Philosophy

Regulation and Common Sense

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There is a tendency in politics for arguments about regulation to boil down to politicians on the left arguing for more regulations and politicians on the right arguing for fewer regulations. Too often what is lost in this debate is the discussion of the quality of regulations, rather than the quantity. Effective regulations are easy to understand, easy to follow, and clearly distinguish between the crooks and honest folk, but many regulations fall short in a variety of ways.

Good regulation provides a clear line as to what is or isn’t allowed. When the line gets fuzzy, it becomes easy for upstanding businesses to fall afoul of regulatory issues unintentionally. It costs a lot of time to figure out the details of a vague regulation. And in the end, it may not become clear where the line is draw until expensive fines get handed down for crossing it. As a result, many companies may choose to err on the side of caution. This turns useful, valuable services into collateral damage of unrelated regulation.

Even when the regulations are written clearly, the costs of complying with them may be high. Increased documentation and oversight may sound like a good idea, but the extra work of supervising and documenting everything doesn’t come for free. Compliance overhead increases costs for businesses and, ultimately, hurts consumers when prices go up to compensate.

These may sound like problems that only big corporations need to worry about, but they have a very real and tangible impact on our everyday lives. I have been privileged in my career to work with many community banks. Sadly, these are a dying breed these days as more and more of them fold under the weight of regulatory burdens. Some are lucky to merge with fine, upstanding regional chains, but some towns have seen the local bank replaced with a megabank. The sad irony is that these regulations were often written to rein in big banks, but wound up driving out many smaller competitors instead.

Some of our politicians talk as though the solution is to do away with regulations altogether and create a Wild West environment for business. We’re not advocating for anything so extreme. But we need to call for simple, elegant rules that can protect the public effectively without undue burden on business. We ask you to join us in promoting common sense policies and leaders.

What’s Next?

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Fifty years ago, comic strip hero Dick Tracy’s famous 2-way wrist radio got upgraded to a 2-way wrist TV. Forty years ago, visionaries were talking about telephones that would fit in a shirt pocket. Instead of each home having a phone number, each person would have one. In between those dates, the country’s only telephone company introduced push-button “dialing” as an alternative to the rotary dial.

You all know the rest of the story. In many respects, what seemed like science fiction or fantasy in decades past has become a routine part of everyday modern life. The same is true in many aspects of our lives.

There are constants in life, of course. We each seek to make a difference, to be happy, to provide for ourselves and others, to smile and be smiled at, to connect with our fellow human beings. Many of our most fundamental impulses remain unchanged since the dawn of time.

So the conditions of our world are a mix of unchanging things like human nature and the sun rising in the East, and rapid change in other things. All the way back in 1970, futurist Alvin Toffler wrote about “Future Shock,” a perception of too much change in too short a period of time. If anything, the pace of change has accelerated since then.

In life, we suspect that being grounded in the enduring truths help equip us to adapt to change.

In the field of investing, we believe that understanding the unchanging aspects of human nature help us understand and deal with change. The ever-evolving landscapes of the economy, markets, companies, and technology produce constant and unpredictable changes. But no matter how different the world may seem, new changes will still produce reactions and over-reactions, fads and manias, and varying amounts of fear and greed.

We will admit it. We are entranced with the conflict between simple eternal principles and the endless complexity of the world. Making sense of it to help people in their real lives—that’s why we wake up and get to work every day. If you would like to talk to us about your situation, write or email us.

Happy Anniversary!

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Leibman Financial Services (LFS) was born in August, 1996. It was the culmination of nearly twenty years of prior experience in virtually every aspect of financial services. August 2016 marks the 20th Anniversary of our founding.

While the twenty years before LFS covered a wide range of insurance and banking and investment and benefit products, LFS was intended to focus very tightly on helping people manage their money to get where they wanted to go. This is why we are in business.

And what an incredible twenty years it has been!

  • We were fortunate to be aligned with the independent broker-dealer LPL Financial. LPL provides the platform, resources, and expertise we need to provide state-of-the-art services to you.
  • We were fortunate to land our facilities at 228 Main in beautiful downtown Louisville. It’s a great place to do business.
  • Most of all, we were fortunate to be able to serve so many wonderful people. We are privileged to help with many of life’s most important topics.

