Archive for the 'Personal Finance' 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.

You, Too, Can Live Off Just $480,000 a Year

It is amazing, but it can be done. I know because someone just down the road does the same. You might have to give up a few necessities, but you will survive.

No matter what your expenditures, you can spend less. The proof is the person down the road spending a mere $450,000. This carries all the way down to a family of seven living off of $35,000 a year. I guarantee that there is a family of 8 living off of less, they just don’t manage publicity as well.

When I was going through college(2001-2004), my wife was my sugar mama, bringing home a slick $1050 a month. From this money we paid all our bills, including tithing and saving $100 a month for a rainy day. We thought we were living fairly decently. We had insurance through the school and scholarships to pay for books and tuition. Our apartment wasn’t exactly a palace, but it was warm, dry, and plenty big. Before I had married my wife, I worked 12-14 hours a day 5 days a week and 8 hours on Saturdays all summer to save up money to buy a car, so I wouldn’t have that debt over my head. Our biggest advantage over others is that we knew the difference between a need and a want.

Cell phones are one of my favorite current needs. “What if your car breaks down by the side of the road?” some people ask.  As I recall, 20 years ago, when people’s cars broke down, there was no spontaneous combustion of the stranded. You simply made do. Nowadays you can either use a phone by the side of the road or wave down a driver and ask him if he can call a towing company. A basic cell phone plan runs about $600 a year. Is that really a necessity?

Cable is laughable. I don’t see how people even attempt to justify it as a need, but all over America there are people who get welfare checks every week that can’t live without their boob tube fix.  It costs around $500 a year, depending on your package. There is no way cable is a necessity.

I always am amazed by how much people spend on food.  We now have a family of 4 and we spend $45-$50 a week, and we eat great.  You  just have to base what you eat off of what is on sale , and learn how to cook.

The idea that it takes  $50,000 to support a family of 4 of four is ridiculous.  You can live off much less, you simply have to question your assumptions.  I have no problem with anything that people want to buy.  They should just make sure they buy it because it truly is a necessity (food, shelter, thrift clothing) or because it will provide enough enjoyment to justify the life they used up earning it.

I’m Broke and Its All Your Fault!

I saw an article in Yahoo news that displayed all the brilliance of America’s media. As I read through the article, I was surprised at the lack of thought, and the use of different phrases to make it look like the borrowers are just people who had bad luck. The borrowers chose to take a great risk when they used “exotic” (reads “you probably can’t afford it”) loans. If they ever read a paper or watched news, they knew that rates were at the bottom, and could not feasibly go lower. Those who sell themselves into slavery and use the proceeds to live high for a day shouldn’t be surprised when the buyer comes. Apparently this writer thinks they should, and states how they are undeserving participants in a massive tragedy over which they had no control.

“I have three borrowers who desperately need to refinance and they aren’t going to be able to do it. They are going to lose their homes,” said Patrick Schwerdtfeger, a Walnut Creek mortgage broker for Windsor Capital.

I will interpret. I have three people who can’t afford their homes and nobody will loan them any money. They need to refinance to a lower rate. They got in at a low teaser rate because they wanted more house than they could afford or because they decided they wanted to spend their money on something else. Now those stinking bankers aren’t going to give loans to people who have a fantastic chance of going bankrupt in the near future. They’ll have to move into a neighborhood they can afford.

The intelligence continues.

Borrowers with blemished credit records and inadequate paperwork to verify their incomes are having the most trouble getting mortgages.

Here is another piece of sage reasoning. The media is all over banks because they made loans that people couldn’t afford to borrowers in the sub prime market. Now, apparently this writer thinks we should do it again. Banks don’t want to lend money to people who haven’t paid their bills on time in the past and those who are not likely to have the resources to pay them in the future (trouble verifying income). Given how many people lied on their loans in the first place, it is hard not to agree with the banks. I have a lot of respect for self employed people, part of it because they are able to work without a regular paycheck. Banks don’t want to assume that risk for free (and that is assuming people are having trouble verifying their income because of paperwork issues instead of the standard lying cheat reason).

The media is sure that the only way out of this mess is for the government to save us. Apparently, the government also has plans to save tourists in Vegas from appalling losses.

Other media stories point toward the trouble that the wealthy have buying a home. If you’re really wealthy, shouldn’t you be able to afford it? People with a $5,000,000 home (and corresponding mortgage) are in the rat race just as much as those with a $100,000 house. The media is claiming that people have learned that people know what they have done wrong, and are all penitent. On the other hand, people are trying to continue to live mortgaged to the hilt.

I read a idiotic article from a “financial adviser” which said you should always have as large a loan as possible out on your house. That is a great idea in the ideal world, where the stock market returns 11.8% a year, no one ever gets laid off or laid up, and real estate appreciates every year. In this world, it is looking like our grandparents aren’t as stupid as we thought they were. Reducing your exposure can help you keep your house during difficult times, and sleep well during all of them. The spring in my step and peace of mind I will get from knowing my house is paid off are worth the few percent a year.

