Guest Articles

WHAT TO MAKE OF THE CURRENT MARKET

2008-07-18T10:00:00Z

We are fortunate to have clients who have taken to our financial educational approach to investment management. As such, they tend to stay relatively calm during periods of market uncertainty such as we are currently experiencing. However, they do ask legitimate questions that center on their individual goals and how the market’s downturn may impact their realization. This is our attempt to address those questions.

Let’s use a question and answer format to cover the most common issues.

Client

Is this time different? Is this presenting a new paradigm that should make us more cautious than usual?

Fragasso Financial Advisors (FFA)

We believe there are no new paradigms. History repeats itself, but with new wrappings. Please click here to view the attachment reflecting all downturns and upturn years from 1926 through mid-year 2008. Is this time different than the two downturns of the 1930s? World War II? The 1970s Oil Embargo? The early 2000s? How about the recessions of 1946, 1957, 1962, 1981, and 1990? Sounds like ancient history, and much of it is. But 2008 will become old news also.

So what makes this different? Probably nothing except the causes. Recessions and near-recessions occur because of economic factors and they have historically resulted in meaningful recoveries. If there is no recovery this time, it will not only be the first time in history that has occurred, but you will have much more to worry about than the value of your portfolio.

We submit that the lessons of history, through all time periods, will prevail. So this time is not different than the other times in the effect, the outcome and how we should continue to invest our money. And that would be guided by the sound textbook principles that we utilize on your behalf. Diversification, balance and asset allocation have earned their place in the textbooks because they work.

Meet Barry Obama, Fair Housing Lawyer

2008-04-25T04:54:41Z

Last Saturday, I was a guest on Larry Kudlow’s WABC radio program. Larry’s a good friend and we have been talking quite a bit lately on his TV and radio shows about the ways in which Federal regulations have created the sub-prime mortgage crisis. This is far and away the most underreported aspect of the mortgage story, and aside from Larry’s shows and a few conservative media outlets, such as Townhall, it has been completely missing from the discussion.

That’s a shame, because there simply was no such thing as a developed Subprime mortgage industry until the US congress created it by ordering banks to issue loans to people who were not credit worthy. Community activist groups (such as the Public Interest Research Group and Acorn) and civil rights law firms (such as Miner, Barnhill & Galland) had make their living by accusing banks of racism when the banks hesitated to approve loan requests from minority citizens with poor credit scores. Fair Housing laws, championed by American Heros like Martin Luther King, Jr., had long-ago outlawed the practice of ‘redlining’, which is refusing to sell or rent to blacks in certain neighborhoods. But a new generation of activists modified the concept of redlining, applying it not just to race-based home sale covenants, but to any refusal to lend to a minority member, even for sensible financial reasons.

The Community Reinvestment Act was created as a result. Initially the act was used, not to get banks to lend to minority households, but to get them to cut checks to ‘community groups’. Left of center activist agencies, which had pushed for the act in the first place, used it as a shakedown tool. So long as the banks kept paying off to the activists, the activists would hold off on sending complaints to the bank regulators’ CRA files.

WHAT'S YOUR IDEA WORTH?

2008-04-03T06:30:44Z

There’s a lot of talk among entrepreneurs about the value of an idea. Many entrepreneurs believe that a brilliant idea will spawn a great company. We read about companies like eBay that took one simple idea – online auctions – and turned it into a powerhouse company.

Yet ideas alone aren’t worth much. Very few companies, including eBay, became successful based on just an idea. Unless your idea turns into a patent that no one can replicate, it’s worth nothing until you can add the right elements to it.

Therefore a savvy entrepreneur will quickly try to back their idea with smart management, paying customers, and strategic partners as early as possible in order to build value around their idea. All of this can be done even before the company is ever officially launched, generating a ton of value in the formative stages.

Smart Management

There’s an old saying that the wrong idea with the right management team can at least have a chance of surviving, but the right idea with the wrong management team is altogether doomed.

That’s because the true value of an idea isn’t about the idea itself, it’s about the execution of that idea. There were lots of companies that easily replicated the idea of online auctions to compete with eBay. Do you remember them? No? Neither do I. That’s because eBay’s management team executed so much better than their competitors who had the exact same idea.

You can brag and boast about your great idea, but unless you can pull together a team that can actually pull it off, you’ve got nothing. Investors are well aware of this fact, which is why they often evaluate their investments on the merits of the management team of a new startup company more so than the business idea itself.

STATE SUPPORT FOR EDUCATION AND SCHOOL DISTRICT PERFORMANCE

2008-03-27T19:02:19Z

One of the most frequently repeated distortions about education is that the Commonwealth is inadequately funding poor and underachieving districts while better off districts are receiving unfair state subsidies. For some reason, people are allowed to go unchallenged when they make the claim. However, the assertion is not true and needs to be put to rest.

