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The Top 5 Investing Myths of 2008

January 5, 2009 By Leave a Comment

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2008 was a very interesting year to say the least. Possibly the most productive outcome of the year was the restless message of “rethink things” coming from the little voice beckoning each of us in our minds.

Myth #1… The SEC keeps investment information honest and accurate

The Securities and Exchange Commission (abbr “SEC”) should be done away with. The Madoff debacle along with the dozens of other securities frauds that draw less (or no) attention every single year should be evidence that the SEC is failing. It is tasked with making investments safe and transparent and is having the opposite effect. When an investor or fund manager is considering a particular investment, they believe that the investment is truthful, transparent, and honest because the SEC is supposed to regulate it into such a position. The result can be decreased due diligence because of reliance on the SEC. This leads to disaster when the SEC ends up not doing its job very well. If we didn’t expect the SEC to be “keeping investing safe and honest” then investors and asset managers would take a closer look at investment opportunities which would result in better thought out decisions. I’m not saying the SEC should be doing a better job – I’m saying we shouldn’t expect regulation to create investment safety in the first place.

I believe the SEC does more harm than good by offering a false sense of security.

Myth #2… Financial planners give good investment advice

Something very interesting happened in the last 15 or so years: Stock brokerages spent millions of dollars convincing the American public that securities salesman had become “financial planners”. That move alone shifted the perception of almost every American and the magnitude of Wall Street’s success (theirs, not yours). A “stock broker” is to securities as a car salesman is to cars… but a financial planner sounds a lot like somebody whose job it is to plan your finances. What actually changed to make stock brokers become financial planners? [Read more...]

Filed Under: Money, Personal Enjoyment, Personal Productivity, real estate, Self Directed IRA Solo 401k Tagged With: 2008, 2009, 401k, adviser, advisor, bailout, financial planner, government, invest, investing, invstment, ira, ira llc, losses, madoff, meltdown, Money, plan, recover, regain, scam, SEC, self directed, solo, Solo 401k, stock market, strategy, wall street

Meet The Fed

November 23, 2008 By Leave a Comment

I ran across this video recently. There are a lot of videos about the Federal Reserve, but this one is rather interesting because it contains a interview footage with their Corporate Communicaitons Officer. This isn’t some conspiracy theorist’s take on the Fed, it’s the Fed’s take on itself. You’ll probably be surprised from some of the information.

Click here to view the video.

FYI – The interview itself starts at 3:39 in the video.

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Filed Under: Money Tagged With: bank, fed, federal reserve, gold, inflation, monetary, Money, policy, treasury

The impossibility of bailout success and the guaranteed alternative success plan that depends on you

November 7, 2008 By Leave a Comment

This is a message of prosperity rather than doom and gloom. Read through to the end.

A tremendous amount of homeowners are facing foreclosure. CNN Money reports foreclosures are up over 70% from this time last year. Banks are failing left and right, but let’s just take a look at the bailout concept in the most direct and extreme fashion for purposes of illustration.

The largest bailout possible

Imagine that every single homeowner that has less than 30% equity in their house at today’s prices receives from the Fed a check payable to their mortgage company that will pay their balance down to bring their equity to 30%. There is no more of a direct way to address the foreclosure and housing problem. What would the result be?

  1. Equity doesn’t matter. People got into mortgage loans that have payments higher than their income will support, and rising food and energy prices are lowering the household budget for mortgage payments. You could lower interest rates to 0% (forget about the market chaos that would create for a moment) and many people still wouldn’t be able to afford their homes.
  2. Home prices would fall because many would use the 30% equity in hopes of being able to sell their home and buy a less expensive home. This would accelerate the downward pressure the median home price. Many families would return to renting after touching the hot stove of home ownership. Of course, they would be seeking affordable rent which would also put a downward pressure on median home prices.
  3. I can’t estimate how many trillions of dollars would have to be created by the Fed for those types of bailout checks to be written… but you can be certain it would have a HUGE direct impact in raising inflation to levels unseen in American history. Injecting new money into the economy makes all prices go up. In this scenario, Americans would literally not be able to afford to eat if they stayed in their home. Home prices would crash almost to zero because three bedrooms and two bathrooms would become less important than food. There would be much larger social problems because, with this magnitude of inflation, food would become so expensive that theft, robbery, and violence would be the only viable means of survival for some.

A direct, swift bailout to cure economic symptoms would create very difficult times.

The smallest bailout possible

The smallest bailout is one that [Read more...]

Filed Under: Health, Money, Personal Enjoyment, Personal Productivity, Precious Metals, real estate, Self Directed IRA Solo 401k Tagged With: 401k, bailout, currency, fed, federal reserve, gold, help, inflation, invest, investing, investments, ira, mccain, Money, obama, president, real estate, self directed, silver, solo, Solo 401k, wealth

CPI Explained – Part 2 – Substitution

November 5, 2008 By Leave a Comment

This picks up where a previous post left off. You may want to read that post first in order for this one make sense.

Looking at the picture above, I can only imagine that this is the way that the following idea was made into government policy. The second major way BLS’s CPI calculation policies were altered is through the concept of subsitution. In brief, this concept argues that as the price of an item rises, consumers start buying cheaper alternatives.

Consumer substitution is absolutely true. It’s a fact; we all do it. It’s a sign of inflation. We know there is significant inflation when prices of things we buy go up in price. Everything doesn’t go up equally all at the same time. As prices are rising, consumers will substitute goods to get the best deal. BLS uses this concept to reduce the mathematical weighting of items in their basket of goods that rise sharply in price. It is an assumption that [Read more...]

Filed Under: Hyperinflation, Money, Personal Enjoyment Tagged With: bank, bls, cpi, economics, economy, fed, federal reserve, inflation, invest, investing, investment, Money
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