Coffee heat rising

We’re in the Money…

For the moment…

This morning the Dow was at 19,000! When it goes wacko like this, my fund will make 30 grand in a month. Woot!

Unfortunately, it’s likely as not to lose 32 grand the following month…but let’s not think about that.

Ha ha!! In amongst the stupid chatter to this YouTube video is One (count it: 1) truly inspired comment:

Sonic Ryan 1992
What it feels like to be a post-graduate who finally got a good paying job.

What I’d  like to do is tell my guy to SELL NOW! Convert about half our holdings to cash; then invest the remainder aggressively for another month or two (maybe six, at the outside), then shift that to the money market.

My son has dragged his feet on refinancing the downtown house. It frosts his cookies to have to pony up more cash to principal, and an extra layer of frosting is applied by the prospect of having to pay mortgage insurance (we don’t, on the current instrument). But I  believe the house’s value will soon rise enough to give us well over 20% equity (it’s probably that high now): the housing market is exploding, his neighborhood (as I prematurely predicted) is gentrifying, and as demand rises, so will prices.

So I’ve sicced a friend who’s a mortgage broker on him, hoping that this time around he’ll kick into gear and get that thing refinanced. The problem is, it has a 30/15 loan on it. In 2020 — just  four years, about the time I expect the Trump economy will tank — we’ll be forced to refinance or to sell. We took out that loan, which had exceptionally favorable terms at the time, because he planned to stay in Phoenix just long enough to get back on his feet after being laid off at the tail end of the Silicon Valley bust, save some money, and then go back to San Francisco. It hasn’t worked out that way. Inertia set in, and he seems to be happy enough to stay where he is.

For the time being.

At any rate, it’s hard to believe that in just four years, he will have been in that house for 15 years. Tempus fidgets, eh?

Not real thrilled, myself, about being over the barrel now to get that place refinanced. Rates are already rising, and they’re expected to head straight for the stratosphere. I expect by 2020, we’ll be lucky to get an 8% loan.

When I bought my first house here in the ‘hood, that’s exactly how I felt: very lucky to land an 8.25% loan. Everybody cooed about what a great deal it was. I only owed $80,000 on the house, and the payments were over half my take-home pay. Imagine the payment on a $180,000 loan at 8% or 9%? We are gonna see a WHOLE lot of people who simply can’t afford to buy real estate at all. Ever. And a lot who will go belly-up. Again.

Interesting times, hm?

How are you planning to deal with all this…interest?

Serendipitous Stock Market Fluke…i think…

So the Dow is up over 400 points today, after last week’s bizarre drop. This worked out nicely: the rollover I made from GDU’s 403(b) to the big, professionally managed IRA arrived in Stellar’s precincts just as stocks were headed south. With any luck, the boys will have bought a lot of stuff on the cheap which is now worth a ton of money.

With any luck. But…

But I don’t like it. I don’t like volatility in general, and this particular spasm of volatility is hugely whim-whammish. Volatility tends to presage pullbacks, slowdowns, not-getting-rich periods. Yea, verily, losing pretend-money periods. Check out this interesting podcast, which pretty much reflects my sense. “Like he said.”

Yesh. A couple of weeks ago, I finally figured out how to get around the state’s prohibition on moving my money (my money, goddammit) from the university’s 403(b) plan to my IRA, where a broad spectrum of wisely calculated investments in blue chips vastly outearns the staid mutual funds that have held 16 years of retirement contributions.

As you may recall, the bureaucrat who directs the state’s RASL program (whereby the state ponies up almost $20,000 worth of unused sick leave earnings over a three-year-period) announced that if I rolled my 403(b) savings she would declare me “not retired” and deny payment of this valuable benefit. Since my traditional IRA has been known to earn as much as $8,000 in a month—but more typically makes about $1,800 to $2,000—we’re talking about sacrificing a substantial increase in potential extra earnings, probably enough to wash the 20 grand of RASL. Intensely annoying.

Well. Duh! The trick is to leave enough cash in the 403(b) to cover the drawdown until February 2012, when the last of the three RASL payments will be issued. That, in the large scheme of things, isn’t very much: only about $11,000.

