This is Not our Parents' Retirement
 Michael Farr
Welcome to a Big Picture edition of Total Picture Radio with Peter Clayton reporting. Michael Farr is president and majority owner of Farr, Miller & Washington, a Washington, D.C.-based Investment firm that manages more than $400 million dollars in assets. He regularly appears on Wall $treet Week with FORTUNE.
Questions Peter Clayton asked Michael Farr:
What's your take on the US economy?
Do you think we're in a recession?
I've talked to several financial experts who've taken their money out of the market... what are you advising your clients?
I assume you spread your risk?
Can you mention some stocks that you particularly like?
I’d like to quote from an article you wrote for Politico last year: “There is an unsexy but very important issue being largely ignored by the 2008 presidential candidates: foreign ownership of U.S. government debt. As America continues to operate at a deficit, and as our debt held by foreign countries increases, we lose control over our economic destiny.” Are any of the presidential candidates still standing talking about this Michael?
Can you frame the issue for us? Why is this important? (Our friend Geoff Colvin wrote about this recently in Fortune).
The domino theory is alive and well, as the sub-prime fall-out continues to spread and find new victims.
Consumer debt times falling home prices is not a good formula.
Okay. This Is Not Our Parents’ Retirement - A Million is Not Enough - P.J. O’Rourke’s forward is the funniest and scariest thing I’ve read in a long time... His Typical Baby Boom Financial Planing Strategy is so dead-on. Juggle the time table a few years, and that’s me.
Tell me about the million-dollar mindset.
Discussion: The Million Dollar Ground rules
Discussion: The Million Dollar Maneuoveurs
Final thoughts - advice.
Michael Farr - Background
Michael Farr is president and majority owner of Farr, Miller & Washington, a Washington, D.C.-based nvestment firm that manages more than $400 million in assets. Prior to joining FM&W, he spent six years with Alex. Brown & Sons where he was a principal.
Farr regularly appears on Wall $treet Week with FORTUNE, often with insights on how politics and government regulation can affect the business world and investments. He can also be heard on Associated Press Radio and National Public Radio, and has been on Nightly Business Report, CNBC, CNN, Bloomberg and Reuters.
He is a member of the National Economists Club and the Washington Association of Money Managers. In 1994, Mr. Farr was named one of the top ten "Outstanding Brokers" in the country. He was a consultant to the Soviet Union's St. Petersburg Stock Exchange and lectured in the USSR to heads of the various free markets from the former Soviet States and eastern bloc countries.
Farr is a graduate of the University of the South in Sewanee, Tennessee. He is former Chairman and member of the Board of the Paul Berry Academic Scholarship Foundation, the Board of the Neediest Kids, the Executive Committee of Sibley Memorial Hospital, and is Treasurer of the Board of the Salvation Army. Mr. Farr is married and has two children.
Michael Farr's Politico Article:
There is an unsexy but very important issue being largely ignored by the 2008 presidential candidates: foreign ownership of U.S. government debt. As America continues to operate at a deficit, and as our debt held by foreign countries increases, we lose control over our economic destiny. The successful candidate in 2008 must reduce the deficit and regain control of the economic tiller. The candidate who can successfully and simply outline a workable plan will undoubtedly win friends at the polls and on the Hill.
Foreigners currently hold about $2.2 trillion, or 44 percent, of the roughly $5 trillion in total U.S. Treasury debt held by the public. This percentage is up sharply from about 30 percent in 2000 and demonstrates just how dependent we have become on foreign central banks. We believe our increasing dependence poses systematic risks to both our economy and our security.
But first, some background.
Since 2000, total U.S. government debt has risen at an annual rate of 7.5 percent, to $8.7 trillion, which includes an estimated $3.8 trillion that the federal government owes to itself in the form of "intragovernmental holdings."
A record federal budget surplus of $237 billion in fiscal 2000 rapidly reversed to a record budget deficit of $413 billion in 2004. While the deficit has since moderated (to $248 billion in 2006), the balance of our outstanding debt obligations continues to grow. By 2012, the situation will only deteriorate as baby boomers begin to retire and receive Social Security checks each month.
At present, the Japanese hold the largest amount of Treasury obligations, at about $612 billion. However, the Chinese have increased their holdings by 32 percent over the past year, to about $420 billion. Together, the Japanese and Chinese now hold 47 percent of foreign-owned U.S. public debt. The majority of this debt is held by the Japanese and Chinese central banks, which have strong incentive to buy U.S. Treasuries. In doing so, they prop up the value of the dollar and keep the value of their respective currencies weaker. A weaker currency relative to the dollar allows foreign companies to compete more effectively with U.S. companies producing similar products. Therefore, the Asians are somewhat compelled to continue funding our deficits, lest we stop buying the goods they produce.
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