Who and Where Are We?

Today’s Brief is double issue. The first is an important response to last Friday’s message and the second regards the economy and the fiscal cliff.

Last Saturday I apologized by email to many on our Brief list. It resulted in some wonderful exchanges for which I am grateful. Many encouraged me to continue extolling the virtues of conservatism, and I appreciate your sentiments. Others were unexpected surprises from some who were disappointed by my partisan tone. Without the apology email I might never have had these exchanges with friends and clients. Every one resulted in better understanding, repaired relationships and reminded me of the importance of inclusion when I write. Inclusion is one of our ideals, political division is not.

How easily we use politics and ideology as shorthand to describe who we are, what we believe. As daring and frightening as it seems, if we could simply speak more from our hearts about our beliefs at the their deepest levels, conversations might become less adversarial and more constructive. Last Friday’s Brief did not express who we are. Please allow me a few paragraphs to explain why our company exists, and who we are.

Beacon exists to inspire people to confidently exceed their dreams. We are part of a small, but growing movement to change the way financial services are delivered to individual clients and foundations.

Beacon is founded on Christian principles. As we serve our clients each day we are guided by these words from St. Paul:

“Whatever you do, do your work heartily, as for the Lord rather than for men. . .  It is the Lord Christ whom you serve.” Colossians 3:23-24

We strive to live out these words daily by treating every client with our utmost respect, ability and attention, regardless of their beliefs. We hold our publications to the same ideals, principally that of speaking the truth in love. We serve anyone who asks to work with us without limitation of account size. We do not play favorites with our fee structure. Each of our three client groups; planning, non-planning, and ministerial has but one fee schedule applicable to the services we perform. And most important, we champion every client’s hopes, dreams and goals as our own.

We believe people invest for serious purposes and that they prefer no more risk or uncertainty than is absolutely required to achieve their purposes.

We believe people are encouraged by financial professionals to take more risk, pay more in taxes and fees, and to compromise their lifestyle far more than is required to confidently exceed their goals.

We do not compete for market returns. Rather we measure the odds of market risk that would otherwise be stacked against you to efficiently and appropriately invest your assets.

We compete against ourselves. We believe that we are better today than we were last month and that we will be better a month from now than we are today.

If you believe in us and believe that what we do can help you, then we are better than our competition. Please help us by coming in to improve your plan. Please introduce us to others who share our beliefs. Together we can confidently show them that their dreams are closer than they think. Together we can change the way financial services are delivered. 

The Fiscal Cliff and the Economy

Unless the Congress and president come to an agreement or a deal to postpone more than  $607 billion will be sucked from the US economy over the coming year. This amount represents about 4% of GDP. Almost everyone agrees that if a deal is not reached, the automatic increases in taxes federal spending cuts will trigger a recession in early 2013. Former Fed Chair Alan Greenspan said a recession might be a relatively small price to pay to get the tax increases necessary to pay for existing government expenditures if it meant that entitlement spending could be brought under control.

The New York Times presented a good explanation of the why and how of the fiscal cliff. It was part intentional and part coincidental.

“The intentional: Since Ronald Reagan’s administration, with mixed results, presidents and Congresses have occasionally mandated a self-imposed future crisis to force themselves to agree on unpopular tax-and-spending actions. In that spirit, the idea behind the August 2011 deal was that Republicans would so fear the military cuts, and Democrats the domestic spending cuts, that they would negotiate a deficit-reduction alternative by the Jan. 1 deadline.”

“The coincidental: The measures from the 2011 deal are set to take effect at the same time as the changes to jobless benefits, the A.M.T. (Alternative Minimum Tax) adjustment and the Medicare “doc fix”(Medicare payments to physicians would be reduced 27%, or $11 billion, because Congress this year has not passed the usual so-called doc fix to block the cuts, which otherwise are required by a 1990s cost-control law.)  — a confluence that the two parties did not fully expect back in August 2011. The nation will also reach its debt ceiling in January, creating additional uncertainty. Accounting maneuvers by the Treasury Department could push that deadline to March, but President Obama wants a debt-limit increase as part of any deal, adding another item to the agenda.”

The thick cloud of uncertainty created by Washington’s dysfunctional behavior severely impacts the business of America, from tax planning to business strategy, restraining economic growth. Frustration with the unknown has been no more vividly demonstrated recently than in the stock market.

Since its September peak, the US stock market has declined 8.1% as measured by the Wilshire 5000. America’s largest corporations are down 7.7% as measured by the S&P 500. Treasurys in the 7-10 year maturity range are up 1.3%. Other factors such as corporate earnings, Benghazi, Iran, Israel/Palestine, Greece, and Hurricane Sandy have added to the market’s woes, but uncertainty over the fiscal cliff trumps them all.

The potential outcome is impossible to predict. The players this time are the same as those who failed last year to reach an agreement to reduce runaway growth in the federal debt. It is said that today’s meeting is mostly posturing. Once minority leaders Pelosi and McConnell leave the room, Speaker Boehner and President Obama can get down to serious work. They came very close to an agreement in mid-2011 to cut the deficit by $4 trillion over the next 10 years and $800 billion in new revenue, but the deal ultimately fell apart with blame on both sides.

This time President Obama has two powerful levers; a slightly better economy and the ticking clock. If a deal is not reached, taxes go up for everybody. While Mr. Obama has considerable leverage he may be less likely to be too heavy-handed as Pelosi and Reid were with Obamacare. As a skilled politician and a second-term president who is likely aiming for a legacy beyond healthcare, he will need the support, and good will of Republicans if he is to have any hope of passing his legislative agenda.

Turning to the economy, the week’s economic numbers were not as good on balance as they have been in past weeks. Today’s report on industrial production showed a decline of 0.4% in October after an increase of 0.2% in September. Capacity utilization in US plants declined from 78.3% to 77.8% a further sign of weakness.

Jobless claims jumped by a surprising 78,000 applications for the November 10th week to 439,000. The four-week average jumped a material 11,750  to 383,750. These numbers are high in spite of Hurricane Sandy.

There were a couple of bright spots as business inventories continued their trend of strong gains. They were up 0.7% in September and 0.6% and 0.8% in the two prior months. Inflation trended lower in October as prices at the producer level fell 0.2% and increased on 0.1% at the consumer level. Of course the declines also mean the economy is not growing sufficiently to put pressure on prices.

Finally we come to a vivid example of the cost of recalcitrant ideology crippling the cause of compromise and common sense. Hostess Brands, the bankrupt maker of Wonder bread and Twinkies, said it will fire more than 18,000 workers and liquidate after a union strike crippled operations. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union went on strike November 9th after a bankruptcy judge in White Plains, New York, imposed contract concessions that 92% of the union’s workers rejected.

The union said “The crisis facing Hostess Brands is the result of nearly a decade of financial and operational mismanagement that resulted in two bankruptcies, mountains of debt, declining sales and lost market share,” the union said yesterday in a statement. The company “attempted to resolve the mess by attacking the company’s most valuable asset — its workers.”

Chief Executive Officer Gregory F. Rayburn said “We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike.” Union members “crippled the company’s ability to produce and deliver products at multiple facilities,” and “bakery operations have been suspended at all plants,” the company said in the statement.

Washington, please take note.

Uncertainties regarding the fiscal cliff, what direction policies will take in Washington, and the future of our economy understandably have everyone tied up in knots. We empathize, but want you to know that our process already has these uncertainties baked in. We stress-test your plans continually to ensure that you will confidently meet every goal you value.

Have a nice weekend.