Casino Patrons to be Reimbursed for Losses

Reports are coming from Las Vegas of a massive government effort to help investors that have been betrayed by casinos. These investors have put massive amounts of money into investments, some their entire livelihood, only to end up broke. One investor says, “I was just doing what everyone else was. I knowed that I had to make money at this, cause my cousin, Willy, was here last week and he made 500 smackaroos. Now I’m broke, upside down on my mortgage, and my kids don’t have anything to eat. I just want what’s fair and decent.”

The betrayal by the casinos occurred on a grand scale. At one end of a casino, the lights flashed above the slot machine “Win Car Here”, but poor Harold Hickson walked home. “It just ain’t right,” he says. “It says I should win a car, but I put in my entire savings, and even pawned my mobile home, and I ain’t won crap. I don’t know what Betty Sue will do when she hears. We made this investment in good faith. I heard a bunch of people were here last week and made a bundle.”

Another patron, Graham Wellington said, “It is clear that the practices here have been unethical. As I walked in, the lady who gave me chips said, good luck, I hope you hit it big. The personnel in the industry spread this idea that investing at a blackjack table is a sure way to get a significant payout. There were no warnings that these investments could turn sour. This euphoria caught many up in it, and I cannot afford the losses I have incurred. As a working citizen, I have a right to have someone help me with the losses I face due to this deception.”

The deception is all over. Claims of million dollar payouts were spread far and wide. These losses aren’t flukes, but a scheme by those no good dealers to get fat off of their pay. Rick Henson, a college student majoring in economics, reports, “I was always good at investing back at college, and got my friends good and wasted before I cleaned them out. It’s gotta be a fraud, because I toasted my student loans in one day of investing in poker here. I saw a billboard that says people hit it big in Vegas, false advertising if I’ve ever seen it. This disaster is too big for individuals. The government needs to intervene and help the market out of this crisis.”

A spokesman from the heartless bastards at The Von Mises Institute said, “Their unwise speculations did not result in the outcome they expected. The risk management was skewed by years of being taken care of by the government, resulting in expectations of large payouts with little aversion to downside risk. If the government mitigates these consequences, it will perpetuate this poor judgment, and these types of incidents will occur with greater frequency.”

Someone from the back yelled, “What he’s saying is they gambled and lost their shirts because they were greedy. If we bail them out they won’t learn their lesson, and we will have to keep bailing people out.”

The Center for Compassionate Government rebutted these outrageous insults.  “These are people who trusted the advice of these casinos, and were provided an environment where they could simply get more chips. There was nothing that told them about the impending losses.  Serious sanctions must be taken against these corporate bosses. One investor told us that they thought they could simply get back all of their money after they were done gambling, assuming that the casino was just holding the money for safety purposes.  He never signed anything that said he would not get his money back.  He was duped.  The thought of losses had never entered his head.”

“Now he and his family don’t have the money to pay next month’s rent.  We need to help them.  After all, it’s for the children.  We are proposing that people be allowed to be reimbursed in a way that will be fair to all parties. We don’t think anyone should be locked out of the American Dream.  Now we recognize that the casino owners don’t have the means to deliver what they promised, but I am sure that no true American wants little Bobby to go hungry.  The government has the means to support this, and we demand they help the poorest,  who were tricked into precarious financial situations.”

The president of Evil Conservative Industries, Gren Bock, said, “What the heck did they expect? They were gambling at a freakin’ casino. It’s sad that the kids are in such trouble, but come on. Everyone knows that in speculations you have ebbs and flows. There is no free lunch. My father was a baker, and he worked his rear off for every cent he got. These guys think it will fall into their laps just because their friends got lucky, well, they are in for a surprise.”

It is clear that despite the heartlessness of the rich evil conservatives, something must be done to help those that invested in at these well known establishments in good faith. Americans are obligated to help those who have been tricked and swindled. Presidential candidates promise that relief is coming. We couldn’t suppport them more strongly. Everyone has a right to the American dream!

Lack of liquidity in the markets, and inflation

When I was at work today, an employee who likes to follow the markets talked about the the liquidity issues that a lot of the banks are facing.  They have loaned out a ton of money that people are having trouble repaying.  Here is a quote.

“Extraordinary optimism sustained an orgy of speculation.  Books were written to prove that economic crisis was a phase which expanding business organization and science had at last mastered.  ‘We are apparently finished and done with economic cycles as we have known them,’ said the President of the New York Stock Exchange.”

When was this from?  September 1929.  The whole passage was pulled from Churchill’s The Gathering storm (1948).  I believe that the modern day comparison is “irrational exuberance”.   We have spent money that we do not have, and the whole country is mortgaged up to the hilt.  The US still wants to be big and bad, but economics are what provide worldwide power. 

Karl von Clausewitz said, “To secure peace is to prepare for war.”  Instead of preparing for future wars that we could win decisively, we have slowly whittled away our strength in piecemeal wars.  Foreign governments are emboldened as they see us stretched to the breaking point.  The number of people employed by the government leviathon are people that can’t be employed in contructive industry or in the military.  Those killed and maimed in war represent permanent losses to the country economically (not to mention their families met someone in a hospital or in a body bag.)  Those people permanently injured in action also require permanent benefits, including medical care with its escalating costs. 