So I emptied TIAA-CREF, which still held a little in an annuity that I mistakenly thought could not be rolled into Vanguard (which the university swapped into Fidelity when it dropped the Vanguard option a year after offering it), and then I rolled all but 11 grand out of Fidelity to the big IRA. This moved about 155 grand into the better-performing instrument. The bulk of that arrived in the cash fund last week.

Naturally, I was not happy to see the market take an all-time record-breaking dive. Now I feel better, at least temporarily. But I remain wary.

Nor was I pleased when the latest factotum I reached at Fidelity remarked that a lot of university retirees use this strategy to rescue funds from underperforming 403(b)s. How many times did I discuss this with how many other corporate bureaucrats there? How many of them told me they’d never heard of the State of Arizona’s you-can’t-take-it-with-you rule? And how much would I have been helped if the first guy I reached there had suggested doing this, rather than my  having to figure it out on my own over three months of cogitation?

Oh, well.

We’re in the money, we’re in the money
We’ve got a lot of what it takes to get along.*

…for the nonce.

*The Gold Digger’s Song, by Harry Warren, 1933

How much was that dollar worth? Interesting money tool

In a history article for a client journal, one of our authors mentioned Measuring Worth, a nifty tool that allows you to compare a variety of money-related values over periods stretching back to 1774.  Among other things, it will calculate the relative worth of the dollar. Enter a specific sum and a year, and then ask what it would have been worth in a later  year. The engine disgorges the equivalent according to six different indicators: the consumer price index (CPI), the gross domestic product (GDP) deflator, the consumer bundle, the unskilled wage rate, the GDP per capita, and the GDP.

The first two are ways of measuring average prices. The third (consumer bundle) shows the average value of a household’s annual expenditures; the unskilled wage rate provides a way to compare wages over time. The GDP per capita is another way to compare income over time, and the GDP itself, the market value of all goods a country produces in a year, shows “how much money in the comparable year would be the same percent of all output.”

More on this feature in a minute.

First, though, let’s look at a feature of special interest to personal finance enthusiasts: Measuring Worth also has a tool that shows how much savings would have grown over time. Enter a value and a date, and then ask how much that value would be worth at another date (up to this year), and it will tell you the return on a short-term investment, a long-term investment, and a stock market investment.

So…let’s say your child is 19 years old now, and you’d like to send her to college. When she was born, in 1990, your parents gave you $1,000 to invest toward her education. If you’d put the money in an excruciatingly safe short-term asset, today it would be worth $2,060. Invested in a long-term asset with a term of 20 years, it would have yielded $4,973. And had you put it in a Dow Jones Average portfolio, you would have $4,196, a middling performance.

Well, what if your own parents gave you $1,000—say, when you were born—and now you’re about to retire? If you were 65 today, the gift would have come in 1944 (and it would have been a lot of moola in those days!). Assuming you kept that investment separate and didn’t add more cash other than reinvesting proceeds, how far would it go today toward supporting you in your old age?

Short-term investment: $16,457.53
Long-term investment, 30-year term: $32,816.67
DJA portfolio: $78,449.64

Whoa! Over a really long term, the stock market beats the other two investment modes, hands-down.

I wonder how our college girl would’ve been doing before the Bushies screwed up the economy. How much would her stock portfolio have been worth a couple of years ago, when she was 17?

Ah hah! $4,918. In the stock market, her savings would have fallen off $722 over the the year between 2007 and 2008. In a long-term investment instrument, it would’ve been worth $4,549 in 2007, $424 less than the most recent value. It appears that given competent national leadership that recognized the importance of regulating financial markets and was capable of an intelligent response to 9/11, she might have been better off in stocks and bonds.

Entertaining, isn’t it?

Now for the money story:

At the time my father was born, in 1909, his mother had about $100,000. She’d inherited this small fortune from her father, who had made it freighting buffalo hides out of Oklahoma into Texas. Also at about the time my father arrived, her husband ran off. He eventually was found dead by the side of a rural Texas highway. This left her alone with an infant, a change-of-life baby. My father had two elder brothers, the youngest of whom was 18 years older than he was. By the time he was born, both men were out of the house with families of their own.

