Adventures in Money Making

Quick Cash Access (Online Payday Loans) When Working and Travelling Abroad

2011-03-08T19:35:00.000-08:00

The best-laid plans when doing business or just travelling for pleasure in other countries can be way-laid quickly when you suddenly need a spot of quid. This is one reason why online payday loans have increased enormously in popularity in recent years.

When you get a payday loan, you are basically obtaining cash from your next paycheque. The lender looks only at your pay rate – not your credit history scores and not some property you would offer for collateral – to determine your loan worthiness. The application is completed online (no faxes required) and the money is sent to your bank account in about an hour – which you can withdraw from any ATM.

The conveniences that payday loan companies supply are what enable them to grow in the current economy:

Simple application – Online payday loans mean you need not go to a payday loan store. You do not even need to talk to anyone on the phone. It is just a matter of logging on to the lender website, completing a 5-10 minute loan application, then getting confirmation.

Fast turn-around – If you apply before 22:00, your loan will be deposited into your bank account in about one hour (later and it gets there by 4:00 the next day).

Can actually improve a credit score – Everyone worries about their credit score, and we all know that a missed payment on a bill can throw their score into a tailspin. By accessing some quick quid online, regardless of where you are at the time, you can keep up those pay schedules. And by successfully paying off the payday loan , it is another plus for your score.

You’re wise to have this as a backup when doing business or travelling by yourself. It’s the smart way to keep your plans on track.

Live A Better Life

2010-11-01T10:29:00.001-07:00

This post has nothing to do with making money, but life isn't all about making money. It's about being happy. And most of us make money with the end of achieving that goal. So this post is about being happier.

Make Life Simple Again

When we were young life was easier, right? I know sometimes it seems that way. But the truth is life still is easy. It always will be. The only difference is we’re older, and the older we get, the more we complicate things for ourselves.

You see, when we were young we saw the world through simple, hopeful eyes. We knew what we wanted and we had no biases or concealed agendas. We liked people who smiled. We avoided people who frowned. We ate when we were hungry, drank when we were thirsty, and slept when we were tired.

As we grew older our minds became gradually disillusioned by negative external influences. At some point we began to hesitate and question our instincts. When a new obstacle or growing pain arose, we stumbled and a fell down. This happened several times. Eventually we decided we didn’t want to fall again, but rather than solving the problem that caused us to fall, we avoided it all together.

As a result, we ate comfort food and drank alcohol to numb our wounds and fill our voids. We worked late nights on purpose to avoid unresolved conflicts at home. We started holding grudges, playing mind games, and subtly deceiving others and ourselves to get ahead. And when it didn’t work out, we lived above our means, bought things we didn’t need, and ate and drank some more just to make ourselves feel better again.

Over the course of time, we made our lives more and more difficult, and we started losing touch with who we really are and what we really need.

So let’s get back to the basics, shall we? Let’s make things simple again. It’s easy. Here are 60 ways to do just that:

Life is not complex. We are complex. Life is simple, and the simple thing is the right thing. - Oscar Wilde

1. Don’t try to read other people’s minds. Don’t make other people try to read yours. Communicate.
2. Be polite, but don’t try to be friends with everyone around you. Instead, spend time nurturing your relationships with the people who matter most to you.
3. Your health is your life, keep up with it. Get an annual physical check-up.
4. Live below your means. Don’t buy stuff you don’t need. Always sleep on big purchases. Create a budget and savings plan and stick to both of them.
5. Get enough sleep every night. An exhausted mind is rarely productive.
6. Get up 30 minutes earlier so you don’t have to rush around like a mad man. That 30 minutes will help you avoid speeding tickets, tardiness, and other unnecessary headaches.
7. Get off your high horse, talk it out, shake hands or hug, and move on.
8. Don’t waste your time on jealously. The only person you’re competing against is yourself.
9. Surround yourself with people who fill your gaps. Let them do the stuff they’re better at so you can do the stuff you’re better at.
10. Organize your living space and working space.
11. Get rid of stuff you don’t use.
12. Ask someone if you aren’t sure.
13. Spend a little time now learning a time-saving trick or shortcut that you can use over and over again in the future.
14. Don’t try to please everyone. Just do what you know is right.
15. Don’t drink alcohol or consume recreational drugs when you’re mad or sad. Take a jog instead.
16. Be sure to pay your bills on time.
17. Fill up your gas tank on the way home, not in the morning when you’re in a hurry.
18. Use technology to automate tasks.
19. Handle important two-minute tasks immediately.
20. Relocate closer to your place of employment.
21. Don’t steal.
22. Always be honest with yourself and others.
23. Say “I love you” to your loved ones as often as possible.
24. Single-task. Do one thing at a time and give it all you got.
25. Finish one project before you start another.
26. Be yourself.
27. When traveling, pack light. Don’t bring it unless you absolutely must.
28. Clean up after yourself. Don’t put it off until later.
29. Learn to cook, and cook.
30. Make a weekly (healthy) menu, and shop for only the items you need.
31. Consider buying and cooking food in bulk. If you make a large portion of something on Sunday, you can eat leftovers several times during the week without spending more time cooking.
32. Stay out of other people’s drama. And don’t needlessly create your own.
33. Buy things with cash.
34. Maintain your car, home, and other personal belongings you rely on.
35. Smile often, even to complete strangers.
36. If you hate doing it, stop it.
37. Treat everyone with the same level of respect you would give to your grandfather and the same level of patience you would have with your baby brother.
38. Apologize when you should.
39. Write things down.
40. Be curious. Don’t be scared to learn something new.
41. Explore new ideas and opportunities often.
42. Don’t be shy. Network with people. Meet new people.
43. Don’t worry too much about what other people think about you.
44. Spend time with nice people who are smart, driven, and likeminded.
45. Don’t text and drive. Don’t drink and drive.
46. Drink water when you’re thirsty.
47. Don’t eat when you’re bored. Eat when you’re hungry.
48. Exercise every day. Simply take a long, relaxing walk.
49. Let go of things you can’t change. Concentrate on things you can.
50. Find hard work you actually enjoy doing.
51. Realize that the harder you work, the luckier you will become.
52. Follow your heart. Don’t waste your life fulfilling someone else’s dreams and desires.
53. Set priorities for yourself and act accordingly.
54. Take it slow and add up all your small victories.
55. However good or bad a situation is now, it will change. Accept this simple fact.
56. Excel at what you do. Otherwise you’ll just frustrate yourself.
57. Mature, but don’t grow up too fast.
58. Realize that you’re never quite as right as you think you are.
59. Build something or do something that makes you proud.
60. Make mistakes, learn from them, laugh about them, and move along.

Oh, and enjoy life’s simple pleasures. They’re free and better than anything money can buy. ;-)

Tax Havens For Retirees

2010-07-23T16:05:00.000-07:00

When I retire, I plan to live off my dividends and other passive income. California, which is basically broke, which has pretty high state taxes is not the most optimal place - especially once you don't have a job and have the flexibility to live in cheaper places. Some states like Nevada, have on tax on personal income, while some like New Hampshire only tax interest and dividends (definitely retiree unfriendly). Forbes recently had an article about states Wooing Retirees With Tax Breaks.

Last month, even as they slapped a new tax on hospitals, raised dozens of
user fees and eliminated a low-income tax credit, Georgia legislators passed
income tax relief for one group: well-off retirees. For residents 62 or older,
Georgia already exempts from its 6% tax all Social Security and $70,000 per
couple of income from pensions, retirement accounts, annuities, interest,
dividends, capital gains and rents. But in 2012 the exemption for couples 65 and
older will rise to $130,000, and by 2016 all their retirement income will be
exempt--a break Governor Sonny Perdue championed as a lure for well-heeled
seniors.

If you're looking for a domestic retirement tax haven, Georgia is hardly the only place worth considering. Seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--don't tax personal income at all. New Hampshire and Tennessee tax interest and dividends but not other income. The rest of the states have broad income taxes but give old taxpayers breaks, some quite generous. A recent study by Karen Smith Conway of the University of New Hampshire and Jonathan C. Rork of Georgia State calculates that retirees pay, on average, only half the state income tax of working folks with the same income.

So depending on whether you have w-2 income or 1098-int income, you might want to consider different states to live in. Of course, higher rates of real estate taxes and estate taxes will complicate things further.

Buying Silver Coins

2010-05-12T22:33:00.000-07:00

Gold hit a new high today, closing around $1,237/ounce after trading at almost $1,250/oz during the intraday session. Silver, which is already up 30% since its lows of $15.13 in February followed to $19.56/ounce.

I've been collecting both gold and silver coins since late 2005, during which time gold was trading for $495/oz and the price of silver was under $10/ounce. I currently own over 50 silver coins. Before you get all excited, the value comes to around $1,000 and it's a big hassle to store them. But, being a big fan of shiny objects I still like to buy coins now and then.

My favorites are the 1 ounce Australian Lunar Series, the Peace silver dollars and the Morgan silver dollars. But this time, I thought I'd try something different. I bought a couple of the Nazi 5 Reichmark silver coins. No, I'm not a big fan of Nazi memorabilia or anything like that. It's just that these coins are 90% silver and each one contains about 0.40 ounces of silver. Considering that silver bullion coins sell for about $22 right now, the silver in those coins is worth about $8.80. I just spent about $10.50 for each coin or about $1.70 more than I would've paid for a silver bullion coin.

Not bad for a piece of history!

Historically, silver has traded for about 1/15th the price of gold which means it would be trading around $75/oz today. Even if we consider that it trades for 1/50th, it should still be at $25/oz. I think we'll see silver at $25/oz within 12 months, which means it has to jump another 20%. Let's see how that works out. It will probably pull back a little before it makes any major moves to the upside. I'll be buying more silver coins if that happens. Although I'm not sure what I'll do with them. I might have to start burying them!

How To Nail An Interview

2010-02-17T21:27:00.000-08:00

The best investment you can make is in yourself. Check out this great video by Bob Parsons about nailing an interview. Despite coming from a guy who's built a web development company, it's equally applicable whether you're going to work on Wall Street or an SEO agency.

The Power of Dividend Investing

2010-01-19T15:46:00.000-08:00

Here's an interesting snippet about the benefits of dividend investing:

"A recent Associated Press report noted that Apple (Nasdaq: AAPL) CEO Steve Jobs has only earned $1 per year since he returned to the CEO post in 1997.

That seems to beg the question how does someone live on $1 per year? Steve is able to enjoy a very lavish lifestyle, but not because of his large salary. His lifestyle is funded by his dividend income. Yes, Steve Jobs is probably one of the biggest dividend investors that you've never heard of.

Jobs owns approximately 138 million shares of Walt Disney (NYSE: DIS) stock that he received from the Pixar Animation Studios sale back in 2006.

Disney has paid out dividends of $0.35 per share each of the past three years. Owning 138 million shares results in over $48 million received each year in dividend income." -SeekingAlpha

I believe that dividends are also subject to the 15% cap on income tax, making that a pretty low tax rate for Mr. Jobs.

Bull Market In Bureaucracy

2010-01-07T12:31:00.000-08:00

According the interesting guys at Agora Finance, the all industry thats in a bull market is government employment!

Not sure why increased government spending is touted as a good thing. Sure it helps the economy from spiralling into a depression, but shouldn't there be some limit on it? Its not like we have any savings. We're just borrowing from foreigners who are happy to send us back their surplus-export-dollars in order to keep their currencies in check to prevent their exports from decreasing. At some point we might become like Japan, with a debt that's nearly 200% of GDP!

Fed + Treasury = Inflation

2009-12-15T21:09:00.000-08:00

I read an interesting article today from a commodities trader:

The following comments come from a Merrill Lynch publication today.
“To repeat our Mantra:
1) Whatever MUST happen, WILL happen.
2) In a debt crisis, inflation is the ONLY solution.
3) The FED + US Treasury can create inflation.
4) As such, there WILL be Inflation.
In this light, we will remind you that whenever you hear someone whisper to you that “It is different this time,” we urge you to grab your wallet and run. It is never truly different, only the flavor and the timing have been altered. Concurrently, we will note that “Pigs can fly, when shot out of a large enough cannon”.
As such, the ability of the FED+US Government to simultaneously print money and lower interest rates can only end in tears. If this were NOT the case, then Zimbabwe would be a paradise and the Weimar Republic would still exist.”

Commodities like gold and silver have been historic stores of wealth. Rich people understand this and use them protect themselves against inflation. You may not get rich buying gold and silver, but you will definitely retain your buying power. Investments in real estate should also do well - eventually, although its likely to do poorly in the short term.

Is Gold Too Expensive?

2009-11-29T14:41:00.001-08:00

Last week, gold prices hit nearly $1,200/oz. Most people think that this is a bubble and that gold prices are due to drop. I'm really not sure what to make of this, but I feel that in the long run (3-5 years), gold prices will keep going higher. But let me quote someone who's credibility and investing prowess far exceeds my own, Richard Russell, 85-year-old author of the Dow Theory Letters. He said:

There’s still loads of scepticism about the rising price of gold and the bull market in gold. It’s been so long since the US public (since 1971) realized gold was real Constitutional money that they don’t know what to make of the gold action. They think gold near $1,200 an ounce is expensive and they’d rather have dollar bills.

I’ve coined the phrase, ‘dollar-bugs’ for these ignorant Americans. I guess they’ll have to get educated the hard way, which means holding on to their fading Federal Reserve Notes, no matter what. As far as I’m concerned, it’s an amazing example of mass brainwashing. ‘Hey, I’d rather have junk paper turned out by the Fed than the real thing - gold.’ Pathetic. And the happy thought is that you can (legally) still swap your junk fiat paper for gold.

What do you guys think?

If I had to make a recommendation today, I'd rather buy silver than gold - but I'm still holding on to my gold coins right now.

What Grows Faster Than Than Inflation?

2009-09-12T20:58:00.000-07:00

If we knew what would grow faster than inflation, we all could just plonk our retirement money in it and be assured of safe leisurely life in our old age. So what has been proven to grow faster than inflation over the past century without fail?

Government Spending! According to the Privateer, "In 1909, the US federal government had an annual budget of $US 0.8 Billion. With this it governed a population of just over 90 million people. The cost of government was about $9 per capita. In 2009, the US federal government has an annual budget of $US 3,550 Billion. With this it governs a population of just over 300 million people. That's a cost of about $11,675 per capita."

Now if there was only some way to invest in government spending, we'd all be rich!

Another fact is that you could buy an ounce of silver for a dollar. Now it'll cost you over $17! Are you going to wait until its over $50/ounce before you start buying? For an interesting read check out Why $1,000 Gold is Now Significant

Hiring Mercenaries To Run Public Companies

2009-08-20T00:08:00.000-07:00

Here's an interesting article about how CEOs today don't have a stake in the companies they manage. Since they don't have a stake and are only focused on their take-home salary their interests are not aligned with those of the shareholders.

Over the past few decades the spread between the salaries of the lowest paid employees and the C-level employees has been growing further and further apart. It's as if we're just hiring mercenaries to run the companies.

Follow the Scent
By Chris Mayer

I often think of good investing as the accumulation of small advantages. You want as many of these advantages working for you as possible. So here is one that a lot of investors don't pay any attention to -- insider ownership -- and it turns out that it has a big effect on returns over time.

A new paper by Ulf von Lilienfeld-Toal and Stefan Ruenzi states: "Firms in which the CEO voluntarily holds a nontrivial fraction of the company's stock outperform the market significantly…. The effect is most pronounced among firms that are characterized by large managerial discretion of the CEO."

They go on to conclude:

"We find that value-weighted portfolios consisting of S&P 500 stocks in which the CEO holds more than 5% or 10% of the firm's outstanding shares generate statistically and economically significant abnormal returns of 9.2% p.a. and 13.0 percent per annum, respectively. For S&P 1500 firms, the effect is only slightly smaller, with abnormal returns of 8.5% per annum and 12.1% per annum, for a 5% and 10% cutoff for managerial ownership, respectively."

One of the many problems with today's market is the fact that the people running companies are not owners. A typical American CEO owns hardly any of the company he runs. Whatever shares he has he gets through stock options, which he does not pay for. In addition, he gets paid an enormous sum of money in salary and bonus.

I read proxy statements. Very few do. Most investors probably don't even know what one looks like, which is a shame. And it explains why corporate execs lavish so freely on themselves. The owners aren't paying attention.

Anyway, proxy statements reveal to you the compensation of the management team and directors. It also shows you how many shares each of them owns. I'm always amazed at what some of these guys make. And I always get a little annoyed when I see how little they have at risk in their own firms.

There was a time when this situation would not have been tolerated. There is a quote from Frederick Lewis Allen that I like, which I reprinted in my book Invest Like a Dealmaker:

"In 1900, capitalism was capitalism indeed. Businesses were run by their owners, the people who had put or had acquired capital with which to finance them… It would seem wildly irrational that a man should manage the destinies of a corporation while owning only a minute fraction of the stock, as so frequently happens today."

After I listen to some presentation by a CEO telling me how great his stock is, I always wonder to myself: "Then why don't you buy shares?" I never come up with a good answer. If a guy is gonna get all gung-ho on his stock, yet he doesn't own any, then I’ve got a beef with him.

It is true that in our aging modern industrial society, it is hard for a CEO to own a large percentage of some of our multibillion- dollar corporations. But he should own enough relative to his own salary and net worth that it makes him sweat. And he should buy shares out of pocket, and not have shares handed to him for free.

Intuitively, I've long believed that companies with insider ownership do better. I agree with the old money manager Martin Sosnoff, who once observed, “My experience as a money manager suggests that entrepreneurial instinct equates with sizable equity ownership."

Often, the most creative and value-creating moves are made by management teams who own shares. Conversely, the stupid and value- destroying moves are often made by managers who don't own shares.

Thoughts like this are what led me to include "owner-operators" among what I look for when investing in a stock. Most of the stocks I have recommended over the years have had significant insider ownership. The people running the companies have their money at risk just like us.

It doesn't mean that every stock with high insider ownership outperforms. It means that as a group, these stocks have done better than those with little insider ownership.

This trait is something to look for when investing in stocks.

Can't Find A Job? Sue Your College!

2009-08-02T23:05:00.000-07:00

It had to happen sooner or later. Well, it finally happened!

Jobless graduate sues her college

A New York woman who says she cannot find a job is suing the college where she obtained a bachelor's degree, the New York Post reports.

Trina Thompson, 27, filed a lawsuit last week against Monroe College in Bronx Supreme Court.

She is seeking to recover $70,000 (£42,000) she spent on tuition to get her information technology degree.

The ex-student, who received her degree in April, says the college's Office of Career Advancement did not provide her with the leads and career advice it had promised.

What about all those guys who got liberal arts degrees and haven't been able to find jobs for years? Maybe they start a class action lawsuit!

Maybe Trina will sue her student loan lender next.

The Little Old Lady School Of Applied Economics

2009-06-22T00:36:00.000-07:00

Someone sent me a very interesting letter from Bedlam Asset Management, quite an apt name given the economic situation over the past 2 years. Read it and you'll want to go out and buy gold coins!

Depending on where you live and how much you earn, so in the last five weeks you have seen a significant seasonal event, un-remarked as usual. This was the day when employees and employers alike have been allowed to earn some money. For until that day, everything you have earned this year has gone to the government by way of taxes. Now, and for the rest of the year, what you earn you can keep. It is odd that in modern times even the poorest members of society must, for at least the first 20 weeks of each year, work whilst all the income from their labour is appropriated by their rulers. Delightfully it’s even more backwards than the feudal Middle Ages, because then at least the serfs were fed and housed for free - but apparently, this is progress.

Today’s modern feudal treasurers have different problems. For in the small hours of the night, tucked up in their silk covered beds and away from the prying eyes of subservient apparatchiks, chancellors and central bankers writhe in their sleep with recurring night terrors. Occasionally murmuring of forbidden love, their ecstasy is crushed by more frequent groans of utter despair. For their subconscious reminds them that what they most crave they can never have and they are doomed to failure.

The history of money

Pre-history, when homo cave-potato decided he’d rather buy a club than make one, he needed a medium of exchange, and thus experimented with various forms of money including furs, cowrie shells, very large stones with holes in the middle, iron bars and blocks of salt. Each was unsuccessful; so early society soon settled on gold as the most practical medium of exchange, substituting it where supplies were limited, or when paying junior staff, with cheaper metals such as silver and copper. Although paper money has a long history, it was always explicitly understood that banknotes could be exchanged for something more tangible.

Since 1855 the Bank of England has been writing a now historically ironic promise “to pay the bearer on demand….. [in gold]”, even though any payment ceased in 1931. (This confusion is compounded by the fact that the ‘pound sterling’ refers to a weight in silver.)

Almost all countries produce coins which look as if they are made from silver and copper to give them credibility. Early bankers soon worked out that not everyone would want to cash in these IOUs at the same time, so began issuing more notes than were actually backed by physical gold.

Occasionally these ruses were found out, hence bank crashes; but as a global system it worked pretty well until 1913, when restrictions were imposed. Rather than cause a savings panic amongst the newly-monied middle classes, the system was replaced with a “let’s pretend” gold standard, which allowed for intra-government transfers of gold between debtor and creditor nations. This scheme limped along between major nations until July 1944 when, as a result of record wartime paper money printing, it too collapsed, to be replaced by the Bretton Woods Agreement. Now all currencies would be fixed, forever, at an agreed exchange rate to the dollar, which in turn was initially backed by physical gold held in Fort Knox, Kentucky and valued at $35 an ounce.

There is an excess of turgid financial books on this. The facts are really pretty simple.

This scheme survived for an even shorter period, collapsing in 1971 when France’s Général de Gaulle, again in wartime (Vietnam) decided to cash in the excess dollars France had accumulated, in return for America’s gold. This did not run at all well in Washington.

America decided to renege on the agreement (in practice a form of sovereign default).
The next permanent solution was ‘fiat money’, i.e. paper backed by nothing at all. At the core of this structure were the beliefs that (largely elected) politicians would be prudent economic stewards and if necessary could pay any financial obligations through taxing their local populations. The immutable fact about fiat money is that, over time, all paper currencies become worthless. Hence the mighty dollar today buys the same as 3.8 cents in 1900. Sterling is worse, the Swiss franc best, losing only four-fifths of its value in the same period.

The history of gold

Up until 1913, gold could be owned by anyone. Credit availability then was far more limited than now and inflation was self-correcting. So there were few reasons why its price should have varied much, and it didn’t, even when supply surged from new gold fields in the Americas, South Africa and Australia. It was a true store of value – a key purpose of money.

From 1913 onwards, private ownership became more and more difficult. The price was increasingly controlled by various arrangements fixed by a handful of central banks. The collapse of Bretton Woods removed the old $35 per oz. price cap which was then largely set by the free market. As a consequence, central bankers suffered a decade of near panic; for their populations immediately and very rudely showed an utter contempt for their politicians and financial authorities by increasingly referring to own gold rather than the local funny money. Naked emperors do not like being figures of fun, so quietly agreed to regain control of the price. These various changes included taxing gold purchases, making its ownership illegal and, most important of all, prolonged and increasingly co-ordinated attempts to force the price down.

Thus, leaving aside ancient history, unlike all other commodities and currencies gold has only had one full cycle. Once freed in 1971, the price soared to a peak of $832 in 1980 and was then slowly brought back under central control at the turn of the century. A return to suppressing the price worked in part because of unprecedented international co-operation, and more because “new” forms of credit creation seemingly made gold’s monetary role as irrelevant. The collapse of this new credit paradigm in 2008 means it too has become history. Funny money has joined the cowrie shell and large rock with a hole in the middle as socially interesting but failed experiments.

A new cycle begins

May 7th 1999 is a day that Britain’s current “Prime Minister” (the real power is a recent appointee to the House of Lords) would choose to forget. As a truly awful market trader, he widely broadcast his intentions to sell over half Britain’s gold reserves. In the next three years, 400 tonnes were sold between $256 and $296, leaving a mere 315 tonnes. The money raised was about $3.5 billion; its value today would be $12 billion.

Less-widely publicized than his astonishing naivety is that heavy selling of gold by central banks was also a fashionable, pan-European phenomenon. They have dumped nearly 4,000 tonnes in the last decade. Countries as diverse as France, Spain, Netherlands, Portugal and Italy also bought into a novel theory that central banks could be great currency traders and investors. This new idea was not led by Mr Brown at all but surprisingly, the Swiss National Bank. Since 1999 it has sold 1,550 tonnes. In each case it is impossible to prove whether the proceeds of gold
sales actually produced a better return than continuing to hold its reserves against a crisis. In the case of the Swiss, the difference between sales proceeds and today’s price is about $22bn (a ‘loss’ of over $3,000 per yodeller); or to put it into another context, the amount received is about half the direct cash injections, write downs and capital raised by the single Swiss Bank UBS in the last 18 months. So empirically the money has not been well used.

The implication is that, in Switzerland and across Europe, there has been a very high opportunity cost. Slowly realising in 2004 how dumb they were all looking, fourteen of Europe’s central banks agreed a structure to limit how much of their gold reserves each could sell annually (the Central Bank Gold Agreement). With the usual clarity of hindsight, these sales signalled the last hurrah and the failure of a prolonged period of deliberately trying to distort the gold market.

Do as I say, not as I do

Even so, gold still accounts for 60% of Europe’s reserves. Yet the developing world -
suffering a post colonial inferiority complex - saw what their one-time masters were doing, so also eschewed gold. Thus it accounts for only 11% of their reserves. Meanwhile America (which years earlier had already given a strong hint of what it really believed about gold, by reneging on its IOUs to Général de Gaulle), still has 8,133 tonnes. This accounts for 79% of its reserves. For all the central bank learned papers and propaganda¹ that gold should play no meaningful part in national reserves policy, most developed western countries have steadfastly maintained gold at the core of their reserve systems, but the absolute and relative size of these reserves has shrunk considerably. In contrast, the size of reserves in Asian countries has grown like smoke, to the extent that just six ‘countries’² – China, Japan, Taiwan,
South Korea, Hong Kong and Singapore - now account for over half of the world’s estimated $7 trillion of reserves. Of these, 66% is held in dollars, about three times greater than that held in euros; the yen and sterling each account for less than 1.5%.

