Debt Ceiling - What Does It Mean For Me

For months now, we've all heard about the debt ceiling and the common person (me) has not really been clear on what that means for me as an American citizen.  I bet many finding this blog are thinking the same thing.  Moreover, what does it mean for investment purposes?

Late last night, CNN.com announced that the Congress and President Obama had reached a deal to settle the debt ceiling issues providing a balanced budget by November, cuts across both parties' sacred cows, and penalties if Congress doesn't have the issues and cuts decided by Thanksgiving.

Again, how does that affect a common investor like me?

I don't know that it does at this point.

In my openly naive point of view, I'm not investing in stocks for the short term, I'm investing for a lifestyle.  Very openly, I want to own a 100,000 of dividend paying shares in 10 years, and another 50,000 of dividend paying shares in less than 10 years.

So, with that goal in mind, I look at the debt ceiling issues.

The United States of America is the greatest country in the world.  Bar none.  Does the country have a lot to learn from our Euro brethren?  And Canadian border-mate?  Yes, we do.  Good, bad and ugly, we do.  Having traveled all over the world, however, seeing what other countries lack as far as general well being for its citizens, this country is still the best.

Here's why:

1. We off shored to save costs and now that other countries are charging too much money for our products, we're bringing manufacturing back home.  That's great for GDP.  What's even better is that the U.S. has not only the capacity to bring manufacturing back home, we have the technology giants to help us do so, we have some of the brightest minds in the business world located in New York, Boston, and D.C.  And we have the manpower to get plants started again.  Toss in the unemployed who would love nothing more than to obtain a great job, helping America grow again and all the signs are positive.
2. We stand up for the free and the monetary system called capitalism.  Those who have made their money earnestly through investments, sheer luck, or sheer determination to turn bad into good, are compensated for that prowess.  It is the same ideology as our professional athletes.  I'd love to have been an all star tennis player but for whatever reason, I only got to college playing the sport.  I never faced Serena, or in my time, Chris Evert or Martina.  They were well beyond my solid skill sets and had something "extra"... and that something 'extra' is why they were paid as well as they were.  Capitalism says to pay for what goods we want.  People did not want to pay to see a mediocre tennis player hack her way through a tournament, they want to see excellence.  Chris, Martina, Monica, Sererna, et al provide that supply, and the paying public, the demand.
3. We are a country with great compassion.  When the rest of the world barks at our doors, hounds us back home, threatens our safety, disparages us overseas... and then has catastrophic calamity hit, the U.S. comes flying in to help.  Other countries do as well, that is not to say our British friends, and French allies don't step up as well, they do.  But America is always first with our hearts and our pocketbooks; we're always there with our blood, sweat, and tears rebuilding schools, hospitals, and homes for those who cannot do for themselves.  When the famine was hitting Africa, it was Americans who stepped up with our musical geniuses and our pocketbooks to get food to the starving.

I believe for those reasons, and many others, the country will not fail.  We will never fail to live up to our promises, we will never fail to help others in need and we will never fail to be the greatest country on Earth. 

For those reasons, my investments are not changing today.  If I could, I would buy more today; but again, I'm recovering from a bankruptcy and foreclosure which will be the topic of my next post.

How does one turn around a life after that kind of defeat and disappointment?

From The Beginning

History lessons are painful. If one doesn't learn them the first time, the saying goes you will get the same lesson again.

My start in investing began with a modest savings account. Back in 1978 I think I put $20 into the account every week as my summer baby sitting job was frequent enough for me to have cash and savings. I loved watching it grow and when I left for college in 1982, I had about $1500 saved. Back then, that was a lot of money.

Between beer drinking, partying with sorority sisters, buying stupid stuff that I did not need, I wasted the money.

That was my lesson. That was the lesson I did not learn. I got it again in 2007.

In 2007, I was hired by a global publicly traded company to be their vice president of internal audit. The company issues prior to my arrival were well known and documented. That is, just short of restating the financial reports to the SEC. The company did not take that action, instead shelving the myriad of issues underneath the umbrella of a "material weakness" and hoping the company would not get caught. The auditors agreed.

In auditing terms, there is a materiality threshold set by the regulators which is 1% for significant deficiency reporting and 5% for material weakness. What that means in layman's terms is this:

So, let's start by talking about auditing of company records. A company puts together its financial reports, records transactions in a general ledger and other subsystems. At the end of every month, the company "closes" the books so no backdating of entries can occur. Say, for instance, Jane wants to get cash put back a month to make that month look better, she is unable to do so.

Now, the auditors come in and find that in fact, the cash was moved back to the prior month. This causes a bit a heartburn on the auditor's part. If the issues is small, say less than 1%, then there is really just a finding and a recommendation for remediation.

However, let's say Jane made an incorrect journal entry and it caused an issue that was found in closing the books of greater than 1%, then the company auditors have greater heartburn and more serious discussions. If the percentage goes above 5%, then the heartburn is relayed to the board of directors of the company.

Now, in the company I was vice president of, the issues were not the size of Enron, WorldCom, Tyco, et al. Percentage wise the issues were above the 5% threshold but not in the tens or hundreds of millions.

But with three quarters before I arrived, and three quarters on my watch, the company did in fact have material weakness issues. That is, the company financial errors were above the 5% mark and gave me great heartburn. On top of that, after filing the 10-k (the annual report with the SEC), I received a phone call from my EMEA internal audit manager asking me how to handle the fraud investigation that was directed by his controller, kept from me by the company CFO, and obviously, from the company auditors.

RED FLAG ALERT!!

Two quarters later, I asked the company to restate the financial reports to the SEC. I was fired.

Sarbanes-Oxley does not cover executives whistleblowing as we are seen as "only doing our jobs" - that according to the appellate court in my state at that time.

Here on the Savvy Investor Blog, I'm going to walk you through what happened to me over the past 4 years, how I'm back on my feet investing again, my plans to reach 100,000 shares of stock that pay dividends, the penny stocks that I invest in (ahem, speculate is the real word), and how I decide on what to invest in.

I am NOT a registered broker, trader, dealer, CFA; have no Series license, or any other type of formal education (other than my MBA classes in finance). THEREFORE, and this will be added to my disclaimer at the bottom of blog:

DO NOT TAKE MY BLOG AS ADVICE FOR BUYING. THIS BLOG IS ONLY TO RELATE HOW ONE PERSON - ME! - WENT FROM FILING CHAPTER 7 BANKRUPTCY TO WEALTH AGAIN. IF YOU CHOOSE TO FOLLOW WHAT I INVEST IN, YOU DO SO AT YOUR OWN RISK.

Welcome! Enjoy the read!