How will global warming affect income investing?
I'd rather write -- how will the global warming controversy affect income investing?
I don't know whether the planet is getting any warmer or not. After all, local weather varies tremendously for a huge variety of reasons. We now have ways of collecting data from around the world, satellites, etc which we didn't have until recently. When we compare current temperatures to past records, we're not making a fair comparison.
And if it the planet is warming, is human activity the cause? Long before the industrial revolution began, the world was hotter . . . and colder. The amount of light and heat the sun radiates can vary by up to 30%, yet I rarely hear this mentioned, and I've heard that the recent UN study on global warming did not even include that in its model.
If the planet is warming, no matter what the cause, what can we do about it? I'm against proposed solutions that would give government control over people, yet authitarian socialism seems to be the goal of many environmental activists. I believe that if there is a real problem, we need to use our ingenuity and technology to solve it, without condemning the masses of people of the Earth to poverty.
I do think that the issue makes international investing even more important. You can't afford to keep all of your money tied up with the political and economic fortunes of any one country, even the United States.
It appears that there will be a lot of economic activity related to global warming. And I can't really be against the reduction of fossil fuel emissions. Burning fossil fuels is wasteful of fossil fuels. Plus it creates some pollution, which I'm happy to reduce.
So hopefully the controversy will encourage the development of alternative energy sources and ways of cleaning up pollution . . . without discouraging the continued wealth creation of global capitalism.
global warming pollution
global warming pollution
Saturday, April 14, 2007
Friday, April 13, 2007
How low can stocks go?
Is there a floor on the stock market and, if so, where is it?
A lot of times when you read about individual stocks and the stock market, the writer or commentator talks about price rises as though they're permanent.
"If you didn't buy XYZ at $20, you've lost out on its rise to $50." Maybe. Or maybe it will go to $10 by next year. Or $1.
People commenting on Alan Abelson of BARRON'S often sound like that, because he's a chronic bear. "He would have had us miss all market gains since the Dow was 3200," one woman wrote in. In their book RULE BREAKERS, RULE MAKERS, The Motley Fool also go after Abelson.
Now in 2007 we can see perhaps some truth on both sides. The late 1990s were an unsustainable boom which did bust. Starting in March 2000, The price of many dot.com stocks plummetted from hundreds of dollars to pennies. High tech companies that made a profit, such as Microsoft, saw their share prices dramatically reduced. The overall market went down, although not by as much.
However, bad as the early 2000s bear market was, it wasn't as bad as some of Abelson's predictions. People who bought stocks at a price below their bear market lows, remained "in profit" -- at least without adjusting for inflation.
Is that a guarantee that the market or individual stocks will never go below the early 2000s bear market lows?
No. The Dow is now about 12,500. Maybe it will go back 777 where it was in 1982. Maybe below that, wiping out all price gains made in this long term bull market.
Maybe it will never go below 12,500 again.
Nobody knows.
And that's my point. It's easy to point to stock charts from the past, compare them with today's prices and then draw conclusions. But nobody knows where those prices are going tomorrow or in the next 5 or 10 or 30 years.
It's not likely the Dow will ever go back to 777 -- but I wouldn't risk my life on it, especially not with terrorism, looming conflict with China, and such threats. The U.S. has survived past threats -- that's no guarantee of the future.
Advocates of "value investing" often speak of how stocks can be undervalued now but the market will reward good companies in the "long run." I've got news for you -- there is no "long run." Stock prices are ALWAYS fluctuating.
Many companies traded on the New York Stock Exchange are more than 30 years old. Their prices continue to fluctuate based on the market's current appraisal of their value. 30 years from now, the stock prices of all then-existing companies will also fluctuate based on the market's then-current appraisal of their value.
And those 30 years from now prices could be considered "over" or "under" valued at the time, depending on how you choose to value a stock.
And those 30 years from now prices could be higher but also lower than today's closing price -- without or without adjusting for inflation (which is important, but it's easy to forget about this when oohing and ahhing about how much a stock has gone up over the years.)
stock price lows
stock price lows
A lot of times when you read about individual stocks and the stock market, the writer or commentator talks about price rises as though they're permanent.
"If you didn't buy XYZ at $20, you've lost out on its rise to $50." Maybe. Or maybe it will go to $10 by next year. Or $1.
People commenting on Alan Abelson of BARRON'S often sound like that, because he's a chronic bear. "He would have had us miss all market gains since the Dow was 3200," one woman wrote in. In their book RULE BREAKERS, RULE MAKERS, The Motley Fool also go after Abelson.
Now in 2007 we can see perhaps some truth on both sides. The late 1990s were an unsustainable boom which did bust. Starting in March 2000, The price of many dot.com stocks plummetted from hundreds of dollars to pennies. High tech companies that made a profit, such as Microsoft, saw their share prices dramatically reduced. The overall market went down, although not by as much.
