Have you seen the t.v. commercial that expounds on the merits of gold as an investment?
Near the end of the message, the announcer is talking about how much gold prices have increased in the past ten years or so. And then he says,
"And the best is yet to come."
Really?
Do you really want the price of gold to increase? If so, do you really understand that the price of gold is a measure of fear, inflation and political instability?
I first bought some gold back in 1979 when the price was closing in on $700 an ounce. By early 1983, the price was down to near $300 an ounce and it stayed there for nearly twenty years.
Why? The monetary policy of Paul Volcker drove interest rates way up and set off a serious recession. But it took the steam out of the double digit inflation we were experiencing. And it took away a large part of the reason that gold prices were so high. In spite of moderate inflation from 1980 through 2003, gold prices didn't increase -- which demonstrates that gold is not a pure inflation hedge. The price of gold does not correlate closely with inflation because it is also a measure of the degree of political instability. And, of course, the price is affected by large purchases and sales by governments.
Speaking for myself, I'd be happy if the price of gold were to drop from it's current level because that would be an indication that things were back to normal. Over time I do believe that gold will increase to reflect the loss of value in the dollar due to creeping inflation.
As far as the price of gold is concerned, I surely hope the best is not yet to come and that gold won't go up to $5,000 an ounce as some promoters are claiming.
Nonetheless, I will continue to maintain a portion of our net worth in what Lord Keynes called "the barbaric relic" -- just in case things get worse instead of better.
Vern
Tuesday, November 23, 2010
Dangers of Online Tax Preparation and Banking
I've been what's called an "early adopter" with respect to personal computers since the seventies. I was one of the first people to develop a tax forecasting and planning software program for the very early personal computers. And I've been using the WWW and Internet since about 1994. The reason for making these statements is only to clarify that my refusal to use online tax software and online banking is not based on a lack of familiarity with computers.
Banks today go to great lengths to persuade us that their computer systems are ultra-secure and safe. And they may well be right.
But it doesn't make a dime's worth of difference if your own connection to the Internet is not equally secure. When you consider the cost of developing and maintaining a secure computer system by a bank, having an equally secure system on your home computer is not an option.
I've been hyper-sensitive to computer security for many years and probably have a fairly effective system for a home based business. But that gives me virtually no comfort with respect to whether my system is 100% secure.
Have you heard about "key stroke loggers"?
According to Wikipedia, "Keystroke logging (often called keylogging) is the action of tracking (or logging) the keys struck on a keyboard, typically in a covert manner so that the person using the keyboard is unaware that their actions are being monitored." These key logging programs can be inserted in a computer with a variety of worms or computer viruses.
Once a key stroke logger is on your computer, the people who put it there can then retrieve the data -- consisting of the history of your key strokes. Your key strokes clearly include any passwords that you enter to use your online banking and/or online tax preparation software. Other software used by the thief analyzes the data to reconstruct what is being done. Connections to various web sites are easy to identify. With the password and other data obtained from your computer, the thief has complete access to all of your online banking, investment and tax returns.
What can you do to protect yourself?
The safest solution is to not use online financial services, but that's becoming impractical in today's world.
The second safest solution is to have a separate computer that is used exclusively for online banking, investment management services and tax planning or preparation. That computer should be 100% off limits for any kind of email or web surfing that is not essential for the online financial services. If you have an IRA or 401k, you should be able to afford the cost of a separate computer to be used only to manage your investments, taxes and banking.
Even if you have a stand-alone computer for this purpose, you also need to avoid using public wireless connections such as those at airports, hotels or coffee shops.
One of the greatest dangers of getting some kind of malware onto your computer is the use of your computer by your children or by anyone else. If you can afford it, it's best to provide the kids with their own computers. If that's a bit too expensive for you, let them use the older computers that you have replaced with newer models. Failing that, you may want to simply prohibit the kids from using your computer at all.
And, as a last resort, you can simply not use any kind of online financial service.
