CHINA: YEAR OF THE SCAPEGOAT 2015?!

scapegoat

It is a mistake to place sole rationale and therefore sole resolution in headlines like: China Fears Slam Stocks. China Data Hits Markets. China to Blame. Occupying the 8th position in the Chinese Zodiac, the Goat (or Sheep) symbolizes such character traits as creativity, intelligence, dependability, and calmness. Half-way through the Chinese New Year that began in mid-February, investors are steered to solely focus on Beijing’s corruption, lack of control, manipulation, and extreme volatility.

There is no doubt that China is HUGE in terms of the mood of her populous, politics, internal objectives, economy, and massive historical demand for Western luxury goods and infrastructure inputs like Copper, Iron Ore, and Concrete. It is disturbing to read stories of the Chinese government arresting and detaining traders to “resolve” its stock market problem. An extremely tense Pacific will become further inflamed as China celebrates the 70th anniversary of the defeat of Japan in WWII. A parade of 12,000 troops, 200 aircraft and dozens of tanks and missiles are expected to march down Beijing’s central Avenue of Eternal Peace and through Tiananmen Square on Sept. 3 — the day after the Japanese army surrendered to Allied forces in 1945. Still, global stock market turmoil, plummeting currencies, crashing commodities, and economic instability are problems not entirely “Made in China.”

The Maestro (I admit the pic is my cMaestroopy.) of the real orchestrated manipulation that impacts us today dates back many Lunar
cycles and from the United States. With complete humility, I will note there is no crystal ball at my shop. However, the source of the 2015 pullback is potentially deeper, more problematic, and more painful than simply laying blame on the recent Chinese stock market rout and slowing manufacturing data. The U.S. Federal Reserve as directed by Greenspan to Bernanke, and now Yellen, have led the world’s most powerful central banks into the most manipulated (no matter how well intended) and experimental monetary phase of our lifetimes.

The lack of control, manipulation, and volatility your investments are experiencing is most likely not China-centric so do not ignore the plethora of other concerns, risks, and opportunity sets. 

Unconventional tactics were used to counter the late 90’s Asian currency crisis, hedge fund blowups, and Y2K cash build-out. The bursting of the dot-com bubble in 2000 kicked off massive interest rate cuts via the Effective Fed Funds from 6.5% to 1% (2000-2003) with a repeated playbook during the 2008-09 Financial Crisis. When interest rate options ran dry, Fed Chair Bernanke revealed experiments like Operation Twist and a series of so-called Quantitative Easings (QE). The Fed balance sheet has skyrocketed from $600 billion to $4.5 trillion! Perhaps the counter-factuals would have been worse–the unwind from unconventional to normalcy represents an unknown larger than China.

Throw away advice lines like “normal pullback,” “another buy the dip opportunity,” or “healthy return to volatility” are less useful for concerned families no matter what happens this fall. 

Zero interest rates plus QE1, QE2, and QE3 created a massive misallocation of capital that has affected everything from rental properties, fracking, high yield bonds, share-buybacks and dividend payments, the US dollar, and stock market valuations. These trends have been on a tear so perhaps the recent weakness is the painful process of deflating back to reality–you or your trusted advisor should not completely discount this possibility.

So what is useful?

An emphasis on market-timing, outguessing economic releases, or using gut feel to manage portfolios is foolhardy for most of us. There are tremendously positive innovations in medicine, technology, and consumer goods worthy of your hard-earned investments. You still need to identify and navigate the right investing paths, know your portfolio’s return and risks trade-offs, and plan for the future with foundations based on your family’s realities.    

  •  Real communication and proactive, goals-based wealth advice: Watch out for canned, standardized, and biased steering.
  • Implementation should include a combination of core strategic investments, tactical satellite investments, and a relentless focus on client-centric management of risks, taxes, and fees: Watch out for mass produced, standardized, and advice that comes too quick and easy.
  • Special attention should be paid to the more controllable aspects of planning, spending, saving, and an extra margin of safety: YOU are the best qualified and most accountable for this part.

ABOUT THE AUTHOR:

Michael loves to empower investors with his expertise in securities and economic analysis, goals-based wealth management solutions, and FinTech smart decision-support tools. While directly managing over $5 billion in growth and retirement assets; his proactive advice and software innovations have influenced thousands of fiduciary advisors to better their practices and service to clients. He enjoys spending time with his wife and three boys, competing in USTA tennis, and mentoring others to succeed.

Email | Michael@empoweredportfolios.com

Twitter | @MichaelHakerem

How’s Your Form: When Only A Few Will Know?

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One demonstration of character is how YOU go about YOUR business with just a few audience members. Perhaps the sole observer is the person you see reflected in the mirror.

