Notes from Important Conferences

In the last 30 days, I had the privilege to attend some good conferences. Here are some of my notes/thoughts from those events.

Generous Giving Conference- Austin, TX 10/22-10/24

Generous Giving is an organization that exists to promote joyful giving among Christians. There were many inspirational stories of believers who were challenged to be radically generous and obedient to God's calling with the resources that God had entrusted to them. Here are some of my thoughts from this conference:

Stanley Tam- 94 year old businessman from Ohio.

He signed a legal contract early in his life that God was the owner of his business- US Plastics. God has chosen to prosper this business. Stanley took a moderate income from the business as a salary and turned over the vast majority of profits to fund the works of Christian ministry. The business has given over $120 million to works of Christ.

My key takeaway here was that when God spoke to Stanley, Stanley obeyed. His driving passion is evangelism and everything in his life is oriented towards this end.

There are some terrific videos on his life/testimony that are worth the investment of time to watch here.

Chip Ingram-pastor of a church in California. Link to his media ministry.

He gave two excellent talks. One on being surrendered to God. The other on the genius of generosity. On being surrendered to God, he walked through three case studies about people who had a specific knowledge/expertise. Each of these three had stumbled upon a treasure that was worth infinitely more than the asking price. One involved rare coins. The second was an original Picasso painting. And the third was Jesus' parable of hidden treasure.

In each case study, the person who discovered the hidden treasure was required to sell everything they had to acquire the treasure. In each case, the reward was far greater than the cost.

Chip used the life of Stanley Tam as an example of what should be the normal Christian experience. We are offered a choice to trade stuff that doesn't last/satisfy for treasures that last forever. This is not weird or fanatical as society views it. It is just smart. It is rational.

Chip's talk on the genius of generosity highlighted the generosity staircase using the Christmas story as an example. It is easiest to be generous with money (Magi). It is harder to be generous with our time (Shepherds). Even harder to be generous with our reputation (Joseph). Harder still to be generous with our future (Mary). Next our life (Jesus). And finally our most precious possession (God- The Father).

Ingram emphasized that as the cost went up in each of these areas on the generosity staircase, the rewards and intimacy went up as well.

Allianz Investors Conference- Newport Beach, California 11/11-11/13

I was excited about attending this conference because I have invested money for clients with PIMCO (manages close to $1 trillion for investors the majority of which is in bonds) for many years and some of their top minds were presenters- including Paul McCulley, Bill Gross and Rob Arnott.

Here are some short notes that I jotted down from the presentations of those three speakers.

Paul McCulley- Managing Director/Portfolio Manager

Paul spoke on the New Normal. Some bullet points:

• A Depression is off the table. The economy was in cardiac arrest last year but government programs kept the patient alive. The patient was sick from double bubbles (property and leverage). Too much debt on too much property declining in value too fast.
  
• Government injected socialism in our economy and it worked in the short-term. Just as there are no atheists in foxholes... there are no capitalists in financial meltdowns.
  
• McCulley expressed his fondness for the economic theories of Hyman Minsky who promoted a financial instability hypothesis. Human nature has a tendency to go off the rails every 40 years or so.
  
• Minsky believed there were three types of financial borrowers in the marketplace. First, the hedge buyer (traditional fixed rate mortgages- 20% down; fixed rate; ability to pay back loan). Second, the speculative buyer (little money down; interest only loan; ability to pay interest but not principal). Third, the ponzi buyer (no money down; betting heavily that values go up or will default on loan).
  
• The crisis was a result of too many speculative and ponzi buyers/lenders before the meltdown. 20 million Americans have negative equity in their homes currently. McCulley compared it to an underage drinking party with Moody's and S&P handing out fake ids (these two agencies were giving "safe" ratings to loan paper that was extremely risky).
• The housing and auto industries are shrinking. These sectors were fueled by home equity loans in the past. US consumers still have the will to be hedonistic but not the wallet or access to credit.
  
• McCulley saw three main issues in the economy: 1. Wealth effect is a headwind not a tailwind currently. 2. Unemployment rate will be slow to come down. 3. Lack of demand going forward as the household sector spends extended time in the Betty Ford clinic for balance sheet rehabilitation.
  
