money


I just read that the Dow closed below 7000 points today. Ouch. What makes it worse? That I am not in a position to add to my 401(k) anymore since I have been self-employed since Fall, 08. Dang it. All that missed opportunity . . .

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It is a fact. Women are judged more on their looks than men are.  Look around you.  Some of the fattest, baldest, most slovenly men are in positions of power in government, business, media, technology (especially technology).  But the opposite is not true.  Women have to look young and beautiful and fit, and even then may not be taken seriously.  The “local evening news anchor team” formula has even become a not-so-funny joke — the older, gray-haired, distinguished looking man at the desk next to the 20-something, fresh-faced, bright-eyed woman.  Both intelligent and articulate, but somehow a bit “trophy.”  I bet you have at least one of these teams in your city, too.

So, it did not surprise me when I heard that the RNC paid for a campaign wardrobe for Gov. Palin and family in order to polish them up and make them a bit less Cabela’s.  Our most celebrated First Ladies and First Ladies To Be have had some pretty swanky designers behind them – Jackie Kennedy, Nancy Reagan, and Cindy McCain (though I have no idea where Mrs. McCain shops, but she always looks fantastic).  So, looking good while on the campaign trail (and in the workplace) is a social expectation, not an option.

The difference is that Mrs. Kennedy, Mrs. Reagan, and Mrs. McCain had/have the means to pay for the expensive labels themselves.  When they can’t (or if they choose not to) they went/go out looking like Mrs.s Bush (either one) or Michelle Obama.  If shows like What Not To Wear tell us anything, it is that we women can look good and pulled together without spending a fortune on designer duds, as evidenced by Mrs.  Obama’s $150 dress that created a mini-sensation.

Additionally, Mrs.s Kennedy, Reagan, and McCain weren’t/aren’t peddling their Everywo/man credentials on the stump, either.  Quite the opposite, in fact – Jackie and Nancy quite brazenly put themselves forth as American Royalty – East Coast and Hollywood, respectively.  Therefore, their clothes and image matched their message.

So who was the Super Genius who handed campaign donations over to Niemans and Saks to try to perfect the Palins’ images when he should have hired someone who understood matching the image with their “I’m one of you” message?  Does this idiot know nothing about Branding?  I predict that Marketing and Public Relations majors all over the country will be doing their Master Theses on this one.  What a total screw-up.

Lots of talk of change in the air.  The Santa Fe weather has finally decided to turn into Fall.  In the last month, I have officially submitted my resignation from law school, performed as the lead singer of a band at a Santa Fe nightclub (a feat I swore I would never attempt), and I turned down what otherwise might have been a lucrative, stable job offer to open my own business and succeed or fail on my own terms.  All things to be talked about in another post on another day.

No, it is difficult to go on as usual without acknowledging the real economic problems we face this morning and the Chicken Littles who are determined to make everyone feel like the Apocalypse is just around the bend.  Talk of The Great Depression and “bank runs” and “global meltdowns” do seem dire, but we must remember the sources of all of these  – both the actual events and the people determined to remind us (wrongly) of them.

There is a building I walk through each day whose lobby is populated by a large security station and a very large flat panel television that is alternately tuned to Fox News, MSNBC, and CNN, depending on tastes of the guards on duty.  As I walked past yesterday, a voice caught my attention.  Lou Dobbs, CNN.  The market closed below 8600 points, and he was berating other financial experts on other channels who recommend that people hold steady in the market and ride out the storm.   “These people are insane!” he screamed. “It’s absolutely irresponsible!” he cried.  Frozen in my tracks, I watched this rant, mouth agape, for about 5 minutes.  He was advocating people panic, pull their money out of the markets, and then panic again, in that order.  I got mad.  This guy doesn’t get it, and he’s spreading his fear and ignorance to his viewing audience when he should be spreading information so that people can decide what to do for themselves.  So, let me fill in the blanks that Mr. Dobbs so effortlessly neglected to mention.

This Week’s Stock Market Crash in Real Terms, Part 1

Many people hear the cry of the NYSE trading at 8500 points and panic.  It was trading at 14000 points in January and now it’s lost over 5000 points!  But let’s look at what that means in real terms.

