Fed Chairman, Ben Bernanke, testified before Congress yesterday and implied that he is in no hurry to raise interest rates. Bernanke said the Fed “will not be able to wait until things are completely back to normal” before it starts to boost rates. However, the Fed wants to make sure the economy is on a sustainable growth path, jobs are being created and wants to see more lending by banks before it starts tightening credit, Bernanke said. It could be this fall before the Fed actually makes the tough choice to begin raising interest rates, no matter when it happens it is a balancing act of not undermining the current recovery or waiting too long and risking higher inflation and possible bubbles in stocks, commodities or other assets.
Companies are beginning to react
Quite honestly, I don’t know if anyone has all the facts behind the new health care reform and probably won’t for a while. However, several large U.S. corporation; John Deere, Catepillar, Medtronics, Verizon, Boeing Co., Con-Way Inc., Exelon Corp., Navistar Inc., Verizon, Xerox Corp., Public Service Enterprise Group Inc., and Met Life Inc., just to name a few, have made some recent announcements regarding its impact on them. In effect, these companies have stated that they are going to incur increased costs via higher income taxes, may reduce or drop employee and retiree health benefits, and lay off workers as a result of higher costs.
One local business professional, in the healthcare industry, noted that a combination of reduced Medicare reimbursements and the impact of the new legislation will result in his firm either reducing employee health benefits or dropping them all together. No matter what side of this issue you are on, when all is said and done, I hope there is some common-sense solution in the end.
The European Union (EU) is not as united as you think
Germany is not a happy camper. It appears that Germans are not excited about being on the hook for any bailouts being presented to Greece or any other members of the EU, and I can’t blame them. Germany has done a pretty good job with their economy and keeping their government deficits in check compared to some of their EU peers. Also, German workers are much, much more productive than their EU counterparts. As such, why do they want to be penalized by other countries who have been too loose with their public finances?
Adding more fuel to this fire / controversy is what was reported in the Wall Street Journal this week. European countries are facing a very tough choice. They either continue their safety net approach regarding providing generous publicly funded services and benefits or accept stagnant economic conditions going forward, or they cut benefits and move toward more growth-oriented economic models. Surprisingly, many Europeans, especially the younger workers, are beginning to believe that changes are needed. As one French 31year-old professional, who runs a nonprofit organization, recently stated in the article, “The state has huge debt, 25% of young people are jobless, and so I am part of the new generation that has decided to take matters into our own hands….We’ve decided that we can’t expect everything from the state.” Another 26 year-old Greek woman added, “I only know one person who went straight from university to a job. Everyone else is unemployed, or studying for another degree.”
In my opinion, some Europeans are seeing their standard of living decline or in jeopardy and a more market-oriented economy may allow them to better control and insure their financial security / future. The vast majority of European countries have lagged the U.S. in economic growth and productivity over the decades. As such, many Europeans are beginning to question the status quo and believe that if given the choice and opportunity, they can create a better economic and financial future for themselves and their respective nations. Allowing European workers more responsibility for their personal financial security could result in an increase of investment dollars for stocks and bonds, which is positive for all investors.
Pay to play is coming to light
Federal criminal investigators are looking into misconduct within some of the public pension funds including Calpers; California’s and the country’s largest pension fund. What is coming to light is that some public officials may have accepted illegal inducements from money managers seeking to be hired to invest a portion of the pension’s funds.
The sad part is many state-run pension funds are underfunded and are facing increasing odds of not being able to cover the pension benefits they’ve promised their members. This announcement of money managers paying, or should I say bribing, officials to get a piece of the action completely circumvents an objective and competitive selection process that is in the best interests of its members.
Unfortunately, this completely validates my opinion that for working individuals; especially younger ones, it is crucial that they take on more responsibility for their financial security (i.e., save more and be more educated on where that savings is being invested) and rely less on someone else to fund your retirement years.
Quotes
“The best condition in life is not to be so rich as to be envied nor so poor as to be damned.”
Josh Billings, humorist
“If the majority of people of a country, no matter how great its natural resources, organize and conspire to get more out and put less in, to do less and get more, how long will, how long can it last?”
William J. H. Boetcker, minister and motivational speaker
“To acquire wealth is difficult, to preserve it more difficult, but to spend it wisely most difficult of all.”
Edward Day, businessman and public administrator
“The secret point of money and power in America is neither the things that money can buy nor power for power’s sake but absolute personal freedom, mobility, privacy.”
Joan Didion, author
“Wealth is a great thing to have and a great thing to share.”
Harold Honickman, philanthropist
Tony Moeller, President
Integrity Investment Advisors
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Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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