• McCulley predicts the next 10 years will bring returns in these neighborhoods for investors: bonds (3-6% annual); US stocks (6-8% annual); emerging market stocks (8-11%).
  

Bill Gross- Founder and co-CIO

He didn't give a presentation, but he did speak to a group of advisors for about 30 minutes on the PIMCO trading floor at the end of trading. A couple of brief notes on his comments:

• The FED is going to keep interest rates near zero until the economy shows sustained growth above 4% for GDP for at least 18 months. This is likely to fuel prices that are artificially high in many markets- stocks, real estate, bonds, commodities. But this is by design as policy makers desire to reflate the economy.
  
• Priorities should be: job creation, job creation, job creation. Some large incentive programs to become the leaders in clean energy, education and health care for the world.
  
• Global imbalances are still large. We have income that equals 56% of GDP. Our consumption is 72% of GDP. The difference is made up by government borrowing. This needs to come into balance.
  

Rob Arnott- PIMCO investment manager; Chairman of Research Affiliates, LLC

• Bonds have outperformed stocks from 1968-2009. When you have heard that stocks are always the best long-term asset to own, it usually comes from a post 1980- pre 2000 mindset.
  
• The discount (cheapness) of value stocks relative to growth stocks is near the largest in history- exceeded by the end of the tech bubble in late 1999-early 2000.
  
• Deflation is the issue for the next 12-18 months. Government programs like the homebuyer incentive program actually work to keep CPI low because they remove renters from the marketplace which is a key component of how the CPI (Consumer Price Index) is calculated.
  
• Large inflation is coming to our economy. Total debt is 5 times GDP and this historically has never ended smooth.
  
• Three options on our national debt issues: 1. Pay down the debt slowly over 20 years. This is politically unpopular because it involves sacrifices, less entitlements, etc... Those are the things that politicians don't give up easily. 2. Quit paying our debt- we owe Japanese, Chinese and other countries a good portion of our debt. We could just default. This is not a good solution because it leads to wars- military and trade. 3. Use the printing press to allow inflation to run. If we have $70 trillion total debt, we can allow it to be only $35 trillion if inflation doubles over the next 10 years.
  
• Arnott is betting that #3 is our path- the most painless way out of the mess. He was asked what areas of fixed income would perform the best and he responded favorably to Treasury Inflation Protection bonds and floating income bonds because they do a good job of passing through inflation.
  

Please keep in mind that this is in no way meant to be specific investment advice. Seek counsel from your trusted advisers for advice pertaining to your individual situation.

For God's Glory,

Ashley Hodge

New Every Morning

Lamentations 3:22-23: "Because of the Lord's great love we are not consumed, for His compassions never fail. They are new every morning; great is Your faithfulness."

I have been studying the book of Romans for the past few months trying to memorize a few passages in the book along the way. Romans 6:12-14, "Let not sin therefore reign in your mortal body to make you obey its passions. Do not present your members to sin as instruments for unrighteousness, but present yourselves to God as those who have been brought from death to life, and your members to God as instruments for righteousness. For sin will have no dominion over you, since you are not under law but under grace."

Each day presents a new opportunity to put to death sin in our lives which wreaks havoc on relationships and distorts our minds and hearts. Each day is an opportunity to desire God and His healing ways.

If you are reading this blog, I would encourage you to dwell on the truth that you have been released from the prison of sin if you have submitted your will to Christ. You may have committed horrible sins consistently for many years. If you have, you are no different than me. Those habits are deeply entrenched in your heart and to depart from them is going to seem unnatural.

But if you are in Christ, you are a new creation. You are no longer a slave to sin. You have the Spirit in you that enables you to overcome all kinds of hardship and struggles. Today is a new day to live as a slave to righteousness and not sin.

Martin Luther said about the internal struggle with sin, "You cannot keep the birds from flying around your head. But you can prevent them from building a nest in your hair."

