Reinke Faces Life

http://www.thewisdomjournal.com/Blog

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Saving ONE dollar is like earning TWO because dollars saved are “after tax” dollars.

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Profound!

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http://www.theglobeandmail.com/servlet/story/
RTGAM.20080317.rcreditbearstearns18/BNStory/
Technology/?page=rss&id=..rcreditbearstearns18

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As a result, a firm that had survived the Depression, the Second World War and numerous stock market collapses faced the humiliation of a government-assisted takeover by rival investment bank JPMorgan Chase & Co. that will likely vaporize most of the personal wealth of the firm’s executives and cost the jobs of more than half of its 14,000 employees.

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I’ve seen this before when employees fall in love with their employer. They drink the Kool Aid of “failing to diversify”. My Mom fell in love with her AT&T stock. And, I have in my memory bank, many other examples of this among my friends and acquaintances. Since the read this blog, I won’t call them out but you know who you are.

Suficeth to say, I “love” no stock or bond. I ruthless observe the old Wall Street canard “No more than 5% in any one thing!”. Bank, brokerage, Tbill, … … I don’t care. If there is a way to segment your portfolio, then you should know if you have more than 5% and make a conscious decision that “it’s OK”. That may be because there is no alternative. But, it should be a “conscious decision to accept a specific risk”, as opposed to “stuff just happens”.

There is one good question that I have been asked by my Turkeys and acquaintances. (My friends and relatives never ask financial advice since they will get a long wandering diatribe on the evils of fiat currency and the benefits of gold!)

How do you mitigate the risk of jobs and pensions?

Well, both a job, pension, and any income stream of regular payments can be viewed as like a funny kind of bond.

If you have a $100k/year job, that’s like having a 2M$ bearer bond that you can’t sell. There are the unusual risks associated with it (i.e., you can lose it; it might default). That’s why the folks at Bear Sterns investing more than 5% in Bear Sterns really blew it. If one had that proverbial $100k/year job (and most jobs there paid much more), then you had in effect a $2M “bond” in your net worth. To stay under the 5% rule, you’d have to have assets in excess of $40M. Then, you could start investing in the stock.

Unfortunately, houses, pensions, and jobs when measured on the equivalent asset basis tend to throw the 5% rule out of wack. Not a lot many can do to avoid it. But that’s no excuse to not recognizing the risk and seeking to mitigate it.

So buying your employer’s stock has to be made pretty attractive to rush in and grab that particular falling knife so to speak. Sometimes it works out. Sometimes, like Enron, it don’t. Can you afford the loss?

I’m always amazed that financial industry professionals — the experts — do such a lousy job of planning their own financials. Remember 90% of Cantor Fitzgerald employees, who were killed in 91101, had no life insurance.

Always watch out for “experts” and those who give advice like one. Even me! Do your own thinking.

But remember 5%!

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http://www.lewrockwell.com/orig8/whitney8.html

It’s Time to Dump the Federal Reserve
by Mike Whitney

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“Facts do not cease to exist because they are ignored.”
~ Aldous Huxley

The credit storm which began in July when two Bear Stearns hedge funds were forced to liquidate, has continued to intensify and roil the markets. Last week the noose tightened around auction-rate securities, a little-known part of the market that requires short-term funding to set rates for long-term municipal bonds. The $330 billion ARS market has dried up overnight pushing up rates as high as 20% on some bonds – a new benchmark for short-term debt. Auction-rate securities are now headed for extinction just like the other previously-vital parts of the structured finance paradigm. The $2 trillion market for collateralized debt obligations (CDOs), the multi-trillion-dollar mortgage-backed securities market (MBSs) and the $1.3 asset-backed commercial paper (ABCP) market have all shut down, draining a small ocean of capital from the financial system and pushing many of the banks and hedge funds closer to default.

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This is the poster child for a disastrous gooferment program. Created in secret in 1913, it’s just flat out unconstitutional. Andrew Jackson must be saying “I told you so!”.

Constitutionally, there is nothing that permits the Congress to create a banking cartel and turn over the nation’s money to it. If it ain’t gold or silver, it ain’t money. And, no amount of “legal tender” laws can make it so. See Huxley quote above. The Dead Old White Guys made a mistake. The SHOULD have not mentioned money in the Constitution and left it to the marketplace to figure it out. But then, they thought the Tenth Amendment would cover any omissions. Silly Dead Old White Guys!

