Bakersfield Life

Guys on the Green - October 2008

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$700 Billion

As world, National and local financial turmoil dominates our current news coverage, many of us have questions as to what is happening, what to do and who should worry. Bakersfield Life took the time to ask some of Kern County's most influential financial experts their thoughts on the current crisis to find out if Bakersfield is much different than the rest of the nation.
On the green this month is:
Bart Hill
President/CEO
San Joaquin Bank

Steven A. Barnes
Certified Financial Planner
Barnes Wealth Management Group

Antonio Beccari
Senior Financial Advisor
Beccari & Associates, An Ameriprise private wealth advisory practice

Vince Rojas
President/CEO
Kern Schools Federal Credit Union

What concerns are you hearing from local residents?

Bart Hill – I’ve been a banker for more than 30 years and I’ve never before heard so much concern expressed about FDIC insurance. It’s a constant topic of conversation.

Steven A Barnes – Residents are angry that national lending institutions steered consumers into loans they had no business getting into. Clients are concerned that stock market indexes are lower now than they were eight years ago.

Antonio Beccari – There is some fear; reasonable fear and unreasonable fear. Every time there is a recession, fear follows. This feeling of fear can take people to be paralyzed or to take irrational action. Both can be very detrimental to their financial success.

Vince Rojas – Local residents, which include our members, are concerned about the safety of their savings and what is going to happen moving forward.

How do you calm the fears of your clientele?

Bart Hill – San Joaquin Bank has a program called CDARS that enables us to obtain FDIC insurance on customer deposits up to $50 million. We spread their money out among other banks to stay under the FDIC limitation and then do all of the paperwork for them. Additionally, the bank remains strong and well staffed with competent employees and that goes a long way to bolstering the confidence of our customers.

Steven A. Barnes – Fortunately, clients of mine were moved into a more conservative position in June 2007. Clients who have moved over to me since October 2007 with larger positions in the stock market have had a tougher time. We explain to them we don’t want to run away from a bear market, because historically, the first year after a bear market, returns average percent 30 percent as measured by the S&P 500 index. We just can’t miss that train when it leaves the station.

Antonio Beccari – First, we separate the reasonable part of the fear from the unreasonable part. As FDR once said, “The only thing to fear is fear itself.” This can solve 50 percent of the problem.
Then I address the reasonable points in an orderly and systematic way, creating a plan of action and forecasting different scenarios.

Vince Rojas – Credit unions are federally insured up to $250,000 with the recent legislation passed by Congress and the president. Beyond this amount, it is critical that proper vesting on accounts be made to expand coverage.

Who should be worried?

Bart Hill – People should not be worried if they are following a long-term conservative personal financial plan. This should include the prudent use of credit and insurance, sufficient retirement planning and the maintenance of a “rainy day fund.” It’s normal for the economy to go through corrections and it always comes back.

Steven A. Barnes – Retirees with more than 70 percent in stocks who have to sell their stocks to maintain their income. Most others should be OK. People contributing to 401k’s should consider looking at investment opportunities if they have time to wait out this market. In other words, start slowly moving your bonds and cash into the stock market while it’s low. People close to retirement should meet with a financial planner or financial advisor to evaluate their risk tolerance and determine what is more important to them, regaining what they lost or preserving what they have. For general consumers, the question is, again, what is your tolerance for risk? Knowing that, you can make the appropriate investment decisions.

Antonio Beccari – Most of my clients are not too worried. Having a plan and knowing their targets makes it much easier to navigate difficult times. Knowing their situation in depth helps me to understand their problems and create solutions that go beyond worries and fears. We seek to avoid dangers and look for opportunities.

Vince Rojas – The turmoil in the marketplace affects everyone. Those people with a 401k are looking at their values, those close to retirement are concerned with adequate funds available to meet their retirement needs, and everyone is touched by the financial markets.

What’s your 2009 economic outlook?

Bart Hill – A decline in housing prices often precedes an economic downturn and increasing prices typically indicate that the economy will be turning around. The recent dramatic fall in home prices has unfortunately been the necessary cure for an overheated real estate market. I believe that the residential market has bottomed out and will begin to turn around in 2009. And, if that prediction is correct, the economy won’t be far behind.

