Saturday, November 18, 2017

Ask the Rabbi

“The story is told of Zusha, the great Chassidic master, who lay crying on his deathbed. His students asked him, "Rebbe, why are you so sad? After all the mitzvahs and good deeds you have done, you will surely get a great reward in heaven!"
"I'm afraid!" said Zusha. "Because when I get to heaven, I know God's not going to ask me 'Why weren't you more like Moses?' or 'Why weren't you more like King David?' But I'm afraid that God will ask 'Zusha, why weren't you more like Zusha?' And then what will I say?!"
Quoted from the Ask the Rabbi website

Somewhere on the inside, you have a pretty good picture of what you are and who you want to become. All by itself, how you handle money would be an important part of that picture, but money is funny stuff. How you earn it and how you handle what passes through your hands are inextricably intertwined with who you will become, in this world and in eternity.

We all want financial freedom, the point at which money is no longer a concern that consumes an unhealthy amount of our time and emotional energy. As the French say, “Money makes a good servant, but a bad master.” Rich or poor, money can be your servant or your master. The tests you will face are different on every unique rung on the ladder of your life.

How you define financial freedom is a reflection of your experiences, your unique God given ability, and the meaning that you choose to inculcate into that mixture we call life.

Is your behavior congruent with your vision of yourself? In retirement, I have chosen to spend more time and energy on my health than I did during my working years. The desired image of my physical self has changed over the last five years. Is eating another fast food grease bomb for breakfast or drinking my mandatory evening beer congruent with that new vision of myself?

Apply that kind of reasoning whenever you are faced with choice concerning your money. If you want to become a hedge fund manager who can write a $100 million check to endow a university hospital with a new research facility, how will you live your life—today. Carl Icahn started life as a kid in a tough working class neighborhood. To hear him tell the story, half of his boyhood friends ended up in reform school, but that wasn’t the end of the story. Icahn managed to put himself through Princeton with proceeds from playing poker with the members of a club where he had a part time job, pretty good training for his future life on Wall Street.

That isn’t your dream? OK. How would a successful businessman who wants to run a small, off the grid, organic farm chose to bless his neighbors and the world?

It isn’t about what you have. It’s about how you use what you have.

In the parable of the shrewd manager, Jesus observes, “Whoever is faithful with very little will also be faithful with much, and whoever is dishonest with very little will also be dishonest with much.”

Then he asks, “If then, you have not been faithful with worldly wealth, who will entrust you with true riches? And if you have not been faithful with the belongings of another, who will give you belongings of your own?”

Maybe, today you will face a decision point that will help define your future. Do I loan that friend enough money to help with the power bill? Not an easy question. Why can’t your friend cover his power bill? Would it be better to offer him a job, if that is in your power? When would it be correct to just say no?

This job or that job? Which career path is congruent with my vision of myself? Perhaps, becoming a husband who is willing to lay down his life for his family is more important than reaching self actualization as an artist. Perhaps in laying down his life for his family, he will reach a higher level, both in this world and the world to come than he could dream would be possible.

It’s your life. Large or small, you have been given a canvas, some brushes, and a selection of different colors. What you choose to paint, well that is your decision.

Sunday, October 22, 2017

Hebrews 12:11

“No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it.”

Yesterday morning, I over did it. From time to time, I press my luck with the weight machines or distance on the trail. Sometimes I pay the price with sore muscles and joints for a day or two. I once heard a preacher say that he wished he could become physically fit by hiring a high school student at minimum wage to perform his exercises. This morning, I think that is an excellent idea.

Unfortunately, the world doesn’t work that way. Even if you hire a personal trainer or a financial advisor, you are the only one who can find financial freedom for yourself. It is primarily your effort and decisions that will ultimately create the outcome of your life. Dave Ramsey is fond of comparing our financial journey to a small boy riding a one speed bicycle up a long hill. Sometimes, he has to ride at an angle, back and forth across the street, because the hill is too steep for a direct frontal assault. Sometimes, he just has to get off the bike and walk it up the hill. If he persists, the time will come when he can coast down the hill, enjoying the fruits of his labor. This is a pretty good analogy, but the reality is both better and worse than the story. With a little luck, your one speed bicycle will someday become a motorcycle that generates its own fuel. If you try to ride down the hill, before starting up the hill, student loans, car notes, and credit cards will condemn you to years of debt slavery before you can break even.

