Sunday, July 7, 2013

A Paean to the Last Bees

A Bit of Prose in Praise of Simple Bees
by Ronald Lindeboom

I am going to have to move our three year old bee colony to its new home, next week. After years of living with and learning from bees, I am going to miss the colony. They are such industrious and focused little things. They are a collective personality greatly influenced by the queen of the hive: if you have an aggressive queen, you have an aggressive hive. Get one of the mellower European Honeybee strains, such as those from Italy or France, and you have gentler bees.

People think swarming bees are a danger but when they are swarming, they are at their weakest, most vulnerable and gentle state. Why? When bees swarm it is because they have grown the hive to 30,000 bees who worked together to create such vitality in the hive that a new queen was made who will stay with half the bees in the existing hive -- while the old queen will say goodbye to the new daughter queen and will leave with half the bees to start a new hive somewhere else. The older and more experienced bees that built the hive, will leave the honey for their young. Really? Yes, really.

The old queen settles in a tree, surrounded and
protected by her sister bees.

If they do not succeed in establishing a new hive in three days, the swarm will likely die. It's a matter of life or death because they cannot return to the old hive they built. They have only one thing on their mind and it isn't stinging you -- no, every fiber and focus of the swarm is focused only on finding a safe place for the queen to establish a hive. That is all their genome has wired into their electro-chemical-magnetic collective mind. If they succeed in using their magnetic GPS internal circuitry to establish a new hive, they will help preserve the last vestiges of a species in real peril of extinction.

In the last 20 years or so, we have lost 80% of the bee population and just this last Winter, we lost a third of the 20% that was left. We have learned to respect whales and sharks, hopefully we will learn to appreciate and protect the tiny little honeybee. We are cheering for the girls but it doesn't look good for them.

Our hive has been wonderful to share a garden with. They have kept all of the trees and plants very fertile and productive. I have had some gardens in my life but none that were anywhere near as verdant and fruitful as this one. We credit the winged little girls for that.

Bees get a bad rap. Yes, some people are allergic to them and will die if they do not receive treatment soon. But most people are okay with bees and the bees really do not want to sting you anyway -- to us they seem to be aware that a sting means their death. They warn you first, if you are paying attention. They will "bump" you, grazing you and buzzing you as a warning that basically says, "Not today, stay away. Come back later."

Other times, they will let you get right into the hive and even take some of the honey if you wish. Bees are not selfish, not only do they live for the collective but they will openly share with you too, if you are caring for a garden like we do -- a garden which our hive of bees frequent. They get to know you and your role in the chain. They are intelligent and they seem to understand that you have a role in the garden, too, and that you belong there. They leave you alone. If you take some of the honey, they expect that -- you are a part of the garden, after all.

I know beekeepers who do not even wear any protective gear when they gather honey from their bees. 

We will really miss the girls, it has been a great experience. We found out that the homeowners association in the area of the town where we bought, will not let us raise bees in our new neighborhood. So we may have to find a way to raise some somewhere else. Who knows? I do not want to stop trying to help a few thousand bees survive in these terrible times when honeybees look like they may soon be extinct.


Tuesday, March 26, 2013

Why There Is No "Intel Inside" Your Smartphone


You would never find us investing in Intel today. Your mileage may vary. We believe that Intel investors are in for a rocky ride over the next couple of years and so we don't plan to buy any tickets. But over the last few months, we have made a lot of money investing in ARM Holdings (ARMH), the little company that has slammed the door in Intel's face in the mobile device arena. Whether smartphones or tablets, chances are -- by a factor that borders a near-hegemony -- your mobile device is powered by an ARM Holdings chip design.

ARM saw that the world would change to mobile back in the early 90s and their team began engineering chips that respected battery life and optimized power for lower-end devices. They built the first chip for the first tablet, the Apple Newton, long ago. They also designed their chip architectures to be "open." They work alongside manufacturers like Apple, Samsung, HTC and others, allowing these manufacturers to customize the ARM design to tweak it to best advantage and make it specific to their own device -- thereby allowing companies to optimize features that help set themselves apart in the product wars.

