John Lefferts' Blog

Sunday, August 7, 2011

Extreme Moderation

As I write this posting, it’s closing in on 110⁰ outside in Dallas heading towards a record consecutive number of 100⁰+ days prior set in the summer of ’80 at 42 days in a row, a milestone no one in the area ever thought would fall. It was 6 short months ago that Dallas hosted the Super Bowl in a week marred with ice, snow, record low temps and kids out of school for a week. In short, the weather in Texas is EXTREME. That seems to be the theme for many things lately. The stock market has been pounded for weeks down close to 10% within a month; the extreme left politicos want to tax and spend more while the extreme right wingers refuse to bend on anything, and several economists are prognosticating a “double dip” recession while “shovel ready” Obama is still blaming Bush for the economy and being divisive by wagging class warfare and showing no leadership at a time we need it most. Enough extremism…perhaps it’s time for some moderation.

It’s been found that no more than two drinks a day can actually be healthier than being a teetotaler, but a fifth of scotch a day will kill you…moderation. Exercising 3X/week can achieve tremendous health benefits, but running excessively can actually do long term damage and even kill you…moderation.   And being spiritual can improve well-being and peace of mind, but religious extremists fly planes into skyscrapers…moderation. I was visiting family in my old home town of San Diego last week where the weather forecast is almost always “night and morning low clouds with a high of 72”. Now I’m in Dallas where there are two seasons; mid-summer and mid-winter. Needless to say, we could use a little moderation in these parts.

Most folks I know aren’t zealots politically, religiously or for that matter, in any way at all. Most people have a fairly balanced view on things. They understand that every yin has its yang. Yet, it seems that the extremists in every facet of the country are driving the bus. I have nothing wrong with a conviction in one’s beliefs, but when it is without regard for others and/or consequences, it can get destructive.  And in our business, I see the same thing happening. Most FINRA regulated advisors I know welcome the fiduciary standard. Many have been adhering to it for quite some time as their business has drifted towards fees in the past decade. But the industry lobbyists and certain organizations will have you believe it is the beginning of the end if the fiduciary standard is put in place. I don’t think so.  Likewise, there are fee only advisors who are espousing the belief that commissions should be banned and all those giving personalized investment advice should adhere to an even more stringent definition of fiduciary than currently exists. Their primary industry group is NAPFA which numbers less than 1,000 members nationwide. So, there are over 20,000 State and SEC RIA’s, about 650,000 registered reps, the majority giving “personalized investment advice” and these guys are speaking for the industry? I don’t think so.

It’s been said that the squeaky wheel gets the grease, but more so these days, it seems to gum up the system and impede rational progress. Watching the political circus during the debt ceiling debate is just one obvious example. The far left and far right were doing all the yelling while the vast majority of American’s were thinking, “just come together and get it done!”  So we end up with a solution nobody likes and the country gets downgraded.  I’m hopeful that the SEC will come up with a reasonable solution to the “harmonization” debate and avoid cratering to the extreme zealots on each side.  But just like the debt ceiling debate and the striking lack of leadership at the top, it’s going to take some bold compromises and decision making to get it done right. It’s time for extreme moderation.