Saturday, July 28, 2012

Reality is an Illusion

“Reality is an illusion, albeit a persistent one.”
(Albert Einstein)

Money, in a fiat economy, is nothing more than a shared illusion.

Money is created by the Federal Reserve or any similar central bank in other countries out of thin air whenever it buys an asset, usually a note issued by the U.S. Treasury, although more recently the toxic mortgage bonds issued before the crash of 2006-2008. As this money goes into circulation it is multiplied by the magic of fractional reserve lending. You deposit $1,000 into your bank. Now the bank is normally allowed to lend 90% of that money to its customers. Let’s say that $900 is used to buy a new car. The car dealer deposits the $900 in the bank allowing the bank to loan out another $810 and so the process continues from bank to bank and customer to customer until something on the order of $10,000 is created out of the initial $1,000 that was created out of nothing, a castle of debt built on a foundation of thin air.

Money does not become wealth until you borrow it from the bank, get a job and pay back the loan with interest. You have created the wealth of this nation. The bank did not create any wealth. You made yourself a willing indentured servant of the bank for the term of the loan in order to enjoy something you needed or wanted most often a house, but also things like a college degree or a car.

When you take out a loan, you are giving your working life to a bank. If you understand this fact and have made a conscious rational decision that such a loan is in your self interest, so be it. However, the banks and the Government do not want you to make conscious rational decisions in your own self interest. They want to control your mind and your life. Of course there are others who hope that you are making decisions on autopilot. That is what marketing in a consumer based economy is all about. Every corporation and yes, even commercial religions selling you products, hope that you will remain docile, asleep, and enslaved.

As you walk through life, dealing with money, or anything else for that matter, ask yourself. Is this making me more awake? Is it increasing my understanding of the true nature of reality? Ask yourself, is this proposal or product making me free or is it asking me to exchange my freedom for security. Or worse, am I exchanging my freedom for a substance induced illusion of happiness?

The Gospel of John Chapter 8:

[31] Then said Jesus to those Jews which believed on him, If ye continue in my word, then are ye my disciples indeed;
[32] And ye shall know the truth, and the truth shall make you free.
[33] They answered him, We be Abraham's seed, and were never in bondage to any man: how sayest thou, Ye shall be made free?
[34] Jesus answered them, Verily, verily, I say unto you, Whosoever committeth sin is the servant of sin.
[35] And the servant abideth not in the house for ever: but the Son abideth ever.
[36] If the Son therefore shall make you free, ye shall be free indeed.

Wednesday, July 25, 2012

A Brief Riff on Giving

Work with me on this one. Breathe in. Breathe out. Breathe deeply, naturally, in and out. Feels pretty good doesn’t it? Now breathe in but don’t breathe out. Breathe in again until your lungs are full. Hold your breath. How did that feel just before you choked and exhaled?

Giving and receiving are a natural part of life. If you are not doing both, something is wrong. You did some work to breathe in the oxygen you need to live, but did you “earn” an atmosphere full of the gas mixture necessary to sustain your life? Not really, you’re just grateful for the air, especially towards the end of the first paragraph. When you breathe out you give carbon dioxide to green plants that require that gas for photosynthesis to occur. The grateful plants return the oxygen you need for your life.

Are you giving: time, treasure, emotional energy, the gift of the open heart? If you aren’t something is wrong. Don’t believe me, ask your heart. How much? Well, the Bible says:

2nd Corinthians Chapter 9 Verse 7

Every man according as he purposeth in his heart, so let him give; not grudgingly, or of necessity: for God loveth a cheerful giver.

Maybe I’m wrong, but I believe that the Lord is a lot more interested in the state of our heart when we give than the amount we give. Are you giving with a cheerful heart, in gratitude to God for a universe that sustains your very existence or a heart filled with resentment, like my heart, at tax time. If you are not giving with a cheerful heart, ask why. Maybe you are giving out of your comfort range. Stretching your comfort range a little is a good thing, it will make your heart stronger, more able to give and receive. Stretching too far can leave your heart damaged for years, unable to properly give and receive. I’ve been there. It hurts.

I give my blessings to all who read this post. May God pour out his blessings on you, your family, your finances, your life.

Saturday, July 14, 2012

Maggie Thatcher and the Good Samaritan

“No one would remember the Good Samaritan if he'd only had good intentions - he had money too.” Margaret Thatcher

Maggie Thatcher Prime Minister of Great Britain, the Iron Lady, the Best Man in Britain, the only leader in history to bring a country back from beyond a 150% Debt/GDP ratio without an economic collapse, a revolution, or a civil war is obviously one of my heroes. She even rates a verse in the Royal Navy’s version of the Drunken Sailor sea shanty.

