I’ve got this song running through my head and I can’t turn it off. In fact, I seem to have a mental song playing most of the time. Often, if I think about it, I can find some connection between the song and what’s going on in my life currently. It’s like my brain has learned (from years of exposure to movies, TV, and sporting events, I suppose) to provide a soundtrack to my life.

Over the last several years, two songs in particular have settled into my brain in connection with my working life. On good days, I hear BTO’s "Takin’ Care of Business." The lyrics actually decry the nine-to-five routine, but the music is powerfully positive and the chorus is the universal anthem to getting things done.

Taking care of business (every day)

Taking care of business (every way)

I've been taking care of business (it's all mine)

Taking care of business and working overtime

Work out

Other days, I don’t feel like I’m takin’ care of things the way I’d like, or even the way that is expected of me. At those times, Lee Dorsey’s (or more recently, Devo’s) "Working in a Coal Mine" tends to find its way into my head. Here, again, it’s upbeat music with downer lyrics, but the lyrics fit this time.

I'm workin' in a coal mine

Goin' down down down

Workin' in a coal mine

Whop! about to slip down

Workin' in a coal mine

Goin' down down down

Workin' in a coal mine

Whop! about to slip down

Five o'clock in the mornin'

I'm all ready up and gone

Lord I am so tired

How long can this go on?

I believe that the music that describes my workaday life – whether it accompanies situations that are positive or negative – indicates that I am usually at least "charged up" about my work. Good day or bad, I’m energized by the environment.

Lately, though, as thoughts of retirement find their way into my consciousness, they have been accompanied by another very different song. Its impetus is obvious to me, now, but was totally unexpected.

What song? I’ll tell you next time. Until then (acknowledging that this opens me up to considerable abuse), any guesses?

Later.

Okay, here’s one for you.

Cranky.com

It’s basically a search engine. Like Google. But, it’s tailored for those of us who are too old or too Internet-inept or too . . . cranky? . . . to appreciate the power of today’s popular search engines. For instance, a Google search for “headache remedies” (a randomly chosen topic; I rarely need them) nets about 124,000 hits, displayed 10 per page. Use Cranky.com and you see four hits. Also, there’s one button to push if you want to narrow your search (they suggested “headache home remedies” for this search), another if you want to expand it (“migraine remedies” was suggested), and ten places to click at the bottom of the page if you want to see hits five through 15.

Unlike most places on the Web, the pages showing the search results are clean and uncluttered, another feature greatly appreciated by those of us dealing with age-related ADD. They do, however, include a few links to “sponsored sites” of companies wanting to sell stuff to our demographic segment.

If you have time on your hands (a topic for future discussion) and are 50+ in age (blatant age discrimination), you can register. This allows you to rate any sites you access using the Cranky search engine. It is these ratings by registered “members” that are used to rank the sites and determine which sites make it to the top of the list in any search. (This ranking aspect is portrayed in the site name – cRANKy.) The ranking process makes your search results more likely to meet your particular needs. That’s the theory, anyway.

I haven’t used it a lot yet, but it does seem to perform as promised, and it provides access to a lot of other content pertinent to retirement. I did stumble across one amusing tidbit in my test search for headache remedies. I learned that the Wisconsin Badgers basketball team isn’t the only aspect of Madison that is #2 in the nation. We’re also the nation’s #2 “migraine hotspot” according to a website called Mind Over Migraine.

Maybe that’s because too many of us are doing too many Google searches.

Later.

Being the ardent thinker I can’t help but be, I think I know what you’ve been thinking (some of you, anyway):

1. Wasn’t this supposed to be a weekly communication?
Yes, I got sidetracked from this avocation by my vocation. I’m still shooting to get something of interest to you approximately weekly.

2. Isn’t a blog supposed to be two-way – a dialog?
Right again. We recently found that the “comment” area on our site was locked out for most readers for the first several days of this site’s existence. To anyone who tried, I apologize. Please try again.

3. What if I want to make a comment, but not for public dissemination?
All comments come directly to me, then I post the ones I think will be of interest to other readers. But, if you don’t want your comment posted, just say so. I may quote or paraphrase you, however, with attribution to “anonymous.”

4. Another question on the nature of this communication medium -- isn’t a blog (a contraction of “web log”) supposed to document one’s travels around the web, sharing amusing sites, tidbits of knowledge gained and whatever else the blogger finds of interest?
Boy, you’re good. That’s the question I had when this idea was originally proposed. But, I don’t have a lot of time to wander the Net. So, we decided I would build a framework of issues and views (all relating in some way to retirement) with the first several postings, then tack on some web-based content later as I find time to find it, all the while letting you, the readers, provide web link references and whatever else you have found that is of interest. So, I’m betting on you to come through for me!