Not everyone is born with the body of a Michael Jordan, but nobody, whatever their talent level outworked Michael Jordan, a man who said, “If you do the work, you get rewarded. There are no shortcuts in life.”

I remember listening to the story of a retired man who once worked in the same textile mill where I started my career. He never earned that much more than minimum wage, but he provided for his family, supported himself and his wife in retirement, and left a small legacy to his children. My own grandfather, a dustbowl farmer that just barely held on to his land during the depression, managed to leave a farm without a mortgage to each of his four children before his death. You don’t need the brain of a Warren Buffet to find financial freedom.

Money is funny stuff. Even if you are storing your money in Mason Jars and burying them in the Wooly Swamp, it is increasing or decreasing in value. Inflation, deflation, dividends, and interest are constantly changing the value of your stash. Albert Einstein stated that compound interest was the strongest force in the universe. While I expect this oft quoted statement was delivered with tongue firmly in cheek, nuclear fission and financial freedom both require a critical mass, enough money or fissionable material to produce a self-sustaining reaction.

“A critical mass is the smallest amount of fissile material needed for a sustained nuclear chain reaction. The critical mass of a fissionable material depends upon its nuclear properties (specifically, the nuclear fission cross-section), its density, its shape, its enrichment, its purity, its temperature, and its surroundings. The concept is important in nuclear weapon design.” Wiki

Like money, the nature of a nuclear reaction is defined by equations. Unfortunately, it is hard to quantify the effects of irrational human behavior on the price of objects of value until after the fact.

Even given our inability to predict the future of the economy,

Money In = Money Stored + Money Out

Mastering that equation is the work of a lifetime, but unlike physical exercise, the benefits of years of financial discipline won’t end with your death. The wise use of your money can not only provide blessings for yourself, your family, and others while you are alive, but those funds can continue to be a source of blessing for generations yet unborn.

Wednesday, September 27, 2017

When Disaster Strikes

It is the nature of large complex systems. When they fail, they fail catastrophically. Consider the old fashioned electro-mechanical switch that connected your phone to the network. If it failed, you lost service, but everyone else remained unaffected. Sometime around 1990 I remember a computer based switch failed. Long distance phone service for the entire east coast was knocked out for about twelve hours. The computer switch was cheaper and faster than the switches located in that little brick building without windows located somewhere in your home town, but when it failed, it was Katie bar the door.

The same can be said for major metropolitan areas. People have been living in cities for a long time because it is more efficient than roaming about the countryside in tribal groups of hunter gathers. However, when disaster, like a recent hurricane, hits a metropolis like Houston, millions of people are affected. I am confident Houston is going to recover. The south Texas area has a dynamic financial base and a lot of equally dynamic people. I have met some of them on business trips. Moreover, after the hurricane, damage control teams from neighboring states can move in to help.

Puerto Rico, isn’t so lucky. Federal law allowed Puerto Rico to issue municipal bonds with triple tax exemptions. Like Greece, this territory used access to cheap money to fund their social welfare system. This is very much like an unemployed person maintaining his family’s life style with credit cards. It will end and it will end badly. For Puerto Rico, the end came earlier this year. They defaulted on their bonds and are now in a condition of quasi-bankruptcy. The financial press noted sometime before the recent hurricane devastated the island, that the island’s infrastructure was in bad shape. Writers predicted that the next hurricane, and everybody knew there would be a next hurricane, would produce catastrophic results. The Puerto Rico Electric Power Authority filed for bankruptcy on July 2, reporting it would need more than $4 billion to upgrade its outdated power plants that rely on imported oil (Washington Post). By the way, the Jones Act which requires all shipping between American ports to be conducted by American flagged vessels, greatly increases the cost of everything in Puerto Rico including all that imported oil that is refined in the U.S. and shipped from American ports.

