Archive for January, 2013


January 11, 2013

“You are not truly diversified until you own something you are really uncomfortable with”
– Peter Bernstein

Transcript: Ed Hyman & Dennis Stattman – Part One – 1-11-13 #929

January 11, 2013


#929- 1/11/13


CONSUELO MACK:  This week on WEALTHTRACK, the outlook for 2013. Our annual exclusive with Wall Street’s number one- ranked economist for a record three decades running- ISI Group’s Ed Hyman is joined by Great Investor Dennis Stattman, long time portfolio manager of Blackrock’s Global Allocation Fund, next on Consuelo Mack WEALTHTRACK. 


Hello and welcome to this edition of WEALTHTRACK. I’m Consuelo Mack. Every year at this time we are delighted to have an exclusive television interview with ISI Group’s Ed Hyman, Wall Street’s number one ranked economist for an unprecedented 33 years running, to talk about the outlook for the New Year. For institutional investors, ISI’s daily research reports are must reads. And we always ask a Great Investor to join the conversation to discuss investment strategy. This year we are welcoming back Dennis Stattman, long time portfolio manager of Blackrock’s Global Allocation Fund, a Morningstar favorite.


To get a sense of where we are heading, it is important to understand where we have been. As ISI’s research team told clients recently, “…2012 (was) better than it felt.” “Stock markets were strong around the world, with strength in particular in many (emerging markets) EMs.” Looking back, the results are pretty amazing. Global markets and the S&P 500 both up 13%; Japan up 23%, India 26%, Germany 29%, Greece- you heard it right- Greece, Philippines, and Thailand all ahead more than 30%, and Turkey ahead 53%! And the bond markets were no slouches either. Even much maligned U.S. treasuries made money with the 10-year note for instance beating inflation with a better than 4% gain. High yield bonds and corporate debt shone with double digit equity like returns in the teens.


For the most part these very positive results were a big surprise. As Bloomberg reported “almost all of Wall Street got 2012 market calls wrong,” as did some of the world’s savviest investors,   including hedge fund manager John Paulson who called for a collapse in Europe and  Warren Buffet who warned against the folly of bonds. Neither of those gentlemen purports to be a market prognosticator. Their job is to make clients and shareholders money and they are very good at doing that over time. Our mission at WEALTHTRACK is to help you do the same, which is why we always ask Ed Hyman to help us understand the economic climate at the start of each year and we have asked BlackRock’s Dennis Stattman to guide us on strategy. I began the interview by asking them about the lessons of 2012- why did so many investors miss what a great year it turned out to be?


ED HYMAN:  Maybe they weren’t quite that good. Let’s tone it down. The S&P was what, up 12 percent or …

DENNIS STATTMAN: About that, yes.

ED HYMAN:  …15. It was up… and it felt like a horrible year. But I think that the first thing we should remember as a sort of life lesson is that 2008, 2009 was really dramatic. For, I would say, everybody. Whether it was investing, or in your business life, employment, and that doesn’t go away. So the…


CONSUELO MACK:  You mean the impact of the financial crisis on our psyches doesn’t go away?

ED HYMAN:  Exactly. And the collapse in the economy. With the depression or near depression, the market went, you know, basically collapsed. And I think that still leaves, even today, leaves a real psychological mark on all of us. And certainly, say, a year ago, you worry that there’s another repeat. The sister to that is that policy makers are in full bloom. They also remember. And so you have the Fed going absolutely full tilt. And I guess during the year, ECB joined the policy parade.


CONSUELO MACK:  Right, European Central Bank.

ED HYMAN:  And so starting in late 2011, Brazil cut rates for the first time. And during 2012, there were something like 250 easing moves around the world, whether it was Brazil cutting rates, or Turkey cutting rates, or ECB easing, or the Fed easing. And that probably, as much as anything, helped financial markets do better. And the economy did okay. Profits, corporate profits were up. I guess earnings were probably flat.


DENNIS STATTMAN: They were up a bit. But not nearly as much as the previous year.

ED HYMAN:  But employment grew 150,000 a month. But I think that the liquidity in the system, you know, growth in the money supply, global, etcetera, largely explains why the markets around the world have done well. I guess I should add to that is, what else can you do?


CONSUELO MACK: Right. What else can the government do?

ED HYMAN:  No. What else can investors do?


ED HYMAN:  Or anybody? The return on cash is basically zero. And that’s more or less true everywhere. Not quite literally, but rates are very low everywhere. So that combination of the economy doing a little bit better, policy being sort of max stimulative, and the alternative yield being zero, I think helps explain why the markets have done well.


ED HYMAN:  And the backdrop being that people are cautious to begin with. So it’s not like people enter the year saying, oh, this is going to be great. And so that… people are cautious and then you have these three things happen: policy, rates are zero, economy does a little bit better. And so you ended up with, you know, a pretty good year.


CONSUELO MACK: So how does that set us up for this year? And Dennis, I’m going to ask you, were there any lessons from 2012, the fact that so many people around the world underestimated how well the markets would do, number one, let’s start there, and then, how does this set us up for this year?

