WHAT TO DO, WHAT TO DO
We have examined the financial crisis of 2008 and its major effect of forcing a larger role for the Federal Government in the economy. In addition to its traditional roles such as setting monetary and fiscal policies, being the largest single consumer of our economic output, and promoting full employment, the Feds are now the most savvy and single largest investor in the US private sector. I have made my position clear, I like it, since Uncle Sam will now have a new income stream from his investments that will lessen his need to raise taxes.
But how does the individual manage his own economic affairs in this, "New Economy?" Where does a newcomer find a job when the unemployment rate is at a record level? What does a person do with the remnants of his retirement fund? What does he do about his investments in general? What does he do about his home that may be worth less than the debt on it?
EMPLOYMENT
Let's start with employment. I said in an earlier note that the obvious place to look for work is the Federal Government. I have seen reports that incoming President Obama will add vast numbers of new employees to the Federal Roles. Why? Well first we need people to monitor the huge new investment portfolio Uncle Sam has acquired in his effort to stop the financial crisis and get the economy moving North again. As I have mentioned, the Feds have now acquired a major stake in our largest banks, the largest insurance company in the land, the core of our mortgage industry, Fannie Mae and Freddie Mac, and a stake in our auto industry. Someone in the Federal service will have to keep track of these massive new investments. Others will have to lead further Federal expenditure to stimulate the economy.
Where will these jobs be housed? Well the Treasury, the Federal Reserve Bank, the SEC, FDIC, for starters. No doubt we will create new agencies to handle some of the job as well. Who will get the jobs? Well the obvious candidates will be economists, accountants, finance specialists, and business graduates. But he will also need labor specialists and other related skills. I see this being the greatest opportunity for a career in Federal Service since the New Deal came to Washington.
Two other major growth areas for new jobs are health care and education. No matter how badly the economy may fare, there is a major unfulfilled demand for these skills. An interesting facet of this high demand is that the highest demand for new talent in education is in post secondary education, led by the rapidly growing community colleges and less structured schools, e.g. online universities.
Another area of strong skills demand is the law, enforcement and litigation. A related area is security where employment is growing exponentially.
Certainly the other major leg of the "New Economy" - globalization, holds great job opportunities for those with knowledge of other languages and peoples, to how to operate in diverse societies.
INVESTMENT
As bad a rap as investment in real estate has taken, it is still better than investment in equities. The average value of a home has tumbled from its high point in January 2007 to January 2009 by 10-14%. Meanwhile the Dow Jones has lost 23% from its last high in 2006 to January 2009. Moreover, the house still provides that added benefit, shelter, not offered by shares in companies. So, before selling off the homestead, one should take a closer look at the alternatives for his funds.
But what to do with the funds you have in the "market?" Most investment portfolios allot the funds to several classes of investments that hopefully yield a good rate of return and a measure of security. However, the old maxim, the higher the risk, the greater the return may no longer be true. Who would have thought two years ago that that main stable element in ones portfolio, bonds, would be the most dicey proposition now? All bonds have been tainted by the mortgage based bonds that have been blamed for the whole mess.
The only exception to this situation is Federal debt, i.e. Treasury bills. Why? Because holding T-bills is still considered to be the same as "cash" and all advisers are screaming at you to put most of your portfolio in cash.
Where do I suggest you put your investment funds? Easy, follow the money. In this case follow Uncle Sam in his acquisition of private sector assets. My present portfolio consists of shares in the banks where Uncle Sam has taken a stake and, believe it or not, Fannie Mae and Freddie Mac. Through his purchases Uncle Sam is creating a base market for these assets from which they can grow.
There is one other factor to consider. The only way to make money in the financial markets now is to be a "day trader." The market will continue to experience dramatic ups and downs as the overall uncertainty gives rise to all kinds of bets on what will happen. Obviously the only mutual funds to consider are ones that do trade on a daily basis. My suggestion here is to put your funds in an internet trading service, e.g. Scottrade, and manage your account yourself.
RETIREMENT
Well the only safe bet here is to get into Federal Service. Many state and local government retirement schemes have suffered mightily from the financial crisis, needless to add private retirement funds have suffered even more. For most the reality is that you will have to pay more attention yourself to your retirement fund. How to do this? Well see the section on investment above.
HOW ABOUT ME?
Obviously it is impossible to cover every possible personal situation in a general discussion. Thus I will be more than happy to address individual situations and questions either through this column or in private correspondence. Please address your inquiries to leo@cecchini.org
Leo Cecchini
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