Unlike Texas, Puerto Rico is so broke (in all meanings of the word) it can’t possibly fix itself. The American taxpayer is going to foot this bill. Puerto Ricans are Puerto Rican citizens, but they are also American citizens without restrictions and they need our help. End of story. It isn’t going to be easy or cheap. Puerto Rico, unlike Houston, is an island. The power company in Ohio cannot send its emergency crews in their bucket trucks down the Interstate to San Juan. With 12% unemployment and no large scale wealth producing activities on the island, the financial infrastructure to fund the recovery doesn’t exist. I have also learned that a majority of the residents of that unhappy territory don’t have property insurance for a variety of historical reasons. The problem is compounded by an exodus of young productive ambitious Puerto Ricans seeking employment on the mainland. The island’s population is disproportionally old. Retired folks, like me, are not all that useful in rebuilding an island’s infrastructure and we draw Social Security.

So how about me as an individual? What can I do to prepare for an emergency? When hurricane Irma was targeting the upstate of South Carolina, I didn’t expect any problems other than a power outage. They seem to happen more often in SC than they did in MD. I had gas in my cars, shotgun shells in my closet, and plenty of flashlight batteries. I wasn’t worried about drinking water, but if I was concerned, I would have filled our rather large bathtub. Since we have a natural gas stove and a supply of matches, I could purify the water and cook canned goods. We routinely stock enough soup, chili, canned vegetables, and such to last a week or so. I wouldn’t expect a power outage to last longer than that.

I also have house insurance. During the storm (which barely touched us), a dead tree fell out of my neighbor’s yard and trashed a section of my fence before coming to rest in my yard, a foot of so short of our deck. I discovered that my deductible had been increased without my knowledge and that in the case of trees falling in one’s yard, a double deductible applied (one for the fence and one for chopping up the tree). My insurance wouldn’t have paid a penny. Fortunately, SC law states that while your neighbor’s live tree falling in your yard is your insurance company’s responsibility, dead trees are the neighbor’s responsibility. My neighbor graciously took care of everything. It could have been much worse. I am grateful. When I get a chance, I need to talk with my insurance agent. Evidently, I don’t know what is in my policy.

But what if we were facing what Puerto Rico is facing? Only 5% of their hospitals still have power. Fuel supplies for emergency generators are running low, machinery is failing, and it looks like it might be months before power is completely restored. Half the island is still without drinking water. Gasoline is pretty much unavailable. To prepare for such situations, Mormons are expected to maintain a three to twelve month supply of emergency food and drinking water. Where could a faithful member of the Church of Latter Day Saints store so many provisions in an efficiency apartment in a city like San Francisco? If all this stuff is in a nearby storage unit, how does the owner drive there without gasoline, or open the computer controlled security system to gain access to his locker? In places like the rural Midwest or the mountains of Appalachia, it seems the chances of survival would be much better. More people know how to live off the land, own animals that can be eaten, or know how to hunt. Also, more of these people are likely to belong to churches and know their neighbors’ name than is the case in suburban Washington, DC.

Perhaps, that is the big takeaway from this article. Know your neighbors, love your family, belong to something like a church that is likely to be there for you when things fall apart. Perhaps, in the end, we are not all that different from those bands of hunter gathers roaming around the grasslands of eastern Africa, looking for something better, moving on, confident that their clansmen have their backs.

Monday, September 25, 2017

They Live!

I recently discovered the existence of They Live, a science fiction movie that is considered a cult classic. The star, played by Roddy Piper, steals a pair of magic sunglasses that allow him to see only the subliminal messages hidden in every bit of outdoor advertising, printed material, and electronic media in black and white, rather what normal people would see in color. These glasses also allow him to see our space alien rulers as they are, rather than as normal human beings. The secret messages tell us to consume, reproduce, watch TV, remain asleep, and to never ever ask any questions. Gee! All these years I thought I was the only one with a pair of these sunglasses.

They Live Sunglasses

Am I just kidding?