DENNIS STATTMAN: Consuelo, I’d like to say there was an enduring lesson. But I think the closest that we can get is that when there’s a lot of fear around, it creates the potential for bigger gains when that fear begins to dissipate. And I think if you would have told someone at the start of 2012 the set of returns that were earned in 2012, and you would have asked them, would you be satisfied with this? They would have said, great, this would be wonderful! I’d feel terrific. But as noted, people did not feel terrific in 2012. And I think it’s because they sort of felt beat up by the rolling crises of 2012, rolling right into the last day of the year, and Congress and the fiscal cliff. So there was an enormous amount of uncertainty over policy associated with these crises. And ultimately, policy makers did the things that markets liked, but the markets had to worry, and sweat, and fear before they got what they wanted. And I think that made it feel a little bit less good.


CONSUELO MACK: So how is 2013 going to feel, Ed? First you, and then Dennis.

ED HYMAN:  Well, I’d say Dennis is putting his finger on sort of a market truism, which is the old climbing the wall of worry. So, remind us, remind the three of us, if we have a year that’s up 12 and it feels great, that may be, maybe you should sort of worry about the next year. But I think those things I mentioned are still the touch tones starting this year, as last year. So policy makers are still going crazy. Dennis and I were talking about Japan, and the policy makers there may join the easing moves…

CONSUELO MACK:  In a big way, right? And we will talk about that, because that, because that is a big investment.

ED HYMAN:  And so that’s… and the Fed is, you know, will do 85 billion a month this month, next month, the month after that, so we have the policy…

CONSUELO MACK:  Of buying bonds, right.

ED HYMAN:  …of easing, quantitative easing. ECB is still there. So that’s the first part. Second part is that the economy is still growing, slowly. But the last readings I got for early January are still, you know, some progress on economy moving ahead. And so those two are there. And you still have zero interest rates, still there. And I  think people are still cautious about things for a variety of reasons, and the caution is really deep caution. It’s a feeling of uncertainty about what the Fed is doing, which is totally unprecedented. And it’s a concern about the budget deficit and what is happening there. And it’s a concern about the future of America, whether or not we’ve reached some sort of tipping point that is less positive for business than it has been in the past. And so various people can worry about those things. And I’d say a number of people, maybe one in three, are deeply concerned about one, or two, or all three of those issues. Of course, they’re intertwined. So I think the market’s still sort of climbing the wall of worry.


CONSUELO MACK:  Right. So Dennis, I know you’ve been concerned about what you’ve seen as the Fed policy, just this unprecedented easing that we’ve seen, and that it was, when you and I talked earlier last year, we talked about how you felt that what the Fed was doing especially in suppressing interest rates, that it was artificially inflating actually risk assets because, as Ed just said, what’s the alternative? You can’t invest in cash, and you’ve got to get riskier. So what’s your take on this year and how you view the economy and the market outlook for this year?

DENNIS STATTMAN: I think we have a reasonably positive outlook, but there are definitely some risks out there. And I’m talking about right now the economy and the stock market. The bond market, especially the treasury bond market, is very unattractive to us. We think bond investors going forward are going to be the victims of financial repression, interest rates held below the rate of inflation so that they get negative real returns. And with a 1.8, or 1.9 percent ten year treasury, it’s going to be impossible for many investors to meet their return objectives in the bond market.

CONSUELO MACK:  Right, return objectives being… what are they still? I mean, what is a realistic return objective for a bond investor versus kind of what they’re getting, what they want to get?

DENNIS STATTMAN: Well, to me, anything above the coupon is very much wishful thinking and is only going to occur in the short term.


CONSUELO MACK:  In the treasury bond market.

DENNIS STATTMAN:  Yes. And the same in the corporate bond market, you just have a little bit higher level of coupon. Now, if we shift to the stock market, the good news is that valuations in the stock markets around the world are pretty reasonable. And they’re not demanding in terms of PEs, in terms of price to book or price to cash flow. And in fact, in many stock markets there are number of companies with dividend yields significantly above the sovereign bond yield in that particular market.


CONSUELO MACK:  Right.  The government bond yield.

DENNIS STATTMAN:  Correct. And so, investors who are hungry for yield increasingly have been crossing over from the bond market to the stock market. So there’s a pretty good valuation and income argument for stocks in many of the markets. Our problem with a number of stock markets is the level of earnings. We’ve already had an enormous pickup in earnings this economic cycle. And we think that with the profit share of GDP in the U.S., for example, being at approximately the highest level since World War II, and S&P profit margins being near peak margins, that we have to worry about the level of profitability going forward.

CONSUELO MACK:  And this is the percentage of GDP that corporate profits represent are at a record high…


CONSUELO MACK:  …or near a record high?

