Here’s an interesting thought:  If governments could create wealth and solve all our economic ills, why don’t they do it all the time?  Why wait until a financial collapse before taking action?

Could it be because they can’t? 

In my view, it’s all part of their smoke and mirrors ploy.  Unfortunately for John and Sally Public, they often get caught up in the hype and believe that Washington will make them better off. 

This is why we invest a great deal of our time helping people master their emotions so they will be better suited to participate in the investment process while ignoring the spinmeisters on Wall Street and in Washington.   

So here we are stuck in the precarious economic environment where everyone is wondering:  Where can I put my retirement money so that it will be safe?

Since 1971 that has become a difficult question to answer. 

That was the year Richard Nixon added a heavy dose of government to the financial world by removing the final link between the money in your pocket and gold.

Question:  Which do you see as the safer long term investment – a portfolio filled with dollar-denominated investments such as bonds and CDs or a portfolio managed by Bernie Madoff?

Think hard because it isn’t an exaggeration to say the value of both are tied to assets created out of thin air. 

Here’s another thought:

John Dewey (1859-1952) once stated “You can’t make socialists out of individualists.  Children who know how to think for themselves spoil the harmony of the collective society.”

It should be noted that Mr. Dewey, a member of 15 Marxist front organizations, is often labeled the “founder of modern education.”

So what does this have to do with your financial safety?  Sadly, too much.

Growing up most people never taught the basics of managing money and the impact Washington has on our bottom line.  With pensions drying up and the risk of reduced Social Security and Medicare benefits, one then has to rely on individual savings and investing habits.    

Look across your peer age group and you will see that the majority of folks around you are totally baffled when it comes to these issues, including virtually every one of this nation’s elected officials.

Consider the baby boomer presidents we’ve had:  Clinton, Bush and Obama.

In 1990, three years before Clinton took office, there were 1,176 federal subsidies.  Near the end of the Bush administration that number had surged to 1,804.  To put this growth in context there were 1,019 subsidy programs in the 1970 federal budget.   

For those approaching retirement who remain convinced Obama’s hurt-the-rich campaign will benefit them, I feel sad.  Their retirement futures grow bleaker by the day until they begin to understand the consequences of Washington’s actions. 

For those informed it is proving to be an excellent wealth building opportunity.     

The gloom is easing up a bit and we’ve experienced a nice stock market rally but there is still the chance we have not seen the end of this shakeout.

Here is an excerpt from a recent interview I did with The Wall Street Transcript.

If you are new to this site or our radio show, below are some of the issues we’ve recently discussed: 

Corporate Earnings:  Profit you have left after all expenses including non-cash expenses, such as depreciation expense, have been deducted from your sales for a given period.  Depreciation is a way to spread expenses over time.  For example, if you buy a tractor for your business, the tractor will generate revenue for some time to come, so you only deduct a portion of its expense from this year’s revenue. 

Earnings are not to be confused with actual cash flow as earning are an accounting measurement.

Mark-to-Market Accounting:  This rule forces companies to mark their assets held on their balance sheet to current market prices.  Sounds good in theory, however, what if there isn’t a market for your asset; what is the value?  Zero?

This is what happened during the recent banking crisis.  The market disappeared for packaged loans, so the only bids were very low – 20 to 75 cents on the dollar.  Banks had to write down the value of their assets to this “market” price and take a charge against earnings. 

This then forced the banks to raise more capital from either private sources or the taxpayer to increase capital ratios which explains why they stopped lending.

For example, let’s say you had a crisis come up and had to sell your house in a matter of hours and it sold for $50,000 (but it is worth $250,000).  Mark-to-Market rules say that all the neighbors in your area now must reduce the book value of their homes to $50,000.  Soon after, lenders show up at your doorstep telling you that you must make up the difference between your mortgage and the $50,000. 

Thankfully this rule has been recently changed to prevent entities from being foreclosed despite having positive cash flow. 

Uptick Rule:   This was a rule put in after the Great Depression and repealed in July 2007.  It basically said that you could not short a stock until the stock price went up.  Remember, shorting a stock is borrowing shares of a stock from a broker and selling them in the market.  You are hoping that the stock price decreases so you can buy it for a lower price to cover your short.

Your profit would be the difference between the price you sold the stock and the price you bought it back.  Not a lot of investors short stock.  Currently it is popular in the hedge fund market.

The argument for having an uptick rule is to prevent these sellers from continuously selling a stock thus driving the price down as the buyers disappear. 

Is this a fair way to profit?

The true valuation of the market is no where near as dismal as the aggregate earnings reported by Standard & Poor’s suggest.  When portfolios of stocks are weighted by market values, the market is cheap by historical standards.  No one can say for sure whether March 9 will mark the bottom of this dismal bear market (I personally think it will), but I am sure that investors who hold a diversified portfolio of stocks today will be rewarded by above-average returns.

- Jeremy Siegel, Ph.D.

The economists at First Trust made some encouraging comments in their recent article about the recession.  Here are the highlights I want to share with you:

• The economy and stock market are floating on a sea of liquidity.
• Through Friday, this sea of liquidity had lifted the Dow Jones Industrial Average by 22.5% in less than a month, with the NASDAQ up 27.8% and the S&P 500 up 24.5%.
• If jobs were the catalyst for all economic change, then the economy would never stop expanding if jobs increased; nor would it ever stop contracting when jobs fell … in the past, the unemployment rate has been much higher than it is today and yet the economy recovered and the stock market boomed anyway.  Unemployment is a lagging indicator.
• It takes about six months, but when the Fed injects money into the economy, spending increases.  It always works.  And this time, there is also a rebound in velocity taking place at this time.
• Very soon, the recession will officially end.  This is not a dead cat bounce, and it’s not government spending.  It’s easy money, plain and simple.