Intel's "fully baked one-size-fits-all" design approach is a distinct disadvantage in the mobile marketplace. Intel has been trying to get into the game but I doubt they will supplant ARM any time soon, if ever. As more and more mobile devices are sold and fewer and fewer higher-end devices are sold, this is becoming a major problem for Intel. After leaving the mobile marketplace to ARM for far too long, Intel is now trying to move into mobile. Few manufacturers seem willing to bite and even Motorola's pioneering roll-out Intel mobile product, the RAZR-I, (ARM's design powers the RAZR-M), has met with meager sales, accolades or genuine success.


This is an old battle and nearly always -- with *extremely* few exceptions -- the giant loses. Why? It is in a company's legally mandated fiduciary duty to its stockholders to care for and serve their best customers, the ones demanding their most profitable products and the lion's share of the company's products -- doing everything in their power to maximize shareholder returns. In Intel's defense, this was to be found the higher-end of the market (desktops, laptops and servers) and not in the as yet undetermined and highly speculative mobile field. It only made sense for Intel to support and serve their higher-end market, it is what all good businesses do. You can cite "vision" and adapting to changing markets -- and how the short-sighted approach just mentioned presumes the giant's eventual demise -- but nearly all companies serve their best clients and their strong suit industries. It is the way of giants and, again, is a legally prescribed duty owed stockholders. It also puts giants in a troubling position over time when dealing with rapidly changing markets.

In these changing markets, the giant is little concerned that the lilliputian is gleefully eating away at their lowest-end, non-productive and least profitable segment -- and when they do see any problem in it at all, they intelligently "circle the wagons" around their middle- to high-end markets (those segments with the highest earnings, profits and sales), leaving the crumbs to the lilliputians. But as the runts learn to feed and focus, they bite off just a bit more and a bit more, until one day they are eating into new areas of the giant's market that were once "core" markets. The giant has to watch as the runt feeds on an ever growing area of the giant's business. As the marketplace changes in reaction to (or because of the action of) the runts, the market often "downgrades" as the cost of power lessens as predicted by Moore's Law, and with these dropping costs and lower standards, the giant's profit margins suffer.

The runts also exploit a business model in which the giant has larger costs of business because they are doing it the "old" way while the runt is using a more economical approach learned while feeding on crumbs. They are able to work at margins that giants can't. Doing so, as their prowess increases and they exploit Moore's Law, they eat more and more of the giant's market, until one day -- as we have seen over and over in the tech field and elsewhere -- there is a new giant, now ready to be fed on by the next generation of lilliputians.


ARM Holdings now has such a commanding lead that even last month's much ballyhooed and media extolled introduction of Intel's new mobile chip architecture has been largely met with a "marketplace yawn" by consumers and manufacturers who have come to appreciate the benefits of an open architecture when designing their mobile devices.

As my wife and I discuss the changing market landscape and how best to position our retirement account for the future, we do not believe that we will see Intel command a large share of the mobile marketplace any time soon. That may change in the days ahead and we will be watching and will adjust our investments accordingly but we like the runt of the litter, the little team with big ideas, and so consider us long, ARMH.


Tuesday, March 19, 2013

US Government Has Its Eyes On Your IRA

In 2008, Argentina's president, Christina Fernandez de Kirchner, seized all private retirement funds under the guise that she needed to do it to "protect" people from losing their money. After redistributing the money following the confiscation, she was re-elected in a landslide. Why? The majority of the Argentine people weren't savers. To them, it was free money. Wahoo!$#@! It also helped that she rerouted some of the money to her "favored" industry cronies.

Soon after, she was invited to Washington to discuss policies. Scary thought, eh, savers?

With a single sweep of her pen, the lifetime efforts of millions of lifelong savers were wiped away -- and there was nothing they could do about it.

As Thomas Jefferson once warned early Americans, the tyranny of democracy is that 51% of the population can enslave the other 49%. When over half the population is voting for their entitlements and the politicians that will give them to them, individual and savers' rights will matter little -- just as they did not matter in Argentina.

But even with this redistribution of the wealth, Ms. Fernadez de Kirchner has been unable to halt her country's eroding economy. Today, her currency is in a free-fall and her country's plight grows more tenuous by the day. Even seizing the nation's private companies, she has been unable to reverse her country's failures. Now there is nowhere else she can turn and her efforts have proven to be in vain and fruitless. As economists know, you cannot remove incentive from the economic engine or it will grind to a halt. Redistributing the wealth of a nation will give a short-term shot in the arm to an economy -- as the welfare recipients run out to quickly spend their new booty -- but with incentive gone, the workers and savers will not rush in for a second helping.

