It's no secret that we Americans are an arrogant lot. Full of ourselves, egocentric, totally lacking in self-awareness. With the current government stalemate on raising the debt ceiling, and possible default, we have hit a new low. We are not leaders, leaders are humble and measured by their deeds for the common good. It's not always about compromise, it's the ability to address the current issue and come to a solution that is in the best interest of the world economy. The US is no longer the world leader, we are acting more like financial terrorists.

    We are all too familiar with the religious extremist organizations that resort to violence and threats to intimidate and coerce, for political purposes, the world's populous. The basic concept of terrorism is to advance your ideals by creating a state of fear in order to have your target enter a state of submission.

    If you didn't know it was the US government, you would think it was coverage of Al Qaeda or the Taliban. Destined to bring down the capitalist western society and the global economy. This current wave of terrorism, being inflicted on the world, has little to do with policy, or even ideology, but has all the extremist insurgent tactics and suicidal strategies. These western insurgents are championed by wealthy religious ideologues who simply seek to tear down our government. Follow the money trail of millions in unregulated, untraceable "dark money."

     While the economic turmoil, we have experienced since 2007/2008, has generated some of the greatest wealth creation we have seen in our lifetime, this current group of so called leaders is striking fear into the hearts of SSWM. Sure, buy on the dips, take profits on the news of a potential agreement. We know the congressional leaders trade on proprietary information. There is a delicate balance here. Most of congress, that I have seen testify, just don't get it, reading from scripts prepared by some MBA intern looking to advance his/her own agenda. This has the potential to be a Black Swan event, one never seen before in the history of the world. Would the egos of our current leadership group really send the globe spiraling out of control, you bet they would. It's all about the perception of winning, winning in your own mind, winning at all cost

    The black swan theory is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. Our leaders are very good at hindsight, no foresight. With hindsight comes the ability to rewrite history.

The theory is founded in this basic view:

1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs
   

    Did Congress ever care what the voters think? We don't think so. Every election, held after a government shutdown, did not result in a change in the House or Senate majority party. Reelection rates remain extremely high. More than 90 percent in the House and greater than 80 percent in the Senate. Only when Congressional salaries are impacted, and planes begin to crash, do we stand any chance of an impasse being resolved. Why?:

• the essential portions of government continue to function
• leaders will get reelected anyway
• they do not lose elections because of shutdowns
• the big one - they still get paid
  

    Plus, as we have written before, they know they have the power to manipulate markets.  They can trade on information not available to the general public. Let’s say Michele puts in an option to sell one share of a hypothetical company called, I don’t know, “Morons” at $15. If she knows that continued squabbling and poor results drive the price down to $5, she can buy a share on the open market for $5 and exercise the put to sell at $15, booking a $10 profit. Where is she putting her money, companies like Lockheed Martin, GE, BAE, Tyson Foods and Textron.

    If it wasn't so scarey, it would been fun to sit back, profit from the volatility and laugh at some of the best poorly acted comedy on television.

    Maybe those 'fat cats' in Washington aren't fat after all. Could be they are just wearing suicide vests under those Armani suits ... and they think they look marvelous. Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

 We at SSWM are proud to be heralded as early adopters of the cable television series Breaking Bad on AMC. The series premiered on January 20th, 2008. A year that would see the tragic death of our life long mentor and the start of the world economic meltdown. What a godsend it was to find this show that allowed a distraction from so much pain and anguish.

 We consumers are patsies for 'must have' new products. Whether it is bragging rights for discovering it first, or just keeping up with the Joneses, we gobble up most everything that is thrown at us. How refreshing is it when you have to go and seek out something special. Of note, for us at SSWM, are Cascade Dish-washing Powder, Thomas' English Muffins, Caspian Lake in Greensboro, Vermont and the guitar playing of Kenny Wayne Shepherd. Superior quality, short supply and hard to find, these products sell themselves and can command a premium.

 SSWM could not help but return each week to watch the dealings of the overqualified Albuquerque chemistry teacher turned meth cook. Great story, great dialogue, superior acting (Bryan Cranston - Anna Gunn - Aaron Paul - Dean Norris - Betsy Brandt - RJ Mitte - Bob Odenkirk - Giancarlo Esposito - Jonathan Banks - Laura Fraser - Jesse Plemons) by all characters and so many similarities to actual business and leadership that it could, and should be, its own MBA program.

