Ironically, Time to Buy Bonds?

I am thinking what to do about the ridiculous debt limit impasse, with the imbecile Tea Party members of Congress imposing a US sovereign debt default, by choice, in the name of... fiscal responsibility?!?!  Basically they're saying: "I think we're borrowing too much, so we should stop paying our creditors...". Insane.

Anyway, I have come to the realization that it may be time to defensively buy bonds. What is it, you say? Buy bonds in the face of a government default? Well - here is my dilemma. I have complete faith that the government will pay every last dime it owes to its creditors. It may pay a few days late while the political theatrics play out in Washington, but pay it shall.

Meanwhile, if the government defaults even for a few days, the stock market could be severely hit as economic confidence is shaken (and stirred). If the treasury defaults, money market accounts could be hit. Government contracts may be delayed. Folks fearing a massive recession (a very real possibility in the event of default), may run screaming away from the stock market. Where will they run? Ironically, I think they may run in the direction of... short term treasury bills. The default will pass in short order, but an ensuing recession, with its accompanying decline in corporate profits may seriously hit the stock market.

So, logical conclusion... does it make to buy bonds in the face of a US sovereign debt default?

Man, what an idiotic situation these Tea Partiers are pushing us into. Are you sure it's only tea they're drinking? Is there some crack smoking going on as well?


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Unemployment Benefits & the Economy: A Polemic

Earlier this evening, I read this post on Weakonmics - one of my favorite personal finance blogs. In this post, The Weakonomist makes a case against unemployment benefit extensions, against the stimulus package and against Nobel Prize winning economist Paul Krugman, calling him "as crazy as Glenn Beck". I am not here to defend Krugman's honor - he doesn't need the likes of me to do so - but I disagreed with The Weakonomist's post so badly that I decided to publish a polemic against it, and let the readers make their own call about who's right.

I have many issues with the Weakonists' post, but I will focus my criticism on only a few of them - or else I will be here all night, and tomorrow is a work day, after all.

First point: in the post The Weakonomist criticizes the stimulus bill saying that "...the Obama stimulus was a bomb..." - that's opinion not fact. The stimulus bill was far from perfect, but it averted  the worst effects of the economic catastrophe. Don't take my word for it, check out this report from the Congressional Budget Office (which is a non-partisan body) about the effect of the stimulus bill. To save you some reading, here is a brief excerpt from this long and detailed document:

"[The stimulus] Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,

Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,

Increased the number of people employed by between 1.2 million and 2.8 million, and

Increased the number of full-time-equivalent (FTE) jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)"

Still think that the stimulus bombed?

But forget government studies. Let's talk personal experience. I work in the wireless industry, where I have seen first hand the impact of the $7.2B allocated as part of the stimulus to increase broadband penetration in unserved and under-served areas of the country. Without these funds, many companies in my industry would have gone under.

My own company hired another person to coordinate our response to this stimulus bill, and we didn't receive a dime of government money. We also hired consultants, lawyers and took trips to visit customers applying for these funds. Just like us, hundreds of other companies around the country increased their spending in response to the stimulus. That created jobs, economic activity and brought us all back from the brink of even worse economic disaster.

The stimulus was an unqualified success! Yes, there were some inefficiencies, but ANY large project, especially one attacked with such urgency will have some of those. That's the price of action.

Second Point - The Weakonomist says "First of all, extending benefits won’t do much for demand.  People still have to pay off their demand from a few years ago, via credit cards, HELOCs, and mortgages."

This is plain wrong.

I know very talented, hard working and qualified people who have been out of work for over a year in spite of aggressive job hunts. These people have exhausted their savings, and necessarily have to reduce spending. Any unemployment benefits that they receive will be used to pay for food, rent, fuel - you know, keeping their families clothed and fed. This money will not go into savings accounts. The unemployed will spend their unemployment benefits not because they want to, but because they have no other choice. Therefore, by necessity, unemployment payments will stimulate demand.

Third Point - The Weakonomist is concerned about the deficit. Well, so am I. But stopping unemployment benefits is an asinine way to try to fix it. The US Government's debt is so large (over $13 trillion dollars), that the cost of unemployment benefit extension, a mere $33B, would add a negligible - truly negligible - fraction to it.