Vern
Banks today go to great lengths to persuade us that their computer systems are ultra-secure and safe. And they may well be right.
But it doesn't make a dime's worth of difference if your own connection to the Internet is not equally secure. When you consider the cost of developing and maintaining a secure computer system by a bank, having an equally secure system on your home computer is not an option.
I've been hyper-sensitive to computer security for many years and probably have a fairly effective system for a home based business. But that gives me virtually no comfort with respect to whether my system is 100% secure.
Have you heard about "key stroke loggers"?
According to Wikipedia, "Keystroke logging (often called keylogging) is the action of tracking (or logging) the keys struck on a keyboard, typically in a covert manner so that the person using the keyboard is unaware that their actions are being monitored." These key logging programs can be inserted in a computer with a variety of worms or computer viruses.
Once a key stroke logger is on your computer, the people who put it there can then retrieve the data -- consisting of the history of your key strokes. Your key strokes clearly include any passwords that you enter to use your online banking and/or online tax preparation software. Other software used by the thief analyzes the data to reconstruct what is being done. Connections to various web sites are easy to identify. With the password and other data obtained from your computer, the thief has complete access to all of your online banking, investment and tax returns.
What can you do to protect yourself?
The safest solution is to not use online financial services, but that's becoming impractical in today's world.
The second safest solution is to have a separate computer that is used exclusively for online banking, investment management services and tax planning or preparation. That computer should be 100% off limits for any kind of email or web surfing that is not essential for the online financial services. If you have an IRA or 401k, you should be able to afford the cost of a separate computer to be used only to manage your investments, taxes and banking.
Even if you have a stand-alone computer for this purpose, you also need to avoid using public wireless connections such as those at airports, hotels or coffee shops.
One of the greatest dangers of getting some kind of malware onto your computer is the use of your computer by your children or by anyone else. If you can afford it, it's best to provide the kids with their own computers. If that's a bit too expensive for you, let them use the older computers that you have replaced with newer models. Failing that, you may want to simply prohibit the kids from using your computer at all.
And, as a last resort, you can simply not use any kind of online financial service.
Vern
Friday, November 19, 2010
Why the stock market has been doing well
The politicians and their followers are using gains in the stock market as evidence that the economy is recovering. While I'd like to believe it, I can't help being a bit nervous about putting more money into equity investments at this time.
The reason for the increase in the market value of stocks is because of the absurdly low interest rates on fixed income obligations like C.D.s, money market funds and short term treasury bills.
When interest rates on short term debt obligations are near zero, what choice does an investor have other than to invest in the stock market? Despite a weak economy and relatively high unemployment, the majority of people are still working and are trying to save more money. Ongoing contributions to various kinds of tax deferred retirement plans have to be invested somewhere. The real estate market is still dicey and fixed income investments offer near zero returns. So the money is going into the market.
I can't think of any way to accurately predict when or if the Fed will stop their "quantitative easing" (money creation) and let interest rates return to whatever the market dictates for various kinds of debt obligations. But until that happens, it's a little bit like living under the "Teeterin rock" in the Li'l Abner cartoons. Once interest rates return to normal, a lot of money will move out of the market.
At least that's the way it seems to me.
Vern
www.vernonjacobs.com
The reason for the increase in the market value of stocks is because of the absurdly low interest rates on fixed income obligations like C.D.s, money market funds and short term treasury bills.
When interest rates on short term debt obligations are near zero, what choice does an investor have other than to invest in the stock market? Despite a weak economy and relatively high unemployment, the majority of people are still working and are trying to save more money. Ongoing contributions to various kinds of tax deferred retirement plans have to be invested somewhere. The real estate market is still dicey and fixed income investments offer near zero returns. So the money is going into the market.