 Like any superior product, Walter White's sells itself. He is able to command a premium price as he dominates the market. All the forces of competitive markets are at play here. Remember:

Threat of new entrants - profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will trend towards zero (perfect competition).

• The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily

• Economies of product differences
• Brand equity
  
• Switching costs or sunk costs
  
• Capital requirements
  
• Expected retaliation
  
• Access to distribution
  
• Customer loyalty to established brands
  
• Absolute cost
  
• Industry profitability; the more profitable the industry the more attractive it will be to new competitors.

* threat of new entrants, sources. 1) Economies of scale, 2) Product differentiation, 3) Cost disadvantages independent of size, 4) Access to distribution channels, 5) Government Policy.

Threat of substitute products or services - the existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor's similar product. Increased marketing for drinking tap water might "shrink the pie" for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke's expense. Another example is the substitute of traditional phone with VoIP phone.

• Buyer propensity to substitute
  
• Relative price performance of substitute
  
• Buyer switching costs
  
• Perceived level of product differentiation
  
• Number of substitute products available in the market
  
• Ease of substitution - information-based products are more prone to substitution, as online product can easily replace material product
  
• Substandard product
• Quality depreciation

Bargaining power of customers (buyers) - the bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. e.g. firm can implement loyalty program to reduce the buyer power.

• Buyer concentration to firm concentration ratio
  
• Degree of dependency upon existing channels of distribution
  
• Bargaining leverage, particularly in industries with high fixed costs
  
• Buyer switching costs relative to firm switching costs
  
• Buyer information availability Force down prices
  
• Availability of existing substitute products Buyer price sensitivity

Bargaining power of suppliers - the bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

• Supplier switching costs relative to firm switching costs
  
• Degree of differentiation of inputs
• Impact of inputs on cost or differentiation
  
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration ratio
  
• Employee solidarity (e.g. labor unions)
  
• Supplier competition - ability to forward vertically integrate and cut out the BUYER

* if you are making meth and you have only one supplier of methylamine (prime ingredient), you have no alternative but to buy from them.

Intensity of competitive rivalry - for most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

• Sustainable competitive advantage through innovation
• Competition between online and offline companies
  
• Level of advertising expense
  
• Powerful competitive strategy  
• Firm concentration ratio
  
• Degree of transparency

 Walter White has many good qualities, at least at the beginning. An extremely respectable trait in employers is the role of nurturer, understand employees and what they want, believe in your human capital and grow them as individuals. The Harvard Business Review article ( One-quarter of the highest-potential people in your company intend to jump ship within the year) on How to Keep Your Top Talent lists the following:

1. Don’t just assume they’re engaged. If emerging leaders don’t get stimulating work, lots of recognition, and the chance to prosper, they can quickly become disenchanted.

2. Don’t mistake current high performance for future potential. Stars will have to step up into tougher roles. Explicitly test candidates for three critical attributes: ability, engagement, and aspiration.

3. Don’t delegate talent development to line managers. That only limits stars’ access to opportunities and encourages hoarding of talent. Manage the quantity and quality of high potentials at the corporate level.

4. Don’t shield talent. Place stars in “live fire” roles where new capabilities can—or must—be acquired.

5. Don’t assume high potentials will take one for the team. A critical factor determining a rising star’s engagement is the sense that she is being recognized—primarily through pay. So offer A players differentiated compensation and recognition.

6. Don’t keep young leaders in the dark. Share future strategies with them—and emphasize their role in making them real.

 Well, we'll learn the fate of Heisenberg tonight. In the morning, we'll go about our daily business rituals. What went wrong for Walt? No debating that he is/was a master strategist. The smartest guy in the room. We would be naive if we felt that much of business today is not based on exploiting the financial rewards of breaking the law.

 Management styles are unhinged by greed, the promise of wealth and power, settling old scores, need for recognition, building individual empires, maximization of profits at the expense of internal and external relationships and often darker motivations hatched by the mind.

