November 2007 - Posts
Remember the movie "Ferris Bueller's Day Off"?
If you do, then you also remember Ferris' boring economcis teacher, whose monotone delivery of "Bueller . . . Bueller . . . anyone . . . Bueller?" while taking attendance was recently ranked as one of the 50 most famous scenes in American film.
The character actor who played the role is Ben Stein, who has since gone on to prominence not only as an in-demand actor but also as an armchair economicst whose plain, common sense writing style can be found in publications like The New York Times, American Spectator, and others. Stein also was the star of the television series, Win Ben Stein's Money, a gameshow in which Ben Stein's salary was actually put up as prize money for the contestants where Stein competed with guests. He won just about all the time.
Stein's latest gig is as the spokesperson for today's launch of National Retirement Planning Week, sponsored every year by the National Retirement Planning Coalition. As spokesperson, Stein is pushing a new agenda for today's workforce, one that couples physical fitness with financial fitness.
Says the NRPC in a statement, "For too many Americans, particularly the 78 million baby boomers, the process of planning for retirement is about as appealing as doing 40 push-ups – something that is achievable but also easy to put off indefinitely. However, during the sixth National Retirement Planning Week, Stein is committed to breaking the process down into manageable, easy-to-follow steps that can help individuals take their retirement planning efforts from “frail” to “fit” in short order."
“Let’s face it, lots of people make excuses when it comes to the hard work of planning for their futures,” said Stein. “Physical fitness is the perfect analogy for financial fitness. We all know physical fitness is critically important to ensure good health down the road, and yet we find every excuse in the book to procrastinate or brush it aside altogether. This week I want to convince all Americans that a little fiscal effort now can pay off big in the future, and give them some easy-to-remember guidelines to help get their financial retirement health in tip-top shape.”
Here are some tips from Stein so you can get fiscally fit for retirement. I'm not advocating all of them, but he does make some good points, and in a fun, entertaining way. Nothing wrong with that.
Let's take a look at the tips, all from Ben Stein . . .
· Set goals – As with any exercise program, the first step is determining what you hope to accomplish: lose ten pounds, get toned or develop “washboard abs.” Similarly, a retirement plan starts with setting some basic goals. When would you like to retire? How you do plan on spending your retirement years? Would you like to travel? Where will you live? Will you take up a new hobby?
· Warm-up – No one starts exercising without adequately preparing first. Likewise, before you jump into retirement planning, it’s important that you stretch your financial muscles to avoid some of the most common retirement “injuries.” For example, start by minimizing credit card debt, curbing excessive discretionary spending and possibly re-thinking some of your current spending priorities.
· Make a plan – A physical fitness program starts with an individualized plan of action. Will you use free-weights or machines? Will a treadmill or elliptical cross-trainer provide a better cardio workout? Similarly, you need to create a financial retirement plan that matches your individual needs, goals and resources. Begin by thinking about how much income you will need to fund your envisioned retirement lifestyle. Then, determine the combination of savings, investments and insurance you’ll need to get there.
· Build muscle – Fitness experts know the importance of giving equal attention to multiple muscle areas to get the best results. Sound financial retirement planning requires a similar approach. Make sure that you establish a balanced plan that addresses the key financial retirement muscle groups: savings, guaranteed income, tax-deferred investments, stocks, mutual funds, exchange traded funds, index funds, bonds, annuities, insurance (health, life, long-term care, disability), real estate, and government- and employer-sponsored programs, if available.
· Don’t forget cardio – Your health and lifestyle have a big impact on the nature and scope of your health fitness plan. Likewise, health-related issues will weigh heavily on how you structure your financial retirement plan. Therefore, when developing your retirement plan be sure to consider how long actuarially you are likely to live in retirement, expected healthcare costs and how active you expect your retirement years to be.
· Get a coach – Even the fittest athletes often need expert help with their training. Retirement planning can be a complex process, so you should consider finding a qualified financial/retirement planner. Talk to family, friends or associates who can point you to someone who has helped them. Leverage existing relationships with financial professionals – e.g., banker, insurance agent, broker, or accountant – who are qualified to provide retirement planning services or can direct you to the appropriate person.
· Get on the scale – Remember to monitor your progress regularly. Your retirement goals and financial situation will change over time, as will your spending priorities once in retirement. Therefore, it is important that you review your retirement plan at least once per year and make adjustments, if necessary.
· Focus on endurance – Retirement planning is not a 100-yard dash – it is a long distance race. It is a methodical, well-orchestrated effort to achieve financial security for the rest of your life. Above all, it’s about ensuring that your retirement income will endure as long as you do.
“I can’t stress enough how important it is for people to get their financial futures in order as soon as possible,” said Ben Stein. “Immediate planning versus indefinite waiting can make the difference between completing the ‘retirement race’ and collapsing just before the finish line – or between comfort and terror in retirement.”
No question about it, investors are in survival mode right now, just trying to hang on in a market that has given away much of this year's gains. Key culprits are the ongoing credit crisis, which has banks and lenders reeling under the weight of billion dollar losses (hello, Wachovia) and from a weak dollar, which crimping overseas investments in the products of U.S. companies.
Consequently, last week was one of the worst in recent memory on Wall Street. Both the Dow Jones Industrial Index and the S&P 500 each fell 2.2%, and the Nasdaq was down a staggering 3.5%. One of the few sectors I like these days -- biotech-- was also down 1.1% based on the benchmark Biotech Index. That's a little better than the rest of the market, but down is down, and it's certainly time to be careful about biotech stocks in particular and most sectors in general.