Sadly, the actual members of the nomenclature and their well paid apparatchiks aren’t space aliens. THEY are just normal humans, like you and me, pursuing their rational self-interest using well understood, legal means, rather than advanced mind control technology from outer space. Well, maybe not. The big green machine that wants you to remain a docile tax donkey and debt slave is pretty sophisticated. THEY want you to comfortably numb, watching TV, consuming, and never asking any questions about the assumptions underlying an economic system based on ever increasing levels of debt fueled consumption.

Who benefits?

Who benefits, when a na├»ve eighteen-year-old amasses $50,000 in student loan debt while pursuing a worthless degree in a subject like, art history? Who benefits, when a young couple who have problems paying their rent lease a car that they don’t need and can’t afford? Who benefits, when I pay $125 for a pair of shoes assembled in a third world sweat shop? Look at your cellphone. How much do you think it cost to manufacture that thing? Who made it? What were they paid? How much are you paying for that two year phone contract? Who is getting all that money?

As a share holder in both AT&T and Version, I’m getting to dip my beak a little. How about you?

The real space aliens in this story understand that money is about freedom. Typically, they are looking to accumulate more than I need or really more than I want, but that is a personal decision. If all you need to be free is enough money to run an off-the-grid organic farm, that is all you need. But to achieve that goal, or any other financial goal, you need to be awake. You need to ask questions. You need to swim against powerful cultural currents generated by politicians, banks, advertising agencies, marketing experts, computer programs that track your purchases and your preferences. Every time you log onto Facebook, realize you are the only product they have to sell. You are the Soylent Green of the electronic age.

Before you sign on the line that is dotted, before you pull the plastic out of your wallet, ask yourself, “Who benefits?”

If you want to know the truth, follow the money.

Sunday, September 17, 2017

Stewardship, a Different Definition

Stewardship is a Christian word. When was the last time you heard that word used outside of a Christian context, or the Lord of the Rings? Christian cringe whenever they hear the word because they know that the preacher is about to put his hand in their pocket while calling them brother. Recently, I listened to a sermon by Wayne Cordeiro, pastor of a Hawaiian megachurch. He put a totally different spin on the word. He defined stewardship as the faithful use of everything you possess in the present moment.

Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.  So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches?  And if you have not been trustworthy with someone else’s property, who will give you property of your own?

We have all heard the verse about a choice we make, whether to serve God or Mammon. Even secular wisdom observes that money makes an excellent servant, but a poor master. Instead of listening to another sermon on “stewardship,” let’s spend a few minutes considering the three verses that proceed that famous verse, the one that is often used as a rationalization for irresponsible behavior.

One of my neighbors had a son who worked part time for McDonalds while in high school. He enjoyed his job. When he graduated from high school he continued working for McDonalds, but now as a full-time employee. He also started earning a two year degree in business at the local community college. After a while, he was promoted to assistant manager at our local fast food provider. When we left the area, the powers that be were so impressed with his performance as an assistant manager that they promised him his own store as soon as there was an opening in the district. First, he was trusted with little. After proving himself, he was trusted with much. That’s the way it works in heaven’s economy and that is the way it works on the earth.

Whatever your beliefs tell you, God, the universe, or chance has given you your life. That wasn’t your idea. It was a gift. What are you doing with it? Right now? You can’t rewrite yesterday. You don’t know what tomorrow will bring. All you have is right now, this present moment. You may not have much going for you, or you might possess every possible advantage. Doesn’t matter, the standard is the same. If you want financial freedom, wisdom, physical fitness, more faith, or better relationships, the process begins with the wise and faithful use of what you have been given in this present moment. Don’t try to run a confidence game on the universe, “Sooner or later,” as the song says, “God’ll cut you down.”

“Whoever is dishonest with very little will also be dishonest with much.”

Do you want true riches? Heavenly riches? It would seem that the first test on the road to eternity concerns how we handle worldly wealth. Isn’t that interesting? I wouldn’t limit that verse to dollars in the bank, real estate, or shares in Exxon. Your worldly wealth includes your intelligence, your talents, your interests, your ambitions, your body, as well as your cultural background and environment. If you could float outside of your body, watching your performance as the manager of your own life, would you give yourself a promotion, or the pink slip? Are you stealing office supplies for your children to use in school, or are you giving the company a few extra minutes at the beginning or end of your shift?