The Weakonomist is giving props to the imbecile Republicans and Democrats in Congress who are the very ones responsible for the deficit fiasco. These are the same idiots that authorized two wars without paying for them - the cost so far, over a TRILLION dollars. These are also the same imbeciles that have only a few years ago cut taxes repeatedly without cutting spending, leading to - hold your breath - DEFICITS.

NOW, they are thinking about deficits, when it's time to extend the benefits for unemployed Americans who are unable to find a job?! How morally bankrupt can they get?

This is not only bad for the economy, it also shows a severe lack of compassion.

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Of Fireworks, Recessions and Teachers

Like many Americans, last night we went to see the fireworks show, as we do every year. However, this year we went to a different event than the one we usually go to, since the town where we normally go to see our 4th of July fireworks eliminated the program due to budget cutbacks. At a time when state and local budgets are strained and many Americans are struggling to find a job and pay the bills, is there still justification for literally blowing up tens of thousands of dollars in the form of fireworks, while eliminating jobs and cutting programs?

Yes, there is.

Even in the best of times, there is never enough money for all the programs a city or a state would like to run. There is always a case to be made for one more teacher in the classroom, one more road paved or one more dollar allocated to a soup kitchen. If you go by that logic alone, not a cent will ever be allocated to cultural events. It's rough to vote to eliminate a job or a program to balance the budget, while also signing a purchase order for fireworks, which after all is said and done will be nothing more than memories 30 minutes after the show starts, but that's not the whole story.

While the benefits of fireworks (or local theater, parade or park) are more difficult to quantify than the value of an extra fire engine, these benefits are just as real and important. Cultural programs and events strengthen the community, help folks break out of their daily routine and, well, they are fun. Fun is important too.

We can't afford to be completely utilitarian all the time. I understand that local budgets need to be trimmed. If there is no money, there's no money, but even fireworks should have their place of honor, especially on the 4th of July.

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Crowdsourcing - Getting the Masses to Work for Free and Like It

I just came across Quirky - a crowdsourcing website that lets people suggest product ideas, and lets others help design, rate, improve and comment on those ideas. Purportedly, if the products you help influence are chosen for production, you get a cut of the proceeds. A very cool idea, and nicely executed too. Check it out.

Incidentally, the way I stumbled across this website was that one of my favorite websites, Engadget, where I go to get my daily gadget news fix, featured a really cool product designed on Quirky - a flexible power strip. Now that's a brilliant idea - I am amazed that no one has thought about it until now.

I signed up for Quirky, and we'll see if I can influence any cool upcoming products. I doubt that individuals can make serious money on the website, but this is clearly a bargain for Quirky itself since it's getting great design ideas for very little upfront investment. For the likes of me it's a form of entertainment, I guess.

I am really curious to see where the crowdsourcing trend will lead.

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Saving More as a Nation

The U.S. personal savings rate increased to 4% last month. It is shameful that the number of 4% can be described as an increase in this country. How is it possible that we are saving so little as a nation? With our social safety net in such shambles, with unemployment near 10% and with more or less guaranteed cuts to social security in the coming years, does anyone truly believe that saving 4% of their income will be sufficient to protect them from financial disaster or will be enough to meet their needs in retirement?

Alpaca and I max out our respective 401K's, which is probably still not enough, and we are trying to save as much as we can in after-tax funds. Yes - there is such a thing as saving too much, with the risk being putting your life on hold to pay for some undetermined future event, but everyone needs to have a significant amount of money set aside in case of unforeseen disaster (not to mention as insurance against spending your senior years as a Wal-Mart greeter).

I am not saying we should save 30% or 40% of our national incomes like they do in China or India - that's not even a realistic (or desirable) goal - but isn't something like 10% a target we should aim for?

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The News Driven Economy

In recent months the economic situation has gotten decidedly better. Volatility in the market - as measured by the VIX index for example - has decreased considerably, nevertheless the economic headlines are still screaming at full blast. It's as if the news outlets are run by vocal manic-depressives. One day the recovery winds are blowing strong, the next day hopes are dashed and everyone is supposedly heading for the hills.

