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Social Security

According to the Board of Trustees for Social Security (which includes the US Treasury Secretary, the US Secretary for Health & Human Services, and the US Secretary of Labor), the Social Security trust funds, “become depleted and unable to pay scheduled benefits in fusocsecll on a timely basis in 2034.”

That’s only 16 years from now.  Do you hear your elected representatives talking about this, much less, are they taking any action to avoid this eventuality?  The answer is a resounding NO.

The US national debt is careening toward $21 trillion (that’s $170,000 per taxpayer) with an increase of perhaps $1 trillion per year in the near future.  Think about this:  In order to just not grow the debt higher we would have to either cut annual spending or increase federal revenue by almost $1 trillion per year.  And yet your elected representatives are mute on this topic as well.  In fact, they just passed a tax cut that will add to the annual deficits.  Meanwhile, they stumble and lurch from week to week not able to agree on even the most basic of issues, ie. funding the government for already approved spending.

Ask yourself or ask an economist:  What is the outcome of our ever increasing debt?  The annual spending for interest alone is already the 5th largest component of the budget.  As the debt grows, the interest expense grows which requires more debt to pay the interest.  Do you see any solution?  More income (higher taxes)?  Less spending (dramatic cut to government services)?  Ultimately, no one will buy our debt.  That has truly dire consequences.

We need to let our elected representatives know that we expect them to own this problem.



Financial Fraudsters

There are a great variety of financial fraud schemes.  One of the most common in recent years is that you will receive a call from someone who claims to represent the IRS.  They will tell you that you owe taxes either as a result of a recent review of your tax filing or from an alleged tax fraud on your part.  They will encourage you to pay immediately by giving them your bank information or a debit/credit card number.  By paying immediately you will avoid additional penalties and/or possible criminal charges.  They can be quite aggressive by saying that your accounts will be frozen, property seized or subjected to immediate arrest.

I recently received a call that seems to be some variant of this scheme.  It was a voicemail left by a “caller” that was not a live human voice but a synthesized voice, possibly from text to speech.  I have transcribed the details of the message left for me which follows:

8146 The nature and the purpose of this call is regarding an enforcement action which has been executed by the US Treasury Department regarding a tax fraud against your name.  Ignoring this will be an intentional attempt to avoid initial appearance before a magistrate judge or a grand jury for a federal criminal offense.  So before this matter goes to federal claims court house or before you get arrested kindly call us back on our number as soon as possible.  The number to reach us is 281-226-9001.  Let me repeat the number it is 281-226-9001.  Hope to hear from you soon before the charges are pressed against you.  Thanks.

I have no idea what the significance of the number at the beginning might be, it was the first part of the message.  There was no identification given for who was calling or the agency being represented.  Simply the message references an enforcement action by the Treasury Department.  I did not call the number provided.

The most important thing to know about this type of scam is that the IRS does not contact taxpayers in this manner.  If there is some issue, the first action is to send you a letter giving the details of whatever they wish to bring to your attention.  Clearly, the fraudster’s intent is to jolt you into calling them by using terms to shock you like, “federal criminal offense”, “grand jury” and “enforcement action”.

If you find yourself on the receiving end of one of these calls, it is important to take a breath and consider that you are getting an unsolicited call from someone without context.  You are not going to be arrested.  If you have any doubts, call the IRS and ask if they have any record of taxes owed or other issues alleged by the caller and explain to them about the call you received.

I’m Starting Social Security at 62

I turned 62 this month.  I know what you’re thinking.  I don’t look a day over 61 and a half.  Thank you.  If you Google anything related to the topic of when to take Social Security you must be prepared to wade through a massive amount of articles discussing whether it is better to start retirement benefits at 62 or wait until your full retirement age or until you reach age 70.  I’m not going to pretend that I can adequately address all of the various scenarios, some of which can be quite complex, that come into play when people address this question.  I can only give you my view.

Read more…

Financial Freedom – There’s an App For That

This recent article appeared on the website, entitled, “How to declare your financial independence”.

The first part of the article talks about the views of Jonathan Chevreau, a Canadian financial writer, about how to reach financial independence.  The article rightly points out that financial freedom is not about wealth in the traditional sense, simply it implies freedom of choice regarding work, leisure and retirement.

Later in the article, the author, Richard Eisenberg, starts talking about “a nifty new iPhone app”, called Freedom$, which you can use to calculate your Freedom Score: an estimate of how many years until you’ll achieve financial freedom, purportedly using only your age, your total assets and your total consumer debt.

Wow, just slide this app alongside your daily step counter and you’ve got it covered:  good health and financial planning.  I consider it worse than useless to offer someone the illusion of such a simple solution.

Achieving financial freedom is a little more involved than plugging a couple of numbers into this app.  And it’s not simply about finding your “magic number”.  The key ingredient is, what will be your spending needs if you choose to curtail or eliminate your paycheck?  What other sources of income do you have or can you develop?  But, spending is at the heart of it.  You must start there.  This requires you to actually look at what you spend and figure out how that will change going forward or how you will alter your spending.  Once you know your spending you now have a target.  At the point where you can construct the income sources to support that spending, you have financial freedom.

