Easy Change

This weekend, Donald Luskin had an interesting and compelling piece in the Wall Street Journal that forecasted the impending doom to stock and bond prices were we to see the adjustments that are slated for the end of the year. I encourage you to read Donald Luskin 's piece to see if you agree with him. Then come back here....its ok. I will wait. For me, what is most interesting about this piece is not the doom-and-gloom scenario that Luskin is talking about. Instead, it is about what to do next? I recently found myself wondering what the correct next course of action would be in light of such a decline and how I might reduce risk to be better positioned. I am fortunate enough to be in the high end as far as US Household Income is concerned and measured. And of course, these numbers change all of the time and there is very little certainty about things. So, the question becomes, if you are lucky enough to be well positioned, you have more to lose if you're sandwiched. Of c...

In this, the great recession that we're slowly (arguably) coming out of, I have realized that there is quite a bit of opportunity for us to learn about ways to make better lives for ourselves by leveraging new movements and ideas (some of which are really just re-made ideas from the past). Two ideas that are really worth considering, in my opinion, is the idea of "timebanking" and "CSA". Both of these ideas were covered as part of a documentary that aired on "Now On PBS" titled "Fixing The Future". While these were only two of the ideas covered, I think it is a good short documentary that gives some hope to the somewhat difficult mess that we're in as a society. The first idea that might help us is the idea of "timebanking". Timebanking is a system whereby you donate your hours into a shared pool with lots of local members and then are able to get a comprable portion of time from someone else. This is sold as an item that builds...

I'll confess, that now, as we are easily in the midst of a down economy (some would say we're coming out of it), it is easy to become somewhat down. For me, this has not been a simple matter of just putting my head down and becoming more of a hard worker. Instead, this has made me realize a few things. Perhaps you have had these observations as well, in which case this will be somewhat of a confirmation of your ideas. First, this economy hurts more than just the people who have lost their jobs. In many ways, this down economy hurts the people who still have jobs in several ways. First, in families that are usually dual income homes, there may be a sole bread winner now. This adds to the stress for that individual where there is fear that there could be a job loss. Second, in all situations, there are people who are still working at some companies where there have been layoffs etc. As a result, there is just as much work but fewer people to do it. In fact, due to hiring freezes ...

So it is a new year and with each new year there is a new opportunity for change and improvement. I'm actually guilty of being quite optimistic. This past year, the economy was the main story, hands down. But I'd like to say that I think that things will look better in 2009. And even more than many people, I think that we're going to be quite pleased by about 6 months through 2009, sometime in the summer. I need to be very clear that I have nothing other than a hope and a prediction, no real solid evidence. It's just my feeling. The amount of wealth destruction that has happened as the global economy has deleveraged is staggering. So, I think that as we begin to add leverage again, we're going to realize that it was not quite as bad as we thought it was. I'm very specific in why I feel this way. I think that most people want things to go well. That is, I think there's more optimists than pessimists overall. And I think that despite the increased unemployment...

You'd have to be living under a rock at this point to be unaware of how scary the situation is with the global economy. That's right, GLOBAL. Even though we like to segment our countries into developing and developed...and give them even fancier names like 'frontier', the reality is that this current situation shows just how coupled all of the world's economies still are. The big concern for many at this point, and many of the government officials is the fact that the credit markets are not yet flowing. Instead, all of the money is being locked up nice and tight at banks and they are not lending. In the end, I am interested in considering prosper and some of the other peer-to-peer lending sites. In the event that these banks do not open up lending, we will be in a severe recession quite fast. But for the average person, there is a genuine concern that there might not be enough money for their boss to get enough cash to make payroll, or that there might not be money...

So, tonight on my way home, I needed to get some gas. I pulled in off the highway and stopped at a small gas station and figured I was in for a good 45 bucks to fill my tank. I squeezed the pump and let my mind wander and then the pump popped because the tank was full. I hung up the pump and looked at the price and was shocked. It was less than 40 bucks to fill my tank. Normally, when you pay less for something, it is a thrill. And I was quite pleased as I pulled away. The annoyance only came once I realized that I was so happy. I was completely snowed. After months of paying higher gas prices -- prices that were around four dollars per gallon -- it felt great to pay 3.60. This is not a blessing or a deal though. This is still painfully expensive. And I don't think that these temporary decreases in price are a very good indication that we'll have cheap fuel for long. I'm with other people that think that our heating bills this winter will be significantly more than we had p...