The best examples of manic-depressive economic news reporting can be seen on days when the stock market starts low and ends high, or vice-versa. I typically check the CNNMoney website a couple of time throughout the day, and often find that the very same news is interpreted in opposite directions depending on which way the stock market is heading at that very moment. The lack of consistency as the headline is changed but the story itself includes only minor corrections is amusing.

These days I am reading The Black Swan, by Nassim Taleb. A thought provoking and interesting read, even if it's written in a somewhat self important and needlessly complex way. It looks like I am not the only one who is bothered by these inconsistencies in the economic reporting. Taleb has been tracking them for years. In his book he gives the following example from reporting by Bloomberg news, relating to the capture of Saddam Hussein in 2003:

"US Treasuries rise; Hussein capture may not curb terrorism"

Followed 30 minutes later by:

"U.S. Treasuries fall; Hussein capture boosts allure of risky assets"

The same fact interpreted in exactly the opposite way, depending on the movement of the markets (in this case treasury prices).

Taleb ascribes these inconsistencies to the fact that people demand an explanation or narrative to facts, and to the news outlets' wanting to deliver what their customers want, even if they don't actually have anything to deliver. That's probably true, but I think that no less of an explanation is the fact that drama and crisis increase viewership & circulation. How many people would tune in to hear that just another random day went by?

Be that as it may, this rampant inconsistency and tendency towards drama makes financial news a particularly poor source on which to base economic and investment decisions, and it's not limited only to electronic media, these tendencies pervade printed financial media as well. The media tends to report that things are really awesome when they are merely OK, and tends to report catastrophes and when reality calls for some mild showers. That also happens to be true for Weather Channel reporting, but that's a topic for another day...

This is yet another reason, if you needed it, to have your own well thought-out economic and financial plan, and to stick to it.

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Health Care Inflation & My Wallet

Health care inflation is here again. Our open enrollment season for health care plans at work is upon us, and this week I received an e-mail from our benefits administrator informing me (and the rest of the team) that our premiums this year are up about 4.9%. My per paycheck deduction will now increase from $253.25 to $265.75, or a total of $325 per year. Nope we are not any sicker, and no our plan didn't get any better. It's the same old coverage for the same old plan.

So what's going on? Inflation. But this is the smart bomb equivalent of inflation - it's affecting only very specific sectors of the economy. In fact, if you take a look at government statistics, total inflation at the consumer level from August 2008 to August 2009 was - brace for it - negative 1.5%! So even while the rest of the economy was showing serious signs of deflation, the cost of our health care plan increased by about 5%. Does this make sense to anyone? How can anyone delude themselves into thinking that this is sustainable?

Before you bring up this issue, let me add that my employer is not sending more of its coverage costs to the employees. Our benefits administrator sent us all a detailed chart showing that the company's cost per employee is also increasing by about 5%.

The US health care system. The good news just keeps on piling up.

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Medical Insurance: Small Battles of Attrition

Forget all about the big philosophical questions of reforming the health care system. Let me tell you a couple of small medical insurance stories that my family has gone through over the past two months.

Chapter I - the twin mix-up - we have twin boys. When one is sick, the other quickly follows suit. It's the whole contagion thing. Anyway, some weeks ago both twins came down with a nasty cough, that progressed to the point where the doctor prescribed them both antibiotics. The two prescriptions were delivered within a couple of days' difference from each other, and while we had no problem filling the first prescription, our health insurance refused to authorize the second prescription, assuming that this was for the first child. An hour on the phone with the insurance company while at the pharmacy was not enough to correct the problem, and eventually we paid for the prescription out of pocket and waited several days while the insurance idiocy was worked out and we got reimbursed for the fiasco.

Chapter II - my wife took the kids to the dentist the other day - regular check-up and cleaning. She paid the dentist and filed a claim with the insurance. The insurance company sent us an explanation of benefits, but didn't send us a check. Alpaca called them to figure out what was going on. Turns out they sent the check to the dentist. They will now cancel the checks they already issued and send new checks to us.

