What Do We Tell the Gen X Folks ?

Gen X families with kids, bills, mortgages and limited real job security are hunkering down- At least they should be. They worry about whether they can pay the mortgage or the rent; have the money to provide life insurance to protect their family's future in the event they die; whether the two wheezing autos will make it through the coming Winter; whether that cough they've developed will eventually become a disability issue, or whether Jenny will need those braces this year after all and how much the oil bils will be this Winter.

Like many, they have tried to save and didn't go for the new Abominator sports ute, the Amazaphone that does everything but the laundry, nor the 50" LED boob tube as so many others did. They were watching their budgets, not going out much, working in their garden to reduce costs and hoping the savings they were able to put away would amount to something.

Many are teachers, state workers, small business owners and municipal employees all fearing that their jobs or businesses could disappear next week. They represent typical American families.

What could, should they have done differently over the last 10, 15, 25 years?

Many would say that investing in the capital markets would have produced significant gain, that the growth in assets would result in a comfortable retirement. Others would have said buy a home and watch it appreciate in value. Some said invest in a small business and keep it growing. Some even bought life insurance and watched the guaranteed 4.5% interest rates grow their cash values. An interesting fact- The S&P Index is at almost the same level it was at 10 years ago- The S&P represents about 75% of the value of invest-able equities in the country.

We can probably assume that the concerned families- The ones that worried about their and their families' future probably tried to do all the right stuff. Unfortunately our government is forever in a recurring dream kind of problem and needed to do what they could to minimize recessions, keep everyone working and engage in a few wars as well. They had to do this for years and years and as a resulting necessity the obligations that government has to its people and the rest of the world are watered down through the US financial printing press. When they needed a few bucks they tossed the then self-sustaining Social Security fund into the general treasury bucket.

As to the saver, a retiring person or someone else on a fixed income, their savings, investments, pension expectations and Social Security were decimated by an ever increasing dilution of the Greenback. While the printing presses roll on the US dollar is shrinking to less comparative value every day with no sign of improvement on the horizon.

Every administration for the last 40 years watched as we imported more oil every year and did nothing to develop an energy policy. Congress was and still is interested only in getting reelected so an energy policy wasn't in their best interests.

So, what do we suggest to our Gen X families?

Since growth in the US will be minimal at best for the foreseeable future while inflation will necessarily increase, foreign markets probably offer the best opportunities. Emerging markets like the "BRIC" countries- Brazil, Russia, India and China as well as somewhat smaller emerging countries like Indonesia, Singapore, Chile and New Zealand contain many solid opportunities without total dependence on exports for their GDP. These countries see continuing growth.

Developed countries like Canada, Norway, Australia and Mexico all have assets that should be in demand even though the countries importing these products will drop somewhat.

Currencies like the Swiss Franc and Norwegian Krone are as solid as they can be due to their lack of encumbering debt and higher interest rates. Canadian bonds and bank interest rates are also attractive.

Many commentators suggested long tern investment in stock funds. They are correct with some caveats going forward. A fund or group of funds that contains some debt- Emerging Market debt is the best opportunity as are Emerging Market stocks. Buying Canadian dollars or buying Canadian issued bonds or certificates is not a bad plan either. The EURO mess is far from decided and there are most likely some bedbugs under the covers that discourages investment in EURO countries right now. The afore mentioned BRIC countries should be considered, though. Many ETFs and index funds exist for these.

What about gold and silver? Some people with long term savvy suggest that gold and silver will be a natural offset to the obviously looming inflation. Right now gold- Either in hard form or gold index (GLD) or silver index (SLV) is probably a good idea but be careful of volatility. Many experts see gold going to at least $2000- But not in a straight line.

Savings is the sticky issue. Should putting money in a savings account be encouraged? CDs? Money Market funds? US Treasuries? Unfortunately all of these equate to automatic confiscation of one's assets. The interest income doesn't come close to overcoming inflation, and US Treasuries will drop severely in value should interest rates move up even a little.

