Archive for the 'money' Category

Traditional IRA’s looking better and better.

When you look at whether you would like a traditional IRA or a Roth there are basically three considerations.

  1. Do you expect to be in a higher or lower bracket when you retire (making more or less money)
  2. Do you expect overall taxes to be higher or lower when you retire
  3. Do you have extra money to put in (putting in dollars after tax effectively lets you put in more)

Lets look as these issues one at a time, based on the current financial disaster

Will you be making more

In this instance, I am looking at what the feds are doing as far as monetary policy. By injecting huge amounts of dollars, they are going to cause massive inflation. It is economics 101. According to this story, we are already into it about $1.8 Trillion. Assuming a population of 300 Million, we end up with about $6,000 for every man, woman, and child. Um, Mr. President, could you exclude me from the plan and just send me the $30k for my family? Especially seeing the spectacular results so far, I wonder how much more money we will send in with questionable results. All of these dollars are going to inflate our currency. Result? Inflation and earnings (not real earnings) go up.

Will Overall taxes be Higher or Lower

I will give you a hint. We were already looking at a mess when we had social security and medicare with a healthy economy. With the coming economic crisis, taxes will have to go even higher just to keep the leviathon from tumbling. The other part is that next year they will try to lower taxes on middle and lower income people. This might be your chance to put in money at very favorable rates before the spike.

Do you have extra money to put in

This is all up to you. I would just recommend having a nice nest egg in case things get even worse. We thought things wouldn’t get worse a couple weeks ago. Good old Cramer called the bottom of the market at 11,500. Looks live we have slipped a bit since then. It can always get worse, but if you are prepared, it isn’t all that bad.

Good luck, and take another serious look at the traditional IRA. Due to shifts, it could be right for you.

You Were Right to be Worried

My son just came up to me and told me he hurt his bum.  He wanted me to kiss it better.  Does anyone else feel like this is what we have done for the banks?  Why would we do something that doesn’t seem to be making the banks feel any better and seems to be making us about 700 Billion poorer.

I don’t know if anyone else has taken a look at the situation, but the market is getting crushed again today.  I remember the happy days when 3% was a steep decline.  The S&P, the broadest measurement, is down over 9%.  That isn’t a steep decline.  That is falling off a damn cliff.  It is carrying the senior citizens down with it. The suicides are starting up.  It is tragic, and I can see it getting worse.  The news today was that retail sales took a massive dip.  This is not the time to be working at the Buckle.

Everyone is looking for the big event around the corner, be it rising unemployment, more welfare for the banks, more welfare for everybody.  Mccain and Obama are going to have a real treat when they are done with the campaigning.  The prize is to be at the helm of of a ship that is on the rocks.   I know that my retirement funds have dwindled down to pitiful levels.  I am 29, and it is not a huge problem.  But this could be the end of free enterprise as we know it.

The time has finally come for the US to pay the piper.  It is going to be tough for the baby boomers, and there are only so many Walmart greeter jobs out there.  The next 5 years are going to show massive changes to welfare.  I hope we can handle the increase in tax rates.

Weathering a recession- Input from CEO of CAT

I saw an article published on October 31st on what is coming in the economy.  The CEO of Caterpillar thinks that recession is nearly certain for the beginning of next year.  The basic idea is that people buy heavy equipment from companies like CAT before engaging in large projects.  The orders for the big equipment has been petering out in the USA.

“Despite weakness in U.S. markets, our sales and revenues increased 9 percent. We continue to see remarkable growth outside of the United States with particular strength in key industries like mining, oil and gas, electric power and marine engines. The industries we serve are becoming increasingly global, and the investments we are making to achieve our 2010 goals have us well positioned to meet their needs.”