Two small incidents. Nothing earth shattering, just tedium and annoyance. But there's more to it than that. Think of all the money that our health care system just wasted in the process of providing routine service to a generally healthy family. Now multiply that waste by 100 million households and you get some staggering amounts of waste. What a burden on the system. What a burden on health care premium paying consumers.

Folks, there is no reason on earth why we should put up with this insanity. What is Congress waiting for? Where is meaningful reform?

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Where is the Economy Going?

In recent weeks some folks have started voicing concerns about the nascent economic recovery. I am not one of them. I believe that the economy is bouncing back and that the recovery is going to be robust. Yes, unemployment is still on the rise, and indebted consumers are keeping their money in their wallets, but I see signs of economic recovery virtually everywhere I look.

At least here, in Silicon Valley, companies are beginning to hire again. When I talk to customers and vendors and ask how business is going, people tell me that they are seeing a nice up tick in sales. Our realtor says that the market for sub-million dollar houses is positively booming (this is the San Francisco Bay Area. In decent neighborhoods houses under $1M are cheap). Life is flowing back into the system.

Considering the economic near death experience we lived through in the past year, this is a miracle. It's also no surprise that there is still a lot of economic pain. However, the bottom line is that the economy is in better shape than we have any right to expect it to be.

Credit for the economic recovery belongs with the government. Yes. I said it. Ouch. Both the Bush administration and the Obama administration have done an outstanding job (so far) of staunching the bleeding and restoring confidence in the markets. There are many Monday morning quarterbacks out there criticizing each administration's policy decisions, but given the speed with which things collapsed, the tremendous uncertainty involved and the unprecedented magnitude of these events, I think that our policy makers deserve rare praise.

Let's hope things continue to improve.

Unfortunately, in the longer term, deficits, inflation and a decline in the value of the Dollar all threaten the US economy. Let's hope our leaders have the vision and fortitude to avert that future economic disaster in waiting. Sadly, I think that this will be tougher to accomplish.

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Lemming Americans

Yes, people. There are Native Americans, African Americans, Jewish Americans and apparently we can add to our national diversity one more group: Lemming Americans. Those Lemming Americans are the ones that follow the herd. They hear something and they repeat it as loudly as they can, and truth or facts be damned!

It looks like a common sense reform to our health care system is going to be derailed by simple lies repeated often and loudly enough, by so called leaders and opinion makers. Apparently all it takes these days to make sure reform is derailed is someone to whisper conspiratorially "Death Panels". From that point forward the truth goes out the window. The lie gets repeated and magnified. The interested parties smile broadly and stand aside while the imbecile masses fight a battle contrary to their own self interests.

Let me comment on this one more time:

The Moral Argument - it is simply wrong that tens of millions of Americans do not have health insurance. All of us deserve to lead a healthy life and to receive decent treatment if we get sick. For crying out loud, we provide health services to our felons in prison, but not to our hard working poor. If there is injustice in the world, this is a clear example.

The Economic Argument - our system is broken beyond repair. My family of 5 - all completely healthy - WITH health insurance, spent more on health care last year than we spent on anything except for daycare and rent. This is without even counting the $12K or so in insurance premiums paid by my employer. The system is simply hemorrhaging money through waste and bureaucracy. Costs must be controlled or (i) our economy will collapse; or (ii) half of us will be uninsured.

The Fear Factor - the fear mongers would have us believe that government will pull the plug on granny. Complete and utter lie. Hate to break it to you idiots, granny already has socialized medicine. She's on Medicare! Or that government bureaucrats will come between us and our doctors. They don't tell you that right now there is an insurance company coming between you and your doctor, and that your insurance company makes money by denying you care. Why should they care? The fear mongers know that gullible Lemming Americans will buy anything they sell.

Here are some real things to worry about: today if you lose your job, you lose your health care insurance. If your employer decides to stop offering health care, you're out of luck. If you or a family member get seriously sick, your insurance will probably not be sufficient to keep you from financial ruin. If you exceed your lifetime insurance cap, as far as your insurance company cares you can just curl up and die. If you are not afraid, you don't understand the true nature of your predicament.