Strategically, the FED is supposed to regulate the banking industry. We’ve seen how well that works. The Germans had National Socialism; The Russians has Communism; America has Corporatism. The gooferment regulators and the entities they regulate are in an incestuous corrupt relationship. We should end this by ending regulation. The invisible hand of the marketplace is a far more honest regulator than any gooferment agency.

Tactically, the Fed has mismanaged and misregulated the whole mess. If for no other reason alone, it should be terminated with extreme prejudice.

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“Inflation has now been institutionalized at a fairly constant 5% per year. This has been determined to be the optimum level for generating the most revenue without causing public alarm. A 5% devaluation applies, not only to the money earned this year, but to all that is left over from previous years. At the end of the first year, a dollar is worth 95 cents. At the end of the second year, the 95 cents is reduced again by 5%, leaving its worth at 90 cents, and so on. By the time a person has worked 20 years, the government will have confiscated 64% of every dollar he saved over those years. By the time he has worked 45 years, the hidden tax will be 90%. The government will take virtually everything a person saves over a lifetime.”

— G. Edward Griffin

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And, we’re lucky if it’s ONLY 5%!

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http://www.townhall.com/columnists/WalterEWilliams/2008/01/30/stimulus_package_nonsense

Stimulus Package Nonsense
By Walter E. Williams
Wednesday, January 30, 2008

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There are three ways government can get the money for a stimulus package. It can tax, borrow or inflate the currency by printing money. If government taxes to hand out money, one person is stimulated at the expense of another who pays the tax, who is unstimulated and has less money to spend. If government borrows the money, it’s the same story. This time the unstimulated person is the lender who has less money to spend. If government prints money, creditors, and then everyone else, are unstimulated. As my colleague Russell Roberts said in a NPR broadcast, “It’s like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing — the water in the shallow end doesn’t get any deeper.”

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Good point!

And, we, of course, know who’s going to pay for it! “The Rich!”

;-)

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http://tinyurl.com/3c2bup

MONEY: Creating a ladder

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You walk in on January 2nd with your 16k$ and buy A one year, two year, three year, and a four year cd for 1k$ each. You also buy a Ninety day, One Hundred Eighty day, and a Two Hundred Seventy day cd for 4k$ each.

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http://tinyurl.com/34fycg

MONEY: Deploying a CD ladder isn’t easy

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And, if your account goes over the FDIC insurance cap, I’ll set up the overflow with my competitor down the street.

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Well, picking up from where I left off, it’s very easy to flow over the FDIC 100k limit. So one has to plan ahead to avoid this problem. For example, in the example of a five year quarterly cd ladder, one has 20 slots to fill. Assuming the 100k limit, then one is limited to 100,000/20 or 5k$. If you do a five year twelve month cd ladder, then the limit is $1,666.66. So, you’ll be using different banks to avoid that.

Now if one wants to have say 100k in retirement income, that’s 5% of 2M$.

(Before you do a Redd Fox — clutching your heart and exclaiming this is the big one — recognize that this is not much in terms of inflation and costs in retirement. Not when a ride on the NJ Turnpike is going to cost 50$! Argh!)

So, how does one develop a 2M$ ladder? And, how do you grow into your own “annuity”?

2M$ across a 20 rung (4 Quarter by 5 years) comes out very neatly to 100k$.

So you need 20 DIFFERENT FDIC banks for your CDs at full capacity. You are always taking the interest, so you never rollover the entire cd.

Since most folks I know don’t start with 2M$, how do you do this organically?

I suggest that you start with one bank and target your deposits with an eye to the magic 100k five year cd. So assume that you can “save” 5k/year, then it’ll take you 20 years to get to that 100k target. (Don’t be discouraged! Make a game of it.) Each year you buy a five year cd for your 5k, rollover interest, and as you “range in” on your goal tune your maturity to have it all come due at the same time.

Do it in your IRA and it’s tax deferred.

The more you save the faster you get there.

Seem “easy” in terms of the financial injineering!

:-)

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http://www.ronpaul2008.com/issues/inflation-tax

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Today, the federal government burdens us with one of the most dangerous taxes it can impose — the inflation tax. When the federal government finds that it cannot afford its out-of-control spending, and is unwilling to directly tax the public, it resorts simply to creating the money out of thin air.

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Here we have the ultimate tax.

