chance of it being below 9,000. NASDAQ - Below 2,000. There's a 25% chance of it being below 1,700. Ten-Year Treasury Note - Rising to 5.10%. Fed Funds Rate - 5.00% with the Fed tightening three more times in 2006. Ultimately, this will be two times too many and the U.S. slips into recession in 2007. Yield Curve - Inverting for the first and second
quarter before a recession 30-Year Mortgage Rates - Above 6.50% The Economy - First and second quarter remain strong with signs of slowing by the fourth quarter. Overall growth for the year of 3.6%. Real Estate - Residential market weakening considerably and the commercial segment becoming softer more toward year-end. Oil Prices -Oil will stay in a $50 to $70 range and finish nearly unchanged at $60. U.S. Unemployment - Rising slightly by year-end to 5.2%. U.S. Inflation - CPI for the year at 3.2%. YOUR YEAR-END BRAINTEASER The beauty of this brainteaser is its elegance and simplicity. Should I be so bold as to offer advice, all I would suggest is to not over think the question. What do the following numbers - and only these numbers - have in common? 3, 7, 10, 11 and 12 Good luck, and when you finally surrender you will find the answer at the following link: http://www.afs-seminars.com/brainteaser_Dec2005.html Copyright 2005, Michael Gasior. All Rights Reserved Copyright 2005, Michael Gasior. All Rights Reserved. |
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December
2005 Newsletter
