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May 21st, 2010 at 07:00 pm
No coin has only one side. Like up cycles, down cycles are an inevitable part of the financial markets and the economies they are supposed to reflect. The Financial Crisis was in large part brought on by a head-rattling, mind-numbing lack of forward-thinking and priority given to providing reliable safeguards that would automatically kick in and protect Core Financial Assets when the market coin flipped heavily to the negative side.http://moneycentral.msn.com/investor/charts/chartdl.aspx?Sym...
When, not if. It has never been nor will it ever be a question of if the down cycles will arrive, only a question of when. And, as we have learned the hard way, the timing is unknown until it happens. Once a down cycle starts, and losses are being incurred, how do you put the toothpaste back in the tube? You can't, it's too late. Time to ride the waves.
Surf's Up! There are two main moving parts to the dynamic of recovering from any losses experienced in the financial markets. First, look at the chart of any index, stock, bond or commodity (examples below) and you will see how they all move in a fluctuating wave pattern. Bearing in mind that legs are strongest in the first phase of a foot race (to mix metaphors), if you have experienced any losses in a down cycle, the first and strongest phase of a subsequent market recovery or up cycle, by definition, is not devoted to real asset growth, but to the recovery or retracement of those previous losses.
The math of compound loss. The second moving part of recovering from market drops is how the math is not working in your favor. For example, to get back to breakeven from a loss of 50% would require a recovery gain of 100%.
Locked-in losses. Keep in mind that when financial or psychological pressure builds up during a down cycle -- which is particularly true when it comes to Core Financial Assets -- and the order to sell goes through, any losses incurred become permanent and the producing asset is gone forever.
Will what you worked for be there when you need it? Recovering from market losses that impact Core Financial Assets built over a long period is an uncertain process. Once caught in this position, you have absolutely no control over the timing of market recovery that will determine whether or not your asset value -- think life savings -- has been restored, if ever, by the time it is needed for date-certan milestone events such as college tuition and retirement.
To eventually recover in financial terms is one thing, but how do you ever recover the time it took to build these assets?
The lost decade. If we use Dow Jones Industrial Average as an indication of just how far the average investor has progressed over the last ten years, the simple answer is: not very far.
So, on average, how many decades out of the normal life cycle are your most productive? Approximately 3. What's the recovery strategy for this 1/3rd loss of the time value of your most productive years? There is no recovery.
Now, even to the most casual observer, smoke-and-mirrors mumbo jumbo like "Don't worry, it'll come back..." just doesn't cut it anymore when it comes to the reality of your time on this planet.
Start by first making a clear distinction between what you consider to be your Core and Non-Core Financial Assets. Then determine how these assets are positioned: either for growth with safety; or growth with risks and the inevitable setbacks that are a part of taking risks, especially in today's economic environment.
Below is a link to the Draw The Line Exercise Worksheet that has been provided for your convenience and priva
te use. Take a couple of minutes to type account names only in the column that matches their current status of safety or risk, identifying each account as either a Core or Non-Core Financial Asset. Hit print and you'll get a quick picture of where you now stand.
With this as a baseline, you can make a clear decision to either stay the current course, or head in a different direction.
There are always alternatives.
To learn how to implement a crisis-tested strategy that utilizes the "Step Structure" to insure the sustainable growth and preservation of Core Financial Assets, click on the following link:
May 15th, 2010 at 01:29 pm
To illustrate a simple point, let's say that the Germans like to save their money for the cold, rainy days they know are coming, and that the Greeks like to spend too much time partying on their sunny, beautiful beaches. Why should the Germans and everyone else -- like the U.S. in particular who has enough problems of its own -- be dragged along in this co-dependent lunacy of having to bail them out when the inevitable happens?
Far more important for the long-term greater good, is it the right thing to do?
Isn't it obvious to anyone with adult experience in life that brick walls would eventually be hit, like the Germans telling the Greeks, "You Greeks have to live according to our German way of doing things as a condition for your drunk driving bailout."
With just a little foresight, who could have possibly, seriously thought this would ever fly?
The great minds of Europe set up a framework for cultural identity clashes, never-ending cycles of enabling and co-dependency, and the kind of contagious chaos we now see spreading throughout Europe.