Given that the US remains by far the world’s largest economy and trading partner, and as most commodities are priced in dollars, there is logic to this. Yet there are two flaws to a fiat money, dollar-based reserve system. The first is that, whatever American leaders may occasionally say to placate their allies, both the government and population have almost no interest in the dollar exchange rate against any other currency. As an economy which at a pinch could (apart from oil) be almost entirely self-contained, this too is logical. The second flaw is that, also at a pinch, America could longer term be entirely self funding.

The recent implosion of the international banking system has led to all governments printing money at a record rate. The balance sheet of America’s Federal Reserve has increased by over a trillion dollars since the end of 2007. The target for this year’s budget deficit is $1.2 trillion. The Congressional Budget Office is forecasting a return to a budget surplus in 2019 (one underlying assumption is there will be no further recessions) and that by then, Federal debt will have increased from the current $11 trillion to $21 trillion. This excludes worrisome state (i.e. California) and local (such as school boards) budget deficits. The money printing is by any standard off the scale; one way to put this in context perhaps is that in ten years time, on official - thus optimistic - forecasts, America’s Federal debt will be $3,000 for every person
alive in the world today. Not that America is the worst, it’s just the biggest. That whacky Silvio in Italy has a far greater problem, as does the UK.

Central bankers know of course that all currencies eventually become worthless – it is one of their night terrors - but they prefer it does not happen too visibly or quickly on their watch. Moreover, as most had bought into the mantra of Europe’s industrialised countries that “gold is for girls and wimps” (despite ensuring most of their own reserves remain in that metal), they are embarrassingly naked. Of China’s vast, nearly $2 trillion, foreign exchange reserves, a mere 2% is in gold. China is now in a dollar trap of its own making.

If it seeks to reduce its estimated $1.5 trillion of reserves in dollars (mostly in government bonds) the price will collapse. Worse still, unless it picks up its ‘share’ of newly minted American bonds the price will also collapse.

This explains China’s sudden interest in, and many pronouncements on the international financial system, as well as the lifting of the veil of secrecy over its own reserves. Until this year, it had not commented on these in detail for the previous six. Now its Premier and central bank Governor have become almost garrulous; suggestions have included that the world should establish a new financial order, including perhaps the use of SDRs, lecturing US administration on fiscal prudence and curiously, threatening America that it might diversify and thus collapse the American bond market. (The equivalent of trying to mug someone with a stick of damp spaghetti). This threat included the sudden announcement that its gold reserves – last reported at 600 tonnes in 2003 - have since increased to 1,054 tonnes making it
no. 5 in the world after Italy, and showing it could diversify if America refuses to listen. (There may also be a sub-plot; as the new kid on the block, it could be expected that China wants to be close to the US over time in the absolute level of its gold reserves.)

The dollar dummies

Yet for all the current uncertainty and noise, China and the other large, and largely Asian, holders of foreign currency reserves (or ‘dollar suckers’) have already worked out that they must diversify away from their giant dollar holdings, although they remain uncertain as to how. Their problem is size. Supposing China was to buy all this year’s new mine supply, estimated at 2,500 tonnes. Leaving aside that such action would cause the price to soar, one tonne is worth approximately $30 million at $950 per ounce - so this would ‘only’ cost $75 billion, less than 5% of China’s reserves. It could buy all its oil requirements for the next six months. That would only absorb 8% of reserves. Other Asian countries suffering a similar squeeze have tried other routes: South Korea attempted to buy an area of farm land in Madagascar larger than Wales, until international political and ecological shrieks forced it to withdraw; Singapore’s Temasek (not officially part of the country’s reserve system) made such disastrous forays into buying large blocks of shares, that last year the value of its funds fell by 47% (although it has since clawed some back).

On a much smaller scale, China has also been trying foreign investment and larger political/infrastructure development in Africa, Sri Lanka and Bangladesh. For all the lack of success with these various experiments, the diversification urge will not stop. Moreover, some new policies are becoming clearer. It appears China will look to buy almost all its domestically produced gold production, a pattern which others may follow. From recently being a minnow in the sector, China is now the world’s largest gold producer, outstripping South Africa, Australia or Brazil.

Last year, the world’s central banks sold a mere 246 tonnes of gold, the smallest quantity in over a decade. These sellers were mostly Europeans, for the rest of the world’s central banks were net buyers of gold for the first time in 15 years. Under the various central selling agreements, the latest of which will probably commence in September this year, it is becoming clear that, as these banks watch their own paper money being printed at a breakneck speed and observe their neighbours doing the same, they have become keener to hang onto what gold they still have. Given that, since 1977, Europe’s central banks have been eager to hold the gold price down, their absence as the price fixer is a major change.

An absence of sellers?

There are an estimated 30,000 tonnes of gold above the ground in reserves. No-one has any serious notion of how much else there is elsewhere, on fingers, in teeth, in jewellery or coins and bars. Estimates for the total amount of gold ever mined vary between 250,000 to 350,000 tonnes, of which a significant portion will have been lost (buried hoards, at sea etc.). More recently, individuals have been the net accumulators, central banks the sellers. What exists above the ground is far more important than mine supply, which is likely to remain in a gradual downtrend. Current annual production of around 2,500 tonnes is down by over a third on peak levels of the 1970s and unlikely to rise much. Perhaps new giant deposits will one
day be found but meanwhile, gold mining is becoming more expensive, deeper and more difficult. Thus the only realistic sources of new supply can be America, the IMF or the ECB.

For the US, policy has long been blindingly clear: do nothing. Hence reserves (America has the largest gold backed reserves in the world, albeit small in relation to the size of the economy) have remained unchanged. It is unlikely Congress will allow any change. The IMF has notional control of 3,412 tonnes, of which 400 tonnes is due to be sold this year. Of all major international bodies, the IMF has the greatest, almost visceral loathing of gold, preferring its own whacky SDRs instead. These are the ultimate funny money, being a fiat currency based on a basket of other fiat currencies.

Yet the IMF too may be chary of significant official sales because of its earlier failure.
Between 1976 and 1980 “in a bid to reduce the role of gold in the international monetary system” it sold 1,600 tonnes. About half of this was at the official SDR35 price (about $58) back to underlying central bank owners. (This is so dumb: the ‘Brownian notion’ of prudent finances to an absurd extreme; the market price varied between two and 24 times greater).

The other half was sold through a series of public auctions, initially 150,000 ounces per month rising to a peak of over 850,000. The policy of turning up supply was a poker game, trying to scare the market into believing that demand would be crushed. Yet as supply increased arithmetically, the amount bid for increased geometrically. It actually created a fire storm in the gold market, moving the price from $103 to $832. As abject failures in market interventions go, the IMF was the clear winner. Thus it would be loath to do so again; and it has another problem. The IMF does not own all the gold it holds; it belongs to its member states, which have pledged it to the IMF and could unpledge or replace with paper money. As already mentioned, most members are developing a marked propensity not to sell any more gold. The third potential source is the ECB or its member countries; many are the same nations with egg all over their faces which have been the vanguard of selling a substantial proportion of their reserves at much lower prices. That leaves only Germany (No. 2 gold owner in the world with 3,412 tonnes, 72% of reserves), noticeable only for the government’s inability to agree how much to sell, or what to do with the proceeds. As important, the Bundesbank has always been a reluctant seller of significant quantities of the nation’s gold because of its Weimar hyperinflation history.

Conclusions

Four decades on from a financial experiment with fiat money, the evidence suggests it is failing. Although governments will continue with the current system, relying on their ability to tax future generations, poor demographics alone in all advanced nations mean the odds that the current fiat money regime will survive unchanged for long are worsening. As suggested in previous reports, change may be driven by this recession, followed by years of stop-go economic activity and a series of sovereign defaults – which are normal. The largest central banks have doubled or tripled their balance sheets in the last 15 months. This is an explosion in fiat money. Giant budget deficits and rising unemployment ensure that government money creation will remain explosive for the foreseeable future. These problems are exacerbated by a variety of new events, for instance Asia’s reserve diversification programmes and the marked reluctance of historic sellers to reduce their holdings further. It is simple school economics that a very finite supply of one form of money will respond to an
almost fission-like increase in the supply of other forms of money, such as the amount of dollars, yen or euros in circulation.

It is very easy to make a case that the gold price could enjoy or suffer (depending on your point of view) an explosive run. Given all economies (and businesses) are cyclical, then it is axiomatic that over time they will also revert to the mean. Therefore it can be expected that not just central banks, but also commercial banks and other financial institutions will revert to earlier policies of the 1970s and ‘80s – of holding a proportion of their ‘core’ capital in gold. (Bedlam has 10% of its balance sheet there already, and 10% -12% of all client portfolios are in gold shares.) Governments could try to prevent wider gold ownership as before, but new
forms of ownership - such as gold ETFs - make it difficult to do so unless all leading nations agree simultaneously.

We have commenced only the second gold cycle under fiat money. Whether it has actually peaked already, or will shortly double, we can only divine by looking at chickens’ entrails or throwing our rune-sticks. We use an average price of $850 per ounce in 2010 when valuing gold shares, as that is prudent, yet our damp rabbit’s foot hints at a much higher price before the end of 2010 because the triggers are already in place: the absence of meaningful new mine supply, the cessation of central bank sales, explosive growth in money supply and of course, rising political uncertainty, which is the Siamese twin of recessions. Top economic schools used to train their pupils to sneer at little old ladies who kept their savings in gold coins in a
sock rather than trusting national banks. Today it is clear which group are the financial dimwits; perhaps an inherent understanding of cycles can only be learned through longevity. We subscribe to the little old lady school of applied economics. We are therefore certain that central bankers’ nightmares will worsen as their paper currencies devalue against the most trusted store of value, and in bed, the thing they secretly lust after.

Regards
Bedlam Asset Management plc

This is buy far one of the most interesting emails I've received in a long time. Please keep them coming!

The Biggest Crashes In History

2009-06-13T19:28:00.000-07:00

According Bill Bonner:

We've seen the biggest stock crash in history...
..the biggest property crash in history...
..the biggest deficits in history (four times the previous record!)...
..the biggest bailouts in history (we can't even count that high)...
..the biggest bankruptcies in history...
..the auto industry and the finance industry have been largely nationalized...
..the president of the United States of America is now making financial decisions for formerly private industries...
What's left to see?
Oh yes...the depression...and hyperinflation.

Hope you guys are protecting yourself by buying real assets, shorting long-term bonds and buy gold coins.

Bond Prices Spike

2009-05-29T14:51:00.000-07:00

I entered a paired trade in February where I went long short-term corporate bonds and shorted long-term government bonds. This has been doing pretty well so far. Over the past two days however, Treasuries have spiked. Ouch! Check out this interesting article about treasury prices in the latest issue of Barrons.

Treasury Yields Leap to Fair Value
By RANDALL W. FORSYTH

THIS HAS BEEN THE WORST TREASURY bond market ever, at least by some measures. Yet, the reasons aren't what you hear from the Howard Beale-style rants from Chicago futures pits.

While there are legitimate reasons for concern about the Treasury's trillion-dollar borrowing needs, the reluctance of creditor nations to accommodate them and the Federal Reserve's money printing, the recent back-up in yields largely reflects other, less fundamental reasons.

From a hair over 2% at the beginning of the year, the benchmark 10-year Treasury yield surged to a high of 3.70% Wednesday. And the 30-year long bond vaulted more than two full percentage points from their December lows to 4.63% Wednesday.

That doesn't sound like much except to bond geeks, but in price terms, the iShares Barclays 20+ Year Treasury Bond exchange-traded fund (ticker: TLT) lost 25% of its value over that time. That was nearly as big as the plunge in Dow Jones Industrial Average from the turn of the year to its early March lows.

What's extraordinary is that this jump in long-term bond yields came as the Fed pinned its federal-funds rate target at close to zero. Other back-ups in bond yields came when the market anticipated future hikes in the overnight rate, but the Fed has made it clear it will hold its funds rate target at virtually nil for as long as it takes to jump-start the economy.

Moreover, on March 18, the central bank said it would buy an additional $1 trillion of U.S. agency debt, agency mortgage-backed securities and Treasuries to push longer-term rates down to lower borrowing costs, in particular on mortgages.

That clearly hasn't happened; just the opposite. The Treasury yield curve (typically described as the difference between the two- and 10-year note) steepened to a record 2.77 percentage points Wednesday, according to Stone & McCarthy Research Associates.

Part of the back-up reflects the low absolute level of rates earlier this year. Indeed, 10-year Treasury notes yielding only 2% -- as they were around the turn of the year—were attractive only relative to other assets that were collapsing under fear of an economic apocalypse.

With disaster averted and the sighting of the so-called green shoots of growth, stocks had a bungee-jump rebound from their previous nosedive. And low-yielding Treasury notes, which were clutched as life preservers in the storm, were cast off.

But, contends Lacy Hunt, chief economist of Hoisington Investment Management, an Austin, Texas, manager of $4 billion in assets, "The sharp rise in Treasury yields is not a result of an economic recovery. That occurs when income, production, employment and sales, simultaneously, turn higher. Presently, these indicators merely show a lessened rate of decline."

Nor can the burgeoning Treasury borrowing needs fully account for the rise in yield. The ratio of government debt to gross domestic product showed massive increases in the U.S. during the 1930s and 1940s and in Japan since the 1990s, yet yields continued to decline. Indeed, Hunt argues, the shift in productive resources to the government sector from the private sector doesn't stimulate but stymies economic growth.

Finally, the Fed's expansion of its balance sheet doesn't translate into monetary stimulus if the liquidity merely increases excess reserves in the banking system or increases sterile holdings of money balances. Bank credit continues to contract sharply, Hunt points out.

So, what's to account for the sharp rise in Treasury bond yields? Blame it on the intricacies of the mortgage market.

There's a reason that Wall Street hired "rocket scientists" with math PhDs to analyze mortgages. The ability of homeowners to pay off home loans with little or no penalty makes them devilishly difficult to figure out, unlike bonds that commit the borrower to a fixed repayment schedule. Obviously, homeowners will repay or refinance when it's most advantageous for them, which is the worst time for investors in mortgages.

To offset this problem, they hedge with noncallable Treasuries -- buying when they brace for a wave of refinancings and selling when rates rise. Refinancings leave investors with short-term securities when rates fall—exactly what they don't want. Conversely, rising rates encourage homeowners to hang onto their low-cost loans, resulting in the lengthening of the maturity for investors -- again, the last thing they want..

While mortgage investors previously had bought non-callable Treasuries to offset the risk of their mortgages, mortgage investors have unwound that hedge, selling their Treasuries.

This sounds like so much inside baseball but it amounts to huge sums. According to an estimate by mortgage-securities-market veteran Alan Boyce, writing for Drobny Global Advisors, these hedge sales are equivalent to issuance of $1.1 trillion (with a "T") of 10-year Treasury notes, compared to expected sales of $250 billion of that maturity this year.

Clearly, Treasuries were in a bubble when they yielded just 2% for 10 years. Technical factors have nearly doubled that yield from the lows, but not fundamentals -- which still reflect a recessionary economy and debt deflation. As a result, Treasuries are back to fair value for these conditions.

Must Read: You Should Be Petrified

2009-05-15T12:18:00.000-07:00

Great video from Howard Davidowitz. He doesn't hold back any punches. If you can't check out the video, which I highly recommend, then here's a brief summary:

The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was "preposterous" to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates.

"We're in a complete mess and the consumer is smart enough to know it," says Davidowitz, whose firm does consulting for the retail industry. "If the consumer isn't petrified, he or she is a damn fool."

Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: "The worst is yet to come with consumers and banks," he says. "This country is going into a 10-year decline. Living standards will never be the same."

This outlook is based on the following main points:

With the unemployment rate rising into double digits - and that's not counting the millions of "underemployed" Americans - consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity.
Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt.
More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a "depression" in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs.

As for all the hullabaloo about the stress tests, he says they were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the ‘greater fool' theory."

"We're now in Barack Obama's world where money goes into the most inefficient parts of the economy and we're bailing everyone out," says Daviowitz, who opposes bailouts for financials and automakers alike. "The bailout money is in the sewer and gone."

The Story of TARP Wife

2009-04-25T16:20:00.000-07:00

In sharp contrast to the post of on Toxic Wives, is a story about a TARP wife.

Confessions of a TARP Wife

Forget the opera. Cancel dinner at Bouley. How life has changed since my CEO husband went on the government dole.

I am a TARP wife.

In keeping with the unwritten code of this new sisterhood, I have taken a vow of financial abstinence. I returned the presents my husband gave me for Christmas (but didn't tell him, since he's already awash in gloom) and am using my credit balances at all the major department stores for important gifts and other necessities.

I haven't even looked at spring clothes; God forbid someone catches me out in something new. Keeping up with fashion seems somehow decadent in this new era, like getting Botox injections or catered dinners. Like so many others, I'm shopping in my closet. I've bought exactly two things this year -- makeup and panty hose. If I buy a present for someone, I have the package sent to their home. I don't want to be spotted climbing into a taxi, laden with Bergdorf Goodman shopping bags.

As you can see, being a TARP wife means, in short, making decisions according to a complex algorithm: balancing the need to look like your world hasn't crumbled beneath you -- let's not alarm the investors! -- with the need to appear duly repentant for your subprime sins. It also means we're part of the community of more than 400 companies that have received government bailout funds, whose fall from grace has been swifter and harsher than any since Mao frog-marched intellectuals into China's countryside.

Hitting the perfect note isn't always easy. For instance, for the past 15 years or so, I have thrown my husband a birthday party. We traditionally celebrate with about 30 friends, mostly New York pals we've known for decades. We're not talking an end-of-an-era Stephen Schwarzman-type $10 million blowout. Ours is a pretty sedate affair.

This year, of course, entertaining our crowd at our usual multi-star Michelin hotspots would simply not do. Extravagant is out; conservative is in. But not hosting a birthday dinner would have spurred rumors that we were broke, not a welcome thought either. Juggling these conflicting impulses, I decided on a slimmed-down party. Choosing Versailles to host World War I peace negotiations could not have been more complicated than my attempt to select the perfect spot for our annual dinner. Naturally, every restaurant I contacted was willing to meet my reduced budget; now that Wall Street firms are no longer entertaining clients or hosting events, New York eateries are struggling.

At the end of the day, it came down to a choice between an especially accommodating (and well-known) high-end restaurant and a less expensive, clubbier spot. We ultimately picked the cozier restaurant -- even though it ended up costing us more, so eager was the more chic outfit to host the party. Why spend the extra bucks? Because our chosen place is distinctly low-profile and rarely mentioned in the press. We did not need a snarky story about a "Wall Street bigwig living it up while taxpayers wonder where their money went." Really, not even President Obama spends this much time looking after his image.

It wasn't long ago that America celebrated successful companies and the people who run them. My husband, CEO of one of the biggest TARP recipients, has received more than his share of accolades (in my opinion, well deserved). But because of a few tin-eared nitwits who failed to notice that their industry was under siege, the entire country now thinks that TARP bankers are greedy incompetents dedicated to ripping off taxpayers. Fancy wastebaskets, under-the-rug bonuses, lavish junkets -- these are Exhibits A, B, and C in the people's case against Wall Street. Even the Octomom gets better press.

Here is the reality: TARP managers are scared to death. The executives of these companies are desperately trying to hold their businesses together while complying with a slew of damaging bills flooding out of Congress. My husband has battled the shutdown of the credit markets and a deteriorating business environment for two endless years without respite. He's exhausted, terrified of losing the company, and beaten down by the constant criticism hurled at him.

I'm trying to buck him up and not complicate his life. The last thing he needs is unpleasant publicity, so I'm learning to fly so far below the radar that I have perpetually skinned knees. We've picked up new habits, like making donations anonymously and sneaking in late to black-tie galas after society photographer Patrick McMullan has packed up his camera and gone home. We now regularly turn down the invitations we receive from museums and arts organizations that will inevitably be followed by a request for funds. No point in getting their hopes up.

I get it that I may not win much sympathy. Why should I? I'm not pleading poverty. We still live in relative luxury, we can afford almost everything we need, and we aren't facing the prospect of losing our home or having to turn to our families to support us. But we are getting squeezed.

Like most Americans, we are worried about money. Our net worth is tied up in stock that is down 95 percent. Last year, before it became fashionable to do so, my husband refused a bonus. Because of the new restrictions, his pay this year will be a fraction of what it was. The combined swoon in our income has caused us to cut spending drastically, in hopes that we can hang on to some remnant of our former lifestyle.

In an effort to conserve cash, we are eating out less frequently, meaning that I've been turning out some pretty dreadful lasagna. Actually, staying home and watching Law & Order reruns has become our new guilty pleasure. It's a far cry from opening night at the Metropolitan Opera, but it's not bad. I drive the family crazy by switching off the lights every time we leave a room. Needless to say, we fly commercial. Using the company plane is now out of bounds; we've heard there are reporters staking out the private airports.

I have become oddly superstitious. On some level, I feel I'm being punished for too many thoughtless years of assuming that the trappings of success were earned and not given. I'm constantly knocking on wood or offering little good-citizen sacrifices, like manically recycling or chatting with telemarketers.

I'm struggling with how to communicate all this to our children. We're thankful that they're intent on making their own way in the world, but at the same time, they confidently rely on us for help. One daughter recently mused about going back to business school. I hope she didn't notice my instantly negative reaction, stemming completely from concern about the cost. I cannot bring myself to shake her foundation. The collapse of the world economy has already crushed the confidence of young people just starting out. Meanwhile, retirement is like a rainbow, a beautiful mirage that we'll probably never reach. To some people, these may seem like luxury problems, but to us they are painful.

I've watched the skin under my husband's eyes take on a yellowish hue, and his hair turn from gray to grayer, as he tries to lead his company through this mess. He's up every night for hours at a stretch, and for the first time, he has health issues. For a person whose life has been punctuated mainly by success -- from perennial class president and high-school sports star to Ivy League MBA -- failure is the worst of all nightmares. He seems off balance, as though self-confidence were a physical ballast that he is slowly losing. It's heartbreaking how often he apologizes to me for losing so much of our money, for making so many mistakes.

I know people are angry at those they view as responsible for the subprime crisis and the subsequent economic meltdown. I don't blame them. I'm angry too. But my fury extends to any number of culprits: to Alan Greenspan, who encouraged the loose-money policies that undermined the pricing of risk; to Barney Frank, who cudgeled Fannie Mae into supporting loans to unfit homebuyers; to the rating agencies that were ethically compromised; to the subprime-mortgage brokers who chased fees and ignored any accountability; to the investors who didn't do their homework and absurdly leveraged up their balance sheets. I'm an equal-opportunity blamer.

And yes, I blame those who were in charge of the big banks -- including my husband -- for not seeing the default tsunami coming. But almost no one did. Everyone knows this, yet financial CEOs have replaced the Mob as the most despised group in the country.

The good news is that Americans have short attention spans. Before long, some other group will come along to absorb all the frustration and anger.

Meanwhile, I'm off to the tailors to get some clothes altered. Shopping your closet is great unless you've put on a few pounds over the years. I've been holding out hope that fewer nights out could shrink me to fit back into some of the past warhorses of my wardrobe. Unfortunately, our appetite for comfort food has risen in proportion to the Dow's decline; the selloff this past month has upped our mac-and-cheese intake and created a sinecure for my seamstress.

What Determines Your Credit Score?

2009-02-06T00:30:00.001-08:00

The New York Times had a recent article about credit scoring. Your credit score is a score that is determined by a company called Fair Issacs. The exact algorithm is a closely guarded secret but its a good indicator of your credit worthiness.

¶ 35 percent is determined by your payment history. Do you regularly pay your bills or fines on time to any creditor that submits your information to the credit bureau? Even unpaid library fines, medical bills or parking tickets may appear here.

¶ 30 percent is based on the amounts you owe each of your creditors, and how that compares with the total credit available to you or the total loan amount you took out. If you’re maxing out your credit cards, your score may suffer.

¶ 15 percent is based on the length of your credit history, both how long you’ve had each account and how long it’s been since you had any activity on those accounts. The fewer and older the accounts, the better (assuming you’ve made timely payments).

¶ 10 percent is based on how many accounts you’ve recently opened compared with the total number of your accounts, as well as the number of recent inquiries on your report made by lenders to whom you’ve applied for credit. Your score can drop if it looks as if you’re seeking several new sources of credit — a sign that you may be in financial trouble. (If a lender initiates an inquiry about your credit report without your knowledge, though, it should not affect your score.) Shopping around for an auto loan or mortgage shouldn’t hurt, if you keep your search to six weeks or less. But every inquiry you trigger when you apply for a credit card can affect your score, says Craig Watts, a spokesman for Fair Isaac. So be selective.

¶ The final 10 percent is determined by the types of credit used. Having installment debt — like a mortgage, in which you pay a fixed amount each month — demonstrates that you can manage a large loan. But how you handle revolving debt, like credit cards, tends to carry more weight since it’s seen as more predictive of future behavior. (You can pay off the balance each month or just the minimum, for example, charge to the limit of your cards or rarely use them.)

For the best rates on a loan or credit card, you want a score that’s above 700, at least. To achieve that, make sure to pay all your bills on time. It’s also a good idea to have at least one credit card you plan to use for a long time, but not too many. Keep a low balance — generally less than one-third of your total credit limit. Of course, it’s best to pay off your balance entirely each month. And stay on top of the information in your reports.

From what I've heard over the years, you should ideally have 4 lines of credit (credit cards, store cards or other loans) with less than 50% utilization for a better score. Also if you've had a credit card for years that you don't use and doesn't have a balance on it, don't close it. It just might lower your score. (Of course if you signed up for a gazillion cards in college and can't keep track of them, by all means close a few).

Will World Trade Come To A Halt?