I can't think of any way to accurately predict when or if the Fed will stop their "quantitative easing" (money creation) and let interest rates return to whatever the market dictates for various kinds of debt obligations. But until that happens, it's a little bit like living under the "Teeterin rock" in the Li'l Abner cartoons. Once interest rates return to normal, a lot of money will move out of the market.
At least that's the way it seems to me.
Vern
www.vernonjacobs.com
Tuesday, November 16, 2010
A Cure for Inflation?
Have you noticed that we talk about an increase in the price of gold, silver and various foreign currencies, instead of talking about a decrease in the value of the U.S. dollar?
As of about 10:30 am (central time) in the U.S., on November 15th, the spot price of gold was $1,338. If you bought some gold at $1,000 an ounce, have you made a profit of $338 (33.8%) or has the value of the dollar decreased by about 25%? If you invested in Euro's at 1.20 per dollar and sold out when the Euro was at 1.40 per dollar, have you made a profit of 16.7% or did the dollar fall by about 14%?
If the increase in the relative value of gold or other currencies versus the dollar is actually a decline in the purchasing value of the dollar, why do we have to pay taxes on the alleged gains in the value of gold, silver or other currencies?
One of the diverse suggestions for a way to curb inflation is to permit people to use gold or silver as a substitute for the dollar, but without eliminating the dollar. This would require that we do not impose a tax on any increase in the value of the competing currency in relation to the dollar. Many people would continue to use dollars to conduct business, but an increasing number would choose either gold or silver to establish the price of various products or services. This would be particularly attractive for transactions (such as loans) that expose one of the parties to a potential loss because of a decline in the value of the currency. But this would also put a lot of pressure on the Federal Reserve to stop inflating the currency.
Of course, that's simply a lot of wishful thinking on my part because there is no way the political and banking establishment would allow us to use any competing substitute for the declining dollar.
Vern
See The Tax Reform Alternative
http://www.offshorepress.com/taxreform2010.html
As of about 10:30 am (central time) in the U.S., on November 15th, the spot price of gold was $1,338. If you bought some gold at $1,000 an ounce, have you made a profit of $338 (33.8%) or has the value of the dollar decreased by about 25%? If you invested in Euro's at 1.20 per dollar and sold out when the Euro was at 1.40 per dollar, have you made a profit of 16.7% or did the dollar fall by about 14%?
If the increase in the relative value of gold or other currencies versus the dollar is actually a decline in the purchasing value of the dollar, why do we have to pay taxes on the alleged gains in the value of gold, silver or other currencies?
One of the diverse suggestions for a way to curb inflation is to permit people to use gold or silver as a substitute for the dollar, but without eliminating the dollar. This would require that we do not impose a tax on any increase in the value of the competing currency in relation to the dollar. Many people would continue to use dollars to conduct business, but an increasing number would choose either gold or silver to establish the price of various products or services. This would be particularly attractive for transactions (such as loans) that expose one of the parties to a potential loss because of a decline in the value of the currency. But this would also put a lot of pressure on the Federal Reserve to stop inflating the currency.
Of course, that's simply a lot of wishful thinking on my part because there is no way the political and banking establishment would allow us to use any competing substitute for the declining dollar.
Vern
See The Tax Reform Alternative
http://www.offshorepress.com/taxreform2010.html
Tuesday, November 9, 2010
Cut Spending or increase Taxes?
Yesterday, Rand Paul was interviewed by a t.v. commentator and Paul stated that one of his goals as a Senator would be to persuade his colleagues to cut federal spending by $100 billion a year.
The interviewer asked if Paul didn't think that increasing taxes was also essential to help reduce the deficit. The way the question was posed clearly implied that the answer to the question was that taxes had to be increased -- particularly on the upper income taxpayers.
But Rep. Paul stated emphatically that the problem is not inadequate or insufficient tax revenues. The problem is entirely about excessive spending. He then trotted out some compelling data about the rate of increase in federal spending since 2008 and suggested that just getting back to the 2008 level would reduce spending by far more than $100 billion.
