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Archives for December 2013

Setting Your Course for 2014

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What I’m about to share with you is something I’d like you to share with or teach to your spouse. In 2008 some of the smartest guys in the room sat and watched as their mutual funds lost close to 50%. Meanwhile boring old Vanguard GNMA made money. That’s all the proof I need to make sure my well balanced portfolio owns Vanguard GNMA. It would be nice to be able to buy just one balanced mutual fund and be done with it. But there are none out there today that fit the bill. Don’t get me wrong, I love the world class Vanguard Wellesley fund. There is no better low cost balanced fund. But without … [Read more...]

100 Years of the Fed and All I Got Was this Lousy Dollar

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Monday was the centennial of the Federal Reserve. Established in 1913 as a lender of last resort, the Federal Reserve has taken on more and more responsibilities over time. Today it is expected to stabilize the value of the dollar (which it has failed miserably to do, with exceptionally bad performance noted during the 1970s), promote growth, produce full employment (ostensibly by ignoring the value of the dollar), regulate banks, manage asset bubbles (though the Fed seems better at creating them), and to communicate all of this with a stream of speeches, press conferences and articles … [Read more...]

Your Personal Financial Security Part II

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Every Christmas we give our kids their age in cash—a tradition that began with Becky’s parents—making it fun to get older. Hard cold cash is often forgotten when credit cards, gift cards or your iphone complete transactions. But what happens when the lights go out? You still have basic needs, like caffeine. That’s why carrying some cash and storing some cash makes sense to me. It’s a lot easier letting the cashier keep the change for that cup-of-Joe or 5 lbs. of ice than explaining why he should trust you to pay him next Tuesday. "I'll gladly pay you on Tuesday..." … [Read more...]

The Taper Stimulus

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After months of guessing and mixed signals from the Fed, the so-called “taper” of the quantitative easing program has finally arrived. The market surged yesterday because the Fed’s taper was taper-lite. The Fed announced that the QE program would only be drawn down by $10 billion a month at each FOMC meeting next year ($5 billion fewer in treasuries and $5 billion fewer in MBS). This means the Fed will still be buying at least $500 billion worth of bonds next year. Then the Fed said that it would keep rates at between 0% and 0.25% until the unemployment rate drops below 6.5%, but it doesn’t … [Read more...]

Americans Still Drowning in Mortgage Debt

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The good news is, the Fed’s money printing has generated enough growth in real estate prices that during the third quarter 800,000 homes regained positive equity. That means, the home’s market value grew larger than its mortgage. But that still leaves 6.4 million households  underwater. And of those homes whose values are above their mortgage balance, nearly 10 million are what’s known as “under equitied,” better understood as having less than 20% equity value. The housing market is coming back to be sure, but those artificial gains are at risk. You see, the Fed has added trillions in … [Read more...]

Bitcoin Worth $524,000?

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Bitcoin is a speculative corner of the market. To get a better understanding of it read this article by Brian Wesbury in the WSJ: Right now, total cash and deposits in the U.S. banking system (the M2 money supply), is roughly $11 trillion. Assuming 21 million Bitcoins are mined and they become an accepted currency, each one could be worth as much as $524,000. This is a massive potential appreciation from their current level. However, the list of companies that accept Bitcoin as payment for actual transactions make up what I estimate to be less than one-hundredth of a percent of all … [Read more...]

Is the Taper-pocalypse Nigh?

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The gnashing of teeth and frenzy has begun on Wall Street, and in markets around the world, as the consideration that the Fed might taper has begun. On Monday the St. Louis Federal Reserve Bank President James Bullard said “A small taper might recognize labor-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014. Should inflation not return toward target, the committee could pause tapering at subsequent meetings.” If, and that’s a big if, the Fed decides to taper on a few months of decent data, it will be a small … [Read more...]