Resentment rarely leads to correct business decisions. We have seen thousands of leaders fail as they compromise their own ethics and integrity.  Walter White's demise is not that far removed from many business leaders past and present:

• Lack of Humility
• Unable to understand ones own limitations
• No self-awareness
• Disregard for how one is viewed by colleagues
  
• Lack of basic empathy
• Ruthless vs. vision and openly supportive spirit
• Harsh not merciful (which leads to courage)
• Careless not frugal (which leads to generosity to others)
• Arrogance not humility (which leads to strong leadership)
  

In the end, for Walt, it wasn't about the investors, shareholders, customers, employees or family, it was all about Self. The demise of so many brilliant minds and leaders. How many Walts do you know? Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

 Every few years it comes back into vogue, the work and life balance discussion. How do you achieve it, and practice it, on a consistent basis. While we at SSWM do focus on the psychology of business, we felt that the renewed interest in this topic was particularly relevant in the context of navigating through the worst recession in United States history.  This ‘new normal’ has no guidebook.

  It has been an employers market for the past five or six years, maybe longer.  Wages are flat and stagnant, raises are non-existent, and performance evaluations put on hold indefinitely. More productivity out of less headcount, burn and churn, ‘if you won’t do it, we’ll get someone half your age and at half the pay who will.’ Fear of being laid off, losing your health care, life insurance, future retirement income and inability to finance your children’s education. How can you balance your life when your life depends on work; fear and survival makes work a priority.

Definitions please:
Life: the sequence of physical and mental experiences that make up the existence of an individual.
Work: a job or activity that you do regularly especially in order to earn money.
Balance: a state in which different things occur in equal or proper amounts or have an equal or proper amount of importance.

In a recent survey by Psychology Today, workers felt:

• Overwhelmed and depressed – competing demands are unmanageable
  

• Workload is too much for one person to handle
• Constant demand to work smarter, harder & faster
• Anxiety over downsizing and/or wage reduction
  

• Hourly expectations - length of work day unrealistic
  

• Exercise - no time to focus on health
  

• Nutrition - inability to control nutritional requirements
• Prescription Drugs too plentiful - taken to numb or speed up
• Alcohol & Illegal Drugs - necessity to ease social tension and to self-medicate
  

Doctors advice, which also includes just writing a prescription, is summarized:

1. Build downtime into your schedule. When you plan your week, make it a point to schedule time with your family and friends, and activities that help you recharge.
2. Drop activities that sap your time or energy. Take stock of activities that don't enhance your career or personal life, and minimize the time you spend on them.
3. Rethink your errands. Consider whether you can outsource any of your time-consuming household chores or errands.
4. Get moving. It's hard to make time for exercise when you have a jam-packed schedule, but it may ultimately help you get more done by boosting your energy level and ability to concentrate.
5. Remember that a little relaxation goes a long way. Even during a hectic day, you can take 10 or 15 minutes to do something that will recharge your batteries.

Similar, a Fortune 500 CEO recently provided these words of wisdom in a Forbes article:

• Schedule down time.

• Cut out the things that don't add value to your life.

• Avoid negative people that suck the energy out of you.

• Outsource those tasks that you can.

• Take five for you.
  

 Both from the Doctor, and CEO, which has irony of its own as both professions have a reputation for 'workaholic' behavior. I find them to be bumper sticker suggestions of superficial solutions, contradictions and oversimplifications. Chances are these individuals have no work/life balance either. Who says there has to be a work life balance anyway? Who is the beneficiary, and loser, of this balance? Are there alternatives?

 Can we execute on a strategic, goal oriented approach to life? I don't think that we have that much control and choice in our lives. Life is quite dynamic. Many of our best laid plans are already out of date before we can put our strategy into action. Life is difficult to plan. There is no crystal ball, there are plenty of dominoes. I do not believe that a calculated balance is possible. What is the formula, where do I find the equation?

 In the span of one year, I have lost 3 acquaintances who, sadly, fit interesting profiles.

• Jim - sought a balance. High paid executive with a global financial services firm (with the lion). Burned out, dropped out, simplified his life, got back to nature. Was killed in a high country ATV rollover this month.
• Steve - found a balance. Substantial financial payout allowed him to realize his dream of more time with his family. Ambushed by cancer, died in August.
• Mark - always had balance. Successful law practice that allowed him to set his own hours. Gorgeous wife, huge home, multiple cars, exotic vacations, children in private schools. Died of a heart attack while running in January.
  

Suggestions - if one were to look for balance:

• Work must be productive, it is hard (thus the name), but do try to make it fun (inject humor where you can).

• Unpredictability and lack of control are inevitable in life learn to accept it.

• Life, leave some slack, measure it by how you feel rather than the goals you accomplish.

• Identify your values and change your life accordingly – regardless of fiduciary ramifications if necessary.
  