She became involved with a Christian church on the fringes of mainline Protestantism, and she also became interested in spiritualism. She donated copious amounts to both causes. By the time my father was about ten years old, these worthies had sheared her of every penny that she had. She was left destitute.

Her home was taken away for taxes. She also lost a commercial property and another house she owned. The two older brothers, who knew nothing of this until they returned home and found her on the street, fell out over the fiasco. Tom, the eldest, was a ranch foreman who, of course, lived out in the sticks. He felt his middle brother, Ed, who lived in Fort Worth where their mother lived, should have been keeping an eye on her finances. The brothers were permanently alienated as a result of the bad feelings that arose in the wake of their mother’s impoverishment.

My father also was permanently affected. He developed a lifelong hatred of organized religion (his skepticism—shall we say—is the reason that to this day I will not donate to a church), and he also conceived a passion about money. He decided that, as his life’s goal, he would earn back the hundred thousand dollars.

And he did.

You understand, he was not a sophisticated man. He dropped out of high school in his junior year, lied about his age, and joined the Navy. He went to sea all his adult life, ultimately became a master mariner, and retired at the age of 53, when he achieved his goal of accruing $100,000 in savings. Details like the relative value of money were largely beyond his ken. Though he understood that a hundred grand didn’t make him a wealthy man in 1962, he had no way of anticipating the double-digit inflation of the 1970s. By the time that was over, the nest egg that would have kept him comfortable wasn’t worth enough to support him through his old age in a fashion other than basic poverty.

Luckily, he was a very frugal man by nature, and so it didn’t much matter: his lifestyle wouldn’t have changed, one way or the other.

I have always wondered what that $100,000 of 1909 would be worth in today’s dollars. Let’s enter it and the date of my father’s birth into the Measuring Worth relative value calculator. Current data, we’re told, are available only up to 2008. According to the various measures, today the dollar value of her inheritance would be…

CPI: $2,441,007.10
GDP Deflator: $1,777,507.10
Value of consumer bundle: $5,009,823.18
Unskilled wage: $10,307,228.92
Nominal GDP per capita: $13,314,632.87
Relative share of GDP: $44,808,290.00

In terms of purchasing power, my grandmother’s hundred grand would have been worth $2,441,077.10 in 2008. LOL! Think of the McMansion I could’ve bought with that as a down payment!

What if she had put her inheritance in the stock market, instead of diddling it away on her religious delusions? Invested in a nice, balanced portfolio, by the end of 2008 it would have been worth $16,595,085.85.

Well. Any way you look at it, if she been a little smarter about money and a little less inclined to woo-woo, today I wouldn’t be worrying about how I’m going to get by in retirement!

My father hugely underestimated the amount he would need to live comfortably into his mid-80s. Of course, without his mother’s crystal ball he couldn’t have anticipated the inflation that ate up his savings…but I think, given the way the government is spending money in the wake of the crash of the Bush economy, we can expect a similar inflationary period in the near future.

How much would I need in savings to have the equivalent of the $100,000 he had managed to earn back by 1962?

CPI:  $711,510.24
GDP Deflator: $569,106.07
Value of consumer bundle: $879,310.34
Unskilled wage: $809,366.13
Nominal GDP per capita: $1,510,749.04
Relative share of GDP: $2,465,665.02
Purchasing power: $711,510.24

Hm. If the least of these—$569,106.07—is what I’ll need to survive in moderate comfort (or not!), then I’m in deep trouble. Eighteen months ago, my savings were close to that. But today they sure aren’t, thank you very much, George and friends!

Welp, too late now. There’s not a thing I can do about it, so there’s no point in fretting. Tra la!

Not bankrupt after all?

Despite the extreme market volatility and the various grim economic prognoses, so far my December investment statements come bearing news nowhere near as hideous as expected.