However, bad as the early 2000s bear market was, it wasn't as bad as some of Abelson's predictions. People who bought stocks at a price below their bear market lows, remained "in profit" -- at least without adjusting for inflation.
Is that a guarantee that the market or individual stocks will never go below the early 2000s bear market lows?
No. The Dow is now about 12,500. Maybe it will go back 777 where it was in 1982. Maybe below that, wiping out all price gains made in this long term bull market.
Maybe it will never go below 12,500 again.
Nobody knows.
And that's my point. It's easy to point to stock charts from the past, compare them with today's prices and then draw conclusions. But nobody knows where those prices are going tomorrow or in the next 5 or 10 or 30 years.
It's not likely the Dow will ever go back to 777 -- but I wouldn't risk my life on it, especially not with terrorism, looming conflict with China, and such threats. The U.S. has survived past threats -- that's no guarantee of the future.
Advocates of "value investing" often speak of how stocks can be undervalued now but the market will reward good companies in the "long run." I've got news for you -- there is no "long run." Stock prices are ALWAYS fluctuating.
Many companies traded on the New York Stock Exchange are more than 30 years old. Their prices continue to fluctuate based on the market's current appraisal of their value. 30 years from now, the stock prices of all then-existing companies will also fluctuate based on the market's then-current appraisal of their value.
And those 30 years from now prices could be considered "over" or "under" valued at the time, depending on how you choose to value a stock.
And those 30 years from now prices could be higher but also lower than today's closing price -- without or without adjusting for inflation (which is important, but it's easy to forget about this when oohing and ahhing about how much a stock has gone up over the years.)
stock price lows
stock price lows
Thursday, April 12, 2007
Is inflation under control? Does anybody know?
The #3 Deadly Lies About Money from the ad in Rude Awakening (I mentioned it about a week ago) is "Inflation is under control."
According to that, the "official" inflation rate is 3.8%. If that is true, the value of a U.S. dollar will be cut in half in just 19 years. If you're retiring now at age 65, the value of your savings will be diminished by half, before you're 85. And although that may sound very old and distant, large numbers of people are living to, and beyond, that age.
If you're just starting your work career, 19 years is less than half of the time you'll work before retiring.
It's a favorite theme of investment newsletter salesletters that the official inflation rate is understated by the government. I don't know, not having access to all their information.
And I doubt the real accuracy of the government's information. I remember once when I was still in college. The U.S. dollar was worth more than twice what it is now (though I didn't have nearly as many of them), but inflation was much higher than it is now.
I was working part time at Pizza John's (NOT "Papa" John's!), a local pizza restaurant. After a lunch hour rush, a young woman working for the government came in to ask about price increases to keep track of inflation.
She was young and nice looking so my boss enjoyed talking to her for a few minutes, flirting with her, but when she kept asking him about when it was that they'd last increased prices and whether a potato slice always went with a certain sandwich, I could see him getting bored and impatient, and he just put her off with whatever he felt like saying.
So I'm not convinced the government actually knows what the "true" rate of inflation is.
However, it is the greatest single financial enemy of anyone who's not actively increasing their income.
inflation
inflation
According to that, the "official" inflation rate is 3.8%. If that is true, the value of a U.S. dollar will be cut in half in just 19 years. If you're retiring now at age 65, the value of your savings will be diminished by half, before you're 85. And although that may sound very old and distant, large numbers of people are living to, and beyond, that age.
If you're just starting your work career, 19 years is less than half of the time you'll work before retiring.
It's a favorite theme of investment newsletter salesletters that the official inflation rate is understated by the government. I don't know, not having access to all their information.
And I doubt the real accuracy of the government's information. I remember once when I was still in college. The U.S. dollar was worth more than twice what it is now (though I didn't have nearly as many of them), but inflation was much higher than it is now.
I was working part time at Pizza John's (NOT "Papa" John's!), a local pizza restaurant. After a lunch hour rush, a young woman working for the government came in to ask about price increases to keep track of inflation.
She was young and nice looking so my boss enjoyed talking to her for a few minutes, flirting with her, but when she kept asking him about when it was that they'd last increased prices and whether a potato slice always went with a certain sandwich, I could see him getting bored and impatient, and he just put her off with whatever he felt like saying.
So I'm not convinced the government actually knows what the "true" rate of inflation is.
However, it is the greatest single financial enemy of anyone who's not actively increasing their income.
inflation
inflation
Wednesday, April 11, 2007
Prepare for retirement before it's too late
The #2 Deadly Lies About Money from the ad in Rude Awakening (I mentioned it about a week ago) is "Your retirement is safe." Well, Bernard Bernake new Chairman of the Federal Reserve is trying to sound the alarm, but no politicians are listening. To be fair, President Bush tried to implement reform of Social Security early in 2005 but he was blocked by the expected opposition from the Democratic and pseudo-Republican liberals who refuse to touch the sacred cow of Social Security.