So, its been a while since I've written anything and I think it is interesting to start looking at some macro ideas. I'd like to sum up a couple of conversations I've had recently about the economy. With a friend over the holidays, we were discussing the economy and people were asking me what the best thing to do was. I told them that I thought that the time to "prepare" and "react" to this situation is long since gone. People that are leveraged in investments or real estate are going to have a hard time unless they have liquid cash to weather the storm. An emergency fund is key here and most people don't have serious free cash flow to save money right now, especially with the cold winter and holidays coming up. So, the takeaway for people in trouble is to do the same old boring things: 1. Build an emergency/freedom fund to handle these lean times that we're in. 2. Cut spending and increase earnings so that you can have a good "cushion"...

I just read this entry ( http://www.iwillteachyoutoberich.com/blog/an-annoying-email-i-got ) over at I Will Teach You To Be Rich and I think that it is brilliant. So many people I know never save up before they get luxury items. This is a fundamental difference from those who are "into" personal finance versus those who are not. The quote and concept and explanations that Ramit points to here are the core of people who are serious about personal finance and those who aren't. Over the past two years I've become quite addicted to personal finance. I really like knowing where all my money is going, and what it is up to. Did it stay out past it's curfew, is it getting into trouble with the neighbor's money etc, etc. The bottom line is that for many of us, our wealth just isn't high on the priority list. Instead "paying the bills" is important. Or perhaps even "getting a better paying job" is important. Small things don't really matter....

Well, the payoff's finally complete. With the advent of electronic banking, I've been paying many of my bills using my bank's online bill pay. I like the convenience of knowing exactly when the amount is going to hit my account. This is easy to plan since most of my bills that are paid this way are actually paid as an electronic debit instead of a check. However, for some institutions this might not be possible and therefore a check will be cut. So, for your situation, mileage may vary on online bill pay. But when it comes to my student loan/credit card payoff which happened this week, it is a great feature. I scheduled the payment and I knew exactly when the money would hit my account. Now the bill is completely paid off and has given me even more wiggle room in terms of my measurement of free cash flow on a monthly basis. The key here is what to do with the free cash flow. Currently, it appears that I will be doing some sort of a three-way split with the funds. I plan on ...

Check out this article about the war in Iraq. http://www.examiner.com/a-953145~Bush_quietly_advising_Hillary_Clinton__top_Democrats.html I'm interested in how this goes because there are a ton of factors to consider in terms of the economic ramifications with regard to how the war goes. This morning I learned that the president will be seeking an additional 50 Billion on top of the 150 Billion already slated for Iraq for this fiscal year alone. From a mutual fund perspective, this is quite interesting. I know that many of the mutual funds that invest heavily in Aerospace and Defense have done quite well as a result of the Iraq expenditures. In fact, I know someone who has seen gains of close to 30%. This is amazing stuff really. But if you are addicted to those gains, its best to keep an eye on the ball in terms of what is going to happen in Iraq. It appears that Bush is trying to advise the candidates that there simply might not be an easy way to flip a switch and be out of Iraq i...

It still is amazing to me in this real estate market that things are still doing as well as they have been over the past few months (the last couple of down days in the market notwithstanding). Here's what I've been thinking about. The problem, as I see it, with many people is that they bought more than they can afford. Surely, if you can barely afford your 'monthly nut' when it comes to your mortgage, it is going to be a bad scene for you when other expenses creep in like increased property taxes or an accident or a sudden layoff or medical emergency. Regardless of the nature of the emergency, it is important to realize the importance of common sense when it comes to purchases. Remembering that the nature of our capitalist economy (which I happen to like, thank you very much) is that people are going to be making money during every transaction. If they aren't, they won't last long. When you buy a car, you get hit up by the sales guy for sales (commission) and t...

One of my pet peeves lately is the idea that the economy is doing so great because of the low inflation rate. Core Inflation is hovering around 2.2 percent and that is being heralded as great news with regard to the overall economy. The problem, as I see it though, is that the inflation that I feel in my monthly/yearly budget continues to increase at an alarming rate. As a simple exercise, I've been tracking all of my expenses for the past year and a half. My household food expenses were averaging somewhere around 200 dollars per month about 1.5 years ago. However, now, the average is often closer to 325 per month. This means that there is a significant increase in the price of food. This is about a 35% increase. Thankfully, food is not the big expense in my budget, but it is getting to be that way. If it continues to creep up at this level, by the end of 2008 I will have a monthly food budget of about 440 dollars per month. Unfortunately, I have not been tracking gas expenses, ...

