Dipping my toe into the water

Lately I’ve been toying with the idea of dipping my toe back into the stock markets, and have made a few transactions.  It seems to me that the market is really ready for a correction.  It’s been about 3 years since the flash cash of 2008 so maybe it’s time for another cash?  It sure seems like a lot of the same variables are lining up.

I’ll give you some background on our “portfolio” (as it may be) so you can see where I’m coming from.  Currently we have about 60% of our retirement assets sitting in cash.  My former workplace offers a convenient plan whereby I can put my funds into a cash fund and they will guarantee me a set rate, which is currently 5%.  Given the current market condition I’ll take that all day long.

25% of our retirement funds are invested in mututal funds that are currently shorting the market.   The remaining 15% is invested in consumer staples ETFs and one high paying dividend utility stock.

Unfortunately for me I sat on the sidelines for most of this last 3 years in cash and didn’t catch the rising stock or commodity prices, even though I was convinced they would go up.  I couldn’t pull the trigger for some reason.

If I think another correction is imminent that what are my options?  Well I could stay in cash so that when prices are lower I have cash ready to invest in items with value.  I could try to weather the storm by investing in “safe” investments like consumer staples and utilities.  I could also perhaps take advantage of the super bearishness on the dollar and invest thinking that there will be a rebound (and the opposite for the Euro which is super high)  (Follow this link to see how well the Bear fund has performed this year.  A Bear fund will increase in value as the dollar decreases in value.)  I’m pretty nervous about doing this though because the Fed is printing so much money that I can’t see that future all that clearly.  (not to mention I don’t have the amount necessary to buy into these funds)

One thing I am pretty sure about is the future has a lot of inflation in it and I need to invest with that in mind.

Another thing I’m eyeing are steady dividend paying stocks.  In this market it’s hard to classify any company as steady, but if I think hard about what people will give up in their lives Energy stocks come to mind as a potentially good choice.  There are a number of utility stocks that are priced quite low, with yields over 5%, which would beat CD rates.  You have downside risk on the stock price, but if you are solely involved for the dividend the stock price doesn’t really matter, does it?

One thing you have to worry about is the dividend cut.   As long as you are comfortable with possbly losing half your dividend (which would put you just lower than CD rates) I wouldn’t say this is such a bad option.  As far as energy goes, I would expect it to be one of the last things that people cut out of their lives.  They’ll cut movies, cell phones, restaurants, etc out of their lives before they’ll take the step of turning off the juice to their house and going dark.

So what to do?  I don’t really know.  I think long term gold and silver will continue to appreciate, but I want to own them outright in bullion, not in retirement accounts.  Interest rates are pathetic so CDs and Treasuries are out.  I could consider TIPS but the way the government is manipulating the inflation rate those won’t rise at the same rate as inflation, as they are supposed to.  The bond market may hold some interest if I can find some distressed assets with short maturities.  (I made a killing buying GM bonds a few years back with short maturities when GM first had some financial hiccups)  But high yield bonds are selling with ridiculous yields (a lot around 5%) and regular bonds are selling at less than 3% in most cases, and most of them are banks, which I don’t want to be involved with.  This is a crazy market to figure out.  Maybe the best thing to do is just stay in cash.

In the mean time, cut your spending and pay down your debt.  Paying down your debt that costs you 6% or 7% (of 24% if it’s a credit card) is the same as investing that money and getting that return on it.  There aren’t a lot of options available to get a return like that, so take it by taking back your balance sheet.

WARNING: I am not a financial counselor and am not licensed to give financial advice.  I am simply informing you of the choices that I am making with my personal accounts as a manner of education.

Shaking off the man

On Tuesday we paid off all our debt, except out house. Definitely a good feeling.

I have to admit though, it came about because we pulled some money out of our IRA accounts. I found a tax clause that allows the owner to pull out their contributions, even for a rollover to Roth conversion, so we did it. Our accounts were almost 100% in cash between a money market fund and some CDs. The interest rate return was around 3% or so. It didn’t make sense to keep that money in there while paying higher interest in other places. After I found out I could remove this money with no taxes or penalties, it was pretty much a sure bet.

But, even given this, I think there are some valuable strategies that we employed that might help others with paying down your debt.

First, I read Dave Ramsey’s book about Financial Independence. It’s a good book, although I don’t agree with all of Dave’s philosophies. But, his cash envelope system to manage your budget is spot on 100% the best way to move from a check/credit card system to a system where you can put some serious limits on what you were doing. You are required to be serious about your budget and this cash system forces you to do that. You have cash, you can spend it. You don’t, you can’t. No slipping them the plastic!

