Various Observations…and Random Thoughts…

The next investment shoe to drop will be the bond market. For those of you who think the bond market is a safe harbor during this storm, think again. Once interest rates increase, bond values will fall.

Given their budget deficits, municipal and state bonds are at particular risk; watch California as a bellwether. As interest rates rise, bond values will fall, and given that interest rates are at rock bottom, I would suspect that bond values are maxed out presently with no place to go but down.

Investment advisors may tell their clients that none of this matters so long as you hold the bond to maturity, and that may be true until, surprise, you wake up and find that certificates of deposit and alternative investments are paying higher rates of interest than your bonds. The problem is that once you realize that you want to move capital from bonds to higher-paying CDs, you’ll have to realize losses by selling in order to do so.

Why not realize gains on sale now, when bond values are high, so you can have cash on hand to invest in higher returning assets later? Why wait until cities and states default?

If California can tell its taxpayers that the state is not going to refund their tax overpayments until the state feels like it, the state certainly doesn’t have to honor its payments to bond holders, either.

Politics and the Economy
Now that the Democrats will have their filibuster-proof majority, expect them to push forward with socialized health care and a government takeover of the energy sector (cap and trade). Throw in federal control of the housing mortgage industry (Fannie and Freddie), the auto industry, insurance (AIG), and banking and credit, and the massive tax increases already planned for 2010 — you get the picture.

On the whole, Americans are fairly conservative (with a small "c"). They don’t like government intruding in their daily lives. Instead of overreaching, Obama should focus on the economy which, if resolved, would increase his political standing and yield him additional "chips" to push the rest of his agenda later. If he continues to push hard on multiple fronts before fixing the economy, Americans will push back. Expect there to be a backlash in either the 2010 or 2012 elections.

Eye of the Hurricane
Because Obama’s massive tax increases will pass (given the voting structure of Congress), we’ll see a second dip in the recession in 2010. Long before Warren Buffet used the term "hurricane" to generically describe the economy, I used it to describe the coming double- dip recession. Don’t be fooled by the calmer sea and brighter sky that we are presently experiencing; that’s just the eye of the hurricane we’re in. We still need to sail the ship through the back half of the hurricane in 2010-11.

Tech Addiction
I wonder what Gen Y’s dependency on technology will yield? In the last week, I’ve seen a boy eating dinner with his father — all the while focused on his laptop computer between them. A young couple was having dinner at a restaurant; but he eats alone while her dinner sits there because she’s outside talking on her cell phone for the entire meal. A teenager with his family touring Montezuma’s Castle national historic monument spends the entire time texting on his cell phone instead of experiencing history.

Even I find myself pulling out my new iPhone and fiddling with it whenever I have a free moment — not because I need to, but simply because it’s there. It’s addictive.

Technology is great if the gadgets help us, like the new video conferencing system we installed that allows us to talk face-to-face with our New York partners. But isn’t there something wrong when technology replaces real human interaction?

Blogger Fatigue
I’ve had my first experience with anonymous blogging in regard to my company’s library proposal. For those of you who haven’t experienced blogging yet, blogging is basically anonymous bashing over the Internet.

A few observations: Just a few bloggers dominate and do all the "talking." Given that they can comment anonymously, they are free to bash others’ proposals while usually not offering anything constructive themselves. They can criticize without ever having to produce or create anything. They add no value, especially since most of the comments are based on incorrect information, and mistakes are multiplied over and over since they are incorrectly taken as fact. They exercise no responsibility and are accountable to no one.

I don’t see bloggers stepping up to make a proposal to build a new library; nor take a risk and put their money where their mouth is. It’s easy to criticize when you are anonymous, aren’t held accountable, and never add value through hard work and risk-taking.

The sad part is that even our declining local newspaper has taken to publishing anonymous comments. If you can’t offer a comment with your name behind it, how much validity should the readers put into it? No wonder we’ve become a decadent society headed towards European-style socialism.

Does anyone actually build or manufacture anything anymore, or are we all just going to spend our time blogging, texting, and e-mailing each other as though somehow that is a substitute for real work?

This nation wasn’t built on cheap talk or "drive-by criticism." It was built on hard work. If we’re ever going to restore this country to its place in the world, the people who don’t produce need to stop criticizing the people who do produce.

If you have never built something or taken a risk, let me tell you that it takes hard work. Cheap shots by uninformed, anonymous couch potatoes serve to undermine efforts to improve society.

Tip of the Month
Question: What does well during times ofinflation and a cheap dollar?
Answer: Real estate.