Still, over the long haul, I think biotech is a good place to be for investors, even in a down market. Late on Friday, the biotech sector staged a mini-rally, after traders figured out that the selloff in biotech stocks was a bit much. That's a telling, if innocuous sign. My thinking is that biotch stocks are being dragged down by the rest of the market and excessively so. Overall, the industry is healthy, plenty of new drugs are in the pipeline, regulatory issues about greenlighting clinical trials and approving new drugs are calming down after some volatility from 20004-2006, and overall fundamentals appear solid.
So, while I understand if investors want to take their money out of the markets and into sidelined cash positions, biotech should be a safe haven if the market continues to deteriorate. The professional traders know that down times are opportunity times. With prices low, this is a great time to get in to a biotech market that should be insulated from any long term investment woes.
Man-made climate change advocates call them a way to make your green peace with the environment. Skeptics say they’re a sop for wealthy, guilt-ridden greenies at best - - and potentially fraudulent, at worst.
What are they? They’re carbon credits, and no matter what you think, they’re coming to a checkbook near you.
What, exactly, are carbon credits? Sometimes known as carbon “offsets”, carbon credits are financial mechanisms that enable buyers pays a third party to remove a quantity of carbon (in the form of a greenhouse gas) equivalent to what the buyer emits.
Carbon credits are a burgeoning environmental and economic trend, particularly in the business world. In the U.S. carbon offset volumes, as measured by metric tonnage, grew by 100% from 2005 to 2006, and is expected to double again in 2007. In a recent study by the Conference Board, 75% of companies polled said they were ‘actively computing” their carbon footprint. While only 15% of the companies surveyed were actively engaged in carbon trading, another 40% were considering it.
The Carbon Trading Markets
By and large, there are two types of carbon credit markets, one operating overseas and the other an emerging mainstay here in the U.S.
“Cap-and-Trade” – In 1997, the U.S. Senate voted 97-0 to reject the Kyoto Protocol, which sets limits on the amount of greenhouse gases a country could release into the environment. Countries that did pass the Kyoto treaty now have set caps on greenhouse gas emissions. If a country emits less greenhouse gases than the cap calls for, it receives carbon credits they can turn around and sell on worldwide carbon exchanges. If the country exceeds the Kyoto caps, it must buy credits to offset its extra energy use.
Elective Carbon Credits – The U.S. has a voluntary carbon credit market, where (mostly) companies and some individuals buy carbon credits as offsets to the amount of energy they approximately use. Thus, global warming guru Al Gore can offset the use of his gas-guzzling private jet by buying enough carbon credits to cover the environmental cost of the greenhouse gases emitted from his airborne travels.
Pros and Cons of Carbon Credits
The carbon credits market has its cheerleaders and its critics. Let’s take a look what each camp has to say about carbon trading.
The Case for Carbon Credits
Simplicity – By paying a third-party to remove a quantity of carbon from the environment, consumers can, in theory, achieve carbon “neutrality”.
Awareness – The very existence of the carbon offset market, it’s fast rate of growth, and the amount of media attention the market has received has raised the visibility of the climate change issue. In a politically-charged environment, carbon trading is the most prominent agent of change on the global warming landscape. Corporations are leading the charge. Companies like Expedia, Orbitz, HSBC Bank, and Google all have carbon trading programs up and running. Many more are in the pipeline.
It’s Good Business – In the corporate sector, where most of the carbon trading activity is taking place, carbon offsets can be an attractive option, fiscally and socially. Through efforts to better manage their greenhouse gas emissions, corporations can be rewarded by reduced costs through energy efficiency, superior brand positioning and public relations through carbon neutrality, and energized employees who support climate change initiatives.
The Case Against Carbon Credits
No Measurement Benchmarks – One issue that has yet to be resolved in the carbon offset world is benchmarking, i.e. establishing a certification or monitoring process that quantifies the real value of carbon trading programs. International standards bodies like the U.N. and global warming advocacy groups are trying – so far, in vain – to set up a system where carbon credit buyers know that their investments are producing measurable results. For now, there is no uniform way to see that carbon credit companies are doing what they promised.
Distraction -- Or Worse? – On one hand, the increased visibility of climate change as an issue is a boon to carbon credit supporters. On the other, it could also be a serious distraction, even impediment, to fighting global warming. If consumers surmise that they can pollute all they want, and like a papal indulgence, have their polluting ways “forgiven” through carbon offsets, global warming could become a larger problem.
Class Warfare – Carbon trading may make sense for some consumers, but they’d have to be deep-pocketed ones. Currently, most carbon offset programs are skewed to corporate interests and to the wealthy. If a dockworker in Philadelphia wants to plant a tree in Uganda, the paperwork alone runs into the hundreds, if not thousands of dollars. For working families, that’s probably not an option.
Jury Still Out
While experts agree that putting a price on the cost of carbon is good, the need of having consumers trade potentially harmful environmental practices for carbon offsets is debatable.
It’s a debate that shows no sign of abating.
Carbon Credits: Questions to Ask
The environmental group Clean Air Cool Planet has published a Consumer's Guide to Carbon Offsets for Carbon Neutrality. Inside the group lists key questions potential carbon credit buyers should ask of carbon credit groups:
• Do your offsets result from specific projects?
• Do you use an objective standard to ensure the additionality and quality of the offsets you sell?
• How do you demonstrate that the projects in your portfolio would not have happened without the greenhouse gas offset market?
• Have your offsets been validated against a third-party standard by a credible source?
• Do you sell offsets that will actually accrue in the future? If so, how long into the future, and can you explain why you need to 'forward sell' the offsets?
• Can you demonstrate that your offsets are not sold to multiple buyers?
• What are you doing to educate your buyers about climate change and the need for climate change policy?