Argentine President Christina Fernandex de Kirchner
and President Obama meet to discuss economic policies

Yet Washington politicians, inspired by Ms. Fernandez de Kirchner, have already met to discuss seizing pension funds and other policies. Rather than cut spending by reducing subsidies to their own crony business interests, or get rid of the hundreds of committees that haven't met in years but whose committee members still get monthly checks, or any one of a thousand other ways to reduce the budget -- the administration black-mails the country with sequesters and threats to cut meat inspectors, air traffic controllers and other means to show the nation who has the power. The White House also pushed to cut NASA's educational outreaches to the public but the hundreds and hundreds of orphaned yet incredibly expensive onetime House and Senate committees survive -- committees which in many cases have not authored a report nor even met in session in decades. Can anyone say, "Crony politics"?

With her "success" as their inspiration, beginning in 2010, the U.S. Treasury Department, along with the Department of Labor, began holding joint meetings to discuss programs that would mandate ways that the government can get its hands on the net worth of American savers. How? One way is to force IRA holders under law to have to buy U.S. Treasury Bonds, bonds that have been abysmally under-performing for decades and whose returns -- especially in times of high inflation -- erode principle. Bonds do well in times of low inflation but as the economy softens and the real numbers come out and the Fed continues to fire up the printing presses, printing new monies that cause further inflation, the money will soften and take bonds right down the toilet because they are tied to face value. But if the worth of the buying power of money falls in times of inflation and the interest on bonds is locked in at such a low level that it cannot keep up with inflation, you will lose your money's buying power over time -- translation? Your principle falls even though the denomination on the bills returned to you looks correct. But they cannot buy as much because the vitality of the money has eroded. In my research, I could only find one decade in which bonds really made great financial sense and that was the 1960s. Every other decade, other investments outperformed them by a great margin.

Look Out for Automatic IRAs

The White House in their 256 page 2013 proposed budget,  the Obama Administration championed a bill began in 2010 that Senators John Kerry (D-Mass) and Jeff Bingaman (D-NM) introduced in the Senate. In the bill, private companies would be automatically added to the federal government's IRA program, a program that mandates businesses to contribute 3% of an employee's pay amount into the federal coffers. Considering how well the government has done protecting Social Security (which by law was never to have had its funds touched or appropriated for anything whatsoever except its intended purpose) and the glowing success it has had running the US Post Office, this should in short order be a genuine mess. But it looks to not be stopping there, as the Department of Labor and the US Treasury are continuing to hold meetings to discuss further additional programs like forcing taxpayers to also buy federally-mandated annuities and other programs.

Of the bills and meetings, National Seniors Council director, Robert Crone, said that while "This hearing was set up to explore why Americans are not saving as much for their retirement as they could, it is clear that this is just the first step toward a government takeover."

Many economists estimate the amount of personal and retirement savings in the United States to be somewhere around $18.5 trillion. Unfortunately, due to the kind of self-serving creative bookkeeping that the government (both parties) now uses -- leaving items off-book and unaccounted for, doing the very kinds of things that shut down the once giant Arthur Andersen accounting firm that helped corrupt executives engineer the ENRON debacle -- our national debt is now so great that even seizing personal assets would fund this money-eating government for long. How long? If government had to use the same generally accepted accounting accounting practices (GAAP) that were used up until the 1970s to calculate the real national debt, it would likely consume all of America's personal and retire savings in a couple of years.

Where will they turn next after that? Nationalizing industries just as Ms. Fernandez de Kirchner did? That won't buy this nation much time either, just as it has not help stop the economic erosion of Argentina.

Alexander Hamilton's vision of an imperialist America stomping it's way around around the globe, mandating its will internationally, has had a pricetag. Our military is the greatest the world has ever seen but it has cost us more than the military budgets of the next 24 biggest military spending countries combined. Yes, Alexander Hamilton, John Adams and their Federalist cronies would be proud but Thomas Jefferson, James Madison and Benjamin Franklin must be spinning in their graves like a whirling dervish. Too bad we can't find a way to hook them up to a generator, now that would generate some mega-wattage for sure.


