financial odds and ends

Not a whole lot going on

I’ve been trying to not post negative blog posts, you know, the whole, “If you can’t say anything nice…” approach. The world’s financial outlook is depressing. Europe is looking less and less sound by the day, and our politicians are playing chicken with our debt obligations. Things could go just fine I suppose, but it’s looking more and more likely that there is going to be some pain coming up. Just to be on the safe side, I would hold a minimum of cash and money market funds right now, they could decrease in value quickly if things fall apart.

Enough global doom and gloom, I’ve got money issues myself. The car needs a rather expensive repair (my muffler was damaged and there aren’t any aftermarket ones) and I missed a day of work. SIGH. Wasn’t sure how I was going to take care of that, and then I remembered my savings in the form of Apple stock. Was hoping not to have to touch that, but I guess that’s what savings is for, right? Once I get this out of the way, I will be in a better mood, but man, it’s going to hurt.

Other than that, not a lot going on, working, eating, etc. Woohoo, do I know how to have a good time or what?

culture financial freedom

Debt makes the world go down

Greece is teetering on the edge of default. They are also threatening to take down Spain, Portugal, Ireland and who knows who else. Iceland has already gone through the wringer. Japan is in bad shape, even before the earthquake came around they were on life support. In addition to that, the world continues to be caught in the throes of a recession that won’t go away. Home prices keep falling. What is the common denominator between all of these things? Debt.

There is both private and public debt, but that line has increasingly become blurred. Governments around the world promise more benefits than they can afford. When the bill comes due, they raise taxes to try to generate the funds necessary. Is that public debt? When the mortgage crisis hit, governments were quick to rush in and take care of bad debts. Is that private debt? The European countries that currently have the biggest problems don’t have the excuse of costly wars to use. They were just going about business as usual when all of a sudden, they couldn’t afford it any longer. Other countries like France, Germany, the UK, and the US are hoping to avoid getting to that point.

Debt puts you in a precarious position. You might be able to keep borrowing in order to pay current bills as long as nothing comes up. But then there’s an earthquake, a housing bubble pops, or your lenders simply decide you aren’t such a good risk after all. The further in debt you are, the less it takes to really screw you up.


Living debt free, or even with a surplus is obviously a better way to live, but few want to do that at any level. There are too many incentives to go into debt, not least of all the taxation of income from investment. Put tax breaks for home debt and forced low interest rates and you have the perfect combo to convince people to spend instead of save. I think absent screwed up incentives, people would save more and avoid debt.

Would the governments? Not they way they are structured now. Politicians will always have the incentive to promise people more for their votes. The only way around this is to set limits. I would like to set limits on what the government is involved in, but I would be happy with setting limits on what it can spend. Balanced budget anyone?

Debt is bad, debt is dangerous. At current levels, it will also be a big burden on the generations to come. We need to foster a culture of saving, not of debt.

economics financial

Greece and the metals

There has been more and more chatter about Greece and its debt. Greece now has to pay 25% interest on 2 year bonds. That means that investors think there is an excellent chance of Greece defaulting on the loan. Why this comes as a surprise baffles me. When Greece initially had issues, they were given a load of money, talk about perverse incintives…


So why care? If Greece defaults, it will shaft its creditors and give them nothing at all. That means all of the institutional investors that were stupid enough to invest in Greece will have essentially thrown that money away. It looks like Spain, and Portugal have significant exposure to Greek debt, and they were already on shaky ground. When Greece defaults, it is going to be very bad news for the Euro. In a worst case scenario, it could spell the end of the Eurozone, if not the EU in general.

Greece has become the poster child of a place where people think that wealth originates, and flows from the government. All of the protestors don’t seem to get that the money has to come from somewhere, and that somewhere is people’s labor. There isn’t enough to go around, at least there isn’t enough to cover the debt that has been wracked up on their behalf. Even if there is another bailout, it will only prolong the troubles. Greece is going to walk away from its debt, and there is every chance that Spain, Portugal, Italy, and Ireland will too once the Greek default overburdens their banks. That’s what might kill the Euro, at least in the short term.

