Juggling Dynamite

A friend’s son had a wonderful grade 7 teacher this year, who made “the growth mindset” the theme for the year–not growth in the sense of insatiable financial gain or sales targets, but rather mental growth–the power to train and teach our brains new things.  She showed this video as the jumping off point:  see Growth Mindset.

As we age it can be our normal inclination to stop learning and start anchoring on existing beliefs and ideas–even when those beliefs and ideas become antiquated or self-defeating.  But in reality, everything is in flux.  Everything is a phase. The future will be different than now, and the past.  Evolving and growing smarter and wiser is our calling.  To do so we have to see all status quo systems as inherently transient.

Foundational to the future is fresh new thinking on health and energy.  See:  The way humans get electricity is about to change forever.

Tech heavyweights like Apple, Cisco and Google get it, see more on recent developments here.  Increasingly, so do business leaders in developing countries, see Asian billionaires in India solar push.  The universe is the limit.

One of the time worn-dumbest sales slogans heard from long-always financial types goes something like this “so long as rates are low, or not rising, dividend paying stocks are attractive”.  “Attractive for whom?” one should ask.

Here we see the price performance of the Real Estate Investment Index (XRE in green), along with the Canadian Financial Index (XFN in blue) and US 10 year Treasury yield (TNX in red) between 2006 and 2009, when, it should be noted, all three fell by 50%.

The truth is that every cycle Central Banks start cutting rates once economic downturns begin–and it’s while they are cutting policy rates, that asset prices take a drubbing.

Except this cycle, they have no rate room left to cut; no buffer left to tender.  Their magic confidence powder has already been used up the past 6 years cajoling the market recovery.  This time, price discovery will be free to run its course, with no monetary leash left to yank it to a premature end.  Then dividend paying equities and corporate bonds will definitely be “attractive”, but only for those designed to limit losses now and keep capital liquid for then.

Greece is not alone in underfunding its pension plans.  Thanks to destructive financial advice and planning over the past 20 years, most pensions, endowments and individuals are seriously under-capitalized today.

The liabilities magnified by aging baby boomers were entirely foreseeable.  Unfortunately most people did not like the math of how much present consumption had to be denied in order to save enough for the future.  Now the future is here.  Even after 6 years of Fed enabled recovery in financial markets, spectacular deficits are the norm and pension commitments are now claiming funding needed for other vital social services like education.  Salman Khan explains the math in this video.

Illinois pension obligations: Using Illinois as an example of what happens when pension obligations are underfunded. Here is a direct video link.