As with our Greek example -- think twittered-out, reckless teenager -- regardless of how they may have made a mess for themselves, the reckless ones would rather go down in economic flames, not caring one twit who or what they take with them, before they would ever "surrender" their centuries-old cultural identity and independence -- who cares what it cost.
"Economic Efficencies" may have been the stated goal at the outset, but the chaos that comes with all co-dependency is now the actual end result that is driving EVERYTHING! Like any parent who has experienced the co-dependency nightmare will tell you, it's to Hell and Back before you can break this vicious cycle once it gets started -- if ever. Or put another way, the rascals of the family are bound and determined to rule the family. Unless, of course, the adults in the room stand up, draw the line, and say, that's it, no more, and back it up with the appropriate, consistent action.
European leaders need to get themselves into a 12 step Alanon program - tout suite! One of the first things they will learn is that as long as there is one vulnerable enabler within reach who "thinks" they're stuck cleaning up the messes of the reckless ones, there is no reason, no self-preservation instinct that kicks in to change the predatory mindset of the "I'm entitled, you're responsble" type for the better. The vicious cycle of enabling/co-dependency will just continue on and on.
With all of this said, maybe co-dependency is really what the great minds of Europe were looking to accomplish from the very beginning of this whole exercise. In other words, establish built-in, perpetual justification for the highly-concentrated power "needed" to fix the same recurring problems, which, of course, they set up in the first place.
Perhaps what the Euro's founders envisioned from the get-go was a simple two step process. First, establish a monetary union that is doomed to fail without the fiscal union necessary to control spending, budgets etc. Then, when the transitional phase of planned, co-dependent chaos arrives, they're ready with, "Well, we've established the Euro as a world currency, and can always print more. Not to mention, it'll be a piece of cake suckering some of the world's deep pockets (think U.S.) into our bailout party which will bring us to step two and our ultimate goal..."
At the outset, there is no way member countries of the European union would have ever agreed to surrendering sovereign control of both monetary and fiscal policy at the same time. The Brits got it right and kept the Sterling.
So the strategy is to get step one of monetary union rolling first. And then, as the anticipated crisis mounts, to save the grand vision of the "United States of Europe," the second step of fiscal union is activated with acquiescence to statements like, "We've come this far...can't turn back now...what other choice is there?"
Thus, the original goal is accomplished whereby all co-dependent roads now lead to Brussels where there is a concentration of monetary and fiscal control over EVERYTHING.
Is this how you would define progressive? Or is it a swing backwards to the Medician/Machiavellian times of old Europe, where the self-annointed few are only concerned with concentrating power to control more?
The only thing progressing right now is institutionalized chaos and the mounting price tag that goes with it for the average, hard-working person.
The good people of all the countries and cultures that comprise Europe should be reminded that the United States of America was formed, first and foremost, to get the heck away -- a whole ocean away -- from these power and control games.
A Cautionary Tale For The U.S.
Where are the U.S. leaders who will truly look after the best interests of the average person who doesn't get to sit in on these lunatic planning sessions that result in disaster?
Where are the U.S. leaders whose natural-born, relentless instinct and ever-present first priority is to keep the focus, at all times, on the simple basics of life that throughout time and history have always trumped and taken priority over any clique-driven, self-serving ideological agenda? You know, simple, corny, old-fashioned stuff like you can't spend more than you make.
Here's some more corny stuff: staying grounded with fundamental life principles that have never and will never be denied is the simple -- that's right, simple -- way to avoid building these colossal houses of cards that eventually come tumbling down on the average, hard-working person with a big, fat cleanup bill attached.
The tough part: it takes guts.
Who's got guts?
The backbone that skipped my generation.
We can learn from the Euro Crisis and not get ourselves caught in a vicious cycle that will be mighty difficult to break -- if we aren't there already. And the costs? We're already having to learn new math terms to describe more and more zeros.
However, my personal opinion is that the generations following the Budget-Busting Boomers -- of which I am one -- will have the backbone that skipped my generation and say, "Not going to happen on our watch! No way, no how."
Back to basics is the way forward.
March 29th, 2010 at 02:24 pm