Hey-  This is sounding very familiar.  The US has to accept the fact that we can’t be the cool rich kid on the playground.  We gave all of our money away, and everyone else wants a turn.  To take their turn at living the good life, they need resources.  3rd world nations require resources to become 1st world nations.  The price of copper will remain high as people start putting that delightful electricity in their houses.  The cost of oil will remain high as they continue to buy cars, use plastics, and run factories.  We can expect to see uranium and coal move up as electricity demands increase.  If you are invested in the companies that are serving this growth market (read, international market), you will reap the benefits.

One market that I see suffering a little is the P & G type market.  The prices of raw materials has been skyrocketing all across the board.  The economy is starting to suffer a little, and consumer confidence is poor.  These companies that make consumer goods and food are going to have trouble increasing their prices at rates that will offset their increased costs.  I just Googled for evidence and found this story about Kraft’s weakening profits.  They can’t raise their prices too suddenly, or they will rapidly lose market share, but the cost of commodities trickles down.  Employees will want raises to help offset the higher cost of homes, food, gas, and soon, energy.  The electric power generation will see the higher costs of commodities start to trickle through the system.  Inflation of 2-3% a year can’t be maintained when the cost of many basic commodities is going up.  Many basic commodities have gone up in the last five years, like oil($25 to $96), copper ($.70 to $3.50), wheat and corn nearly doubling.  We are going to see these effects soon.

I am guessing right now we will see a little stagflation.  The US is cash poor due to the debt situation, despite having printed dollars left and right.  Time to pay the piper.

They Picked Inflation

The Fed is caught between a rock and a hard spot.  The fiscal irresponsibility of our elected officials puts the Fed between recession and inflation, as I said in my previous post.  I guessed right, as far as what they would choose.   I love getting lucky.

One big problem is that oil, gold, and other commodities are on the upswing.  Real Estate also has a huge upswing.  Groceries have edged up.   A lot of these prices will start trickling down to durable goods.  If you look at the overall prices, inflation has been very significant over the last three years.  When Wal-mart says the prices are dropping, it is because they are getting cheaper and cheaper crap from China.

Bruce McCain, head of the investment strategy team for Key Private Bank said, “A rather stingy Fed suggests that they see an economy that is in pretty good shape.”   I think he is crazy.  A really stingy Fed sees massive inflation on the horizon and is walking the tightrope for as long as they can.

The classic hedge against inflation, gold, has topped $800 for the first time since 1980.  This fact becomes even more significant given the price of gold just 5 years ago (a little over $300).

Only fiscal conservatism can stem this tide.  The government can’t keep printing money that is not backed by anything.  We have to try to stop this wreck and, given the fact that the chances of stopping it are slim, insulate ourselves from the effects.  The only fiscal conservative in office I know of is Ron Paul.  I like his message because he walks the walk.  He actually believes in a small government.  I just donated to his campaign because I think he could win.  If not, I want to shock the republicans into following his lead.  I just hope that someone in government becomes responsible.

Tough Business Decisionss: Inflation or Recesion

It seems like the news is the same as it was a month ago, only closer.  The dollar is still in horrible shape, the price of a barrel of oil can’t seem to stop going up, and people are still defaulting on their mortgages.

The big problem is that all of these factors seem to be worse now.  First of all, the dollar continues to descend against the Euro.  What that tells me is that people who have large sums of money to move think that the US economy is in for some rough times. When your currency goes from under one dollar per euro to over 1.40 per euro in five years, you are in a bit of trouble.  If the euro is already suffering from inflation in the 2% range, the loss of value in the dollar must be much larger.

The price of oil continues to move up.  The simplest  solution is to nuke China to reduce their demand for foreign resources.  The problem is the side effects-  Billions of humans dead.  The economic growth in China continues to be staggering.  The Chinese tend to have an interesting business strategy.  Work your butt of and save.  Even in a country that uses a poor primary business model (communism), the work hard and save strategy seems to work.  They are getting sick of saving and want to buy a piece of the good life.  That includes things that require oil either as a fuel or a feedstock.  Oil hit $92.22 during trading last weak.  The extra production capabilities of OPEC and other such countries seem to have nearly run out.