According to the Washington Post, federal spending went up by 16% in 2009 to $3.2 trillion. That represents an increase of some $475 billion, which is far more than Paul's modest proposal to cut spending.
Nonetheless, the mantra from the left is that we can't cut spending without cutting essential programs. When given some examples of popular things that would have to be cut if Paul's proposal became law, Paul replied that the left always trots out the most popular programs and insists that these are the only programs that can be cut. This is the same tactic as threatening to cut police or fire services or funds for education when there are demands to cut spending at the local level.
As for the argument by the left that continuing the Bush tax cuts will cause a loss of federal revenue, Paul rightly points out that the 2001 tax cuts are the law today and that letting them expire would be the largest tax increase in recent memory.
Vern
http://www.offshorepress.com/taxreform2010.html
The interviewer asked if Paul didn't think that increasing taxes was also essential to help reduce the deficit. The way the question was posed clearly implied that the answer to the question was that taxes had to be increased -- particularly on the upper income taxpayers.
But Rep. Paul stated emphatically that the problem is not inadequate or insufficient tax revenues. The problem is entirely about excessive spending. He then trotted out some compelling data about the rate of increase in federal spending since 2008 and suggested that just getting back to the 2008 level would reduce spending by far more than $100 billion.
According to the Washington Post, federal spending went up by 16% in 2009 to $3.2 trillion. That represents an increase of some $475 billion, which is far more than Paul's modest proposal to cut spending.
Nonetheless, the mantra from the left is that we can't cut spending without cutting essential programs. When given some examples of popular things that would have to be cut if Paul's proposal became law, Paul replied that the left always trots out the most popular programs and insists that these are the only programs that can be cut. This is the same tactic as threatening to cut police or fire services or funds for education when there are demands to cut spending at the local level.
As for the argument by the left that continuing the Bush tax cuts will cause a loss of federal revenue, Paul rightly points out that the 2001 tax cuts are the law today and that letting them expire would be the largest tax increase in recent memory.
Vern
http://www.offshorepress.com/taxreform2010.html
Tuesday, November 2, 2010
The Conservatives Don't Have a Plan
Lately, the Democrats have been making the argument that the Conservatives are just being negative and they don't have a plan to solve the numerous problems we face.
That' a little bit like asking, "When was the last time you beat your wife?".
The question presumes it is necessary to have "a plan". The Progressives and most Democrats apparently believe that smart people in government can solve every kind of problem with central planning.
Conservatives believe that central planning is the problem rather than the solution. The Conservative "plan" is to quit trying to micro-manage the unmanageable. The plan is to get rid of most of the regulatory agencies and their stifling regulations. The plan is to stop trying to manage the environment, the economy and every aspect of business. The plan is to let the citizens work out these problems with a minimum of government interference. The plan is to downsize as much as possible. The plan is to have an honest currency rather than one that depreciates as much as 75% in 50 years (with 3 percent inflation). The plan is to let the magic of competition drive down the cost and improve the quality of health care for everyone. The plan is to shift most Federal activities to the states, as required by the Constitution.
Vern
That' a little bit like asking, "When was the last time you beat your wife?".
The question presumes it is necessary to have "a plan". The Progressives and most Democrats apparently believe that smart people in government can solve every kind of problem with central planning.
Conservatives believe that central planning is the problem rather than the solution. The Conservative "plan" is to quit trying to micro-manage the unmanageable. The plan is to get rid of most of the regulatory agencies and their stifling regulations. The plan is to stop trying to manage the environment, the economy and every aspect of business. The plan is to let the citizens work out these problems with a minimum of government interference. The plan is to downsize as much as possible. The plan is to have an honest currency rather than one that depreciates as much as 75% in 50 years (with 3 percent inflation). The plan is to let the magic of competition drive down the cost and improve the quality of health care for everyone. The plan is to shift most Federal activities to the states, as required by the Constitution.
Vern
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