Over the past I don’t know how many years, the US dollar and the Euro have been the go-to currencies for investors and savers. The US dollar is not worth a heck of a lot these days. The political climate in Washington only points to more devaluation to come. If the Euro devalues, what is left? The Yen is a mess and there aren’t a lot of Swiss Franks to go around. The Ruble? The Yuan? The Won? Are you kidding me? All that will be left is the Pound, and we’ll have to see how their economic changes play out to see if that will continue to be a good refuge. It looks like the fiat chickens are coming home to roost, it would be best not to have any currencies as your savings as this plays out.

I’ll say it again, the metals are worthwhile savings instrument at this point in time.  Both the Russian and the Chinese central banks are loading up on gold. All of my meager cash savings is in physical silver. Yes, silver recently took a tumble, but it is on the way back up again. It is still over twice as valuable as it was late last year. If you do a little reading, the various gold and silver ETFs are looking rather suspect. At least the ones that don’t claim to have physical gold. There is a lot of “paper” gold floating around, but it isn’t clear that those certificates could actually be redeemed. They may be making claims on deposits that others have made claims on too. If you buy metals, buy the physical item. Gold and silver do fluctuate in value, but at least that value isn’t at the whim of central banks and government largess. That means quite a bit to me.



economics financial

Uh Oh

Following on from my last post, investors now see Estonia and the Czech Republic as safer investments than Japan. The financial markets are in disarray over there. Like I said before, this disaster is awful but they were in a precarious financial situation before. Some people will be tempted to call the financial meltdown an unfortunate consequence of the earthquake. The smart money says that they had made themselves pretty bad off before the earthquake, they were simply pushed over the edge. We’ll see how they handle this, we might need to take notes…

economics financial

Cautionary tale from Japan

The videos and pictures from Japan are unbelievable. Buildings and cars being tossed around, who knows how many people have been killed. The recovery is just starting and it could take a while to go back up and running again.

Japan has been in the economic doldrums for a decade and a half. They have continually tried to “stimulate” their way out of the mess only to find themselves with no economic progress and mounds of debt. They have been going along, just keeping a stagnant economy for a decade, and now this happened.

How often do we make a budget and tell ourselves that “This looks fine, as long as nothing comes up…” The thing is, something always comes up. The car breaks down, you need a new bed, you have to leave the country suddenly because of an insurrection outside of the city, you get diagnosed with MS, etc. A budget that is actually good will take into account the unexpected expenses. If you are just getting by and then something comes up, you could be in trouble.

Japan hasn’t been involved with any struggles against any “existential threat” that might endanger their country. They, like many states in the US, were simply going along doing what they thought was expedient to avoid certain short term pain. They had been up to their chins in debt, is the level going to rise over their nostrils now? This natural disaster has revealed just how shaky their economic situation has been.

We can learn a lot from Japan. The US economy is doing OK, not great, and there’s a lot of rot and underhandedness just under the surface. There will also be a lot of debts coming due in the near future that we are not prepared for. We’re skating by, but it wouldn’t take much to push us under. I doubt any, even large, natural disaster would do it, but maybe a big spike in oil prices could. The way things are going over in the middle east, it isn’t out of the realm of possibilities. The Saudi military is now in Bahrain, the US administration has had to go out of its way to claim that it isn’t really an invasion…. There could be any number of other things that happen, we’re in no shape to deal with them. This is why keeping debt down is so important on both a personal and national level. Having some surplus for just in case is just good sense. Spending everything you take in and then some leaves you vulnerable to any number of problems. We’ll see how Japan deals with this added burden, and I hope we never will be in their economic shoes.

economics financial


I’m just left shaking my head over what’s going on in Ireland. We all saw the financial meltdown coming, but now the government is falling apart at the seams as well. What’s scary is that we still have Spain and Portugal to go in Europe. Scarier still is who holds the majority of Portugal’s debt. That would be Spain…

What kills me is that there wasn’t anything unusual going on in any of those countries. There were no wars or any other thing that was threatening the countries, they just had a badly constructed financial industry and things went south. The fact that the fallout of bad financial dealings is bringing down governments is even more amazing. Whatever you think caused this mess, it is clear that the governments, and by extension the tax payers in those countries, were far too involved for their own good. The fact that the taxpayers had no choice points out the on going issues of political power and money interests.

