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2007 Speaker Series: Ben Stein

Minneapolis Portfolio Management Group (MPMG), a value-based money management firm with over 700 million in assets under management, welcomed the firm‘s clients, valued members of the brokerage community, and the investment community of the Twin Cities to the 2nd annual MPMG speaker series event featuring Mr. Ben Stein on July 26th 2007. Just as MPMG has been dedicated to enriching the financial security of the firm’s clients, the purpose of this event is aimed at enriching the financial security of the Twin Cities by bringing speakers of Mr. Stein’s prominence to the community to share their insights, knowledge and wisdom.

Below is a summary of the July, 2007 event. For more information about MPMG or the MPMG Speaker Series, please contact the firm at 612-334-2000.

ben stein and phil and harrison grodnick

Ben Stein–Biography

Ben Stein has led a colorful career, including speechwriter and lawyer for Richard Nixon and Gerald Ford. He has been a columnist and editorial writer for The Wall Street Journal, a syndicated columnist for The Los Angeles Herald Examiner and a frequent contributor to Barron’s. He currently writes a regular column for The New York Times.

Mr. Stein is author of How to Ruin Your Financial Life; Yes, You Can Time the Market; and Can America Survive?: The Rage of the Left, the Truth and What to Do About It, co-authored with Phil DeMuth. His most recent books are The Gift of Peace: Guideposts on the Road to Serenity, and Yes, You Can Become a Successful Investor! Reaching for Yield in Today‘s Market, again co-authored with Phil DeMuth.

Note – charts were not specifically referred to by Mr. Stein in his presentation, but are added here for illustrative purposes.

Economic Overview

Ben believes the economy is healthy overall, despite some of the reporting that appears in the media frequently. “There‘s no perspective in financial reporting,” says Ben. “It is as if each day, the world is created anew with no history.”

As for areas of the economy that may be struggling in the current environment, Ben points out that housing, while it has “corrected and corrected and corrected, is now down to its 2003 levels, which he points out —was not such a bad year.”

Ben also suggests the unionized auto sector is likely to continue to struggle. Part of the problem, he claims, is that Detroit is not making cars people want. Contributing to this situation may be that industries like the automobile sector are failing to latch on to young talent. “The story of America today is the best and brightest are sucked into financial speculation instead of into actually making anything useful,” according to Ben.

Recent stock market woes and the problems with sub-prime loans

Although weakness in the market for sub-prime loans has been considered a prime catalyst for the stock market‘s volatility in the middle of 2007, Ben is not convinced it will create any lasting problems for investors. —The sub-prime business is a complete red herring. If you took all of the sub-prime losses, unless it is completely wiped out, it is less than what the losses were in the stock market for about a 30-minute period today (July 26, a day when the Dow Jones Industrial Average lost 311 points).

The suddenly volatile stock market requires some perspective, says Ben. “There’s no reason whatsoever for it (the stock market) to have gone down as fast as it has gone down in the last few days, but there was no reason for it to have gone up as fast as it went up in the last few weeks before that.” Most important, Ben believes there are no significant underlying concerns in the economy that should result in an extended downturn.

Ben also believes the Federal Reserve will avoid the temptation to manipulate the Fed Funds rate as a short-term fix to problems that are affecting short-term investors. “I don‘t think the speculators and the hedge funds are going to stampede Mr. Bernanke (referring to Fed chairman Ben Bernanke). I think he has a pretty good idea of just what a tiny blip this sub-prime thing is.”

Dealing with the nation’s biggest long-term problems

Ben points out that some significant challenges need to be tackled by this country. Some of these have to do with financial issues, some with social issues. Among the most important are

Key Financial Issues

Retirement Crisis Ben points out that the huge population of 77 million baby boomers has only about $115,000 in average savings, and that includes home equity. “40% have no savings at all,” Ben warns, “and only 20% have a meaningful defined benefit pension plan. This is tens of millions of people that will come up very, very short when retirement rolls around.”