The stock market was trading at 8500 points in 2003.  2003.  5 years ago.  Not 20 years ago, or 50 years ago, but 5 years ago.  What I make of that is (A) 5 years ago wasn’t so long ago, and I’m still alive, so 8500 points isn’t the death knell that it is being made out to be, and (B) perhaps the 14000 point level was artificially high – pushed by the housing boom and easy credit – and we just experienced an unsustainable bubble, much like the bubble we reached in 2000 at the end of the tech boom.  People who “played” the markets then won big or lost big.  But those of us sitting on 401(k)s until retirement 30+ years in the future didn’t lose a thing.  It was Play Money to begin with.

The Lesson: Unsustainable increases (and decreases) in market values tend to self-correct over time.  This is not a cause for panic.  Consider it comfort for what is to come.

This Week’s Stock Market Crash in Real Terms, Part 2

As of this morning, I have lost 38.8% of the value of my 401(k) since Jan. 1st of this year.  It will likely go lower today.  But let’s look at how my 401(k), which is probably much like your’s, breaks down.

I am young and I invest aggressively.  I am in 100% stocks spread evenly over foreign, contra, and large/mid/small cap domestic funds.  I have 12% of my paycheck deducted pre-tax and shoved into my retirement fund, my employer matches up to 6% of my salary.  Over the years and as my account grows (or doesn’t), I get all sorts of bonuses – growth of the shares I own, dividends that are reinvested, interest, the works.  So, I figure that my current fund is now comprised of about 60% my money, 30% my employer’s money, and 10% “other” from the reinvestments.  In this light, if I have “lost” 38.8% of my account’s value, then I am still playing with someone else’s money – a combo of my employers and dividend money.  My own contributions, so far, have remained untouched.

But then let’s look at the number of shares I own.  At the start of Jan. 2008 (End of Quarter 4, 2007), I owned a combined total of 195.071 shares in my various fund groups.  At the end of Sept. 2008 (Quarter 3, 2008), I owned 588.999 shares.  With this current market sell off, I will own more.  Granted, I will own more shares of stock that is worth less than it used to, but when the stock market kicks into gear again (oh, and it will, believe me), I will be well positioned to make a small killing.  Buy low, sell high.  Those people who are pulling out of the market (and are many years away from withdrawing the money) are engaging in the equivalent of buying a house at the peak of the housing market, watching house prices fall, panicking, and selling their house when the market is the lowest.  It makes bad financial sense.

The Lesson: If you are many years from retirement, sit on your hands and do not touch your retirement accounts (except to go “riskier” and reap the benefits a few years from now).  If you are close to retirement, you should not have had your life savings in the stock market to begin with.  Pull out now and put it into cash and low interest bonds until things start settling down.

The Current Market Crash and the Great Depression

Comparing the current market crash to the Great Depression is my favorite scare tactic of the current popular press.  Most of us learned about the Great Depression through our history classes, through iconic images of men in suits standing in bread lines and women sweeping porches of ramshackle homes on the cover of Life magazine, and through the lovely writings of John Steinbeck.

What did you learn about the causes?  Do you remember?  Probably something about a stock market crash in 1929 putting an end to the flapper era and everyone losing their jobs.  Oh yeah – and WWII got us out of the Great Depression.  Stock market = bad.  War = good.  Right?  Am I close?  If I am, it’s because these are the lessons that I remember, too.  That is, until I did some investigating into the causes of the Great Depression when the 9/11 attacks were threatening another Great Depression.  This is what I learned:

  • The Great Depression was caused by an awful lot of factors – corporate greed, government incompetence, public panic, large personal and commercial debt as a result of free access to easy and abundant credit.  Sounds similar to now.
  • The US economy was primarily a farming (commodities) and manufacturing economy in the early 20th century.  These two sectors rely on massive reserves of human capital (i.e. labor).  When these sectors are hit, they lay off a lot of people.  During the height of the Great Depression, unemployment was about 30%, made up mostly of laborers.
  • US farming was hit by a massive Dust Bowl era, brought on by a drought (though no more severe than was typical for the region) and poor farming and land management practices.
  • The US economy operated on a gold standard, which severely limited the ability of money to change hands and to compound.
  • As a response to the economic downturn and resulting belt-tightening across the nation, the government instituted a number of disastrous reactions, which included (among others) placing higher tariffs on exports, resulting in a backlash of foreign country-raised tariffs on US goods.  This served to slow both international trade and the potential for the US to sustain the flush of international money it enjoyed during the Industrial Revolution.

