Fixed Markets

Somewhere around 4 years ago my trading started to lose. I did manage to break even that year but I began to doubt what I knew about trading.

Then I read about Comex changing their gold contracts so that it is more difficult to take delivery. Later I read about Democrat Senator Tom Harkin suggesting that private 401k accounts should be confiscated and closed mine out. Then I read about the market rally with no volume. And now the Fed is going to spend $40 billion every month indefinitely.

At this point I think metals and other price dense objects (e.g. high-end hand tools) are best. Along with a large freezer to stock when good prices on bulk meat come around. I'd also suggest looking into your local CSAs.

I'm working on a metal system that involves moving in and out of the big 4 precious metals. This works best with GoldMoney but the argument that you should be able to have it on hand is starting to persuade. My difficulty is determining its success rate over time as a trade can be held for many years.

An example of this is that I expect the both silver and palladium to become very good buys in relation to gold and platinum at some point "soon". I had originally thought they would cheapen quickly like in 2008 but now I wonder if the price relationship will go the other way. In that they would become good buys because both gold and platinum will skyrocket.

Platinum seems very cheap at the moment, but it normally moves with palladium. So it may go lower yet.

 Update 1/5/13 - More on the manipulation

Did Markets Or Manipulations "Save The World" In 2012?

“In general [stock traders are] trained to analyze the economic data, balance sheets and so on. They’re not trained to predict political decisions. These factors have ruled the lives of fund managers in a more significant manner than what used to be over the past 20 or 30 years."

Strange Days

How Republics Die


London bridges falling down, falling down...

...falling down...

Farmer Bear

As mentioned below I'm trying my hand at gardening. I'm doing this not only because I'm curious if I can, but for the past couple quarters I've been seeing signs that Carter era inflation is on its way. I suspect it will be seen everywhere by late summer to early fall.

The primary reason I moved to NC was to buy a house outright and to be fully out of debt. But that wasn't the only reason. By early 2005 I saw crazy things happening in the northern VA area. Huge numbers were attracted to the area by the then popped dot com salary bubble. So much so that my (one-way) just over an hour 60 mile commute grew to three hours. This drove the insane housing market in that area. The cost of living continued upwards at a remarkable rate regardless of the fact that six figure incomes were no longer common. Further, the county governments were implementing ever larger budgets based on property taxes.

I thought northern Virginia was nothing more than a ticking bomb. With the stories coming out these days of LA type gangs and squatters in foreclosed houses, I think I was right.

Well, soon after I got to NC my allergies went into overdrive and caused my mild sleep apnea to become very severe. The thing was that my symptoms were not clear and the docs thought it could be all sorts of horrible things. Long story short, my debt free status went away with mounting hospital bills for tests. Thankfully, that is in the past and I'm on my way to paying that all off.

So where does that put my household?

The plan is to get rid of the debt, lower expenses, and hunt for ways to pay the bills/taxes with something I can do at home.

The "something I can do at home" is slow going, but I'm not yet discouraged.... just frustrated.

Expenses are a different story. We're good about not falling for the current shiny thing and while we do indulge in a luxury now and again, they are a rare treat.

I'm eyeballing solar but for now only homeowner subsidies make it viable. Also, with energy costs going up, the tech involved will improve and the cost will drop. So jumping in now would be like my purchase of GDX... jumping in right before a pullback.

I've also thought out a system of three crawlspace dehumidifiers powered by a RV solar panel to harvest water. But water is still cheap here and the cost/benefit ratio isn't there yet.

That leaves food.

I ran across Mel Bartholomew's site Square Foot Gardening last month and picked up his latest book. I've set up a 4x4 for myself and a 3x3 for my wife and daughter. Currently I'm learning what deals with the partial/dappled sun in my back yard. Considering how freakishly cold it is this time of year, I'm not sure my findings will have much use in a normal year (some of my pole beans and small melons do not like the current cold snap).