Saturday, March 16, 2013

Only In America...

Only in America could the rich -- who pay about 87.5% of all the nation's income taxes -- be accused of not paying their "fair share" by people who don't pay any income taxes at all.

Only in America could those who have paid absolutely no income taxes, then file for tax refunds and get them — all the while demanding their fair share.

Only in America could the government collect more money from the people than any nation in recorded history and yet spend a trillion dollars more than it collects each year -- spending over $7 million per minute -- and then complain that it doesn't have enough money.

Only in America could they have the two people most responsible for the nation's tax code -- Timothy Geithner (head of the Treasury Department) and Charles Rangel (who once ran the Ways & Means Committee) -- turn out to be tax cheats in favor of higher taxes — for others.

Only in America could the people who believe in balancing the budget and sticking by the country's Constitution be thought of as "extremists."

Only in America would you need to present a driver's license to cash a check or buy alcohol, but not show a license or ID to vote. When did beer become more important that the right of voting?

Only in America would the party that says asking for an ID is a form of discrimination, turn around and ask for your ID to attend their Democratic National Convention in 2012 -- yet not a single voice was raised saying they were being discriminated against.

Only in America could people demand the government investigate whether oil companies are gouging the public (because the price of gas went up), when the return on equity invested in a major U.S. oil company like Marathon Oil is less than half that of Nike, a company making exorbitantly priced tennis shoes made by underpaid workers in poor countries.

Only in America could people claim that the government and the country still discriminates against black Americans when we have a black President, a black Attorney General, and roughly 18% of the federal workforce is black -- when only 12% of the population is black.

Only in America could fat cat politicians talk about the greed of the rich at a $35,000.00 a plate campaign fund-raising event, while staying at five-star hotels on the public nickel.

Yes, only in America.


WARNING, there is LOTS of profanity in this video but much of what Jeff Daniels says is quite true. Not all of it but a lot of it. Your mileage may vary...

Monday, March 11, 2013

The Wizards: Intel's Lesson from SGI's Past

Are you all sitting comfortable? Then I'll begin...

A Timely Lesson Borrowed from the Pages of History Past

In the not too distant past, an enterprising but not always visionary bunch of wizards invented a technology that struck them with fear. In fact, the fear was so great that even though their new magic could have reinvented the future for them and the world, they buried it away, where they kept it locked inside machines sold only as complete systems. The fretful thought of cannibalizing themselves to sell the wondrous power at the heart of their creation machine -- a part that all the people of the land wanted -- might destroy the kingdom they had built. The company? Silicon Graphics (SGI). The technology? High-speed graphics cards (GPU), the stuff that built industry giants like NVIDIA and ATI.

Yes, reimagining and recreating oneself as the world changes is one of the most difficult of humanly virtues to master and only the most skillful and wisest of wizards and kings seem able to summon and control this seemingly otherworld power.

As the world around them changed, the wizards of business and marketing in the land of SGI met to talk about the fate of the kingdom. Eventually they ruled that eating themselves would both be painful and likely not very nutritious in the long run. They said the magic inside the box would stay there -- they themselves would never sell it.

But other wizards had noticed the magic inside the box. It would not stay there.

A new generation of wizards appeared in the valley and soon the kingdom was under attack both from the evil forces of ever more powerful workstations which suddenly appeared everywhere across the land, and from the usurping conjurers at NVIDIA and ATI. "But look at their quality," said the wizards at SGI. "Our greatness will always set us apart."

And it did … at least for a while and so there came change in the land.

To defend the good kingdom, the wizards of business and marketing at SGI ruled that a new generation of lower-end SGI machines -- gleeful, patriotic and hopeful minions rushed out to defend the kingdom. Raised up to battle the invading usurpers. Predictably, they were routed and defeated on the battlefield by the increasingly energized and ever growing forces set against them. In the waning days of the battle, the irony was witnessed as they were supplanted by forces often powered by the magic of NVIDIA and ATI. Yes, the Great Fearing now took hold in the once mighty kingdom of SGI -- a fearing so palpable that it was borne in both heart and bone.

Soon, it became clear that the once verdant land was lost. Yes, the kingdom that would not eat itself, now found itself feasting on the sale of Alias Maya and other powerful tools that it had afore owned, yet now sold in the hope that it could live. And so feast they did but not in the way that they might have dined had they decided to sell the ideas the clever engineering wizards had brought to the once powerful kingdom of SGI.