Let us choose:

• stewardship over waste
• growth over apathy
• freedom over slavery
• faith over fear
• generosity over greed
• purity over lust
• patience over anger
• love over callousness

For the freedom that only comes from living in peace with God through Christ,

Ashley Hodge

Two ideas for a better economy

I love progress. I believe it is God's plan to reform, redeem and renovate this fallen world. Imagine a world that is ruled by a perfectly just and merciful King. Imagine a place where there is no sin. This world awaits the Christian when God's kingdom comes to earth as it is in heaven.

I recently read a book that made some predictions about the years ahead- Future Files by Richard Watson. A lot of thought provoking ideas in the book. Here are two that caught my attention in regards to structuring a better economy.

Elimination of paper and coin currency

This idea could gain some traction in a difficult economic environment. Here are some reasons that paper and coin currency could become an antiquated idea going forward:

1. There is an estimated $2- $2.5 trillion in unreported income in the United States each year. Much of this income comes in the form of cash payments which are hard to track. With $500 billion plus in tax revenues each year not being collected due to tax fraud, the government has a large incentive to eliminate cash and set up a system that is more transparent.

2. Cash is dirty. CNN recently reported that 90% of cash had traces of cocaine on it. With fears of global pandemics like the swine flu, cash and coins may be voted out of existence for "health" reasons.

3. Counterfeit problem: I recently took a trip to San Diego and bought a soda at a convenience store. I only had a $100 bill. The clerk scanned the bill to verify its authenticity. I asked him if he only did that for $100? He said that he does it for all bills over $20. He told me that he had received over 5 counterfeit bills in the last 30 days. Right now, it is a small problem with less than $100 million of counterfeit money in circulation. But as computer printing continues to advance, it becomes easier for criminals to circulate fake money.

4. Cost of printing money and producing coins would be saved. This is probably a low figure in the grand scheme of things- under $100 million per year. But that $100 million could be allocated towards grid and internet security.

Reform the tax system with a flat tax

1. The cost to run and regulate the tax system according to Watson is 10-20% of total revenue received. The federal government takes in around in around $2.5 trillion in revenues. $1.1 trillion of that is federal income tax. The other $1.4 trillion is corporate, fica and excise taxes. This does not include all of the state and local taxes that we pay. A flat (or fair) tax of around 20% would reduce a large amount of expense (around $250-$500 billion annually) that is inefficiently spent on managing a complex tax system.

2. The idea that lower tax rates leads to more tax revenue and stronger economic growth is controversial in academic circles. But the evidence historically supports tax cuts producing higher tax revenue/growth. Arthur Laffer presented a theory that there is an optimal tax rate for an economy. If you cut taxes too much, you don't have enough money to fund the things that citizens view important- national defense, social service programs, etc... If you raise taxes too much, you disincentivize earning profit and therefore tax revenues fall.

3. Make all government worker income tax-free. It makes no sense at all for the government to pay workers and declare the income as taxable. And then take back a percentage of it in taxes which just adds to the costs of maintaining our tax system. 8% of all jobs are government jobs. Why not just pay these people in tax-free income at a lower rate than require them to give a portion back to the government that they work for?

God has made us simple. We have sought out our own complexity. I'm sure there are some holes in these ideas. But I am prayerful that common sense will prevail and that the economic difficulties of today will lead to better policies and ideas for tomorrow.

Watson had a great quote at the end of his book, "It is safer and lazier to be pessimist. Optimism takes work. It requires commitment, energy and ideas."

Excited about the future because I know Who controls the future,

Ashley Hodge

Topics on the mind

Heard a thought provoking sermon by Robert Morris at Gateway Church yesterday. He's doing a series called "Overwhelmed by Grace." Yesterday, he brought up the point that the decision of Adam and Eve in the Garden of Eden wasn't a choice between evil and good. It was a choice between life and death.

The tree of life in the Garden represented choosing obedience to God and submitting to His ways so that we may have life. The tree of knowledge (of good and evil) represented choosing death- rejecting the ways of God. Scriptures started coming to me as I thought about this.

Exodus 20:12, "Honor your father and mother, that your days may be long..."

Deuteronomy 6:24, "The Lord commanded us to do these statutes, to fear the Lord our God, for our good always, that He might preserve us alive..."