We could afford these type of expenses if we weren’t hemoraging money in every other sector.  If in San Francisco the cost of illegal immigrants is not high enough, some people can fix that.   They wish to raise taxes to pay for the green cards of the illegal aliens.  It’s natural that we want to be the benefactor of poor nations, but we do not have the resources to take care of the problems of the world.  After we get our own house in order, from the federal government level down to the individual household, we can and should individually use our resources to help others.  Until then, we are like people buying gifts for everyone with our credit card, while planning to go bankrupt.  The polititians are afraid to tell Americans that the way out might require a bit of hard work and sacrifice.  They’d rather cheat their way out, through the magic of inflation.

The central banks of the world pumped over $300 billion into the world markets during 48 hours on Thursday and Friday (cough cough inflation).  What happens to the global econonmy when fiat money is pumped into the system?  It steadies temporarily, but we are delusional if we think that this is a permament fix.  This is a bandaid over a wound that is festering.  It has been festering for years, and it will take a major surgery to clean it up.  I’m not looking forward to it. 

The big rise in prices is half way in the door

I don’t know what you see when you go to the supermarket, but I have seen a trail of prices going up.  Food, oil, metals, and most other commodities have moved up.   A lot.  Less than one year ago I paid $.79 for orange juice concentrate.  It is now $1.39.  The price of ice cream is up about 25-30% (which hurts even more).  Everything in the produce department also seems to have taken an oil induced bounce upwards.

Houses have stabilized, but the payment for a basic house still eats up a very large portion of the paycheck of your average American.  Even with the house of prices stagnating or staying steady, most house payments move up as the cost to borrow is moving up.  The price of various building materials have gone up because of the cost of the underlying commodities.  The prices of metals is extremely pronounced, especially copper.  Because my wife and I plan on building a house in a few years, I invested in FCX to protect me against the high price of copper.   The price of some building materials has gone down since the housing bubble has been popped, but demand from the developing world, especially China, has supported higher prices for most metals.  It is just a matter of time until the prices of these materials trickle through the system and result in higher manufactured product prices.  Wages seem to lag other indicators.  That will kill the people who have adjustable rate loans, (inflation brings higher interest rates).   House builders (there will be a ton of excess on the market because of forclosures, and buidling costs will be high), and low income people (they spend a greater proportion of their income on food and lodging) will also help trickle down an economic downturn.

The big question is who wins?  People who have large amounts of fixed interest debt with a steady income will have the real value of their debts quickly decline, but you better make sure you are not one of those who has their income interrupted.   Commodities will also help carry people through, because they have intrinsic value.  Stock markets will be hit, but will try to rise a little more than inflation, although the economic situation will make it difficult.  The biggest winner is the biggest debtor, the good old government.  Then can reduce debts to a fraction of their initial value through inflating the currency, and at the same time, have more of the printed money they can distribute, using the greatest tax ever devised, inflation.

Who loses?  Those who put their faith in the fiat money of a government on a ride to bankruptcy.  Stock markets will be hit, but will try to rise a little more than inflation, although the economic situation will make it difficult.  Those who have bonds will see rates rise, and will be in a race to see whether their interest out paces inflation.  It will be interesting to see what the government does with TIPS (inflation protected bonds).   Grandma and Grandpa will wonder what they should do as the value of their annuity payments keep dropping.

What can we do to get ready?  In my humble opinion, get assets that have some true worth.  A house will keep you warm.  Stocks are partial ownership in a company.  Make sure that company produces things that people need and is well run.    If you have any variable rate debt, get rid of it.  That includes pretty much anything besides a fixed rate mortgage.  If anyone has any good ideas on picking up wreckage from the storm, let me know.  Everyone should invest in commodities.   I am long a case of beans, 15 cans of tuna, a bunch of spaghetti sauce, and some sausage.  When something is on sale at a significant discount, buy more than one weeks supply.  Right now I am making sure I will be prepared to weather it while not reducing my chances of eventual retirement.

Hello world!

I have long wanted to get into blogging and here is my first attempt. Please be gentle, and it will improve

I guess the major point I have to express is that we live in total excess in the USA. Nothing is wrong with being surrounded by all sorts of fantastic things. If I could afford to have an original Van Gogh in my house, I would. The point is that our houses are full of unused crap that we paid large prices for.

Advertising is more effective then any of us realize. I find myself wanting to buy tools that I will use once and then have collect dust on my shelf because I apparently don’t feel secure about the size of my stuff. I least I buy a miter saw for 300 bucks instead of a useless car for $50,000.

Here is some math-

$50,000 How much you made

-$15,000 Taxes

– $2000 One year of beans and rice for food

– $7200 Rent at $600 a month (Utilities Included)

-$600 Phone at $50 a month

-$200 The bike you used to get around since you couldn’t afford a car.

=$25,000 a year.

Who in their right mind would trade two years of their life under those conditions for a beamer. That same $50,000, if invested in the S&P500 for 40 years (25-65) would end up as $5.37 million. Now that is a really freaking expensive car.

Anyway, best of luck with your finances.