2009-01-30T12:52:00.000-08:00

Here's an interesting email I received today. It's from Chris Mayer, a newsletter editor. He thinks that the Buy American Mantra might cause global trade to stop as countries everywhere erect trade barriers. Not a pleasant thought.

I’ve come to calling what we’re going through the “The Great Suppression.” It reflects the efforts of nearly every government everywhere to stem the unfolding depression -- even if it means nationalizing the banking system and destroying the currency in the process.

(A short digression on the word “depression”: Time was people called every economic bust a depression. The word “recession” came along later as a euphemism for “depression.” Politicians didn’t want to scare people, you know. In fact, the Oxford English Dictionary says that the word “recession” in this sense first appeared in an edition of The Economist in 1929. I like the old term better. Forget the technical jargon of today’s stuffed shirts.)

The most insidious effort of the Great Suppression is the clampdown on trade, which I’ve noted as a possible risk in prior alerts. It seems a natural turn of events. Economy gets bad. People lose their jobs. Workers clamor for help. Government blocks foreign competitors. Trade wars ensue.

The stimulus plan includes a “Buy American” provision. This means that any money toward infrastructure spending must use American-made iron and steel, equipment, etc. Sound good?

Well, funny thing is the companies that would benefit the most oppose the idea. Here is a quote from a Caterpillar spokesman:

“There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American, you are undermining our ability to export U.S.-produced products overseas. Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism. It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression.”

He overstates his case when he says the Great Depression would’ve been a one-year recession otherwise. Who is to say what might’ve happened? But it is clear that trade did grind to a halt. It is clear on the historical record that countries raised tariffs everywhere. It is clear that this did not help, and it took decades to unwind the damage to world trade.

As you know, I’ve been spending some time studying the Great Depression and the markets of the time. It’s like reading a realistic horror story. I am chilled by the spooky similarities between then and now. In fact, America in 1933 did implement a “Buy American” provision.

Whatever your political leanings on this question, you better think clearly when you invest your money. This provision is a big potential negative for investors. We own several American companies that have significant export businesses.

These are things I will watch carefully. A freeze in global trade will definitely have an impact on how we invest, should such a freeze materialize.

One thing I learned in Economics class was that trade tariffs have a net loss effect on the consumer. Of course, politicians never learn anything about economics. They're just interested in power and being relected!

Time To Short US Treasuries?

2009-01-28T01:36:00.000-08:00

Barrons thinks that the yields US Treasuries are too low and are due to bounce this year, causing a major correction in the bond prices.

Amongst the reasons cited are strong gold prices:

One sign of trouble for Treasuries is the resilient price of gold, which has risen $150 an ounce since late October, to $880 an ounce, despite weakness in most commodity prices. Investors rightly see gold as an appealing alternative to low-yielding Treasuries and virtually nonexistent yields on short-term debt as the government cranks up its printing presses. Gold was up $45 an ounce last year, while oil was down 50%. Another worrisome indicator: The dollar has weakened recently, losing 10% of its value against the euro in the past month.

Chief investment officer at PIMPCO advised to get out of treasuries, stating that they're very expensive and offer no margin of safety.

Check out this post to see a way to profit from a potential decline in Treasuries.

When Will China Be The World's Largest Economy

2009-01-16T12:41:00.000-08:00

Very recently there was a news article that China officially passed Germany as the third largest economy in the world, behind the U.S. and Japan. Most people shrugged, it was inevitable.

But it shows that China’s role in the global economy is bigger than ever. Even amid a global depression, China’s potential is mind-bogglingly vast. What follows are some thoughts on China’s potential:

China Will Be No. 1 When?

If China’s economy continues to grow at its current rate, it will pass the U.S. as the world’s largest economy in 18 years. Of course, it won’t grow at its current rate for 18 years -- not continuously, anyway. It will grow somewhat slower in spots and sometimes faster. What growth rate comes out in the end is anybody’s guess, but the 18-year guess will probably be off.

Then again, the guess also assumes the U.S. stays where it is. And that is also unlikely. The U.S. economy shrank last year and looks to shrink again in 2009. Meanwhile, China is one of the few big economies still growing, though at a slower pace. The result is that China will actually make up ground faster in 2009. As Ting Lu, a Merrill Lynch economist based in Hong Kong, notes: “In 2007, the gap between the growth rates of China and other big countries was huge. Actually, in 2009, the gap between will be even bigger.”

As the Great Depression II continues to lay siege to the world’s economies, China remains a coiled spring of growth. Even though China is now the world’s second- or third-largest economy, it still is a relatively poor country. And its resources are barely tapped.

The vast potential of China is hard to grapple with. Already, China has built the world’s largest building (Beijing’s airport terminal) and its longest transoceanic bridge. It has the world’s fastest train and the biggest dam. As John Pomfret, former bureau chief for The Washington Post in Beijing, observes: “It is a nation of builders, of grand schemes, of gigantism.” He calls China’s engineers “some of the world’s biggest risk-takers. Geeks with guts.”

Don't underestimate China's potential!

How To Spot A Toxic Wife

2008-12-17T18:35:00.001-08:00

The UK Telegraph had an interesting article on a new breed of Toxic Wives. Their sole aim in life is to find a rich husband, had a kid and then get a divorce and milk him for half of his wealth.

According to Susie Ambrose, who runs a ''gold-digger-vetting'' agency there are

increasing amounts of women who are desperately materialistic and who have learnt the art of ''faking love''. They don't want to marry for emotional support, intimacy or companionship; they are driven by monetary rewards.

Unfortunately, with the global financial meltdown, TWs are having a rough time with their rich husbands suddenly going broke overnight. The result is to try and take 100% of whatever is left.

Well, in order to save yourself the heartbreak and financial ruin, here's some tips on How to spot a Toxic Wife:

1 Women who are secure in themselves and have a more developed emotional intelligence and personal depth do not feel the need to show off. Check whether or not she is festooned with 'designer' accessories. Listen carefully to what she says. How often does she name-drop?

2 On first acquaintance, she will want to find out if you're rich or not. If you find yourself discussing your assets within the first 10 minutes you know her agenda. She is not going to waste time on you if you don't have serious money.

3 She will flirt without first finding out if you're married or involved with someone else. She has no scruples about stealing another woman's man.

4 Even though she may have an impressive job, her main asset is sex. She will come on in a highly provocative manner, be wearing lots of make-up and revealing clothes. Potential toxic wives are extremely clever. Do not equate intelligence with emotional values and worth.

5 Often she will use the FSFM tactic (feel sorry for me). This will manifest itself on the second or third date. She wants to assess how generous you can be and will tell you how ''naïve" she is and how "misled'' by some nasty people she owes money to. As a chivalrous male, you get out your chequebook.

6 You must find out how motivated she is. Ask her what her future goals, dreams and aspirations are.

7 Toxic gold-diggers tend to target older men. And your level of physical attractiveness makes no difference. Do you genuinely wildly arouse her or is this all an act?

8 She will choose the most expensive item on the menu or the most expensive drink.

9 Men, who have been recently widowed or divorced are great prey. You are at your most vulnerable.

10 Before you marry, go on holiday together or spend at least some time co-habiting. Remember, if you make a mistake you will pay for it for the rest of your life.

Here's a funny email from Bill Bonner author of Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, a wildly entertaining book on history of manias, investing and finance that I'm currently reading right now.

“Don’t you know there’s a worldwide financial meltdown?” we asked Elizabeth last night. “This is no time to be buying new furniture.”

“Well, I needed a new desk. But I’m not buying anything else.”

“Aren’t you picking up a new horse trailer tomorrow?”

“Yes, but I ordered that before the crisis hit. When I thought you had some money...before you started worrying about going broke.”

The phone rang.

“Who was that?” we asked a few minutes later.

“That was the curtain man. I need to get new drapes for the living room.”

“What’s wrong with the old drapes?”

“They’re just not right.”

“They’ve been okay for the last 13 years...what’s suddenly not right about them?”

“They’ve never been right...and I’ve finally realized what it is...so I’m going to change them.”

“Don’t you realize that there’s a global financial crisis? This is no time to be spending money.”

“Yes, but the crisis is likely to go on for 10 years...and I don’t want to live with drapes that aren’t right for a whole decade...and then buy them after we’re too old to enjoy them.”

“You’re not one of those ‘toxic wives,’ are you? You know, those women who leave their husbands after they lose their money.”

“Don’t be silly. You didn’t have any money when I married you. And I’ll stick with you even if you go broke. We may not have any money. But at least we’ll have nice curtains to look at. That’s why I’m getting them now...while you’ve still got some money left.”

Government Guaranteed Depression

2008-11-16T14:30:00.000-08:00

Here's a very interesting article by Dan Amoss:

The American people voted for change…and now they’re going to get it. But the change they get may not be the change they expect Obama to deliver. Something more sinister may be coming our way.

After an historic election and inauguration, president-elect Obama will enter office with a huge list of challenges. These challenges — from a contracting economy to large-scale corporate bankruptcies to soaring national indebtedness — will undoubtedly restrict his agenda.

Let’s hope Obama recognizes the need for incentives, profits, and capital investments in the economy. The economy cannot be taxed and regulated without potentially severe consequences. Former Fed Chairman Paul Volcker (and the last Fed chairman to provide adult supervision for the banking community) is an Obama adviser. So Obama should be apprised of the consequences of Carter-era deficit spending and money printing.

At the very least, Obama must act as a check on the potential for a Democrat-dominated Congress to turn a recession into a depression.

For example, some in Congress are floating a proposal to steal your 401(k), sell the proceeds, and invest in “government-guaranteed” retirement accounts. The only thing this Marxist idea would guarantee is a depression. Call or write your congressman if you feel that your 401(k) is in danger. We shouldn’t allow them to steal more from prudent savers than they already have.

Keep in mind that presidencies rarely resemble campaigns. President Bush campaigned on limited government and a humble foreign policy, and we got the opposite. To top it off, we had the illusion of real growth, with credit and housing bubbles that led to the greatest misallocation of resources in history.

The free market has been falsely accused for this financial crisis. But the free market didn’t get us here; a combination of government spending and crony capitalism did. Much ink is wasted on how we need to re-regulate Wall Street, but the fact is that the problem would never have grown so large without agency conflicts.

The agency conflict on Wall Street is the mentality of “heads I win, tails you lose.” CEOs, traders, and mortgage-backed security factories were paid more for taking more risk. So it shouldn’t surprise us that they overdosed on leverage to magnify returns, without considering risk.

Performance pay should be based on creating long-term shareholder value, not on meeting next quarter’s earnings estimate. A good place to start would be bonuses in the form of restricted stock that does not vest for 10 years. I doubt Lehman would have blown up if employees were paid modest salaries with the potential for sizeable ownership stakes in the future.

Much of our current mess resulted from totally complacent, incompetent boards of directors. Carl Icahn has good ideas for how this can be addressed without excessive regulation. Icahn explains how most corporate boards behave like government bureaucrats in this post . In my view, we need an economy in which everyone acts like owners, rather than CEO-pillagers.

A banking system built upon on a foundation of paper money also contributed to this crisis. The Treasury and Fed allowed institutions to grow “too big to fail.” Without taxpayer subsidies (i.e., Fannie and Freddie — two of the worst crony capitalist institutions in history) and the subsidy of Fed rate cuts, housing prices would have kept growing in step with household income. Instead, house prices went to the moon. Precious capital was thrown into a black hole when mortgage-underwriting discipline went out the window and homebuyers deluded themselves with bubble psychology.

When the current deflation fears are finally slain by widespread recognition that paper money is limitless, we’ll probably see a return to inflation and higher long-term interest rates.

For now, though, demand for bonds remains strong (rates remain low). So the government will likely keep issuing record amounts of new Treasuries and use the proceeds for bailout after bailout, instead of for productive uses. In other words, the government will toss billions of dollars at walking corpses like AIG – a company that produces nothing but spectacular losses and embarrassing headlines – instead of tossing billions of dollars at companies that produce essential items like barrels of oil or bushels of wheat. When governments toss easy credit toward non-productive industries, the supply of currency soars relative to the supply of goods and services. We call this phenomenon, “Inflation.”

The U.S. government’s massive borrowing requirements over the next several months will absorb a lot of the private capital that would otherwise fund various productive enterprises. So that means that farmers and miners and manufacturers will struggle to secure the credit and investment they need to finance their production. And if farmers can’t get credit, they can’t plant crops, which means that grain supplies are likely to fall…and prices to rise.

As Albert Einstein observed, “The significant problems we face cannot be solved by the same level of thinking that created them.” If the federal government proposes “solutions” to this crisis with the same type of thinking that got us here, we could be in for a very long period of economic pain. America’s status as a destination for foreign capital is at stake.

If the new government fails to act wisely and understand how we got here, the only “government guarantee” we’ll have is depression.

I think this scenario will play out. The only question is when it will happen. When it eventually does, real assets like gold and real estate will soar. Right now you can buy both of these assets relatively cheaply.

Who's To Blame For AIG's Failure?

2008-10-25T17:51:00.000-07:00

Here's an interesting synopsis about why AIG failed so quickly.

When Lehman Brothers still existed, the bank had around $150 billion in debt. And the Securities and Exchange Commission let hedge funds and other investment vehicles take $365 billion of insurance out on that debt through the use of credit default swaps. It was like buying life insurance on someone you knew was going to die soon.

Now the sellers of these swaps are on the hook for $365 billion. And guess who sold most of the Lehman swaps? AIG.

When the history of this debacle is finally written, AIG will be at the center of the story. AIG sold insurance on hundreds of billions of dollars of assets, with almost no collateral. It, along with Fannie and Freddie, was the primary reason so much credit was created and the primary reason so much credit has been destroyed.

So where was AIG's risk management? Isn't that insurance companies do, manage risk?

Super Rare Ferrari For Sale

2008-10-14T15:12:00.000-07:00

One of the world’s fastest modified sportscars is on sale at Trader – an 800bhp Ferrari F50 supercar.

The incredibly rare Ferrari F50 was made in the mid 1990s and came standard with a 520bhp 4.7-litre engine.

But this Ferrari F50 has been boosted to produce a whopping 800bhp – making it one of the fastest cars in the world.

The convertible F50’s trademark V12 engine has had two turbochargers with adjustable boost pressures bolted on, and is fitted with an upgraded exhaust, electrics and inter-coolers to stop it from melting.

And this engine work has meant the drop-top Ferrari – widely considered to be the finest driver’s Ferrari ever built – can accelerate from 0-60mph in just 3 seconds.

This makes it nearly a second faster than the standard F50 and half a second faster than the Ferrari Enzo.

And the car’s 800bhp makes it more powerful than Paris Hilton's Mercedes-Benz SLR McLaren and Porsche Carrera GT, and puts it on a par with the 806bhp Koenigsegg CCX.

The Ferrari F50 was built to celebrate the company’s 50th anniversary, and just 349 models were built between 1995 and 1997. Apparently the company just announced that in order to maintain the ferrari brand's exclusivity, it will produce one less car this year! Or maybe they're just using that as an excuse to cover up the drop in sales due to a recession!

If you're wealthy enough, you can pick up this sweet Ferrari for a whopping $800,000. But if you're like rest of us poor people, you'll have to make do with cheap Ferrari Clothing!

The Gold/Oil Ratio

2008-10-12T10:25:00.001-07:00

I subscribe to a lot of investment newsletters. One of them had a reader who asked an interesting question:

You have previously shown us charts indicating that gold was cheap compared to oil. With gold now moving inversely to oil, will you make the comparison again for us?
The key to the gold/oil ratio is the number 10. An ounce of gold ought to cost more than 10 barrels of oil. When gold is less than 10 barrels of oil, something is badly wrong. Either oil is too expensive or gold is too cheap... or both.

When oil was at $140 and gold was below $800, the ratio was absurdly low – 5.7. Extremes like this are rare and they never last. Today the gold/oil ratio, at $900/$90, is back to around 10. We expect it will continue to trend higher. It typically peaks above 20. Assuming oil remains around $90, that gives you a $1,800 target for gold.

Not sure how accurate this is, but its pretty interesting nonetheless. And if you've read the latest Forbes magazine, there's an article predicting $500 oil by 2015! Would that mean gold would hit $10,000/oz?

Regardless of what happens, I'm sure golad I bought gold coins at $500/oz.

Shortage of American Gold Buffalo Coins

2008-09-29T17:40:00.000-07:00

The market dropped a stunning 777 points today, the worst drop in years. Not surprisingly, gold held it's ground today.In fact, it even popped $20 this morning as the market plummeted. The same way oil is reverting to a thought process of old, gold seems to be regaining its role as a “flight to safety.” It's currently selling for just over $900/oz.

But gold is still down 10% from it's highs this year of $1030/oz. Funnily enough,as the market for gold ramps up, the U.S. government has suspended sales of its most popular 24-karat gold coin.

The 24-karat American Buffalo is in such high demand that the US Mint has simply run out. The U.S. Mint sang the same tune for the 1-ounce American Eagle coins back in August. After running out of Eagles, the Mint suspended sales and later reopened the market to only “designated dealers.”

As of last week, the Mint had sold over 164,000 American Buffalo coins in 2008, up 54% from the same time last year.

Isn't it odd that there is a shortage of physical gold and yet the prices are lower than they were several months ago? Am I the only one wondering about this supply-demand anomaly? Or maybe it's a new economy, just like the stock market in 1999 when revenue and profits didn't matter, but esoteric new criteria like "number of eyeballs" were developed.

If you want to buy gold coins and are having a tough time finding them, check out this store which aggregates my favorite set of gold coin collectibles.

Are Hedge Funds Worth It?

2008-08-23T20:46:00.000-07:00

Hedge funds have been receiving a bad rep over the past few years. Funds like those of Bear Sterns lost Billions in investor capital by making bad, overleveraged bets. And they charge a whopping 2% front-end load and 20% of the profits. Compared to many other well performing funds, this is outrageously high.

Is this enormous fee worth it? Here's a very interesting email I received today:

This could be the worst hedge fund in the world... Jonathan Wood, a former UBS trader, founded hedge fund SRM Global Master Fund two years ago. Now he's bust. Wood took positions in Bear Stearns, the defunct investment bank; Countrywide Financial, the posterboy of the mortgage debacle; and Northern Rock, the U.K. bank that experienced a run on its assets.
SRM Global Master Fund raised $3 billion in 2006 and is down 85% through July. Investors agreed to a five-year lockup, so they haven't been able to redeem. See what you get for "2 and 20"?

Makes the -15% year to date return of the US stock market look pretty stellar in comparison! I guess sometimes simpler investments are better!

Getting Out Of Medical Debt

2008-08-11T23:09:00.000-07:00

There are a lot of people who file bankruptcy each year due to huge medical bills that they just cannot pay.

The Wall Street Journal recently had a good article on getting out of Medical Debt. It seems that there are 77 million Americans struggling with medical debt, despite the fact that 62% carry health insurance.

Anyone who's financially struggling with medical debt should do the following:

1. Check for errors
By some estimates, 90% of hospital bills contain errors.

2. Stay on Top of the Insurance Company
If there is some dispute between the hospital and the insurance company, the easiest route is to just kick the bill to the patient. Make sure that the insurance company pays their fair share.

3. Negotiate
Everything in life is negotiable! However, its easier for patients without insurance to negotiate.

4. Ask For Help
Many hospitals have a financial aid center with access to government programs that can help pay for your treatment.

5. Ask for a Payment Plan
With treatment running into hundreds of thousands of dollars, all hospitals offer some sort of payment plan.

6. Don't Ignore The Collection Agencies

Ignoring letters from collection agencies will only ruin your credit. Instead try and settle for 25 or 50 cents on the dollar.

Which Would You Choose Life Experience or "Stuff"?

2008-07-29T21:38:00.000-07:00

by Steve Sjuggerud.

This month is my 10th wedding anniversary. So I thought I'd share a story of one of the many "little-but-big" things I learned from my wife. I am lucky to share my life with her...

I couldn't believe it...

A friend of my wife's wanted yet another purse... that cost thousands of dollars. She already has a closet full of them! What's the point of another?

My wife asked her a simple question: "Which would you prefer... Life experience or stuff like another purse?"

The friend thought about it, and she actually said she preferred the stuff. Hey, to each her own.

My wife and I try to focus on the experience over the stuff... For example, our kids (ages seven and five) are probably the only kids they know that don't have a PlayStation, or an Xbox, or a Nintendo Wii. They don't have a ton of stuff. But they're oozing with life experience...

Our kids have seen the world... They've been as far north as Iceland, and we toured much of it. And they've been as far south as New Zealand, traveling much of the North and South Islands by car as well.

Yet we don't have big flat-screen TVs in our living room or den. I can understand why big movie fans and big sports fans want 'em. They're just not important to us. (Are we the last Americans to actually have regular TVs?)

The great thing is, life experiences don't have to cost much at all (particularly if you can use some frequent flyer miles)... Our family just went to visit my folks for a week in Wisconsin, and I came back with most of the money in my wallet. Playing in the lake, riding ponies at the State Fair, and unbeatable home-cooked breakfasts from Mom. Everyone had a great time. And it sure didn't cost much.

If you're caught up in "stuff" if you "need" another thousand-dollar handbag then you've got to realize, the acquisition of stuff never ends. That flat screen won't be worth more than you paid for it. And neither will that handbag. You'll never get ahead. You'll never really "have money."

I define living well as 1) having time with friends and family, 2) pursuing my passions, and 3) well, not worrying about money. The nice thing is, you don't need a fortune to live well by that definition.

So which is it for you? Do you value life experiences or "stuff?" Which do you put a premium on? Remember, you can't take the stuff with you and you'll be busy working for the rest of your life to pay for the stuff.

By the way, my wife's friend thought about it, and later she called and said, "You know, I thought about what you said... I think you're right. It really is about the experiences, not the stuff."

New Passive Income Stream: RevResponse

2008-07-14T11:59:00.000-07:00

June was a record breaking month for me. I made $3,354.41 last month from various different sources, of which $2254.93 was online revenues. You can read about the compelete breakdown at Living Off Dividends & Passive Income.

Last month I introduced yet another source of online income, a company called RevResponse. I only made $17.50, but I didn't do anything to promote it either so I can't really complain. Making an extra $200-250 a year for an hour's worth of work isn't too bad! Plus when you combine it with the other sources of income, they all add up to a significant amount.

RevResponse gives away free magazines and white papers on a slew of topics ranging from Global Finance and Banking, to Autmobiles and Internet Marketing.

They also offer free trials to popular magazines like free trial to the the Economist. Old School programmers might remember Dr. Dobb’s Journal. Well, it’s available for free too.

RevResponse co-brands your site so your readers are taken to a site that replicates the look and feel of your own website or blog. This picture replicates the Living Off Dividends & Passive Income site.

For every qualified subscription request your site generates, you get minimum of $1.50. You can run this in conjunction with adsense and other affiliate programs. They make their payments via paypal. They also pay for referrals. And best of all, its free content!

If that wasn't enough, they’re also giving away $50 for a plug to their site in July. So if you’d like to make an easy $50 for 10 minutes worth of work, plus have an on going passive revenue stream, all you need to do is sign up with them and write a brief post on their services. So what are you waiting for? Join RevResponse Now.

Jim Rogers: The American Dollar Is A Flawed Currency

2008-06-29T16:23:00.000-07:00

Legendary investor Jim Rogers thinks the US economy & dollar is on sever decline. Check out this great article in the UK's Guardian newspaper:

Indiana Jones and the China crusade
by Nils Pratley

Jim Rogers, investment guru; co-founder of Quantum Fund with George Soros

The American dollar is a flawed currency and will collapse in value before the end of the decade, taking with it the prosperity of the American nation. Investors should be buying commodities - platinum, lead, wheat, sugar, oil, the sort of assets that haven't been fashionable for a quarter of a century or more. While you're at it, teach your children to speak Mandarin, the coming language of the 21st century. And don't encourage them to do an MBA: "Tell them to be a farmer and do a real job."

Such advice, if given by your regular financial adviser, would probably provoke a complaint to the ombudsman. The speaker, though, is Jim Rogers, a legendary Wall Street name. The Indiana Jones of finance - a nickname earned by virtue of two round the world trips in the name of grass-roots investment research - has become a multimillionaire by backing such views with hard cash.

In 1973, Rogers and George Soros founded Quantum, one of the first and most successful hedge funds. In Britain, the Quantum Fund is best known for making £1bn by selling sterling ahead of Britain's exit from the exchange rate mechanism on Black Wednesday in 1992, but Rogers' contribution came before then. He helped Quantum to return a 4,000% gain in its first 10 years and departed in 1980, staying a year longer than he had intended only because 1979 had been so profitable - he predicted the stock market crash of that year.

The "poor boy from Alabama" whose first job was picking up bottles at baseball games at the age of five, retired at the age of 37 a very wealthy man. He set about managing his own fortune and travelling the world, projects that have become virtually indistinguishable over the years. In the early 90s, Rogers travelled 65,000 miles roving the world by motorbike and related the tale in his first book, Investment Biker. Last year, he completed a second, Adventure Capitalist, which was the result of an even more ambitious journey: a three-year, 150,000 mile journey by custom- built Mercedes across 116 countries with his girlfriend, who became his wife along the way - in Henley-on-Thames, of all places.

Snake burger

Like the earlier book, it is part anecdote - what it's like to eat snake; what happened when he forgot about the bottle of vodka in the boot when trying to enter Saudi Arabia - but the heart is commonsense investment analysis built on firsthand observations. His philosophy is that you learn about a country from talking to brothel owners and black marketeers rather than government ministers.

In conversation, Rogers rattles along in similar style. He punctuates everything with American-style full disclosure of his personal holdings - "I'm short Citibank, incidentally," he will interject into a dissection of the rotten heart of the American stock market - and delights in challenging received wisdom. His central argument is that a new bull market has started that will match the fireworks seen in the dotcom-fuelled stock markets of the late 90s. This time, though, the bull market will be in commodities not shares. Rogers' reasoning is straightforward: raw materials are running out.

"There has been no great oil discovery in the past 35 years," he argues. "The North Sea has peaked. Alaska is in decline. Mexico is in decline. All these great oilfields are in decline. To anybody who thinks I am lying about this, I would ask: where is the oil going to come from?

