My colleague and i were discussing the problem of the Fed rescue net. it started with the discussion of Bear Sterns. 

As we all know Bear Sterns had a bit of a rough time… oh that’s right they are gone in a fire sale. a spectacular bonfire that consumed one of the biggest firms we had in the US.  it is my opinion that Bear could have actually pulled this gambit off, but just too many people were betting against them. that is ok. that is how risk works. c’est la vie.

my issue is actually with the Fed coming in to bail them out. now that we bailed them out, who do we bail out next? everyone. the Fed has to, they lost the choice to say: you dug this hole, climb out on your own. now every company and financial institution that finds itself exposed to too much sub-prime risk, will feel that it is “entitled” to help from the government.

my problem: what ever happened to personal responsibility? why do we, the tax payers, end up paying for every person that chose to defy logic and buy a home that they couldn’t afford? if they couldn’t pay the debt, it was supposed to reflect on their credit score and hence, how trustworthy they are. now they don’t even have to learn the lesson that is supposed to come from being burned. they don’t learn, because they know that the Fed is the safety net, they will always be bailed out.

This is not to say that someone can’t help them. if another institution wants to help that is fine! that is great. but, the Government can’t do this. it is only prolonging our misery. we are a democracy! not a Socialist regime! WE are the ones paying for all of this, that is the thing to remember when the Fed bails these people out.

just shy of $1000 per ounce. holy crap. i have even used this to hedge some of my portfolio. but you always need to be wary of this commodity, it has an almost completely negative beta.  negative beta means that if the market goes down, it will go up. that is why there are all those commercials on late at night about buying gold coins. when the economy goes to crap (as is the current market trend) the gold goes up.

just remember, as with all other things, sell when it is high. don’t keep it past its “due date.”

i was in my car on my way home last night and heard a commercial on the radio. i immediately begin to change the station, as i always do, but stopped. why? because it is about the housing market in Utah. 

this ad states that “while many markets in the US are dropping, Utah is growing!” because Utah has a “strong” economy, with a high employment rate.  those are the reasons that the Housing market in Utah is still going up, while everywhere else in the US it is dropping like cement boots in the Hudson river?

i am not sure how i feel about that. you see… the US economy was doing well UNTIL the housing market tanked. and we still have an exceptionally high employment rate for the country. so how is it that Utah gets to keep up this charade that they are doing better? is this just the worst kind of self delusion? i think so.

frankly if even California prices are dropping then Utah should follow suit.  when a person can buy a 4200 Sq. ft. house in Houston, TX for $200k, and a similar house in Utah tops $300k there is a serious problem. a problem that needs to be addressed by some people of intelligence.  are the people in Utah so dense that they actually listen to these commercials telling them to buy new homes? on second thought… don’t answer that.

i see it as a very pressing matter for our economy to take into account all of the Baby Boomers that are going to start their retirement in the next few years.  the reason for this concern is this: most defined benefit (pension) plans are going the way of the dinosaurs.  they have been declining for years.  this means that most boomers’ retirement funds are in IRA’s or something similar. where do these accounts really keep the money? in mutual funds, that in turn fund the Market.

why is this a problem? well… i am sure that these retiree’s need to have money to live during these Golden Years. this means that they have to take money out no matter how low the market is. they don’t have the choice, they have to have the money, and make no mistake they are a significant percentage of the market.

so when they start this withdrawal, i am sure that we will be feeling it. so tuck in and hang onto your positions. reverse your thinking. fight against your worries. we will make it through this, just like all the others down times.

i just have to say that if you don’t understand how Social Security and pensions work then stop saying that they are broken or ruined.  they aren’t.

First of all Social Security was never really meant to last forever. next, they work sort of like an Annuity, meaning you pay into it for a certain amount of time and then when you retire (annuitise) they begin paying you.  the problem is not that they broke, but that we have to many slacker, lazy, free loaders, that think that they “deserve” this money.  if you aren’t over the age of 65. you shouldn’t get a damn dime! go get a job and stop being a social parasite! as bad as the economy may seem, there are still plenty of jobs. if need be go work at McDonald’s. they pay higher than you might think ($9.50/hour).

i am reconciled to the fact that i will not be receiving any Social Security Benefits. but it is not cause the system is broken it. it is because of too many people taking money out.  in the 50’s and 60’s there were 10 people paying into SS for every person that was withdrawing. now it is 2.5 people paying in per 1 taking a benefit check.

i think that this current generation (my generation, i might add) seems to be the laziest on centuries. please, stop stealing all the money i worked for and go get a job, learn what hard work is. besides, it builds Character.

the tax system of the USA is not that complicated. however, with all the upcoming elections and campaigning that is going on for the coming year, people have been talking about tax cuts.  yet, too many people have the wrong idea about them. so let us clear up the muddy waters and bring you out of the shoals.

here is a little story that i was told one time that i think will clear things up better than i can.

“Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59. 

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement until one day the owner threw them a curved ball. “Because you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33% savings).

The seventh now paid $5 instead of $7 (28% savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant the men began to compare their savings.

“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man, “but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more than I!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth man and beat him up. The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our Tax System works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.”

David R Kamerschen, Ph.D.
Professor of Economics
University of Georgia

so next time someone (read politician) tells you that you should be getting something for nothing, (insert free education or health-care, etc.) remember not to whine to the rich person about your plight. cause chances are, they already paid for your welfare check.

i should have learned many years ago when i just a little pirate, that the majority of people have very little logic… we are creatures of passion and emotion.  therefore, woe is me.

you see, in my (not anywhere close to) humble opinion, Google had and still has everything going for it. as far as i am concerned they will be the next Microsoft. no one can stop this juggernaut. so why is it that everyone is dumping their Google stock? i mean i know i spoke about the Yahoo! buy a few days ago, but you are killing me people!  Google is not going to be slain by the little old David this time. just like Microsoft is not going anywhere.  any of you that understand the markets know that the overnight market is loving the fact that all of you are selling.  large corporations have been buying up cheap Google… that is why, among other reasons, that i am hanging onto all of my Google

so as everyone scrambles for their stocks and securities in this “pending recession” i think to myself…. why is everyone selling?

historically the market has ALWAYS recovered. not one single time has it not… so there is no need to run for the banks as they did in the 1929 market collapse.  it is precisely during these times that you want to buy! i think of my favorite person in the world that is still currently alive, Warren Buffet.  the Berkshire Hathaway guru himself has made almost all of the money that he has by following this very simple rule.  “buy low, sell dear” if you are always putting money into stocks that are low. and you never sell unless you are making a profit then you should be doing perfectly.  of course this is simple to say but when you are dealing with your own money, how many of us can calmly and dispassionately look at our portfolio dropping and say… “lets put more money into it!” but that is exactly what i and Mr. Buffet would advise.

 So to help you in this most difficult of endeavors, i have a few suggestions.

one, always look for undervalued stock. by this i mean look for low share price with high PE (price to earnings) ratios.

two, listen to the news. if any of you have been listening for that last few weeks then you would know that Microsoft is thinking of buying Yahoo! guess what if you had bought Yahoo! 2 weeks ago… you would be up over 50%…

third, and lastly, remember that the stock market is a long run game. not a sprint. it will come up… it always does. just hold onto your stock and it will go up.

for 2007 we had a negative savings rate… again. that is 2 years running. maybe this is hard for people of intelligence to fathom. so in dumbed down vernacular, the average person spends more than they make. so they are effectively more poor this coming year than they were the previous year. isn’t that the antithesis of the “American Dream”? i mean come on people is this really a difficult concept? DON’T SPEND WHAT YOU DO NOT HAVE. if you can figure this out you will have an understanding of what i call the pirates first rule of finance. i know this seems easy, but just from our national savings rate we can see that not very many people understand it. get on the wagon train people, we are going west.

i think it is also of importance to point out that this negative savings rate is not including mortgages and car loans (though in many cases these may be the very problem) they are focusing on consumer debt. meaning money spent on none permantent things. like eating out and clothing.  

some of you may be asking: how do you spend money you don’t have… answer: the wonder of credit.

what is credit? very simply put, it is borrowing money from someone you don’t know, for specified return on THEIR investment. when you invest in a stock you are loaning your money to a company of your choice assuming you will receive a return. that is the same thing that visa and american express are doing. they are assuming you wont pay it all back in a that period. so they charge interest. that is the very definition of “risk” as far as i am concerned.  so the pirates second rule is this (you may have heard this before) “those that get it, get it. and those that don’t get it, pay it.” i truly hope this will sink in and work for your benefit.   

the bank pirate