New Beginnings

   The bottles popped, the ball dropped, the fireworks went off, and just like that another year had ended.  The doors to 2016 had now closed and for better or worse there was no going back. But for some reason, as charities peppered everyone for last-minute year-end deductions, I kept thinking back to words I had heard earlier from CEO Ricardo Semler who said, "When you think and you say, now is the time to give back -- well, if you're giving back, you took too much."  It's almost mimics that haunting line from John Lennon's Imagine which asks, "Imagine no possessions; I wonder if you can."  It admittedly sounds good but he's right, it's difficult to do.  In such cold weather, I can't imagine not having a warm coat or the comfort of coming back to a heated home or room.  But the words are there to make us indeed imagine what it would be like to not have those comforts, of carrying everything you own in your hands and then dropping it all just to run and try to make it to safety (as was reportedly done by many of those who were fleeing portions of Syria during the on/off ceasefire, many of whom failed to make it even then).  But that was all happening off in some distant land, a place heavily populated but so foreign and so unimaginable that it might as well be a location in Harry Potter's world (I didn't even know much about Djibouti, a country the Associated Press described in 1977 as lacking resources, "except for sand, salt, and 20,000 camels" but is now a major home for the U.S., Germany, France, Italy, Spain, Japan, China and now a flood of refugees from nearby Yemen; or that it's neighboring country of Ethiopia was nearing completion on Africa's largest dam).  My ignorance.  

   Here's another area that seemed alien to me, the 47% of the U.S. population.  It was the lead story in The Atlantic that discovered that 47% of several surveys' respondents would not be able to come up with $400 for an emergency.  Author Neil Gabler wrote: You wouldn’t know any of that to look at me.  I like to think I appear reasonably prosperous.  Nor would you know it to look at my résumé...You wouldn’t even know it to look at my tax return.  I am nowhere near rich, but I have typically made a solid middle- or even, at times, upper-middle-class income...And you certainly wouldn’t know it to talk to me, because the last thing I would ever do—until now—is admit to financial insecurity or, as I think of it, “financial impotence,” because it has many of the characteristics of sexual impotence, not least of which is the desperate need to mask it and pretend everything is going swimmingly.  In truth, it may be more embarrassing than sexual impotence...So I never spoke about my financial travails, not even with my closest friends—that is, until I came to the realization that what was happening to me was also happening to millions of other Americans, and not just the poorest among us, who, by definition, struggle to make ends meet.  It was, according to that Fed survey and other surveys, happening to middle-class professionals and even to those in the upper class.  It was happening to the soon-to-retire as well as the soon-to-begin.  It was happening to college grads as well as high-school dropouts.  It was happening all across the country, including places where you might least expect to see such problems.  The results of several studies found this conclusion, as author Gabler adds: Nearly half of American adults are “financially fragile” and “living very close to the financial edge.”

   Wait, wasn't the Dow Jones nearing a record high?  Wasn't unemployment way down?  As Fortune wrote: If the economy is recovering, most Americans have missed the memo...two-thirds of respondents to a June poll by the center-left think tank Third Way said the country is divided into “haves” and “have-nots,” but by nearly the same margin they classified themselves among the “haves.”  The poll found huge support for the idea that our economic system is biased, with 78% agreeing that “there are bailouts for the top and handouts for the bottom but nothing for those in the middle.”  But an accompanying reality-check article showed real wage gains, home prices rising and automation not being as prevalent as thought (so much for robots).

  Graph from Fortune 09/2016

 

 

  
   So who's right here, or are both sides showing a bit of reality?  A year ago, assistant managing editor of TIME, Rana Foroohar, wrote: What's amazing is that the real economy in the U.S. is getting stronger (recent payroll numbers were the best since 2006), even as the European economy is plunging into another episode of telenovela that is its debt crisis.  It's a bizarro world that makes sense only if you try to understand how central banks work.  Central bankers pump money into the market when they perceive their home economies as being weak.  They pull back when they sense a sustainable recovery is in hand.  The end result is a complete divergence between the real economy and the markets.  What??  Is this some sort of a banking maze that the average person is trapped in and can't see over the walls?   Adds author Gabler: Basically, a good many Americans are “financially illiterate,” and this illiteracy correlates highly with financial distress...Take me. I plead guilty.  I am a financial illiterate, or worse—an ignoramus.  I don’t offer that as an excuse, just as a fact.  I made choices without thinking through the financial implications—in part because I didn’t know about those implications, and in part because I assumed I would always overcome any adversity, should it arrive...A 2011 study she (Annamaria Lusardi of George Washington University) and a colleague conducted measuring knowledge of fundamental financial principles (compound interest, risk diversification, and the effects of inflation) found that 65 percent of Americans ages 25 to 65 were financial illiterates.  Ouch, and what a horrible way to welcome in the New Year.

   I think I prefer the sage advice of the recently-retired Stanley Bing who used to quip for Fortune.  He starts out with this: Perhaps you’re one of the smart or lucky people whose money works for them.  Sadly, I am not.  Maybe my money is just lazy or something.  But I have to do it the other way around.  I have to work for it.  Nobody pays me like a Kardashian just for showing up at the party.  Or rewards me with a nice slice of money pie for sitting on my fundament and advising other people which way the weather is going to turn, whether or not I get it right.  Or gives me a tumbler of 23-year-old Pappy Van Winkle to sip as I search for micro shifts in global currencies.  No, my fate, it seems, is to rise at dawn, scrape my face, strap on a monkey suit, and go out the door to labor in the mines until the whistle blows and I can drag my tired carcass back to my little pallet to grab a few hours of rest.  Then the next day dawns, and I start it all over again.  I don’t do it because I love it all the time.  I do it because they pay me.  That’s why they call it a job, I guess.  I don’t mind it, exactly, but I’ll tell you that I certainly do appreciate every dollar I’ve managed to assemble after years of digging that salt.  And losing any of it for any reason whatsoever makes me sort of sick to my stomach.  The entire set of seven tips of his investment advice is humorously true but this tip might be my favorite: If You Want to Gamble, Go to Vegas.  Have you been? Visit sometime.  Stand in the middle of a big casino.  Now spend some time wondering how this is different from the investment game.  Go ahead.  Tell me how.

    So one year has ended and a new one has begun; and I don't think any of us would think of ourselves as ignorant or illiterate...or that we've "made too much."  But even the simplified view presented above on how many in the U.S. are viewing their finances serves to show a divide, an open wound that we might see was possibly there all along, festering under a rather large bandage and one that now needs to heal.  The doors have closed on 2016, and we now have no other option than to turn around and look both down at our feet and outward to the way ahead.  It's a new beginning as it has been before and who knows what awaits.  It's a new year, a Happy New Year, so let's begin...as Jean Luc Picard would have said, "Make it so."