A milestone is a natural place to look back and look ahead. We are excited about the future, for a number of reasons:

  1. The gap between expectations and reality as it unfolds is where investment opportunity lives—and we believe the gap is historically wide right now.
  2. We have the largest and most capable staff we’ve ever had, to do the work we need to do for you.
  3. Our range of offerings is expanding to better pursue the diverse needs and circumstances of our clients.
  4. Our communications program expanded dramatically over the past year, with a complete library of our philosophy and methods at 228Main.com and daily commentary in three ‘New Media’ venues.
  5. The founder is intent on working to age 92, and feels better than ever about being able to do so.

A heartfelt ‘Thank You’ to everyone. We are looking forward to the years and decades ahead.

You Can Rig the System, Too

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Politicians are telling us that we would be doing better if the system was fair. “The system is rigged” is a bipartisan theme this season. Through incompetence or malevolence or greed, the powerful few are supposed to be holding us down.

If you know us, you know we don’t spend a lot of time arguing politics. It is no surprise that any human endeavor has room for improvement. More pointedly, there are things about our society that are terribly unfair—including some things that are deeply rooted.

Each of the seven billion of us retain the ability to wake up each day and make the most of what we have to work with. Our resources may be few or many; our challenges may be petty or life-threatening; each one of us has our own story and our own situation. But we can each make the most of what we have to work with, day by day.

In key ways, YOU can rig the system in your favor. This thought was inspired by a list going around the internet, ‘Ten Things That Require Zero Talent.’ We can judge the merits of this list with a simple thought experiment.

Imagine that you are an employer, providing a valuable product or service to the rest of society. Among your employees there are two in particular you are considering for promotion and a good raise. One of them has all ten of these traits, the other has none of them. Here’s the short version of the list:

Being on time; having a good work ethic; putting in the effort, having positive body language; demonstrating energy, attitude and passion; being coachable and prepared.

So as you think about the free items on this list, which employee will you choose to promote? (Please accept our apologies for asking such a silly question with such an obvious answer.) The simple fact is that one employee rigged the system in his favor, and the other did not.

Our point is that each of us has considerable influence on our own destinies. In election season we discuss political and societal issues, we challenge things that need challenging and support things that deserve support. As we do so, let’s remember that our first job is to wake up each day and make the most of what we have to work with.

The Medicine is Worse than the Disease

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Monetary authorities took extreme measures during and after the financial crisis. These policies failed in their stated goal. More importantly, they have the potential for much mischief in the portfolios of the unwary in the months and years ahead.

Fed Chairman Ben Bernanke made it clear that the role of zero interest rates and Quantitative Easing was to push money into productive investments (or “risk assets”) that would help the economy grow. Instead, the biggest tidal wave of money ever flooded into supposedly safe assets, like Treasury bonds. Money flows into US stocks disappeared in the crisis, and basically have never come back. Zero interest worked exactly opposite the way it was supposed to. This obvious reality is totally ignored by the central bankers.

Current Federal Reserve Chair Janet Yellen continues to parrot the party line. Progress toward undoing the mistaken crisis policies has been excruciatingly slow. And the potential for damage to safety-seeking investors continues to mount. Similar policies, or worse, are in effect around the world.

Standard & Poor’s recently issued a report stating that corporate debt would grow from a little over $50 trillion now to $75 trillion by 2021, globally. Bonds are the largest single form of corporate debt, which is how investors are affected. This isn’t happening because corporations are investing so much money in new plants and equipment and research. It is merely meeting the demand of safety-seeking investors for places to put money. We think of this as “the safety bubble.” It appears to be the biggest bubble in history.

Standard & Poor’s is warning of future defaults from companies that borrowed too much money at these artificially low interest rates. Our concern is that when interest rates inevitably rise, people locked into low interest investments will see large market value losses even if their bonds are ultimately repaid.

We’ve written about the impact of higher inflation on today’s supposedly safe investments. Now the warning from S&P highlights another risk. The distortions created by counter-productive monetary policy are growing.