Put that in your app.


Americans were told that they would be able to keep their private health insurance, if they chose to, once the Affordable Care Act took effect.  Reports of millions of cancellation letters made it clear that this was not the case.  Initially, the White House tried to deflect blame to the insurance companies, essentially saying that they could not control the actions of the insurance companies.  Yet, the ACA contains thousands of rules and regulations regarding the insurance plans to be offered under the new insurance exchanges which insurers are required to comply with.

On November 14, 2013, the pressure became too much so the President announced a “fix” meant to address this issue.  There are several interesting aspects to this announcement. Read more…

My “Affordable Care Act” Story

When talking about the Affordable Care Act, the President has said on many occasions:

“If you’re happy with your current health insurance, you can keep it.”

He even ended some of these comments with emphasis such as, “Period.” and “It’s that simple”.

Apparently it’s not that simple. Read more…

Sold Half of Apple Position

Today, I sold one half of my position in Apple at $460 per share.  Why did I sell and why only half?

AAPL Chart

If you have followed the news regarding Apple stock in recent months, you will know that it is down significantly from the high reached in September of last year.   This is a very interesting study in how investor sentiment can change and how it can dramatically alter the fortunes for a stock.  On the way up, everybody loved Apple and the Wall Street  analysts were beating up each other in order to be the next one to up their price target for the stock.  Then after the iPhone 5 became available, the doubts started creeping in.  The new mapping application was disappointing.  Why didn’t they give it a larger screen?  Apple has lost its innovation.  Margins are being compressed. Read more…

Armed Guards in Every School

In response to the massacre at Sandy Hook Elementary school in Newtown, Connecticut, the NRA has proposed “National School Shield”, a program to put armed guards in every school in the United States.  This is not a new proposal from the NRA.  Charlton Heston, the former head of this organization, made a similar pitch following the 1999 Colombine High School massacre in Colorado.

OK kids, here’s your lesson for today:

If someone threatens you with a stick, bring a knife.

If they bring a knife, you bring a pistol.

If they bring a pistol, you bring a semi-automatic rifle.

If they bring a semi-automatic rifle, you bring a semi-automatic rifle converted to fully automatic with high capacity clip*.

If they bring a semi-automatic rifle converted to fully automatic with high capacity clip, you bring a rocket launcher or grenade launcher.

*It’s easy to obtain these items at Walmart or a gun show near you. Read more…

Financial Advisors In Sheep’s Clothing

In recent months I have been asked on several occasions to speak to a friend or friend of a friend regarding something to do with their investments.  They come to know that I have managed my own investments for several years and have spent the time to learn about the various investment products available and generally about how the investment world works.  I’ve done this because, in part, I found that it’s something that interests me and it’s something that I enjoy.

I do not pretend that I am a financial professional nor that I am qualified to provide investment advice to others.  My interaction with these other people is simply to listen and sometimes to offer an opinion about certain financial products, etc.  In every case they have spoken to or are already working with a financial advisor of some sort.

The unfortunate truth is that there are thousands of people in the finance industry that call themselves a “financial advisor”, “financial consultant”, “investment advisor” or “financial planner”.  A small fraction of these people are required to act in the best interest of their clients.  That’s right, most of them would most accurately be called a broker or sales person because that is their role.  And the manner in which they earn money will cause them to select investments for their client that will pay themselves the most.

This article uses the highly regarded firm of Edward Jones to illustrate how the broker dealer model works and whether they are serving the interests of their clients.  When you read this article you will see that most “financial advisors” have no background in finance.  They are trained how to find and entice new clients to offer up their money and they are given a limited set of products to sell that will generate sales commissions for the broker.  They will not tell the client that he can invest in comparable products with much lower costs.

Please read the linked article and if you currently have a financial advisor, take the time to understand exactly how he or she earns their money and if that creates a conflict with your objectives.

Long Term Food Crisis – Jeremy Grantham

You may not know Jeremy Grantham.  He is co-CEO of GMO, Inc., an investment management firm with around $100 billion under management.  His quarterly newsletters have a near cult following due to his unique perspective on markets.  He thinks in terms of big themes and global trends which will have implications for the economy and investments for many years.  He is not a stock picker so you will not come away with new ideas for trades but you will come away with your mind expanded in ways that can help to shape your own thinking and perhaps your investments.

His most recent letter, “Welcome to Dystopia” addresses what he sees as a sustained increase in price and decrease in supply of the world’s most important natural resources.  Now this is not necessarily a new notion, but he puts it into perspective and identifies the key factors that have led us to this point and will likely determine the trajectory of these trends in the years ahead.  Specifically, he identifies that we are 10 years into an era of rising resource prices and now are 5 years into a period of sustained food crisis in poorer countries, a situation likely to continue for the indefinite future. Read more…