John 10:10, "The thief comes only to steal and kill and destroy. I came that they have life and have it abundantly."

John 11:25, "Jesus said to her, 'I am the resurrection and the life. Whoever believes in me, though he die, yet shall he live.'"

I am sure these verses only scratch a tiny surface of what God is trying to teach us about death and life. This was a helpful mind shift in thinking about warfare against sin in terms of choosing life versus death. God is good and wants to give us life. Stewardship/obedience is just choosing the paths of life instead of destruction.

For example, when we have harmony in relationships, we have more peace and less stress. This leads to better health and longer life. By choosing reconciliation over strife, we are following God's plan to give us life over death. By making wise choices in terms of our health habits (exercise/eating/ rest), we are choosing life over death. Doing business honestly leads to less conflict and greater trust. This is a less stressful path and one that leads to life versus death.

Naturally, we are all on a path towards physical death due to the effects of one man's disobedience. But thanks to the grace of God, those who choose to follow Christ are on a path of life even though our physical bodies are dying. 2 Corinthians 4:16, "So we do not lose heart. Though our outer nature is wasting away, our inner nature is being renewed day by day."

One of the most important scriptures to grasp is Romans 5:17: "If, because of one man's trespass, death reigned through that one man, much more will those who receive the abundance of grace and the free gift of righteousness reign in life through the one man Jesus Christ."

Health Care Costs

This Fall is likely to be an explosive time in the debate for health care reform. My wife has endured many health struggles in the last five years so this is a topic I have been following with interest and empathy.

I hope that whatever compromise is made... that the result is not a government controlled single payer system. I'm all in favor of monarchy/one person making the decisions for the masses. But I don't want that until Christ is the King. The lesson of history is that centralized power is bad for people. It would be okay if the leaders/rulers were men and women above reproach in all circumstances with the interest of the people always the primary concern. There are certainly many leaders who fit this description, but unfortunately not enough to make government control the utopian answer.

Some good resources to point out if you are interested in digging into the facts of health care reform:

Rusty Leonard of Stewardship Partners has a frightening chart of government medicare projected costs versus actual costs. You can find the chart on page 4 of his quarterly newsletter.
Government projections are usually rosier than the reality. A government run health care system is likely to put a burden in terms of taxation and strain on future economic growth that will hinder our economy for decades to come.

Mark Perry- economics professor- keeps up a blog called Carpe Diem that has some thought provoking entries on how to deliver effective health care without bankrupting the country in the process.

Finally, the Congressional Budget Office has some good resources on their website concerning the projection of health care costs.

There is no doubt that reform needs to take place. My personal preference is go the route of automobile insurance. Costs under $5000- $10,000 per year are covered out of pocket with some tax incentives (HSA accounts) to cover those expenses. Over $10k per year, there should be insurance for citizens of the United States even if that cost has to be subsidized by states or the federal government.

We also need incentives to line up correctly to control costs- focus on reducing obesity; early detection of cancer and heart disease. I wrote a blog entry on this topic in more detail last year.

Crazy Love by Francis Chan

If you are looking for a quick read, I highly recommend Crazy Love by Francis Chan. He set up a website with short video chapter previews to give you an overview of what the book is about. The book was recommended by a client/friend. It has really challenged me and re-motivated me to live with purpose.

For The Promises of God's Presence and Kingdom,

Ashley Hodge

Honing your skills

Traditional retirement planning focuses on these areas:

*Setting an expected date to retire
*Managing risk with investment assets to fund retirement
*Income projection from assets, pensions and social security

One neglected area of planning is honing your skills and abilities. A friend of mine who is also a financial advisor sent me a link to a Barron's article: Next, The Retirement Bubble

The article expresses some thoughts that I have been blogging about for a while- although in harsher terms. The idea of retirement that is so prevalent in American thinking is pure fantasy for most people working today. And that is not a bad thing.

The biblical model is clearly a model of productivity for the Lord as long as there is breath in your lungs and blood pumping to your heart. Jesus expressed this in John 9:4, "We must work the works of Him who sent Me while it is day; night is coming, when no one can work." This life on earth is day. Death is night. The works of God can mean many different things and it may not always be income generating.