Another thing my wife found was Angel Food Ministries. At first this struck me as something for very poor folks (like government cheese) and I didn't want to participate in something where I'd be taking away from folks in genuine need. But in reading over their site it looks like they operate by way of bulk purchases and volunteerism. Their base package is nicely priced but their meat add-on prices are very good. We're picking up a package very soon to determine if it is something we'd like to do.

Tax Stuff

Getting about that time again.

Wanted to bring up Enrolled Agents. From the NAEA's website:

An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.

Around 2002, my wife and I began to worry about IRS audits.

We had began to try to educate ourselves on tax issues and in the process found a few worrisome issues. In putting together that year's taxes I found a few discrepancies in an old filing and requested a W-2 from an agency I worked with in the late nineties. They weren't able to produce this (they had been playing games with the books). Also, around that time my wife was doing freelance editing work with an individual who wasn't all that .... umm ... meticulous with his paperwork.

This was missed and/or not brought up by the various tax preparation agencies we used in the past.

So, we tried a CPA.... after not communicating for several months nor giving updates as to work done, we dropped him.

As our stress increased, we came across info on Enrolled Agents. From the NAEA's site we went to their "find an agent" link and found our "Tax Lady".

She went through six years of returns and amended them. Only one year did we pay out ... and that was state taxes.

She was able to work up significant returns over her rate for the five years of returns she amended.

So, in summary:

1) Yes, you will pay more up front for an EA. But, in my experience, your return will be greater.
2) For an EA to keep their license, they have to re-qualify every three years. Of note: the NAEA has additional professional education requirements for its members.
3) They are "authorized to appear in the place of the taxpayer at the IRS".

Assessment

I'm using sharebuilder for my IRA and my test of a ETF version of one of the coffeehouse invester set ups.

I heard of sharebuilder from my wife about the time I needed to roll my old 401K into something. Poking around a bit and I decided to give it a try. I used its PortfolioBuilder.

It suggested the following for me:

WD RUSSELL 1000 VALUE 45%
IWF RUSSELL 1000 GROWTH 30%
EFA EURO-ASIA INDX 15%
AGG LEHMAN AGG BOND FUND 5%
TIP LEH US TREAS INF FD 5%

My return for the past year is a wee bit over 10%

The ETF version of the coffeehouse invester set up didn't do so well in my taxable account.

AGG LEHMAN AGG BOND FUND 40%
VNQ VANGUARD REIT ETF 10%
VTV VANGUARD VALUE ETF 10%
EFA EURO-ASIA INDX 10%
RSP S&P EQUAL WEIGHT INDEX 10%
VBR VANGUARD SMALL-CAP VALUE ETF 10%
VB VANGUARD SMALL-CAP ETF 10%

Return on that was a little over 6%.

Looking at things a bit more I thought to repoint my taxable account and get rid of the overlap with the IRA and focus on sectors. Specifically, equal ratio of the following: financial services, natural resources, utilities, real estate, and telecom.

ICF COHEN & STEERS REALTY
IDU UTILITIES INDX
IXG S&P GLBL FINL SECTOR
IXP ISHARES S&P GLBL TELECOMM SE
IYE ENERGY INDX
VAW VANGUARD MATERIALS ETF

Past data indicates this will return over 10%. If so, I will pursue it aggressively.


Future project --- some form of trading (stocks, commodities, forex, something) where fees and taxes don't eat up the majority of a given 3, 6, 9, or 12 months profit.

ETFs don't appear to lend themselves to short term trading and only forex (at this time) looks to allow investors to live test on the cheap.

The internet is such a wonderful thing

Running through my links and found these two at the instapundit:

Carnival of Personal Finance

Carnival of the Capitalists

Which led to finding this list of "carnivals": Carnivals for week of 1/9/06

A retirement link

Found this on a quick google search:

retireearlyhomepage.com

Gonna poke around in it over the next few days to assess worth.


UPDATE: Strange cold is leaving me real tired all the time, so I haven't gone over the link in detail.

From what I see, there is an emphasis on saving. I see this in many books and links I've skimmed over. I've been discounting them as common sense items. But then I remembered that people don't save and routinly live outside of their means. So, I guess it is good.