Yet anybody who looks can see the problem coming. There's not going to be enough money in the Social Security trust funds for the baby boomers. Not enough money to pay for Medicare expenses. Not enough pension money in the pension funds.
Even worse, there's just plain not enough money in the world!
And Japan and many European countries have an even worse discrepancy than the USA!
Sooner or later, we're going to see a massive theft of Social Security from the "rich." I say "theft," because Social Security was originally sold the American people and promoted as "insurance," not welfare. The taxation of Social Security for people with incomes over $25,000 which began about 10 years ago was an outrageous violation of this principle which nobody objected to, because hey, who cares if the "rich" (elderly people who make over $25,000 annually) don't like it -- why should they get it if they don't need it? Because they paid for it, that's why.
Just lately the government instituted the Income Related Monthly Adjustment Amount (IRMAA) part of the Medicare Modernization Act of 2003 - which forces elderly people who have over $80,000 in income to pay more of a Medicare Part B premium than other people. Again, class warfare.
And class warfare rhetoric is just beginning. We can expect to see higher Social Security taxes, an increase in the retirement age and more means testing (though it may just be backend taxation) of Social Security benefits.
If you save and invest money, even if it's just in certificates of deposit, you're going to be punished, to pay for the people who didn't save anything. Also watch out for a crackdown on people who have money in bank accounts in other countries. The government will want to get its hands on your money no matter where in the world it is.
baby boomer investing
baby boomer investing
Yet anybody who looks can see the problem coming. There's not going to be enough money in the Social Security trust funds for the baby boomers. Not enough money to pay for Medicare expenses. Not enough pension money in the pension funds.
Even worse, there's just plain not enough money in the world!
And Japan and many European countries have an even worse discrepancy than the USA!
Sooner or later, we're going to see a massive theft of Social Security from the "rich." I say "theft," because Social Security was originally sold the American people and promoted as "insurance," not welfare. The taxation of Social Security for people with incomes over $25,000 which began about 10 years ago was an outrageous violation of this principle which nobody objected to, because hey, who cares if the "rich" (elderly people who make over $25,000 annually) don't like it -- why should they get it if they don't need it? Because they paid for it, that's why.
Just lately the government instituted the Income Related Monthly Adjustment Amount (IRMAA) part of the Medicare Modernization Act of 2003 - which forces elderly people who have over $80,000 in income to pay more of a Medicare Part B premium than other people. Again, class warfare.
And class warfare rhetoric is just beginning. We can expect to see higher Social Security taxes, an increase in the retirement age and more means testing (though it may just be backend taxation) of Social Security benefits.
If you save and invest money, even if it's just in certificates of deposit, you're going to be punished, to pay for the people who didn't save anything. Also watch out for a crackdown on people who have money in bank accounts in other countries. The government will want to get its hands on your money no matter where in the world it is.
baby boomer investing
baby boomer investing
Tuesday, April 10, 2007
HYIP and other investing scams
I hope this doesn't apply to any readers of this blog, but last night I was rereading James Glassman's book THE SECRET CODE OF THE SUPERIOR INVESTOR, and I reflected about his characterization of investors as either outsmarters or partakers. I have certainly been an outsmarter for most of my investing "career," (except for contributing to my retirement fund at work), and I've paid the price.
Outsmarters don't win with the possible exception of when they have enough control to manipulate the results, which could be illegal and certainly is unethical. This may apply in some limited circumstances, but not to the vast majority of us.
At its most extreme, the outsmarter mentality is so out of touch with reality that it makes people susceptible to fraud. If you're going to listen to stock tips on cable TV, why not listen to them from boiler room telephone con artists? If you're going to put your money into overseas hedge funds then why not fall for some other fancy investment in the Virgin Islands.
If you think you really understand how the markets work in the short term, why not day trade? If you think someone else really understands how the markets work, why not send them your money to help you get rich, even if they don't give you any details, as few HYIP scams even try to do?
It's a truism that con artists claim that their cons work only on greedy people who think they can get something for nothing.
I don't know if con artists really claim that, but it does seem to apply. I remember that when I delivered pizza the people who wanted to cash bad checks for more than the cost of the pizza would add a large amount of money to the total as my tip, so I'd accept the check. And the infamous online Nigerian scam certainly also relies on the greed of its victims.
So the same "outsmarting" mentality that leads people to lose money through stock tips, paying brokerage commissions through trading, paying high mutual fund fees, paying even high hedge funds fees, paying interest on the leverage of buying stocks on margin . . . can lead to becoming the victim of out and out scams and frauds.
