Dec

31

Same as I had for you at the end of 2007 and 2006

1. Spend what you make

2. Create a budget and stick to it

3. Begin to make more than the minimum payment on your credit cards

It is hard to tell what 2009 has in store for us. I think it is going to be a bumpy ride.

Dec

30

I heard a “so-called” real estate expert on CNBC’s On the Money claim the real estate bottom was pretty much here. Nonsense! She does not know that any more than you or I. Fact is, there are a lot more toxic mortgages (ARM’s due to re-adjust, Type R-Mortgages that are still under the radar as they are not technically sub-prime but they are just as TOXIC as the subprimes!

I do not want to squelch optimism. Actually, this time has been very hard for me and it is very hard to write about this stuff as I get that social and behavioral factors are HUGE drivers in our economy.

But, I am a practicing pragmatist when it comes to my money. I am not saying this is not the time to buy real estate. I am not saying do not buy stocks. I am not saying do not buy a new car if the circumstance dictates. Actually, during the last recession we took advantage and bought a new Chevy (yes GM) at 0% interest. 

But…

Do you have at least a minimum of six months in savings to run your household?

(Note: I am not even as conservative as Suze Orman who thinks you need eight months, though I currently have cash to cover one year of living expenses with 0 income, and my goal is to build this to two years. My advice to you is six months minimum if this is your comfort zone. Though, take it to a max that makes you feel comfortable.)

If the answer to my question is no, I think changing the answer to yes should be your immediate #1 goal.

After you have accomplished this if you want to put your money into stocks, go for it. But, do good research and buy strong companies like GE, Power companies, compnaies that sell consumer goods we all need. There are many strong companies with good fundamentals that consistently pay dividends and are profitable, well managed and thus can likely maintain levels of profitability through these times.

But… (always seems to be one of these)

Make sure you can afford to be upside down in the stock for a long time. For example, through the Great Depression GE consistently dividends. But, you could have timed buying the stock and ended up losing 1/3 of the principle value. It tooks YEARS for stock prices to recover.

As an example, say that you bought $5000 of GE stock today. Do you know that the market is not going to lose another 20%? No you do not, and neither does anyone else. Let’s say GE stock loses 20%. This is a solid well managed company, good fundamentals. Very unlikely they will not make it through these times. But, like the great depression, it could stay down 20% for years. If you need access to that money all you now have is $4000. If you can deal with this make the trade.

Bottom line?

Be conservative and put your money where you can sleep well at night. For each of us this is potentially a different bed even under the guise of being conservative.

 

 

Dec

30

The latest 72 month auto loan instruments are a bad idea!

Why? One very important reason…

Given current interest rates at 6.5% for this loan…

You will be upside down in the loan for about three years. 

What happens if you get in an accident in the next three years and the vehicle is totaled? The insurance payout on the car will not be enough and you will owe money!

AGAIN… We are entering an era of “live within your means.” This plan does not play into this new lifestyle. Stay away from 72-month loans.

 

 

Dec

27

How much government debt is ok?

I have been reading that in past years our government has been fiscally responsible. I have read and heard through the media that Roosevelts greatest fault was not deficit spending to get us out of the great depression quicker. I even heard this from some of our most prominent economists and financial leaders.

Guess what?

It is just not true. I can prove this to you with figures provided to us by our federal government. In fact, since 1913 we have had only 23 years of Federal budget surpluses and 73 years of deficits. Here are some interesting facts:

So what about all of this?

The question I have is does that 712 billion dollars still matter? Does it really need to be paid back? Think about this for a moment. These are dollars that were paid by our government to other entities (businesses, governments, individuals) both domestic and foreign.

1980 was 28 years ago. That is a long time. Is it not the role of government to regulate the monetary supply in a way that does not lead to excessive inflation, or deflation? I am not suggesting that we continue to crank up the printing presses and fund more debt. We can look to the Weimar Republic from the end of WWI until the beginning of WWII where money got so out of control that it took a wheel barrow of paper money to buy a loaf of bread. We can also look to Argentina from the mid seventies until the early eighties. In 1975 the largest bill they printed was 1000 pesos. In 1981 the largest denomination bill they printed was 1,000,000 pesos.

So how much government debt is ok?

I am not sure anyone really knows the answer to this question. The more I study all of this historical data the more I am convinced that the debts of the past just do not matter anymore. Seriously, lets say we retire the 712 billion in debt we accrued from 1913 until 1980. So what?