My conclusion was and is that the conditions that created the Great Depression of the 1930’s simply are not evident today.  Our economy is more diverse (including the advent of the “knowledge worker”); technology and industrial diversity has lessened the effect of any one industry’s collapse on national unemployment rates; and regulations and programs put in place after the Great Depression (i.e., Social Security, unemployment benefits, and Welfare), though imperfect, ensure that a great many out-of-work citizens continue to have a certain amount of buying power that slows, but not halts, the economy.

Under these circumstances, the cry of the next Great Depression is greatly exaggerated.  I’m not saying that another Great Depression couldn’t happen in some other fashion, but current comparisons of our current situation to that which happened almost 80 years ago is disingenuous at best, and fear mongering at worst.

The Lesson: People who try to scare you want something from you – your viewing time, your vote, your money.  Be smart.  The internet is a wonderful tool for finding truth.  If something doesn’t sound right (or is morbidly calamitous), let your fingers do the walking and find out the real truth for yourself.

We all need to remember to breathe.  While it may seem that the sky is falling, look up, trust your eyes, see that it is still blue up there, and take a deep breath.  Altogether, now:  Inhale.  Exhale.

With the 2008 Presidential campaign racing at Formula 1 speed and the current financial crisis at space shuttle speed, I think it’s time to review a book that I read over the summer, titled Where Does the Money Go?

Where Does the Money Go? is a layman’s guide to the US Federal budget by the non-profit, non-partisan group Public Agenda.   Now, I am not ashamed to admit that I didn’t know much about the federal budget before I picked up this book.  This book, though, made me realize that not only did I know nothing at all, but I truly believe that most people who speak in words of “entitlements” and “appropriations” and “government waste, fraud, and abuse” don’t really know what they are talking about, either.

In plain language, the authors carefully step through the government spreadsheets, explaining what each type of expenditure means to the average American and raising the issues and controversies surrounding the financing or elimination of the major government programs.  Some things that I learned:

Social Security, Medicare, and the Gigantic Pickle We are In

Together, Social Security and Medicare are a big problem.  No, I don’t think I stated that accurately enough.

Social Security and Medicare are a BIG PROBLEM!!!

First, because, today, they combine to make up about 30% of the budget.  Second, because they are entitlement programs as opposed to needs-based programs – you reach a certain age, you automatically get the money.  No questions asked.  It doesn’t matter how much money you already have in your personal coffers or how long you have been paying into the system; you get a check from Uncle Sam anyway.  Third, because the Baby Boomers (the largest generational population) are coming of age, average life-expectancy has risen, more medical care is needed as people age, and medicine in general is getting more sophisticated and expensive. It doesn’t take a genius to see where this is going.

Currently, there is a collection surplus to pay for all those drawing Social Security (due in large part because the majority of Boomers are still in the workforce). The real problem is that the surplus is supposed to go into a separate account so that there is money for the rest of us when we need it. However, for the last 4 decades, the government has borrowed from this SS fund to pay for government overruns. “Borrow” typically implies that someone will end up paying this all back. Not so. The government has been using the SS surpluses as part of general operating funds for the better part of 40 years. The SS fund, in large part, has been paying for our excesses.

It occurred to me this way – Gens X and Y are screwed. I will likely pay increased taxes into a system that I will likely see little benefit from.  At the same time, I will be saving and investing money into retirement accounts that I have (cross my fingers) diversified enough so that the money will grow large enough to live on, but be protected enough in case the kinds of major investment emergencies we have seen lately come to pass again as I inch closer to retirement (home prices falling, my 401K losing 21% of its value, as of this writing).   I will likely delay my own retirement until well into my 70’s, perhaps my 80’s, to be able to support myself.

In a strange twist, immigration could help us with this Social Security crisis. New workers coming in and having their wages taxed would infuse a “false generation” into the mix.  But immigration is even more controversial than SS, and it won’t solve all of the problems. A solution must be found and soon!

The Appropriated War on Terror

The current War on Terror is not being funded by the federal budget, but by appropriations.  Therefore, it doesn’t even show up in the general budget as a line item or category.  Appropriations and spending are generally tracked by the Government Accountability Office, but even they have a hard time following the many breadcrumbs that can give them a clue into how much we have actually spent in Iraq and Afganistan.  If we are so committed to the Global War on Terror, we’d better be truthful with how we plan to allocate money for this — or stated more bluntly, what we have to cut in order to pay for this.