A tax on money. A tax on savings. A tax on the poor. A tax on those on fixed income. An escalator that drives all costs up.

And, it creates a positive feedback loop for the cost of gooferment. The Fed inflates so the cost of what the gooferment pays goes up. The gooferment needs more money. The Fed inflates more. A positive feedback loop that any injineer will tell you will ultimately and rather quickly destroy itself. And, in the process, politicians, bureaucrats, and unions get ever increasing pay raises.

A tax on anything dollar denominated.

How silently insidious?

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http://www.csmonitor.com/2007/1231/p14s01-wmgn.html?page=3

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Bengen, author of the book, “Conserving Client Portfolios During Retirement,” published last year by the Financial Planning Association Press, has studied this issue since 1993. And based on his calculations, he believes 4.5 percent of total tax-deferred assets – stocks, bonds, and the like – is the correct payout amount in the first year of payouts. In following years, that payout rate would rise in line with inflation.

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Folks coming to the “withdrawing” phase of retirement savings have always been advised to take 4%. So a million dollar IRA can throw off 40k per year. So, you need lots stuffed away to be comfortable.

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http://www.nydailynews.com/money/2008/01/03/2008-01-03_citibank_limits_atm_cash_in_city-2.html

Citibank limits ATM cash in city
BY KERRY BURKE and LARRY McSHANE
DAILY NEWS STAFF WRITERS
Thursday, January 3rd 2008, 4:00 AM

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A jump in ATM fraud led Citibank to slash the maximum amount of cash available to customers from their accounts – a security move greeted warily Wednesday by its patrons.

The new cap on cash kicked out by the company’s ATMs began in mid-December after what Citibank called “isolated fraudulent activity” around the city.

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Hmm, interesting. With the subprime mortgage mess on everyone’s mind, might an ATM be a new way that there’s a “run on the bank”?

Now we know that the Federal Reserve Bank (which is neither “federal”, a “bank”, or a “reserve” of anything but assurances) can supply all the little green pieces of paper one could ever want. (Remember I think it was Mises who said “only a government can take something valuable like paper and make it worthless by printing on it”.) That guarantee didn’t stop half of NYC’s Chinatown from lining up outside one their banks recently when a bank officer took off with some dough. After all those were just illiterate (in English?) Chinese (illegal?) immigrants who didn’t understand that things are different in the “Pepuls Paradise of the USA”. (Are they really?)

Seriously, while it may be fraud prevention, it certainly doesn’t inspire confidence when this is how you find out about it. What did they lose? How did they lose it? (Personally, some IT guy mailing a file of name, rank, serial number, ssn, card number, mothersmaidenname, and pin to a backup location is not outside the realm of possibility. Like the bloke in England did.)

>change password

So why is the cited depositor being told to change their password?

Sigh, so many question. So few answers.

Let me google my pin, and see if it’s up for sale on a pirate board somewhere!

fjohn

p.s., Luckily I have no accounts with Citibank. Unless you count that one that the nice Nigerian fellow was telling me all about.

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FROM AN EMAIL EXCHANGE ABOUT A NEARBY HOUSE BEING SOLD

284k?

Always thought the way to wealth was to have 12 single family rental homes.

At 300, the opportunity cost is about 15k. If you financed 300k for 30 years at 5%, the PI is 1610. If you could rent it at say 2k, then at the end of 30 years, you have an asset that throws off 24k per year. Twelve of them is 240+48=288/year. An excellent retirement.

I first saw this proposed in the 70s by a discredited hustler named Sonny Bloch. (Later convicted on something unrelated to real estate.)

Shoulda, coulda, and woulda if I was smart.

You have to be meticulous with money. Diversify your risks. But, I can see how it is a guaranteed winner. Like when we rented the shore house. Rents edge up over time. You sign one year leases with your tenants. Hefty security deposits. A lot of headaches, but after 30 years, or 40 years, you have the equivalent of the family farm. Incorporated it as a family business to minimize tax and legal risks.

Sigh.

Too late, I get smart.

:-)

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Note: You have to bootstrap into 12. Optimistically, you get into one per year. Or per two year. You have to ruthlessly buy cheap quality houses. Modest improvements; diligent maintenance. Track the cash flow. Eventually the equity builds up. I think you title each one in its own corporate entity. Superior performing ones could be sold off at a premium. Hard work, but the road to riches imho.

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