Second, if you want to do it you will have to struggle. Many times we ran out of cash, so we just didn’t do ANYTHING. Even grocery shopping. There were plenty of times where we only ate what was in the pantry or the freezer. For a while I didn’t have enough cash to restock our freezer for meat products, so we went without quite a bit. It didn’t hurt us.

But, as most of you know we buy most of our vegetables and fruit in the summer and put them up for the winter. I was able to do this with our normal weekly spending, so it’s possible to do something like this and still eat local and organic.

Third, it takes a team effort by both parties. Rachael and I have been on the same page a lot of things for most of our marriage, but this changeover was quite hard for us even. We had plenty of disagreements about the spending. You need to know that going in. But, the adjustment was worthwhile, and we are comfortable with the cash envelope system.

Fourth, the changeover from using a credit card to using cash is an extremely taxing month. We had to pay for everything with cash while also paying the previous month’s credit card bill, which was our normal spending. This was a really hard month. I dipped into just about every source of cash I could find to make it through this month.

I’m not sure if I really offered any tips here, but let me know if you have questions or anything.

By the way, if you are on Facebook look me up. I’m listed under my real name. Facebook people found this out on Tuesday.

Story about layoffs rippling through town

Check out this interesting story on WSJ.

I got this from the “Of Two Minds” blog, which might be the only blog I’m aware of with a name worse than Casaubon’s Book, as far as knowing what the site is about from the name.

Orlov Hits One Out of the Park

I don’t agree with every single things he says, but for the most part he is spot on.

Club Orlov

Fantastic writing.

Mish rocks a Great Post

If you haven’t already you should check out this posting by Mish.  It’s fantastic.

Great summation of whether or not the stock market is cheap.

Post is here.

I’m posting this in IE which is just god-awful.

What Depression?

I keep hearing the news about how awful things are.  Shopping is down.  Restaurant meals are down.  While I think that might be true in some areas it doesn’t seem to be the case here.  Every time I drive by a restaurant it seems to be loaded to the gills with people.  About the only thing that makes me think we’re in a downturn is all the foreclosure notices in the paper and all the houses with for sale signs that last a long, long time.

When I was Christmas shopping I did notice a smaller crowd at the mall, but certainly not a huge difference.  And in my after holiday shopping I noticed the shops as busy as ever.  Maybe my little area has been insulated so far from the worst of it?  Even though our city was flooded this summer most of the city was left untouched (or who knows, all this rebuilding might be promoting a bubble) and especially the two biggest employers in town.  They didn’t have any flood problems and they haven’t even laid off any people yet.  Perhaps that is cushioning the area?  I’m not sure really, but I’m not seeing a huge impact yet.

Maybe part of this is the because we don’t get the crazy swings up and down like a lot of places.  We don’t see 30% per year increases in our housing values, but that also means we don’t see the same declines either.  Things are much more level and even keeled here than a lot of places.  I’d be interested in what some of you are seeing around the country.

Things I’m Wondering

As I enjoy the chickens more and more I wonder more and more why people don’t have them in their backyards.  Hopefully as all of us bloggers talk about it more people will get interested and start doing it.  It’s a chore sure, but enjoying those eggs is so nice.

I’ve been wondering lately why the so called experts didn’t see this financial collapse coming.  Some of us dismissed, less fortunate people did.  How?  We used common sense to ask if things smelled right.  It’s amazing how often common sense works for most things.

I always wonder why people get so freaky about the weather.  It is what it is.  You just have to deal with it.

I wonder if this spring will be the spring where gardening really takes off.  Last year seed orders were up from the previous year, but how much more will they be up this coming year?

Along those same lines why do all the food donation places let people be so helpless?  People come to you for food, which is OK if you give them immediate help, but show them how to grow some food for themselves.  Why continue to make people dependent on food donations?  Where is the sense in that?

Same deal with the people receiving the donations.  Why would you continue to take what is given rather than looking for another solution?

I read a news story recently wherein a mother was complaining about not being able to find work, except overnight workshifts.  Her husband was laid off and she was formerly a stay at home mom with 4 children.  It made me wonder.  Was her situation really that bad if she was turning down nightshift work because it was nightshift work?  My parents worked all kinds of crazy shifts when I was growing up to make sure they were providing.  Sure it puts a strain on everyone, but you deal with it.  I wonder how much differently this lady might feel in 6 months.

I wonder how long it will be until I am full up with more wonderings.