China bull

"Mines deplete. Wells deplete. It's supply. In the 1970s, we had horrible economies around the world, but commodities skyrocketed despite those horrible economies because there was no supply. That is happening again."

How high is high? The nature of all bull markets, he argues, is that prices go higher than anybody would have imagined possible. "Nobody could ever have thought that Cisco could go to $75 [it had been $5 a few years earlier]. Who would have thought in the 1970s that oil could go to $40 a barrel - it was $2 a barrel in the 1960s," he says.

"Sugar in 1966 was 1.4 cents per pound. In 1972 - six years later - sugar was 66 cents. Who could have conceived that? For decades, it had done between one and five cents. If you had said in 1966 that it would go up 47 times they would have made you certifiably insane. But it happened."

Hand in hand with this faith in the value of commodities is a long-term confidence in China, whose appetite for raw materials has already fuelled a strong rise in commodity prices in the past 18 months. All the best capitalists live in communist China, he argues, and overseas Chinese are returning with their capital and expertise. He has employed a Chinese nanny for his one-year-old daughter. Mandarin will be the most important language in his child's lifetime, he thinks.

But even this China bull predicts a major economic slowdown there, with accompanying political unrest, very soon. In this, he is not wholly out of the line with the consensus thinking - City economists are currently debating whether China's landing, after a decade of extraordinary growth, will be hard or soft. Rogers' view is that it will be very hard, but will also represent a golden investment opportunity.

"I remind you of the last two times that China had to cut back an overheated economy," he says. "In the late 80s, it led to Tiananmen Square when things got out of control and the second time was in the mid-90s, when they had to devalue their currency. Sometime this year or next you will see headlines in the Guardian, 'Turmoil in China'. At that point, you buy all the China you can and all the commodities you can because that will be bottom of the consolidation in commodities and consolidation in China."

Buying in the face of prevailing hysteria is a principle that has served Rogers well over the years. Crisis in China - however serious it looks at the time - will merely mark the end of the first leg of this new bull market, he thinks.

"Remember," he enthuses, "that the second leg is wonderful, and the third leg is spectacular. In the fourth leg, there is dancing in the streets and in the fifth leg people are hysterical and everything is skyrocketing every day. We are nowhere near the second leg, much less the third, fourth and fifth legs."

His bearishness on the US dollar is predicated on economic fundamentals, notably the balance of payments. Alan Greenspan, the chairman of the Federal Reserve and Rogers' bogeyman-in-chief, has been printing money on an unprecedented scale and President George Bush has been spending it just as rapidly.

"The US owes the world $8 trillion," he argues. "We are the world's largest debtor nation by a factor of many times and our foreign debts are increasing by $1 trillion every 21 months. That's terrifying.

Dollar demise

"People need to understand about this major change in the world and about the demise of the US dollar. The US dollar is going the way that sterling went as it lost its place as the world's reserve currency. I suspect there will be exchange controls in the US in the foreseeable future. It will be a complicated and difficult currency."

Not that Rogers is a fan of many currencies. He says he has stakes in a dozen but has "no confidence in any of them". He expects the euro to fail eventually but holds some anyway because he judges it to be less flawed than the dollar. For the record, his daughter's assets are held in Swiss francs and gold, silver and platinum coins.

Unlike his old partner, Soros, who has devoted part of his vast fortune to opposing Bush's election campaign, Rogers stands wholly outside the political fray. He calls the US-led invasion of Iraq a "horrible, horrendous, unbelievable mistake", but thinks the Democratic candidate, John Kerry, would make his own mistakes. "They wouldn't be politicians if they knew what they were doing," he says, far from flippantly.

The balance of payments, and the looming dollar crisis, make the election result irrelevant, he argues: "Whoever is elected president is going to have serious problems in 2005-06. We Americans are going to suffer."

The CV

Born 1942, Alabama

Education Yale; Balliol College, Oxford

Career US army; co-founder, Quantum Fund; professor of finance, Columbia University Graduate School of Business

Family Married to Parker Paige with a daughter

Interests Henley royal regatta

I've Pulled My Cash Out Of The Banky

2008-06-09T14:42:00.000-07:00

Not having much faith in the US Dollar, I've put a lot of my cash savings & investments into FXA (Australian currency shares ETF), gold and Canadian Income Funds (AAV, HTE, PGH, etc).

The financial sector is in meltdown and the market isn't doing so well these days.
The dollar's been crushed, and oil prices have spiked, so I thought you could do with some humor.

"Americans love to live swanky,
so we don't really like Ben Bernanke.
He's tough on the dollar,
makes me want to holler,
‘What is up with your rate hanky-panky?’

When I read about Mr. Bernanke,
I tend to end up kind of cranky.
He may be a scholar,
but he's breaking the dollar.
I've pulled my cash out of the banky".

Why I Never Hire Brilliant Men

2008-06-06T06:59:00.000-07:00

The article below appeared in the February 1924 issue of The American Magazine. The American Magazine was one of those general-purpose mass-circulation magazines which transmitted the popular culture of the day to the households of America. The magazine boasted on its cover "More than 2,000,000 Circulation," quite impressive in a nation which numbered 106 million as of the 1920 census. Though attributed to an anonymous author, Why I Never Hire Brilliant Men was the cover story of that issue, though the cover illustration was unrelated as was the practice of the day. (The New Yorker, one of the few survivors from that era, still carries on this tradition in its offbeat covers).

The article explains all the faults that the author found endemic among brilliant men. They start well but never finish, they get excited over revolutionary developments but grow weary at repetitive small tasks. This was so exasperating to the author that, after experiencing several such brilliant men in his business, he gives up on them in the sense of the title. Relatively interesting reading, full of pithy quotes and life lessons learned from individual experiences, the article could almost be freshened up for a modern-day issue of Reader's Digest, with its prescriptions of hard work and assurances of success for those who keep trudging away. A Times article on Google's hiring practices contrasted its legions of Ph.D. holders with the more traditional view that excessive education makes one overqualified:

Until recently, when computer science students completed their long Ph.D. training and stepped into daylight, they were treated warily by industry employers. American business has had to overcome its longtime suspicion of intellect. "Why I Never Hire Brilliant Men," an article published in the 1920's in the American magazine, is a typical specimen of an earlier era. In modern times, computer scientists are hired, but a doctorate can still be viewed as the sign of a character defect, its holder best isolated in an aerie.
— "What Is Google's Secret Weapon? An Army of Ph.D.'s" by Randall Stross.
The New York Times, Sunday, June 6, 2004, Late Edition - Final,
Section 3, Page 3, Column 1.

Why I Never Hire Brilliant Men

SITTING in my office last week, facing the man whom I had just fired, I thought of the contrast between that interview and our first one, nearly two years ago! Then he did almost all the talking, while I listened with eager interest. Last week it was I who talked, while he sulked like a petulant child.

"Your contract has sixteen months to run," I said. "My proposition is that we cancel it at once, and that I hand you this check for ten thousand dollars."

With a show of bravado he waved the check aside. He would hold me to the letter of the contract if it were the last thing he ever did.

I told him he had that privilege, but I was sure he would see the futility of exercising it.

"Let me review the situation for a moment," I continued: "You came to us as general sales manager on January 1st, 1922, at a salary of twenty-five thousand dollars. It was by far the largest salary we had ever paid in any executive position; but your record seemed to justify it.

"The letters you brought spoke in the highest terms of your sales genius. The only question which they did not answer to my satisfaction was why companies which had valued you so highly should ever have allowed you to get away! When I voiced this, you stated that they merely had been outbid by their competitors -- and I accepted your statement. It wasn't until you had been here a year that I learned the truth. You are a quick starter, but a poor finisher -- no finisher at all, in fact."

"Who told you that?" he demanded.

"Nobody needed to tell me. I found it out from your effect on our own organization."

"Organization!" he sneered. "You haven't got an organization."

"So you have remarked to me frequently," I answered; "and you may be right. Our folks have mostly grown up in our own business; they know comparatively little of the way in which things are done in other lines. That's what we wanted you to teach us, and you were very sure that you could . . . We were all receptive."

"Yes, you were!" he exclaimed scornfully. "Your folks were jealous from the day I arrived. They sat back and dared me to show results. I told you that six months ago."

"I remember you did," I replied, "and my answer is just what it was then. You claim to be a brilliant salesman, and yey you failed in the first essential. You never sold yourself to the people with whom and through whom you had to work. You say they were jealous, but a man of your intelligence ought to know that the answer to jealousy is modesty, hard work -- and results. The would have jumped on your band wagon fast enough if you had made them see the advantage of it. But after waiting around for the band wagon to start, they concluded that it wasn't going to start, and it never has.

"You brought your own assistants, and we paid them high salaries," I went on. "You moved our offices away from the plant and took these expensive quarters in the center of town. You were given a sales and advertising budget more than twice as large as any we have ever had before. Every request you made I granted as whole-heartedly as I knew how, because I believed that your fresh ideas were what this business needed. But twenty months have passed, and the sales simply have not grown.

"That's the stubborn fact which can't be blinked; and now it's come to a point where I must choose between you and my good old wheel horses who, in spite of their mediocrity, have somehow managed to build a very profitable business.

"You can stay here until your contract expires, but you will have no further responsibilites. The news will get around that you are merely hanging on; and when the end comes you will step out, discredited, to look for another job. Or you can leave now with ten thousand dollars, which is the additional penalty I am willing to pay for my mistake in judgment. If you go in the proper spirit, you are still young enough to profit by your failure."

HE MADE a little further show of protest, but he took the check.

I wonder what old-line company will next be dazzled by his sales talk; and what I ought to say when the president writes to ask me why we were willing to let him go. If I tell the entire truth it may end his business career. And there is always the hope that, next time, he may enter modestly upon his opportunity and produce real results. For he has the talent; there is no doubt about that. He is undeniably a very brilliant man.

When I was a small boy my father bought me two pairs of shoes; one at two and one-half dollars and the other at five dollars.

"My son," he said, "I want you to wear these two pairs of shoes on alternate days, and watch them carefully. Later on I will ask you to tell me about them."

Without understanding at all what he had in mind I wore the two-and-one-half-dollar pair on Monday, the five-dollar pair on Tuesday, and continued to give them equal service for about six months. At the end of that period I reported that the cheaper shoes were worn out.

"How about the other pair?" he asked.

"Here they are," I answered; "I've had them half-soled and they are as good as new."

He nodded his head, as if he had expected this information.

"I bought those shoes for a special purpose," he told me; "and I want them to be a lifelong lesson to you. There are just two grades of commodities in the world: the best -- and the others. My experience is that it pays to buy the best; and what applies to things applies equally to men. Pick out the best men for employers; and when you get along in life pick out the best men for employees. never mind what the price mark may be; the question is, what service will they deliver, and how long will they wear?"

I NEVER forgot that homely incident; but not until years later did I understand its full significance. The five-dollar shoe has a lot more wear in it because there was a lot more work in it. Even fine material, carelessly put together, will not make a fine shoe; but if material which is of just average quality is fashioned with special care and attention, it will result in a quite superior article.

What my father was trying to teach me was this: God Almighty, in fashioning his most useful men, often works slowly with quite common stuff. Now and then He turns out a quick job of superfine materials -- a genius who really delivers the goods. But most of His better grade line is ordinary in everything except the extra effort, and dogged determination, which have given it a finer texture and finish.

This knowledge, as I say, came much later. When I set out in life, it was with the idea that if I could attach myself to exceptional men, and exceptional men to me, my advancement would be assured.

In my sophomore year in college my father died. One of his insurance policies of twenty thousand dollars was paid to me; the balance of his estate went to my mother. It would have been far wiser if I had completed my college course; but I was ambitious to make an immediate record.

As it happened, I had come under the influence of the first of my costly collection of brilliant men. I will call him Carroll. He was five years older than I was and a member of my college fraternity. But he had dropped out at the end of his freshman year and was supposed to be making a great record with a wholesale grocery house in New York. We undergraduates were dazzled by the splendor of his visits. He wore fine clothes, smoked the best cigars, and talked with the assurance of a successful man of the world.

One night, following the initiation ceremonies at the fraternity house, he drew me into a corner and asked me about my plans. I had no plan, I answered, except to finish my course and to take the best job that came along.

"You'll just be wasting two years," he said decidedly. "You've got everything that college can give you, except a diploma. Look at me. I'm just as much a college man as though I had hung around here four years; and compared with my classmates I've got a three-years start in business. I've been watching you ever since you entered, and I think you have the stuff.

"I'll make you a proposition," he went on confidentially. "The big future in the grocery business is in chain stores." (In which he was right, as has subsequently been proved.) "I know the business; you have twenty thousand dollars. I know a city where we can buy two good little stores for that amount in cash, and pay off the balance out of the profits. When we get those two going right, we'll buy another, and another, until we have a big chain. It's a sure-fire fortune. You think it over for a few days, and if you want to hook up with me, let me know."

I was flattered by his interest, so I thought it over. That is, I indulged in what young men frequently mistake for thought. In imagination, I saw my name over the door and myself in a fine glass office looking out and watching clerks taking in money. I had, in anticipation, the thrill of buying one store after another and going from town to town on tours of inspection. I tickled my fancy with the idea of coming back to college and letting the boys consult me as an experienced man of affairs. And having finished this process of "thinking" I wired Carroll that I was ready to join him.

WE BOUGHT our two stores; there was no trouble about that. We hung out the signs which my imagination had pictured, washed the windows, rearranged the goods, painted the delivery wagons a bright red and worked like Trojans. We made progress -- quite encouraging progress. One of the fine traits in human nature is the desire which almost every decent man has to help young men do well. The second month we broke even. The third month we began to show a small profit.

Everything might have gone well for us if it hadn't been for Carroll's brilliance. He walked into the office one night and sat down with an air of immense satisfaction.

"We're on our way, Jimmy!" he exclaimed. "I've just been over to Booneville and got an option on the best store there."

"How are we going to finance it?" I gasped. "We're short of working capital as it is, and I don't see how we can spread out our time any thinner."

"Leave that to your Uncle Dudley," he cried, with a wave of his hand. "I've been over to the bank, and they're willing to take a chance on us. It will be a tight squeeze for a few months; but we'll make it. And as for spreading ourselves too thin, don't you ever make the mistake of tying yourself down to this desk. Nobody gets anywhere by doing all the work himself. We'll take Ferguson" (referring to one of our clerks) "and make him manager here, while we step over to Booneville and breathe the breath of life into that dear old town."

His enthusiasm was contagious. We sat up half the night figuring and planning, and by one o'clock we had already moved on, in imagination, from Booneville to the two adjoining towns.

For another six months the sun seemed to be shining in at all our windows. We put on more delivery wagons, took an option on more stores, laid in lines of goods which had never been carried before, and reveled in the joys of big business.

Then the thing happened which was inevitable; we came smash up against inventory time and found that we had been insolvent for weeks without knowing it. Plenty of money was passing through our hands; but not enough stuck.

We made an assignment, turned over every cent we had in the world and trailed sadly back to New York, where I found a job as a clerk for one of the jobbers from whom we had bought goods.

Carroll, crushed to earth, rose brilliantly again. I heard of him next as one of the promoters of a new process for treating rubber. It lasted a few months, and exploded. Various enterprises followed, and my latest information about him is that he is practicing the profession of "Industrial Management." I should think it might be a good profession for Carroll. He is a bad employer for himself, but he could put a lot of ginger into somebody else's business, if the other man knew the trick of handling and properly discounting brilliant men.

Well, I went to work behind a high desk copying orders. After a while I was given a chance to sell; and ten years later, at the age of thirty-five, I was general sales manager. At this time the owner of the business died and was succeeded by his son, a man about my own age. I will call him Adams. He announced immediately that I was to be vice president and general manager, and made a private arrangement with me by which I was able to purchase some of the stock.

"I don't want to be tied down by details," he explained. "You know that end of things. I want to be free to work on big deals and think out plans for the future of the business. Father was a darned good man in his day, but he got pretty conservative toward the end. You and I together will do big things."

I OUGHT to have been warned; for while the voice was the voice of my new boss, the words were the words of my old partner, Carroll. Indeed, the two men were curiously alike -- both handsome, magnetic chaps with a facility for making quick friendships.

I was still young in experience, however, and I entered into the new arrangement whole-heartedly. But disillusionment came swiftly. Our principal customer walked into the office one afternoon and asked for Mr. Adams.

"He hasn't been in today," I said. "He may come later."

"May come," repeated the big fellow with unpleasant emphasis. "He had a definite appointment with me, and I've traveled a hundred miles to keep it."

I lied as nimbly as I could: Mr. Adams had been called away unexpectedly, I said. He told me about the appointment and would make every effort to get back. Probably he would come within the next half-hour.

But the customer refused to be mollified. He waited in Adams's office for exactly thirty minutes; then he stalked out.

At five-thirty that evening Adams burst in and began to unfold some new and splendid plan. It was dramatic -- a stroke of genius. But for two men in our circumstances it was impossible. When he had finished I poured the bad news of the Big Customer's call over him like a bucket of cold water. At once, all his enthusiasm died out; he was so contrite that I couldn't possibly be angry with him.

"That's a rotten shame," he exclaimed. "I forgot all about it. I'll write the old bear a letter and lay myself humbly in the dust."

And write a letter he did -- a masterpiece -- with delicate reference to the Big Customer's years of dealings with his father, and a profound apology. Better than that, he took a train and arrived in the Customer's office a half-hour after the letter, coming back with the best order we had ever shipped out.

He was brilliant, there was no denying it, and so lovable that I value his friendship to-day more than that of almost any other man in the world. But I couldn't stand him in the business; I decided that within the first year, and we had a showdown.

"One of us should go," I said in the course of the hardest interview of my life. "Either I'll sell my interest, or you sell me yours."

"I don't see why," he answered; and he had the look of a favorite puppy who has been scolded. "I thought you liked me."

"Like isn't a strong enough word," I said. "I love you, and you're brilliant. But I'm a commonplace plodder, and so are all our employees. Moreover, this is a plodding kind of business, where the money is made by pinching pennies. You're about as much at home in it as J. P. Morgan would be running a barber shop.

"You conceive a big idea, get the whole organization on tiptoes to carry it out, and then you lose interest and go off on a new tangent. You think everybody else's mind ought to function as swiftly as your own, so you are alternately overenthusiastic and over-depressed. One day you carry some poor devil up into a high mountain and make him think he has a chance to become general manager. The next day you blow him up for not doing something which you think you told him, but which you actually forgot. You are always living, in imagination, about six jumps ahead.

WITH Adams out of our business, it gradually settled down. That is a terrible phrase, I know, but it describes our situation. We no longer had the brilliant emotional moments which he had inspired; we didn't attempt any very daring exploits; but at the end of every year we had more money in the bank than we had while he ran things.

After that, I never hired a brilliant man from one of our competitors, nor listened to the siren-tones of "experts" who promised to double our volume -- until I encountered the twenty-five-thousand-dollar beauty I have mentioned at the start of this story. Every year I picked up a half-dozen live young fellows who seemed to have a capacity for hard work, and shoved them in at the bottom of the pile, letting them make their way up to the better air and sunlight at the top -- if they had it in them to do it.

For a time I tried picking these youngsters out of the colleges. But my experience with college men was not fortunate. If I selected good students, I found too often that their leadership had been won by doing very well what their teachers had laid out for them. They had developed a fine capacity for taking orders, but not much initiative. If I hired athletes, too many of them seemed to feel that their life work was done; that the world owed them a living in exchange for what they had achieved for the grand old school. Also, there is not much social distinction in the grocery business. Young ladies -- and their mothers -- are much more thrilled by bonds than by butter and eggs.

So I took most of my raw material from our delivery wagons, or other places right at hand. Out of this hard-muscled, hard-headed stuff I have built a business that has made me rich according to the standards of our locality, and has built modest fortunes for at least twenty other men. More important than that, it has stood for clean dealing and a faithful adherence to the best business ethics. Even our hottest competitors, I think, are willing to grant us that.

READING back over what I have written I am quite conscious that it is an indictment of myself, as well as of the brilliant men with whom I have been associated. Any reader might fairly say, "He was too mediocre to appreciate anything better than mediocrity."

That criticism may be justifiable, fo I am mediocre. But the point I have in mind is this: Business and life are built upon successful mediocrity; and victory comes to companies, not through the employment of brilliant men, but through knowing how to get the most out of ordinary folks.

I was talking not long ago with the president of one of the big insurance companies.

"There is not a single brilliant man in our organization," he said. "I am not brilliant myself. I am just an average chap who started in peddling policies, and -- knowing my own limitations -- felt that I must put in a couple of hours' extra work every day in order to hold my own against my competitors."

In one of our largest cities is a newspaper which is said to earn nearly a million dollars a year. It was on the verge of bankruptcy when the present owner purchased it. He has made it practically a daily necessity to the business men of his city -- complete, accurate, dependable.

One day a very talented journalist joined the staff in a position of considerable responsibility. He had been editor of a smaller newspaper noted for the brightness of its style; and in the first editorial counsel he volunteered a suggestion.

"You have made a marvelous success of this property," he said to the proprietor. "Nobody would think of suggesting any change in the news policies. But won't you let me hire two or three really brilliant editorial writers whom I have in mind? Even you must admit that there is room for improvement on your editorial page."

"What's the matter with the editorial page?" the proprietor demanded.

"Why, it's so -- so commonplace."

The proprietor was silent for a moment. Then he said:

"My dear sir, the average business man is commonplace."

There is a great deal of encouragement to me in that statement, and I find the same sort of encouragement in reading biography. Who have been the doers of important deeds? . . . Geniuses? . . . Yes, some of them. But not a majority, by any means.

No man contributed more to the winning of the World War than Lord Kitchener, who was one of the dullest boys that ever entered a school. All studies were hard for him, with one exception: he was remarkably good in arithmetic. Capitalizing that one point of strength, he learned to handle men in large numbers and to make accurate estimates of the strength of his own forces and those opposed to him. When brilliant men were talking about a six-months war, he bluntly prophesied a three-years war, and forced the Allies to prepare for it.

Charles Darwin, who revolutionized scientific thought, was so unpromising as a boy that his father predicted he would be a disgrace to the family. James Russell Lowell was suspended by Harvard for "continued neglect of his college duties." Neither of them showed any youthful brilliance; they matured gradually into eminence by the slow process of diligent effort.

SIR ISSAC NEWTON sat one night at dinner beside a very attractive and voluble young lady.

"My dear Sir Isaac," she exclaimed, "how did you ever happen to discover the law of graviation?"

"By constantly thinking about it, madam," her "dear Sir Isaac" muttered.

In that blunt answer lies the substance of my experience, and what I believe to be the real secret of business achievement.

So sure am I of the soundness of this philosophy that I have five very simple rules for hiring men, which are the outgrowth of it!

1. Has he good health? Some months ago a newspaper collected from a hundred young men a list of the qualifications they would seek in the girls they hoped to marry. The list differed widely, as may be imagined. But at the top of almost every one was written the asset which I put first in men -- good health. Without it the best man in the world is likely to become pessimistic in his outlook, and to break when he is needed most. With it, even mediocrity can force itself by unusual effort into something fine and useful. Generally speaking, I would rather have a man who was born frail, and has overcome his frailty by careful living, than take one whose natural strength has never known its limits. The athlete, like the genius, frequently disappoints; while the man who has had to fight for his health knows how to value and preserve it.

2. Has he saved some money? I don't care how much, or how little, but he must have saved something. At times, this demand may seem harsh. A man will say, "I have had parents to look after," or "I have had bad luck with an investment," or, "I trusted a friend who failed me." To all such excuses I am sympathetic, but I do not relent. I answer, "That is too bad, but think what it means. You have lived twenty-five or thirty years without making a profit on your life; how can I expect that you will be a profit-maker for me?"

3. Does he talk and write effectively? This may seem a strange requirement, but it has been a very useful one. If we could unscrew the top of men's heads and look in, many of our problems would be eliminated, for we could see what sort of thinking goes on there. Lacking that privilege however, we have to judge by what comes out of the mind through the tongue and fingers. If a man writes and speaks "neatly" it is because his thinking is orderly; if his expression is forceful, the thought back of it must be forceful. But if he blunders for words, and uses phrases which express his meaning clumsily, I believe his mind is cluttered and ill-disciplined.

4. Does he finish what he starts? Geniuses almost never do. I look very critically into little things respecting the men I hire; the details of their dress, their handwriting, their record of tying up a job and leaving no loose ends. The biggest men of my acquaintance in business are "detail men" to an amazing degree. Often the president of a company is the only man in it who knows the little things about every department.

5. Finally, of course, I look for courage. General Grant was a rather slow-witted man, and a failure in middle life. But he won the Civil War; and the principle on which he proceeded was that the enemy was probably just as much scared as he was. Napoleon's motto was "When in doubt, attack." I like to throw something rather hard at a young man, and see how squarely he meets it. For with courage and the habit of going forward he can travel a long way. He will pass many men more brilliant than he is. Their active minds can always see two sides to every question; and they stand still while the debate goes on inside.

THESE are quite simple rules. They eliminate the genius quite as surely as they eliminate the unfit. No Edison could ever qualify; no Lincoln, either, with his soiled linen duster and his habit of interrupting important business with funny stories. I am sorry to forego the companionship of such men in my rather dingy building here in the wholesale grocery district. But I comfort myself with the thought that Cromwell built the finest army in Europe out of dull but enthusiastic yeomen; and that the greatest organization in human history was twelve humble men, picked up along the shores of an inland lake.

Million Dollar Ideas

2008-06-02T09:45:00.002-07:00

Some people have ideas that make them millions. A lot of ideas are really dumb but still seem to work, like the Million Dollar Home Page where some kid sold a million pixels for a $1 each.

The first million dollar idea was probably the Pet Rock, which generated $5 million for its creater. Here's the interesting story.

