Tag Archives: economics

“Are We There Yet?”

108679-bruegel-wedding-dance-outsideAs a parent, I remember this question well from days past. This time, however, it’s being asked by those of us with money invested in the global stock and bond markets.

All of us are following a life path that includes stops along the way. Some stops we choose to make and others are forced on us. Some of them are in good places and others not so good places. These comments talk about a bad one on the horizon and how your life might be better if you don’t have to stop.

Sometime soon, most likely in the next three 3 years, many of us will hit a road block. With that in mind, what follows is designed to help the reader gain a better understanding about how to have money positioned before that happens. This is particularly important if you are soon to be, or are already, retired.

In retirement, your investment focus will shift away from the accumulation of money and focus instead on the distribution of money. That’s not to say your money will no longer accumulate, but the emphasis will change. This is because instead of you working FOR money, money now has to work for YOU.

None of us individually has any control over the markets. What we do have is control over where and how our money is working for us. For almost everyone, the rules that define successful accumulation are different from the rules that define successful distribution.

Two primary drivers that define success in either phase are the stock market and the bond market, which is driven by interest rates. Knowing more about why this is relevant is in your best interest. You will also find it’s in your best interest to avoid the coming road block if you can.

Let’s first look at interest rates. Following this paragraph is a chart that shows the general level of interest rates in the U.S. over the past 222 years. In that entire time, you see four high points in green and low points in orange. The time span from high points to low points has been 27 years, 37 years and 26 years. The last high point was in 1981, 34 years ago. What this suggests to me is that with current interest rates near zero, an upturn in rates is going to happen. How soon is up for debate, but inevitable.
200+year interest ratesWhen interest rates rise, the effect on bond values is negative. No one is going to pay you as much for a bond that yields 4%, if with the same money they can buy a bond that yields 5%. This is a fundamental law of finance. Before the shift happens, you should be out of bonds and into cash or into tactical approaches that help you avoid losses.

Let’s now look at the stock market. Instead of individual stocks, I’m going to focus on the S&P500 Index, widely regarded as representing the entire US stock market. It includes the 500 largest capitalized companies in the US, many of whom sell globally, so their performance to some degree reflects what is happening across the planet.

The next chart reflects the closing price of the S&P500 on every given trading day over the past 40 years. These years largely reflect how the dollars you had invested in the stock market performed as it accumulated. Your goal at the time was to grow your pile of money as large as reasonably possible.

Retirement was down the road, and if a road block happened, it didn’t matter so much. What you heard everywhere was “buy and hold” or “hang in there”. But now the rules are different and the big question you must ask is “When Will The Next Downturn Happen?”. Or perhaps “Are We There Yet?”.

1974-2013 SP500From 1975 -1982, the rise was imperceptible. Then it started upward and in spite of what happened in 1987, it was a lot of fun. Then came the internet bubble that burst in early 2000 and we all experienced the pain associated with large declines in our account values.

Next came the mortgage bubble that burst in 2008-2009. Again there was a lot of pain and some of us are still recovering from that episode. For the past 3 years we’ve been watching what appears to be an inexorable climb up above previous historic highs.

I try to avoid promoting a sense of fear. However, there seems to be an inevitability about the fact that sometime, most likely in the next few years, there is going to be another bubble. Again there will be widespread pain and fear and gloom across the country, if not the entire planet. Perhaps a better question to ask is “Are You Ready For It?” Or maybe “When it Happens, Will You Be Able to Sleep At Night?”

My point is to cause you to evaluate or re-evaluate what you are doing now and consider options that will eliminate some of the pain that is sure to come, and to consider options that might even cause your accounts to grow.

While all of this is speculative, it is based on historical experience. And unless you plan to be dead in a few months, how all this plays out could dramatically influence your peace of mind and financial freedom in the years to come. Not to mention the financial freedom of those you leave behind.

All of us have different pain thresholds. The more money we have compared to our accepted standard of living, the less likely the pain. What you choose to do with your life in retirement, however, is up to you.

