Cathy P. writes…

Cathy P.

” Lisa has proven to be invaluable in helping me understand
the finances of my marriage.”

I discovered Lisa Kaess through her Feminomics videos on the internet when I was in the beginning stages of a difficult and complex divorce process.

Lisa has proven to be invaluable in helping me understand the finances of my marriage, and provided information and support necessary to negotiate from a position of strength.

Once my divorce is final, I look forward to working with Lisa on a plan for my future that helps me meet my personal and financial goals as I embark on this new stage of my life.

Cathy P.

Anna D. Writes..

Anna D.

“Lisa was a great coach and support through a daunting position.”

I met Lisa a few years back and when I heard about Feminomics we reconnected. It was at a time when I really needed advice on how to transition my finances in accordance with my changing life. I was selling a house, changing locations, getting rid of debt and trying to navigate through many new experiences. I had never created a proper budget and was very avoidant in the past to do any real financial planning.

Lisa and I met and discussed my situation, my hopes, a plan and ultimately a path to where I wanted to bring my finances to give me a sense of security and well-being. I had a few notions about how money may be allocated or budgeted and it was great to have Lisa’s sound professional advice and reassurance that I could achieve my ideas.

Lisa was a great coach and support though a daunting transition. I listened and took her excellent council on several critical decisions. We have built a great financial foundation from which I can grow from. I look forward to continuing our work together to develop my lifestyle and financial plans for the future.

Anna D.

Crying Wolf? or Meet me in the (foggy) Bottom

**Crying Wolf?  or  Meet me in the (Foggy) Bottom

The Sequester is here.  The sky has not fallen – in fact, the DJIA has hit a new all-time high.  Has the President been crying wolf?  The quick and dirty answer is this:  1) people have tired of DC drama and have tuned out; 2) businesses and households continue their gradual recovery with housing, construction, and new orders picking up; and 3) a potentially more significant showdown looms later this month.

Let’s look at all three briefly.  People have tuned out the noise from Washington, and perhaps rightly so, since we’ve had a series of fiscal showdowns ever since the summer of 2011.  Despite the headlines and tales of woe surrounding the Sequester – (translation: automatic government spending cuts to take place over 10 years — starting with $85 billion by Sept. 30), it’s been a non-event.  (Info on the Sequester HERE). The President may have overdramatized the immediate impact of these across the board cuts, but all sides agree this is a very crude solution – there’s no shortage of good ideas to trim spending and increase efficiency in the US Federal government [click HERE for policy ideas; and HERE for ideas on defense spending].  Comparing budget cutbacks to a crash diet, if you’ve got to drop weight fast, I’d go for liposuction over a machete.

Many people also wonder why they should care, if Wall Street doesn’t. The Dow Jones Industrial Average has traded above 14,000 for several sessions, back to levels last seen in 2007. Broader indices such as the S&P 500 have also recovered, up 125% from lows seen in 2009.  Wall Street has chosen to skip the hyperbole and figures some ‘patch’ will be found. Instead they are focus on the private sector, which continues to improve. Yes, consumers have parted back spending after the payroll tax holiday expired in January, but unemployment claims continue to decline and hiring has notched higher, car and home sales have rebounded, and values of major assets – from homes to retirement portfolios – are rising. Some are betting the slow progress will continue in spite of Washington, others prefer the US to even weaker outlooks in Japan or Europe, and some think the market is overdone but figure they can get out before the music stops.  Indeed, analysts have voiced concerns that the bull market in equities is near a peak, noting that trading volumes have fallen even though prices are rising, and a few contrarian investors have retreated to US Government bonds.