HYIP and other scams
HYIP and other scams
Outsmarters don't win with the possible exception of when they have enough control to manipulate the results, which could be illegal and certainly is unethical. This may apply in some limited circumstances, but not to the vast majority of us.
At its most extreme, the outsmarter mentality is so out of touch with reality that it makes people susceptible to fraud. If you're going to listen to stock tips on cable TV, why not listen to them from boiler room telephone con artists? If you're going to put your money into overseas hedge funds then why not fall for some other fancy investment in the Virgin Islands.
If you think you really understand how the markets work in the short term, why not day trade? If you think someone else really understands how the markets work, why not send them your money to help you get rich, even if they don't give you any details, as few HYIP scams even try to do?
It's a truism that con artists claim that their cons work only on greedy people who think they can get something for nothing.
I don't know if con artists really claim that, but it does seem to apply. I remember that when I delivered pizza the people who wanted to cash bad checks for more than the cost of the pizza would add a large amount of money to the total as my tip, so I'd accept the check. And the infamous online Nigerian scam certainly also relies on the greed of its victims.
So the same "outsmarting" mentality that leads people to lose money through stock tips, paying brokerage commissions through trading, paying high mutual fund fees, paying even high hedge funds fees, paying interest on the leverage of buying stocks on margin . . . can lead to becoming the victim of out and out scams and frauds.
HYIP and other scams
HYIP and other scams
Sunday, April 8, 2007
The Bond Desk by Neil George
My quest for information on fixed income investments such as bonds led to this report by Neil George. It's selling his newsletter on bonds, which is expensive, so I'm not pushing anybody to subscribe. I wouldn't get anything out of it if you did, and I myself haven't either, but I am curious. What kind of bonds are currently yielding 17%? How much risk is involved? I do appreciate his early words about how wealthy investors don't want their money sitting in mutual funds wasting time -- they want to get paid. That's the whole theme of this blog and my site, getting paid now. It's encouraging to know that the ultra-wealthy share this attitude :)
The Bond Desk report
bonds
bonds
The Bond Desk report
bonds
bonds
Friday, April 6, 2007
$300 million investment in old economy biz
Here's an interesting investing question -- would you risk $300 million of your own money to buy an "old economy" stock with a business that's going downhill thanks to the Internet?
That's what Sam Zell, a real estate mogul, did recently by buying the Tribune Company, owner of the LA Times.
At what point are troubled companies a true "value" investment and when are they low-priced for good reason?
Newspapers are losing readership and advertising dollars to the Internet. This is due to a number of factors -- online news sources are more up to date and convenient. People's demand for local news isn't really great enough to justify an extensive staff of reporters for local news, and they can't afford to send reporters all over the world as in the old days.
I believe that's it's also partly because major newspapers in this countries are secretly aiming to destroy this country, and many intelligent people realize that they're anti-American, though few realize how consciously many newspaper editors and reporters are actively working to bring down freedom and capitalism.
But that's also true of TV journalism, which is not so much on the decline, though I think eventually it will go down the tubes. CNN and Fox will supply all national and international news and the local news teams will cover fires, car crashes and mayor news conferences.
Yet many businesses have been on the decline for years, but still manage to make money, such as railroads. Maybe Zell has a plan to revolutionize the newspaper industry as Nucor did for steel at a time when every other U.S. steel company was losing to competition in Germany, Japan and South Korea.
It can be better to pay a low price for a declining but still viable business than a high price for an expanding business.
declining industry investing
declining industry investing
That's what Sam Zell, a real estate mogul, did recently by buying the Tribune Company, owner of the LA Times.
At what point are troubled companies a true "value" investment and when are they low-priced for good reason?
Newspapers are losing readership and advertising dollars to the Internet. This is due to a number of factors -- online news sources are more up to date and convenient. People's demand for local news isn't really great enough to justify an extensive staff of reporters for local news, and they can't afford to send reporters all over the world as in the old days.
I believe that's it's also partly because major newspapers in this countries are secretly aiming to destroy this country, and many intelligent people realize that they're anti-American, though few realize how consciously many newspaper editors and reporters are actively working to bring down freedom and capitalism.
But that's also true of TV journalism, which is not so much on the decline, though I think eventually it will go down the tubes. CNN and Fox will supply all national and international news and the local news teams will cover fires, car crashes and mayor news conferences.
Yet many businesses have been on the decline for years, but still manage to make money, such as railroads. Maybe Zell has a plan to revolutionize the newspaper industry as Nucor did for steel at a time when every other U.S. steel company was losing to competition in Germany, Japan and South Korea.
It can be better to pay a low price for a declining but still viable business than a high price for an expanding business.
declining industry investing
declining industry investing
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