If you take appropriate steps to protect yourself, then chances of a succesful retirement from a financial perspective are better. Living a life free from fear about your financial future is possible.

It’s up to you what you do. But I encourage you to believe acting sooner rather than later will be in your best interest.

(The charts were found at finance.yahoo.com)

by Tony Kendzior, CLU, ChFC / October 1, 2014

 

 

 

 

Exactly Where We Are In This Cycle

retirementMy Comments: This is a major question for investors. Whether you are accumulating money for the future or are already retired and focused on making sure you have enough money to last, knowing what is likely to happen in the near future leads to peace of mind and financial freedom.

This is one opinion. Watch for another opinion in the next few days called “Are We There Yet?”.

Steve Sjuggerud, / Sep. 9, 2014

I was on stage at The California Club in Los Angeles… being put on the spot. And I didn’t have a good answer… It was a private meeting, so it was a small crowd of less than 50 people. At the end of my speech, I answered a few questions.

I like to give good answers when I can. But this time, I didn’t have a good answer. I fumbled around, sharing some facts. But I knew I could give a more accurate answer once I had run some numbers. I promised that I would respond more accurately in DailyWealth. So here goes…

“Steve, you did some great work on cycles years ago,” an attendee said. “So exactly where are we in this cycle, based on the last 100 years?”

He was asking for the BIG picture. I like that. Most people focus on today, and forget about the big picture. I could answer this question in a variety of ways. But the chart below is the simplest way to answer it…

The big idea is, the stock market goes in big cycles, from being loved to being hated. For example:
• Stocks were loved in the decade of the “Roaring Twenties.” Then they crashed in the Great Depression, and then World War II came along.
• Stocks were loved in the 1990s, then spent much of the 2000s going nowhere, delivering no return at all, really (when you adjust for inflation).

The question is ultimately getting at this: After soaring since 2009, are stocks overly loved right now? For your answer, take a look at this chart. It shows the 10-year annualized return on stocks (after inflation).

You can see the peaks were around the Roaring Twenties, and the dot-com boom. You can see the busts around the Great Depression and the inflationary 1970s. The important thing to look at is where we are today…

Take a look:
10YR REAL RETURN
So, where are we in this cycle? Are stocks overly loved, like they were in 1929 or 1999? Or are they overly hated, like they were in the Great Depression or the 1970s?

Based on this simple chart, we are somewhere in the middle… Stocks aren’t overly hated, or overly loved. Based on history, we are somewhere in the middle of this cycle.

I will admit, this is not the most statistically robust way to look at things… After all, there are only three of these major cycles to look at over the past 100 years. How can we say for sure that stocks will peak in the same place they peaked the last three times? We can’t.

This is simply a rough look at history. I believe it’s about right, though…

I think we’re not at the bottom, and we’re not at the top either.

I think we have a couple more innings left in this great bull market. And based on history, the last inning often delivers some of the biggest gains.

So, in short, yes, stocks have moved up a lot since 2009. But based on the last three cycles over the past 100 years, there’s still plenty of room to run…

Good investing.

America’s Perpetual War on Terror By Any Other Name

FT 11FEB13My Comments: This has nothing to do with financial planning. However, for me it has a lot to do with my perception of myself as a contributing member of society. I vote at every opportunity, which I think gives me the right to voice my opinions, which sometimes includes a lot of bitching and moaning.

Decaptitating American citizens in a mideastern desert, while appalling, does not in and of itself constitute a threat to these United States. But…

Like it or not we live and breathe, both physically and economically, in an increasingly integrated world. And like it or not, maybe by accident of birth, we are the lead dog in the human pack when it comes to sustaining civilized society. Which means we cannot sit on our side of the ocean and hope it all works out for everyone else.