The Old Waste, Fraud, and Abuse Lie

And we can’t “eliminate government waste, fraud, and abuse” our way out of this, either.  Working at a government agency, I see some waste, no fraud, and very little abuse.  The waste and abuse that I have seen, and that has been widely reported in the news media, amounts to tens of thousands of dollars – bad yes, but a drop in our $2.2B annual bucket.  Most of the people I work with take their jobs seriously and care about taxpayers money.  They talk openly about it in meetings and such.  It is often the rally cry for some mucky-muck who is trying to kill another mucky-muck’s pet project, so we hear about “safeguarding the taxpayer’s money” a lot.

If my experience is true across most government agencies, then I feel secure in the authors’ assertion that there simply isn’t enough waste, fraud and abuse committed within government agencies to make up the annual deficit, much less the $9T-and-counting debt.  Counting money in the thousands at this level is like losing pennies in the washing machine.  Yeah, if you collected enough of those pennies, you could probably buy yourself a nice cup of coffee over time, but you’re not going to save enough spare change to buy yourself a house on the coast or a nice 30-year retirement.

This week’s news of a potential $1T bailout of the financial markets is a much more disturbing development in the waste-and-abuse argument, in my opinion.

No Free Lunch

As you hear things throughout this campaign about fiscal reform, about how the candidates are going to expand or start new programs to help people with their credit or mortgage problems, bail out corporate giants so that the entire global economy doesn’t collapse, take care of our seniors (and eventually ourselves) by securing Social Security and Medicare, protect pensions, stay in Iraq, consider military action on Country Di Jour, etc., while simultaneously cutting taxes, be very afraid.

Basic checkbook balancing principles are in play, here.  If you don’t have enough income and you have bills to pay, your choices are to:

1. cut back on spending
2. earn more income
3. borrow money from lenders at interest

That’s it.  Don’t be duped into thinking we can heal the federal budget by cutting, say, the National Endowment for the Arts ($300M) or NASA ($20B) or by cleaning up your favorite wasteful government agency.  With an income of $2.66T, expenditures of $3T, and a debt approaching $10T, we are up a creek if taxes (in one form or another) are not raised.

In a nutshell, buy this book and read it before election day.  It is an easy read, it brings up issues that you probably haven’t thought of, and will expand your knowledge of the most basic and most primal government power so that you can follow the discussion and know when a public official’s idea is full of crap.

A commercial caught my attention last night that I had some time today to investigate. It started out as a typical political ad about how we are too dependent on foreign oil and that we need to do something about it, blah, blah, blah. Then, a curious thing happened. The ad started talking about wind farms and solar. Not in the typical political ad style – the “We need to invest more in renewable energy to keep American safe” crap, but the “I actually have a plan and am gonna tell you what it is” type. As the ad went on, I was waiting for the punchline, “I’m T. Boone Pickens, (party name) candidate for (political office) and I approve this message.” It didn’t come. Intriguing. What’s that all about?

Well, it looks like Mr. T Boone Pickens is a wealthy Texas oil man who is starting his own campaign to reduce the amount of oil we import. In essence, his plan calls for the installation of wind turbine fields in the center of the US to generate clean electrity. With all of the wind-created electricity in the grid, we can then divert the Natural Gas used to make electricity into vehicle fuel, thus displacing much of the foreign oil needed to power cars. Pretty simple concept. He’s got nice videos describing the plan on his Media page.

A couple of hiccups for me:

  • He’s a rich oil guy — so what’s in it for him? Seems to me he’s trying to diversify his risk by becoming an important early player in the wind-farm market. Nothing wrong with that, per se. A businessman’s gotta make his money. But if he is spending his own money to recruit me to lobby my congressional leaders on his (plan’s) behalf, doesn’t that make me an unpaid chump in his scheme to make a lot of money for himself?
  • And if I am being a chump, how can I tell? His plan seems pretty common-sense. Simple, really. But there’s the rub. Energy policy is rarely simple, so this whole thing makes me suspicious of the motivations.
  • Another thing to be suspicious of his motivations — he’s a big-time, big-money contributor to good ol’ G.W., and a Swift Boat basher of John Kerry. Not that this should make any difference related to his ideas about clean energy. However, it is another Red Flag that this guy might not be all sweet and concerned as his ads make him appear.