The Personal Experience Angle - I was born and raised in a country where so-called socialized medicine exists. You know what? If I had the unfortunate choice between getting sick in the US or getting sick in Israel, I would much rather get sick in Israel. The US has the best health care system in the world you say? Bullsh** I say. Base your claims on facts and on reality. Here's one easy comparison - life expectancy. Life expectancy in France, Canada and Israel - all countries with socialized medicine - is higher than in the US. Best health care system in the world my left foot. Lemming Americans.

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The Market, The Market

So what do you think about the stock market these days? It's been climbing non-stop since March. OK, there was a little hiatus in June, but investments I made in early March are now up more than 50%. My 401K is now well above break even. Our total portfolio is only a few percentage points down compared to where it was since this crash began. Truth is, I am getting nervous.

Just like I said that things weren't that bad in the dark days of February, they aren't that great now! BTW here's a post I wrote in early March preaching the upside of stock investing, just a couple of days before the market started bouncing back. No special powers of prognostication here, just simple coincidence.

The stock market upsurge has me just concerned enough that I have halted all new investments in the market (except for my 401K contributions), since the beginning of May. OK, there's also the small matter of my preparations for the possibility of buying a house, but even if this were not the case I think I would have paused for a while. I don't like this euphoric mood.

Yes, I believe we are done with the recession, but I don't think that euphoria is called for. There is still much economic risk out there, including risk to our currency from the twin scourges of inflation and deficit.

Curious to hear your take on the situation.

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Cash for Clunkers: I Don't Buy It

The cash for clunkers program has been wildly successful if you judge by the fact that the first billion dollars in the plan has run out in a matter of days. This money was expected to last well into the fall. The program has apparently done a lot to get people to buy new cars, and getting people to spend money is the whole point of a stimulus program, right? Well, I don't buy it.

Let me start by saying that the program is clearly doing some good. Yes, it did get folks to open their wallets, and clearly some ol' gas guzzlers are going to get scrapped, but is that enough? As far as I am concerned, this stimulus program was pretty much a give away to American car companies. Those very same companies to which the government has already given billions of our dollars.

If the goal of the plan was to get gas guzzling cars and trucks off the road, why did the program pay consumers $3,500 for a minute increase in gas mileage? Folks who traded-in an SUV or light truck could get away with an increase of only a couple of miles in gas mileage and still participate in the program. I can't prove this, but I am willing to bet that in many cases the CO2 emissions required to produce and deliver a new car greatly exceeded the energy that would be saved by the small MPG increase. If the reason for the program is environmental, why not require buyers to replace their vehicles with hybrid cars that would get at least 40 MPG? The answer is simple: such fuel efficient cars are made by foreign manufacturers, and we can't be giving money away to foreigners... even if those cars are produced by Japanese companies here in the US... nah, we can talk about the environment, but giving money to foreigners?! Unthinkable.

Second, how does destroying our assets improve our situation? Cars traded-in under the cash for clunkers program are destroyed. Yes, that's right, they are taken off the road and shredded. How does that help our national economy? Should we boost our construction industry by bulldozing old houses? Would we be better off as a nation if we destroyed our bridges so we could build new ones? We are taking assets that could be re-used and we are dumping them. How can that possibly make us richer as a nation? Is there some alchemy involved here?

Finally, this program is no doubt inflicting severe collateral damage on charities who would otherwise receive many of the vehicles being traded-in as donations. Here is some anecdotal evidence for that happening.

The only sound reasoning for such a program, in my opinion, is the environmental rationale, however those are clearly secondary and minor in the way the program is designed, as far as I can tell.

After I finished writing this post, I read this article which suggests that folks are buying cars with better fuel economy than is required by the Cash for Clunkers rules. If that is indeed the case, my objections on environmental reasons may be over stated (even though the combined gas mileage average is clearly far lower than it could be). We'll see.

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Demand Health Care Reform!