But wait, there’s more. A big reason why no one is paying Washington much mind is because the Federal Government is still open for business. The problem is that the Continuing Resolution that funds the US Government (since Congress can’t agree to an actual budget) will run out on March the 27th – which happens to be the full moon. While the impact of the Sequester will take some time to be felt, a total US Government shut-down would prove more far-reaching and dramatic (here’s a primer on the 1995-1996 shutdowns). Pundits have the usual three scenarios about what might happen – another extension of the Continuing Resolution (being considered by Congress as we write), a long term agreement which would truly enable the economy to take off (we can only hope), or a total shut-down which could potentially undo the progress beginning to take root. If you’ve missed the rally and are itchy to get in – you may wish to wait a bit longer to see how this works out. If you’re in and concerned, ask your advisor about whether it makes sense to take some profits – particularly if the February employment report (due out on March 8) provides a positive surprise.

Assuming that most of the budget cuts under the sequester take place, analysts estimate this would reduce US growth by 0.6% in 2013 – basically wiping out the pickup that economists forecasted for the year, keeping us locked in the 2% range seen since 2011.  A government shut down could be worse, though the impact would depend on how long it lasted. Talk about a race to the bottom. If Washington keeps fumbling, we won’t be worried about whether the politicians were crying wolf – we’ll be too busy howling at the moon.

** We pay homage to legendary bluesman Howlin’ Wolf’s classic, Meet me in the Bottom.
Lisa Kaess

Feelin’ Good

Feelin’ Good
Case by Kaess Commentary
Oct. 5, 2012

It’s a new month and a new quarter and some folks are feelin’ good. The benchmark US Dow Jones Industrial Average hit a 5 year-high, buoyed by large drop in the jobless rate to 7.8%, the lowest level since President Obama took office. While this was good news for Mr. Obama, it’s also a new day for Republican candidate Gov. Mitt Romney after a strong performance at the first Presidential Debate. Is this a new dawn?

The headline you’ll hear about is a 0.3% drop in the unemployment rate to 7.8% in September, from 8.1% in August. By contrast, net new jobs rose by a lackluster +114,000 last month (seasonally adjusted), barely enough to keep up with population growth. This triggered accusations that the ‘Chicago gang’ fixed the numbers a month before Election Day. However July and August payroll gains were revised higher by over 80,000 jobs (to 142,000 and 181,000, respectively), and the Bureau of Labor Statistics (BLS) announced benchmark revisions that indicate it had previously underreported job growth by nearly 400,000 earlier in the year. Add in questions about seasonal adjustments (the process to ‘smooth out’ seasonal swings may have an upward bias to autumn/winter) and a very large jump in part-time employment in a survey of households, and you end up with muddled mess.

What we can say is that monthly job gains have averaged close to 150,000 this year, leading to a gradual decline in unemployment, and that the US economy enters the 4 the quarter with slightly faster growth. And we do mean slightly, since growth in the 2 nd quarter was revised down to 1.3%  annual growth rate (originally reported as +1.7), and the current flash estimates by leading analysts for the 3 rd quarter are about 1.9%. This is supported by data showing an uptick in home prices, a large jump in applications for new and refinanced mortgages, and the strongest pace of vehicle sales last month since March 2008. They offer reasons to be cheerful, but hardly a celebration.

Markets however have found a sweet spot for the moment, and though many key indices closed lower, they continue to advance. An improving job market has buoyed consumer confidence, triggering an upturn in the use of credit to finance new cars, student loans, and other purchases. That has led to optimism about both quarterly earnings and the upcoming holiday season. At the same time, the Federal Reserve’s policy to maintain low interest rates for an extended period is aimed to mitigate downside risk. The Fed’s actions have been echoed by similar actions by central banks in Europe and Japan.