One relatively simple way to demonstrate the falsity of the notion that the state is inadequately funding the seriously underachieving districts is to compare what actually occurs at the state’s ten worst academically performing districts with what happens at the Commonwealth’s ten best performing districts.

The ten best performing districts were selected on the basis of the percentage of students scoring at proficient or higher on the state’s PSSA tests for the school year 2005-2006. The ten worst schools were selected on the basis of the percentage of students scoring below basic. To score below basic reflects inadequate performance and indicates little understanding and minimal display of skills included in the Pennsylvania Academic Content Standards. Unfortunately, the below basic category can include scores indicating a complete lack of understanding.

Pennsylvania’s ten best districts have around 90 percent of students scoring at the proficient or advanced level in both reading and math. This list includes Hampton, Mt. Lebanon, North Allegheny, South Fayette and Upper St.Clair from Allegheny County; Tredyffrin-Easton and Unionville-Chadds Ford in Chester County; Lower Moreland and Upper Dublin in Montgomery and Peters in Washington County.

The ten lowest ranking districts have over 30 percent of students scoring below basic. Two districts have more than 50 percent of students below basic with a third district over 40 percent. These districts, ranked by the very worst scores, are Chester-Upland (Delaware County), Harrisburg (Dauphin), Duquesne (Allegheny),Wilkinsburg (Allegheny), Farrell (Mercer), York City (York), Philadelphia, William Penn (Delaware), Steelton-Highspire (Dauphin), and Clairton (Allegheny). Note that two other Allegheny County Districts, Sto-Rox and McKeesport, just missed making the worst performer list. And while the Pittsburgh District did not make the worst ten list, there are several schools within the Pittsburgh system performing poorly enough to rank among the state’s worst.

What about the argument of underfunding at the poorly performing districts? The lowest performing ten districts had per student revenues averaging $13,054 (unweighted by size of district) in the 2005-2006 school year. Meanwhile, average per student revenues at the ten top performing districts was $12,866. Of the total funding for the poorly performing districts, the state provided $7,037 per student to the poorly performing districts. Only the Wilkinsburg and William-Penn districts raised more funds locally than they received from the state. The ten lowest achieving districts on average provide only 36 percent of their revenue from local sources.

WHAT IF EVERY ENTREPRENEUR HAD TO TELL THE TRUTH?

2008-03-13T17:49:10Z

In the movie Liar Liar, Jim Carrey plays attorney Fletcher Reede, who’s been cursed with the inability to lie. Every attempt Fletcher makes to lie results in him blurting out the God’s honest truth instead.
Imagine what would happen if an entrepreneur were cursed with the same affliction. What would their pitch really look like?

The Sales Pitch

“Hello, I’m Wil Schroter, and thank you for being the only client that was willing to return my phone call. I’ve borrowed my roommate’s car to get here and you’ll probably notice that while it’s the middle of August, I’m wearing a 3 piece wool suit that I bought for a $1 from a thrift store yesterday.

Since this is the first time a real customer has ever looked at my product, I’d like to pitch you on every last idea we’ve ever had for the product, hoping that one of these ideas is something you’re potentially looking to purchase today.

Unlike pitches I’ve given for previous employers that simply meant a bigger commission in my regular paycheck, this time I’ll be pitching for the money that pulls me out of a mountain of debt. In many ways, your reaction to this pitch will determine whether or not I can pay my rent next month, so I certainly hope you like it.

WHAT IS TRENCHLESS TECHNOLOGY

2008-03-06T20:15:03Z

Trenchless technology, often referred to as "no dig", is a rapidly growing engineering industry that eliminates the need for surface excavation. Trenchless technology is also used to minimize environmental damage and to reduce the costs associated with underground work. In other words, trenchless technology provides cost-effective sewer asset management. It involves pipe and sewer inspection, rehabilitation, and cleaning services.

"No dig" is exactly what it sounds like. There is no digging up of roads to replace gas and water pipes. When there is a need for pipe rehabilitation in the middle of a busy intersection, trenchless technology allows you to repair the pipe without having to dig up the entire road. Not only does this eliminate traffic problems, but it saves money because you do not need to repair the road that you would normally have dug up.

CAMPAIGN FINANCE REFORM PART 3

2008-03-06T16:48:10Z

What happens in Las Vegas stays there and is kept confidential elsewhere, so they claim. Libertarians love privacy. Concealing personal matters is splendid. Small business banking should be kept under wraps too. Developing trade secrets and future strategies need to be cloaked in the marketplace.

However, Pittsburgh's political dealings and the associated campaign finances of candidates seeking public offices is a much different matter. Pittsburgh public should be at the opposite end of the spectrum of Vegas behaviors. The private deeds of Vegas should not be handled like public dances of local politicians in campaigns for votes.

This simple, free-market solution for government cuts governmental red tape and insures wider public participation through observation within our political campaigns. The campaign finance reform discussion (also see parts 1 and 2) calls us to think again on how we conduct ourselves in local political races.