Last of all, more and more people are defaulting on their mortgages.  The companies involved in real estate are getting clobbered, according to a recent story.  These companies represented a huge part of the boom that helped us recover from 9/11.   Their support in the economy will be missed.

It’s time to tighten our belts.  In a world of ups and downs, the economy is due for a down.  People that have planned a little will do just fine, just like they have always done.  You just have to ask yourself where you are.  If there is a coming depression, how will that work out for you?  If there is high inflation?  I feel like stocks offer some nice benefits.  They go up with inflation over the long term.  If you buy boring high quality stocks, they will weather a recession.  Real estate can have the same benefits.  It holds its value, and you get a good deal on a rentable property, it can also provide some benefits.  Cash does well in one and gets slaughtered in the other, and debt does the opposite.  There is also a chance we could have both.  I hope that things go along well for the next while at least.  Hopefully till I and all my descendants are  dead.  But I am not counting on it.

The question is will the Fed choosing inflation over recession.  One kind of sucks and reduces what the true government debt is, the other one sucks worse and reduces the governments ability to pay off debt.  Tricky.

Foreclosures Up, 1/3 Chance of Recession, Realtors say now is the time to buy!!

The National Association of Realtors is reassuring customers that now is the time to buy.  We are entering a new economy, and this temporary bump in the market is the perfect time to buy with greater selection. 

 According to Yahoo, foreclosures have doubled from last year and are up 36% from last month.  This will give you even more opportunities to buy.  These are fantastic houses that are selling at significant discounts.  Your local Realtor will explain everything to you and take care of this incredibly complex transaction.  These are specialized skills that no one else has, so make sure you pay a realtor 6% to look up something on the internet and drive you from place to place.   They will also contact the lawyer, whom you also have to pay,  for this small commision.  Now there are many naysayers on the news now, but they don’t have the same information we do. 

The market is in a temporary downturn and will come back.  Although Greenspan says there is a one in three chance of recession, you should remember that this is just a temporary downturn. 

The money in your house is just sitting there idly.  You can extract that money through a home equity loan, and you can purchase a rental home.  The selection has never been better.  Your realtor and mortgage broker can work together as an unholy alliance a team to make sure that you buy as much house as you can. 
Faithless naysayers will say that you would be stupid not to learn from what has happened in the last year.  The claim that being mortgaged up to the hilt fully leveraged puts you in a precarious financial situation is untrue.  The truth is that if you get in over your head, the goverment will bail you out.  Trust us.  We are the National Association of Realtors, our source for unbiased information.

If you vote or improve ratings or readership, nothing is your fault!

Today, in the CBS news column FDR Solves the Mortgage Crisis, Andrew Jakabovics pandered to the public with the classic line.  It’s not your fault, it is the fault of big business.

Basically, the theme is that the government should jump in and give mortgages to the people if they can’t get mortgages elsewhere.  The government is encouraging risky behavior by allowing people to reap the benefits of risky moves, while protecting them from the downside. 

I think the government should extent the relief that they have given to those in Vegas.  If we are protecting those who took risky mortgages, we might as well protect those who didn’t do so well in the stock market.  If the stocks drop, the government should give them a tax credit for fifty percent of their losses.  After all, isn’t the security of our retirees of just as much concern as having others live in a home instead of an apartment?  After all, it’s for the children. (Don’t ask me how.) 

It seems that others are very confident of our abilities to repay all of our mortgages based on the exchange rates.  Euro hit an all time high, and the pound went over $2.  Inflation is starting to rear it’s ugly head, as shown by the rapidly falling dollar.  It stinks, but we’ve been bringing this on for a long time.  The US has a bit of a hangover from the mortgage binge, and we have to pay the piper at some point. 