DENNIS STATTMAN:  Yes. Which, on the one hand is a good thing, or it was a good thing getting there, but it suggests that maintaining this level of profitability is going to be challenging. So we’re concerned that earnings expectations are probably a little bit too high. And so there’s a balance there between what look like good valuations and some concerns we have on the earnings trend. Having said that, we sure like stocks better than bonds today.


CONSUELO MACK: Ed, let me ask you, it’s so interesting I’ve got the two of you here, because Dennis, you think long term you look out three to five years, and Ed of course is paying attention to every daily economic statistic that comes out and reporting it to clients. But in the next quarter, you know, we were talking about policy, there are going to be some very important policy decisions made here in this country, Ed, that ISI just wrote about. And one of them is, we’ve got the debt ceiling coming up, and there’s this sequester issue that still could happen, and basically what the federal budget is going to be for the fiscal year. So tell us about what you’re going to be tracking in this quarter that could really affect the market.

ED HYMAN:  Well, let me say that Dennis does an excellent job tracking the near term.

CONSUELO MACK: Yes, he does.

ED HYMAN:  As well as the long term.

DENNIS STATTMAN:  Thank you, Ed.


CONSUELO MACK: Didn’t mean to infer otherwise, but, yeah.

ED HYMAN:  I have a bit of a different view. So first, if you look back at the past three years, the market has done the best in the fourth quarter and first quarter. We’re in what is likely to be the best quarter for the year.  Maybe the fourth quarter turns out to be better, but this is the better time. If your viewers watch it as closely as I do, the market is doing pretty well so far. It was up about four percent… that right? Or, three or four percent …

DENNIS STATTMAN:  Three and a half.

ED HYMAN:  …right now, for the year already. I just went through what seemed like a really traumatic experience with the fiscal cliff, you know, every day. And that’s all you could turn on the TV, it’s all you could hear. And the market had some small pullback, but you had to be perfect to have made money by pulling back and then reinvesting. And it’s not that you and I know, or the three of us know that there’s a problem coming up with the debt ceiling, and no one else does. I mean, this is the most discussed thing. So, on the other side, gasoline prices are down pretty good. China looks like it’s picking back up. Japan is maybe a new light in the world economy. The European markets are doing very well. The economy right now is doing pretty well. And you have this max stimulus. So I don’t know how to put it in perspective, but say the fiscal cliff right now is about $160 billion, say 200 billion. And on the same basis, quantitative easing is a trillion dollars. And in the past five weeks the money supply… I don’t know how that fits into these other discussions, but the money supply’s increase, the equivalent of $2 trillion.


CONSUELO MACK: Wow. Very stimulative.

ED HYMAN:  Has increased almost $200 billion. And rates are zero. And people are sort of, at this point, people are definitely off sides. I mean, the people have not been expecting the market to be up three and a half percent before you can say February. And so it’s definitely a risk.


CONSUELO MACK: All of these policy issues that are going to be decided.

ED HYMAN:  The debt discussion is definitely a risk. And muscle memory is right there. And the last time we had a default on the debt, which, you know, the summer of ’11, the market went down like ten percent in five days. And so I remember that. And the markets remember that. So I gave you the good part, which is that we got through the fiscal cliff without a big correction. But the debt ceiling debate in ’11 was not such a happy outing. But you have to go one way or the other, and my guess is that the market and the economy in the first quarter are going to do better than people expect.

CONSUELO MACK: Now, as they have, right, for the past three years, I see, remember your research has showed us…

ED HYMAN:  Right, it’s been a very repetitive pattern.

CONSUELO MACK: Right. The sell in May phenomenon, but it’s like buy in November or whatever.

ED HYMAN:  Right. And one of the motors each year was a new round of monetary stimulus.  So in one year they introduced QE 2, in the next year they introduced Operation Twist, in the summer of ’11 and ’12- sorry, ’10 and ’11- and then in ’12 they introduced the new mother of all moves, the QE 3 open ended stimulus.

CONSUELO MACK: Bond purchases. Right.

ED HYMAN:  Open ended bond purchases. Mortgage based purchases. I will say, it’ll come back for all of us during this discussion. But there’s one other price- we’re talking about stock prices- there’s one other price that I’m focused on a lot which is the house price. And you don’t get a house price every day, but they’re starting to go up. And I think they make a big difference. They make more of a difference to the average family than stock prices do.


CONSUELO MACK: So, Dennis, your take on this quarter and the big decisions that are going to have to be made in Washington, is it as optimistic as Ed’s take is as far as the investment impact, or lack of thereof?

DENNIS STATTMAN:  I don’t want to speak for Ed, but I think his optimism extends well beyond what’s going to go on in Washington. In fact, I think what’s possibly going to happen in Washington is the major uncertainty. If we weren’t facing questions about the debt ceiling and how it’s resolved, I suspect the markets would be stronger. There are a lot of positives. Ed named a number of them, and I think one that will be increasingly recognized is what he had to say about housing. Housing touches so many people. And we’ve gone through what, for almost everyone alive, is an unprecedented bear market in housing …

CONSUELO MACK: In housing, right.