By Edward Luce / September 14, 2014

If you embark on something with your eyes half-open, you are likely to lose sight of reality

Few have given as much thought as Barack Obama to the pitfalls of waging open-ended war on an abstract noun. On top of its impracticalities – how can you ever declare victory? – fighting a nebulous enemy exacts an insidious toll. Mr Obama built much of his presidential appeal on such a critique – the global war on terror was eroding America’s legal rights at home and its moral capital abroad. The term “GWOT” was purged the moment he took over from George W Bush. In his pledge last week to “degrade and ultimately destroy” the Islamic State in Iraq and the Levant, known as Isis, he has travelled almost full circle. It is precisely because Mr Obama is a reluctant warrior that his legacy will be enduring.

The reality is the US war on terror has succeeded where it was supposed to. Mr Bush’s biggest innovation was to set up the Department of Homeland Security. If you chart domestic terror attempts in the US since September 11 2001, they have become increasingly low-tech and ineffectual. From the foiled Detroit airliner attack in Mr Obama’s first year to the Boston marathon bombings in his fifth, each attempt has been more amateur than the last. The same is true of America’s allies. There has been no significant attack in Europe since London’s July 7 bombings nine years ago. Western publics have acclimatised to an era of tighter security.

If this is the balance sheet of the US war on terror, why lose sleep? Chiefly because it understates the costs. The biggest of these is the damage an undeclared war is doing to the west’s grasp on reality. Myopic thinking leads to bad decisions. Mr Obama pointedly avoided using the word “war” last week. Although there are more than 1,000 US military personnel in Iraq, and more than 160 US air strikes in the past month, he insisted on calling his plan to destroy Isis a “campaign”. Likewise, the US uniforms are those of “advisers” and “trainers”. These kinds of euphemism lead to mission creep. If you embark on something with your eyes half-open, you are likelier to lose your way.

In 2011 Mr Obama inadvertently helped to lay the ground for today’s vicious insurgency by withdrawing US forces from Iraq too soon. He left a vacuum and called it peace. Now he is tiptoeing back with his fingers crossed. The same reluctance to look down the road may well be repeating itself in Afghanistan. Mr Obama went out of his way last week to say that the Isis campaign would have no impact on his timetable to end the US combat mission in Afghanistan. The only difference between Iraq in 2011 and Afghanistan today is that you can see the Taliban coming. Nor does it take great insight to picture the destabilisation of Pakistan. In contrast to the Isis insurgency, which very few predicted, full-blown crises in Afghanistan and Pakistan are easy to imagine. So too is the gradual escalation of America’s re-engagement in Iraq.

Mr Obama’s detractors on both right and left want him to come clean – the US has declared war on Isis. Why else would his administration vow to follow it “to the gates of hell”, in the words of Joe Biden, the vice-president? Last year, Mr Obama called on Congress to repeal the law authorising military action against al-Qaeda that was passed just after 9/11. “Unless we discipline our thinking . . . we may be drawn into more wars we don’t need to fight,” he said. Mr Obama is already vulnerable to what he warned against. His administration is basing its authority to attack Isis on the same unrepealed 2001 law.

Why does America need to destroy Isis? The case for containment – as opposed to war – has received little airing. But it is persuasive. The main objection is that destroying Isis will be impossible without a far larger US land force, which would be a cure worse than the disease. Fewer than 1,000 Isis insurgents were able to banish an Iraqi army force of 30,000 from Mosul in June – and they were welcomed by its inhabitants. Last week Mr Obama hailed the formation of a more inclusive Iraqi government under Haider al-Abadi. But it has fewer Sunni members than the last one. Nouri al-Maliki, the former prime minister, has been kept on in government.

The task of conjuring a legitimate Iraqi government looks like child’s play against that of building up a friendly Syrian army. Mr Obama has asked Congress for money to train 3,000 Syrian rebels – a goal that will take months to bear fruit. Isis now commands at least 20,000 fighters. Then there are America’s reluctant allies. Turkey does not want to help in any serious way. Saudi Arabia’s support is lukewarm. Israel is sceptical. Iran, whose partnership Mr Obama has not sought, is waiting for whatever windfalls drop in its lap. The same applies to Bashar al-Assad, Syria’s president.