People are also trying to paint the picture of a mortgage market in which people just can’t get a loan, even with great credit.  According to the Wall Steet Journal,banks are tripping over themselves to give conventional mortgages to credit worthy borrowers.  This is just what should be happening.  Bankers should cut risky loans.  They are obligated to do this by their depositors, who depend on them to remain liquid.  Credit Unions, who are very conscious of the fact that they are lending out depositor (basically owner) money have had a fraction of the default rate.

On the radio a couple of days ago I heard a demagogue spouting out bull about how the bankers and evil mortage industy were responsible for this mess.  I assume grocery store owners are responsible for obesity, baseball bat owners are responsible for thuggery, and dell is one the line for carpel tunnel syndrome. 

We have dug ourselves into this hole and it is time for us to get out through thrift, hardwork, and saving.  The plan proposed by Jakabovics is based on spending taxpayer money to subsidize foolishness.  Let’s move in the other direction.

More Budget Insanity- We can’t repair Bridges, we are too busy financing risky mortgages

The senate is currently debating a transportation and housing bill. This bill includes only $1 billion to speed up bridge repair. For crying out loud, Amtrak asked for and got $1.2 billion to subsidize them. (They have got the plan to turn their business around, by dang, and if it doesn’t work . . . they will come to us for another billion next year).

I wonder how much money was lost because of the Minnesota bridge collapse. There were 140,000 drivers that used the bridge each day. If you assume each driver takes an economic loss of $5 each due to time, gas, and wear and tear on the car, you end up with $700,000. A day. And that is a low estimate. Why are bridges so low on our priority list?

Housing and urban development is getting over $30 billion this year. Are we sure we should be insuring HUD loans when people who have trouble getting traditional loans seem to be defaulting left and right? I guess the one thing that it does do is make sure that politicians will get votes from that crowd. Meanwhile, programs that the tax paying citizens of the country would really want, like say, the “No bridge left behind” program crash down in ruins.

The backlog on bridge repairs is $65 billion. It is also growing, as wear and tear keeps taking its toll. In a situation like this, $1 billion is so small it is almost laughable. It’s like having a $65,000 credit card bill, and throwing in an extra thousand a year. Laudy frickin’ daw. You’ll have fun eating government cheese as your van plunges down into the river.

If the government can’t do its job at this either, it is time to hand it over to private enterprise. Set up tolls across the bridges. The most efficient and important repairs will be done by a company that wants to keep costs down. Those citizens of Minnesota would be happy to pay a few bucks to cross the bridge if they could have it actually hold up. Let’s either have the government get some common sense into transportation, or let’s get someone in transportation who has some common sense.

Science and Politics Don’t Mix

You can hardly get through a day without seeing a story about the benefits of some new technology in the energy sector.  Wind turbines, ethanol, solar cells, and a host of other solutions beckon at the door.  This doesn’t include the age old answer to all of our energy questions, “Just Use Hydrogen”.

These policies are based on politics and not logic.  If you don’t believe me, ask an engineer.

Ethanol, as a fantastic fuel source of the future, is one of the most popular myths.  I am sure that they have nothing to do with the Iowa Caucuses.  The states that seem the most excited about using ethanol as an alternative fuel are those that grow corn.  Corn is extremely demanding in terms of fertilizer, water, and top soil.  It has also been argued that producing ethanol consumes more energy than is produced in the ethanol.  Ethanol is less of a solution than a slogan.  Everyone can feel good about getting fuel from beautiful green plants.  It’s the same feeling you get when you are getting food from beautiful fuzzy animals.

The biggest problem is that even if it wasn’t environmentally retarded, it is economically unfeasible.  Ethanol from corn gets a $.51 a gallon subsidy in the US, according to The Economist.  Ethanol is actually viable in some foreign countries, because manufacturing ethanol from sugar cane is much more efficient and cost effective, but the government slapped a $.54 a gallon tariff on sugar based ethanol.  We could import the sugar to make it ourselves, but Washington has put quotas on the amounts of sugar we can import to protect lobby groups.  Meanwhile, oil and gasoline can be imported tariff free.