What I am saying is that governments are the source of our money supply, and because of this it makes them different than you or I. Businesses are different as well. However, businesses can sell stock as a means to raise money. In a sense this is a lever similar to the govenments printing press.

Have I changed my tune?

Not really. I think the current level of deficit spending during the Bush administration (1.75 trillion from 2002 until 2007) is too much. Of course his father, Bush one, deficit spent 1.44 trillion in todays dollars (930 billion in real dollars) in only four years. Reagan spent 2.6 trillion in todays dollars during his administration (1.3 trillion in actual dollars). I think if Obama does not have a sensible plan for his stimulus that we could end up in a period of high inflation. Of course if he does not act we could end up moving into a period of deflation. If this holiday season was not early evidence of that I am not sure what is.

I think the financial and mortgage meltdown is still going to take our economy into a tailspin leading to double-digit unemployment and a further deterioration of the dissapearing middle class.

I still believe more than ever in personal fiscal responsibility with ones money. I believe rampant consumer credit by a small percentage of our population has helped to contribute to the deterioration of our economy.

I believe we all need to live within our means, government included (though they seem to be able to get away with a certain degree of deficit spending, I am just not sure, nor is anyone lese what this degree is).

I believe we have a healthcare and social security crisis that is going to swallow us whole if we do not deal with it within the next few years. Social security is a ponzi scheme whose end is near.

I believe there is a level of trust and faith that applies to any economy that has little to do with the fundamentals.
Some of the sources used in writing this blog:
http://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm
http://inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?rsCPI_currentPage=0
http://www.whitehouse.gov/omb/budget/fy2004/pdf/hist.pdf
www.gpoaccess.gov/usbudget/fy08/sheets/hist01z1.xls

Dec

25

If you need some guidance on various programs to help secure your computer and personal data check out one of my other sites at this link.

http://www.anglesanddangles.com/security_software.php

Dec

25

Digital Scumbags

December 25, 2008 | Leave a Comment

I am not sure who is worse, spammers or the idiots that write viruses, tojans, worms, and other type of malicious programs.

I just spent hours fighting my sisters computer, a great way to spend the holiday season. There is a program named “Spyware Guard 2008″ and “Spyware Guard 2009″  that cloaks itself as a sypware eliminator. It is actually quite a sophisticated program that has the capacity of wreaking havoc on your computer as well as stealing personal information and passwords pertaining to ecommerce activities you engage in.

What is sad is that the people that spend their time writing this crap are typically pretty intelligent. Why they choose to spend their time in this type of activity is beyond me. It is also sad that international laws do not exist to deal with these dirtbags.

Most of us use computers. My experience has been that most people using computers believe that anti-virus software is enough to protect themselves. They do not realize how easy it is to have rogue programs installed on their computer through normal internet browsing, and even from opening their email.

BEWARE.

 

Dec

19

Point, Set, Match

December 19, 2008 | Leave a Comment

I listened to an audio blog by Will Wilkenson of the Cato Institute (http://marketplace.publicradio.org/display/web/2008/12/17/wilkinson/.) Young Mr. Catos premise was that those of us not knee deep in a personal financial crisis should continue our consumer spending habits status quo.

He had thirteen people comment. The last comment tried to defend him. From what I am not sure. First twelve said what I have been emphatically saying… Those of us that manage our money in a safe and conservative manner are now saving even more, and this means we are spending less.

Regarding the comments, I think two things were striking. First, it would seem that only people that are conservative with their money commented on his blog. Second, they all said what I said, namely, we are uncertain and as a result we are saving even more.

We are talking about a lot of people in the “manage your money” conservatively category. We are certainly the largest lever right now. Our lever is turned way down.

What will turn our lever up more?

Knowing our jobs are safe. We do not know that. Many us already have that six month cushion that the conservative fincial experts recommend. But, in the past six months we have seen some of our co-workers let-go and many still are unemployed. Six months is not looking so good after all to us.

What are we doing?

We have redone our budgets. We are reducing our expenditures and increasing our savings and cash positions. Many of us (myself included) are looking to have cushions of two years or more with zero income. Yes, this is how uncertain we are. Guess what? This is even not enough. Many of us are also coming up with additional long term contingency plans to cover ourselves before we lose it all. You may think it irrational, but we think you just as irrational. To us it is like going to the only water supply in town to get our daily ration. Each day we show up we notice the supply is going down and there are no clouds in sight. No rain in the forcast. We start saving water by making do with less. This is how we are wired. And, as I keep saying we are the MAJORITY!