Whose army – if not America’s – will chase Isis to the “gates of hell”? Which takes us back to where we started. Mr Obama wants to destroy an entity he says does not yet pose a direct threat to the US. Mr Bush called that pre-emptive war. Mr Obama’s administration calls it a counterinsurgency campaign. Is it a distinction without a difference?

The US president’s aim is to stop Isis before it becomes a threat to the homeland. History suggests the bigger risk is the severe downside of another Middle Eastern adventure.

It is hard to doubt Mr Obama’s sincerity. It is his capacity to wade through the fog of war that is in question.

4 Reasons Why Not To Go Long The S&P

global investingMy Comments: Some of my responsibility as an investment advisor is to provide warning if I think there are pending changes in market direction. But since I have no idea what I may eat for lunch today, telling folks about the next crash will happen is pure speculation. But…

I compensate for this inability by having as much of their money as possible in accounts that have historically moved away from the markets and into cash and short positions when the signals are strong that a downturn is happening.

I’ve included only one chart from the article here. To the extent you want to see the rest, this link should take you to my source article: http://seekingalpha.com/article/2466765-4-reasons-why-not-to-go-long-the-s-and-p

Jack Foley, Sep. 3, 2014 2:43

Summary
• Many large cap stocks are not making new highs like the SPY. This is a worrying sign.
• Interest rates have to rise in the future which will put downward pressure on the stock market. Veteran trader Steve Jakobsen believes we could drop 30% from here.
• Oil seems to have bottomed and oil has the potential to make the whole commodity sector rally along with it.

The S&P 500 (NYSEARCA:SPY) has broken through the physiological number of 2000, and commentators and speculators alike are predicting higher highs from here. I am ultra short on this market but it is becoming increasingly hard to predict when this market will roll over in earnest. Investors who are short the market are really hurting right now, and it takes a brave investor to stay short in this environment. Nevertheless, the risk is all to the downside so an investor must stay extremely nimble if profits are to be made. Let’s explain why.

First of all, even though the market is making new highs, there are many large cap stocks that are not participating in this move. Look at the General Electric Company (NYSE:GE) to see how far it is below its all-time highs.
14-9-16 General ElectricAlso because we have extremely low interest rates, corporate earnings are inflated. Bonds and stocks have rallied hard for the last few years as these markets have been the benefactors of the US’s low interest rate environment.

Nevertheless, interest rates one day will have to rise. When they do, investors will start shifting their money back into fixed term savings accounts. Bonds trade inversely to interest rates so when rates rise, bonds will come under pressure. The problem with low interest rate environments is that they can create asset bubbles. I believe we have one forming in stocks, in bonds and in certain real estate markets globally. In London, for example, property prices may rise by 30% this year which is unprecedented in a struggling global economy we have nowadays.

Veteran trader Steve Jakobsen believes that we could see a 30% drop in the S&P 500 from these levels. Jakobsen believes that equities is the only asset class that hasn’t been really affected from this ongoing global financial crisis.

Therefore, he believes one day the S&P 500 will revert to the mean which could be as much as 30% lower than where we are now.

Finally, I like the movement oil is making at the moment and I think we have finally found a bottom. Tthe spot price of light crude oil has gone from $108 in June to a rising $95 at the moment. The bottom seems to be in and if oil can rally from here, I believe it will put pressure on the stock market as funds will start to leak into the commodity markets. Oil has the potential to take the whole commodity complex with it when it’s in bull mode, so depressed agricultural commodities such as Corn and Sugar should also benefit. As you can see from the chart below, commodities have struggled as a whole in the last few years as equities have rallied hard.

Yes, equities and oil can rally together and have done so up to January 2013 since 2008 (practically everything rallied once the Fed ran their printing presses) but since January 2013 oil has not participated in the move. Once the Federal Reserve eventually ends all stimulus programs (either voluntarily or by demand), I have no doubt capital will start leaking into the commodity markets and oil. Also if geopolitical tensions in Iraq and the Ukraine escalate, oil will spike and the world stock markets will decline sharply.