Since I am relatively new to investing in plain stocks (my investing before this has been exclusively in mutual funds via my 401k retirement account), I have never encountered anything like this before: Today I received an email offering a purchase of my shares in HD. Granted, I don't own many shares of it so I have no intention of taking up this offer, but I still find it quite interesting that I've never really heard of this before.Here is a partial copy of the email I received. <snip> Below is information regarding a tender offer for your holdings in "HD".  This offer expires on 8/16/2007. THE HOME DEPOT, INC., A DELAWARE CORPORATION (THE "COMPANY," OR  "HOME DEPOT"), IS OFFERING TO PURCHASE AT A PRICE NOT GREATER THAN $44.00 PER SHARE NOR LESS THAN $39.00 PER SHARE, NET TO THE SELLER IN CASH, WITHOUT INTEREST (IN INCREMENTS  OF $0.25). </snip> The rest of the email is information explaining how to take...

I read... this story this morning about how the big shots in Washington are looking to change the way that taxes are handled for the managers of large hedge funds. I find it to be pretty interesting when you start thinking about it. Certainly it is tempting to simply say that since these people are rich, and they can afford it, lets tax the heck out of them. However, I think that this kind of thinking is a mistake. I studied Economics in college and found it fascinating since the beginning of my studies. But when I read this story, some major red flags popped out for me. If you take the tax break away, you certainly will be getting more income in the short term. However, my gut tells me that there will be a long period of lost money in the long run because less people will want to continue doing business since it is not as lucrative. This will ultimately result in less revenue. Furthermore, many of the ultra smart, ultra rich people will have smarter experts that will still find ways...

Most everyone is aware of how the markets tanked last week and now are somewhat struggling. I am still checking my 401k every day or two and I am not really doing anything much as a result of the markets, but I am keeping an eye on things. So, the big question for me right now is, do I believe Greenspan? Greenspan was in asia not long before this whole market downturn happened and he said that there could be a recession this year. Of course, for some people, even the faintest whiff of recession can make them throw the baby out with the proverbial bathwater when it comes to investing. So a selloff was not exactly rocket science. Similar to other downturns, many of the trades were automatic as a result of stocks tumbling down to preset levels etc. But, here we are and now the market is just sort of going up and down a little like a fishing baubble. All that said, an article I read on MSN money was interesting. http://articles.moneycentral.msn.com/Investing/Extra/GreenspanVsBernanke.asp...

If you follow financial news, you are noticing that there is tremendous focus lately on inflation and the potential impact on our economy. The fact is, with gas prices increasing and other items' prices increasing, real inflation is higher now than it has been in recent years. And (almost) everyone is starting to feel the pinch. What many people are not considering with regard to inflation is the fact that the rich are not getting hurt by it nearly as much as the average person. Most of us have under 500K in total assets. People with fewer assets are accumulating less wealth than the people who have more substantial sums. In simple terms, rich people can afford the inflation. If inflation increases from 3% to 4%, the power of the assets that are accumulated by everyone does decreases. However, the rich don't worry about it. If they have 1 million dollars, each year, if it were invested in the stock market, these people have approximately 100k in income. This 1% increase means...

Minimum wages were recently increased in Massachusetts. The increase was passed by a democratic majority legislature. And yet again, in my opinion, this will decrease the amounts of money available for the middle class but not actually help the poor. Read the article from the Boston Globe about it here Often times, people think that more money is the solution. In fact, there is even a federal movement linking a reduction in Estate Tax to minimum wage increases. Linda Basch writes an interesting opinion article on this topic for those interested. But since this is my blog, I am worried about myself first. And what I can see is the following: As those with a lower wage get a hike of anywhere from 15-20% over the next two years, I will likely only get a total of about 6%. Granted, my salary is not close to minimum wage, but the strict size of the increase isn't all that worries me. It is the impact on prices. Prices are already in sky-high. Some say this is due to oil prices. And som...

Even though we hear over and over in the media, we, as Americans are still charging up a storm. According to a recent Federal Reserve survey, the median balance on Credit Cards in 2004 was 2400 dollars. This does not bode well. This means that many people are losing 240 dollars or more annually, just on credit card interest payments. There are some bright sides to the survey though. Only 3% of all debt is Credit Card debt. This means that what is often termed good debt: mortgages and college, are much larger amounts. This is important because mortgages are debts that have an a tangible asset associated with them: real estate. In the event that these debts cannot be repaid, at least there is an asset that is available. Although the increase is somewhat concerning, it is not quite so large when you consider inflation and the fact that over 20% of credit card users pay off their bill each month. This means that many people are using their cards responsibly. The key to keeping our national...