Thursday, March 27, 2014

Why Even Bother to Save Your Money?

Simple question, why save money in any bank? At half a percent interest your money will double in 142 years. Wow, start saving at these terrific rates! There are people saving dollars in IRA’s and 401K’s to avoid paying taxes. Most of these people are in the 50 to 65 age bracket. The 20 to 45 age bracket are immortal and don’t even need to think of retirement, plus they pay into Social Security. So where are we with this mess? We have a government that can’t pay its bills. 17 Trillion In debt is just a number, it has no association or concept of understanding with the man on the street.

Where will the new rich come from? It certainly isn’t going to come from a savings account built up over 40 years. A million dollars in 1964 was a lot of money. At 3.5 percent interest, you would have had an interest income of $35,000 and never touched the principle. That was about 5 times more than what my dad at the time made in a year, to support our family of 4. In today’s world, that million will get you about $10,000 in interest income and the principle will be completely consumed in retirement after 35 years. This assumes you can live unassisted in your own home and need very little medical financing.

From 1964 to 2004, a zero was added to the price of everything. Houses went from 30K to 300K, and cigarettes went from 25 cents to $2.50 a pack. If that wasn’t bad enough, the price of Cigarettes, steak, beer, charcoal and gasoline have doubled in the last 10 years. The schools don’t teach concepts dealing with inflation and I can see why, it’s a meaningless exercise when the student’s world revolves around sex and music and hanging out. Our government is printing dollars, a lot of them, and inflation is a concept you begin to understand with age, it is a tax on long term savers.

So if we go back to the 1920’s, the banks loaned real money and got real money back. The dollar was backed by gold. In today’s world the dollar is backed by nothing. Why should I loan $100,000 to someone for 20 years at 3 percent interest and at the end of the transaction, the 100K now has the buying power of 10K from inflation?

There does appear to be a way to avoid the inflation produced by government spending when you are projecting for retirement income 40 years away. What you really need to do is buy gold and silver. They are worthless as income generators, but they preserve your savings from the Congressional printing tax (which is a lot higher than most investment returns). Our government has joked around and thinks that the national debt will never be a problem. Call it financial irresponsibility.

Normally in an inflation driven market, real estate is the best medium to be in, but, it is nothing more than a registered tax base, a piggy bank, that can be taxed as needed by the government with no say so from you. If you’re a landlord, the government could even freeze the rent you can charge. Buy a car in California and pay 8% sales tax on drive out. Buy a home, and pay 1% real estate tax every year you own it.

From the 1900’s to the 1960’s gold was about 32 dollars an ounce. Then for the next 40 years it never went below $300. 60 years of 30 dollar gold then 40 years of $300 dollar gold kind of suggests that maybe we are due for $3,000 gold a lot sooner than we think.

The increase in the price of gold only reflects the loss of purchasing power of the dollar. My grandfather lived to be 98 and died in 1964 and he understood inflation quite well. It took me 50 years to understand why his blood would boil when he explained how a loaf a bread was a nickel when he was a kid. He knew what the government had done to him and there was nothing he could do about it. Of course at the time in 1964 I was only 17 years old, and didn’t understand why the increase in the price of a loaf of bread could upset him so much, he had plenty of money.

So if you are starting a retirement plan that spans 40 years, Gold and Silver make more cents at these interest rates. If you don’t give a damn, spend it now and enjoy yourself, the government always seems to have money for those that have none or conveniently run out. Our government wants you to stimulate the economy and buy something. That way when you grow old, you can tell your grandson how you bought a loaf of bread for a dollar when you were a kid. Come to think of it, I just paid $4.29 for a loaf of Russian Rye bread the other day (Jewish Rye would have been more politically correct but the Russian rye has a stronger flavor).

The thing to realize at retirement age, is the value of assets that are visible. The house, the car, the bank account. Your visible assets can ultimately determine what future benefits you are entitled to and the taxes you have to pay.

So what do you want to save, Dollars or Gold and Silver? The older you are the more meaningless the decision becomes; time becomes your enemy. Congress can promise the moon with printed dollars, the poor will follow and the rich will get handed the bill.