A monumental battle is playing out in Washington, between those who strive for health care reform, and those who are doing everything in their power to maintain the staus-quo. The American people must stand-up and tell Congress that we do not only demand reform, but that we demand meaningful and sustainable reform that will guarantee health coverage to all Americans.

I call on my readers to take action to make sure that the first chance for real reform in over a decade is not wasted. We must make our voices heard.

Visit HealthReform to understand where we are, what we need to change and how we can get there. Join the fight!

Here is some data from that site which tells a very clear and well substantiated story for why health care reform is required for California. You can get similar information about the state where you live:

• Roughly 19.7 million people in California get health insurance on the job¹, where family premiums average $13,297, about the annual earning of a full-time minimum wage job. ²
• Since 2000 alone, average family premiums have increased by 114 percent in California.³
• Household budgets are strained by high costs: 19 percent of middle-income California families spend more than 10 percent of their income on health care.⁴
• High costs block access to care: 13 percent of people in California report not visiting a doctor due to high costs.⁵
• California businesses and families shoulder a hidden health tax of roughly $1,400 per year on premiums as a direct result of subsidizing the costs of the uninsured.⁶

AFFORDABLE HEALTH COVERAGE IS INCREASINGLY OUT OF REACH IN CALIFORNIA

• 19 percent of people in California are uninsured, and 71 percent of them are in families with at least one full-time worker.⁷
• The percent of Californians with employer coverage is declining: from 58 to 54 percent between 2000 and 2007.⁸
• While small businesses make up 77 percent of California businesses,⁹ only 46 percent of them offered health coverage benefits in 2006.¹⁰
• Choice of health insurance is limited in California. Kaiser Permanente alone constitutes 24 percent of the health insurance market share in California, with the top two insurance providers accounting for 44 percent.¹¹
• Choice is even more limited for people with pre-existing conditions. In California, premiums can vary based on demographic factors and health status, and coverage can exclude pre-existing conditions or even be denied completely in some cases.

To read the citations and end notes cited above, follow this link.

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Map: It Really is a Global Recession...

Moody's has released this map showing the impact of the global recession. Click on each of the countries to get more interesting snippets of information.

It looks like almost the entire world is in the grip of this economic downturn. Who's still doing well? China, Syria, Lebanon, Egypt... all the good guys... well, to be quite honest there are also a few democracies that are doing OK: India and Panama, being the two that I can spot off-hand.

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Health Care: The Dirty War

The battle over the President's health care initiative is gaining momentum. I have previously aligned myself with the forces calling for a drastic reform of the US health care system, and if anything, I think that the bills currently making their way through Congress don't go nearly far enough. However, those who profit from the status quo are clearly mounting a counter-offensive in an effort to kill health care reform yet again.

Last week, a colleague sent me this link, purportedly an official Congressional chart showing the structure of the health care organization after the proposed reform. If you open the link you'll be shocked and amazed at what appears to be a byzantine maze of bureaucracy. Perfect. This is exactly what the powers behind this document want you to think. However if you look carefully, you will see that this is not an unbiased document, it is, in fact, a biased piece of propaganda, a weapon, if you will, in the dirty war for the future of health care in this country.

This document, while apparently stored on a legitimate Congressional server, was prepared by the Republican Staff of the Joint Economic Committee (see lower left hand corner of the document) and was submitted by Kevin Brady , Republican Congressman of Texas who, according to the Washington Post, has voted with his party 94.5% of the time in the current Congress.

Well, some of my colleagues took this document - which is intentionally designed to look confusing and intimidating - to be the actual proposal put before Congress. If the chart is so confusing, goes the rhetoric, how can the actual plan be any better?

Here is my take. I am not versed in the full details of the bills that are now circulating through Congress, but what I do know is that if you resort of misinformation or misdirection to drive your point home, something is truly wrong here. It may very well be that Congressman Brady has some productive points to contribute to the discussion. Hell, he may even have the holy grail of health care which he can deliver to Congress to the sound of grand applause by the American people. If so, let him be constructive. However, from reading the papers and watching the talk shows, it seems to me that Republicans are simply doing their utmost to scuttle the President's health care reform, regardless of the consequences to the American people. Forget about being constructive. Forget about finding a solution to a critical problem effecting all of our lives. All that seems to matter to them is the chance to deliver what they think will be a critical blow to the President's political standing.