“There is nothing concealed that will not be disclosed, or hidden that will not be made known.” 

I believe that it all works out in the end. Usually it works out in this world, always in the world to come. I started my post-college career packing rolls of cloth into burlap bags for a few cents more than minimum wage, but that was not the end of the story. Twice, over the course of 45 years, I was unfairly stabbed in the back by a rat bastard. It happens, but twice someone or something spoke Joseph into my life. “They meant it for evil, but God meant it for good.” In the first case, I returned to school. Earning a degree in engineering, worked out pretty well. In the second case, I decided it was time to learn about investing. I learned enough to retire early.

There is another principle at work in the definition of stewardship, “From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.” Moses didn’t make it into the promise land because he misrepresented the nature of God to the people of Israel when he struck a rock rather than speaking a word to the rock. That seems pretty harsh, after all Moses did for the Lord, but consider how much God gave him. Don’t worry about Moses. His body was taken into Heaven. He is called, “the friend of God.” He counseled Jesus on the mount of the Transfiguration. Moses is doing OK, but one sin prevented him from taking his people into the promise land after more than forty years of hard work.

May God have mercy on my soul.

Thursday, September 14, 2017

Bitcoins, Tulips, and The Barrel of a Gun

Since everyone else is talking about it, I might as well throw in my two cents on the subject. Jamie Dimon, CEO of J.P. Morgan Chase, largest of the big four American banks, announced that bitcoins are a fraud and that the governments of the world are going to put an end to cryptocurrencies very soon. It wouldn’t surprise me if that happens. Jamie Dimon, a former governor of the Federal Reserve Bank, is privy to sources of information not available to retired engineers. He also has a hand on one of the levers or power that could put an end to the world’s latest version of tulip bulb mania.

This morning the price of a bitcoin dropped on the news that the Chinese are closing it down at the end of this month.

Money ultimately has value because you and I believe it has value. It could be seashells, gold coins, big rocks, or pieces of paper imprinted with pictures of dead presidents. If it serves as a medium of exchange and a store of value, it is money. The ability to create money, as opposed to the ability to create wealth or the desire to trade collectibles for a profit has always been a monopoly controlled by governments. Jamie is probably correct. If the bitcoin is perceived as a threat to that monopoly power, the bitcoin exchanges will be reminded that political power grows from the barrel of a gun, another area where the world’s governments hold at least something close to a monopoly.

Jamie and the Chinese government certainly haven’t helped things for the bitcoin. It has dropped from a high near $5,000 to today’s price of $3,500, but I wonder if this wouldn’t have happened anyway. The increase in the bitcoin value was beginning to look like a hockey stick. That kind of rapid increase in value is not sustainable. These events usually end in a catastrophic collapse, like the Dutch tulip mania of 1637.

Jamie Dimon also said, “Markets have always been wrong.” He got that one right. If markets aren’t always wrong, there wouldn’t be any need for a market. Every time a share is bought or sold on an exchange, someone believes that it is going to go up in value and someone believes it is going to go down in value. They both can’t be right. Should the market capitalization of Tesla exceed that of General Motors? In 2016, Tesla lost $773 million producing 76,000 cars. GM produced over 10 million cars while earning $9.43 billion.

It is at moments like this that it is important to have an agreement with yourself to direct your investments. My prime directive is, “If I don’t understand it, I am not going to buy it.” The truth is, I don’t understand why one cell phone is sexy and another cell phone isn’t when they look pretty much the same to me. I don’t understand why a normal person would buy an electric car until you can charge the batteries in less than 5 minutes at a cost of less than $30.00 (today’s price) and then drive over 300 miles at 60 mph or better. Taxpayer subsidies can only sell a finite number of automobiles. Unless I was someone looking to move money without the possibility of discovery by my government, I don’t understand the ultimate value of cryptocurrencies. I do understand that traders can make a lot of money buying and selling anything from baseball cards to antique Christmas tree stands, but I am not a trader.