In Europe they are proposing negative banking interest rates to induce investors to build new businesses. At the same time, we can get more money back on our credit cards by spending dollars than we can by saving them in a bank. This sort logic reminds me of an incident many years ago when my young nephew was using a hammer, he accidently hit his thumb with it. He was crying and I suggested with a serious face to do the same thing to the other thumb and make them both match. He stopped crying, kind of looked at me and backed away. To this day, I think he considers me to be a few cards shy of a full deck. You have to consider the secondary implications of any logical solution. The future pain might not be immediately apparent.

Compound interest is still the 8th wonder of the world, and we can all wonder where it went!

Wednesday, March 12, 2014

The Randomness of Life Made Logical

As a kid we were always asking the question “Why?” We wanted to know the answers. The trouble is in today’s adult world, there are no real experts with all of the answers, just a bunch of people with their best explanation for the occurrence. If you get a majority of them to agree, then that must be the reason. One thing overlooked, is that there may be no real reason why an event occurred, like a big rise or a large drop in the stock market. Of course if you happen to be a financial advisor, you had better have a reason why it happened, if you don’t, you lose credibility. People demand reasons for what is moving the market, and a lack of reasonable answers, and you’re out of a job. Common sense suggest that the person with the most right answers should have the best chance at becoming fabulously wealthy. So we can deduce that there is a difference, having an answer helps you hold on to your job and if they were the right answers, you wouldn’t need a job.

Suppose everyone in the world seeks to draw a line through 4 dots of news that they consider important. And that line is their interpretation of how the world functions according to them. Nothing is random, everything is planned to happen. And there are those that are in control that naturally pass this power on to others in secret to perpetuate this control through the ages-If you believe this I have a bridge for sale. The real key here, is that everything that happens in the real world is random. If I hadn’t have gone to the pool one day, I would have never met my present wife. My life would have been entirely different. There aren’t a bunch of secret people in control, it only sells well to the dumb and stupid.

Rich people are considered smart, and poor people are considered stupid. So if you are poor, you have to think of an excuse as to why you are poor and at the same time extremely intelligent. It brings to mind health insurance, Congress states that health care is unaffordable, well I have news for them, it is only unaffordable to those that have no money. No one is denied access to treatment, the hospital that provided the service, is stiffed by the patient.

So what we are really looking at is a world that is very random. Most people grab certain items as truths, and intertwine them to explain the world about them. Notice however, to challenge their perceive reality will invite their wrath, their world works for them and in their own minds, everything is very well thought out. Nobody will deny that there are random events, but many events are not considered random. For example take the group: the Middle East, Israel and the CIA, or the group bankers, finance, and US government. Most theories of thought have to have someone for the believer to blame for their current condition. And of course when everything is going great and the money is just rolling in, it is because of their own “superior intelligence.”

So onward to the final step, cycles. Everything in our lives has a cycle that repeats—boom to bust. This is where the fabric of our perception of reality clashes with reality. Build too many houses, nobody then needs one. Raise too many pigs, the price of bacon drops and farmers stop raising pigs. Blame whoever you want when you face one of these crisis. Note that these different items have different life cycles. Pork might be 12 years, and housing may be 8 years. The prosperity of a nation has a cycle. I have suggested that it revolves around the life span average of the population. Since people are living longer now, the time between depressions has lengthened, people don’t drop dead at 50 anymore, they live to be 75 to 80 so at present, there are very few people around to remind of us of our collective foolishness of the 1930’s. And plus you always hear, “It’s different this time, we know better.”

We all know what is going on, the Jews, the banks, the stock brokers, the government etc. control what is happening. These beliefs make our world real and explain the “why” of what is happening even if it can’t be validated by reasonable sources. The trouble is, we are in an economic cycle that travels from boom to bust, we have had the boom and the next part of the cycle is the bust.

The real perceived reality of Facebook, Google, and other internet stocks where everyone marvels at the price levels paid for the acquisition like Whatsapp boggle the mind. Is the game at a point to where absurd values that make no sense are reasonable? We are at a point to where being reasonable and logical has no meaning. My common sense suggests that things are not quite as they appear.

Most people are set in their views. Trying to Change someone’s perspective of the world is next to impossible. It won’t happen no matter how hard and long you argue. Our thought processes have taken the randomness out of our world and replace it with an order that is logical to us. We do not have the ability to look at our environment and assimilate information in an unbiased manner -- we interpret.

What will happen next? It won’t be words, it will be an event. The stock and bond markets are the last two games in play. The bond market is very sick and the stock market is very healthy for investing. It’s a little like skating on thin ice, everything is just great until it isn’t.