Ben says many will realize they won‘t be able to maintain their middle class lifestyle, but that taxes will also likely rise to help deal with this crisis.

median 401k account balances

Medicare

“We have future liabilities so large,” suggests Ben, “that if they are discounted to present value, it exceeds the total wealth of the nation.” He expects a “wrenching adjustment” on medical care, and likely, higher taxes to pay for coverage, which might include some form of universal healthcare.

Massive trade gap

The problem starts with our huge demand for oil, which results, says Ben, in the U.S. borrowing $1.25 billion per day from the rest of the world just to pay for our habit. Ben fears that other governments will decide to reduce their holdings of the dollar, and put more money into the euro instead. ” The only thing besides a terrorist attack that could really hurt this country is a dollar crisis. And I think we‘re already having a slow motion dollar crisis. I don‘t see any way around it except (for individual investors) to have more money.”

us monthly trade defecit

Income Inequality

The concentration of the nation‘s assets in the hands of fewer and fewer wealthy individuals is a growing problem. According to Ben, the top 1/10th of one percent of the population (300,000 people) control 40% of all assets while the bottom 20% (60 million people) own just 1% of assets. “This is not a good situation. We‘re in wartime. We need all of the national cohesion we can muster.”

Potential Decline in Standard of Living Ben points out that preparing for retirement is critical for Americans. The risk of a decline in the country‘s standard of living is really a problem for those nearing retirement, says Ben, not so much for those who have many years of work still ahead of them. Those who aren’t prepared for higher costs in the future, mostly driven by inflation but also potentially by other factors such as rising gas prices, will be forced to cut their standard of living or go back to work. “This plays right into the needs of having very good advisors like the Grodnicks (MPMG),” says Ben.

He also points out that this country has made tremendous economic progress in the recent past. “From 1929 until 1989, a very short period in historical standards, the real per capita income for Americans rose by five times. That‘s incredibly rare. It never happened before this past century.”

Declining value of dollar over time From Inflation Calculator, U.S. Bureau of Labor Statistics W hat an item that cost $1 in each of these time periods would cost today

Key Societal Challenges

Here are primary issues confronting America that Ben feels need to be dealt with.

Education Crisis

Ben is concerned about the poor preparation of most students, except those at the top. “How are we going to fight inequality in any meaningful way with this problem?” asked Ben. “I don‘t blame teachers. There‘s never been a school so bad that an energetic, determined young kid who really wants an education couldn‘t get an education.” Along with blaming kids for being undisciplined and lazy, Ben also suggests the media plays a role in declining education standards. “It is uncool to be smart, uncool to study, uncool to care about knowledge. In the media, cool kids sing and dance and fight, the losers study.”

Lack of Community

Ben sees this as the nation’s top challenge. He quotes Martin Luther King, Jr., who said —technology made us a neighborhood, but not a brotherhood.” Ben suggests our lack of caring or compassion for our neighbors is manifested in other parts of our society. “How else can you explain the looting of America by top corporate officers except that they don‘t know or care about their stockholders? We see each other as looting opportunities, not friends and neighbors.”

Ben points to our men and women in the military as prime examples that other Americans should emulate. Calling them the “real stars,” Ben emphasizes that our soldiers fighting in Iraq and Afghanistan “stick together and they care for each other and they‘ve got each other‘s backs.”

One idea he proposes to improve this situation is mandatory national service for young people. Ben says this does not require joining the military, but could involve helping out in nursing homes, schools or national parks, as examples. “We need an idea that this country is bound together by something other than fascination with Lindsay Lohan. We need to be able to think that we are each other‘s brothers and sisters.”

Ben says he was highly inspired by John F. Kennedy‘s inauguration address in 1961 (which Ben attended when he was in high school). In it, Kennedy stated “we all ask God to go to work for this great nation. And we all ask God to go to work for the people and the principles that we love and cherish. But the truth is that here on earth, God‘s work must truly be our work.”

“The Looting of America isn’t funny, Stein says” StarTribune 7/31/07