A couple interesting articles

Fiscal Cat 5 Warning via MEOW

Economics 101 via Mises

Good intro primer on Peak Oil via The Energy Bulletin

Housing Prices

This picture is a little scary.  If you look at the trend area you can see the trend of how total housing prices of houses for sale should be trading.  If you look at the end on the right you can see where they currently are.  Even give the current drops in housing prices shown on the far right, it would appear that the total dollar amount of houses for sale, at the median house price, has a ways to go to get back into it’s normal trading range.  Could mean more pain for lenders and more foreclosures.  It also means wherever you are currently living is probably where you are going to be staying.  A fair amount of Americans are underwater on their houses.  If you find your dream home you probably won’t be able to move your current home to get into this dream home.

I’d say there is a massive inventory of houses for sale.  I wouldn’t expect there to be any new construction for a long, long time.

Canning, Books and A Government Takeover

***Attention: Potential rant alert below. First there is some nice general things, and then I get a little nasty.***

I’ve been so busy canning apples and pears (and tomatoes) that it’s been hard to get anything else done. Rachael has been helping a lot which really makes it go quickly. And Ethan (4) likes to turn the crank on the sauce machine to make tomato sauce and apple and pear sauce. Tonight I took a turn using a peeler/slicer/corer gadget to slice up apples to can and also to make pie filling for yummy pies this winter. This is the first canning season that I’ve gotten beyond the standard canning of items in their natural state. I’ve made tomato sauce and pizza sauce, pie filling is in the works and I’ve done pickles, which is new for me. I’m growing and expanding my horizons!

Since the garden is slowing down I’ve started to get more time for reading. I recently finished a David Balducci book. I mentioned this because even as an untrained writing person I noticed a huge difference in his writing skill and someone like Stephen King, and even further up the writing skill chain are some of the Literature books I’ve been reading. I hadn’t noticed the huge difference in writing before, but for some reason did this time. It’s a telling example of the different qualities of writers and why some are considered masterpieces and some aren’t. I still enjoyed the book, but I could tell it wasn’t up to the same level as the Stephen King book I had finished just a few days before.

Fun times with financial markets isn’t it? Uncle Sam is busy giving away $1.8 Trillion of our children’s future to try to save some economic pain today. Not to pick on your boomers, but it seems a fitting tribute to the way things have been run while you’ve been in charge to have our country’s worst Depression happen at the tail end of your time running our country. Granted, Uncle Sam says we aren’t in a Depression, but if I could manipulate the measurement of statistics I could make them say all kinds of great things about me too. 6% unemployment my ass.

There are liars, damn liars, and statistics.

One thing to remember about the financial markets is that the stock market tanking isn’t the cause of economic troubles, it’s the visible sign. Stocks tank when the underlying companies tank. Not the other way around. Granted, this time things are a little different because the sudden contraction of credit can lead to difficulties with companies who may need financing (although if you rely on financing to that great of an extent to fund your business how much of a success are you anyway??), but AIG and Lehman, et al are not going out of business because their stocks tank. They are going out of business because they made bad business decisions, and then when they needed to raise capital the market was shut down for them because they made bad business decisions. This is a combination of poor decisions on the business side, and the decision to play it too tight with their leverage. Just like the homeowner who borrows the maximum eligible amount to buy a house and then falters when something unexpected happens. These “experts” have done the same thing.

Good thing the Dems won the battle to privatize Social Security huh? I can’t imagine the mess we’d be in right now with that. I’m sure that would have to be bailed out too.

My opinion, but I don’t think it will be too much longer before some serious tax increases are put in place. Our foreign friends are going to shut off the spigot soon, unless we show we are willing to get serious about these deficits. Since Jimmy Carter left office, adjusted for inflation, the national debt has risen from just over $2 Trillion to about $10.5 Trillion. So it went up 5x in 28 years. Amazing. That figure doesn’t include any of the cash that’s been handed out with this crisis, or any money that will soon be lavished on the automobile companies (to support a car based future that doesn’t exist thanks to Peak Oil) or airlines (same Peak Oil problem) or any other companies that may slap on some lipstick and come to the trough. The wheels are coming off economies all over the world, and soon enough they will keep their money in their country to pay for their needs. Then what will we do?

Imagine if all the sudden the yearly deficit couldn’t be funded? I read recently that is was expected to be around $460 billion in 2008. What would be cut if that suddenly had to be made up here in America because no foreign government would buy our bonds? Or where would taxes go? Maybe we would start taxing companies more?

The part of this whole thing that pisses me off the most is how badly they are raping the future of my children and grandchildren.

Want more to read? Follow the links below. If you want to get good analysis you have to turn off the CNN or Fox news and turn on the blogs. If we had some of the bloggers I read running things we’d be in much better shape. Well, unless we were part of the elite that wants things like they are now.

Mish talks about the Housing Bailout
The Debt Rattle
MEOW gives some opinions on the situation