Of course, we believe our portfolios are constructed to defend against these risks, and to profit from the artificially low interest rates. We will continue to monitor these and other developments. If you have questions or comments, please email or call us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

New Media is Bigger Than You Know

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The first birthday of our online communication efforts is upon us. 228main.com was intended to provide us with a means to talk to a lot of clients at once, especially useful in times of stress. There were other objectives as well.

We know that communications influence behavior; behavior influences investment outcomes; and client outcomes are what we are about. The new media lets us highlight each day the thing we find most pertinent or interesting. We can drive home the lessons that help people invest and plan effectively.

If you follow us on Facebook, Twitter or LinkedIn, you know we have created some regular features to help us tell our story. The Junior Staff and Market Haiku show up weekly, along with links to pertinent articles and news.

The most surprising thing we’ve learned about the new media is how useful it has been to people we know, for much broader purposes than business communications. One retiree became acquainted with Twitter to keep up with a grandchild’s college sports team. A sports fan has grown a custom news feed of local print and broadcast sportswriters as well as recruiting clearinghouses, player and team accounts and other knowledgeable fans. A political junkie collects thoughts from candidates, opinion leaders, polling experts and major newspapers. We follow the best minds in the business world. Others pursue news about hobbies or interests.

In other words, Twitter can be a customized information source, tailored by you to your preferences. You choose the sources to follow. Whether or not you register, you can see our daily quick notes and commentary. You do not have to ever post anything in order to use the tool. However, if you do have a message, you can get it out.

LinkedIn, we’ve noticed, is more of a business forum and networking affair. Facebook is popular with many of our clients for many reasons. People see what their children or grandchildren are up to, and keep up with more distant relatives like never before. Facebook also allows businesses to have pages, which is how we can communicate with those who choose to ‘like’ our Facebook page.

Perhaps the biggest misperception among non-users is the idea that the whole world will know what you are up to if you participate. The fact is, you choose what to publish and who to interact with, if anybody. Many people just take in information, and post or publish very little. You might explore these venues to see if they can improve your life. The menu buttons at 228main.com can connect you.

The Robots Are Coming!

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Some forecast that there will be no jobs in the future, as software and robots and other forms of mechanization take over more and more tasks now performed by actual people. To understand the issue, we need context and background.

Manufacturing output in the US is near record levels, up 30% from the recession levels of 2009. Yet manufacturing employment peaked in 1979 at 19 million workers. The total today is around 12 million workers1. One might say ‘The robots are already here.’

While seven million manufacturing jobs were lost, fifty million jobs were added to the total. Manufacturing jobs were not the only ones that disappeared, however. Millions of other jobs became obsolete. File clerks, telephone operators, laborers with shovels, elevator operators, secretaries, and farm workers were displaced by new machines and new methods.

In a dynamic economy, we perpetually do more with less. In the year 1900, 40% of Americans were engaged in producing our food2. When that declined to under 2%, we didn’t end up with 38% unemployment.

There is another way to look at it. Tens of millions of people are now engaged in occupations that did not exist forty years ago, near the peak in manufacturing employment. Similar change happened between 1900 and 1940, and 1940 to 1980. Why would we doubt that 2010 to 2050 would be any different?

A recent report in the European Parliament concluded that “Humankind stands on the threshold of an era when ever more sophisticated robots, bots, androids and other manifestations of artificial intelligence (‘AI’) seem poised to unleash a new industrial revolution, which is likely to leave no stratum of society untouched.” This presents more opportunity for society than danger, if history is any guide.

It’s going to be exciting. Please call us or write with questions or concerns.

1,2Federal Reserve Bank of St. Louis

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Traveling by Miracle

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Next month I will be traveling again, to and from a conference. I’ll be going by miracle.

More specifically, air travel. I’ll fly on planes that cost about $80 million each. The planes are part of an airline company fleet that cost about $19 billion dollars. Of course, planes are useless without airports—and we spend another $19 billion per year on airport capital improvements in this country.

The planes and airports would not do us any good without the people who fly them, load them, change the sparkplugs, and do everything else it takes to run an airline. My airline spends $6 billion on the help each year. (OK, maybe planes do not have sparkplugs, but you get my drift.) Another $4 billion goes for fuel.