And now good boys and girls, that brings me to the moral of the story as seen in a new version for today -- after all, every good fairy tale has to have a moral and a present day application, does it not?

Intel and Its Magic Foundry

Across the Silicon Valley, the land changes almost everyday but some things stay the same. And so the lesson of our story is looking for another harbinger to carry its lessons -- a lesson we will find in a mighty new foundry, a foundry not of iron and steel but of ideas and micro-circuits.

For you see, in the valley, the looming and powerful towers of Intel have raised up a new foundry where the wizards of silicon now forge the wondrously customized imaginings of Intel partners onto little wafers in secret rooms hidden in the Land of Oregon.

Yet, like the earlier wizards in our object lesson, the wizards of business and marketing at Intel have also ruled that the magic will not be open to all -- the foundry will never use its powers to build things designed by the other powerful conjurers in the land. Well, at least not those who have worked with Intel before. No, only aspiring initiates may join hands with the forces at work in Intel's foundry -- the powerful wizards at Apple, or other mighty conjurers of their ilk, will not join hands in Intel's great circle of power.

And so today, the doors into the foundry have opened to newer, creative, yet seemingly less fearfully viewed wizards like Achronix -- for whom a great feast of honor was held in the towers of Intel. And while yes, there is indeed great celebration in the land -- especially in the Oregon kingdom -- there is seemingly no door to be found for the lords of the other great houses in the valley of silicon. The manufacturing strength of Intel's strong right arm will not be vanquished nor shared, its might shall reign under its own will.

But hearken, gentle readers, for there is another great arm raised which hath yet appeared and it is reaching to gain market share -- and doing a pretty damned good job of it (if I may use the vernacular of the people), as the signs across the land portend.

A Great Arm Raised Above the Land Reaching for Market Share

Across the waters in the merry ole kingdom of England, wizards are today at work -- wizards who seeminly have stolen the magic of the elves themselves, charging themselves with the solemn duty of bringing it to all the land. We shall call them the Wizards of ARM Holdings (ticker symbol: ARMH).

The Wizards of the Great Arm have chosen another path, a somewhat more Arthurian round-table approach -- one which honors the ideas and power of those well thinking creatives seeking to fight their own good fight. No, the Wizards of the Great Arm would not make chips, rather they would create chip designs and license their ideas to all of the conjurers of the land -- much in the same way that the mighty Sony lost the betamax fight to the rag-tag forces of a freely licensed VHS, long ago.

The armed wizards license designs which other conjurers can modify like a changeling that empowers the ideas and products which companies like Apple, Samsung and other leaders now produce that are carried in these great arms. "Hear! Hear!" cries the good people of the land. People in whose own arms are carried the ideas borne from ARM Holdings, ideas that have already captured the lion's share of the smartphone and tablet market.

Arm's growth has begun with smartphones, tablets and other much less powerful designs and uses than the powerful and costly chips of Intel -- much in the same way that NVIDIA and ATI were never the equal of SGI's graphics technology at the time. But if the lessons of the past be true -- and they always seem to be, don't they? -- the humbler and smaller forces towards the lower-end of the market eat away at the profit margins that bigger companies are willing to lose as they protect their higher-end. With their focus there, this leaves the lower-end erosion to reach upfield growing into the middle, and then into the higher-end, as well. It happened in mainframes, drive technologies and a hundred other areas of this market -- areas which watched smaller companies live off smaller margins, feeding off the scraps from the king's table.

In the end, these smaller companies grow stronger, learning to feed on less until one day they decide that they can expand their designs and marketshare reach, until -- if history be true -- the kingdom of Intel may one day be like the once mighty kingdom of SGI.

Yes, there is a moral to this story and also a lesson in it. As a child who grew up in the stories and lessons of Sunday school, your merry scribe doth indeed well remember the lesson that the one who would be great would be the servant of all. Serve another's idea and share in their greatness.