The Beginning

In 1975, Gary Dahl working as an advertising executive at the time, launched the sale of the pet rock which quickly transformed him into a multi-millionaire. This enormous profit is much more impressive considering it only took him six months to achieve his multi-millionaire status and the extremely low cost of the product.

The pet rock sold for $3.95 and estimates state Dahl sold over 5 million of his pet rocks in a six month period. Even more, each pet rock was purchased for a few pennies and Dahl estimated that the packaging and accompanying manual cost him under 30 cents per rock in bulk to produce. Therefore, assuming incidentals and delivery cost Dahl another 65 cents per rock, then Dahl was profiting 3 dollars per rock. With these totals Dahl earned over 15 million dollars during a six month period in 1975 which would be estimated at $56,166,419.02 today.

Gary Dahl, Pet Rock Inventor

Dahl’s somewhat innovative marketing involved commonplace gray pebbles, purchased from a construction supplier, which were then sold to the public as live pets. The idea Dahl stated, was inspired by the hassle, mess, and money that pets such as dogs, cats and fish require.

The Marketing
Teaching Pet Rock To Attack

Dahl began by creating the company called "Rock Bottom Productions." He imported the rocks from Rosarito Beach in Baja, California, Mexico. Packaging for the rock included a "Pet Training Manual" and a card board box, designed like a pet carrier. The pet training manual contained instructions on how to properly care for one's pet, including how to house train a pet rock by placing it on a piece of newspaper and other commands including sit, stay, roll over, play dead, and come.

The Consumers

Part of Dahl's marketing strategy was to state that pet rocks give us more pleasure than we know. He convinced the consumer that these pet rocks support this argument through their very existence, and clearly display that it is not an actual item that brings joy to the child in the human mind, but merely the idea of the item. The pet sits in a niche in the mind, created by the power of the owners’ imaginations. It is in the actual exercise of the mind that such pleasure is found.

It is quite a valid point that finding such productive and effective uses of recreation time can be more preventative and beneficial to the health of our minds than even the most advanced psychological treatments. People who purchased these unusual "pets" often gave them names, talked to them, petted them, and attempted to teach them to perform simple "tricks".

Pet Rocks Live On

Like most fads, the pet rock continues to live on and has seen a resurgence on the internet especially ebay. There are memorial pages, spin-offs, and one can still purchase such a pet, though new manufacturers have given their rocks new features and looks. For instance, not many plain gray pebbles are sold any more. One can buy rocks that are inscribed, painted, and decorated in many a manner, lending the rock much more personality than afforded Dahl’s creation. One can purchase a rock with an agenda, or one can buy a rock that is individually painted in memory of any dearly loved pet, or one can still purchase that rock that is completely void of previous perception, and let its idea grow in the mind.
Largest Collection of Pet Rocks

Pet Rock Breeds

Lesley O'Doherty currently has the worlds largest pet rock collection. She began her collection at the age of 6 when she received her first pet rock as a birthday gift from her mother. "I remember the exact day when I first got it. I had just unwrapped all of my presents and I thought there was no more to open. Then all of a sudden, mother handed me a small box and when I opened it, there was my first pet rock." Lesley said in an interview with Rock Collection Magazine in 2005. "I named him Pickles."

Lesley keeps her collection of rocks locked in a safe because she is said to believe the pet rock business is going to boom soon and she has several "special editions" which she hopes will be of value.

The Multi-Millionaire Idea

Dahl's idea was simple, effective and highly successful similar to other fads such as the Hula Hoop and Cabbage Patch Kids. With the pet rocks resurgence comes inspiration to create the next multi-million dollar opportunity. As indicated by Dahl all that is needed is a good idea, a thorough plan, hard work, and good marketing

More Ways That Airlines Can Charge Passengers

2008-05-26T11:41:00.000-07:00

American Airlines has just announced that it will begin charging passengers $15 to check in their baggage. I think a better system would be to charge by weight. You stand on the scale with all your baggage and pay a standard rate based on total weight and distance traveling.

According to Romesh Chander of Bellingham, WA, here are some ideas for
More ways that airlines can make money off passengers:

Toilet usage on the plane -- $5
Issung Ticket -- $5
Issuing Boarding Pass -- $5
Checking Boarding Pass at Gate -- $5

Piolts charge for flying plane -- $20
Copilot's charge for flying plane -- $15

Charge for leaving on time -- $5
Charge for arriving on time -- $5
Charge for arriving in correct city -- $5
Charge for arriving safely -- $5

Unscheduled stop -- $50

Bumpy ride -- $10
Lost luggage -- $10
Finding lost luggage -- $10

Clean plane -- $5

COMPLAINTS/questions (Any kind) -- $20

Fuel surcharge varies
Base ticket rate varies

Tip for Stewards $20% of final bill

Pension plan for executives $10% of final bill

Anybody got any other ideas?

Trading Lessons From Nicolas Darvas

2008-05-18T11:12:00.000-07:00

Nicolas Darvas, who studied to be an economist, was an infamous stock trader during the fifties and sixties. He wrote a book called How I Made $2 Million in the Stock Market that was widely discredited because the US attorney general said he actually didn't make that much money. The case was eventually dropped. Regardless of whether Darvis actually made as much money as he claimed, there was still some good trading tips that we can learn from him.

Darvis's Trading Lessons:

* There are no good or bad stocks. There are only stocks that rise in price and stocks that decline in price, and that price is based on the laws of supply and demand in the marketplace

* "You can never go broke taking a profit" is bad advice that will result in overtrading and cutting winners short. Selling winners and holding losers is to be avoided at all times

* There is a "follow-the-leader" style in the market. You will find success by selecting the most active and strongest industry group and trading its top leader

* The combination of price and increased volume is key to stock selection. Focus your time on new leaders emerging with a new market cycle

* It is the anticipation of growth rather than the growth itself that leads to great profits in growth stocks. "You have to find out what the public wants and go along with it. You can't fight the tape, or the public."

* One of the quickest ways to lose money in the market is to listen to others and all of their so-called expert opinions. To succeed, you must ignore all outside opinions and predictions. Follow your own strategy!

* Losses are tuition on Wall Street. Learn from them.

* You should expect to be wrong half of the time. Your goal is to lose as little as possible when you are. "I have no ego in the stock market. If I make a mistake I admit it immediately and get out fast. If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn't you call that good odds?"

* Most of your big failures will come from three things: 1) when you abandon your rules, 2) you become overconfident, and 3) trade in despair when unsuccessful

* The best speculators search only for the very best opportunities. To be truly successful, you must wait for the right opportunities to present themselves and this often means doing nothing for long periods of time

* The market behaves the way it does due to participants behaving the way they do. No one knows what they will do until they actually do it

* Long-term investors are the real gamblers in the market due to their eternal hope that losing stocks will come back in price

* It is difficult to be profitable on the short side of the market versus the long side - trading in rising or bull markets will give you the best chance for success

* Most, if not all stocks, will follow the general trend of the market

* To train your emotions, write down the reasons for making every trade. When you lose, write down what you thought contributed to the loss. Then study and set new rules to avoid making those same mistakes

* Concentrate your trades. At the peak of his success, Darvas would hold only 5 to 8 stocks at one time which was in contrast to his earlier days when he was overtrading and would hold up to 30 stocks at a time

* Avoid fallen leaders. Overhead resistance will keep upside potential limited due to supply from previous buyers who had not cut short their losses. According to Darvas, the only sound reason for a stock is one that is rising in price. If that is not happening, then there is "no other reason worth considering."

* Darvas used his "box theory" to trade using boxes to time his entries (on breaking out to a new higher box) and exits (breaking below the current trading box). For more info on using Darvas boxes, visit these two websites: GerryCo & Sethi

* For new trades, Darvas used "pilot buys" which basically were starter positions in stocks he liked. Only if the stock continued to move higher would he then pyramid and increase his position. He learned never to buy more of a losing position

* He thought many unsuccessful investors made the mistake of looking at the same familiar names that might have worked well for them in the past instead of focusing on the next stock with the right elements for the new market cycle. "I am only in infant industries where earnings could double or triple. The biggest factor in stock prices is the lure of future earnings. The dream of the future is what excites people, not the reality."

* Perfection has no role in successful trading. No one can buy at the absolute lowest price and sell at the highest price. No time or effort should be devoted to that goal. "I never bought a stock at the low or sold one at the high in my life. I am satisfied to be along for most of the ride."

* Trade only when the environment is in your favor. Darvas' strategy kept him out of poor and bear markets because he wouldn't trade stocks that didn't fit his requirements which were only found in raging bull markets

* Be aggressive when warranted. Darvas believed in making aggressive trades when his system pointed to a great trade. In fact, sometimes 50% of his capital was devoted to just one stock

* While his trading approach was very technical, after studying the market's winners he understood the relevance of finding stocks also with good fundamentals. Namely, Darvas thought that earnings and the future estimate of increased earnings were very important

* Be a student of the market. Darvas learned by reading more than 200 books about speculators and the market and devoted studying the market for many hours a day. In fact, Gerald Loeb's books & approach served as key inspiration

* No one can completely master the market. After millions of dollars and best selling books, Darvas was still learning and tweaking his system until he passed away

Do I Need To FIll Premium Gas In My Car?

2008-05-16T18:14:00.000-07:00

Last year, I got a 2005 model Acura TSX. The owners manual recommend filling it with premium 91 octane gasoline. But with premium gas selling for nearly $4.50/gallon, I was starting to wonder whether it was really worth it.

I tried filling the car with low grade gasoline and I immediately felt the drop in performance. The mileage also decreased slightly. However, with mid-grade, there was barely any perceptible difference in performance or mileage. According to CNNMoney, it shouldn't really make a difference.

With prices already over $4.00 a gallon, premium gasoline is a hard sell these days. But a lot of drivers think because their owners' manual recommends premium, they'll get better fuel economy if they stick with it. Really, they're paying more money for nothing.

Even cars for which premium is recommended won't suffer with regular fuel. Modern engine technology comes to the rescue again. When sensors detect regular instead of premium fuel, the system automatically adjusts spark plug timing. The result is a slight reduction in peak horsepower - really, you'll never notice - but no reduction in fuel economy.

There you have it. If you realize that you're 200HP TSX is now a 150HP Accord and are willing to drive it like one, you shouldn't notice any reduction in fuel economy!

Why The Dollar Is Strengthening

2008-05-03T02:26:00.000-07:00

Yes, the dollar is rallying. It's been on a tear the past week.

It must be because the U.S. economy has turned around.

The deficit no longer needs to be financed with over $2 Billion a day in foreign investment.

Interest rates are appropriately high to be able to fight this soaring inflation.

The US government has stopped spending wildly, and the Budget is balanced.

The mortgage lenders have recovered all of their losses.

There is no longer a credit crunch.

And the war is the Middle East is finally over - the US is dismantling its gigantic military empire and has decided to use that money on improving our decaying infrastructure.

Because of all these factors, I believe the US Dollar will continue to keep on strengthening. According, I will be selling all my foreign currencies along with my gold and silver coins!

Why Do Billionaires Still Go To Work?

2008-05-01T15:37:00.000-07:00

Here are some words of wisdom from a very wise friend of mine:

"People who seem to succeed in business have a common trait, regardless of their industry sector. They don't do what they do for the money, or better yet they aren't desperate for the money. The money is the bonus - they do it because it is what they want to do and would do it anyway regardless of monetary reward.

The reason they will succeed is because they aren't in a rush, they want to do it right, they spend the time figuring out the right way to do it and they never give up. They don't need to give up because they never fail (You only fail when you quit and they never quit) - they are only competing with their own ideal and as they reach one plateau they set another and move towards it. Endlessly. The challenge is the goal - not the money.

This is why Billionaires still go to work everyday".

Economic Stimulus Checks Being Sent Out Early

2008-04-25T22:33:00.000-07:00

The IRS has announced that they will now be sending out economic stimulus payments starting this Monday, April 28th. Initially, the first direct deposits were going to be sent on May 2nd, but the government can't wait to stimulate the economy.

Of course, I have no idea how sending everyone a one time check will actually stimulate the economy over an extended period of time. Maybe the underlying assumption is that recipients will go out and spend the money on goods and services that they don’t need. But, I suspect that many people will use it to pay off credit card debts, payday loans, get current on their mortgage, or save for their emergency fund. Of course, even if they do spend it, there's no guarantee that this will actually make any lasting impact on the economy. Maybe it might impact the 2nd quarter numbers but what after that? Will the government send us quarterly checks to keep on stimulating the economy?

Here is the original timetable for receiving your payment:

DIRECT DEPOSIT

Last two SSN digits: Payment will be transmitted by:

* 00 through 20 May 2
* 21 through 75 May 9
* 76 through 99 May 16

PAPER CHECK

Last two SSN digits: Payments will be mailed by:

* 00 through 09 May 16
* 10 through 18 May 23
* 19 through 25 May 30
* 26 through 38 June 6
* 39 through 51 June 13
* 52 through 63 June 20
* 64 through 75 June 27
* 76 through 87 July 4
* 88 through 99 July 11

But it seems that these dates will be pushed forward a few days. You should start seeing direct deposit this coming Monday.

Made $1645 In Online Income

2008-04-20T12:38:00.000-07:00

For March, the break of online income is as follows:

Online Income: $1645.30
- Adsense: $339.28
- Linkworth: $456.70
- TLA: $103.61
- Kontera: $62.07
- Direct Ads: $330
- Prosper Referrals: $175
- Amazon: $117.82
- Domain Embarking: $60.82

Revenue from Adsense seems to be on a slow decline. It looks like I was smart-priced. In a few blogs, I've modified the code so adsense ads are only displayed to search engine viewers. I don't think other kinds of traffic click on the ads anyway. I also signed up for Adsdaq to display in place of adsense on these sites.

Surprizingly, Linkworth has started performing really well on my sites. March's income was almost double of February's and I expect April's income to be a lot higher too. Its been a long time coming, but now the income is starting to be substantial. I'm very happy with their service and I strongly endorse it.

Text-Link-Ads is also doing moderately okay although its making less than Linkworth. I don't think you're allowed to use both services on the same site, so see which one works better for you. Between the two, my favorite is currently Linkworth. It also has a good affiliate program so if you sign up, make sure you put an affiliate ad on your site too.

This year,I accidentally stumbled upon Amazon affiliate income through a post I wrote. Hopefully it will continue as I learn more about affiliate marketing and try out different techniques to boost it.

Surprizingly, I found out that I had earned ~$60 from Domain Embarking, a site that helps you earn money from parked domains. I had a few sites that were parked with Sedo.com. In over 2 years, I make about 24 cents with Sedo, but with Domain Embarking, now I'm making some money atleast. To be fair, the $60 was earnings for the year till date, so it could have been only $20 for March. I'll find out how it does in April to get a better idea. Regardless, its still a whole lot better than the $0.01 per month I was making with Sedo.

I also just registered about 20 .info domains with godaddy. Godaddy is currently running a 99 cent special Actually is about $1.25 after taxes but still a great deal.
Parking them with Domain Embarking should earn me more money than that during the course of the year. The sites will also get PR and backlinks, so I might be able to sell them for more than $10 in a year. Or I might decide to host them myself and set up a BANS store on them. I use Dream Host for hosting and its really good. I can host multiple accounts on the same account for the low fee of $120/year. Use the coupon "passiveincome" to get a $20 discount on it.
Prosper is still handing out $25 signup bonuses to new lenders. When lenders who sign up through my link and fund their account, I get $25 too. That's how I made the $175 in referral fees. I also made around $30-$35 last month in prosper loans but since they usually issue a statement around the 5th of the month, i'll exclude that income. I usually get around $180-200 every month from the loans, of which 70% is return of principle. Calculating it manually is just too tedious.

Bizzare Ways Of Making Money: Selling Your Hair

2008-04-07T02:04:00.000-07:00

I just found out that there's a site called the Hair Trader were people can buy and sell Human Hair!

One pregnant lady from Salt Lake City, Utah just sold her Scandinavian blond locks for a whopping $1075!

But that's not even the record on that site. That belongs to a lady from Santa Rosa, California who got a whopping $2,500 for her head of brown hair.

That's almost as strange as the pregnant lady who sold a tattoo ad on her belly for $1000 on ebay!

Is This Blog Worth $59,841?

2008-04-02T14:14:00.000-07:00

According to this widget created by the Business Opportunities Site, based on my content, backlinks and some other black magic SEO stuff, this site is worth $59,841.24!

My blog is worth $59,841.24.
How much is your blog worth?

While I find it hard to believe that anyone would pay close half or even a fifth of that amount (they might pay a tenth though), it's still nice to know its not completely worthless in someone else opinion. Blogs usually sell for a multiple of their current monthly income or potential income. For example, is not uncommon for a blog that generates $500/month to sell for $5000. However, if its a site that requires minimal maintenance or updating, it could easily sell for 2 years worth of revenue. There are quite a few venture capital companies that have actually invested in thousands of websites that generate income. Even public companies like American Capital Strategies (ticker: ACAS) bought Roxy Media and its domains last year for a pretty penny.

While, this site isn't exactly for sale, if you think you'd like to make on offer on it, don't hesitate to let me know in the comment section. I except all major currencies, paypal and even gold coins!

Let me know what your blogs are worth.

Debt-Reduction Carnival

2008-03-24T09:39:00.000-07:00

Time for the latest Carnival of Debt Reduction.

Some great tips on savings and reducing debt.

US Economy Going South?

2008-03-21T12:46:00.000-07:00

Note: The following post will depress you, unless your sense of humor is based on schadenfreude.

I've been maintaining my belief that we're going to see a pretty bad recession for over a year now. Until very recently, the newspapers were all cheerleadering the economy and how everything was just peachy. Even Ben Stein and other economists said everything's great last November.

CNN Money has started a new featured series called American Money, where everyday Americans recount the financial hardships they're facing in the current economic environment.

Nearly all of them focus on how the real estate meltdown has adversely affected them. A few of them bought a new home thinking that their old home would sell off fast. Unfortunately it didn't and they got burnt (and almost divorced) trying to manage two mortgages. One young man got a subprime loan that resets in a few years, and quite a number of people lost their jobs or found jobs that paid a lot less than what they were used to.

One family has a daughter who's ready for college but they've blown through their savings and can no longer afford to put her through college. Another mom has used up all her savings, 401k and even her kids college education 529 plan in her efforts to stay afloat.

One 62 year old had been in the mortgage business for 20 years has been reduced to working as a store clerk and part-time surfing instructor to get by. He's even managed to ruin his credit by co-signing a home loan for his son, who's in a similar situation. He's also managed to run up $35,000 in debt. I doubt he'll be able to pay it off on his minimum wage jobs and he seems to think the same way. He's decided he's going to just walk away from all his debts.

There are currently nearly a dozen stories of financial hardship with people using their credit cards, and maybe even payday loans just to pay the rent and put food on the table. I read it and really felt quite depressed. There was also a family that felt spending $250 a month on gas for the commute was breaking their budget.

In fact an underlying theme I caught here and there was that gas prices were too high and aggravating their misfortunes. If you don't have an extra $150 a month and its breaking your budget, that's really sad. You really need to cut back on all your expenses and/or move to a cheaper place.

Hopefully, the government will channel some of the $3 billion/week its spending on Iraq towards creating real employment in the US.

$1,400 In Monthly Online Income

2008-03-09T11:56:00.000-07:00

February 2008 was a record-breaking month. I achieved over $550 in stock and canroy dividends, ~$275 in oil revenue and ~$1400 in online income.

Here's the breakdown:

Online Income: $$1399.29
- Adsense: $416.22
- Linkworth: $221.99
- TLA: $95.87
- Kontera: $51.36
- Affiliate: $83.85
- Prosper Referrals: $100
- Direct Ads: $430

Savings Accounts: $138.43

Real Estate Trust Deed: $0

Direct Oil Drilling Investment: $277

Dividends from Canroys: $509.11

Other Dividends: $59.72

I made $100 in referrals fees from Prosper. If you've been thinking of lending or borrowing money on Prosper, now is a good time to do it. They're still offering a $25 incentive to new members.

A majority of the dividend income is from Canroys, and is post-tax income. The Canadian government takes its 15% tax on the dividends from Canroys, so the income is after-tax. You get a tax credit for this amount in the US so there's no double taxation.

I'm also getting affiliate referral income from Linkworth.com. For every person that signs up, they give 5% of the income they earn for life! The $200 that I got in February was actually the income I earned in January. For February, I've actually earned $410.98, of which most of it is referrral income. However, since I won't get paid until March, I'm going to count that next month. Linkworth will probably be the largest income stream next month. Its a great way to boost your site's revenue and I strongly recommend you sign up.

My Kontera income dropped significantly from the prior month. Its down almost 50%. I haven't spent much time analyzing that so I'm not sure what happend. Overall traffic is up so I'd expect the kontera revenue to also increase, but the opposite occurred. I guess it is correlated with the type of posts. I've seen that posts related to gold pay very well for PayPerClick advertising. A lot of clicks are $0.99 and some are even over $1 each. Focusing on investment-related content makes for good income!

As I mentioned last month, my real estate trust deed has defaulted. Luckily, the oil drilling programs have started to kick-in and have almost replaced that income.

Overall, I'm quite pleased with the results. Hopefully, I'll be able to break the $3,000/month barrier pretty soon.

December's Passive Income Summary

2008-02-02T16:06:00.000-08:00

Even though I've moved this site over to Living Off Dividends, I've decided I'll post periodic Passive Income Summaries. But I strongly recommend that you head on over to Living Off Dividends and subscribe to the RSS Feed.

My Passive income for December 2007 was $1,921.11.

Here's the breakdown:

Online Income: $568.55
- Adsense: $240.10
- Linkworth: $132.00
- TLA: $71.73
- Kontera: $43.04
- Affiliate: $6.68
- Prosper Referrals: $75

Savings Accounts: $128.47

Real Estate Trust Deed: $300

Direct Oil Drilling Investment: $163

Dividends from Canroys: $499.21

Other Dividends: $261.88

As usual, I ignored any income from Prosper loans. I did however include the $75 in referrals fees. If you've been thinking of lending or borrowing money on Prosper, now is a good time to do it. They're offering a $25 incentive to new members.

Adsense revenue was down from last month, but since I wasn't posting often due to my traveling, that was to be expected. Hopefully I can boost my online revenue this year. Once I'm done traveling, I should be able to focus more on this.

Traffic to the site has been increasing steadily every month, but until Google assigns it a pagerank I probably won't get any direct sponsors.

The US Dollar has also strengthened against the Loonie in the past 6 weeks, so this has reduced the payout from my Canadian Royalty Funds. But I expect this trend to reverse and the dollar will continue weakening this year. On the other hand, I'm re-investing the dividends and so the number of shares and resulting dividends are slowly increasing.

I also expect interest rates to drop from the current 4%+ range to under 3% in 2008. But its only 6.6% of my passive income so that shouldn't make too much of a difference.

The good thing is that the income is diversified across various investment classes and there are over 20 income streams. The largest source is the real estate trust deed which represents 15.6% of this month's passive income. Even if the 4 largest income producers dry-up, I'm still going to be getting $1,200 per month. This is the best thing about having multiple streams of income.

Hopefully I'll be able to cross the $2,000 mark soon and the $3,000 mark this year. (If the dollar becomes extremely weak against the Loonie, that'll be much easier to achieve, but I hope the dollar doesn't do this. Of course, unless Bernanke increases the interest rates, this won't happen).

I'm Moving To Wordpress!

2007-10-11T01:29:00.000-07:00

I finally decided to move to an independent hosting platform. The new blog is called Living Off Dividends.

I've been working on it for the past several days, which is why I haven't been posting. I'm still working out some of the formatting issues, but all of the old posts have been ported over. Please check it out and let me know if they're are any obvious bugs.

Next I'll be adding in the advertiser's links, who will be enjoying links on both sites for the time being. After that, I'll add the blog roll. Bloggers, please update your links to reflect the change.

Gouging At The Pump?

2007-10-08T08:49:00.000-07:00

Isn't it funny how the ruckus about high gasoline prices has disappeared? I no longer hear anything about it on the news, the politicians haven't taxed Exxon-Mobile's record profits, and I don't get idiotic emails asking me to boycott gas stations for one day in a year.

Yesterday I was filling gas and I decided to actually calculate how much tax I pay on each gallon. Regular was $2.99 of which about 7.75% is sales tax, but there were a few other taxes added. All told, $0.92 was taxes, which works out to about 30% taxes on each gallon.

Sounds like the government is already getting the lion's share of profits and they didn't want anyone else to get in on the action!

Since I hate paying any form of taxes, I think I'm finally motivated to reduce my driving to cut down on my gas usage!

Housing Continues To Get Worse

2007-10-07T10:37:00.000-07:00

Housing continues to get worse. According to a recent article in BusinessWeek:

A strong job market, the thriving casino and convention industry, and the highest population growth in the country made Vegas a boomtown for builders. Sin City represented one of the top five markets.

Today, new homes are empty and communities half-built. The number of unsold homes has reached as much as 48,000, by some estimates, up from a more or less steady level of 10,000 over the last several years. "Builders have a glut of houses that's going to weigh on home prices for awhile." says Dennis L. Smith, president of Home Builders Research Inc., a local consultancy.

Mike Alley has gotten whacked hard by the area's declining housing market. In the spring of 2005, Alley, an independent real estate agent in Racine, Wis., moved to Las Vegas, lured by the warm weather and the strong real estate market. He quickly found a sales job with Pulte, where he says agents were pulling in $500,000 a year for basically taking orders. "It was nutty," says Alley. "Houses were flying off the lot."

A year later, he decided to jump into the market himself and buy a home. He spent a month searching, settling on KB's Huntington subdivision. The neighborhood attracted a mix of folks, from couples just starting out to empty nesters. More important, there were a lot of families with young kids the same age as his. The $86,000 worth of upgrades, including higher-end cabinets and granite countertops, thrown in by KB Homes at a discount clinched it. Alley thought he was getting a deal: In August, 2006, he paid $360,000 for a three-bedroom home in Quayside Court, which was appraised for $415,000.

