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Creating A Realistic Business Budget
Budgeting -- ooh, what a scary word! If you want to frighten someone whose business finances are out of control, suggest that they tally up their expenses on a piece of paper. We all understand the value of such an exercise, but when it comes to the practicality of putting a budget together, we get cold feet. Budgeting doesn't have to be so painful, when you have a systematic series of steps to follow.
Alternative Venture Finance: Shell Corporations
A shell corporation is a company that is incorporated but has no significant assets or operations. These corporations may be formed as an alternative venture financing mechanism.
Retirement Planning for where you Will Live
There are many things that people plan for when planning their retirement. They plan for the travel they wish to do, to have money for gifts for the grandchildren they hope to have, and all kinds of wise and practical thing. In the process, however, many people neglect to plan for where they wish to live upon retirement. We are seeing a growing trend of retirees moving to certain communities. This is all well and good. It's nice to be around people of similar ages and interests and live in communities that cater to those interests. However, one thing is often overlooked during the process. The prices in these communities, and the average cost of living are quite likely to be different than the cost of living where you are. This is true unless you plan to retire where you live.
Time Out
The Patriots earned their money when settling the Super Bowl challenge thanks to Adam Vinatieri's kick through the goal posts. Just before that kick, the Carolina Panthers called time-out to unnerve Vinatieri and Kinchen, the stand in center. On Thursday, January 29, 2004, Greenspan and company suggested they might kick up short-term interest rates. Hinting a time out for interest rates unnerved investors.
Interest rate moves have subtle effects on income for many. Our family benefits from the presence of our children's great grandmother, who begins her 91st year, likes football ("Oh, that poor Drew Bledsoe."), but dislikes current interest rates. Clearly, her perspective includes long-term opinions on history, mores, and the economy. That "Jimmy Carter was the best President. CD's (cerfificates of deposit) were 14% and 16% back then. Now they're 1% and 2%...", and then a few words about those Republicans. I try explaining the inflation quotient, but Nana just shakes her head and walks away. I just wanted to say, "Like it or not, low interest rates benefit an economy; high interest rates undermine economic growth".
Since 1790, the long-term (30 year interest rate) has averaged about 5% with eight years when it exceeded 11% (a number of those years when Jimmy Carter served as President; please don't tell Nana.). The current Fed Funds rate sits at 1%, a forty year low. Now, the Federal Reserve Bank (Fed.) quietly implies that interest rates may creep up.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said" - Alan Greenspan (Speech to the Economic Club of New York, 1988)
This news pounded Wall Street stock and bond traders harder than the Patriot's defensive line. Each index declined more than 1.3% , the 10-year Treasury note shot up sharply to 4.20%, and the dollar moved up against the Euro. What made this news unsettling? Back in August (2003), the Federal Open Market Committee (FOMC) said, "The committee believes that policy accommodation can be maintained for a considerable period". Six months later, the FOMC chooses to be "patient" about interest rate moves.
Most economists believe the Fed will not adjust rates upward until 2005 (of course most sports analysts did not believe the Partriots would win the Super Bowl).
These factors seem to effect future Fed action:
Employment data showing strong job growth
Job Growth means an improving economy
Improving economy means inflationary pressures
Inflation prompts Fed action
Stock Market "exuberance" provokes Fed action
Mortgage rates and Treasury rates may linger around current rates due to this Fed hike suggestion
What does it mean? Well, it's like watching Adam Vinatieri preparing a field goal kick with a tie game and 9 seconds left on the clock. NO, it's not that tense! Interest rate moves acknowledge the Feds role when managing the economy, and consensus views acknowledge that current rates have found their forty year lows. Essentially, exuberance within the housing markets and the equity markets will find "patience" more healthy than "irrational exuberance" as the Fed warns.
"The Fact that our economical models at The Fed, the best in the world, have been wrong for fourteen straight quarters, does not mean they will not be right in the fifteenth quarter" - Alan Greenspan
Stay tuned, and be patient. A "time out" serves good economic purpose.
About The Author
Ray Randall serves clients as a registered investment advisor with his firm, Ethos Advisory Services, Essex, Massachusetts www.ethosadvisory.com. He has wide experience within the financial services industry, writes a weekly newsletter for Ethos Advisory Services, and coordinates the developments at Echievements . Ray holds a Masters Degree from Gordon-Conwell Theological Seminary, Hamilton, MA. You may email him or call (877-895-3756).
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