The times they are a-changin’ for investors

Nick Massey
The Edmond Sun

EDMOND April 26, 2008 10:38 pm

— “Come gather ’round people wherever you roam; and admit that the waters around you have grown. And accept it that soon you’ll be drenched to the bone. If your time to you is worth savin’, then you better start swimmin’ or you’ll sink like a stone. For the times they are a-changin.’”
Bob Dylan wrote these words in 1964 and the words are now a great metaphor for these turbulent financial times. I think we are now seeing the beginning stages of a fundamental shift from a society that spend to one that saves, or at least spends less, with profound implications for all of us. On an individual basis, spending less and saving more is a good thing. From an economic standpoint, it’s disastrous.
Consumer spending, which is 70 percent of the economy, has steadily increased since 1980. Some of it was with money people didn’t have. Consumer spending is likely to peak soon as the biggest segment of our population, and that of most industrialized societies, reaches and passes their peak spending years. Their emphasis will start to shift to saving and getting out of debt as they realize that retirement is just around the corner. Some will do it because it’s the smart thing to do. Some will be forced into it because they won’t have the extra money to spend anymore and they won’t be able use home equity and more debt to prop up their spending habits.
Because of the credit crisis and financial excesses recently brought under the spotlight, we also are seeing the massive de-leveraging of the credit markets and the end of the days of easy credit. This is just the beginning. The easy money is gone and lenders will become much more cautious. These two factors alone likely will cause a major change in the markets and world economies during the coming decade. The times truly are a-changin’. Hopefully you are thinking about the future adjustments you will need to make with your investments and savings or your portfolio may “sink like a stone.”
When rock and roller Buddy Holly was 4 years old, he insisted on playing his toy fiddle in his uncle’s band. It made a terrible sound so his uncle waxed Buddy’s bow. He could still fiddle, but he made no sound. Maybe we can get somebody to wax some of the bows on Wall Street and Washington, D.C.
Fortunately for me, my bow is not waxed and I feel an overwhelming urge to talk about bail outs.
Everyone is absolutely adamant about not using taxpayer funds to bail out Wall Street, mortgage lenders, housing speculators or the devil of the moment. Everyone agrees without noticing that their pockets just got picked. Fed Chairman Ben Bernanke insisted that Bear Stearns was not a bailout and I’m sure the shareholders would agree. But it sure felt like one.
Have you ever been in a situation where you felt like you just got cheated but you couldn’t figure out how? A friend of mine is fond of saying that, “if you’re sitting at the poker table and you haven’t figured out who the sucker is, it’s you!”
Pimco Funds’ Bill Gross pointed it out this way: “Twelve months ago the yield on your money market fund was about 5 percent but your next statement will probably feature something closer to 2 percent. Did your money market funds (which in aggregate approaches $3 trillion) experience any capital gains in the process? Absolutely not. So, it looks like your (the taxpayer’s) contribution to the bailout of banks, or Florida condominium speculators, can at least be quantified: 3 percent foregone interest per year on whatever you own.”
In addition, the inflationary implications of all this suggest your contribution to the bailout will be even greater, since you’ll likely wind up paying higher prices for may of the things you’ll buy. Thanks for reading.

NICK MASSEY is a financial adviser and owner of Householder Group Estate & Retirement Specialists in Edmond. He is also a frequent guest analyst on CNBC and Bloomberg.