To those that qualify for mortgages or have some money available income real estate in the US may be attractive. Many folks are buying two and four unit buildings and plan to live in them. Just try to ascertain that they have reached their price low point in the housing markets downward spiral.

For those looking for an epiphany, sorry, no short answers here- Hunkering down is the rule of the day until the world gets itself back in order.

Good luck!

How Long is This Tunnel Anyway?

Everyone is looking for guidance as to what is happening to the economy and what the immediate future has in store for us. I believe that the tea leaves can be read without a lot of difficulty right now. It's really a function of how much money is available in the system compared to what demands for said money are extant. The one shot tax rebate last year caused a spike in buying (and a little credit card debt reduction) but it only lasted a month or two. The "clunker" program has gotten a few new cars off the lot but does nothing for the systemic problem- Too much leverage- Not enough capital-

The consumer everyone is waiting for to bring home the bacon is probably the wisest of all- Or maybe most fearful. Hunkering down probably isn't a bad idea right now. Savings rates have climbed significantly since the American public stopped drinking the big government Kool-Aid, you know, the part where Paulson said back in 2008 that we would undergo a slowdown but everything was OK. Right now government is worrying about how to pay for the corporate largess foisted on the American public- Let's see, we have to pay a lot of money for those fixed costs like Social Security, government payrolls, tax credits and pork barrel stuff. Hey- What if we just print more money and in doing so dilute the real costs of that stuff since we are paying in cheaper dollars. Who cares about inflation or the purchasing power of those on fixed incomes. When we get the bubble resuming people will forget all about the real costs. Keep the Now Generation happy and get re-elected. That's the mantra.

I don't know though, Can we print enough money so that we make up for the phony collateralized pools the finance gurus set up? After all, the asset base compared to what finance is available out there will be impossible to reconcile. Assets that aren't necessary any more will go unpurchased or sold at distress prices. Check out the prices of big screen TVs and other toys. Banks are, and should be afraid to lend money for home mortgages knowing in their heart of hearts that home values are already underwater before they take on a new mortgage. We are being told now that by the end of the year 50% of mortages in the country will be under water, that is, the mortgage will be higher than what the property could sell for.

The second home, the fun car, the Mediterranean cruise, the trip to see the kids are all on the block- The whole world economy save a few hardliners like China, Germany, Switzerland and Malaysia became a humongous Ponzi scheme that won't get fixed overnight. Some European nations had enough faith in the US finance schemes to buy collaterized debt paper to make up their reserves. Iceland is a good example. Sorry folks- You have to get in line just like the other investors who were sucked in.

How long until this mess is fixed? Some of the big finance outfits, you know, the ones that sold everyone on the Ponzi schemes to begin with are now fluffing up the equity markets and the end of the day's trading to make things look rosier, and stating that the worst is over- Investors get back in there and put your capital to work! This is getting to be a harder sell. Some of the small investor crowd is saying "I was already burned once and you want me to do what?"

The Feds are phasing down their debt purchase programs so in order to sell more treasuries the yields will have to increase. The government had hoped the investing public and the markets would have improved by now but they have indeed found a sticky wicket. If rates increase it could be bad news to the nascent recovery, but they can't continue to debase the currency forever. Some folks feel that the best way to deal with the situation is to let market economic rules do their stuff. However, the elephant in the room, you know, the big one with the best economy in the world holding $2 Trillion in US debt is looking a little worried here. Can you blame them?

So what do we do now? Obama must be thinking Franklin D. Roosevelt at this point like in WPA projects or some other kind of infrastructure fix. I really don't believe that there quick ways to unwind what took place over the last decade. The creating of asset bases on illusions can't be reversed overnight although many, through failure have ceased to operate. Are we done failing? As in banks, foreclosures, personal and corporate bankruptcies? Sorry, kids- No instant gratification this time. School of hard knocks here we come.

The trade deficit must eventually be recognized as the real barometer of this country's health and as long as we keep importing energy at the rate we do our standard of living's future is murky at best. I don't believe that the Chinese are willing to keep funding our deficits forever. Are the people of the country ready to do whatever is necessary to reduce our energy consumption? We'll see.