• Work less hours, keep nights and weekends for nonworking activities.

• Make significant and high-quality contributions during working hours. Provides some peace of mind.
  

• Eliminate work that does not make those significant contributions to the firm.
• Gut check - Do you value Net Worth over Self Worth? Do you measure success by the size of your wallet?
  

• Explore the luxury of ‘fuck you’ money. $4 to $5 million in the bank is a nice anxiety cushion, is that an option?
  

• Get paid extremely well for what you do. Money doesn't buy happiness, but it sure does take the sting off at the dinner table.
  

• Work / Life balance as a goal may lead you down the same path your trying to get off. We run the risk of over-planning our lives. Balance your balance in moderation.
  

• Do not set yourself up to fail by attempting to achieve the unachievable.

• Do not let the ‘idealized image’ be pushed on you if you do not choose to, or can not, accept it.

• In the end, balance is not the goal, living life is. You should be able to live the life you choose, and choose the life you live.
  

  Not intended to inject religion, and we at SSWM view it more as Science of the Mind, the Buddha nailed it, but I don't think he had to deal with the Cell Phone budget, back to school supplies, never ending car repairs, laundry, the broken toilet and anxiety over losing his job.

 This Life balance is exemplified in the Eightfold Path: Right Understanding, Right Thought, Right Speech, Right Action, Right Livelihood, Right Effort, Right Mindfulness and Right Concentration. Traditionally the Noble Eightfold Path is divided into three parts – Virtue, Concentration and Wisdom. Another useful way to divide it is as intellectual training, ethical training and psychological training. No disrespect to Siddhārtha Gautama, that's a lot of work and not sure where Right Paycheck fits in. Bottom line, you need to get it straight in your own head. Remember, Sua Sponte.

  The more important your family becomes, the more important financial dependencies are and thus work. Values do not fall into clean dichotomies that lend themselves to prioritization and trade-offs. How is your work life balance? Whose life is it anyway? Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

 The labor force participation rate is the percentage of working-age persons in an economy who:

• Are employed
• Are unemployed but looking for a job

Typically "working-age persons" is defined as people between the ages of 16-64. People in those age groups who are not counted as participating in the labor force are typically students, homemakers, and persons under the age of 64 who are retired. In the United States the labor force participation rate is historically around 67-68%.

 The unemployment rate, in August, fell from 7.4% to 7.3% (please see economy tab). The decline is not due to the fact that more people are finding jobs, it is declining because individuals have given up looking for jobs. When you just give up, you are not included in the unemployed statistics. In August, the size of the workforce declined by roughly 300,000. The participation rate fell to its lowest rate since August of 1978, 63.2% from 63.4% in July. When this percentage declines, it's a bad thing.

 The employment, or unemployment, situation continues to be troubling. The numbers get reported but do not seem to reflect what is actually taking place in the economy ... people need jobs, good jobs. The August payrolls report had the US economy adding 169,000, while not much below, it is still less than the 180,000 that most economists had predicted. The smartest still can't get a handle on this complex paradigm.  Numbers continue to get revised from previous months. Revisions included adjusting down for 74,000 jobs to the previous two months’ reports. June payrolls grew by only 172,000, rather than 188,000; July’s grew by only 102,000, instead of 162,000. The result, you can make things look better if you continually change your starting point and then use the 'wild card' to remove those who have just given up. At SSWM we call it - Fun with Formulas.

Possible impacts of this dismal reality:

• Entitlements - a little bit of a Ponzi Scheme, where today's workers pay for the current commitments and funding for programs such as Social Security and Medicare. Less participants means less funding.
• Fed Tapering Delay - potentially, and should, cause the Federal Reserve to delay its plans for tapering its $85 billion-a-month bond-buying program. At least the bull run may continue?
• Shit Jobs - August job growth was in retail and food services, which typically offer low-paying and part-time jobs (please see Charts tab).
  

Direct from the Employment Report (or should we call it the Unemployment Report):
_
Within leisure and hospitality, employment in food services and drinking places continued to trend up in August (+21,000). Over the year, food services and drinking places has added 354,000 jobs.
_
Among the major worker groups, the unemployment rates for adult men (7.1 percent), adult women (6.3 percent), teenagers (22.7 percent), whites (6.4 percent), blacks (13.0 percent), and Hispanics (9.3 percent) showed little change in August. The jobless rate for Asians was 5.1 percent (not seasonally adjusted), little changed from a year earlier.
_
The civilian labor force participation rate edged down to 63.2 percent in August. The employment-population ratio, at 58.6 percent, was essentially unchanged.
_
Among the marginally attached, there were 866,000 discouraged workers in August, essentially unchanged from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in August had not searched for work for reasons such as school attendance or family responsibilities.