This whole system becomes more nauseating in an election cycle, when every presidential candidate is trying to kiss up to Iowa to ensure that they come out ahead in the race.  It is not good for the country, but politicians don’t care what is good for the country.  They are concerned with the next election cycle.  They apparently suck at science. The big problem is that the voting public is scientifically idiotic.  They spout some sound bite they heard, and expect that with enough research, we can break the laws of thermodynamics.  I think we should just start a “Manhattan style project” and make x-wings, beaming technology, and light sabers.  That is just as practical, and much cooler.

Wind turbines work where the wind blows and where politicians who’s names rhyme with “Eddy Kennedy” don’t care if their view is impeded.  They require repairs more frequently than many other sources, and only produce power when the wind blows.  Wyoming has wind farms, but they already generate more than enough power there, and ship off vast amounts to California.

Solar cells are so cost ineffective it’s disturbing.  They are good for two things.  Providing power to locations to which it is hard to run wires and helping environmentalists feel better.

People’s knowledge on hydrogen is laughable.  “Just use fusion.”  There is one minor catch.  The only reliable way we know to jump start fusion is with large amounts of fission… those nuclear bomb things.  “Well just use it in a fuel cell.”  Umm . . . It takes more energy to take it from water and get it into the car than it releases.  “Let’s just all ride ponies then.  Together, with and for the children.  And have world peace.”  All those people think if you think positively about something for long enough, it will happen.  It doesn’t work.  I had a crush on a girl named Ashley in 7th grade.  I thought positively about me going out with her a lot.  Going out with her would have violated one of the laws of eternity, that in junior high, cute girls don’t go out with nerds.  They wait till college when they find out nerds make many times as much as jocks.  You just can’t violate physical law.

All the same, people vote for the politicians that put forth the pretty promises. This is great if you live in a primary state and have billions of dollars going to you in subsidies.  If you are a normal joe, you are screwed.  You are especially screwed if you like candy (the quotas on sugar cost the US $1.9 billion annually).  So I guess the same old song will move forward unless we want to choose a candidate who will do some things based on principle and knowledge, not based on where the earliest primary states are.  I know what you are all thinking. . . .


Consumer Spending Up, Employment down, Meltdown Coming

Consumer spending was up 2.9% for the month of August, despite the fact that employment actually went down. The economists breathed a sigh of relief, knowing that the impending meltdown can be put off.

The big problem with this picture is that employers cut the nations payrolls by 4,000 jobs. The only way that people can buy things if they are unemployed is to borrow the money. From what I understand, most Americans are borrowed up to the hilt. Where is this money going to come from? People take it as a given that debt will continue to finance the spending binge. The catch is, the lenders don’t really want to lend anymore. Companies that were stars two years ago are now running into problems with their creditors, because these creditors are sick of having so much money lent out. They want to reduce their exposure by reducing the number of iffy loans. If Beazer is going to get their loan pulled in, don’t you think that some college student getting a degree in philosophy will have their credit card offer frequency go down?  The cost for borrowed money is going to go up, and the typical American will be screwed.  The bankruptcy laws have been tightened, and people will not have their easy out.

We are like a big fat guy that is out of shape, but knows that he doesn’t do anything strenuous, he won’t notice how bad of shape he is really in. If he wants really vigorous exercise, he’ll push two buttons on the remote at once. Similarly, Americans won’t get out of debt or quit borrowing for non-necessities. We will just redefine wants as needs and borrow away. (I really need that manicure and pedicure to look professional for my work. At Mcdonalds. Where I can barely use the cash register because I have retardedly long fingernails.) At some point, the fat man has to get some excercise. The sooner we do it the better, but as a despair-ing man said, “Hard work often pays off after time, but laziness always pays off now.”   At least until you are so fat it takes a crane to get you out of your house.