Yes, my good friends, the merry wizards of England's good-armed isles seem to understand that to license their designs -- designs that can be tweaked by other wizards who wish to bring their own vision and powers and magic throughout the land -- is to grow. After all, if a design of a chip licensed needs to be tweaked by another magician's good hand, then do it -- "whether it be to increase battery life or to add special powers that your smartphone alone can conjure, so be it, good people," seem to say the merry band at ARM Holdings. "We are here to acquiesce to your will, my liege, and will serve your ideas. Together, we shall be great."

Not so, is the policy in the Land of Intel where not even the strongest of the wizards may join in the feasting and celebration in the valley. No, if battle requires a chip that is reimagined and customized to assist your design, then the wizards and magicians in the towers at Intel have but one answer for you: "Change your design."

And therein layeth the reason that there shall yet be merry feasting in the good-armed isles of England.

What say ye, merry band? Shall there yet be great rejoicing or weeping and lamentation in the land?

-- The end.

Saturday, March 9, 2013

Why We Built a Stock Portfolio and Gave Up Banks

As some of you know, Kathlyn and I had pretty much lost everything in the early 1990s following three bouts of viral pneumonia, countless ear infections over the last 40 years -- especially bad in the last 20 -- and we ended up pretty broke late in our lives. Thankfully, things turned around in the last 10 years of fighting back and we've built a small but workable (if played smartly) retirement for the years ahead. But only time will tell.

A Warning Before We Start

The advice I offer here is just my opinion and I am not a stock broker nor an investment counselor. I am simply a guy who has weathered some storms and has had to make some tough decisions because of them. They say that "desperate men do desperate things" and in my case that is true. I have pretty much drowned myself in teaching materials, learning about investments and trying to figure out the best way for us to grow our savings. Over the years and increasingly lately, I've been reading books about investments as well as learning about how money really works, the IMF and the World Bank, central banks, the Federal Reserve, Wall Street, stock market legends, types of investments, sectors, diversification, Blue Chips, growth stocks, dividend aristocrats and other things.  While I enjoy doing things like that and love learning new things, you may not -- you do not have to, to become an effective investor. I will highlight some of what I found to be essentials later in this blog.

Because of our circumstances, it became especially important to take what monies we've been able to accumulate over the last few years and make sure it grows. To us, that rules out keeping it in banks. We tried that and after a couple of years, we had earned a whopping $32 interest between both of our IRA accounts. At that rate, we could each get a Starbuck's coffee every three months or so.

No, in our opinion, banks are no longer the friends of the middle class.

Here are some of the reasons we believe that...

BANKS: Why Their Low Interest Rates Are Not Your Friend

With the real rate of inflation far beyond the publicly paraded number, we ruled out banks and pulled out our IRAs and opened an account at a full-service brokerage (later I'll explain why we left), with the goal to grow our retirement through investments. Why? You can get approximately 1% or so for your money at the bank -- though our bank-held IRAs actually earned around .001% while we kept them "safely protected" in the banks. (Stupid, I know. But we were working too hard to think about working our money and so we just had our bookkeeper send our IRA payments to the bank. They offered no feedback and were happy to store it for us for .001% to "maximize" it for us.)

At bank interest rates, you are not even beginning to keep up with the rate of inflation. Each year your money sits in a bank is a year that your principle and your buying power is eroding -- and like compounding interest, this erosion also compounds over time in a Bizarro world kind of compounding interest formula reversal of the Rule of 72. Yes, the denominations on the face of your dollars will look the same but their buying power will grow less and less over time. Yes, it looks like your money is growing bit by bit and you feel safe but the illusion of safety is one that is going to cost you dearly when it's time to retire. At that time, you will face the hard truth that your money's buying power has eroded over time.

Over time, erosion eats away at your savings' principle. With time, the damage can be substantial.


If you get 1% or so for your money but the real rate of inflation is more, then your buying power erodes. Again, the amount printed on the face of the bill looks the same but the vitality, the buying power of those bills, has decreased over time. With each passing year, it erodes at an accelerating rate because today's uber-low interest rates cannot begin to keep up with the true rate of inflation.

In many people's guts they have an innate knowledge that the numbers being bandied about by politicians are understated and whitewashed. The picture is not as good as the media is reporting. A visit to the grocery store or the gas pump makes that readily clear. Even the once reliable Consumer Price Index (CPI) is being manipulated. How? An example is seen in the way that products are being down-sized to smaller weights and sizes, while costs remain fixed -- at least in the CPI it is reported as fixed. The CPI reports the cost as not going up, while getting six ounces of yogurt for the old price of eight ounces is hardly stabilizing costs. At least not to me it isn't. Your mileage may vary.