I put Maggie’s rather famous quote concerning the Good Samaritan up on my Facebook page last week. It received both positive and negative attention that got me to thinking more deeply about the Parable of the Good Samaritan.

You know the story: A good believing Jew was beaten and robbed out in the wilderness. After a pastor and a lawyer (Warning: My Version) pass by this poor unfortunate crime victim without even calling 911 on their cell phone, a half breed heretic from the sticks stops to help. He breaks out his first aid kit and spends the time and effort required to stabilize his patient. Then the Samaritan loads the Jew onto his donkey (remember that means the Samaritan walks) and carries him to a decent hotel. The Good Samaritan peels a $1,000 off his roll and gives it to the innkeeper, telling him to take care of this stranger until he returns from his business trip. The Samaritan adds, “If you spend more than this before I get back, I’ve got you covered.” Then the Samaritan continues on his business trip.

I contend that the Samaritan demonstrated at least three of the four levels of giving and almost certainly the fourth level of giving.

1) He gave his own money for the care of a stranger, both the cost of the medications and the cost of the hotel.
2) He gave of his time to bind up the stranger’s wounds and carry him slowly and carefully to the inn. Remember, a business man’s time is more valuable than money. He has plenty of money but he doesn’t have enough time.
3) He gave of his emotional energy. I don’t think it would be possible to care for a half dead, horribly beaten stranger without some expenditure of emotional energy. At this point in time, surplus emotional energy is a scarce commodity in my life. I believe it is more valuable than time or money.
4) Since I can’t see into the Samaritan’s heart, I have to guess here, but I believe the Samaritan offered the stranger the precious Gift of the Open Heart, the highest level of giving. The Samaritan and his family have been victims of racial discrimination at the hands of the Jews, yet his compassion transcends centuries of hatred and racism.

There is one more thing I want to add about the Samaritan and his character. Yes, the dude had good intentions and he had money, plenty of money, but there is something more going on in the story. The innkeeper didn’t bat an eye when the Samaritan dumped a half dead naked stranger into one of his beds with the words, “If you spend more than this before I get back, I’ve got you covered.” The Samaritan had a reputation. His word was as good as his gold. There are famous rich men in this very area that I would not trust without all the money up front and a good contract attorney covering my back. The innkeeper didn’t need to negotiate a deal or even shake hands with the Samaritan. He knew that the man had both the means and the integrity to fulfill his promise.

Then said Jesus unto me, “Go, and do thou likewise.”

Luke 10

[25] And, behold, a certain lawyer stood up, and tempted him, saying, Master, what shall I do to inherit eternal life?
[26] He said unto him, What is written in the law? how readest thou?
[27] And he answering said, Thou shalt love the Lord thy God with all thy heart, and with all thy soul, and with all thy strength, and with all thy mind; and thy neighbour as thyself.
[28] And he said unto him, Thou hast answered right: this do, and thou shalt live.
[29] But he, willing to justify himself, said unto Jesus, And who is my neighbour?
[30] And Jesus answering said, A certain man went down from Jerusalem to Jericho, and fell among thieves, which stripped him of his raiment, and wounded him, and departed, leaving him half dead.
[31] And by chance there came down a certain priest that way: and when he saw him, he passed by on the other side.
[32] And likewise a Levite, when he was at the place, came and looked on him, and passed by on the other side.
[33] But a certain Samaritan, as he journeyed, came where he was: and when he saw him, he had compassion on him,
[34] And went to him, and bound up his wounds, pouring in oil and wine, and set him on his own beast, and brought him to an inn, and took care of him.
[35] And on the morrow when he departed, he took out two pence, and gave them to the host, and said unto him, Take care of him; and whatsoever thou spendest more, when I come again, I will repay thee.
[36] Which now of these three, thinkest thou, was neighbour unto him that fell among the thieves?
[37] And he said, He that shewed mercy on him. Then said Jesus unto him, Go, and do thou likewise.

Saturday, July 7, 2012

Pinocchio and his Master Card

There are three subjects covered in the blog that tempt me to throw screaming purple fits. Recently I covered one of them, the failure of the baby boom to prepare for retirement. Today, I will cover the second, debt slavery. It grieves me to watch my friends, coworkers, and acquaintances working their lives away to enrich some bank or finance company. They bought things they didn’t need with money they didn’t have and now they must pay the price.