My big IRA went up by $2,000 last month. The Vanguard funds rose $5,000 in December. TIAA-CREF, in the past highly sensitive to recession, went up $40 over the past quarter. I haven’t received the quarterly report for the Fidelity funds in my 403(b), but the same guys who run my IRA and advised me how to invest in Vanguard also told me what to do with my contributions to Fidelity, and so I’m hoping that statement will show about the same results.

Though I’m certainly not getting rich here (or even keeping up with inflation), at least I’m not losing money. Given the situation, that’s pretty good.

Interesting what these guys have invested in. Hmmm…they’ve stashed a fair amount in cash: 45 grand in the money market, another ten grand in cash reserves. But we remain invested in American Express, Bank of America, Berkshire Hathaway, Caterpillar (need lots of tractors, presumably, in Iraq and Afghanistan)…ConocoPhillips, Exxon Mobil, Occidental Petroleum (they like oil)…General Electric (they like energy overall). And get this: they like junk food: McDonald’s, Yum Brands.

Awww…lookit this photo: junk food is good for young love! Doesn’t that warm the cockles of your capitalist heart?

They’ve dumped some stuff…Seagate gone. Actually, they’ve dumped a lot of stuff: this statement is signficantly shorter than it has been in the past. Fewer stocks, more mutual funds. And I’ve never seen them move so much into cash holdings.

Well, my shirt may be slightly frayed, but at least I still have a shirt. This is not the time that I would like to retire, perforce by layoff. However, if it happens, apparently I won’t starve.

Scary times

Well, we all had quite the adventure yesterday. I woke up an hour ago—12:30 in the morning local time—wondering if I should move all my investments into the money market. Nothing like the dead of night to ramp up the panic factor.

In fact, though, I see that Vanguard lost all of $738.13 against many tens of thousands of dollars, and so I’m feeling a little saner.

Don’t have up-to-the-minute data on how the big IRA (a different fund) that Stern and Reimer manage is doing, but in past slumps Stern has worked the occasional small miracle. Checking the current holdings, I see he dumped Morgan Stanley and AIG a while back…and interestingly, we own Bank of America. How does that man know? He’s bought my son’s employer, so I guess he doesn’t expect that outfit to crash in flames soon. A fair amount of oil: Occidental, Exxon, and Conoco Phillips. And…hmmm…he’s moved a ton of money into cash reserves. Yipe!

At any rate, I guess I won’t be going broke soon. Later, maybe, but not today.

w00t! 18 grand materializes from the air!

Lordie! Here I’ve been thinking I’d lost about $23,000 in the stock market…. Comes a statement from GDU’s Fidelity retirement plan-the first I’ve seen in a year. It turns out the balance the Fidelity rep gave me over the phone a few weeks ago was wrong. He only gave me the amount in the 401(a) plan. The fund also includes a 403(b) plan, which contains $18,465 more than the amount he said I had.

That means I’ve “only” lost about $4,535 to the bear.

Wow! I’ve never been so pleased with a loss in my life.

3 Comments left on iWeb site:

Mrs. Accountability

That’s wonderful!! Funny how the situation could cause such a paradigm shift

Friday, July 18, 200809:35 AM


Wow, that is so cool!

I’m too chicken for stock market… I saved up a bit but I don’t like the idea of potentially losing money. I mean, I wouldn’t mind your kind of loss though

Friday, July 18, 200807:00 PM

Funny about Money

In fact, you lose money in the market and you gain it. Over time, you should make more than you lose, if you’ve diversified and invested carefully.

With mutual funds where you’re simply rolling all gains back into the fund by automatically purchasing new shares with gains or buying new shares each month with savings from your paycheck, when the market goes down you stand to earn MORE money, because you buy shares at deflated prices. As the market comes back up, your existing shares plus the shares you bought in the bargain basement make money.

This is most obvious in your 401(k) or 403(b), where you and your employer are plowing money into the funds every payday. It’s hair-raising to get a statement that shows the plan has lost more than you and your employer combined put into it over the quarter…until you realize the contributions are buying lots of shares at reduced prices. When the market comes back to normal, you feel mighty flush.