Tapping the $7 Trillion Savings Bonanza

The Federal Reserve, acting in its capacity as the government of the United States' central bank, sets policy on money and banking. They have mandated that interest rates be kept low in an effort to help control inflation. But some people believe that the reason is far more invasive and includes making savings such a bad investment that the middle-class savers have to take their money out of their savings accounts and put it into the marketplace, if they want to make any kind of principal appreciation and growth -- where it can also hopefully produce jobs and lift for the economy if it's invested in companies.

I am writing this without checking the number this morning but if my memory serves me well, the rate of personal savings in the United States is somewhere around $7 trillion sitting in personal savings accounts in this country. That is a lot of money. With today's government who sees it as their money and not your money, they want it out of your account and out working in the village. So, many believe that under the guise of one of the facets of trying to control inflation, interest rates have been kept purposely and artificially low -- though I'd proffer that it's just as likely a bit of the "Hey, you didn't build that bank account by yourself" rationale so in vogue lately.

Don't agree? Then please do me the courtesy of explaining why at a time when interest rates paid are abysmally low, the ceiling on interest charged to credit card customers has been lifted from its traditional high of about 22% for the least credit worthy revolving credit consumers, to one where nearly all users of credit are paying at least 15% (a bargain nowadays) and the least credit worthy are seeing interest charges of 29% and more. Can you say, "Usury" and "Perpetual treadmill"?

So Our Journey Begins

So, with these things in mind, we headed off to the brokerage and moved our IRA retirement accounts there. To be honest, it was terrifying. To think the Illusory Safety Net of the Bank was gone, was truly frightening. But we got over it as our knowledge grew.

We originally tried a full-service brokerage for a few months but much of what we made on a couple of stock trades were eaten up in fees. One of our buys made some great money -- against the advice of our broker who didn't want to put the money into it but finally did when we made him. When we sold it a few months later at a great profit and counted our profits, he had handed us a hefty charge of about $700 or so for the trade. Say what?$#@! You want this big a commission on a stock that you didn't know or recommend, did not even believe in, had never heard of, and didn't want us to buy -- and even tried to keep us from putting money into it as we wanted to -- a move that effectively halved the earnings we would have made. Now you want a healthy commission? Please. There were also a couple of other trades that missed their window of opportunity because things seemed to take too long using their system, a system clearly designed for people with different financial goals than ours. Color me aggressive.

Time to move somewhere else. So we did.

In defense of some of the full-service brokerage houses, most are structured more for people who do not want to be actively as involved in their money management as we do. They are in our opinion, designed for those who just want to passively have a place to stash their cash. That isn't me and Kathlyn for the reasons explained earlier.

Learning to Think Like an Investor

To help speed my knowledge of learning to think like an investor and understand what I was doing, I sought out great teachers. Some of the best have included:

  • "Understanding Investments" a DVD series with a companion handbook, is created by the wonderful team at The Great Courses. I love their courses and I highly recommend this one. Don't let the price scare you. If you do not want to pay full price, sign up for their email mailing list where they regularly put things on sale, a few times a year at savings as much as 70% off. I would give this series high marks. Experts would die of boredom on this one but for people like us trying to get our heads wrapped around things, it was just what the doctor ordered.
  • My favorite book so far has been "The Davis Dynasty: 50 Years of Successful Investing On Wall Street" by John Rothchild. This wonderful book reads like a romance, an adventure, a thriller at times and is such a human story that shows the psychology and focus of one of the most successful investment families in the history of Wall Street. Highly recommended. Don't miss this one. I don't care what its critics say, it isn't for experts -- it is for people who are wanting to learn how investors think and act, and why. Well worth reading.
  • Hanging around sites like The Motley Fool ( and others has also helped. They have a wonderful community of people posting in their forums and exchanging ideas. But before you go handing money to gain access to secret stock tip newsletters, remember to visit where Travis unlocks these "uber-secret" stock picks without all the hype and cost.
Why I recommend the two preceding volumes and websites is that -- while none is going to teach you what to do today -- they will teach you how investors see the world around them, how they think, what they are looking at, the factors that go into their decision making process, how they make their decisions and how they develop their own individual investor style, etc.