To sum up, there are enough warning signals to warrant not being long here in the US stock market. If you still think the rally is not finished, I would advise scaling down your position size.

Central Banks Pump Up the Volume

USA EconomyMy Comments: The US Federal Reserve took a very different approach to helping the economy recover from the financial crisis that began in the fall of 2008. Pushed by Mr. Bernancke, the Fed provided what came to be called QE, which stands for quantitative easing. It kept interest rates low and effectively flooded the economy with cash with the idea it would result in faster recover. This is not to say it was hugely successful.

The European approach was almost the opposite. They avoided the Keynesian approach and instead moved to promote austerity, deprive the economies of liquidity, and force accomodation by governments and business enterprises to take a hit and adjust or disappear. It now appears that austerity was the wrong path. This should have been obvious from the experience of Japan some two decades ago when they took this approach and ended up with what is known as the lost decade. There was virtually no growth for ten years, and while savings accounts grew dramatically, no one spent anything which stymied everything.

Some weeks ago I acknowledged that my personal spending habits, following our crash in 2008, are now part of our problem. If I make money and don’t spend it, my sense of security is increased, as I have money in the bank. But for every dollar that I don’t spend above what is absolutely necessary, about $7 is removed from the local economy. That’s because my $1 represents revenue to somebody else, which in turn means that person can spend it on a new car, or whatever. It’s the multiplyer effect and contributes to the velocity of money.

Now, Scott Minerd says the European central banks are likely to turn the corner and become more accomodating. That means good things for those of you who have money invested in the global economy and growth will be the result.

September 03, 2014 / Commentary by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, Guggenheim Funds

Aggressive central bank accommodation from Europe to Japan and a dovish Federal Reserve bode well for equities and bond prices.

The Federal Reserve’s annual getaway in Jackson Hole is not usually considered a gathering of rock stars, but that’s exactly how the late August event unfolded. The hawks loosened up the crowd with their dark, foreboding lyrics. After that, the doves sweetened the mood, singing a far more melodic and happy tune. Then the event’s two biggest stars—Fed Chair Janet Yellen and European Central Bank President Mario Draghi—hit the stage amid the twin pyrotechnics of easy money and a vision of the future where every worker has a job, and the crowd went wild.

The biggest news was Dr. Draghi’s comments that the ECB may soon have no option but to join the United States and Japan in undertaking more aggressive accommodation through a quantitative easing program, taking up the slack as the Fed ends its asset purchases. “On the demand side, monetary policy can and should play a central role, which currently means an accommodative monetary policy for an extended period of time,” he said, before adding the kicker that the ECB will “stand ready to adjust our policy stance further.”

Reinforcing Dr. Draghi’s outlook was Monday’s dismal data out of Europe’s largest economy. According to Germany’s Federal Statistical Office, German GDP contracted 0.2 percent in the second quarter. As goes Germany, so goes the euro zone, where inflation has fallen to 0.3 percent (its lowest level in five years) and manufacturing is struggling.

It’s not just Europe that could add stimulus. Bank of Japan Governor Haruhiko Kuroda faces similar pressures as Japan’s economy has failed to rebound after a sales tax hike prompted the sharpest economic contraction since the start of 2011.

Back at home, we expect the Fed’s band will keep playing its merry tune for now. The voting members of the Federal Open Market Committee in 2015 will be even more dovish than the current committee. If there is a risk, it is that the Fed will keep monetary policy at a high level of accommodation for longer than previously anticipated.

Financial markets heard the sweet song of easy money from Jackson Hole loud and clear, sending equities up strongly while driving U.S. Treasuries’ prices higher and yields lower. The recent high of the New York Stock Exchange Advance-Decline Line supports this optimistic hypothesis, suggesting that stock prices will continue to reach new highs.

