sitting on the 405

remember a while back when I asked the question:

"If the government didn't promise to subsidize the digital TV box for $40, would the price be lower than $40?"

well, the government has once again stepped up to the plate and the bill that is poised to pass through the senate includes a subsidy for "low income health insurance". People who have low income and are FORCED to buy health insurance will get a subsidy from the government for their health insurance.

So what incentive do the health insurance companies have to lower their prices below the subsidy level? NONE! They know that they will get at least a certain amount from the government no matter what, so the prices of health insurance will not drop below that point.

Health care reform is necessary... I totally agree with that. But instead of giving the insurance companies a guaranteed income, we should be taking down the barriers to insurance.

One thing that needs to be removed is the limitation on insurance companies that doesn't allow them to sell insurance across state lines. A little known fact is that you can't go out of state to buy insurance. You can only buy insurance in the state that you live in. Does your friend in Texas have an awesome health insurance company? Too bad... unless you live in Texas, you can't buy it!

Why? because a couple of congressman back in the forties thought that health insurance companies should be exempt from anti-trust laws and that the states should regulate health insurance. (McCarran-Ferguson Act)

Result: The states have created 50 different sets of laws of how insurance in that state works. Some states require that acupuncture, massage, and various other things be included in every health insurance policy sold in that state. But no 2 states are the same - so you have to go by the laws in your state.

Don't want acupuncture in your health insurance policy? If your state requires it, you have no choice - you HAVE to pay for acupuncture coverage.

The current health care reform bill doesn't address any of these issues and therefore sucks. It sucks on many more levels, but that's all I have to say about it today :)

Good day!

Dizzy had a check up today - this is one of the vet cats:

This is something that has bothered me for some time... (I was reminded by an old ST:TNG episode) ST:TNG = Star Trek: The Next Generation for all you non-Trekkies :)

Why do people expect religion to be rational?

By definition, religion is irrational. A religion is based on faith - which is accepting that something is true/exists without proof.

Another way to look at it - Religion is the way that humans bridge the gap between the known and unknown. Since the unknown (what happens after death, for example) cannot be known, acceptance of any explanation for the unknown must be taken on faith or at least a leap of logic (which can be faulty). Faith is that bridge in most religions.

Now don't get me wrong - I'm not anti-religion. Religion isn't a bad thing. Just don't expect it to be logical or rational. Nor will a religious argument be won with logic.

Muslim versus Jew versus Christian? Interestingly, they are all related religions. Jews were the first major monotheistic religion. Early Christians were an offshoot of the Jews - Christians believe Jesus (who was a Jew) is the messiah. Jews don't believe that the messiah has come yet. That's the major difference. Even their holy books are the same. The christian bible is made up of the old testament (the Jewish Torah) plus the adventures of Jesus (the new testament).

Islam is just Christianity/Judaism from a different perspective. The Koran has all the same people from the Torah and the Bible, just in different roles.

Ah... but here's the ironic part... i'm waxing logical about religion :)

Is it time for elevensies?





Second breakfast, maybe?

http://www.telegraph.co.uk/finance/currency/6152204/UN-wants-new-global-currency-to-replace-dollar.html

Ok... so I'm going to stick around here for a bit... on to my rant!

Quoting from the above article...

The proposals would also imply that surplus nations such as China and Germany should stimulate their economies further in order to cut their own imbalances, rather than, as in the present system, deficit nations such as the UK and US having to take the main burden of readjustment.

So we should tell the folks that have been working their national budgets rationally to give up their saving and "stimulate their economies"? (BTW... "stimulate their economies" is another way of saying "get your citizens to buy our cheap goods so we can have some of your savings!")

Jeezy creezy...

I generally don't mention this, but "Atlas Shrugged" is among my favorite books - there's a certain stigma that goes along with saying you like "Atlas Shrugged". If you've ever read the book, there are certain parallels to the world we are seeing today. Granted, the book is a work of fiction and uses a certain amount (lots?) of hyperbole in the plot, but the logic works and is running quite similar to the world we are in today. Feel free to read it... I would always suggest it :)

I don't know about you, but I'm a little worried about inflation. The run up in the stock market really doesn't seem to have a rational basis except for a certain amount of bounce-back from an over sell-off back in the spring. The bounce back has been a little extreme in my opinion, especially considering that unemployment hasn't peaked yet and retail sales are still sluggish.

I SUSPECT that the market is already pricing in inflation - if we consider the price of gold has gone up 15% since spring along with the 25% increase in the Dow we've seen during the same period, then we've really only gotten a "corrected" increase of 10% in the Dow which is actually much closer to a true correction to an oversold condition.

We have one scary thing coming next month... October. October is a very shaky time for stock markets. The greatest market crashes of all time (1929 and 1987) came in October, and corrections are more likely to happen in October. Consider that of the 120 worst market days since 1907, over HALF have occurred in Sept (24), Oct(24), and Nov(14).

Honestly, it's a tough call for what to do with money right now. In the long run, holding cash is losing proposition due to the huge risk of inflation. Going into gold (the traditional anti-inflation play) right now is risky due to the high price of gold. The market is shaky at best right now.