Yet even Alley, who made his living in this industry, says he was blindsided by the markdowns. Today he reckons his home is worth around $300,000. "I didn't quite keep my finger on the pulse of what [KB is] doing in this community," says Alley, who's largely gotten out of the real estate business. "I'm looking at the sales data, and they were selling my model for $50,000 less even months after I bought it."

This is another example of the fact that real estate agents don't often know much about real estate cycles or investing. Never ask an agent if its a good time to buy. They don't know and its not really their job. Their job is to help you select your perfect home based on your criteria and budget and their knowledge of the local neighborhoods. More importantly, they take care of the paperwork that most homebuyers find imtimidating and incomprehensible. Their job profile does not usually include providing investment advice, even if they claim they're investment experts.

Australian Dollar To Hit Parity With US Dollar.

2007-10-02T18:56:00.000-07:00

I sold my long position in CurrencyShares Australian Dollar Trust (FXA) today. I made a nice 6% in about two weeks on it. I sold it because it gapped down and looked like it was going to drop futher in the next week or two.

The US Dollar is due for a short-term bounce which will cause the price of FXA to drop, but thinking long-term, I think the Australian Dollar will hit parity with the USD within 18 months. It isn't a far fetched idea when you consider that 1 AUD = 1.20 USD in 1981.

Others agree with me. According to Chris Gaffney of Everbank.com:
"Fundamentals suggest the Aussie dollar will continue to rise in 2008. The economy is expected to expand by more than 4% next year, and inflation will accelerate. Overseas shipments of raw materials, which contribute about 14% to Australia's economy, helped drive 4.3% growth in the second quarter from a year earlier, the biggest increase in three years."

A technical analyst at Goldman Sachs suggested "a close above the resistance level 89.25 would set the Australian dollar free to reach parity".

The Aussie buck traded at 88 cents this morning. Parity is only 13% away.

But in the short term I'm looking for a bit of a pull back.

How Does Your 401k Compare?

2007-10-01T23:39:00.000-07:00

I have a 401k from a previous employer. With only a dozen mutual funds to choose from, it doesn't have very many investment choices. I've done the best I can from these choices and have selected 8 of them, with 75% of my 401k invested in just 3 funds. And I've managed to eke out a very respectable 17.4% for the first 3 quarters of the year.

On the flip side, my 401k with my current employer has about 3 dozen options. However, there's less diversification amongst them than with the previous employer! It lacks a REIT fund (not that I'd invest in it, since I'm heavily invested in Real estate on my own), a health care fund, and a technology fund.

Instead, some moron set it up with 4 bond funds, 2 small-cap broad market funds, 2 small-mid cap value funds, 2 small-mid cap blend funds, 4 mid-large cap equity funds, 4 mid-large cap value funds, 3 international funds, and so on.

So despite the wide selection of funds, they're less diverse than the 401k with only 12 options. Instead of choosing the fund with the least management fees, the lazy (or maybe inept?) administrator just included 3 or 4 similar funds so the participant can make his own decisions.

And despite having so many options, I only managed to make 14.05% in the current 401k for the same time period, which is basically a reflection of the broad market indices minus the management fees.

Sometimes fewer, more well-thought out options are better!

Pictures of An Investment Property

2007-10-01T19:12:00.000-07:00

After spending the past 12 months lightening my holdings, I currently have 5 investment properties left. 3 of them are in Salt Lake City and 2 are in Indianapolis.

Of the ones in SLC, two are located in Saratoga Springs with spectacular (spectacular to Californians who are used to "desert views" and dried-out shrubs) views Lake Utah. Here's what one of them looks like.

And here's the kitchen.

Its about 10 times nicer than my place in San Diego; at 1800 sq ft, its twice the size and and (with a 20% drop in San Diego prices and a 30% rise in SLC) only about 10% more expensive. But unlike my condo in SD, it sits on a quarter acre of land.

How Traders Make 28% Returns In A Day

2007-09-29T16:54:00.000-07:00

Friday's stock market had a distinct sense of deja vu about it. Even though it was down overal, I was reminded of the crazy dotcom days in late 1999 when any tech stock could rally 25-50% in a single day!

One of my friend's subscribes to a stock newsletter. Periodically he gets an email alert informing him when a stock is about to make a significant jump. He often sends them to me and I usually look at them and then ignore them. Yesterday he sent me an email about a China Clean Energy Inc (CCGY.OB).

By the time I got the email, it had already jumped 30% that day, but I really liked the chart. It had retreated about 15% from the highs of the day and looked like it was ready to make a move back up to the $2 range.

This is what the chart that I follow looks like.

The image is bit hard to understand since they're aren't any notations on it. The first chart is the intra-day stock price of CCGY.OB for September 28th 2007 using Candlesticks. It also has the bollinger bands and exponential moving average lines.

The 2nd chart with red and blue vertical lines denotes the volumne. The 3rd chart is the Relative Strength Index (or RSI) with oversold and overbought indicators.

The 4th chart is the Moving Average Convergence/Divergence indicator orMACD.

The last chart is the Slow Stochastic.

From these charts I felt that there was sufficient momentum in the stock to carry it higher, despite it having already jumped 30%. I was able to buy in at $1.73 around 12 pm EST (which was 9 am for me) and sure enough it continued higher throughout the day.

It closed the day at the highest price of $2.23, for a stunning 28.9% one day gain! Although the stock was up ~60% for the entire day, I was very happy with my 28%. Made me feel like I was reliving the good old dotcom (or dotbomb) days.

Here's a much better daily chart.

Very rarely do I buy stocks based on tips and without looking at any underlying fundamentals. Usually, the newsletters that I subscribe to, will recommend a stock based on good, solid fundamentals and I will use the charts to determine the market sentiment for that stock and a good entry point. Recently, Freight Car America (RAIL) was recommended, but the chart looked terrible and I didn't buy it. Sure enough it dropped from it's recommended price of $48 and is now trading at $38. Here what the chart looks like. I'll wait until the technicals improve before I jump in on that one.

Sometimes this strategy will backfire because some breaking news will come out that will send the stock shooting the opposite direction than expected, but it doesn't happen often enough. And unexpected news can make value investors look like fools too!

Most traders use some form of technical analysis. Many investors believe that technical analysis is rubbish and doesn't work, but they probably feel that way because they don't understand it. Its basically a representation of the current market sentiment based on price and volume action.

Most traders use some from of it and it can get fairly complex. Studies have shown that currency traders use it a lot (or atleast the successful ones!). I've attended several currency traders meetup sessions and they all use some sort of technical analysis to trade in and out of their positions. That and proper money management is the key to succesful trading.

I strongly recommend at least learning the basics and deciding for yourself whether to use it or not. Getting Started In Technical Analysis is a really good book that's fairly easy to read.

If you're interested in learning about trading, I strongly, strongly recommend Trading for a Living: Psychology, Trading Tactics, Money Management. By far one of the best introductory books on the subjects. You'll get more out of it than a $5,000 seminar!

If you like to day (or swing) trade, you'll also enjoy An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund. A fascinating story about Timothy Sykes, a college student who made a million dollars day trading and started his own hedge fund.

PetroChina & BHP Rock

2007-09-25T22:15:00.000-07:00

PetroChina (PTR) has been on a tear recently. Since bottoming around $125 a month ago, its risen exponentially to $175 today. That's a 40% in about 30 days! And thats despite the news that the 2nd largest shareholder Warren Buffett has been busy liquidating small amounts of his holdings. Its up solely on the news of its IPO in China.

BHP Billiton (BHP) has also jumped recently on news that its Olympic Dam site is the world's largest resource for uranium, the fourth-largest deposit for copper, and ranks among top-producing Australian mines in gold and silver production. Its currently at 27 year highs. Its also up 45% in the past month and nearly 100% in the past year.

While I didn't panic and sell liquidate my holdings during the sell off in July, I did use that opportunity to buy more of my favorite Canroys. Most of them are flat to barely up since then. But they're still paying dividends so I expect them to continue to chugg along.

Most of my porfolio is heavily wieghted towards oil/gas and commodity stocks. One of the few exceptions is SRS which I been trading in and out of and FXA which is an Australian currency ETF that also yields just over 5%.

I'm thinking of buying some Berskhire Hathway B shares (BRK-B) since they're looking a bit week technically right now. I've been watching them for a while. The last time I was going to pull the trigger they shot up 10% so I'm waiting for a slight pullback.

Did any of you make a killing in a stock you've purchased in the past month? Let me know.

What Would Your Last Words Be?

2007-09-25T00:46:00.000-07:00

Here's an inspiring story about Prof. Randy Pausch. At 46, Dr Pausch has pancreatic cancer and only a few months left to live. He gave a speech about achieving his childhood dreams.

Why are we all concerned with making money? So that we can get out of the rat race and achieve all the dreams we had as kids.

I believe its not the quantity of life but the quality that matters. Dr Pausch has definitely lived a great life, fulfilling all of his childhood fantasies.

Make sure you achieve yours!

Here's the full article at WSJ.com

Greenspan On Comedy Central

2007-09-24T23:12:00.000-07:00

Jon Stewart interviews Alan Greenspan on The Daily Show. Greenspan has been busy promoting his new book, The Age of Turbulence, and has been talking to anyone willing to listen.

Here's an excerpt from the interview:

Stewart: So they've made a choice, we would like to favor those who invest in the stock market and not those who invest in the bank; that helps us.

Greenspan: That's the way it comes out but that's not the way to think about it.

Stewart: It seems to me that we favor investment but we don't favor work. The vast majority of people work and they pay payroll taxes and they use banks. And then there's this whole other world of hedge funds and short betting and...it seems like craps. And they keep saying, "No no no, don't worry about it, it's free market, that's why we live in much bigger houses. But it really isn't, it's the fed, or some other thing, no?"

Greenspan also goes on to admit that quality of forecasting hasn't improved in the past 50 years and that basically they're clueless about preventing economic bubbles and human nature is to blame for that!

Anyway, check out the video. It's pretty good.

Also check out Minyanville's opinion on the rate cut.

Investing In Oil

2007-09-22T22:41:00.000-07:00

I spent most of Saturday listening to an investment presentation by some oil guys from Texas and Oklahoma. I come in contact with them on a previous deal. At that time I had shown their investment presentation to my CPA (who usually turns down every investment I show him) and he was so impressed, he decided to fly out and meet them. He's become their accountant and is investing heavily in their current deal.

Incidentally, in the previous deal where I came across the oil guys, they were also investors like me in a gas pipeline deal in Texas. It was a pretty sweet deal and we should've gotten cashed out with a 30% profit after a year. Unfortunately our partner, Grant Wilson III, decided to swindle us out of the profits. After spending over a year with this jackass, subsidizing his travel and living expenses he just decided that he deserved all the profits and he's disappeared. Luckily we got all our principle back.

We talked to a lawyer about our legal options. Apparently it'll cost $25,000 to get a judgment against this crook and if he's spent the profits, we won't be able to collect anything. Spending $25,000 to maybe get around $60,000 doesn't sound very appealing. Anyway, if you come across anyone called Grant Wilson III in Houston, who's lived in Southern California and is originally from Boston, you should definitely keep your hand on your wallet at all times! The only positive thing in the whole deal is that I learnt a very important lesson about trust in business, and luckily it didn't cost me much money.

But back to the original discussion about the oil men. Unlike Grant, who's background is swindling people, oops, I meant to he was a lobbyist in Washington, these people actually have worked for decades in the oil industry. One of the principals has several patents and they all are extremely knowledgeable in various aspects of off-shore and on-land drilling and exploration.

They've basically put together a partnership deal where they find under-valued oil & gas producing properties with at least 10-12 years of production left. Usually its a distressed situation like an estate sale, lawsuit or defect in the title where the production has been stopped.

In the current "fund" (its called a fund but its really a partnership), they have 19 producing wells and will drill 2 more infill wells.

In normal deals that are "securitized" (sold as a security and governed by the SEC), dealer-brokers are involved and usually 30% of your investment goes to overheads like commissions, fees and marketing. Since only 70% of your investment actually gets invested you typically get low returns - in the range of 7-10%.

However, if you get an opportunity to invest directly with in a fund like this, where they aren't paying any broker commissions, you can get a much better return. Assuming oil stays at $65 and gas stays at $6, my CPA thinks we can get a 24% annual return. If oil goes up, our returns go up too! And since about 40% of the return is considered return of principle, its not taxable. (Although it does lower your basis in the investment).

Unlike my other investments which have taken quite a while to start producing, this is supposed to start generating income with 60 days. Of course, I'm not holding my breath. But the fact that my CPA is investing alongside me and I felt I could definitely trust them gives me a lot of confidence.

I let you know how it goes.

Canadian Dollar Hits Parity With US Dollar

2007-09-20T12:52:00.000-07:00

Today the Loonie achieved parity with the US dollar for the first time in 30 years. Five years ago, 65 cents could buy you 1 Canadian Dollar. Since then the Dollar has devalued 50% against the CAD and nearly 100% against Gold. This has been partly due to a massive increase in the number of Dollars floating around, and partly because of the low interest rates which no longer attract much foreign interest.

The 50 basis point cut in the Federal Funds rate isn't going to save us from recession. What it definitely did do is weaken the dollar further against all major currencies.

How are you going to Hedge against a weakening dollar?

I been a strong advocate of investing in Gold and Silver for 2 years. Today Gold hit $735 after trading around around the $665 mark for the past year.

I realized that the Feds were going to drop the rate last week and put in an order to buy FXA. FXA is the CurrencyShares Australian Dollar Trust, an ETF that tracks the price of the Australian Dollar. Immediately after the Fed rate cut it jumped 3% and is up 4% for the week. It also pays an annual yield of approximately 5% on a monthly basis.

As the Dollar continues to weaken, I expect FXA to keep on appreciating. The question is how low do you think the Dollar will go?

Can't Stop Global Warming!

2007-09-18T16:48:00.001-07:00

From the Yahoo message boards for James River Coal Company (JRCC), which I had sold some naked puts on a few months ago, by some poster named Ross_Perot4President

I just farted a real loud wet one.....I just contributed to global warming....

Whoops, I just barbecued some ribs.....more global warming...

I just opened up a beer (i.e. a carbonated beverage), I just contributed to global warming.

I just let out a big friggin belch (methane gas -- holy @#$%, I just killed a tribe of pygmies tied to global warming)

I turned on the faucet to run water, the water treatment plant runs a generator which emits carbon fumes.....

I just turned on the lights which in turn comes from the electricity plants which spew carbon stuff

I just watched that Fat Bitch Rosie ODonnell on TV, her Fat mouth just spews greenhouse emmissions as well as rancid spew

I just watched Hillary Clinton on TV, the clothes she wears come from farm animals which intoxicate the atmosphere with methane gas and toxic emmissions, and her face comes from Satan's bunghole.

I guess its safe to say anything you do in American life spews some form of carbon dioxide. Maybe if we stop killing the rain forest and stop ugly people from breeding we can stop carbon from spewing onto the planetary surface

Until then, I will burp, fart, barbecue, run my water, heat my house, use electricity, and hate stupid liberals who think they know what's best for me -- they can shove it up their methane spewing asses.

Of course, if you're Al Gore, you might think you can solve the problem by taxing various businesses. Of course, Al Gore doesn't want to solve the issue, he only wants to profit from it.

Japanese Housewives Burned By Forex Trading

2007-09-17T19:49:00.000-07:00

The New York Times has an interesting article, Japanese Housewives Sweat in Secret as Markets Reel about housewives losing a lot of money in trading forex.

Since the credit crisis started shaking the world financial markets this summer, many professional traders have taken big losses. Another, less likely group of investors has, too: middle-class Japanese homemakers who moonlight as amateur currency speculators.

Ms. Itoh is one of them. Ms. Itoh, a homemaker in the central city of Nagoya, did not want her full name used because her husband still does not know. After cleaning the dinner dishes, she would spend her evenings buying and selling British pounds and Australian dollars.

When the turmoil struck the currency markets last month, Ms. Itoh spent a sleepless week as market losses wiped out her holdings. She lost nearly all her family’s $100,000 in savings.

While a lot of people have made fortunes trading forex (like George Soros), when a large number of housewives enter the market, its a sure signal that the market top is in. The lay people are always the last people to enter any bull market and like we saw in the internet bubble in 2000, mark the last phase of speculators to rush to profit from quick, easy money.

Apparently this greed-driven mania manifests itself regularly, prompting Alan Greenspan to observe that humans might never be able to protect themselves from bubbles. The history of manias has been well documented going back hundreds of years in Extraordinary Popular Delusions & the Madness of Crowds. If you haven't read it I strongly recommend you pick up a copy at your local library. Another new book on the subject is Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics, which is on my long and never-ending list of books to read and has come highly recommended.

Related Readings:
1. How the carry trade really works.
2. Turning Japanese.

The Rich Are The New Disenfranchised Segment Of America!

2007-09-16T23:05:00.000-07:00

The New York Times had an article about the working class millionaires living in San Francisco. According to WSJ, "you know a media-generated controversy has reached it's peak when it lampooned by The Onion".

Here's a spoof segment from the Onion News Network. Apparently the gap between the rich and the super-rich is widening and they're feeling disenfranchised.

“The average investment banker is only able to afford one boat. But the super-rich family will have upwards of five, six, seven boats. You have to have a decent yacht.”

“If the rich were just a little bit more motivated,” one says, “they wouldn’t be such a drain on society.”

The 17 Year Old Adsense Millionaire!

2007-09-15T08:56:00.000-07:00

Here's another depressing story of some 17 year old millionaire who makes $70,000 per month selling myspace templates. Did I say depressing? I meant inspiring!

Ashley Qualls, founder/CEO of Whateverlife.com doesn't actually make money from the templates, but rather from adsense ads! Apparently her first adsense check from Google was for $2800, which is more money than Google EVER sent me. Of course, I haven't filled a need (which she obviously did extremely well) but atleast I'm getting some remuneration (if you consider minimum wage to be any form of remuneration) for voicing my irreverent & often irrelevant opinions.

You can read the entire article online at Fast Company. She's a pretty amazing teenager.

Homes For Everyday Heroes?

2007-09-14T18:23:00.001-07:00

According to the FirstHomebuilders.com, based out of florida, they're selling homes to everyday heroes. You can buy one of their brand new homes with $500 down and as little as $795 per month.

Considering that the cheapest homes are in $150,000 range, thats sounds like 102% financing with an Interest-only payment and it probably an adjustable interest rate too.

That sounds like a loan program they've been advertising for the past 4 years to people who can't afford a home in the first place? Since when did we start calling these people "everyday heroes"?

New Coin Purchase

2007-09-13T18:14:00.000-07:00

I recently mentioned that I made $500 dollars last month from online advertising. Rather than use that money to expand or improve my lifestyle (also knows as "buying crap"), I decided to invest it in something that has intrinsic value.

The US Dollar has losing value over the past 2 years. Just today the Dollar index dropped to its lowest recorded value of 77 and I think its going to keep on dropping. Typically precious metals like Gold, Silver and Platinum do well in times of a weak currecny.

Why do I think the Dollar will continue to weaken?
Because the economy sucks and is being manipulated in wierd ways. To quote someone quoting the late Dr. Richebacher, a smart and wealthy economist,

"All this emphasis on statistics and calculations.," he went on, rapping his silver-handled cane on the table for emphasis, "without a proper theory, it is all nonsense. And your economists seem to have no theory at all.they just think they can manipulate the system in order to get whatever outcome they want. They think economic growth comes from consumer spending and that they can control consumer spending by adjusting lending rates. It is unbelievable that anyone takes this seriously. It is capital formation that really matters. A rich society is one with a great stock of capital. One that builds capital and puts it to work to create more capital. A rich society is not one where people consume. Just the opposite. It is not what is consumed that creates wealth; it is what is NOT consumed. Yet, all the Anglo-Saxons focus on motivating consumers to consume. And now they are consuming more than they make. I tell you, in 70 years of studying economics, I have never seen such nonsense."

And in order to "save the economy" the FED is going to cut the interest rates, which will increase inflation and weaken the dollar. Even the Governor of the Bank of England, Gov. King said yesterday that "If central banks cut interest rates in the current environment, they run the moral risk of rekindling speculative risk-seeking, i.e. supporting the very behavior that caused the current market crisis, namely the underestimation of risk."

A country's currency is an indicator of its economy. If the country has a good balance sheet, positive flow of funds, a good business plan, strong leadership the currency will be strong. Right now the US has none of those qualities.

Anyway, I spent the $500 on some silver coins. Regular readers already know I like buying gold and silver coins. I bought about a dozen each of the perth mint silver tigers, 1920s Peace silver dollars & 2007 silver eagles. They're beautiful coins, make good gifts and hopefully will continue to appreciate as the Dollar keeps losing value.

Russians get the day off to make babies

2007-09-12T19:11:00.000-07:00

The Russian government is sponsoring a "Day of Conception" today. Officials in the Volga River region (a demographically deficient zone about 550 miles east of Moscow) are giving couples a half day today to go home and make babies. Couples that give birth to a child nine months from
today, a Russian national holiday, are eligible to win cars, cash & even a shiny new refrigerator.

Since the Soviet collapse in 1991, population has been in steady decline thanks to lower birth rates, shorter life expectancies, emigration surges and a truly horrible health care system.

The world's largest country by land mass is inhabited by only 141 million people. AP predicts that number could shrink to 100 million by 2050.

Putin has already installed cash subsidies for couples giving birth to more than one child. Last year, he went on record saying this demographic crisis is the country's most severe predicament.

Funny Kitty Video

2007-09-11T23:31:00.000-07:00

Here's a funny video. Make sure you've turned up your speakers or you won't fully enjoy it.

Linkworth's New Referral Program

2007-09-11T23:08:00.000-07:00

Linkworth is a site that offers bloggers and website owners the opportunity to monetize their site via paid ads.

Originally they only offered referral commissions for advertisers, but since July they've been tracking publisher referrals and will pay you for those too!

Advertiser Account Referrals
>> $25 payout once the advertiser spends a minimum of $100.00
>>5% payout on all recurring charges for the life of the advertiser account

Partner Account Referrals
>> $25 payout once the partner earns a minimum of $100.00

Combo Account Referrals
>> $25 payout once the advertiser side spends a minimum of $100.00
>> 5% payout on all recurring advertising charges for life of account
>> $25 payout once the partner side earns a minimum of $100.00

I made $144 last month from Linkworth, which is about 1/4th of my monthly online revenue, which I discussed here. If you haven't signed up for it already, you can do so via this link.

How To Make An Easy $25 & Other Blog Monetizing Tips

2007-09-09T22:00:00.000-07:00

AuctionAds is running a promotion. Just sign up to display Auction ads on your site and you'll get $25. Not only that, if you refer anyone, you get 5% of their income for the first 6 months too.

It takes less than 5 minutes to sign up and you can modify the code to suite the layout of your site. You can also mention which keywords you'd like to target so that you get relevant ads (Note: this does NOT interfere with Google Ads). Somehow it integrates with Ebay's affiliate program and you earn a referral fee anytime you sign up a new user or someone wins an auction after clicking on your link.

If you sign up a new ebay user, you get $25. If you generate a sale, you get 50% or more of the commission that Ebay makes. Since ebay has increased its fees and commission structure in the past year, this bodes well for publishers like us.

So what are you waiting for? If you haven't already signed up, claim your free $25 right now!

AuctionAds is actually a sub-division of Text Link Ads, which also offers bloggers an opportunity to make money by selling ads on their site. If you haven't signed up for Text Link Ads, I suggest that you do that as well. [continued below ad]

You might be wondering if its worth putting up all these ads? After all, your site might not be attracting a lot of traffic and you may not feel the income is worth the effort.

I actually do not get a lot of traffic (less than 10,000 hits per month), especially compared to entertainment-related blogs or blogs about getting out of debt, but the traffic that I do get is highly targeted and results in high dollar-value conversions. As a result I'm still currently pulling in between $400-500 per month.

I'm making money from various different sources so that if the guidelines change for one, it doesn't completely stop the income. Also, over 50% of my traffic is organic in nature, coming mostly from Google.com searches.

Here are the various programs (in no particular order)

Google Adsense

Linkworth

Get your own sponsors here.

Text Link Ads

sell ad space

$100 in FREE Links

Amazon's Affiliate Program

my online bookstore

Prosper.com

Direct Sponsors

While $500 isn't enough to live on (atleast not in the US), its one of several income streams that I'm trying to develop. I'll try to post a monthly update on the passive income growth in future.

Are Recessions A Good Thing?

2007-09-07T17:30:00.000-07:00

Today's post is a follow-up to yesterday's, Recession on the horizon?. Saving Diva asks if a recession is necessary for the economy? And Lazy Man isn't entirely convinced we'll see a recession.

I think a recession is a normal part of the business cycle. Messing with the business cycle in 2001 is what caused the huge housing bubble. When I say messing with the business cycle, I mean manipulating the interest rates to keep them artifically low and pumping the economy full of excess and easy liquidity (which is another way of saying cheap and easy-to-qualify-for loans).

Asset prices shot through the roof (i.e. houses, investments and businesses became insanely expensive to buy) and lending criteria dropped to historical record-breaking lows. (Did you hear about dogs getting credit cards?)

Americans stopped saving money because there wasn't any incentive to (with savings accounts yielding under 2%) and kept refinancing their homes to pay for new cars, vacations and home improvements.

If you've been reading the news, this has already come to an end.

Lax lending standards have caused a flight to safety and a global liquidity crunch. A few hedge funds that speculated in mortgage-backed securities went under which sparked a slew of redemptions causing most hedge funds to sell off major holding and triggered a stock market meltdown.

With over 50 lenders going out of business this year, there have been a lot of layoffs, however the Federal Reserve has largely ignored these numbers. Today's unemployment numbers which were pretty dismal came as a shock to wall street (which leads me to think people actually believe the lies coming out of the Fed). The Bureau for Labor Statistics quietly revised July job growth number down to 68,000 from 95,000. That's a HUGE revision, don't you think?

Countrywide also announced 12,000 layoffs or 20% of their workforce. How exactly are they going to 'gain marketshare' when their market is atleast 25% smaller is beyond me.