Later.

As promised, here’s how I see the markets as we move into 2007. At the end, I’ll give you my view of what an investor should do in response to these expectations.

1. Stocks look slightly more attractive than bonds.
   a. Bonds could suffer a bit as interest rates on two-year and longer bonds edge modestly higher while short rates decline.
   b. Stocks will have to deal with slowing economic (revenue) growth, shrinking profit margins and continued high energy and employment costs, but should benefit from their current relatively low valuations and from waning inflationary pressures.
2. Within bonds, lower quality issues have outperformed to the point that they now provide very little incremental yield over U. S. Treasurys. So, the long-term value is in the higher quality end of the market.
3. Similarly, within stocks, lower quality shares (those of smaller, less established and less financially sound companies) have outperformed significantly over the last few years, making them very fully valued on a historical basis relative to higher quality shares. Established growth companies (in technology and health care in particular) have lagged a lot and appear especially attractive at current valuations.
4. International stocks and bonds have generally outperformed the U. S. markets, but still look at least as attractive as their domestic counterparts.
   
   So, what should you do? Not much. Just be sure you aren’t over-exposed to the more fully valued areas. After a few years now of outperformance, high yield bonds, small-cap stocks and value stocks are likely to be over-weighted in your portfolios. If so, back ‘em down to your target allocation levels.
   
   Why not go further, maybe even doubling up on the more attractive areas? Because it could be awhile before the market begins to correct this historically based anomaly. (Keynes said it well: “Markets can remain illogical far longer than you or I can remain solvent.”)
   
   Without an external shock of some kind, it appears very doubtful that the economy will slow enough to stress those lower quality stock and bond issuers. So, their stocks and bonds are likely to stay relatively expensive for at least awhile yet. In the interim, investors will continue to prefer the slightly higher yields and slightly faster expected earnings growth from these lower quality issuers, even if they have to pay up for them.
   
   So, for the more aggressive and nimble investors, I’d say stay with what has worked until it begins to show signs of fading. Moderate risk investors should be moving from what has been working into the lagging areas. Conservative investors should already be there.
   
   And, all investors should be looking for decent-or-better 2007 returns (while acknowledging that we don’t get to know for sure what the future holds).
   
   Later.

Some thoughts on investing . . . and on investors, including myself.

I worry too much. Odds are you worry too much, too. Most of the things we worry about never come to pass. The few that do are rarely as bad as we had feared.

So, if you’re paying attention, you’ve probably caught yourself thinking, “Hey, that wasn’t so bad after all” far more often than, “Wow, that was way worse than I expected.”

I and probably most other stock investors have been experiencing this “wasn’t so bad” thought/feeling a lot lately. I can almost hear a collective “Phew!” as most of our fears from 2006 fade away:

• Energy prices – set a new record high (though not if adjusted for general inflation), but have eased considerably since then
• Inflation – remained well behaved at only slightly above the Fed’s target range
  Fed rate increases – halted mid-year at a not-too-restrictive level, and are likely to trend down from here
• Housing bubble – definitely lost some air, but only slowly, and appears to be stabilizing
• Consumer spending – held up remarkably well (it’s become part of our culture)
• Corporate profits – actually expanded further (we do capitalism very well), but could fade some with the slowing economy
• Weather – no global warming-induced repeat of 2005’s hurricane season

Overall economic growth – slowing, but still the not-too-hot, not-too-cold “Goldilocks” economy investors love.

So, the late-2005 consensus expectation for mid- to high-single-digit stock returns in 2006 was only about half right – we got twice that amount (the S&P 500 for example gained more than 15%, and the Dow nearly 17% to new highs) as our fears proved to be excessive. And, we all wish we would have owned more stocks!

Now, the consensus expectation for stock returns in 2007 is . . . mid- to high-single-digits. Again. And again, it’s likely to be wrong. Again, too conservative. Besides all the favorable factors noted above, stocks should benefit from some other potentially even more powerful influences:

• Valuation – Stock prices rose in 2006, but for many companies, earnings advanced even more. So, average P/E multiples are lower than a year ago. The S&P 500 is selling for about 15 times 2007 expected earnings. This is below the historical average and well below the levels that have typically prevailed when interest rates and inflation were as low as they are currently. Unless inflation and interest rates turn up significantly, P/Es should expand as we move through 2007.
• Supply and demand – Companies have been buying back their own stock and acquiring other companies, reducing the supply of stocks and putting money to reinvest into the hands of stock investors. This supply/demand imbalance is expected to grow even more in 2007.
• Weak dollar – The lower dollar makes our nation’s exports less expensive to buyers in countries with stronger currencies, aiding our economic growth, which helps sustain employment levels, which provides support to consumer spending, which can’t help but buoy stocks.