DENNIS STATTMAN:  And it hurt a lot of people’s perceptions about their wealth, and it hurt an awful lot of peoples’ pocketbooks very directly. Well, it really seems that the housing market has bottomed out. It’s bottomed out in price. It’s bottomed out in activity. And I think it’s well past bottoming out in psychology. And when the psychology of housing goes from negative to positive, there are all sorts of good feedback loops going on. An important one is household formation. When people start to feel better about housing, when they have more confidence in their job, they’re much more likely to go out on their own and take a new unit of housing. And that’s very important for clearing the market of excess inventory.

As that market expands, and that inventory goes down, and prices firm up, people start to feel much better about their personal portfolios of assets. And they also, those of the people who are thinking about buying a house, go from thinking that waiting is a good idea, to thinking acting is a good idea; and when people go from waiting to acting, that’s really good for the economy, in a high ticket item like that.


CONSUELO MACK: So are there investment places that we can take advantage of what you’re seeing this phenomenon of all of us feeling better about housing, and that housing activity is starting to pick up?

DENNIS STATTMAN:  Well, I wish I could tell you the housing stocks, but they’ve already been very good. And good for the BlackRock Global Allocation Fund. But I think this is something for the overall economy, and I don’t think it’s a one quarter, or a one year phenomenon. I think we’re in a multi-year phenomenon where housing will go from a headwind for the economy to a tailwind now.


CONSUELO MACK:  So we only have a couple minutes left in this part. We’re doing part two for next week in just a few minutes. But I want to ask you the One Investment, for this show, and Ed Hyman had two winners when he was here this time last year, and one of them was Home Depot, which has done incredibly well this year. And the other one was Ralph Lauren.

ED HYMAN:  I got it from Dennis.

CONSUELO MACK: So what’s your One Investment for this week?

ED HYMAN:  So for this year, we are picking Caterpillar. So I think the global economy is picking up. Last year it really had a pretty tough go of it. I mean, it’s clear the global economy slowed, I guess, Europe leading the way, and China close behind.

CONSUELO MACK: And we’re going to have to make this relatively quick Ed, because we’re…

ED HYMAN:  And so I think Caterpillar is my best bet today.

CONSUELO MACK: Okay. Global growth.

ED HYMAN:  Global growth. And it’s also a nice play on housing.



DENNIS STATTMAN:  Well, there’s a stock I like a lot, Consuelo. It has value. It has quality. It has growth. And it has a six percent dividend yield. And that’s Total. It’s a large international integrated oil company based in France. It sells at very low valuations, 7.3 times next year’s earnings. And we think it has superior growth prospects compared to the other international oils.

CONSUELO MACK: All right, we’ll leave it there until next week when we will revisit the investment landscape with both of you again. So Ed Hyman, so great to see you from ISI Group, and thank you for being exclusive on WEALTHTRACK for television. We love having you. And Dennis Stattman, it is always a treat to have you as well, from BlackRock.

DENNIS STATTMAN:  Great to be here.

CONSUELO MACK: So thank you both very much, and happy New Year.

DENNIS STATTMAN:  Happy New Year to you.

ED HYMAN:  Same to you.


CONSUELO MACK: At the conclusion of every WEALTHTRACK, we give you one suggestion to help you build and protect your wealth over the long term. This week’s Action Point is an oldie but goodie. It is the market lesson we learned once again in 2012. It is: stay broadly diversified among all markets. Most investors, including the vast majority of Wall Street professionals, way underestimated the strength of global stock markets last year. By fleeing stocks in recent years, investors have missed out. As the late great Peter Bernstein, an expert on risk told us several years ago, you are not truly diversified until you own something you are really uncomfortable with. So whatever it is that makes you uncomfortable, make sure you have some in your portfolio.


If you would like to watch this program again, please go to our website, Premium subscribers can see future programs 48 hours in advance, including part 2 of our interview with Ed Hyman and Dennis Stattman next week. Additional interviews with WEALTHTRACK guests are also available in our WEALTHTRACK Extra feature. And that concludes this edition of WEALTHTRACK. Thank you so much for watching and make the week ahead a profitable and a productive one.


January 4, 2013

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January 4, 2013

Our New Year’s special is all about giving and how philanthropy in America is changing. Many fear that the new fiscal cliff deal that Congress just passed (in the nick of time) might hurt charitable contributions in the future.  Our guests this week have a mixed reaction to that notion. Doug Bauer is the Executive Director of the Clark Foundation, a fifth generation family foundation and one of the largest foundations in the country in terms of assets and grants.  Jack Lund is the President and CEO of the Y.M.C.A. of Greater New York, the largest Y.M.C.A. in the U.S. and the largest youth serving organization in New York area.   These two Financial Thought Leaders in philanthropy explain how charitable giving has changed and share their advice about becoming more effective givers. Continue Reading »

Transcript: Jack Lund & Doug Bauer 1-04-13 #928

January 4, 2013


01/4/13- #928


CONSUELO MACK: This week on WEALTHTRACK, philanthropy as an investment. Two thought leaders on the art of giving- the YMCA’s Jack Lund and the Clark Foundation’s Doug Bauer- explain how to get the best and most effective returns from your charitable donations. Next on Consuelo Mack WEALTHTRACK.


