What it means – the high cost of fuel is trickling (no pun intended) through the system. Almost everything we purchase has some sort of fuel component to it. As gasoline remains high, the cost of retail items and manufacturing items will creep higher to try to capture the increased cost.

First use: “3/12/2012″

What it means – Wages are flat or slightly slightly, but prices are moving up, even more that the BLS reports. Oddly, the BLS calculated that as an item goes up in price, we less of it. (geometric weighting), so even though we have to drive to work and to get the kids, the BLS calculates that we will walk, ride our bikes, or take public transportation thereby pushing down the effect of higher prices on our budgets. This calculation can be seen by comparing the amount of health care costs in the BLS inflation calculation (6% of the total), with the amount of health care paid for in GDP (18%). As the price of health care shot higher over the last 20 years, the BLS figured we would use less. Right.

All of this points out that the effect on consumers of rising fuel prices is much greater than calculated by the BLS. We have less in our budget for food, education and that much ignored category – savings.

First used: “3/12/2012″

2 The Economic Times, January 11, 2012

What it Means – This is the second lower reading in a row, and is not the sort of thing that builds confidence in a growing recovery based on consumer purchases. This does fit the rest of the economic picture, as the jobs picture has not improved appreciably and, more importantly, wages continue to be under pressure. Given these two realities, expecting retail sales to march ever skyward seems a bit of a reach.

1. www.bloomberg.com

1.  How much you save – whether it’s saving in your Thrift Savings Plan or outside investments or real estate, you control how much you save now.  This is a piece that Congress can’t dictate. You get to determine how much you’re willing to forego today in order to protect your interests for the future.

2.  Where you save – if you’re in FERS, of course, you’ll save at least 5% in the TSP…you get a 5% match from the government.  Savings beyond the 5%, however, are a different story and require more thought.  TSP has very low fees (which can erode your return), but there are a limited number of investment choices.  You may want to investigate a wider range of investment options or you might prefer that some of your funds go to a Roth IRA investment where the growth is tax-free.  There will be a Roth TSP option coming in 2012, so pay attention to determine whether it makes sense for you to save something here.

3.  How you allocate the funds you’re saving – this is probably the most common question we hear from federal employees. How should I allocate my TSP? It’s particularly difficult in the economic times we live in. Many TSP participants started in the TSP in the ‘90s when investing was nearly as easy as throwing a dart.  The last eleven years have been more difficult.  There’s no one who cares about your TSP more than you do, so developing a strategy for allocating and managing your TSP is more important than ever before.  If your pension benefits were cut, the TSP is the piece of your retirement that you control.

4.  Keeping the cost of your benefits (i.e., insurance coverage) at the appropriate level – you’ll notice that I didn’t say keeping them low at all costs.  You have to evaluate the overall expenses involved with your coverage.

For example, if you choose a low-cost Federal Employee Health Benefit option, only to pay huge out-of-pocket expenses, it didn’t doyou much good to save on premiums.  Your overall health care expenses are the marker you’re looking to lower.

The same is true for the Federal Employees Group Life Insurance plan. Start with how much coverage you need, then start to look at the best place to obtain your coverage. This is different from the FEHB in that you can go outside of the federal universe to look for this other coverage. Are you healthy enough to get private life insurance? Would it provide a lower cost, longer term coverage or better benefits? Having a plan that is tailored to your situation can save you money.

Watch this column in future months for more tips on taking control of your benefits. If you’d like to take advantage of a complimentary insurance review, contact our office.

We leave one crazy financial year behind and begin what should prove to be another!

There’s an old adage about the safest way to commute being on a rollercoaster.  Even though it goes through twists and turns, and can even go upside down, it is generally safe and always gets you back to where you started.  Unfortunately, at the end of the commute you have not advanced at all and the ride cost you money.  Looking back over 2011, this seems like an appropriate description.  Looking forward to 2012, it looks like more of the same, without knowing exactly where it will end!