The world’s central banks will be doing whatever is necessary to keep their economies from falling into depression or any other economic malaise. So not to worry: From what we heard in Jackson Hole, the world is a beautiful place and the easy-money band won’t stop rocking.

Bernanke Says 2008 Worse Than Great Depression

FDRMy Comments: Ben Bernancke is no longer Chairman of the Federal Reserve. However, before he became chairman he was widely recognized as a world class economist and an expert of the Great Depression. It was that expertise that gave him so much credibility as he maneuvered the Fed through 2008-2009 until earlier this year.

There is no question that many of us are still hurting. The gap between the haves and the have nots is increasing. The ability of many of us to spend money like we used to is limited, which to some degree keeps recovery uncertain.

There is blame to go around, but not because anyone or sector of the economy was and is evil. That presumes a conspiracy involving thousands of people which is enough to debunk that idea. Bad things happen from time to time. There is little point in worrying about the past; we can only influence the future, but an understanding of the dynamics that led to the mess may be helpful.

Brian Gilmartin, CFA, Aug. 28, 2014

http://blogs.wsj.com/economics/2014/08/26/2008-meltdown-was-worse-than-great-depression-bernanke-says/

The above link was copied and pasted from a Real Time Economics Wall Street Journal tweet yesterday (8/26), after Gentle Ben testified in the AIG litigation recently.

I think former Fed Chair Bernanke was right in concluding that 2008′s recession, if left to run its course, would have been a far greater calamity for the US economy than the Great Depression, but for different reasons:

1.) The money markets and the commercial paper market was at real risk of failure, which means S&P 500 companies couldn’t have rolled short-term high quality CP;

2.) Far more Americans through 401(k)s and pensions, had exposure to the stock and bond markets than Americans had in the late 1920′s and early 1930′s;

3.) A 70 year bull market in home prices came to a crashing halt, the first national real estate depressions since the 1930′s. While the US economy was thought to be a primarily agrarian economy during the Great Depression, single-family homes as a percentage of household net worth, would have been far greater in 2007 – 2008 than in the 1930′s;

4.) The truly shocking action for me wasn’t the Lehman default or even the Bear Stearns default, but the drop in Northern Trust’s and State Street’s stock in late September, early October, 2008. Northern Trust traded up to $88 in September ’08 only to collapse to $33 within a two week time frame. NTRS and STT are “global custodian” banks and thus are huge custodians (recordkeepers) for corporate pension plans and such, with far bigger assets in custody and administration than assets under management. If The Reserve Fund had broken the buck, there would have been true calamity in the Street and although it is simply a guess, I would have thought that the US unemployment rate would have seen 50% easily, at least over the near term;

5.) The Reserve Fund was, at that time (I believe) in 2008, one of the world’s largest money market funds, and if the Reserve Fund had “broken the buck” which means that if the Reserve Fund’s NAV had moved below $1 per share, it could have resulted in a run on money markets that would have made the bank run and the Bailey Building & Loan run (“It’s A Wonderful Life”) look like a day in the park. (The aftermath of what happened with the Reserve Fund in 2008 is that today, the SEC is contemplating and is close to letting money market fund NAVs (net asset values) float. The thought is that the $1 money market price creates a “moral hazard” and what I told a client recently is that what retail investors will likely wind up with is whole array of “ultra-short” bond funds as money market funds, which do fluctuate minimally in price.)

6.) Although some of the fiscal policy has been horrid since 2008, I do think that one of the root issues in the economic recovery following 2008 has been the true “shock” of the drop in real estate and household wealth. Remember consumption is 2/3rd’s of GDP and with the capital markets and the real estate markets, being two of the greatest wealth-creation vehicles post WWII (not to mention the value of an education), it is taking years for the consumer to restore their savings and confidence.