While central bankers helped get this party started, watch out for possible spoilers. Food prices remain below highs in early 2011 that triggered riots and the Arab Spring, but have rebounded toward highs seen in 2008, which led to crisis conditions in low income countries. Oil prices continue the see-saw trading pattern we’ve had all year and are now back below $90/barrel, but could easily rebound. Geopolitical conflicts continue to simmer, with skirmishes between Turkey and Syria, while economic sanctions against Iran are taking a toll, leading to foreign exchange controls and skyrocketing import prices, which could trigger hyperinflation (and may have already). And European finance ministers meet again early next week amid speculation whether Spain will formally request assistance, while Greece has yet to convince its creditors that it has a credible deficit reduction plan, a prerequisite for disbursement of new funds. And a month from now, 2 assuming a clear election outcome, the negotiations over the expiration of the Bush tax cuts and
‘fiscal cliff’ will begin. Feelin’ good yet? LK

*Thirteen year-old Carly Rose Sonnenclair sings Nina Simone’s classic, Feelin’ Good. (Start at 1:45).  And here’s the original by the incomparable Nina Simone.


Take It To The Limit

It’s been nearly a fortnight since Federal Reserved announced what has become known as QE3 – (a third round of quantitative easing) to support economic growth. In the FOMC statement, policymakers explained that they undertook the action because of concerns that the economy would not gain the momentum necessary to generate jobs. Unlike many other central banks that focus only on keeping inflation low, the US Federal Reserve has two mandates – to keep prices stable and maximize employment.  They plan to purchase mortgage backed securities (MBS) at regular intervals ($40 billion for the next six months) as part of an effort to maximize employment generation and price stability.  They also anticipate their benchmark Fed Funds rate will remain close to zero into 2015 (assuming a modest inflation environment).  Interestingly, the European Central Bank (ECB) also articulated its policy of purchasing government debt in the secondary markets, in an effort to reduce borrowing costs for countries laden with slow growth, gaping budget deficits, and high borrowing costs.

So, as former Mayor Koch would say, how are they doin’?  It depends on who you ask.  Investors decided that if the Fed was putting money on the line to spur growth, they would do the same with stocks, and major equity indices rallied sharply on the news. But US Treasury prices – particularly for 10 and 30 year maturities (which are used to price many mortgages) declined and yields rose sharply – the opposite of what the Fed intended.  Why?

  • Some say the central bank’s actions could ignite inflation – and look at rising money supply growth as a warning.  While this is a central tenet of monetarism (and Milton Friedman), this relationship has changed over time.  Consider that inflation, excluding food and energy prices, declined 0.1% in August, and in spite of a large jump in energy prices this summer, remains below the Fed’s 2% target.

  • Others are concerned that even if headline inflation remains moderate, the policy rewards banks, punishes savers, and could inflate asset prices (stocks, houses, etc).  Over the course of his tenure as Fed Chairman, Alan Greenspan lowered short term rates to support markets through downturns or market crises and kept short term borrowing costs low for an extended period after the 2001 downturn – which in hindsight helped fuel the housing bubble.  Traders had a phrase – the Greenspan put – (that the Fed had their back) which gave them a ‘green light’ to buy.  More recently some traders now talk about a ‘Bernanke put’. While some concerns may be justifiable about financial asset valuations, the housing market has only recently begun to show signs of life.  Given tighter standards, higher costs, and fewer questionable products, home values look unlikely to get out of hand anytime soon.

  • This links into a third concern – that the Federal Reserve’s intervention may not accomplish much and risks longer term damage to the Fed’s balance sheet – and credibility.  Buying tens of billions of dollars in mortgage backed securities adds more debt and timing is questionable (it could influence the election and/or makes no sense to act now when the economy is still growing).  In the past the Federal Reserve officials were known to ‘take away the punchbowl when the party gets going’, but now they seem to be playing the role of bartender.  Others, like IMF Managing Director Christine Lagarde, applaud central banks for their actions, but warn growth is slowing and urge officials to do more not less

Chairman Bernanke, who has studied the Great Depression at length, has committed to do whatever he and the Federal Reserve can to avoid a repeat of the 1930s.  And in the wake of ongoing evidence that growth momentum has softened, markets have reversed ground in recent sessions and bond yields have moving lower, acknowledging that for now, the inflation boogey-man is at bay.  But it looks increasingly like central bankers have just about ‘taken it to the limit’ in terms of what they can (or in the view some, should) do.  If politicians don’t address budget and debt imbalances soon, we may all be in for a rude awakening this winter.  Lisa Kaess

** Take It To the Limit – was one of the top hits for the Eagles in the 1970s.


Understanding Inflation: Everything in Moderation

Previously I wrote about growth and how the current downturn fits into historic context. This month we’ll discuss inflation, the other key anchor of economic policy.