Almost a year ago today, I posted an article from Businessweek, saying that "Shilling expects house prices to drop by at least 20%, which will cause a major recession".
There have been record foreclosures in the past few months, "driven by two factors heavy job losses in the Midwest states of Ohio, Michigan and Indiana and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona.

The Midwest has been hit hard by a heavy loss of jobs in manufacturing, especially in autos and related industries".

Auto sales and retail sales are down sharply too.

The only positive aspect right now is that oil at the pump is pretty cheap. But this is an anomaly, since the cost of oil per barrel is near all times highs. Milk, and other basic food items have definitely become more expensive where I live (even the items at Carl's Jr, my favorite fast-food place).

I think we're already in a recession. It just won't be reported for another 6-8 months.

And now we consider if recession is a good thing? Frankly I don't know, but here's what an editor of a newsletter I subscribe to had to say.

When house prices come down, it sets off a whole chain reaction of
explosions – in the financial industry...the homebuilding
industry...the retail industry...and ultimately, even the
manufacturing sector! The result is recession...lower consumer
spending...lower asset prices...less speculation...more fear/less
greed.

Is that a bad thing?

"Sometimes it sounds as though you WANT stocks to crash...it sounds as
though you'd be happy if a recession were to hit," writes a concerned
Dear Reader. "Isn't that a little mean spirited?"

Yes, we would like to see a real crash on Wall Street. And yes, we
would like to see a real recession. Is that mean spirited? Not at all.
Au contraire, it comes from the deepest, most public-minded, most
generous impulses of our entire idealistic nature.

This boom is a fraud, we keep saying. The sooner it ends, the better.
It is a fraud because it is not based – at least not in America – on
greater output, capital formation or wealth creation. Instead, it is a
wealth destroying boom...one that rests on consumption, speculation
and debt. Speculators and Wall Street itself get rich. But most people
merely go deeper in debt...and become poorer.

What's worse, the longer this humbug boom goes on, the more popular
attitudes and habits are shaped by it. "Prices always go up," say the
lumpen, "so buy now." "You can't go wrong in stocks and real estate,"
say the turnips. "A nice young man just offered to refinance our
house," say the homeowners. "Don't worry...Ben Bernanke is not going
to let us lose money," say the speculators. "Deficits don't matter,"
says the Vice President.

Corrections, like revolutions, confessions and forest fires, are
unpleasant. But they are often necessary. They clear away the dead
wood.

Recession On The Horizon?

2007-09-07T00:15:00.000-07:00

Despite what Bush & Bernanke say to reassure us that the economy is doing well, I don't believe it is. Here are some news stories that support this belief.

The first is from Newsweek.

Because home sales and moves stimulate purchases of appliances, electronics and furniture, the giant chains that catered to house flippers and renovators have reported recession-like results. In the second quarter, same-store sales were down 5.2 percent at Home Depot and 4.3 percent at Sears.

Americans who were living high by taking out home-equity loans during the boom have watched their equity drop, and are now faint of heart when it comes to big-ticket discretionary purchases.

The National Marine Manufacturers Association said it expects pleasure-boat sales, down 6 percent in 2006, to fall 10 percent more in 2007, largely due to the housing woes. Boatarama in Ft. Lauderdale, Fla., had to consolidate from four locations to one, and it now sells only used boats.

Brunswick Corp., which makes Sea Ray boats, said in July that it was slashing production due to the housing situation "in Florida and California, which are two of the nation's largest boating markets."

And this snippet from Bloomberg.com which basically says food is going to get more expensive.

Wheat rose the maximum allowed by the Chicago Board of Trade on rising
purchases of the grain by India, the second-biggest consumer, and forecasts for a drop in global supplies to their lowest in 26 years.

Global supplies are expected to decline to 114.8 million metric tons by the end of the marketing year May 31, 2008, the lowest since 1982, the U.S. Department of Agriculture said last month. Unusual weather has hurt crops in several regions, including Europe, the U.S., Canada and Australia.

I had previously voiced my concern over whether we were going to go through an inflationary period or a recession. Looks like we're now scheduled to have both!

American's Better Off Than Ever Before? Yeah Right!

2007-09-03T10:36:00.000-07:00

Prof. Perry of economics at the school of Management, University of Michigan has an interesting blog on economics called Carpe Diem, which roughly translated means seize the day. In a recent post, he claims "that despite what many people think, our standard of living is higher now than ever before".

The evidence he cites is that we're spending less on food, clothing and shelter than in 1901, and we're spending less than citizens of "developing countries" like India or China.

We might have a better standard of living than someone in India, a country where nearly 30% of the population currently lives in poverty. Thats nearly 400 million people or MORE than the US's entire population!!!! How is that comparison relevant? Don't we measure up to the Canadians, British, French, Swiss, Australian, German or Japanese that we have to resort to comparing ourselves to countries that were either socialist or communist-dictatorships for the past several decades. (Incidentally, India has the only democratically elected communist-party in the world).

Also, I would be highly skeptical of anything the Federal Reserve publishes. Their assertion that the average person spends 18% of their income of housing sounds too small. I think the average person in the US spends about 25-30% on housing (although houses have become bigger and much more comfortable from 1901!).

And another factor to consider is that the average family had only 1 working member in 1901 - the male head of household.

Today you have most family with 2 income earners. So two people are now working, but they're not living twice as well.

That doesn't sound like an improvement to me.

However, I do agree on thing, we most undoubted have a better standard of living of anyone who lived in 1901, even maybe robber barons. But I don't think we're living better than ever before.

I think the late 1950s was when Americans were the richest. That was when we had a lot of manufacturing jobs and the government wasn't wasting money on fighting wars in remote places. And the dollar was backed by a precious metal, not just an empty promise.

Paris Paid To Attend Own Birthday Party

2007-09-01T00:45:00.000-07:00

Its not enough that celebrities people get paid for guest appearances at night clubs and public events. They now are getting paid to host their own birthday parties!

Paris Hilton was reportedly given $200,000 to celebrate her 24th birthday party at "Pure" in Las Vegas. She spent the last 3 at "Light" at the Bellagio, but they were too cheap. They only provided her a free private jet, a free luxury suite, free dinner and free booze. If they didn't pay me $200,000 to celebrate my birthday, I wouldn't go there either ;-)

Apparently its very profitable for the nightclubs to have celebs. One such club paid Brittany Spears a lousy $83,000 to attend a new years party. They then sold 3,000 tickets to the event at $250 a pop, which means they grossed $750,000 and probably netted around $500,000.

Pure nightclub is estimated to gross $53 million this year!!!! Sounds like a great business to be in.

If any of you are interested in getting your own bar, nightclub or gentleman's club here's a list of such businesses for sale.

Become a Better Investor

2007-08-31T14:22:00.000-07:00

The Orlando Sentinel has sad story about condo flippers in Miami. They put down $100,000 on a pre-construction condo and now either they lose their deposit or they close on a $585,000 1 bedroom condo thats worth less than $500,000.

The sad part is that people fall for these get-rich quick schemes in every cycle. It happened in Miami during the last boom. It happened in the stock market in 2000. Its been happening regularly for over 400 years in every country. If these flippers had only read Extraordinary Popular Delusions and the Madness of Crowds, they would've realised that they're not geniuses, only the last fools to be left holding the bag.

Unfortunately, I was once such a fool. Taken in by the stock market in 1999 and fooled in 2000. Luckily I learnt my lesson early in life when I had little to risk and many years to implement my new found wisdom. I feel sorry for those that learnt this lesson late in life like the retirees of Enron. Life isn't fair.

But that doesn't mean you do not do your homework. Your job as an investor is to know your investment inside and out. But also you need to understand the psychology of investing. Human psychology is the common uniting thread across all investment sectors. If it weren't for human intervention, stock prices would move only 4 times a year - after quarterly earnings are released.

Read all you can about the economy, the stock market and the world in general. Eventually you will become a better investor.

Related Readings:
1. Books that broaden your mind

How To Start A Vending Machine Business

2007-08-31T01:34:00.000-07:00

If you've ever wondered how much money the vending machine guy at your office makes, here's an excellent post by GeniusTypes on how he got into the vending machine business.

It all started with having an open mind and buying a route from someone who had lost interest for well below what it was worth.

You'll see this theme repeated in many successful investment stories.

Every so often you'll see ads in the local paper about the company that sells large office-type vending machines holding a presentation. Apparently, the charge $1000 each and it takes a long time to recoup your investment. Most of the buyers give up and sell them for $100-$200 each and the second owner usually has better luck.

GeniusTypes kept his initial investment low by understanding how to value the business to begin with. He thus guaranteed his success by keeping a large margin of safety.

He immediately saw where he could cut costs to increase his net income. He also followed up on some leads and expanded his route and thus the value of his business.

Also note how he takes the positive aspects from Robert Kiyosaki's books and doesn't dwell on whether the book is based on fact or fiction.

Check out these cheap vending machines.

Yield On 10 Year TBill Keeps On Dropping

2007-08-30T23:39:00.001-07:00

Even though the past few sessions in the stock market have been rather choppy, the yield on the 10 year treasury has steadily dropped over the past several weeks.

Ever since the subprime mortgage issue led to a global liquidity crunch and subsequent stock market correction, the yield has been steadily dropping. This means that large institutions have been selling equities and moving money into safe US treasuries. It doesn't matter if they get only 4.5% (as of today's closing price), but at least they know they'll get the principle back.

There seems to be a repricing of risk in the market. Any stock that is deemed to be risky has dropped in the past 6 weeks.

On the other hand, safe stocks like Warren Buffett's Bershire Hathaway (BRK) has been rewarded and its stock price is up nearly 10%.

Lets see how long this flight to safety continues. If you have the courage to be greedy when other are fearful, you can make a lot of money.

Happy Investing!

How The Carry Trade Really Works

2007-08-28T12:21:00.000-07:00

Here's a really, really good video on how the carry trade works and what implications it has on global asset prices and the global financial stability.

I think the carry trade will have to reverse at some point in the near future. Trees do not grow to the skies and financial excesses do not last forever. When the average man on the street with no financial education starts talking or investing in a particular sector, it usually marks the end of that run. (In 2000 I overheard my hair-dresser talking about internet stocks - I should've sold then. In early 2005, I overheard some guys at the movie theater talking about getting into the local real estate market - I sold then and I'm glad I did!)

With Japanese housewives partaking in the carry-trade now, I think its safe to say that we're pretty close to the end of the cycle of cheap, easy money. I sold some USD and bought Yen and I've also invested some money in Japanese investments (a REIT and a stock ETF).

Related Posts:

Are Jim Cramer's Stock Picks Worthless?

2007-08-26T19:27:00.000-07:00

According to a recent article by Barron's Magazine title The Cramer Effect (& Defect), readers who follow Jim Cramer's stock picks from his show are more than likely to lose money in the long run.

We also looked at a database of Cramer's Mad Money picks maintained by his Website, TheStreet.com. It covers only the past six months, but includes an astounding 3,458 stocks — Buys mainly, punctuated by some Sells. These picks were flat to down in relation to the market. Count commissions and you would have been much better off in an index fund that simply tracks the market.

When we asked Cramer and CNBC for their own records of Mad Money's stock-picking performance, they had more excuses than a Tour de France cyclist dodging a blood test. They complained that the list from YourMoneyWatch.com contained some stocks from the program's "Lightning Round," in which Cramer gives a quick analysis and a buy or sell decision on stocks phoned in live by viewers. These, they argued, shouldn't count in our tally.

CNBC officials also said that viewers should buy Cramer's picks a week after they're aired. They said that the show is mainly educational, and not just about stock-picking. In the end, they said we should focus only on the tiny universe of stock selections — about 12 a week — that Cramer researches the most. And we should do it only for the issues picked this year. CNBC analyzed these stocks, and said that if held for one month, they beat the S&P by 0.8%, or 1.7% after two months. They offered no results for the year-to-date.

It turns out that CNBC did its analysis incorrectly, and that the stocks beat the S&P by 0.4% in one month and 1.2% over two months. CNBC measured the stocks' performance against the average performance of the S&P year-to-date, instead of against the performance of the S&P from the date of each stock pick. Also, it included more than 100 recently recommended stocks that weren't held for the full one- or two-month holding period that CNBC claimed.

More important, the stocks fell short of the S&P by a statistically significant 2.2% through last week.

Our question is: How are viewers supposed to know that they should pay attention only to this subset of stock picks each week and ignore the thousands of others that Cramer makes on his show?

Then there's the day-after-pop phenomenon. Our analysis of Cramer's picks over the past two years, from YourMoneyWatch.com, showed that, on average, the stocks jumped 2% the day after he mentioned them. From there, they usually moved sideways or down for the following 30 trading days (see chart). This offered an opportunity to make money — 5% to 30% a year — by selling Cramer's selections short.

Cramer agrees that there is a shorting opportunity in the temporary effect he has on stocks — a trade that he'd jump on if he still were at a hedge fund. "If you short the bump, you will do well," he said last week. "I've said it on the show many times."

I really don't think people should be taking stock tips from a guy who has about a minute to analyze the stocks on his show. He may be a really smart guy but how can he properly evaluate a stock in the short time period he has?

I hope there aren't too many people who base their stock investing solely based on his recommendations. But if they're that ignorant or lazy, I guess they get what they deserve!

Prosper Update

2007-08-23T20:44:00.000-07:00

I started lending money on Prosper.com about 10 months ago. I started out with a total of $1900 in my account. I've been mainly targeting people with D and E credit who seem have steady jobs but got into the payday loan trap and can't get out. My average interest rate is about 19.4% right now and I usually lend out the minimum $50.

I've been reinvesting all the interest payments I've received. So far I've made loans to 40 people and I've had 2 defaults and 1 currently late loan - two of which were from Prosper's auto-pay, which I don't really recommend using. One of the defaults had a B rating!

Currently my account is worth about $2106, which gives me an annualized return of about 13%. Not bad at all.

If I don't have any more defaults, this might increase slightly. Even if I get 1 more default, I should still get an annualized rate of 9%, which is about twice what I get in a savings account.

Why should Visa and Mastercard make all the money!

How To Sell a $14 Book For $2,500

2007-08-19T02:22:00.000-07:00

Previously, I had mentioned a $2,500 book by Monhish Pabrai called Mosaics:Perspectives on Investing and how I was hoping I could find my own signed copy to hawk on Amazon.

Well, I did find it and after jumping through several hoops I was finally approved as a seller on Amazon.com. (Don't know what the issue was, just some technical difficulties on their end).

Not only did I find a signed copy, I also happened to have an unsigned copy too!

I'm selling the autographed copy for $2,395 (don't want to be too greedy!). Here's the link on Amazon.com. If anyone's interested, contact me directly and I'll let it go for $2,200 with free FEDEX shipping.

I'm not sure what sort of people buy these kind of books. But I know they exist. Someone spent $395 and bought the unsigned edition a few days ago. I know that for a fact because I got a $23 commission from Amazon on the sale of that book(thanks whoever you are!).

I just read Pabrai's latest book, The Dhandho Investor: The Low - Risk Value Method to High Returns and its really very, very good. I'll write a review on it shortly.

And yeah, the title of this post is a bit misleading. ;-)

The Raging Bull

2007-08-17T10:05:00.000-07:00

For all of you that enjoyed (or maybe were horrified by) Jim Cramer's emotional outburst, here's a spoof on that. Its really funny, check it out.

You can catch more of these entertaining videos on Minyanville.com

Its Official: Hell Freezes Over

2007-08-15T15:53:00.001-07:00

Last week, hell froze. The Financial Times reports:

In a rare unplanned investor call, the bank revealed that a flagship global equity fund had lost over 30 per cent of its value in a week because of problems with its trading strategies created by computer models. In particular, the computers had failed to foresee recent market movements to such a degree that they labeled them a ‘25-standard deviation event’ - something that only happens once every 100,000 years or more.

"We are seeing things that were 25-standard deviation events, several days in a row," said David Viniar, Goldman’s chief financial officer.

Losses in the Goldman fund could go over $1.5 billion. But heck, everyone makes mistakes. And even a great mathematician such as James Simons, founder of Renaissance Technologies, takes a loss from time to time. Simons used to do math for the Pentagon. Then, he discovered that he could make billions running a math-based hedge fund. But last week, Simons was forced to write a letter to his investors. His fund lost about 9% in the first few days of August...and now Simons says, “we cannot predict the duration of the current environment.

So apparently, math whizzes find they don't know which way the market is going, despite all their fany financial modeling and risk calculation and mitigation through the use of derivates.

No matter what kind of math you do, sometimes things take you by surprise.

According to Nassim Nicholas Taleb’s latest best seller, The Black Swan: The Impact of the Highly Improbable , improbable events with infinitely small odds of occurrance seem to occur every so often, especially in the financial markets. And with disastrous results!

And if this wasn't enough, Sentinel Management Group, with $1.6 Billion under "management" has frozen access to Money Market Accounts!
According to the Chicago Tribune,

"If you attempt to withdraw money from Sentinel, they will tell you they will not honor that request," said lawyer Jeffrey Barclay, who represents some of the futures brokers and investment pools whose money is frozen at Sentinel.

With $1.6 billion under management, Sentinel had advertised itself as an ultrasafe cash manager for people in the futures industry, corporate treasurers and well-to-do individuals.

Now the company is saying nothing publicly and has taken down its Web site. "We are not taking any media calls," said a person who answered the phone at Sentinel on Wednesday.

What is the world coming too?

Related Readings:

1. The Black Swan: The Impact of the Highly Improbable

2. Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

3. When Genius Failed: The Rise and Fall of Long-Term Capital Management

Is The US On The Verge Of Collapse?

2007-08-14T11:41:00.000-07:00

According to the Financial Times.

The U.S. government is on a burning platform of unsustainable policies, and practices with fiscal deficits, chronic health care underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon.

David Walker, comptroller general of the U.S.,issued the unusually downbeat assessment of his country’s future in a report that lays out what he called chilling long-term simulations. These include dramatic tax rises, slashed government services and the large-scale dumping by foreign governments of holdings of U.S. debt.

Drawing parallels with the end of the Roman empire, Mr. Walker warned there were striking similarities between America’s current situation and the factors that brought down Rome, including declining moral values and political civility at home, an overconfident and overextended military in foreign lands and fiscal irresponsibility by the central government.

Very chilling indeed!

Before you start thinking that David Walker is some crackpot lunatic, here's his bio straight off the US Government Accountability Office website.

As Comptroller General, Mr. Walker is the nation's chief accountability officer and head of the U.S. Government Accountability Office (GAO), a legislative branch agency founded in 1921. GAO's mission is to help improve the performance and assure the accountability of the federal government for the benefit of the American people. Over the years, GAO has earned a reputation for professional, objective, fact-based, and nonpartisan reviews of government issues and operations.

Are MBA's Over-rated?

2007-08-14T08:36:00.000-07:00

According to this interesting article,an MBA isn't all its cut out to be.

While having that M.B.A. might give you a boost, the reality is that the degree generally isn't a guarantee or indicator of your future success. Business success has more to do with leadership, talent and a drive for excellence than it does with having a degree from a prestigious university. An M.B.A. can help you get your foot in the door, but according to Peter D. Crist, chairman of Crist Associates executive search firm, "it's instinct, it's hard work, and it's raw intelligence" that will really help you get ahead.

It references this article in Businessweek, which is also worth checking out.

Counter Argument to China's Threat To Dumping US Dollars/Treasuries/

2007-08-12T22:47:00.000-07:00

A few days ago,China threatened to offload its Billions of US Treasuries in retaliation to any US imposed trade tariffs.

One of the newsletters I read regularly is from John Mauldin who doesn't think its likely that China will follow through with their threat.

China has an estimated $900 billion in US dollar reserves. There is no doubt that if they did decide to sell a few hundred billion here or there, they could push the dollar down against all currencies and not just the renminbi. That would also have the effect of increasing US interest rates on not just government bonds, but mortgages, car loans and all sorts of consumer credit.

Given the current state of the credit markets, that is not something that would be welcome. But it is not likely for several reasons. First, it is not in their best interests to do so. It would hurt the Chinese as much as the US, as it would devalue their entire dollar portfolio and clearly do damage to their number one export market - the US consumer.

Secondly, it is unlikely that the US will actually be able to get such legislation passed into law. Even if such legislation passed Congress (an admitted possibility) it would be vetoed by President Bush. That means that any real change would not be possible until some time in the middle of 2009.

The renminbi has already increased almost 10% in the last two years since the Chinese started their policy of a crawling peg. For reasons I outlined at length a few weeks ago, it is likely that the Chinese are going to increase that pace over the next two years, for their own internal reasons. A higher renminbi valuation helps them slow their economy down from its way too fast pace of growth that is evident today. (If you would like to see that analysis, click here.)

By the time any real legislation could get passed, the renminbi will be very close to the level where the China bashers in Congress want to see it, if it is not already floating. Hardly enough to want to start a trade war at that time.

But let's look at what the bi-partisan economic illiterates in Congress are actually advocating. First, they whine about lost American jobs. But a 25% higher renminbi is not going to bring any manufacturing jobs back. China is no longer the low cost labor market. There are other Asian countries with lower labor costs. We just will not be able to competitively manufacture products that have high unskilled labor costs.

But we will continue to manufacture high value added items in a host of industries where skill and talent are required. Even though manufacturing as a percentage of US GDP is down, our actual level of exports and manufactured products is up by any measure. It is easy to write about the closing of a plant, and it makes the headlines, but the fact is that free trade has created more jobs by far than we have lost.

Secondly, if our cost of imports were to rise by 20-25%, that cannot be understood as anything but inflationary. And it would not just be Chinese products, but the products of all developing countries. Many Asian countries manage (manipulate) their currencies to keep them competitive against each other and the Chinese. You can bet that if the renminbi rises another 20%, there is the real prospect that they all will.

And much of what China and the rest of Asia produces is bought by those on the lower economic rungs of the US ladder. So, if Congress gets its way, they would be advocating putting pressure on those least capable of paying higher prices. But no one lobbies for the little guy. Congressional members can pander to their local unions and businesses without having to answer for what would be higher prices.

And higher prices means more inflation which means that interest rates have to be higher than they should, which means higher mortgage rates, etc. Protectionism has a very high cost. Free markets create more jobs everywhere.

Finally, we should hope the Chinese continue to allow their currency to rise slow and steady. Neither country needs the turmoil a rapid rise would induce. The world needs a stable China. We are watching world credits markets freeze up because things went very bad very quickly in the relatively small subprime world. A 20% drop in the dollar in a few months would be even more catastrophic. Senators Lindsey Graham and Chuck Schumer are competing to be this century's Smoot and Hawley that creates a depression from trade wars where none should be.

The danger in all this is that politicians who have little economic literacy create a hostile environment with their rhetorical poison, with both sides feeling the need to play to their "home crowd." That is a very dangerous environment.

It won't happen, but I would like to see the following question asked in the presidential debates to those (like Hillary Clinton, Obama and Dodd, etc.) who basically advocate a weaker dollar.

"Why are you advocating a weak dollar policy? Why do you want American wage earners to pay 25% more for the goods we buy from foreign countries? Do you really think there is no connection between the value of the Chinese currency and the rest of the currencies of the world? Do you think American consumers need to send even more money overseas and get less for our dollars? Do you think the American consumer is so well off they can afford to pay more and that it will have no affect on the US economy? Do you realize that a 25% lower dollar will mean a rise in world oil prices? Do you think there is no connection between the value of the dollar and US prosperity?"

Mortgage Lenders Squeeling Like Pigs: WAMU First To Cry Uncle

2007-08-12T13:00:00.001-07:00

Despite Ben Bernanke's optimism that the sub-prime issues wouldn't spread to the rest the of the economy, not only is it spreading to the rest the of the economy, its become our favorite export to global economies too!

The resulting liquidity crunch has already begun. Many banks just announced that they'll no longer accept loans through brokers. This is to reduce the additional cost of having a middle-man.

Washington Mutual also announced that its Jumbo loans would be priced at 8%. OUCH! Basically, WAMU is having a tough time reselling these loans on the secondary market (to unsuspecting pension and hedge funds) so they've jacked up the rates on these.

As of 2007, a jumbo loan (in most parts of the country) is a loan thats over $417,000 for a single-family residence.

Unfortunately, with the median home price in San Diego is over $500,000. (Not sure of the exact figures but its dropping from the peak). This means the average family has a jumbo loan on their median-priced home.

It was ok when rates where 4.5%, but now when rates are at 8%, the corresponding home payment will jump 43%!!!! I don't know about you, but I'd be looking to move if my home payment rose 40%+.

I think as the rates rise and loans become more difficult to get, home prices will start falling faster than they have in the past 2 years. Many people are still in denial about dropping home prices in SoCal - but this looks like the beginning of the end. I wouldn't be surprized if rates fall another 25% of where they are today.

China Pulls Out The Heavy Ammunition!

2007-08-07T22:21:00.002-07:00

According to the Telegraph,

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

China has been subsidizing the consumption of the US consumer & homeowner to the tune of nearly $1 Trillion. They send us all kinds of stuff and in return we give them pieces of green paper that aren't really backed by anything, except the promise to pay more of the green stuff!

And now, to appease special interest groups clamoring about loss of manufacturing jobs, our 'faithful' senators are trying to pass a bill enacting trade tariffs against China in retaliation for currency manipulation. The good thing about special interest groups are that they are usually represent single-agenda constituents. The politicians give them the one thing that they want, and they're assured their vote. And if they can spread the cost of giving them the thing they desire over a large base, less people are likely complain.

In this case, the cost is higher inflation for all of us. And if China follows through with its promise, you'll see much higher interest rates that will negatively affect the housing industry and the economy pushing us into recession.

We're currently experiencing an economy divergence. A poor country like China is lending money to our government by buying our Treasury notes. You could say its effectively funding our government spending. This is enabling us to enjoy the low-interest environment of the past several years.