But the truth is that most people are living longer. And assets are in decline overall due to the financial crises of the last nine years. Society cannot afford to pay people income for thirty plus years while they are not contributing to the growth of the economy.

If the trend continues, our economy will be in shambles. We would have a vicious cycle of large population blocks of active voters insisting on social security and medicare benefits that stay at the current levels or better. This would lead to unsustainable tax increases. That would lead to a sluggish economy and taxpayers fleeing the United States for economies that offer lower taxes and greater growth prospects.

The good news is that many forward thinkers on these issues believe that this outcome will be avoided. For example, the authors of The Fourth Turning- Strauss and Howe- believe that history is cyclical (a view I do not share entirely). In their view, the current crisis was caused by a 20-year cycle that was highlighted by apathy and addiction to leisure. This led to unsustainable levels of debt and a financial crisis.

Strauss and Howe believe that the next cycle will be one that values hard work and a return to productivity. This will lead to another cycle of prosperity down the road.

So what is the point of all this? Like the author of the article in Barron's, I believe that we are facing a reality that most people are going to dramatically rethink the idea of retirement. I promote the strategy of never retiring to a life of leisure to anyone who will listen. I believe it is a less stressful, more fulfilling life.

But I agree with the article that most people should consider a 3-5 year sabbatical instead of traditional retirement. And this is where honing your skills comes in. We should be on a constant path of personal growth. The economy rewards flexibility and adaptation to change.

What this means to me is that I need to constantly hone my skills as a financial advisor so that I am at the top of profession in terms of knowledge and wisdom. But it also means having a diverse enough set of skills so that if Congress passed a law tomorrow that was devastating to the financial planning profession, I would be able to transition into another productive career within a short period of time.

The idea that you work for a company for 30 years and retire at age 55 into a life of leisure for 40 years is dead. It was never a healthy thing. Pray for God to reveal your gifts. Use those gifts for God-glorifying productive work. If you have recently lost a job or you are facing the dread of an uncertain future, stay encouraged.

If you are in Christ, you have the power of the Holy Spirit in you. You have innovation, courage and perseverance at your disposal. Here are a few resources that can help you hone your skills and work towards a position of greater financial flexibility so that your time will be freed up to spend as God directs.

For He who began a good work in you will bring it to completion at the day you meet Christ,

Ashley Hodge

Freedom

There is something better than freedom. Don't get me wrong. I love freedom. I cherish it every day.

Freedom is not to be taken for granted. The fact that I can write this blog; invest my time today in the activities I choose; worship Christ freely; and pursue a career that I desire are all results of God's grace and the blood and sacrifices of those who came before me.

I was discussing the topic of freedom with my five year old boy yesterday. He asked me the question, "Did Jesus die on the cross for the devil, too?" Five-year olds ask the most complicated questions... I explained to him in the simplest way that I knew how that God granted all humans and angels free will.

Some angels chose to serve God. Some angels wanted to be like God and would not submit to His authority. The fates of these spirits have now been forever sealed. The angels are with God ministering to the needs of His people and are going to be with Him in the Kingdom of Heaven forever. The fallen angels (Satan and demons) are in constant warfare with the purposes of God and are doomed to darkness.

Freedom has a season and then our fates are sealed. Our time on earth is a time of freedom. Some people enjoy more freedoms than others. But all people have the freedom to respond to the revelation of God through creation and Christ. This life is a time of choosing. After death, our fates are sealed like the angels/demons.

Augustine called this the fourfold state of the will:

1. Pre-Fall Man (Adam/Eve in the Garden of Eden)

They were granted the power to sin and the power not to sin.

2. Post-Fall Man (All of humankind in a depraved state in need of a Redeemer)

Since the fall, we have the power to sin and we are unable to avoid sin.

3. Reborn Man (those who trust in Christ and are given the unlimited power of the Holy Spirit)

The reborn man is restored to the state of Adam and Eve. We have the power to sin and the power not to sin.

4. Glorified Man (After death, believers are sealed like the angels to a state of eternal obedience to Christ)

The glorified man is in a state of being able to sin and unable to sin.