In Walt Disney’s movie Pinocchio, bad boys are tempted by low level con artists like Honest John and Gideon in the employ of The Coachman, a rich powerful racketeer to visit Pleasure Island. Here wicked little boys can indulge all their fantasies, smoking, getting drunk, gambling, and vandalizing other people’s property. But there is a terrible price to pay. The bay boys are magically transformed into donkeys. They are then sold to circuses and salt mines where cruel task masters with long whips force them to carry other people’s heavy loads---for the rest of their miserable lives. In the movie Pinocchio’s friend Lampwick discovers the truth too late. He is transformed into a donkey and shipped off to parts unknown. The good hearted wooden head, Pinocchio escapes with a donkey’s ears and tail.

Sound familiar, “Master Card, I’m bored.”

Of course the message of Pinocchio is for misbehaving children who don’t go to school. They will spend the rest of their lives carrying heavy loads in the heat instead of working in white collar jobs, programming computers, or mastering a skilled trade. The story is just as true when applied to the American middle class consumer, who through his own folly damns himself to a lifetime of debt slavery.

The foolishness I hear on an almost daily basis never ceases to amaze me. Since I work at a research laboratory, my coworkers are for the most part intelligent, well educated, and successful by the standards of this country. To be perfectly honest, many of my coworkers are more intelligent and capable than I could ever be, even in my dreams. That is not false modesty. It is the truth. Still they say things that simply amaze me.

The following story is fictionalized to protect the guilty, but it was inspired by a real conversation I had this past week. A young family man was worried about the amount of debt he carried. In past conversations I know he really truly wants to pay down his debts to a more reasonable level. He is looking to buy a new minivan. I asked him what was wrong with his current moderately low mileage, 5 year old minivan. He replied there was nothing wrong with the vehicle, but he wanted to trade it in on a new car while it still had some trade in value. After asking a few questions and gathering some more facts, we both concurred the vehicle could easily provide another 5 years of service without any significant mechanical problems.

Don’t you think the car dealer knows the value of your trade in? The reason he is willing to give you a good price is that he sees the inherent value of your vehicle. He knows he can sell it at a considerable profit.

His wife and two year old child was his excuse for wanting to spend $30,000 he didn’t have on a new top of the line minivan he didn’t need. I asked him, “Do you really think, your toddler is going to be any safer, more comfortable, or happier in strapped into his safety seat in a new vehicle than he is in your current car?” Of course the answer was no.

The young family does need a safe reliable vehicle. That can be accomplished for $9,000 or even less with a little effort. The minivan they currently drive is almost paid for and it exceeds all their needs by a considerable margin. It’s OK to want a new car. It is OK to reward yourself with a new car if that is what you want and you can pay cash.

But please, don’t call your wants, needs.

Wednesday, July 4, 2012

Death in America (Part III)

It is about time for an update. After nearly three months my mother-in-law’s estate is officially up and running. My wife has her Letters Testamentary from the court in Georgia. Her mother’s CPA prepared the form for obtaining a tax ID for the estate. Now a tax ID number has been issued. We are beginning the process of converting accounts from my mother-in-law’s name to that of her estate. Of course this requires more paper, death certificates, a notarized affidavit of domicile (haven’t seen one of those yet), a official copy of the Letters Testamentary, and forms, lots of forms, complex incompressible forms, with pages of instructions in very small print.

The process of closing out my mother-in-law’s affairs outside of the estate also continues. The worst problem has been the ambulance bills. They run from $850-$1,050 per trip. My mother-in-law made quite a few trips in her final month. The process involves the ambulance company, the insurance company, and the hospital. The ambulance company is supposed to present the bill to the insurance company with the trip report (they always send the bill but not the trip report). If there are any questions the insurance company is supposed to contact the hospital for a detailed diagnosis to determine if the trip was an emergency. Often the hospital does not respond to these requests, so the insurance company denies the claim. Then the ambulance company sends out an angry letter threatening to ruin my mother-in-law’s credit score before turning her over to a collection agency. Then we make more phone calls.

Patience and Persistence

For the first time the tax consequences of my actions are a very important consideration. Some of my father-in-law’s investments were in tax sheltered vehicles such as IRAs, a 403b, and tax deferred annuities. Our attorney has counseled us to consult with our CPA after fully understanding the options available when moving these investments. By the way, companies do not like it when you choose to move money from their control to another financial institution. The process is complex.