So, testing my growing knowledge of the stock market has been both exhilarating and fun. I have had some stocks that dropped but many that have risen. Risen a lot. Thankfully, overall, we are well over double the Dow Jones Industrial Average and have beaten the S&P 500 even more.

What will we do if the market tanks? Oh, there's no doubt in our minds that it will. But we will leave our money right there and not panic when it does. When people panic and dump their stocks, they lock in their losses -- until they sell, it is only paper losses in most cases. But most middle-class investors jump ship. That is the worst strategy you can play, in my opinion. If you have bought strong companies with compelling stories that are serving real markets -- companies that have previously survived earlier financial meltdowns -- then there is a great likelihood that as the market climbs back out of the hole, your stocks will climb out of the hole as well. Yes, there are market cycles but if you jump, they will never work for you and only against you. But in the majority of cases, if you do the research yourself, you will find that the real money is in the market and not in the banks.

No, there is no guarantee that "past performance is an indicator of future growth or profitability," but if your money is just sitting in the bank, I will guarantee you what the outcome of that will be in the years ahead.

Your mileage may vary.

What are your thoughts and strategy? I will be laying out some of our strategies in future columns. Learning publicly is something that I've long held in high regard. I hope you join the ride...

Friday, March 8, 2013

Paying back Taxpayers in full

Many people are unaware that three companies have paid back the American taxpayers when the United States gave monies to bail out many of the nation's largest financial firms in the wake of the sub-prime mortgage market meltdown. There may be more than three but I haven't yet done the research needed to verify it.

Care to venture a guess who these three companies might be?

You might be surprised to learn that General Motors (GM), Bank of America (BAC) and AIG Insurance (American International Group) (AIG) have paid back taxpayers to the last Keynesian inflated dollar the many billions that saved them in the Great Meltdown. Some experts I have read say the total economic affect of that meltdown, when calculated worldwide attempting to measure the full affect, cost over $20 trillion dollars of lost asset value.

So, my cow-eared cap is off to these three. Thanks for the payback. It's appreciated.

It surprised me to learn that AIG not only paid back taxpayers but is now in the courts trying to sue Bank of America and other culpable financial institutions who sold them huge portfolios filled with sub-prime mortgages that AIG bought from them to undergird their insurance programs. Insurance companies have long bought real estate mortgages as a tangible asset to secure the value of their companies and programs. Sadly, the banks knew what they were selling and investment houses like Lehmann Brothers not only joined the party selling huge numbers of what they knew were bad loans -- but even went so far as having the audacity to buy "shorts" in the stock market against the very financial instruments they were selling. (Which is a fancy way of saying that Lehmann then turned around and bought bets against the very instruments they sold to AIG, gambling that they would fail.)

So, here we are: It's 2013 and GM has paid back taxpayers, as have both Bank of America and AIG.

But now the good stuff moves to the courts as AIG and B of A begin duking it out. So far, the courts and the Federal Reserve seem willing to sweep the whole matter under the carpet and be done with it. Using a combination of venue changes and saying that the bad assets that the Fed acquired from AIG through one of the Fed's ancillaries, could not be prosecuted except by the Fed -- and they weren't interested.

I expect little to nothing to happen in the courts but I think it's kind of cool to see AIG take off the gloves and  basically say that, "Hey, we got screwed and we had to use taxpayer help to survive but now we're coming after the people who lied to us and stuck us with a bunch of crap that they knew wouldn't fly."

Yes, AIG overpaid its executives and even used taxpayer money to pay some of it. But doing that was not illegal. Questionable? Yes. Illegal? No. Very stupid? Without a doubt.

At one point AIG stock sold for over $2000 a share -- check it out and look back 10 years or so. Today, it sells in the high 30s as I write this. I recently bought some of their stock because I like a story of a company that won't give up and fights back.

Yes, AIG made some stupid mistakes but not only has AIG paid its debt to Americans who bailed them out, but today I just read a report that talked about one of the changes that AIG is implementing is that they are going to investigate individual mortgages and even buy individual mortgages. "No smorgasbords for me, please. I'm full. I've had enough."

I guess you could say: Once bitten, twice shy.

Now where's my Ian Hunter album?