Now bankers and financial institutions can help to fix, rather than exasperate the folly. PNC Bank gets major windfalls from deals to refinance the city's debt. PNC Bank gets corporate welfare for downtown buildings and public garages next to its FirstSide office. Hello bankers! Can you provide a new type of basic service with a twist that helps citizens insure that campaigns for elected office are better able to be scrutinized?

As a citizen, I'm calling upon bankers at large and small institutions to help advance a new solutions. The implementation of the ideas will impact our political lives and become a best practice model with major ramifications. I do not advocate for public funds to finance the campaigns. The public treasury is too poor to do that. This new type of checking account cost nothing for the city and public sector.

Let's get local banks (or even one bank) to establish a new product for the specific use of political campaigns. This new service from the banking institutions would cater to campaigns, candidates and political action committees, called PACs. This product and service: a "Transparent PAC Account."

CAMPAIGN FINANCE REFORM PART 2 - MAKING AN ETHICAL STAND

2008-02-28T18:28:53Z

Conducting a business presents choices as to who to deal with and who to avoid. The suppliers and providers of the the goods and services you buy matters greatly and impact the end product, the economy and one's sense of satisfaction.

The same holds true for the business dealings of our government entities.

The city of Pittsburgh buys supplies, obtains materials and lets contracts. Municipal, county and state government, as well as the authorities, have massive budgets. Some businesses cater to government sales and contracts, no doubt.

It makes great sense to be particular as to who you do business with and who to avoid.

If we want to live in a more ethical city and region, we need to tell our city leaders that we don't want them to spend any money with unethical suppliers. For instance, the City of Pittsburgh will NOT sell property it owns to anyone who already owes back taxes to the City of Pittsburgh on other property. If you want to obtain new property, from the public holdings, you had better not be a tax cheat. That makes sense.

This same line of thought can be applied to other aspects of city government. Felons need not apply for jobs in the courts. Background checks are needed for those who work in the schools and at parks. Campaign finance issues can come under the same type of scrutiny.

Building a World-Class Workforce in Pittsburgh

2008-02-28T17:30:10Z

Growing a deep, diverse and talented workforce to fuel the Pittsburgh region’s technology industry is a top concern for the Pittsburgh Technology Council.

Within the few short months I have been part of the Council, I have heard our members express concern that hiring and retaining talent is a primary obstacle to growing their businesses. Having been in the local tech trenches over the years, I also have felt the demand for bright, innovative workers at all levels.

I have heard that there really is a multitude of jobs here with a need for talented people, from new graduates to seasoned executives, despite the prevailing press that there are no opportunities here.

Quite simply, Pittsburgh and the surrounding region need more people with a wider set of skills. It is imperative that to retain the people we already have, we must attract talent from around the world. Yes, from around the world.

Many other parts of the country outpace us in the attraction of foreign workers. Since half of the national workforce expansion in the 1990s was accounted for by international immigrants, the region must find ways to attract this important demographic.

Overall, we have to address many issues, including immigration, as well as “boomerangers” who desire to return. Our targets ought to be people, like me, who see this region having a rich heritage that has laid the ground work for yet another Renaissance percolating around the corner.

This region – with its robust terrain, historic relevance, rich cultural offerings, interesting neighborhoods, world-renowned universities and professional sports teams – suffers from a perception problem which is exacerbated by fractionalized attempts to address it. At the Council we are going to listen to our members who ask that we help coalesce our partners and forge innovative solutions to this complex issue.

The Council is well-positioned to play both a leading and supporting role in helping Pittsburgh win the strategic positioning for talent migration and retention.

Currently, the Council has one of the nation’s top on-line technology-centric Career Centers at www.pghtech.org, stocked with thousands of tech- related resumes for local companies to peruse. The site has numerous tech positions open in the region, as well.

HOT POLITICAL TOPIC: CAMPAIGN FINANCE REFORM

2008-02-21T23:11:47Z

The issue of campaign finance reform is coming into focus again.
Nationally, John McCain, R, helped to pen a bill that changed the rules and earn him plenty of scorn among the conservatives. In Pennsylvania, PA's top court recently gave the green light to changes for campaigns in Philly. In Pittsburgh, Bill Peduto of city council has re-tooled his suggestions. Even the media is getting in step, as the City Paper devoted this week's cover story to campaign finance reform. (http://PghCityPaper.com)

Local, recent HISTORY:

A few years ago, other campaign finance reform measures were introduced by Peduto for Pittsburgh. Some feeble effort unfolded in Allegheny County too. Back then, I helped to derail the city's legislation. Nothing was enacted. As citizens, we calling a public hearing, raised a ton of questions, and insured that the bills were tabled. A task force on campaign finance reform was organized. After some begging, I got included.

A conversation resumed through a diverse task force. We devoted a few months and dozens of meetings to cover the angles of Peduto's bill and the issue. A list of suggestions, a work product of the task force, never got any public review. Our discussions were suspended for the next few years, at the will of the bill's sponsor, until last week.

We're back.