I’ll have breakfast in Nebraska and lunch in San Diego. A few days with colleagues and consultants, experts and peers, listening and presenting (a first for me, this year!): a priceless experience. Then back to Nebraska.

If I had to drive or take the train, the travel would take days and days. Instead, I get the use of these billions of invested capital and all those talented people to do the trip in hours instead of days.

All this for a few hundred dollars. It is traveling by miracle. The company that serves me lives in mortal fear that the next company will figure out a way to serve me better for less money, so it is on a perpetual quest to provide even better value for my buck. As a customer, I’m really doing well in this transaction.

If I choose, I can be more than a customer. I could also be a percentage owner of the aircraft maker, the energy company that provides the fuel, and the airline itself. I could lend these companies money by buying their bonds, and collect interest from them.

On my journey, I will probably meet at least one person who complains about the service, or a slight delay, or the crying baby, or the security procedures. But I’ll be counting my blessings that I was born to this place and age, and enjoying the miracles around me.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Meet the “Junior Staff”

Do you know about our junior staff? These four appear in our real-time new media venues. They are tasked with producing a weekly comment, posted on Mondays. They also make other appearances from time to time.

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Grumpy McFussface was the first to join the team. He is definitely a ‘glass-half-empty’ type, serving as Junior Analyst. We value his input, a way to keep in touch with negative sentiment in the marketplace. We usually do the opposite of what he suggests, but please do not tell him. He might throw a tantrum.

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Then Brainy McBaby joined the team as Research Intern. He’s wiser than his years, a thoughtful one. He has an uncanny ability to take the long view, even though he isn’t quite two years old. A true prodigy.

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Happy McToddler is a good counterweight to Grumpy. She is almost always positive. Happy is our Trader Trainee, helping us implement our strategies. Of the whole junior staff, Happy does the most to help us keep your portfolios in shape. She loves to talk investment tactics and strategy.

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We may have the only shop in the world with an investment philosopher on staff. Young Warren adds a lot, usually by posing questions of fundamental importance. He makes you think.

You can look in on the junior staff and see their work in any of three venues. You do not need to register or anything to see all of our daily comments, notes, links to articles, and other real time features if you go here: http://twitter.com/MarkLeibman. Of course, if you are a Twitter user, please click the ‘follow’ button.

Facebook users can ‘like’ our Facebook page to connect: http://facebook.com/LFnews. It is a two-step thing: click the link AND ‘Like’ the page. This won’t put your stuff out there to our other clients, it just shows you what we are talking about.

LinkedIn is another alternative. Click and connect, if you are registered: http://linkedin.com/in/lfnews.

For now, the junior staff appears only in these ‘real time’ media outlets. Hope you follow them.Twitter

Main Street Capitalism

© Can Stock Photo Inc. / MShake

Imagine what a world we would have, if the surest path to prosperity required each of us to be of service to the rest of us. But looking around, we may not even have to imagine it. I’m pretty sure Main Street already works on precisely that principle.

Jeff the grocer can only build sustainable increases in wealth and income by helping more people feed their families. He could try to raise prices or skimp on service or pass off inferior goods, but his trade would soon dry up and he would go broke. Customers would simply shop elsewhere. So instead he works to stock the foods that people want, at fair prices, as part of a pleasant shopping experience.

Likewise, Bob the car dealer can only prosper by helping more people get where they want to go, to and from work and shopping and entertainment and on vacation. He certainly could make more money in a short amount of time by tricking customers into bad deals, but most people can only be fooled once. The trickery would doom his business.

Kevin in the auto parts store is legendary for his ability to put the right parts and tools in the hands of his customers, so they can fix their troubles. He helps people take care of their vehicles and keep them on the road.

Leibman Financial Services is not immune. Competitors abound. We have to work hard to deliver more value per dollar of cost than anyone else can, to help people pursue their financial goals.

You see the pattern, right? We prosper by helping one another. If we aren’t of use to our customers, we don’t keep the customers. When we do it right, everybody benefits. Everyone is better off. When we don’t do it right, the discipline of the marketplace is harsh and swift. All the other businesses on Main Street, and the professionals offering medical and dental and pharmacy services, are in exactly the same circumstances. We prosper by helping one another.

This is the moral basis of capitalism.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.