This is not a normal occurrence. Typically rich countries lend money to poor countries. This phenomena should result in a natural rebalancing of the currencies where China's currency strengthens against the US Dollar. Given time, this will occur without any help from our politicians.

Henry Paulson, the US Tresaury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Yet another example of why the government shouldn't interfere in economic policy. It usually never does any good, it creates friction and the burden always falls on the tax-payer.

Meanwhile, Hillary Clinton in a show of brilliance said

foreign control over 44pc of the US national debt had left America acutely vulnerable.

Great, maybe Bill can fork over the $50 million he's made and buy up some of it.

Related Posts:
How Trade Trariffs Hurt The Economy

A New Kind Of Nigerian Scam?

2007-08-07T21:54:00.000-07:00

I recently got an email from a reader that I think I should share with you. It involves a new kind of scam and you need to be aware of it.

Hi: I have a question regarding real estate fraud. I have an ad on a website selling my property (for OVER $550K) online. The web co. forwards me an email from someone named Dr. Earl Spencer inquiring if the property is still available. It is.

He then wants maps and info about the area. I send them to dr_earl_spencer1995@yahoo.com . Then he says I should consider the property sold and he wants my HELOC account number to send a wire transfer for the funds to purchase.

My next email was to inform him that all transactions were to take place thru my attorney; but his email address was closed. Next morning he CALLS me to say that he's emailed me with another address to send him the account information. I told him that I reported him as a spammer to the listing website, and they were banning his email address from their site.

His next email address comes to me RIGHT THRU their website again: dr_earl_spencer@uk2.net . (He claims that the first web closed down and this was his work email. He still wants my HELOC account number or I should run to the bank quickly and open one. He obviously didn't get my last email about working through my lawyer.

Then he says that his client is very happy with the property and is willing to pay $600,000 us dollars for it ($25,000 more than I was asking), and he wanted to wire $1 million into my account and use the $400,000 that was left to pay for renovations on the property and to pay the man I talked to and was emailing me, because he was the real estate agent. I then sent him my lawyer's name, address, and phone number, thinking that would get rid of him; but he emailed me this morning saying his client was delighted and needed the email address of my lawyer so he could start the contract proceedure and then move to the wire transfer. My lawyer thought he was scammer the first time I talked to her; she was not available today. My bank has assured me that you cannot wire money "into" a heloc account that was opened for only 1/10th of what he wants to put in there.

What do I do with this guy now? i'm kind of thinking my lawyer doesn't want to deal with this, period.

I need your opinion on this. I feel he is a scammer, but I have no experience with this kind of thing. Do you think there is any chance of him being legit.? His wording and mis-spellings were very un- professional. What do I do now. And who do I report him to? I gave him no information, and no wire tranfers have taken place, SO TECHNICALLY THERE WAS NO FAUD COMMITTED...YET.. Thank you for your time.

This is a scam. There is absolutely no chance in hell of him being legit.

Legitimate buyers want to see a property, want to check title, want title insurance and they want to go through a legitimate escrow company or attorney. Never give out details of you bank account or lines of credit (secured or unsecured) to anyone via email EVER. And never to anyone you don't know.

This is similar to a scam on ebay. The winner of an auction will send you a cashiers check for twice the item (usually an expensive item) and the suspecting honest buyer will send the item and the extra money back. A month later the bank notifies that the check was fraudulent and takes the full amount out of your account. So now you've lost the item and the extra money!

I recently got an email that appeared to be from Monster.com, but it wasn't. Apparently they found my email from Monster.com and had a 'transfer manager' position
for me. They have clients in the US (they're based out of the UK) and since they can't wire money to them, they'd wire it to me and I'd re-wire it out to the company. I basically should email my bank account information to them along with a copy of my drivers license and I'd get to keep 10% of the money their clients sent through me. Yeah right!

Today, the only people who can't do international wires are people who sell illegal narcotics. Even illegal aliens can send money back to their countries through Western Union.

I contacted Monster.com and they confirmed it was a fraudulent email. They also sent me a link to the FBI's website for reporting such cases of fraud. Unfortunately I deleted it, but this is a serious matter and you should always report it. Remember
there are gullible people who unfortunately fall victim to these sort of crimes every day.

You can get a list of common frauds on the FBI site.

Don't let the bad guys get away. You can and should report all internet-related crimes here
http://www.ic3.gov/.

$5 Million Just Ain't Enough!

2007-08-07T16:03:00.000-07:00

The New York Times has an article about "poor" millionaires in Silicon Valley, working 70 hrs a week, just to get by.

Some of them having networths ranging from $5 million to $10 million, but are still working 60+ hrs a week.

Silicon Valley is thick with those who might be called working-class millionaires — nose-to-the-grindstone people like Mr. Steger who, much to their surprise, are still working as hard as ever even as they find themselves among the fortunate few.

Mr. Kremen estimated his net worth at $10 million. That puts him firmly in the top half of 1 percent among Americans, according to wealth data from the Federal Reserve, but barely in the top echelons in affluent towns like Palo Alto, Menlo Park and Atherton. So he logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up.

“You’re nobody here at $10 million,” Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here.

“People around here, if they have 2 or 3 million dollars, they don’t feel secure,” said David W. Hettig, an estate planner based in Menlo Park who has advised Silicon Valley’s wealthy for two decades.

“You look around,” Mr. Barbagallo said, “and the pressures to spend more are everywhere.” Children want the latest fashions their peers are wearing and the most popular high-ticket toys. Furniture does not seem up to snuff once you move into a multimillion-dollar home. Spouses talk, and now that resort in Mexico the family enjoyed so much last winter is not good enough when looking ahead to next year. Summer camp, a full-time housekeeper, vintage wines, country clubs: the cost of living bloats.

To Mr. Milletti, it all looks like a marathon with no finish line.

“Here, the top 1 percent chases the top one-tenth of 1 percent, and the top one-tenth of 1 percent chases the top one-one-hundredth of 1 percent,” he said.

“You try not to get caught up in it,” he added, “but it’s hard not to.”

At what point is your wealth enough? Seems pretty sad to be worth $10 million and not being able to feel you'll achieved a right to take some time off!

Is the purpose of life to keep working and keep accumulating more toys until you just drop dead?

Turning Japanese

2007-08-07T00:06:00.001-07:00

Here's some interesting info from Bill Bonner, author of Empire of Debt: The Rise of an Epic Financial Crisis

The Fed is still talking about the risk of inflation...while the risk of deflation rises daily. Deflation happens when liquidity dries up. Suddenly, money disappears. Lenders don’t lend. Spenders don’t spend. The velocity of money declines as everyone holds on to what he’s got...fearful of losing it.

When this happens even the feds can’t do much about it. They have their printing presses...but they have no good way of getting the money into the hands of people who will move it around. The usual way is through the credit markets. The Federal Reserve pushes down short-term interest rates, for example, enabling lenders to offer money at lower rates.

But when a deflationary mentality takes hold of people, the last thing they want to do is to borrow money. They’re afraid that they might not be able to pay it back. Besides, in deflation, consumer prices fall. So the money they pay back will be more valuable than the money they borrowed. Their effective, or real, interest rate will be much higher than the nominal rate they are paying.

As prices fall, consumers become even more reluctant to spend. They begin to see that they’ll get a better deal if they wait. They turn Japanese.

That is the nightmare that haunted Ben Bernanke when he took over at the Fed. It is what prompted him to announce that “the Fed has a technology...called a printing press...” with which it can print up dollars at almost zero cost...and if need be, the Fed can drop dollars from helicopters in order to get the money into circulation.

Of course, this was a fanciful description of monetary policy. Let the Fed scatter dollar bills from helicopters and the U.S. dollar would fall faster than the currency in Zimbabwe, where inflation is said to be running at 100,000% per year. Some things just have to run their course – like hyperinflation, for example. Once it begins it continues until the currency is completely destroyed. Deflation, too. Once begun, it is hard to stop...for the cure if often worse than the disease.

The Japanese economy was strong when prices began to fall in 1989. First stocks fell. Then property. Then consumer prices. All prices came down. And each falling price strengthened deflation’s grip on the Nippon economy. People hoarded money. You practically had to hold a gun to the consumer’s head to get him to spend. And business investment? Takeovers? Leveraged buyouts? All came to a stop.

But Japan could afford deflation. People had savings – lots of savings. And the economy always enjoyed a trade surplus. Nor was there any large subprime lending problem.

Can America afford a liquidity crunch...a credit contraction...a deflation? We don’t know...but if we were Ben Bernanke, we might want to make sure the printing presses and helicopters were in good running order.

Are we turning Japanese? I really think so!

Video: Cramer Frothing At The Mouth

2007-08-05T09:00:00.000-07:00

Here's an interesting video of Jim Cramer imploring Ben Bernanke to stick his head out of the Fed window and see whats happening in the markets. Pretty amazing for a 52 year old man to get so worked up over a lousy rate hike. I think he might be losing it!

I wouldn't be surprized if he had an stroke on tv one of these days! Not sure what he was implying when he said that "they" called him off the air imploring him to do something. Were these people he's referring to bond managers or hedge fund managers? And what is he supposed to do? Call his buddies in the white house or the Fed office and convince them to cut rates? Or was this spectacle it?

Will the Fed cut rates to help the economy?

I think they will pretty soon, but that will weaken the dollar even further (and hopefully strenghten gold). But atleast all those people who couldn't afford to buy their homes without super-low rates and ultra-lax lending criteria and who are now faced with losing them will be able to continue the farce a little longer.

What do you guys think?

A Better Way To Lend Money To Friends & Family

2007-08-04T14:01:00.000-07:00

Lending money to friends and family can be a strain on the relationship (not to mention your finances). Seeing that you're doing well, everyone wants to hit you up for a small loan. If its a short-term thing its fine, but if you're worried about the borrowers ability to repay your loan either due to poor financial responsiblity or income limitations it sometimes becomes difficult to say no.

One way is to steer them towards micro-finance sites like Prosper.com. Tell them that if they sign up on Prosper, you'll contribute as much as you can towards their request and also give you a recommendation.

This helps you in several ways:

1. It doesn't sound like you're saying no. You're trying to help them and will even
contribute towards their loan.

2. You get paid interest. This is based on their credit history. The better they're
credit history, the lower the rate.

3. You don't have to keep on asking them when they'll repay you and they don't have to avoid you because they feel like stiffing you. (Isn't it amazing how people who don't have enough money to repay you still seem to have enough money to spend on movies and fine dining?)

4. Their credit is on the hook if they don't repay you. Even if you lose money, atleast they didn't get away without incurring some loss. You don't even have to bug them. Prosper will pass on the info to collections after a few months of non-payment.

Prosper is also currently running a promotion. If they sign up using the referral link, both you get $125. If they join your group, you get group rewards which can be a % of the loan and an ongoing % of the monthly payments! If you refer a lender, then you both get $25.

You can even borrow money from friends and family this way. If you need a small loan just sign up on Prosper and forward your request to your friends. The smallest amount they can lend you is $50. If your friends can't lend you $50, you need to find richer friends or (more likely) to work on your image!

Riskest Real Estate Markets In The US

2007-08-02T20:08:00.001-07:00

A lot of people are wondering where to invest in order to catch the next real estate boom. I don't have a ready answer for that, but Forbes magazine was nice enough to tell us where the riskiest markets are.

1. Miami, Fla.

Due in part to escalating insurance costs, Miami produced a price-to-earnings ratio that was sixth highest. Despite a loan-to-value rating around national averages, a high vacancy rate of 3.5%, and a 43% share of adjustable rate mortgages was enough to propel Miami to the top of the list of riskiest housing markets.

2. Orlando, Fla.

Its moderate price-to-earnings ratio didn't do enough to set off an astronomical vacancy rate (over 5%) and scores in the bottom third for 90%-plus loan-to-value mortgages and share of adjustable-rate mortgages. Strong local economic indicators like job growth and immigration significantly mitigate the risk, but the city is in a vulnerable position.

3. Sacramento, Calif.

A high vacancy rate of 3.3%, which ranked 10th worst, the seventh highest price-to-earnings ratio despite consecutive quarters of falling prices, and a share of adjustable-rate mortgages in excess of 50% made Sacramento the riskiest investment in California. A very low number of loan-to-value ratios above 90% means the market can bear the stress of continued price drops should the local economy take time to absorb the slump.

4. San Francisco, Cailf.

More than 70% of the market's residential loans over the last year were adjustable-rate mortgages, which puts San Francisco in a very vulnerable position should interest rates rise. A middle-of-the-pack vacancy rate of 2.4% is well above healthy, which means that any future price dips for the highest price-to-earnings ratio market could hurt.

5. San Diego, Calif.

San Diego has the lowest share of mortgages with loan-to-value ratios above 90%, which bodes well for any future price decreases, suggesting the city can stand some short term strain. Its problems are a 2.8% vacancy rate, the nation's third-highest price-to-earnings ratio despite prices not yet reaching a trough, and above-90% loan-to-value and adjustable-rate mortgage shares--among the top three in the nation.

6. Phoenix, Ariz.

There isn't one poison-pill measurement for Phoenix. A high 3.1% vacancy rate hurts, but so does the 10th-worst price-to-earnings ratio, despite significant downward price pressures over the last year. Adjustable-rate mortgages rank eighth-highest of cities measured and loan-to-value ratios above 90% are in the middle of the pack. The question is whether Phoenix's labor force and local economy, which is highly tied to the building industry, can sustain a prolonged slump.

7. Kansas City, Mo.

Things look dicey for Kansas City. Vacancy is above 4%, and the share of mortgages with loan-to-value ratios above 90% is the worst of the cities measured. The housing market is strained and ill-equipped to handle any future price declines. At least, with its low price-to-earnings ratio, mortgage costs are little compared with what one could earn renting the property.

8. Cincinnati, Ohio

The share of adjustable-rate mortgages and those with loan-to-value ratios above 90% usually have an inverse relationship. Not in Cincinnati. The city has the 5th-highest share of 90%-plus loan-to-value mortgages and, at 30%, an above-average share of adjustable-rate mortgages. This exposes the market to both price-decrease problems as well as interest-rate hikes.

9. Chicago, Ill.

Chicago is a traditionally stable market, but is currently under pressure. Its 2.3% vacancy rate isn't unmanageable, nor is its price-to-earnings ratio, which is the 12th highest nationally. Chicago's problem is a very high share of adjustable-rate mortgages (45%) and a middle-of-the-road share of mortgages with loan-to-value ratios above 90%. Having a high share of one is sustainable if there's a low share of the other, but in a scenario like this, both lenders and borrowers have elevated risk.

10. Denver, Colo.

Vacancy is high, at 3.7% - it's the list's fifth worst, which means that the city has a ways to go before it experiences price recovery. Adjustable-rate mortgages comprise 40% of Denver's mortgages, which exposes a market that's already struggling to problems if interest rates should increase.

I'm not sure if I'd invest in any of these cities, but just in case there are any concerns, they've also included the Most Overpriced Cities. The top three cities are

1. San Diego
2. Miami
3. Sacramento

which incidentally are also amongst the least affordable, along with Los Angeles and San Francisco.

I definitely wouldn't be buying in any of these 5 markets, whether for investment or as a personal residence.

In other interesting news today, Beazer Homes (BZH) is rumored to be facing bankrupcy.

American Home Mortgage (AHM) was up today, jumping from $1.25 to ~$4.60. It closed the day with news that it would close down tomorrow and the stock dropped in After-Hours trading back to a $0.72.

CFC and WCI, both of which I lost money on shorting too early were down and are likely to head lower in the long term. In the short term they'll probably bounce, just like IYR. I had sold naked calls on IYR, which I closed out on Tuesday for a decent profit. Since then IYR has bounced up again. I look for another entry point and buy SRS instead this time.

There's Still No Inflation But Milk Is $4/Gallon

2007-08-02T01:37:00.000-07:00

Today's post is from the Mogambo Guru, who expresses his frustration at the inflation we're seeing in basic food products. Although Bernanke has said that inflation might become a concern, the Federal Reserve is still maintaining its stance that core inflation is contained. (Just like how the subprime lending problems was contained to about $250 Billion USD and how it might potentionally disrupt the entire global economey!!!!)

BEING FED BIGGER BREAD PRICES
by The Mogambo Guru

Peter Schiff of Euro Pacific Capital writes, "In current theory, the excess cash piling up around the world is like manna from heaven. Don't believe the hype. Liquidity is merely a euphemism for inflation. Asset prices, including stocks, are simply rising to reflect the diminished value of the currencies in which they are traded. Wealth is not being created, merely re-priced."

Well, I don't know where Mr. Schiff lives, but around here, it's not wealth that is being re-priced, but poverty. As the inflation in the prices of everything continues to outstrip "income after taxes and deductions", standards of living are being eroded because people can't buy as much stuff as they used to; their relatively static stream of discretionary income has lost buying power against rapidly rising prices.

For example, from the Financial Times we read that inflation is finally affecting food, and that Hovis bread said it was "preparing to raise bread prices for the second time in six months. The pending increase - which the company attributed to rising wheat costs - is merely the latest in a series of price increases food and drink companies have been trying to pass on to consumers this year. The series has seen costs of making bread, beer, yoghurt and chocolate as well as dozens of others packaged food products become increasingly expensive."

I know what you are thinking. You are thinking, "Who cares about bread? I don't need no stinkin' bread! I can eat pizza!", which is wrong, whereas you would have been correct if you had instead thought "I don't need no stinkin' bread! I can eat the bodies of dead animals that I find alongside the highway!"

And indeed you could, as the current market price of road kill is still a very economical zero, which may explain why it is not included in the Lehman Brothers' ingredients cost index, which "covers cocoa, coffee, oats, tea, soyabeans and milk, among other commodities and which is based on spot rates." This index, in case you were wondering, "rose 14.9% in the first half of the year", which "follows a 16.5% increase in the second half of 2006." Yikes! Prices of foodstuffs are up over 30% in twelve months? Yow!

And what is the biggest gainer? "The biggest increase has occurred in powdered milk prices. These have nearly doubled compared with the same period a year ago. Barley prices have also shot up 53%, while corn prices are up 68%."

So it is no wonder that people are complaining about prices! And you may be interested to learn the surprising fact that these afflicted people are, paradoxically, not the least bit interested in, or appreciative of, being educated that their inflation problems are all self-inflicted, as they are the same drooling morons that elected the Congressional morons that have spent us into the Hell Of Crushing Debt (HOCD) and allowed the Federal Reserve to create wildly excessive amounts of money and credit to make that grotesque orgy of spending possible!

To prove it to yourself, the next time somebody says that prices are going up and that they are having a hard time making ends meet, carefully observe their reaction when you politely and respectfully go up to them and, by way of education for their benefit, say, "Shut your damned stupid mouth, you ugly little troll! Your problems are all self-inflicted, as you are the same drooling 'I Love Big Government Creating Perpetual Entitlements' moron that elected the Congressional morons that have spent
us into the Hell Of Crushing Debt (HOCD) and who conveniently looked the other way while the damnable Federal Reserve created the money and credit to make that stupid, bankrupting spending possible! It's your own fault, you ignorant little commie creep! You committed economic suicide, and in doing so have economically murdered the rest of us, you filthy piece of stupid, greedy, Leftist crap!"

He's always good for a laugh!

Indan Rupee Likely To Get Stronger

2007-08-01T09:29:00.000-07:00

According to Chris Gaffney, Vice President at EverBank.com

What do you think the best performing currency among the 10 most active currencies traded in Asia this year? If you take away the Thai Baht which is no longer freely traded, it has been the Indian Rupee which is up almost 10% since the beginning of the year. India's central bank, who is not happy with the currencies appreciation, had no choice but to raise rates yesterday to try and stem inflation. The central bank raised rates .5% yesterday and told lenders to set aside more cash to cover deposits. These moves are designed to drain liquidity from the credit markets and try to stem the inflow of capital which is increasing inflationary pressures. India's economy continues to grow at nearly 9 percent per year, second only to China in growth of the major asian economies.

The problem the central bank faces is similar to what has occurred in NZD over the past few months. The central bank will raise rates to fight inflation, but also wants to limit the appreciation of their currency. They have been trying to do both by raising interest rates at the same time as they are buying dollars and selling rupee to try and stem the rise of the currency. This can't last, they just don't have the deep pockets of China or Japan. I believe they will have to let the currency continue to increase, good news for the holders of rupee.

The Rupee has been holding steady at Rs. 40.50 for a few months now. But it looks like eventually the central bank won't be able to continue its manipulations and the Rupee will continue strengthening against the Dollar.

In India, real estate prices have been skyrocketing and there has been high wage and price inflaion. With the weakening Dollar, will offshoring tech jobs continue to make sense? Setting up an Office building is becoming increasingly more expensive, with commercial land in minor Metros reaching $2,000/sq ft! If this continues, it'll be cheaper to hire employees in the US! (So long as we go the Walmart route and don't provide them with health insurance) Maybe the weakening Dollar isn't so bad for the economy after all?

Debt-free At What Cost?

2007-07-31T15:09:00.000-07:00

I know a couple who are completely debt-free. They're in their early to mid-thirties and have no mortgage, no car loans and no credit card debt. Pretty impressive.

While they don't live unnecessarily frugally (no, they didn't eat noodles and boiled rice for a year) they have made some major decisions that helped them achieve debt-free status.

1. They're not having kids

Not having kids means major savings! In San Diego, day care runs about $800-$1,200 per month depending on where you live. Thats a $10,000/year per kid saving! Not having to worry about college expenses means you don't have to save for it either. Thats another $2,000-$5,000/year.

Plus, you don't have to buy diapers, baby clothes, baby books, those darn expensive Baby Einstein DVDs which probably amounts to another $2,000/year. All added, thats roughly a $15,000-$20,000 savings for the first few years.

Of course, once the kid is old enough to place in school your expenses drop. Until they're about 7, at which point you'll be paying through your nose for activities, classes, trips and gadgets. I read an article in the Wall Street Journal about how it costs about $180,000 to have a kid and I didn't believe it, until my friends started having kids and I started seeing all these crazy expenses.

2. None of their friends are having kids.

They dumped most of their friends who started having kids and started hanging around with like-minded people. This helps saving money since you don't have to spend money on other people's kids. I didn't think this would be a major expense but if you have 6 friends and each of them have 2-3 kids, this can easily add up. Between birthdays and christmas you're looking at spending several hundred dollars.(One of my friends had 72 people at his wife's baby shower!) Plus there's the trips to disney land. Heck, even a trip to the movies costs $25/person with soda and popcorn.

3. They put off saving for retirement.

They decided not to start saving for retirement until they debt-free. While this isn't a good decision, atleast now they have more money to sock away for retirement.

On the flip side, should you really be debt-free?

Your home mortgage is the cheapest money you'll ever borrow (provided you don't get ripped off on your home loan). It also provides you with a tax-break. Of course, paying a dollar in interest to save 35 cents in taxes is pretty stupid, but if you invest the money instead of paying off your mortgage and get more than the 6% your paying, you can arbitrage your way into early retirement!

Plus, starting your retirement later is never a good idea. You've lost the compounding effect on your savings and its very difficult to make up for that just by contributing extra.

But thats the way it is and its hard to find fault with their choices. They were willing to sacrifice for their goals and they reached them.

What would you do to be debt-free?

More Carnage In The Lending Business

2007-07-31T12:07:00.000-07:00

Shares of American Home Mortgage Investment Corp. (AHM) gapped down today nearly 90%!!! Thats after they already dropped from $30 to $10 last week! Despite the rebound in the market today, most home-lending companies were down. And later in the day, the market was down on AHM's news.

I think this might be an indicator of the growing liquidity crunch. The excess liquidity that was sloshing around seems to have dried up rather suddenly. After Bear Stearns reveavled that its subprime hedge funds were worthless, it seems that everyone's suddenly concerned that the AAA ratings issued might not really be true and the subprime debacle might spread to Alt-A and prime paper too!

John Devaney, CEO of United Capital Markets, a hedge fund that focuses on buying subprime ARM-backed securities, has been forced to sell his $23.5 million 145-foot yacht and his $16 million Aspen vacation home. Things must be really bad when you have to sell your boat and home!

It also seems that leveraged-buyout party is close to an end. The highly anticipated Chrysler/Cerberus has stalled. Even Blackstone is nearly 36% off its highs. And now it seems that Bernanke won't bail out investors by cutting interest rates.

Looks like a real good time to be a buyer of gold coins and gold stocks!

Do You Recycle Old Magazines?

2007-07-30T21:11:00.001-07:00

Most people subscribe to several magazines. They're either discarded or put in a box in the attic or basement, only to be thrown away decades later (unless they're comics or playboy magazines, in which case they're hold their value).

But today I found a novel way to get rid of them. You sell them on Ebay! Here's a link I saw today when looking for a book on horse racing. The seller sold last years Economist magazines for around $16 including shipping. Not a lot of profit, but atleast you're not filling up a landfill and someone else is enjoying them.

I like to read several magazines, but some of them like National Geographic are not time sensitive. Might be cheaper to buy them off ebay!

Paris Disinherited

2007-07-30T16:17:00.000-07:00

According to the Australian news website, news.com.au, Paris Hilton has lost her inheritance!

PARTY princess Paris Hilton is $60 million out of pocket after her billionaire grandfather - appalled by her jail term for drink-driving offences - axed her inheritance.

Family patriarch Barron Hilton was already embarrassed by his granddaughter's wild behaviour - notably when her home sex video was leaked on the internet.

But the 79-year-old considered her 23-day sentence last month the last straw.

"He was, and is, extremely embarrassed by how the Hilton name has been sullied by Paris," says Jerry Oppenheimer, who wrote a biography of the clan called House Of Hilton.

"He now doesn't want to leave unearned wealth to his family."

Hilton senior, the only member of the family left with a sizeable stake in the huge hotel chain, has let it be known that he intends to donate to charity the $2.4bn he will gain from this month's sale of the company to private equity firm Blackstone.

The money will go to the Conrad N. Hilton Foundation, the charity set up in the name of the founder of the family business.

Seeing as she has income from several other sources, I'm not sure if this is enough to change her behavior.