Last week in Minneapolis I was a guest speaker at an investor town hall meeting.  The goal was to answer as many questions as possible over the hour.  The best part of the meeting is that it gives us a good idea of what is on the minds of our clients and prospective clients.

Here is a sampling of some of the questions:

Q:  2010 ended up strong, but I don’t feel like the economy is any better.  Why did the market go up so much the last part of the year and should we expect more of the same this year?

A:  As best as I could remember, I recapped the events mentioned in our Winter Newsletter and our 2010 Recap.

Q:  I’ve heard you and others mention Quantitative Easing.  What is Quantitative Easing and why are the doing it?

A:  Trying to stick to 5 minutes I summarized our Quantitative Easing articles we’ve posted on the blog during the past several months.

Q:  Is it working?

A:  Yes and no.  Money is filtering into the system and the dollar has not gotten weaker & actually has been stronger the past few months.  However, interest rates have actually started to climb and banks still appear to not be lending money (see Failure of QE2 for more information).

Q:  I heard the Fed is propping up stock prices.  Is that true and if so, how are they doing it?

A:  I summarized our “Fed Targeting Stock Prices” article & then walked them through the process of Treasury issuing debt, Wall Street banks purchasing the debt, then the Fed purchasing the debt from the Wall Street firms, leaving them with excess cash to do whatever they want.  We discussed it in “Quantitative Easing Launches Today.”

Q:  When will I get some of the money the Fed is printing?

A:  Call your bank and ask them. 

Q:  How in the world do I decipher my TD Ameritrade statement?  Do I have to read all the pages?

A:  I explained the key portions of the statement and pointed them to the front page of our website where we have a TD Ameritrade Sample Statement with an explanation of each section and what to look for.

Q:  What about municipal bonds?  Should I be worried or are these good investments?

A:  In general we know that municipal and state governments are strained.  When it comes down to it, if a city manager gets to the point where they have a choice to pay the police, fire fighters, sewer, trash, water, etc. or the bond holders, most would choose to keep existing services going.  That should be a concern.  However, each issue is different and may be less risky, but that is up to you to know the repayment source and how likely it is to continue.  (For more information, see Tax Free Trap.)

Q:  Does SEM own any municipal bonds?

A:  NO

Q:  Bonds have been going down in value.  What is SEM doing to protect from this?

A:  Basically a summary of “Should I sell my bond funds.”

Q:  Why did Income Allocator lose money in 2010?

A:  It didn’t.  After further digging, the client thought his account lost value, but did not realize he had to take a sizable Required Minimum Distribution.  Many in the audience said, “I mad a lot of money in it last year."

Q:  Who is watching the money when you aren’t in the office?

A:  I explained the value of having mechanical systems – unemotional, consistent, and repeatable results regardless of who is sitting at the trading desk.

Q:  How does that work?

A:  I explained how our high yield bond system was developed and functions as an example of a trading system.  SEM has 8 to 12 different trading systems functioning currently.

Q:  At least 3 or 4 questions on inflation/deflation, if we are seeing it, what the definition is, and what we can do with our investments.

A:  This has been addressed multiple times in our blogs.  Our last round of seminars addressed this topic specifically.  I was on the radio on September 9 covering this topic as well.  (Go to our Podcast page for the replay.) 

Q:  In China if a CEO fails, they either commit suicide or are killed.  All around the world if you fail, you are punished and most certainly do not keep your job.  In the US if you fail you not only get to keep your job, you get a bonus.

A:  This wasn’t a question, just a rant from Bill that most everyone in the room agreed with, including me.  I walked them through how the culture in Washington has been favoring Wall Street since Greenspan bailed out Long Term Capital in 1998.  The only way to change it is to make our voices heard and elect people that will let the free market system function like it is supposed to.  I also mentioned that they could vote with their checkbooks and only have bank accounts at places that did not receive TARP money.

Q:  Are you concerned about the PIIGS? (Portugal, Ireland, Italy, Greece, and Spain)

A:  Very much so.  I've been talking about this since early 2008 & the problem has not gotten better.  It seems that the crisis is spreading through all of Europe and each one is bigger than the last.  Sooner or later the ECB will run out of money and then what.

Q:  What happens to the US if a European country fails?

A:  It won’t be pretty, but shouldn’t be as bad as the crisis in 2008….unless we learn that the US banks have a lot more off balance sheet exposure to Europe, then look out.

Q:  What things should be on the 800 pound gorilla’s shirt?  (What are you worried about that could derail the market?)

A:  Underfunded pensions, municipal bonds, state budgets, Europe, Korea & Iran, major bank failure under the weight of the mortgages they are still responsible for, and increasing producer inflation.  (see 2011 Forecast)

There were more questions, but that is all I can remember for now.  It was exhausting fielding all of those questions, but well worth it.

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