 The data is dry as toast, we understand that.  Do sketch it out on paper.  Look at the size of the numbers for those out of work, look at the number of jobs we are adding, review the jobs that are being created. This economy could use a little butter and marmalade itself. This is major reconstructive economic surgery with at least another 5 years of physical (fiscal) therapy ahead.

Who's making you breakfast? Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

 Friday will bring the release of the August jobs report. This is one of the most highly anticipated jobs report in recent memory. It may be the deciding factor in the Federal Reserve's choice to dial back bond purchases starting in the middle of September.

 Recent global events have contributed to the uneasiness on Wall Street, but none more than the thought of the Fed reducing the $85 billion monthly stimulus (QE3). Last week, the markets recorded their steepest monthly decline since May of 2012. On one hand, it will be nice to get it behind us. On the other hand, the economy is still just too fragile for the Fed to take any action. Regardless, we expect a make or break signal from the Friday Jobs Report.

 The Fed meets on September 17th and 18th. From a real economic view, QE3 has benefited the markets and has not had a substantial impact on the economy short of pushing asset values higher. Trickle down anyone?

  A strong jobs report will likely reinforce the view the Fed will opt to decrease its bond purchases. Will there be any harm to the real economy by beginning to ease the bond buying, will this signal the end of the bull market?

 The S&P 500 index fell 3.1 percent in August; the Dow Jones industrial average lost 4.4 percent and the Nasdaq slipped 1 percent.

 Not only has the timing of the Fed easing resulted in choppy markets, it has triggered a bond market sell-off. Remember that bond prices, and interest rates, move in opposite directions. Mortgage rates are at a two year high and may be showing signs that the housing market is slowing because of the higher costs of borrowing. Are the first time home buyers getting the mortgages? It looks like the majority of purchases are by speculators and all cash transactions. Another side effect of higher rates is to watch the impact escalating rates will have on businesses adding workers.

 Current unemployment rate is at 7.4%. If the rate falls to 7.3%, expect the Fed to take some action. Markets can only hope for a disappointing number, the Fed will back away and markets will rally.

 Middle East tensions will continue to be in play. We anticipate limited strikes by the US coalition, but for the situation to smolder into the unforeseeable future sending oil prices higher. This week will also bring vehicle sales along with factory and service data. For a short week, it should give us a reasonable view through the end of the quarter. We feel that markets do have room to move lower, a total 10% correction is not out of the question. This is healthy for long term market growth. September has a history of being one of the worst months for stocks and has an ominous anniversary this year - the five year recognition of the worst global economic crisis since the Great Depression. The market dropped over 9% in September 2008.

  The VIX (volatility index) rose above 17 on Friday, a two-month high. Market volume has been light exaggerating market swings. Other items to watch are: Obama's nominee to replace Ben Bernanke (Fed Chairman), debate over the federal debt. September will be a month where we hope to dial in our economic GPS, but you can count on some misdirection. Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

 This past week was the weakest three weak period since November. We continue to see turbulence ahead. What is causing this round of uncertainty? Tapering, when will it occur.

 When will the Federal Reserve begin to slow its accommodative monetary policy that has been in place for most of the past 5 years? Trading may be light this week as we head into the Labor Day weekend. There just isn't a ton of data for investors to get excited about. Growth continues to be anemic and unemployment remains high. Expect it to be a volatile few weeks.

  Recent Fed minutes did not provide any clear direction on when the Fed would begin to reduce its $85 billion-a-month of bond-buying. The recent Fed minutes showed a mixed picture with some members appearing to opt for patience. We feel it is just too early to tell if the economy is improving enough for the Fed to begin tapering. What we do feel is that the Fed will pump the accelerator as necessary and that this market has room to move.

 This has been a Fed fueled bull market in 2013. As we return to the VIX (volatility index) we see that any signals from the Fed will be a double edged sword. As investors, we can hope for no tapering or easing; as consumers in a still very fragile economy, we hope for a signal from the Fed that things are truly improving.