Global liquidity – The world is awash in liquidity, much of it in the form of U. S. dollars, reflecting our trade deficit, broad global economic growth and excess global saving (the saving rate in China is 40%!). This will help keep inflation and interest rates low, fostering higher valuations for stocks.

So, no worries? Of course not. We still have limited and vulnerable energy supplies, falling home prices in many areas, uncertainty from the coming change of leadership in Washington (regarding tax increases, new regulations, trade restrictions, etc.), terrorism threats, natural disasters, epidemics . . . the list goes on. And, in spite of those who contend that “it’s different this time,” the market almost never goes five years without a cyclical sell-off. And, periods of low stock and bond price volatility and of increasing Fed funds rates (we’ve had both for some time now) are almost always followed by weak markets.

So, sure, we could well see a market set-back sometime in 2007. But, we both know that few if any of the many risks on the horizon will actually occur. And, any that do are likely to cause fewer and milder and more temporary problems than we expect. So, the environment for stock investors is likely to be better than we expect.

Because we worry too much.

So, let’s lighten up. Or, at least let’s acknowledge our innate tendencies to overemphasize the potential negatives.

Then, maybe we can more often invest right even though we so often think wrong.


(Next time, unless something better comes to mind, I’ll share my views as to which investment categories appear the most and least attractive as we head into 2007. Sometime, though, I want to touch on why (besides our natural negativism) we humans are often such poor investors. Also, I’ve found myself thinking a lot lately about aspects of retirement other than things financial, which gets into some areas I may be totally unprepared for. Scary stuff! Later.)

It’s been over a year since the last communication went out under the IBT banner. I understand a few of you, at least, missed seeing them and wondered what I’ve been doing. Well, if you think I haven’t been thinking, think again.

A topic I’ve found myself thinking about a lot lately is retirement – in general as it applies to our clients and specifically as it applies to me. I’m within a year or two (or three . . . ?) of a career change that will probably be perceived by most as retirement. So, a few of us here in MEMBERS Capital Advisors thought it might be helpful to some of our representatives and clients if I were to share my thoughts on retirement as they accumulate over the next several months. And, we’d like to hear some of your thoughts on my thoughts. Hence, the blog format – today’s equivalent of the open-ended coffee house conversations of my younger days.

Why would reps and clients be interested in my thoughts on retirement? They may not; that’s yet to be determined. If some do, though, it will probably be because of two things. One, I recently completed my 36th year of managing investments for institutions and individuals. I have learned a few things about investing that I believe are worth sharing. Even more likely to justify some interest, however, is my more than 60 years as a “time scout” doing life reconnaissance for the baby boom generation. I was born two and a half months before the first boomer (officially, those born between 1946 and 1964) and have been leading them through life (in age, at least) ever since.

As one of this generation’s lead dogs, whatever I saw as newly important or interesting or appealing at my age would soon become important, interesting or appealing to many of the millions of boomers who followed – as I ran on ahead to the next new thing. I saw this happen in food (pre-prepared, then drive-through, then organic, then non-fattening), cars (muscled, then compact, then vans, then SUVs, then muscled again, but nicely appointed this time), music (Elvis, then the Beatles, then . . . a long dry spell that led to classical for some, country for others and both for many), as well as in the many other aspects of life in the USA.

And now, of course, the topic that’s particularly important and interesting and appealing to me is preparing for and living in retirement. Hence, this blog. I expect to post something here approximately weekly. And, I hope you will visit it regularly in the weeks to come, and will also occasionally share your thoughts* on my thoughts or on the topic in general. I hope to be informed and entertained by you, too.

So, for now, I wish you and yours the very best in the New Year. We’ll talk more later.

* It’s my blog (with the support of my employer), so I get to make the rules. And, I get to make them up as I go. Initially, there will be only one rule, and that is that I get to review everything submitted from readers for posting, and I may delete any or all of anyone’s input before or after it is posted. I intend to do that only where I believe the potential negatives outweigh the likely positives – to our other readers, my employer and me in total. I will acknowledge any partial deletions, but may or may not note total deletions. I hope never to have to do either.