Happy New Year and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. We decided to begin 2013 on a generous note and talk about what many call a uniquely American trait: charitable giving. Citizens of other countries do it, but no nation gives more or has philanthropy more ingrained in the fabric of its society and culture.


According to the 2012 annual report “Giving USA”, considered to be the bible of philanthropy trends, American citizens and organizations gave nearly $300 billion in charity in 2011, up 4% year over year. Despite the slow economy, individuals gave $217.8 billion of that, or 73%; add bequests from individuals and giving by family foundations and their share jumps to 88%. Non-family foundations and the 5% given by corporations complete the picture.


Where do we give? Religious institutions are by far the largest recipients, receiving 32% of our dollars; education is next with 13%, followed by human services, foundations, health organizations, international affairs organizations, which are a relative newcomer, and public-society benefit institutions. The remaining donations include arts, culture and humanities, and environmental and animal causes.


But the expectations and demands of donors are changing. More Americans are thinking of giving as an investment. They want to measure its impact, see its returns, and make sure it is an effective use of their money. We asked two financial thought leaders in the field to help us understand how philanthropy is changing and help us become more effective givers.


Doug Bauer is the executive director of the Clark Foundation, a fifth generation family foundation and one of the largest foundations in the country in terms of assets and grants. Doug has spent over twenty years with prominent foundations including Rockefeller Philanthropy Advisors and the Goldman Sachs Philanthropy Fund. Jack Lund is the President and CEO of the YMCA of Greater New York, the largest YMCA in the U.S. and the largest youth serving organization in the New York area. Jack has spent 35 years at the Y in numerous leadership roles all over the country and internationally, including as CEO of the Milwaukee Y and chair of the  YMCA World Urban Network, a network of Y CEOs from the world’s largest cities. And I have had the privilege of working with Jack as a member of the Y board. I began the interview by asking both leaders to identify the biggest changes they are seeing in philanthropic giving.


DOUG BAUER:  I think there’s a couple of things. In the last 10, 20 years, first of all, there’s a whole lot more of it. We’ve seen a dramatic jump in the number of private foundations created, the number of donor-advised funds, et cetera. The assets have jumped up dramatically that are committed to philanthropy.

CONSUELO MACK: And that is because of Wall Street? Kind of this gilded age we’ve been through?

DOUG BAUER:  Well, certainly Wall Street, certainly Silicon Valley and the tech, but I think what’s also interesting is there’s a lot of families out there, small businesses, family-owned businesses that have also generated tremendous amounts of wealth. So it’s not just both the coasts, but a lot of the family businesses that exist across the country. So there’s more philanthropy. I think also what’s interesting to me- when I started out in this field in 1988, it was hard to get anybody to pay attention to philanthropy as a topic. Now the media is very, very aware of it. You can thank, I think, people like Bill Gates and Warren Buffett for that, but certainly philanthropy has become a very hot topic among a lot of people, and clearly people have become very engaged with the issue, and they understand that it plays an important role in what happens with communities across the country. So those are very important.


I think the final thing is obviously there’s been a lot of attention about, you know, if I do get engaged with philanthropy, you know, what kind of return, what kind of measurement, what kind of impact should there be with the dollars that I grant or give or invest in a nonprofit? What kind of expectations should I have around the kind of impact or outcomes they’re generating? And there’s been a lot of attention about that issue as well. So it’s a very interesting time in the field I think.


CONSUELO MACK: So, Jack, what are your thoughts, and especially coming from an organization that is a not for profit, that’s a large established organization that is looking always, you know, that donors give to. So what’s your experience from that side of this business?

JACK LUND: Well, I think as we look at the charities in the country, there is certainly a lot more competition. I think there are a lot more choices for donors. I think the demographics of donors have changed as well. I think with more women giving and with the emergence of minorities, that has really changed the donor behavior a bit, and I think probably the biggest change has been in donor behavior. I think, as Doug said, donors are asking for a return on their investment. They’re looking for results. I think they’re far more discerning. Statistically I guess 83% of donors do research on the charities that are approaching them for gifts. So there’s clear evidence that they’re doing a lot more homework than has ever been the case in the past, and I think donors want to be more involved with their charities. It’s not enough to write a check. They want to be involved, particularly the corporations that support charities are not just wanting to make a financial investment. They’re looking for opportunities for their employees to get involved as well. So they want to be on the scene, and that’s a big change that we’re seeing.


CONSUELO MACK: That’s so interesting that the companies want their employees to be involved as well. So there’s a sense that this is important from a corporate management point of view as well, that their employees get involved in doing good?

JACK LUND: Yes. When we approach companies, we’re very specific about opportunities for them to be involved in our organization.