So how does our government need to approach this problem?

If the government starts doing things that will give us confidence that we have the same likelihood of keeping our jobs like we felt we had prior to the meltdown we will slowly come back and start spending again. But, make no mistake, many of us are going to continue to save until we get to that next level that makes us feel safe. It is just the way it is. We don’t care if these causes further pain in the economy, this is what we plan on doing.

We are not thrilled right now that billions of dollars of tax payer money is going unaccounted for to business with the notion that the people that caused this mess to begin with have somehow seen the light and are now going to do the right thing. This is not happening, nor is it going to happen. Frankly, our only hope is that once Obama and his team get in they will take sane and appropriate long term action that is fincally responsible. If this does not happen in his first six months “watch out!”

And by the way, there are many good, well managened companies out there. In fact, there are still more good, ethical, financially sound companies out there that there are bad ones. Like us, they too represent the majority. Guess what? They too are contracting their businesses as they should. I work for one of them. I also might be one of those poor schlubs that loses his job.

It sucks anytime someone loses their job. But, I cannot fault a well run business for cutting back because the financial climate demands it. Take for example GE. Since 1899 they have paid dividends to their shareholders. Through two world wars, the great depression, and countless recessions they always seem to have enough at the end to pay their shareholders. This is a fiscally conservative, innovative, well managed company. A company that has the uncanny ability, especially for its size, to be able to see and adjust to the current climate, but do so in a way that also sees far beyond the next earnings report.

Dec

16

The U.S. Government SEC site defines Ponzi scheme as …

‘Decades later, the Ponzi scheme continues to work on the “rob-Peter-to-pay-Paul” principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses’

Hmmmmm, let’s look at our Social Security, Medicare, and Medicaid programs. They are termed “pay as you go” entitlement programs. In other words the money we pay into the system is not used to pay our future retirement benefits. Rather, the money we are paying in is used to pay current people that are retired. This is how it has always worked since Roosevelt enacted the program.

So will someone write in and share with me how our tax dollars going to pay current retirees is any different than “…new investors used to pay off earlier investors …”?

Seriously, I want to know. Ponzi schemes (aka pyramid) schemes happen to be illegal for everyone but our federal government. I suspect most of the American public believe the money they are contributing is going into a special fund just for them.

In fact, what many pay in does not begin to cover what they are entitiled to receive. This has been the case since day one.  Another interesting fact, the first social security recipient, Ida Fuller paid in $22 from 1937-1939. She retired in 1939, lived to 100 and collected 20,944,42 until she died in 1974.

Think this is unique? Think again. Mortality rates are rising. To make matters worse Social Security increases have been tied to COLA increases since 1975. Further, the increase has been 4% or higher for 14 of the past thirty four years (double digits twice). These numbers come straight from the governments social security administration site http://www.ssa.gov/OACT/COLA/colaseries.html.

Here are some more facts to enlighten (or frighten) you.

* In 1960 there were 5.1 workers paying into the system for each retiree, in 2004 the ratio was 3.3 to 1. It will be 2.2 to 1 in 2030.

* In the past we paid more into the system than was paid out, but the government has already spent these dollars on other programs. It is GONE.

* The MOST conservative estimate in 2003 projecting payouts placed medicare and social security (again using conservative numbers based on COLA) at 45 trillion dollars. At the time our national debt was a mere 4 trillion. So fellow baby boomers and Gen X’ers how do you think you will be getting your fair share?

$45 trillion adds up to 158,000 for every single person in our nation. By my math my family of four would owe $636,000 dollars. This number does not even factor in the drug benefit addition recently added to medicare.

You may be wondering why the $45 trillion is not accounted for in our national deficit. Well, because the federal government does not have to follow the accounting and actuarial guidelines that it created for business to follow. (Turns out that even with Sarbanes-Oxley our financial and insurance sectors did not feel a pressing need to follow based upon the current debacle we are in.)

In 1994 the Kerrey-Danforth commision studied this problem. They concluded  that if we did not get spending for Medicare, Medicaid, Social Security, Military and Federal pensions  under control that these programs would end up exceeding the TOTAL federal budget before the last of the baby boomer generation retired. Thirty of the thirty one members of the partisan commission agreed with the findings. Clinton who commissioned the study did nothing. Of course he was in his first term and the federal government received 350,000 outraged, postcards (all looking quite the same) from angry seniors before the results were released to the public.