Inflation is defined as a process of rising prices for goods and services. The inflation rate measures this change using a basket of essentials like housing, transport, energy, and food.

Equally important here is the underlying value of a good or service. If inflation increases, the value – or purchasing power – of your money will decline. Penny candy costs more than a penny today, and the price of basic groceries is higher than 20 years ago. As prices rise, we need to earn more to stay in place and maintain the purchasing power of our money.

This is also true for investments. Ideally, we want to not only get our money back, but also earn more to maintain its value and future purchasing power – so we can buy groceries after retirement.

Because price movements are dynamic, there are a range of terms that describe various
conditions. Inflation, involves a general increase in prices. Disinflation describes the deceleration of the rate of inflation. Prices are still rising, but more slowly than before (like hitting the brakes when you see a police car on the highway). Some pundits warn of the risk of reflation – an acceleration of the inflation rate (think stepping on the gas). That’s not am concern for 2009 while we’re in recession. Inflation, measured by the consumer price index (CPI), rose 0.7% in June, largely due to higher energy prices, but declined 1.4% over the previous 12 months.

And then there are the extremes, which can wreak social and financial havoc. Deflation is a sustained decline in overall prices, last seen during the Depression. The recent drop in gasoline is welcome, but deflation can destroy wealth. In hyperinflation, prices rise so fast a currency becomes worthless. In 1923 Germany had postage stamp valued at 23 billion Marks; Zimbabwe’s inflation was estimated at 10 21 percent in late 2008.

Economists and policy makers strive toward a modest increase in inflation (roughly 2%
annually), believing it helps keep an economy growing steadily for longer. It’s like driving at the 25 mph speed limit on River Road – fast enough to get ahead, but slow enough so we can stay out of trouble and respond to the unexpected.


What is a Recession?

How do you tell the difference between a recession and a depression, asks the joke? A recession is when a neighbor loses their job; a depression is when you lose yours. Seriously, how do we define a recession?

The ‘quick and dirty’ definition is two consecutive quarters (or six months) of negative growth. Growth is usually defined by gross domestic product (GDP), a term that measures the total amount spent on goods and services in a country in a given period (often quarterly or annually). If the total increases, the economy is expanding – if it declines, the economy is in a downturn.

Ah, if it were only that easy. US recessions are officially declared by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). If calling a recession were a sport, they are the umpires. The Committee writes, “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.” And they wonder why people have a hard time understanding economists.

Using the ‘quick and dirty’ analysis, the current recession would have begun in July 2008. GDP contracted at a -0.5% annual rate in the third quarter and -3.8% annual rate in the fourth quarter. But our economic ‘umpires’ announced last December that the recession actually began in December 2007, when growth and employment peaked.

So this downturn has already lasted a year, and it doesn’t look like we’re out of the woods yet. 

How does that compare? 

In the past 50 years, we have had eight recessions, averaging just under a year each. The longest two lasted sixteen months. The Great Depression lasted roughly a decade, from the Crash of 1929 until just before the onset of World War II. Economists technically view it as two ‘back to back’ recessions — from 1929 to 1933 (ending with the New Deal), and a smaller dip from 1937 to 1939. All in all, this current cycle may come to be known as the Great Recession, but as of now, it is still a far cry from the Great Depression.

Extra credit: or

*Lisa Kaess has worked as an economist, capital markets analyst, and consultant. This article
was published in The Nyack Villager, April 2009.