The Xfinity Center, the indoor arena that serves as the home of the University of Maryland Terrapins, holds capacity crowds at nearly 18,000. Imagine the vibration as thousands of fans pile in to cheer, boo, and watch soon-to-be professional basketball players. Boom! Feel the chills and goosebumps on a made three-pointer or “And 1” play. Instant results, instant performance review, all recorded in history for the world to see…

You could hear a pin drop on a recent Sunday morning in College Park. A young player with hopes and dreams stepped up to the line for a technical foul shot. Just #3 and the referee. An opportunity to give less? An opportunity to make excuses? As parents, coaches, and business leaders, we are proud when a child, player, or corporate teammate strives for the perfect form. It is especially gratifying to witness hard work and effort with an awareness that the results and performance may go mostly unnoticed and fade away in time.

Some professionals will play to full arenas and receive national recognition while most of us have our best high-five moments to no cheers or big awards. Some professionals choose the easier way or take advantage of situations where the boss or clients “will never know the difference.” You know these folks, their timing for the right spotlight is impeccable. Meanwhile, most of us will often realize our best professional form on a Saturday morning in an empty office. Is it worth it?

ZZZZZZZZzzziiiiiiiiiipppPPP.

The sweet sound of a swish of the net remains unmistakable–even if it is just YOU. “Yes,” that satisfied smile is worth it–that look in the mirror is worth it.

With Gratitude, Michael

Uber, Cosby…A Crisis of Character

“When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost.” -Billy Graham

CMH UNC

When wealth is lost, nothing is lost; when health is lost, something is lost;
when character is lost, all is lost. Billy Graham

I just Googled “top corporate scandals” and about 2,300,000 Web results displayed in 0.46 seconds; in fact, Google has its own reported scandals of a personal and corporate nature. Substitute in words like sports and Hollywood and the numbers explode upward. Type “Uber scandal” or “Cosby scandal” and about 15,000,000 and 36,200,000 are retrieved. I would enter “political” into the search engine, but I do not wish to crash my laptop! As written and illustrated by study after study, scandals in the world, whether centered around sex, corruption, bribery, fraud, or other greed factors, have crucial negative impacts on lives young and old, as well as the global economy.

Yes, a cast of disgraced CEOs are forced to leave companies every year, often punished by personal ethical lapses in judgement. Perhaps a new trend of swift punishment for sports heroes gone bad is emerging. This category is especially troubling for many households as ESPN has a vastly larger audience than business television. Ikea’s sold horse-meatballs, Mark Hurd has love triangles, there is tragedy due to buildings with violated safety codes, espionage, battery against women and children. Wal-Mart said it spent $439 million in two years to investigate the possible payment of foreign bribes. The LOSS OF CHARACTER IS A HUGE RISK TO THE GLOBAL ECONOMY.

The world has a record 1.8 billion young people between the very impressionable ages of 10 and 24. A great deal of that population segment live in the developing world where character impactors revolve around even more serious issues like civil war, jihad, malnutrition, slavery, and rape.*

Main Street, Wall Street, Your Street…This is all to say that our children are exponentially exposed to the worst examples of character, and bad character is the most corruptive substance of our future growth and productivity.

Please put aside for a moment the over seven billion people in the world. What are the impacts of scandalous activity in your much smaller ecosystems? What is the economic and emotional impact of events taking place in your community, office, or in your home, at the kid’s school? Someone is watching…everyone is watching, reading, clicking. It is up to us, you and me, to lead by example.

Fours years ago, my little TarHeel lived a life’s dream shared by tens-of-thousands. Wearing his favorite #50, his Carolina blue eyes twinkled as he stood steps from his sports heroes, an opportunity to “broadcast” his love and admiration to the world. Today, the fast-paced digital world at his fingertips, he has officially passed into the key category of impressionable youth. Like drinking from a firehose, opportunities are plentiful for him to learn, live, and lead by example. Let’s show him the way!

Unfortunately, Uber and Cosby cannot just turn a switch or post “values” in the corporate foyer. I once read that people will change their behavior only if they see the new behavior as easy, rewarding and normal. That’s sad. A culture of character has patterns of accepted behavior, core beliefs and values that promote and reinforce what is flowing through the veins, handed down to the impressionable, and enriched through leadership. Character needs no political, religious, or cultural boundaries. Great News! I just Googled “good character” and about 924,000,000 results displayed in 0.32 seconds.

*See Newsweek’s, Are Children Better Off Today Than 25 Years Ago? Yes and No, New Report Says: http://bit.ly/1xWyc0L

**For fellow TarHeel diehards, I love Adam Lucas’s writing and he forewarns, by the time you finish reading his latest column, you might feel differently about Gerald Henderson’s character. http://bit.ly/1zGJ6a4