Noticing an alignment with the ideas at the coffeehouse investor. Buy and hold methods. Starting to get interested in that method. Like the idea of not spending forever studying companies.

Observation: why is it that most investment methods today sound like cults? "A coffeehouse invester does this... A coffeehouse invester thinks that".

bah

A potential theme

or, "a new shiny thing has been found"

Something I've been working on for past few years has been how to retire early.

This idea started for me around 1995 or so when I decided that I just had no tolerance for debt. It just bugged me. I was unable to take my mind off of it.

So, I promptly bought a video game that I became enthralled in for a month or so. When the nagging worry came back I would buy another one. After a while the games didn't work anymore and I had to deal with the issue.

At the time I was renting an apartment with my wife and had some credit card debt and minor loans. Looking through the personal finance offerings at the bookstore indicated that CC debt had to go followed by loans. Many books and such indicated that I shouldn't worry about low interest loans and such, but I could not tolerate any debt.

It was also about this time when I began to lose any and all patience with the keeping up with the jones' people. You know the ones... The folks that go out to lunch at the $20+ spots everyday and $10 a beer bars every night. The folks that have the newest gadgets and a new car every 3 years.

Now, don't get me wrong, I don't care how they spend *their* money. I just couldn't deal with them telling me how I should spend *my* money. And, should I take the time to explaine that I'm paying off my debt and building my equity, they would look at me like I'm some kind of leper. Or come right out and say I'm acting like a Jew.

I never understood that association. Nevermind that I have nothing against Jews, but, tending to the financial health of one's household means that I'm acting like a Jew? Really? I've known a few Asians and they seem to hold to the same idea as me. But they aren't said to be acting like Jews. I just don't get people.

Anyways...

It was at this time that I learned another lesson. Your employer is not your friend. And if you could make more money by job hopping, then do it. Shortly after I learned this I found out that if your ego allowed you to take a job that was junior to what you had been doing but paid more, you should take it. Granted, this opened the door to having to deal with both management and peers that always took a condescending tone with me. But, I had already grown used to this because I never pursued my degree. I did this anywhere from every 2 months to a year.

So, as my income grew, I paid off all my debts. I learned that vehicles bought a few years old were several thousand dollars cheaper and if I tended to the 3K mile maintenance they would last and last (my last vehicle was a 1995 Ford Explorer with 240K miles on it and the only reason I got rid of it was that I couldn't justify the 13mpg).

In 1999, I bought my first house. I purposely bought a house out in the sticks off of a dirt road on top of a mountain. My objective was not to make money, but to have something cheap that I could pay off fast and use as a down payment for someplace that I would live in for a few decades. 1999 was the start of insane pay rates in northern VA. Unlike my peers who bought $500+K houses and fancy cars, I paid off my mortgage.

When the dot com bust came, a few of my peers had to file for bankruptcy after being unable to find work for over a year. And just because of those fancy trophy houses, cars, and toys.

Again, I don't really care how people spend their money, but I will comment on what I consider stupidity.

Now this brings us to 2005...

The housing market had grown so expensive in the DC metro area that increasing amounts of people started to move out my way. This meant that my previously 1.25 hour one-way commute grew to 2.5-3.5 one-way commutes.

I was unable to deal with that.

Then an idea that had been brewing for a while came a little closer to the top. What if I move to a low cost of living state (like NC)? With the insane VA housing market, I could buy a NC house outright with the proceeds of selling my VA house.

And so I did...

Now I'm at another crossroads: I find that the more independant I am, the less tolerant I'm of the sociopathic folks that populate the tech sector. Yes, Dilbert does reflect reality... only through rose tinted glasses. It is much worse.

So, do I try to retire now and live under the poverty line? (which in the US really isn't as bad as it sounds) Or, to try to suck it up for a few more years in order to sock more away into my investments?

I'm starting to do some research into a safe early retirement and I'll be posting a few links that I find along the way.

Let's see where this takes me....