7.) The fact that “disinflation” (a declining rate of inflation) and deflation continue to be an issue 5 years after the stock market low and the substantial economic recovery, is indicative of lingering overcapacity. Part of that is due to the life-cycle of technology which has dramatically accelerated productivity and shortened tech product cycles (not to mention kept a lid on inflation) and part could be demographics and the Aging of America (it is a bigger debate);

8.) The Great Mistake in the 1930′s by the Federal Reserve is that they actually withdrew liquidity sometime in 1935 – 1936, which resulted in another downturn in the US economy in the late 1930′s just prior to WWII. In other words, Fed policy errors actually exacerbated the Great Depression, rather than shorten it. Both Janet Yellen (I’m sure), just like Ben Bernanke are / were both aware of the Fed’s policy mistakes and are obviously loathe to make the same mistake. The fact that there isn’t a meaningful inflation today just makes the Fed’s ability to maintain ZIRP (zero interest rate policy) and low rates that much easier. However it will end at some point, and we will get some inflation, I would suspect.

Most intelligent investors blame leverage on the 2008 collapse, but I think it was far more involved than that. It just wasn’t that simple.

In client meetings the last few years, I’ve been telling clients that there is less than a 5% chance that they will see the 2008 confluence of events happen again in their lifetime (probably less).

Certainly I could be wrong, but I continue to think the US economy, and the US stock market, particularly the S&P 500 is in a perfect glide slope of healthy, albeit subdued growth, low inflation, and a healthy respect for stock volatility and negative sentiment on the part of retail investors.

One commentator from PIMCO called it the “Goldilocks economy” and the metaphor seems appropriate.
We will see S&P 500 corrections over time, but I will bet in 10 years that we will look back and see this period of time as similar to post WWII economic stability and growth. Perhaps that conclusion is somewhat of a stretch given the demographics of the US economy today, but we’ll see.

Thanks for reading today. We’ve been contemplating this commentary on 2008 for some time. Watching NTRS and STT trade in late September, early October, 2008 was one of the few times, I’ve felt true fear watching the stock market. The potential collapse of the money market as was being telegraphed by the global custodian banks, would have been a horrific scenario to conceive, let alone experience.

When all the books are written about the “near Great Collapse of 2008″ after 20 – 30 years of hindsight, I do think Ben Bernanke, then Treasury-Secretary Hank Paulson, and Tim Geithner will be due a huge debt of gratitude.
For a few days/weeks, educated American’s had a brief look into the abyss. It won’t be forgotten by those of us that sat through it.

Before You Send Your Child Off To College…

108679-bruegel-wedding-dance-outsideMy comments: Yes, I know this should have been posted several weeks ago. But I didn’t have it then.

The advice come from an attorney in Michigan by the name of Julius Giarmarco whose website can be found HERE. I’m unsure how rules in Michigan differ from any other state but I suspect the fundamental thoughts he offers will apply to whatever state you either live in or where your child is enrolled.

If they have already left for college, put it on your to-do list for Thanksgiving or Christmas.

Before sending your child off to college, have him/her sign a General Durable Power of Attorney and a Patient Advocate Designation. Without them, under Michigan law, parents cannot make financial or health care decisions for a child who has attained age 18 (without probate court approval) – even though the child is still a dependent and still covered under the parent’s health insurance plan.

The General Durable Power of Attorney deals with financial matters. In the event of an unexpected disability, it allows the attorney-in-fact (presumably, one or both of the parents) to handle all of the student’s business, financial and school affairs, while the student is unable to do so. The attorney-in-fact must accept the designation in writing and acknowledge his/her responsibilities.

The Patient Advocate Designation allows the patient advocate to make the student’s health care decisions. Similar to the General Durable Power of Attorney, the designated patient advocate must sign an acceptance before he/she may act.

This document permits the patient advocate to make care, custody, and medical/mental health care decisions for the student when he/she can no longer make those decisions. It also permits the patient advocate to withhold or withdraw life support and to make anatomical gifts.

Compared with other college expenditures, the nominal cost of preparing a General Durable Power of Attorney and a Patient Advocate Designation could turn out to be a good investment when compared to the cost of seeking a probate court approved conservatorship or guardianship.