Peter G. Peterson wrote a whole book on this subject in 2004 titled “Running on Empty” that was largely ignored as many of us were too busy buying and flipping houses using credit and money we did not have. He also outlines a reasonable solution for dealing with this problem long term.

Unfortunately most of you can only think in the here an now, many of us do not care to do anything. Until the majority stands up and says enough is enough we are doomed. Retirement for most boomers is going to be a very dark and forboding time.

People, at least 75% of us in the middle class (my numbers are very conservative on the low side) manage our money wisely. We did not create or contribute to this shit we are now in. Yet sadly, many of us will be losing our jobs. Many have already lost sizeable portions of our retirement. Until we collectively stand up as the majority we are and tell our government what we want and what we expect (painful in the near term as it might be) we are going to ALL be paying for the sins of blind government, greedy rich business execs and the minority of ignorant consumers that got us here. The choice is yours.

Pass this to your friends and tell them to pass it to their friends. Write your congressman or email this or other posts I have made and ask them what they plan on doing to REALLY fix the problem.

 

Dec

16

STOP STOP STOP

December 16, 2008 | Leave a Comment

What is the matter with you idiots? Another band-aid, trying to solve a problem decades in the making with yet another ignorant short term fix. This is a sad, sad day in America. We have all lost our minds. Where is Obama? How is he going to deal with trillions more in debt piled on before he takes over? We need fiscal sanity!!! We need fiscal sanity NOW!!!

So tell me federal government, you have put us trillions in debt and your latest solution is to drop the Federal Fund Rate from 1% to .25%. For those of you that are not sure the Federal Fund Rate is the rate that the government loans money to financial institutions.

What does this mean for you? It means you can put your damn money in the mattress because it will earn more than it will in the bank and it will be more accessible to you.

What does it mean to the government? Well this is one of the means how our government makes income to support our national infrastructure. So our federal government that is in debt cuts revenue as a means to solve this problem. Think I am full of it? Read here for big picture (http://www.wsws.org/articles/2004/jan2004/imf-j12.shtml), read here (http://www.imf.org/external/pubs/nft/op/227/index.htm) for coma inducing details.

Let me excerpt a prophetic and sobering statement from the first link I provided you: ‘The warning came in a 60-page report entitled “US Fiscal Policies and Policies for Long-Run Stability” published last Wednesday. It said that large US budget deficits posed “significant risks” for the US and the rest of the world and that the rising US external debt, estimated to hit the equivalent of 40 percent of gross domestic product within the next few years—an “unprecedented level” for a large industrial country—could destabilise international financial markets.’

This warning came in Q1 2004!!!!!!!

Let’s just cut through the crap. We have our insolvent federal government cutting sources that they derive revenue from, pledging trillions they don’t have to bailout companies with inept senior management that are essentially bankrupt and will continue to lead. These companies getting the money are announcing initial profound job cuts. SO WHO THE HECK ARE WE BAILING OUT? We are bailing out the companies, not the workers. What are government is doing is pledging is the uncollected tax revenue of future generations that has yet to be collected.

ALL OF YOU. I MEAN ALL OF YOU need to read this and write your congressman and tell them to STOP. 

Folks I am tired of the crap. I am tired of people telling us we are just being negative. This is likely the last chance we have as a nation to dig out and the decisions that are being made by our current incumbant federal government both Democrat and Republican, and our inept leaders of industry is going to put us to the brink of no return if we have not already arrived. There is no quick fix for this. Looking at what is going on we are headed for a situation that is going to make the great depression look like a cruise to the Bahamas.

Dec

9

Wal-Mart reported to the street that they were suspending their stock buy back program and their stock tanked 3%. Are you kidding me? They are doing this so they can retain earnings to get them through the rocky roads that are still ahead. This is VERY WISE move on their part. Companies acting in a “business for these times” mentality are the ones likely to weather the economic storm we are in. I do not think we have seen the eye of the hurricane yet. I am putting a lot of faith in Obama and his team to help guide us through this storm. But, he has got to do so without just spending money we DO NOT have to spend. He must offset and drop other government program, even raise taxes in order to carry out his agenda. He needs to deal with social security and medicare. We all have our work cut out for us.

— keep looking »

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