CONSUELO MACK: Doug, as far as, you know, you’re Executive Director for the Clark Foundation. You’ve run a number of other organizations as well, so how have you changed in how you approach who you’re going to give to? I mean, how has your criteria changed? What’s remained the same, and how has your criteria changed for which organizations you’re going to support?

DOUG BAUER:  I’ve been involved with this, like I said, since the late ‘80s. I’ve always been interested. I come from a corporate background. I have a business discipline in the way I think about things. I’m interested in the kind of impact that a nonprofit can and should generate in whatever field they may be in. I’m interested in how they approach that and how they’re going to execute. So I’m interested in results-oriented and results-driven nonprofits. That really hasn’t changed.


CONSUELO MACK: And when you’re talking about results-driven, what do you mean? What kind of results?

DOUG BAUER:  Well, I think that depends on the nonprofit. Let me give you an example. So Meals on Wheels, kind of a classic nonprofit service. There are some folks who would be perfectly happy to write a check and take comfort in knowing that a meal has been delivered to a homebound senior or a homebound person with HIV AIDS, et cetera, but there are other donors who would say, I’m very interested in the process, but I’m also interested in the outcomes. For example, does that meal help, for example, with a person with HIV AIDS?  Does that help them with the proper taking of medication? Does the food help the uptake of the meds? Is the food of nutritional value that’s going to keep them healthy?


And so you get into some of the real mechanics behind what actually Meals on Wheels is trying to do, and is the person ultimately not only being fed but are they healthier? And are they getting nutritious food rather than something prepackaged, et cetera? So there are donors who are very, very happy to support Meals on Wheels because it’s a good and great thing to do, and there are folks who are like, I’m interested in Meals on Wheels, but I want to make sure that we’re having some really important outcomes tied to what Meals on Wheels should be doing for that patient or person who’s homebound.


CONSUELO MACK: So I mean, that’s actually a very demanding set of questions for Meals on Wheels, right?


CONSUELO MACK: So that puts more demands on an organization. Couldn’t that interfere with what Meals on Wheels is really trying to do which is trying to get meals to people with HIV AIDS?

DOUG BAUER:  Right. Well, and that’s part of the debate that Jack and I and others have been having in the field which is, how much is too much when you just want to deliver a meal, right, and feel good about that? And I think there is a balance to be struck there, you know, and with the homebound meal, because it is ultimately improving a health outcome, and unlike a lot of other parts of the nonprofit sector, you can kind of more than scratch out a health outcome. You can figure out a health outcome and so, therefore, I think that’s a fair challenge or a fair set of questions to ask a Meals on Wheels program about the nutritional value of the meal. Are, in fact, your clients healthier? Are they more engaged with various issues as it relates to their health? I think that’s a fair set of questions. It might not be a fair set of questions in another aspect in another field, but in that particular example, I think that’s a fair set of questions, because you can get that data. That’s not asking the nonprofit to take a huge stretch to get that data. That data exists, and you could probably get that data.


CONSUELO MACK: So Jack, at the Y which has a long history, and you’ve been at the Y and various Ys for a long time. You’re now running the largest one in the country. So tell me what kind of criteria are donors coming to you with at the Y, and how has that changed how you’re operating?

JACK LUND: It’s changed dramatically. You know, in the 1970s and ‘80s, we were able to say that we develop children in spirit, mind and body, and that was really enough for our donor public, but that has really changed. They are asking for results and looking for outcomes, and I think for us it’s added discipline and rigor and more structure. It means that our curriculum has to be better developed and that we also have to deliver the capacity to collect the data, to collect the outcomes and then report on it, and it is challenging. It is costly, but fundamentally it’s made us better.

CONSUELO MACK: So give us some examples of the kinds of things that you’re doing in response to donors interests.

JACK LUND: I would say probably the most extensive piece of research we’ve done is in our after school programs. We have a relationship with Fordham University, and for a 10-year period we measured school attendance, behavior, math scores and reading scores, and the kids that were in our after school program consistently outperformed their peers in every area but reading scores until we realized that about 75% of our kids were the children of immigrants where English was not the primary language spoken at home, and so we took a pass on that.


CONSUELO MACK: Right, but also, and I’m just thinking of the things that we traditionally think of from the Y, has it affected programs like that you teach all the public school second graders to swim, because as we know, drowning is the… I think it’s the major cause of death among young children. So has that…?

JACK LUND: Well, I suppose you could say the outcome is to prevent drowning but the output is to be able to demonstrate that you’ve learned to swim, and outputs can be a proxy for outcomes. You know, we have the same challenge in some of our children’s health programs that are really targeted to reducing youth obesity, the epidemic of youth obesity which it is and, in this case, the only thing we’re willing to measure safely is activity levels. We know based on research that Harvard has done that if a child has 30 to 60 minutes of moderate to vigorous physical activity five out of seven days, that it leads to good health behaviors, and that’s basically an output as a proxy for an outcome, and that’s enough for our funders, and it’s enough for us.