What I do understand are companies that have been around for a while that have a track record of paying a dividend that is trending in an upward direction over a long period of time. This is not a get rich quick scheme and I am vulnerable to value traps that occur when things look good on the surface, but the inside of the company is starting to rot away, but it works. It worked for a genius like Warren Buffet and it has worked for an overly cautious retired engineer, like me. Johnson & Johnson has a long history of selling high quality medical products. Chevron sells the gasoline and oil that goes into my cars. Coca Cola turns fizzy sugar water into money. Aqua America provides water for important functions like flushing toilets in cities across America. These are all examples of things that I understand.

As an investor, I am content with who I am.

Now, if I could just come up with contracts with myself for the other dimensions of a healthy, fulfilling life….

Friday, August 25, 2017

The Chain and Whip of the Modern Slave-Driver

Don’t kid yourself. It’ a battle for your mind. The headline (CNBC) reads, “Most Americans live paycheck to paycheck,” The two “grabbers” below the headline certainly got my attention. “Nearly 10% of those making $100,000 or more say they can’t make ends meet.” “Overall, most workers said they are in debt and many believe they always will be.” That last sentence is key. What you believe is possible will lead to your decisions. Decisions lead to actions. Actions lead to habits and your habits, for better or worse, will define your life and your life will continue to echo in the lives of your children and those who look to you for guidance. The forces arrayed against you are formidable. The higher education cartel, the major money center banks, the automobile industry, major retailers, the credit card companies and THE MEDIA that they control through advertising revenue and access to underwriting equity financing, all want you to become a willing debt slave. They do not want to deal with men and women who, through swimming against powerful cultural currents, have found both intellectual and financial freedom. In the Devil’s Dictionary, Ambrose Bierce defines debt as, “An ingenious substitute for the chain and whip of the slave-driver.” The article reports that 78% of Americans live paycheck to paycheck and that 71% of Americans report that they are in debt. I would love to know to what extent those two sets overlap. I do know where these numbers will lead. I saw the 2006-2009 train wreck live and in person while living in the Washington, DC area. Two income families earning more than $250,000 a year, living in $1,000,000 McMansions, driving leased luxury cars, and carrying too much credit card debt lost everything in a matter of months when one of the bread winners lost their job. When those houses were actually selling for less than $600,000 their owners were too far underwater to get out. Even in my own modest neighborhood where house prices topped out at $400,000 there were foreclosures and short sales. Since then, as a nation, we have added nearly a trillion dollars in student loans to this wretched mixture. At some point, there will be another crash. Historically they happen every twelve years or so. Then, as Warren Buffet observed, “Only when the tide goes out do you discover who has been swimming naked.” It doesn’t have to be you. You can change your life, but you have to change how your relationship with money. Start by believing that debt is a curse and that the ability to loan money to others is a blessing. Stay out of debt unless absolutely necessary. If you are in debt, pay off your debts as rapidly as possible. Don’t use a Credit Card unless you can pay it off every month. Start an emergency fund in a bank or a money market fund. The goal here is six months cash reserve (six months take home, both salaries). It will take some time to reach this goal. Don’t beat yourselves up about this but keep putting a little something aside every month. When you have a little extra cash beyond the six months fund or maybe even as a part of the six months fund, begin to experiment on a small basis with stocks, bonds, mutual funds, or even real estate. Start thinking about retirement when you are young. Take advantage of anything offered by your employer. Barring some catastrophe, like an uninsured medical emergency, how much you earn isn’t the problem. The problem is you, the decisions that you have made, the decisions that you are making, how you choose to live your life. When I was first living out on my own, I was earning only slightly more than minimum wage, yet I managed to spend less than I earned. If that practice becomes a habit, you will be amazed at how far you will have travelled by the time you reach retirement. You don’t have to be in debt for the rest of your life, but to be free, you will have to live a different kind of life than the one “THEY” want you to live. The decision is up to you.