Many people look at what’s happening and yell that this proves that there needs to be more regulation, that the government needs to be more involved. It’s clear to me that the governments were too involved, that in their efforts to prop up politically connected groups and/or attempt to stave off the suffering that was going to occur because of the issues, they took everyone down with them. What isn’t clear to me is how having more government involvement will stop this from happening again. It seems to me that if the government tried to minimize the exposure to the problems, fewer people would be involved in the fallout. At the very least, the people directly involved would feel it more keenly.

I really hope that we aren’t seeing our future in Europe. On a national scale, we are in bad shape financially, we are going deeper and deeper into debt and we have ballooning liabilities in the form of medicaid and social security. Things on the state level look even worse. California is a leading indicator, but there are plenty of states that have unfunded liabilities well beyond what the taxpayers can pay. We will see what the future brings, but I’m afraid that too much central planning by the Fed, not allowing debt to be removed via deflation, and continued spending does not bode well for us. Let’s see how the PIGS countries fare. Even better, let’s see how the countries bailing out the PIGS countries fare. What are the odds that any of these places (including the US) will actually reform the relationship between the banking system and the national treasury such that a downturn doesn’t cause massive, system-wide collapse?

economics financial


I promised a separate post on outsourcing, and here it is. I started to think about this a little more carefully in the context of income disparity. Outsourcing was the one thing I could possibly think of where someone in the top 1% could benefit at the expense of someone else. I do not believe that outsourcing is responsible for the numbers I have seen thrown around when it comes to middle class wages and I’ve come to the conclusion that even if it was responsible, it wouldn’t bother me.


I’ll start out by admitting to something that isn’t all that popular. I am at a loss as to why an American worker deserves a job any more than anyone else. Outsourcing doesn’t cause the loss of jobs, it causes a shift in who has the job. Most of the outrage over outsourcing really boils down to who they think deserves a job. I’m not going to pass judgment on that, certainly not from so far away. I will point out that phrases such as “They can’t compete,” should explain why outsourcing is done at all…

Anyway, if outsourcing is responsible for the 7% or so that the middle class’s wages have supposedly gone down in the US, it’s only fair to look at the increase in wages in other countries that outsourcing is responsible for. If you look at the countries most closely tied to outsourcing, India, China, Vietnam, etc. you will see an unambiguously positive rise in wages over the last 30 years. Those wages have gone up much more than 7%. This is why I’m not so worried about outsourcing in general. People were employed and products were made at lower costs. Some workers were made worse off, some were made better off, everyone else benefits from lower costs.

Is there a moral aspect to this? I dunno, it’s difficult to parse this stuff out in general. Yes, people here in the US lost their jobs. Of course they could just have easily lost their jobs to machines. On the other hand, other people got jobs and had their wages go up. Someone else could have made money on all of this, but not necessarily. Many things were outsourced just so the company could stay in business.

Bottom line is this, to complain about a 7% drop in wages in isolation to the rest of the world is a bit short sighted. In any case, I gave some other reasons why, if wages did go down over the last 30 years, it probably isn’t due to outsourcing and isn’t that big a deal anyway.


economics financial

And even more income disparity stuff

So I’ve been trying to say that the top 1% income earners aren’t by default crooks, and I’ve even tried to say that it’s no big deal if over the past 30+ years the top 1%’s incomes have gone up dramatically while hourly wages have gone down by 7% or so. Keep in mind, I’m not too sure of those numbers, but I’ll take it for granted that they are right. What could I possibly think would cause that and still be OK with it?