Perhaps a currency play? The problem is that the 2 economies running a surplus right now (Germany and China) are both problematic. Germany is using the Euro, and the Chinese Yuan is pegged to the dollar in practice even if it's not spoken about.

There are 2 other thoughts that cloud things a bit:
1. China is the largest holder of US Debt. If the US experiences inflation, that will hurt China in the sense that the interest which China gets off our debt will be worth less than when they bought the debt. It is in China's interest to keep the dollar propped up until they can diversify out of the dollar and (probably) into gold. Since China can't just dump tons of money into gold, they will have to step into it gradually thereby putting a floor under the price of gold.
2. I forgot what #2 was :) perhaps I'll remember later!

BTW, if I describe something that doesn't really make sense or use a term that you don't understand, feel free to ask me a question in the comments!

I wrote this during an online discussion about inflation vs deflation and thought it was a good explanation of what deflation is and why it is bad. Everyone hears about how inflation is bad, so they assume that deflation is good - not so. Enjoy!

-------

Deflation is bad for anyone paying interest.

Let's say we have 2% deflation and $1000 annual payment on some debt carrying interest. Since your payment never decreases with deflation, you will always pay $1000 on that debt.

You pay $1000 every year no matter what even as your buying power changes with the deflation. At the end of the first year, your payment of $1000 costs you MORE in real buying power than it did when you took on the debt.

Now with the compounding of deflation year over year:

Year 1: $1000 Buying power = $980.00 after deflation
Year 2: $1000 Buying power = $960.40 after deflation
Year 3: $1000 Buying power = $941.19 after deflation
Year 4: $1000 Buying power = $922.36 after deflation
Year 5: $1000 Buying power = $903.92 after deflation

So at the end of 5 years, the same $1000 in buying power only costs you $903. Another way of saying that: You can buy $1000 worth of stuff for $903. Sounds good, right?

But you still have that $1000 payment. What is that really costing you in buying power? Approx $1107.42 in buying power in year 5.

Anyone taking on debt whether it is Individuals (mortgages, credit cards) Companies (corporate bonds, short term paper), Cities/States (municipal bonds), or Governments (treasury bonds) gets hurt by deflation.

Especially long term debts - 30 year mortgages, bonds, etc - the compounding effect of deflation just keeps increasing the costs over time.

That is why economies target a certain amount of inflation - Inflation reduces the "sting" of debt over time whereas deflation increases the "sting" of debt over time.

"... your commercial real estate disaster is playing out BIG today. So, what's next ? Anything GOOD on the horizon ? "

All news is good news if you know how to play it :)

As for positive areas in the economy... well, earnings haven't been as disappointing as they could have been. is that good? not really but it leaves the market in a sideways trend. I suspect that we are seeing some "window dressing" on the earnings - that means that companies are pushing the losses out beyond this earnings season and will spread them out over the next 6-12 months. That basically delays the pain and spreads it out over a period of time instead of just getting out of the way all at once. It's like tearing the bandaid off slowly instead of just RIPPING it off.

My gut wants to say we're going back down to 7000ish on the Dow before this is over, but my brain says that there are plenty of buyers out there that are giving us a lot of support at 8000. I suspect that there are program buyers out there who are buying anytime the Dow drops to 8000ish. If that is the case, then we'll see a sharp drop to 7500ish in order to squeeze out the buyers.

My biggest concern right now is... inflation. Not now, but in 12-18 months. Basically, the Fed has pulled out the nuclear bomb - Quantitative Easing. That's a fancy way of saying "we're printing money like there is no tomorrow." We've all seen the movie where the bad guys set the timer on a bomb, run away and the good guys only have 2 minutes to disarm it. Well in this situation the Fed has set the bomb, and they have to disarm it. BUT, they can't disarm it early - they have to wait until there's only 2 seconds left on the clock and then disarm it. Too early and the recovery stalls, too late and inflation kicks in in earnest.

I'd suggest that any well diversified portfolio should have (or be building) a position in commodities - gold, copper, etc. Gold is your traditional inflation hedge, but copper is a good second - interestingly oil could be a good place to be as well. Be careful about platinum and other industrial metals, inflation can slow down production and reduce demand on those types of commodities. Be sure to talk with you own Financial Advisor before making an investment.

So there you go... my bright spots - earnings are not as bad as they could be and inflation is in check... for now!

Here's a little conundrum I've been mulling over lately considering my current "employment status":

Is it right for me to accept a check for not working?

I feel very strongly that my time is mine, and that I should be paid (and paid well) for utilizing that time for the benefit of someone else. If I am unemployed and not providing a benefit to my chosen profession (or any industry), does that mean that I should refuse the state's unemployment check?

Yes - and here is my argument - justification if you prefer :)

I do not pay into the State Unemployment fund - no employee does which is something that most people don't understand. Nothing from your paycheck goes to the state's unemployment insurance commission. All of the money in the state's unemployment is paid by the employer.

BUT - if the employer didn't have that expense, then there would be more money in the budget for me to negotiate my salary and I would consequently get a larger paycheck. Therefore I AM paying the by virtue of the fact that I CAN'T get that money in my paycheck.

Thusly, I am happy to accept my weekly check from the unemployment office.

Uh... it's almost April... and it's snowing!