To many people there is no worse idea in the world than to lose their freedom. Sadly, these people are often the ones who refuse to submit to God's authority. I was listening to a Francis Chan sermon this week. He recounted something J Vernon McGee said, "This is God's universe and He does whatever He wants. You can do whatever you want... when you get your own universe."

I thank God for freedom. But I especially thank God that one day I will no longer be free to sin and choose to rebel against Him. This is the most precious of gifts. Because His ways are always better than mine.

For His Glory,


Ashley Hodge

Refocusing on Stewardship Priorities

I feel like I have been wandering in the wildnerness lately- unfocused in terms of following the stewardship mandate that I acknowledge as truth. I read something by JC Ryle- my favorite author- this morning that struck a chord with me.

Ryle says, "Our hearts are like the earth on which we tread; let it alone, and it is sure to bear weeds." What a truth! Daily connection to Christ and the purposes that He has for us are essential for our growth. John Calvin said in the Institutes of the Christian Religion, "Man's nature is a perpetual factory of idols."

We fill our hearts and time with stuff. For me lately, it has been too many temporal pursuits and not enough focus on the eternal. But I am re-calibrating. Hopefully, some of these thoughts will be an encouragement for you to do the same or carry on in the path of biblical stewardship.

My four focus areas of stewardship are: money, abilities, time and health (MATH). Here are some thoughts on how to glorify God in the use of these resources.

1. Organizing your time and day

I have been guilty of living a reactionary life for the last year. This is not good for many reasons because growth is stunted. My new resolve is to block my time in this fashion each day:

5am- 8am: Spiritual growth (Bible study, prayer, reading); Fitness (cross fit training; basketball; weights)

8am- 1pm: focus on one task and doing it well. It might be reviewing client accounts; reading something important for my business; scheduling appointments; seeing two clients face-to-face.

The point is to have 4-5 hours where you are not constantly distracted by returning phone calls; checking email 15 times and aimlessly browsing the web or watching media.

1pm- 6pm: similar focus of one task.

This may include studying something in-depth; anything related to performing my calling more effectively would qualify in these time blocks.

6pm- 10pm (and weekends): family/relationships/projects

Invest time in my wife, kids and friends- constantly winning over their hearts. Improving our home or the organization of treasures (photos/ journals/memories).

2. Healthy habits

I love the way I feel when I am living in a disciplined way. Eating a calorie-restricted diet of whole foods; breaking addictions to certain foods/sodas; having a gameplan for exercise that includes improvement in strength and endurance.

3. Managing/eliminating distractions

Meditate on the rewards for living a life of stewardship. Focus the mind on the promises of God for becoming a better manager of money, ability, time and health. Realize that Christians are promised not only Heaven when we die physically. But we are called to redeem this fallen world with the authority and purposes of God. There is no time for waste in any form.

Here are a few passages of Scripture to encourage us to keep our minds on the rewards of faithfulness to God:

Philippians 3:13-16, "...But one thing I do: forgetting what lies behind and straining forward to what lies ahead, I press on toward the goal for the prize of the upward call of God in Christ Jesus. Let those of us who are mature think this way, and if in anything you think otherwise, God will reveal that also to you. Only let us hold true to what we have attained."

2 Corinthians 4:16-18, "So we do not lose heart. Though our outer nature is wasting away, our inner nature is being renewed day by day. For this slight and momentary afflication is preparing for us an eternal weight of glory beyond all comparison, as we look not to the things that are seen but to the things that are unseen. For the things that are seen are transient, but the things that are unseen are eternal."

I Peter 5:6-11, "Humble yourselves, therefore, under the mighty hand of God so that at the proper time He may exalt you, casting all of your anxieties on Him, because He cares for you. Be sober-minded; be watchful. Your adversary the devil prowls around like a roaring lion, seeking someone to devour. Resist him, firm in your faith, knowing that the same kinds of suffering are being experienced by your brotherhood throughout the world. And after you have suffered a little while, the God of all grace, who has called you to His eternal glory in Christ, will Himself restore, confirm, strengthen, and establish you. To Him be the dominion forever and ever. Amen."

Living under the rule of One King,

Ashley Hodge