Steven A. Barnes – Well, if I would change the batteries in my crystal ball, I could give you some meaningful information. Otherwise, I would say that the American economy is the most resilient, self-sustaining economy in the world. We will pull through this difficult period and become stronger. But I feel it may be a long, ugly road before we reach new highs again.

Antonio Beccari – 2009 might be a slow year for the economy worldwide. If we head into a recession, we have to adjust our expectations, review our targets, review timeframes and make sure we are investing according to our risk tolerance. A down or stagnant market is the best barometer to tell us about our risk tolerance. Don’t be afraid if you find out you are more conservative then you thought or vice versa.

Vince Rojas – We see more of the same the first part of the year and then some stability returning to financial markets. The national economy will continue to attempt to stabilize and probably will see it happen at the end of 2009.

What are your thoughts on government intervention in the financial field?

Bart Hill – I believe in a free market economy with government intervention only under extreme conditions. It does appear however that this is one of those periods in our economic history when some government intervention is necessary to prevent U.S. and world credit markets from freezing up. I’m pleased that Congress approved the plan.

Steven A. Barnes – The history of government involvement is a profitable one – for the government. In the last six completed interventions dating from the rescue of the Penn Central Railroad in 1970, the Treasury ultimately garnered a slight profit. Our government has always given us just enough rope to hang ourselves. Then they pull us up and hog-tie us to a point of limited mobility for a while before loosening the ropes again. Unfortunately, greed will help some people find a way to hang themselves again.

Antonio Beccari – As most Americans, I have mixed feelings about the government intervention in the financial fields. Only time and distance will tell us what the lasting effects are of these interventions.

Vince Rojas – The federal government has the deepest and largest pocketbook and only through their action can we see some stability return.

Should the general consumer be hesitant to trust Wall Street and lenders? Should we be more wary in the future?

Bart Hill – Since personal financial health is of paramount importance, people should always take the time to evaluate financial institutions and professionals and only work with those they trust. We can expect Congress to increase oversight in the financial services industry in the future but you can’t depend on the government to prevent the next version of the subprime lending crisis. The smart consumer will continue to be wary.

Steven A. Barnes – The average person is rarely directly involved with Wall Street, so there is not much we can do. It’s up to your individual financial planner or advisor to assist you with your investments. As for lenders, I feel consumers are partly to blame. Although lenders bear responsibility for qualifying people for loans higher than they would be able to afford, people also should have used their common sense when offered a loan with payments higher than their budget could handle or when the loan sounded too good to be true. Lenders are salesmen making a commission. It’s not their responsibility to tell you what you can afford. They can only tell you what you qualify for.

Antonio Beccari – I believe the general consumer should always be educated and knowledgeable about their money and their investments. If you cannot understand a specific investment you should not be afraid of asking questions. When it comes to your investments remember – it is your money and you are the boss.

Vince Rojas ¬¬– Wall Street’s reputation has been tarnished. Hopefully, they have learned from this experience. Their actions initiated all of this turmoil. Unfortunately, if you have been bitten by the instability of the market, it is difficult to jump back into it. As always, it is a matter of how much risk you can tolerate.

On a local level, what changes in lifestyle do you see local residents making due to the current economic situation?

Bart Hill – Though Bakersfield residents are driving less, lifestyle changes are not as dramatic here as in other cities. First of all we are a very conservative and resilient community, and secondly our economy remains relatively strong due to the prices of oil and agricultural products – our largest industries. Kern County is also well located for product distribution and we benefit from our close proximity to Los Angeles.

Steven A. Barnes – Restaurant traffic is down, hair and nail appointments are slowing, travel, auto purchases and other luxury items have taken a hit. One area of interest to me is restaurants. The consumer took a double hit when California raised minimum wages and refused to exclude restaurants. Most employees of restaurants make the better part of their living from tips, not their wages. So the cost to consumers of a meal out is growing at a fast clip – higher wages, higher food costs, and if diners still tip the same percentage of the now higher bill, higher tips.

Antonio Beccari – On the local level I see people much more careful in the use of credit. There no longer is the same euphoria about real estate and the market. People are looking closer at risk management. There is a tendency to keep more liquidity and slow down the spending habits. Long term these may prove to be very positive changes.

Vince Rojas – I see several changes, especially in the entertainment and retail business areas. Restaurants are not as busy as they were before; theaters are not as crowded as they were a year ago. The small retail businesses do not see the demand for clothing as they did a year ago. Consumers are trying to make their dollar stretch farther.