While unemployment has fallen slightly, the US economy is replacing high paying jobs with low paying jobs.  A recent study from Rutgers University (“Out of Work and Losing Hope”, Zukin, Van Horn, and Stone, September 2011) shows that of the people who lost jobs in 2008-2009, 52% of them took a pay cut when they found a new job.  Of course, this only applies to those that found a new job, which was roughly 43% of the group.  That’s not good news for those who lost their jobs, and it is terrible news for those just entering the workforce.  It is this pressure that is keeping wages low, which ripples through the economy in the form of lower spending, less use of credit, and a generally higher level of repayment delinquencies and foreclosures.

On the real estate front there are competing forces.  Builders have been selling more new homes, but at lower prices.  This could be the normal outcome of having builders sit on empty land for years.  Eventually they have to build homes in order to get rid of their raw land.  If the way to do this is by selling at lower prices, then so be it.  However, this has a huge side effect, it puts even more downward pressure on existing home prices, which have continued to fall in price for another year.

These types of macroeconomic issues would generally be enough to cause a stall in equity prices, but lately there has been an up-tick as large companies have posted decent profits.  Among these companies are large multinational firms that earn significant portions of their revenue outside of the US.  With Europe on the ropes and China slowing down, the outlook for foreign revenues has dimmed.

What all of this means is that the financial crisis of 2008 has yet to be fully addressed.  There have been continual government programs meant to push the economy higher, only to have limited, if any, success.  The same is true in Europe and even in China.  The secret source of all of our woes is not very secret at all – it’s debt.  We have too much debt in the US, the Europeans are certainly weighed down by it, and the Chinese are just now revealing the massive amounts of debt that were used to propel their economy higher over the last few years.  Until there are clear plans for dealing with all of the debt, the rest of the programs that are being implemented or discussed will have limited positive affect.  To us as investors, this means another crazy year of tumultuous market moves, punctuated by government pronouncements and, most likely, more failed policies.

The act of investing has become much harder in the last four years, but that does not mean that we can shy away from it.  Now, more than ever, investment discipline and the hard work of research and education show their worth.

What it Means – After several weeks of jobless claims falling, the measurement shot higher to just under the magic 400,000 this week. Of course, since this number gets revised 99.9999% of the time, look for the true nuimber to be over 400,000 when revised on January 19th. Is this a reflection of outsized seasonal hiring (and firing) for the holiday? Could be.

1. www.bloomberg.com

After a month of choppy volatility that has kept investors on edge, it was a welcome respite.  It appears that—at least for now—the world as we know it isn’t ending.  But given that our retirement portfolios are on the line, we should read headlines like these with a skeptical eye.  The coordinated action by the Fed, the European Central Bank, the Bank of England, the Bank of Canada and the Bank of Japan should guarantee that, at least for the time being, we don’t have another 2008 “Lehman Brothers moment” where the financial system goes into cardiac arrest. That’s the thinking, at any rate.

But the action does nothing to address the excessive government debts that led to this crisis in the first place.  Italy still has debts in excess of 120% of GDP, and much of the rest of the Eurozone is not far behind.  And while we like the enthusiasm of policy wonks who suggest that Europe can grow out of its problems if only the countries implement the proper free-market reforms, it simply may not be possible.  Aging demographic trends in much of the Eurozone make the fast-growth of the post-World-War-II years next to impossible.

Suffice it to say, Europe has some very difficult choices to make—such as whether there should be a unified Europe at all.  All of this creates uncertainty, and markets tend to hate uncertainty.  So, expect a lot more choppy volatility.  Hope for the best, but prepare for the worst.

As we enter the last month of 2011, we have a lot to look forward to in the New Year.  We will have a presidential election, with all of the excitement and hope that a new election cycle brings.  We will have an Olympic Games in London.  (Britain’s Queen Elizabeth II will also be celebrating her “Diamond Jubilee” of 60 years on the throne for those looking for an occasion to celebrate.)

Regardless of what happens in the European sovereign debt crisis, life will indeed go on.  European states have defaulted on debts numerous times over the centuries.  The cycle of debt and default is, for better or worse, part of the rhythm of history.  As investors, we simply have to be smart about how we allocate our funds and be prepared for whatever surprises the markets have in store for us.