I’ve been trying to think about what the top 1% of earners could do directly that would cause their incomes to go up AND for folks beneath them to have lower salaries. The only thing I can think of is outsourcing. I am going to set that aside for a moment, I’ll do another blog post on it. It requires a bit more thought than I want to dedicate in this post.

Ok, so what’s an alternative story? It’s in two parts. First, what has changed in the last 30 years that could allow someone’s income to grow so much? Globalization. If you were a corporation, athlete, or author in the US in 1976, how big was your possible customer base? 200 million? 300 million? These days, it is closer to 3 billion. Not only has globalization allowed products and services into more markets, there are now many more people that can afford to buy things than ever before. The last 30 years have seen tremendous gains in Eastern Europe, Latin and South America, Africa, South Asia, and especially eastern Asia. People tend to think of things like cars and computers when they think of selling to other countries, but things like Clorox, condoms, cigarettes, soap, clothes, books, entertainment like sports, and gas have been exploding in popularity all over the world.

When you have markets that large, there are going to be vast sums of money involved. People involved in providing products and services to that many people are going to make a lot of money. How many customers does a big international company like Clorox or Exxon have? How many does a plumbing company have? You see where I’m going? The plumbing company (or just the plumber) could be doing just fine while his neighbor down the street could be making millions selling widgets worldwide. That’s a big income discrepancy. I do think a lot of the discrepancy results in comparing jobs that have very different ceilings when it comes to profit potential.

There are more companies doing business worldwide, or manage the money of people that do business worldwide, and that’s going to lead to more money for those people. Most professions do not allow you to make a killing, but that does not mean that the ones that do are bad.

Ok, what about the other end of the spectrum? If the top 1% aren’t causing wages to go down in real terms, what has? I think a lot of it can be explained with a single word, immigration. how many immigrants have come to the US in the last 30 years? I have no idea, but I’m sure it’s a lot. here’s the thing about averages, they can be thrown off by enough data points being added to the pool. If we take the average immigrant over the last thirty years, I think it’s reasonable to assume that they make less than your typical American when they first show up. If that’s the case, it is also likely that they have brought the average down even if no one else got worse.

Think about that for a second, if we are faced with a statistic that claims that hourly wages have fallen 7% over the past 30 years, what does it actually tell us? The average does not tell us how any person measured in 1976 is doing now. It doesn’t tell us how immigration has affected people that were already working here.

I’m not going to claim that these explanations explain everything, but I do think they are likely to explain a lot. I like to see reasons that don’t involve class warfare. It’s also nice to see how it’s possible that these groups of people could all be doing better. I am always suspicious of aggregates, especially when they aren’t carried over across time. The top 1% of income earners today weren’t the same as they were last year let alone 30 years ago. People that were poor back then are now doing better, and people that were fantastically wealthy before have dropped down as well.

There’s no need to worry about income discrepancies if my story is mostly true, and I think it is. There’s no reason to look for bad guys, and there’s no reason to look for ulterior motives based on what income bracket you fall into. Let’s spend our energies wondering why people in the bottom percentiles are there instead of gnashing our teeth over how much money some folks make.


Luck be a lady… (stocks)

Wow, two of my stocks are going great guns this week. One has gone up 40 something percent, it’s a stem cell treatment company. I was intrigued by their potential to treat various diseases like MS. What is the product that is causing it to spike? Cosmetics… sigh…


The other is an oil exploration company. I bought 100 shares of it several weeks ago and it has been going up ever since. It is now to the point where I can’t afford to buy it with my normal bi-weekly contribution to my 401k. That’s good, but it would have been nice to have bought some more of it…


Unfortunately, I was not able to put any real money into either of these. Yes, they are nice returns, but 40 percent more of nothing much is… a little more than nothing much. I plan on selling these, put half of the profits into my stable dividend stock and put the rest towards more speculation. It’s fun, hope it lasts!