CONSUELO MACK: Doug, I’m just thinking. What hasn’t changed in philanthropy? I mean, what are just some of the foundations of philanthropy that have not changed, and when we’re talking about trends in giving?

DOUG BAUER:  Well, you know, it’s interesting to me as one who, you know, I’ve tried very hard to be a student of the history of the field, and I mean, we should remember that John D. Rockefeller and Andrew Carnegie very much brought a business perspective to their giving as did some of the others… including the Clark family as well. I mean, there was real discipline behind what they do. However, it is a mixture of head and heart, and I don’t think that’s changed at all. You know, good philanthropy is you’re giving because you want to do something. You want to do something positive. You want to do something that has a real benefit to community, and that the act of giving is ultimately a fairly emotional one, but you want that emotion infused and informed by some good due diligence, and so that’s where the business side comes in.

I mean, you want to look at the management practices. Is there someone like Jack running the show that knows what they’re doing? Are the finances strong? Do they have the capacity within their programs to do what they actually think they can do and should do? So it’s that marriage between all the stuff you need to do as a good business person who would look at an investment and do that work, but there’s also this, well, you know, do I really care about this charity? Do I think they make a difference in the community? And not all of that is tangible, so it is that marriage of those two ideals that I think does create great philanthropy, and there are numerous examples of that over the last 200 plus years of this country.


CONSUELO MACK: Right, and so, Jack, again from your experience, and you know the Y’s history as well, almost 200 years, so what hasn’t changed? What are the still the philanthropic, the donor behaviors that really haven’t changed?

JACK LUND: I think the fundamental principles are the same. People give to organizations that they care about, and you’re right. It’s a blend of head and heart, but it’s the organization’s case for support, their value, how well they’re managed. I think one of the most important things for us is strategic planning, and a lot of donors say, “Don’t bring your annual report, because any organization can make themselves pretty in an annual report. Do you have a plan, and do you have a strategic plan?” That’s an important question. I think a second thing that hasn’t changed is leadership. It’s not just staff leadership but boards. Our donors want to know who’s on the board and what’s the board doing? Is the board giving? Is the board supporting the charity? I think that’s very important as well.


CONSUELO MACK: And so I’m trying to think, and you’re helping us, too, because our viewers want to be better givers, and they want to be effective givers. So what are the kinds of questions that I should ask an organization? And Jack, let me ask you. So what are the kinds of questions that you’re being asked by your donors that you think are the right kind of questions? And you just mentioned, you know, do you have a plan? So what should I look for in a strategic plan, for instance?

JACK LUND: Well, I think first of all it’s fine for the organization to have a mission, but what’s the roadmap? You know, how will the organization achieve its mission in the lives of the people it’s serving? I think donors are really looking for transparency, evidence of transparency, and I think any good not for profit worth its salt should not only have its annual reports out there and on its website, but their 990s. I think their audits. I think organizations should engage in an intermediate sanctions review which is really looking at compensation for top management and making sure it’s inside the boundaries. All those things should be available to donors.


CONSUELO MACK: Right, all of those things that I know as a board member of the Y that the Y does, but it strikes me that, again, these are very demanding requests that are made, and the Y is large. It has a long history. It’s financially really well run, but for smaller organizations, as we’ve just talked about, there has been an explosion in not for profits. I mean, how can smaller organizations live up to this or can they actually meet the demands of donors in this current environment?

JACK LUND: I think it’s tough. It’s tough. We have these conversations all the time, and you’re right. We are a large organization, and it’s challenging for us.  We’ve managed to carve out relationships with some of the major educational institutions, and they help with our research- Fordham, NYU, Columbia University. That has made a difference as well, and then I think the foundation community has been particularly supportive in helping organizations become better at measuring their outcomes, because they’re asking for it.

DOUG BAUER:  I think when you’re working with smaller nonprofits, say six-figure nonprofits in terms of operational budget or mid-sized nonprofit to me is like a seven-figure type of nonprofit, it’s all the things that Jack mentioned earlier, and I think it is asking also, you know, talk about the depth of your programming. Why do you think you’re making an impact with that? Tell us how you manage what are modest resources, and then with the management of those resources, how are you trying to get an outcome or an output or dare you try to scratch the issue of impact?

I think the other thing that’s really important for the smaller groups, and perhaps less so for institutions the size of the Y is, do you understand the context in which you’re operating? Do you understand who your competition is? If in fact, you’re a smaller group within the community and the issue you’re trying to address, how do you know you’re making a difference? Why do you think… and I would probably guess groups of that size, there are peer groups. How are you better? And that’s asking nonprofit people who tend to be very modest people to be, in some cases, immodest to talk openly about how they think they are better at what they do, but you have to get at that, because that really determines whether they have the ability to succeed in what is a very difficult operating environment across the sector, and so those are questions that I would encourage donors to ask.


JACK LUND:  You know, it’s amazing. I recall a major funder in a Midwestern city telling me that in that particular city there were 16 different organizations that existed for purposes of preventing teenage pregnancy, and none of them knew the other ones were there, so you’re absolutely right. It’s understanding what environment you’re in, who else is in it and where you fit in.