I think enough is enough. Health care must be reformed. We all know it. Even those moneyed interests who stand to gain from maintaining the status quo (only they are cynically pushing for their short term financial interest, rather than for the long term betterment of society). If you have valid points to make, make them. Come to the table and argue for the type of change you would like to see, but enough with the scare tactics, misdirection and politics already. We need leadership, not idiocy.

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The Inflation or Deflation Song... Literally...

I saw this first on the Finance Professor blog. Very funny. I am squarely in the inflation camp myself. I swear this guy sounds like Kermit the frog when sings. Not green though...

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Thinking of Buying a House

My wife and I are thinking of buying a house. We are both in our late thirties and have never owned our home. I don't believe that a house is a good investment, and since we didn't know for sure we were going to be staying in California, we were never in a rush to buy a house. Now that our kids are growing up and our rented place is getting too small for our needs, we are seriously thinking about getting our own place.

Buying a house in our town is out of the question. There is no way we can afford to buy here - at least, there is no way we can afford to buy anything that could be considered decent. We have started to look in towns that are somewhat more affordable, and this weekend we went to several open houses, a few of which seemed very nice and were within our budget.

I think there are a couple of good reasons to buy a house at this point in time. For one, real estate prices have come down substantially - although not in our town. Mortgage rates are reasonable (check out this calculator), the government is offering some great tax incentives for buying and, perhaps most importantly, I think that in the coming years we will face some inflation - meaning that mortgage debt may diminish in real value as the value of money decreases.

Nevertheless, the decision is not clear cut for us. There is one major factor acting against us: employment. My wife is currently not employed, and getting a new position may take many months. In addition, my own company is not the perfect image of stability. I work for a start-up, and while my company is doing well, you never know how things will work out when you depend on outside funding to keep your business going.

We're going to take it nice and slow. We'll look for something we really like that fits our budget, educate ourselves on what it means to buy and own a house, and make sure we have the right advisers to assist us. If the stars align, we may even own a house by the end of the year.

I like the sound of that. :-)

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A Few Thoughts About Health Care Reform

Here are a few random thoughts about health care reform:

First, we absolutely require health care reform. This is not a nice to have, it's not about a long term wish list, we absolutely must have health care reform. It's the smart economic move. It's also a moral imperative.

Now let me tell you something about public health care. There's a lot of fear mongering going on these days about how bad public health care and "rationing" are. I would like to call bulls*** on that. The system we have in the US today can hardly be called a system. It's complex and it is unjust, but perhaps worst of all it's wasteful. Our system forces us to resort to all kinds of strategies for saving some money on medicines and treatment while ensuring that billions go to waste on needless administrative costs. Have you received a bill from a hospital recently? You are practically expected to haggle, much like you are in a rug store or a used car dealership.

I was born and raised in Israel, a state which offers a public health care system and in which each and every individual has health insurance. The health care in that country is no worse than the health care we get here. In fact, in many respects the health care system and the service to individuals is far superior to our experience in this country. I recently went back to visit my old homeland and had a first hand experience with the health care system. Comparing that experience to a previous visit to the emergency room in one of the top hospitals in the US, the service and quality of care we got abroad was superior. Hands down.

Last week I watched Nobel Prize winning economist Paul Krugman being interviewed by Charlie Rose on PBS. Here's an interesting statistic: according to Krugman about 60% of dollars spent on health care in this country are already spent by the government, between Medicare, Medicaid and the VA. Think about that the next time health care lobbyists try to sell you horror stories about how the country will go to the dogs if we adopt a public health care model.

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Don't Kid Yourself: We Are NOT More Frugal

There is much talk these days about the American Consumer's new found frugality. Turn on the news, open a newspaper or browse the money sites online and everyone is saying that frugal is now fashionable and that over spending is "so 2007". For example, in this month's edition of Money Magazine the Editor's Note includes the following:

"...For one, the American consumer will no longer support global growth on his debt burdened shoulders..."