 This week we will see an economic report published every day. Perhaps the most important report will be on Thursday when we get the best look at US GDP, or how well the economy is growing. A weak report means a bearish sign for the economy, but a bullish sign for the market. At SSWM we believe that the Fed will continue to telegraph its interpretation of the economic data, the market will react, and we can continue to capture analytical data that helps going forward.

 The S&P 500 is down 2.7% percent over the past three weeks and has dipped below its 50 moving average (red line) during several sessions. Analysts feel we could see a stable floor at 1,636, the 100-day moving average. Range bound between this floor and the high seen this month of 1,710. The Fed meeting in September, we hope, will provide more market moving data we can use for continuing interpretive forecasting.

Consumer confidence appears to have stabilized, how are you feeling? Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

  This week, Colorado's CollegeInvest announced it was closing its Colorado Prepaid Tuition fund on November 1st. A recent actuarial report showed negative cash flows, currently, and when trended out for the remaining life of the fund. A knife was stuck through the proverbial heart of the fund with a cry of. "I'm unsound and no longer financially viable". A fitting metaphor for the entire state of our college financing dilemma. You really can't save, grow, and pay. Some of Colorado's sharpest minds couldn't even get the formula to calculate.

 Prepaid tuition funds allow investors to pay for future college tuition costs at present-day rates. State-based plans typically guarantee a rate of return that varies with changes in tuition. As the tuition rate increases year to year, so does the rate of return.

 The Prepaid Tuition Fund (Fund) was established in 1997 to provide families with an opportunity to save for future college education expenses. The Fund offered an annual enrollment period for purchasers to buy prepaid tuition contracts.

 The Fund offers certain federal and State tax advantages to investors. The Fund was designed to keep pace with average tuition inflation in Colorado. Under the original contract terms, a purchaser bought tuition units based on current average tuition levels and the investment was valued and paid out at the level of average tuition or an average minimum of 4% per year over the life of the contract (when held until the first payout date), whichever was greater, at the time of payout.

 The contract terms were amended on February 20, 2003. Under the new terms, the annual increase in average tuition as defined below is limited to the lesser of 1) the percentage increase in actual average tuition at Colorado public colleges and universities or 2) 5.5%. Average tuition is determined annually by the Fund by adding (1) the sum of the applicable year’s resident, undergraduate, general full-time tuition at all Colorado public four-year colleges and universities, to (2) the average full-time tuition at the State community colleges for that year. Full-time tuition equates to the tuition charged for the equivalent of fifteen credit hours for each of two semesters. The total of (1) and (2) above is then divided by the number of Colorado public four-year colleges and universities in existence at such time plus one for the State community colleges.

 A purchaser can use amounts contributed and earned in the Fund to pay eligible expenses at private and public colleges, universities and vocational schools throughout the United States.

  In the case of the Colorado state fund, it became unsustainable because of rapidly increasing tuition rates during the past decade. Instead of the expected 3 or 4 percent rate of return, the fund was paying its maximum 5.5 percent rate, and that could not keep pace with skyrocketing tuition increases.

  A good rule of thumb is that tuition rates will increase at about twice the general inflation rate. During any 17-year period from 1958 to 2001, the average annual tuition inflation rate was between 6% and 9%, ranging from 1.2 times general inflation to 2.1 times general inflation. On average, tuition tends to increase about 8% per year. An 8% college inflation rate means that the cost of college doubles every nine years.

 The mission of CollegeInvest was to be Colorado’s higher education financing leader and to help Colorado families break down the financial barriers to college. Those barriers just got another reinforcement. Even the state has thrown in the towel. Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

  One of our hot buttons at Sua Sponte Wealth Management, if you haven't picked up on it by now, is the high cost of college tuition. Metropolitan State College of Denver, on Thursday, announced they would raise the price of tuition by 9%. At the same time, Mero State indicated they renewed the contract of President Stephen Jordan with salary and compensation valued at $386,000. Well, I'm sure he is worth it. The point is, how are ordinary individuals expected to keep up with that pace?  Wages are stagnant, inflation bounces around 1.5 to 2%. The economy remains extremely fragile. College administration is driving up the costs for our children. Where do you put your money if you are even thinking about saving for college?

 Behavioral Finance: Back in the 1990s, everyone was a financial genius. Experts at stock picking. You could sneeze and get 20% returns.  Get in on an IPO, dump it as quickly as you could, and you were sitting pretty. Since the heyday, stock inputs by ordinary investors are down by over $400 Billion.  Those 1990 experts have chosen the sidelines. Is the market dangerous?