I’m going to keep looking into it, but so far trading wind for natural gas for oil seems like an idea I can get behind. In theory, of course.

I just found this article, Why Cars Don’t Get 50mpg, and I love it because it finally answered a lot of questions I have had for a long time about vehicles and gas mileage.

When I moved from California in ’99, I was moving from a very progressive, college town (Davis) with lots of bike paths, good public transportation, and easily rollerblade-able streets and sidewalks. Very few people had trucks (no need), and most drove small cars. Even in Salinas, the only ones who really had large trucks were farmers and ranchers. My brother had a Chevy S10, and my dad had a small Toyota pickup for a while before he started upgrading to Silverados.

So when I moved to New Mexico, I was shocked at the size of everyone’s vehicles. Next to Texas and Wyoming, I’m sure New Mexico could be dubbed “The Land of Big-Ass Trucks and SUVs.” There are a lot of unpaved back roads that a good portion of people live on, and it does snow in the winter, so I kind of understand it. But still. Not so many people “need” these vehicles as much as they “want” the vehicles as status symbols. Brent’s Saab 93 and my 1998 Chevy Prizm were out of place.

Brent has since moved on to a 2004 Toyota Tacoma 4WD (the smaller body style) which gets about 23 mpg on a good day. I still have my Prizm, and I reliably get 36 mpg. Our daily commute takes us 44 miles each way, with an up-down-up elevation change from 7200 ft to 5800 ft to 7300 ft. It is literally uphill both ways. Also, the lack of oxygen at this elevation slows my car down (it runs like a dream on AZ highways) and makes me use more gas. In the summer, we take my car to work, and in the winter (mostly when it snows) we take the truck. So we often think about what I would get to replace my car when it starts to show its age.

My problem with the cars on the market right now is that the gas mileage all sucks. Why would I trade my paid-off, 36 mpg commuter for, say, a Toyota Prius that only gets 48 mpg City (lower on Highway because the electric motor doesn’t kick in once it’s over a certain rpm)? Plus, I’m a total chicken when it comes to driving in snow (and around here, all the cars “grow” when it snows, so crappy roads + ginormous trucks all around me = Me stressed out), so I would prefer to replace it with a 4WD/AWD. Something like a Toyota Matrix AWD would be perfect for me — but not at 26mpg. Nothing is quite good enough to convince me to sell my car and take on a car payment again.

Then the argument starts.

Me: Why can’t car makers just build a car that gets 50mpg, is safe, is AWD, and has enough room for a 5-gallon tree?

The Engineer: Because the car would be too heavy.

Me: You engineers are lazy and overpaid. Just figure it out!

The Engineer: The laws of physics only allow for certain things, so the heavier the car, the more power it needs, the more energy it needs to make the power, etc. And safety features and AWD are heavy components. At some point you start hitting diminishing returns.

Me: That’s total crap. They send people up into space, but they can’t figure out how to make a commuter vehicle with everything I want with low mpg and a reasonable price tag.

The Engineer: Yeah. And one space shuttle mission costs over a billion dollars.

…. And so on. So, I refuse to buy a new car until (A) I get everything I want, or (B) my car gets totalled and I’m forced to buy another (probably a Prius). In the meantime, I have decided to spend the cash to get the engine rebuilt if it comes to that, instead of buying a new car that will not ever be quite what I want.

Update, 10 minutes later:

I found this article on “the car of the future.” The cosmos and I must be temporarily in sync. Thought I’d pass it along, too.

In my continuing effort to more properly understand the financial markets, I have come across two articles about printing and minting money – which, admittedly, have no financial-advice value but are awfully fun to read.

The first is an exposé of the cotton paper industry lobby successfully pushing their pro-paper agenda on the unsuspecting public, against all sanity and reason, when everyone knows that it is more cost effective to mint coins that will be in circulation longer than a dollar bill and we won’t have to worry about bill rejection from vending machines and car washes.

The second is a rather upsetting story about how the US penny ain’t worth the metal it’s minted on. Upsetting because the Canadian dollar is a coin and it is still worth more than a US dollar… damned Canadians…

Oh, it’s ON!

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