CONSUELO MACK: What about younger donors? And you were talking about you’re dealing with multigenerational organizations and, Jack, you’re certainly seeing younger donors come forward now as well. Are their demands different?

JACK LUND:  Yeah, I think so. I think once again, they’re asking to be far more involved. I also think their methodology of giving is changing, and we’re seeing more electronic giving than we’ve ever seen before, and we’re just trying to catch up to make sure that we’re communicating with them the way they want to be communicated to.

DOUG BAUER:  It’s interesting about the younger donors, because… and we can thank 25 years of community service, the result of 25 years of community service, you know, a requirement in high school or college to go out there and do volunteer work, the level of experiences that these students have at 18 and 19 coming into university. It’s far beyond anything you and I did when we were all growing up. That didn’t exist, and that’s made them very sophisticated, very knowledgeable. They’re very choosy, and if they’re going to get involved, they want to be involved in a very real and sincere way, or they’re not going to do it, and that’s not to say that older donors aren’t interested in that, it’s a different intensity that I don’t see with older donors, and it’s a remarkable thing to watch. It can be very hard to manage, but I think it’s exciting, and especially if you see them kind of line up behind, you know, let’s say one of the more socially entrepreneurial kind of nonprofits out there. That can be a very exciting, almost combustible kind of experience for everybody involved, and if it happens, those kind of nonprofits can just take off.


CONSUELO MACK: And so how worried are you two about the tax implications of a possible limit on charitable deductions? Jack, how big does that loom in your radar screen?

JACK LUND:  Anytime a donor is asked, “Why do you give?” way down on the list is for tax purposes. There’s so many other reasons why donors give. On the other hand, when donors are asked if their taxes go up, will it affect their philanthropy, the answer is, at least for half of them, is yes. So we are concerned.

CONSUELO MACK: So it’s an issue. Doug?

DOUG BAUER:  From my perspective, there’s lots of analysis out there about keep it the way it is, tamp it down, all kinds of formulas. What I know, again, as a student of the history of American philanthropy, I can tell you ever since we’ve had a charitable deduction in place, charitable giving has gone like that. In my mind, there’s no question it is a catalyst, and for savvy especially… not just savvy but affluent donors, clearly charitable deduction as a factor in their tax planning is huge, and so I think Jack is right. There’s going to be an influence one way or the other, depending on what they do with the charitable deduction. All I know is it’s been a very important catalyst. I think that history has demonstrated that. I’d hate to see that, you know, interrupted in any kind of way. It has completely contributed to why there is such a robust commitment to philanthropy in this country.


CONSUELO MACK: And let me ask each of you the one investment for long-term diversified portfolio that we ask everyone. What would it be? And it can be in the philanthropic field or not. You know, what investment should we make to be a more effective donor?

JACK LUND:  Well, I guess I would answer it this way. I think whatever the investment is, I would tell the donor to do their homework, to know the agency, to dig in, to make sure that they’re achieving their outcomes, to make sure that they’re financially stable, to make sure that they have good leadership.


DOUG BAUER:  Wow. Well, there’s 1.5, 1.6 million charities in the United States. To pick just one would be hard. I would say this.

JACK LUND:  I have one in mind.

DOUG BAUER:  I know you do. And it’s a good one, Jack.

CONSUELO MACK: Gee, could it be the Y?

DOUG BAUER:  But no, I would say pick a charity that, A, is meaningful to you in a deep and real kind of way and that is also making a huge difference in the community. If you’re able to satisfy both of those dynamics, then I think you will have probably picked a good nonprofit.

CONSUELO MACK: What a great way to start the New Year on WEALTHTRACK with the two of you. So thank you so much. Doug Bauer from the Clark Foundation and Jack Lund from the YMCA of Greater New York. It is wonderful to have you both here. Thanks.

JACK LUND:  Thank you, Consuelo.

DOUG BAUER:  Thank you, thank you.


CONSUELO MACK: At the conclusion of every WEALTHTRACK, we give you one suggestion to help you build and protect your wealth over the long term. This week’s Action Point is: resolve to be a more effective giver this year. Jack Lund and Doug Bauer gave us some great suggestions to combine your head and heart in your giving. Get to know the organization, its leadership and programs you contribute to. Ask them for their strategic plans, annual reports or 990s, the major reporting form required by the IRS for non-profits. Knowledgeable giving is more effective and much more rewarding.


I hope you can join us next week for our annual television exclusive with Wall Street’s number one ranked economist for 30 years running. ISI Group’s Ed Hyman will join us with his 2013 outlook, only on WEALTHTRACK. If you would like to watch this program again, please go to our website, Premium subscribers can see future programs 48 hours in advance, and additional interviews with WEALTHTRACK guests are available in our WEALTHTRACK Extra feature. And that concludes this edition of WEALTHTRACK. Thank you so much for watching and make the week ahead a profitable and a productive one.

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