Privacy laws have led to extraordinarily silly behavior. My mother-in-law had health insurance through her husband’s employer. They debited one of her checking accounts for a little over $200 a month to pay for the insurance, a bargain that saved the family a fortune. However, they continued to debit the account after her death. They were notified of her death. They had the death certificate but they were not notified by the proper institution in the proper manner, so they could not stop debiting the account. In a phone conversation (one of about 12 or more with various institutions involved in this process) a phone representative asked for all sorts of information, social security number, date of birth, address to establish I knew my mother-in-law. Then she announced she couldn’t talk to me because I wasn’t my mother-in-law. The fact that she was dead didn’t matter. I wasn’t on the list. “Who is on the list?” I queried. She couldn’t tell me who was on the list. However, I gave her my wife’s name and after some hesitation she decided she could tell me that my wife’s name was on the list. All’s well that ends well. Someone who was previously informed the day after my mother-in-law’s death forgot that little detail. She promptly fixed the problem and the estate will be refunded the erroneous charges.

P.S. Remember, CDs, brokerage accounts, annuities, and like can be designated to a sole beneficiary. If that is what you want done with these funds, they do not become part of the estate. Hence you can keep them out of probate. Worth thinking about as you plan your estate.

The Path of the Investor

Well, our power is back on and the air conditioner has been fixed. The Washington D.C. area is slowly returning to normal under a hot a humid sky. So, let’s return to the business of blogging. I found an excellent introductory article, The Investor’s Path to Trading by Mark Eidem in the current edition of Charles Schwab On Investing. It is one of those articles that really doesn’t say anything you don’t already know, but puts a process into a succinct, easily understood package. The author observes that making any investment, something you choose to hold for more than a year, or trade, a position held for less than a year follow the same four step process.

1)Screen: Find new companies to consider.
2)Analyze: Research prospective companies using both fundamental and technical analysis.
3)Execute: Plan trades in advance.
4)Monitor: Trade your plan with discipline.


There are over 3,000 stocks trading on the New York Stock Exchange alone. How do you decide which stocks to study? Here is a very incomplete list of methods for finding stocks to investigate.

1)Search websites like the Motley Fool and Seeking Alpha for investment idea.
2) Watch TV shows Jim Cramer’s Mad Money (not my favorite)
3) Subscribe to a reputable newsletter that holds the same investment philosophy you are attempting to master.
4) Talk to people who know more than you know (be careful when dealing with commission salesmen)
5)Learn how to use screening tools provided on just about every brokerage house website.


Now you have reduced the number of stocks for investigation to some reasonable number. The brokerage houses provide free reports on companies by Standard and Poor’s, Reuter’s, Argus, Credit Suisse, and Ned Davis Research. These are very good tools. Not only do they provide an educated opinion on a particular stock, but in studying these reports you will learn the process these experts use in assigning a rating to a particular company. As you gain confidence in your own ability you will begin to study different ratios without training wheels. I am fond of the P/E ratio, a history of dividend growth, the percentage of profits paid out in dividends, and cash flow. I am still learning. As the song says, You got to know when to hold ’em, know when to fold ’em, Know when to walk away and know when to run. Every investment is a good investment. Every investment is a bad investment. The difference is timing. Technical analysis is the art of determining when to buy and sell. Spend some time learning at least the basics of reading a chart.


It is time to execute the trade. How much do you want to invest? Except for your first few buys, that of a necessity will constitute a large percentage of your entire portfolio, keep any single position under 3% of your total portfolio and you will likely stay out of trouble. Remember to diversify across sectors. If you had too many positions in dotcoms, even if each individual position was small, the crash of 2000 would have destroyed your portfolio. Experts recommend setting a stop loss price the day you buy the stock. This will automatically trigger a sale limiting your loss. You will make mistakes. Generally the rule is stop losses, let profits run.


Keep revisiting your decisions. Market conditions change. What was a very good idea two years ago may not be such a good idea today. A rule of thumb? If you would not buy a stock you own in today’s market, you might should consider selling it. The reverse is also true. Revisit stocks you have sold. As you buy and sell shares in a particular company you will develop a sense of how it moves and what drives its profitability.

There are several keys to making this work. First, persistence. Keep saving and investing through good times and bad. Never give up. Second, maintain discipline. Fear and greed are your enemies. Find a discipline that reflects your personality and stick with it. Readers of this blog know I am learning the art of value investing. Value investing consists of buying an established dividend paying company (large or small) at what I perceive to be a bargain price, then holding it forever. Of course if the price goes too high I will sell the stock or if the price crashes and doesn’t come back I will sell the stock, take the tax loss, and move on.

Now, Let’s be careful out there.