  There are no similarities between the market of old and today. We do have an uneasy feeling that chaos could strike at any moment, the economy is on life support and world war is a possibility. Nonetheless, being in the market is not stupid.

  Today, the market is not driven by speculative internet and technology companies whos wares were hawked by sock puppets and celebrities. These earnings are real. It appears that companies are making real money. The PE ratio in May of 1999 was 29, the PE ratio in May of 2013 was 16 (we are keeping a close watch). Fundamentals seem strong and the values seem reasonable,

  Current profits are not concentrated in technology alone. Positive earnings are spread across multiple sectors. In 1990, stock market gains were concentrated in telecommunications and technology. Gains in 2013 appear to be spread across all industries. The strong stock market performance is backed up by strong earnings. Corporations have more cash than they know what to do with. Profits are at an all time high. Companies with positive EPS in May was 88% compared to 53% in May of 1999.

 

 Well, I think Stephen Jordan is doing very well for himself.  If he has to worry, at all, about providing a quality education for his children, or grand children, appears he can afford to pay out of pocket. Or, I'm sure he can work out free tuition or maybe payment at only 20% of the going rate. The rest of us, with tuition rising at a clip of 6% to 9%, or more, we better be in the market.

 What do you think, stupid to be in the market? Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

  The Shiller PE ratio for the S&P 500 is based on average inflation-adjusted earnings from the previous 10 years. It is also know as the the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio or the P/E10.

  The CAPE utilizes earnings from the prior 10 years. The numerator is the real value of the S&P 500. Real meaning adjusted for inflation. The denominator is the moving average of the preceding 10 years of the S&P 500 real reported earnings.
  

 The purpose of the CAPE looking at the previous 10 years real reporting earnings is to control business-cycle effects.  The caution here would be that business cycles typically last 6 years. Recent trends indicate that recessions are shorter and expansions are longer. The risk would be that the CAPE tends to overestimate true average earnings during contractions and underestimate average earnings during recessions.  

 As we discussed last week, the Bureau of Labor Statistics often changes the manner in which the CPI is determined. This will have an impact on the reported inflation number. Changes also occur to the corporate taxation policies and accounting standards.  Non-recurring, one time charges, earnings impacted items are reflected for a full 10 year period. Other measures treat these 'one timers' in the current period and leave them behind when measuring current periods. Another factor to take into account is that the stock market can remain over valued for a long time before any type of correction takes place.

 What do you use to measure the market? Do you still believe that this rally is Fed driven only? Do you reference the CAPE, P/E only, forward and TTM P/Es? Five-year normalized P/E? Throw darts? Recommendation is to consult them all, do your homework, do your best. Sua Sponte.


Bradford C. Bruner for Sua Sponte Wealth Management.

    If you have been unemployed, underemployed, or employed with no raise during this recession, you may have been paying particularly close attention to the inflation numbers.

    Inflation is the rise in the level of prices of goods and services over a period of time. When the price level increases, our dollar buys fewer goods and services. Inflation reflects a reduction in the purchasing power of the dollar.

    The Consumer Price Index (CPI) is the standard measure of inflation. The CPI measures a basket of goods and services from 12,200 selected households. The change in cost is the inflation rate. The case can be made that this measure overstates the inflation rate because it does not take into account that consumers continually adjust buying patterns to purchase the most inexpensive items.
   

    Not new, but not often apparent to the consumer is the chain-weighted version of the CPI. The PCI, Personal Consumption Expenditure, continuously updates data to reflect changes in spending patterns.  The Bureau of Economic Analysis first starting using this data in 2002. Under this index, inflation runs at 1/3 point lower and under the chain-weighted CPI, 1/4 lower than the traditional CPI.

    The Federal Reserve Board uses the PCE for its economic forecast and decisions surrounding inflation. As long as the PCE and CPI are reacting the same, all should be good.  Up until recently they have been.  Currently, PCE shows inflation at 1.1% while the CPI has inflation running at 1.9%.
    
    With close to 1 percentage point between the two, it is easy for both monetary and fiscal policy to fall victim to data interpretation. Look for both Democrats and Republicans to use one or both to their advantage.  Whatever suites their agenda.

    Don't you just want to know how much your hard earned dollar can buy versus last quarter, or compared to last year?  Just what number are we to use?  Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management