I don't buy it.

True, folks are spending less and saving more these days - the savings rate hit 5.7% in April according to the Federal Reserve Bank of St. Louis. However, looking at the data more carefully shows the personal savings rate almost always spikes in recessions, only to fall back down once the economy recovers. What makes us think that this time will be any different? Yes, this time the spike in the personal savings rate appears sharper than usual. However, I believe that this sharper spike is a response to what is turning out to be a very deep recession which is stoking people's justified fears about losing their jobs.

Once the economy recovers, I am willing to bet our compatriots will fall back into their free wheeling, crazy spending ways.

This leads me to another point. Have you noticed how easy it is for people to assume that things are permanent? People's ability and willingness to adjust their baseline and to assume that whatever is now happening is the new reality which will last forever is asstounding to me. When the stock market or real estate prices go up, people assume that the good times are here to stay - "it's a new economy". When the markets decline, people flee for the hill with shouts of "the sky is falling" echoing through the wilderness. It is a flaw of human psychology - our memories are short and our tendency to extrapolate is over developed.

Recognizing this, I try to avoid thinking too highly of my own abilities to spot a pattern, and try to make as few predictions as I can (especially about the future, to borrow a phrase).

Here are a few other posts that deal with the topic of frugality:

Trent of a Simple Money explained that cutting spending is not the same as saving. You also need to make sure the money is not wasted on some other unnecessary activity.

Frugal Dad makes the point that eating out is not always a waste of money.

Blunt Money has a post about spending $900 in unplanned expenses this month. Nothing wrong with spending the cash if you have it. Just make sure you don't rob your future self of a decent standard of living to pay for a higher standard of living than you can afford today.

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The Labor Market from a Personal Perspective

In recent weeks a number of people close to me have lost their jobs. While the job market is in shambles, these folks are out there trying to find their next position. Some are also thinking about some creative alternatives. Here are a few examples:

I have previously mentioned that my wife's consulting contract is now over and she is looking for a new full time marketing position. She has had a few phone interviews over the past couple of weeks, but no concrete progress as of yet. We are prepared for a long and arduous search process, but she is doing all the right things to try to move things along. The leads she has been able to generate so far, have mostly come from within her network. She has also applied for a number of jobs she found online and - amazingly to me - has gotten a few call backs from what I normally consider a black hole method.

One of my oldest friends has recently lost his technology job. We were both in the same industry, so I am doing my best to help him find a new position. However, since we live in different parts of the world, my ability to assist is fairly limited. He has been searching for a job primarily through headhunters, so far with very few results. He is getting both discouraged and bored. To pass the time he has undertaken a personal project of transferring all the family videos to DVD. I offered to connect him with my father, who has some industry contacts that might be useful, but he politely declined. I am not exactly sure why. I think that given his job search strategy his job search will be a very long one.

Another one of my friends lost his job just two weeks ago. He is now pursuing a dual approach of looking for a new position, while also thinking about starting a business in his area of expertise. I think that this type of strategy is pretty common out there these days. I also think that one of the lasting effects of this nasty recession will be a plethora of new businesses and a spike in innovation.

My CEO recently fired our VP of Sales. He was nominally let go for performance reasons, but my thinking is that he was let go because he was not an integral member of the team. He never fit in with the rest of the management team, and never built the strong alliances that make one successful at work. I also think that my CEO let him go for political reasons, but I will not get into that in this post. I have been trying to help my former colleague find a new job, by connecting him with headhunters and potential employers.

Finally, a good friend of mine from business school was let go from Citigroup a few months ago, in one of their massive lay-off waves. He did not give up. Seeing the writing on the wall for his group months in advance, he started networking within the organization. Even though he was let go on paper, he never actually left the organization since he was immediately snapped-up by a different group in the company. The down side? I spoke to my friend last week and he tells me that the job he is doing is substantially below his skill level and well below the position he previously held with the organization. Nevertheless, he is not bitter. He is happy to be working gainfully throughout this downturn, while many others in his industry are out looking for a job.

The job market is really crappy these days, but as you can see from the examples I outlined above, different people are reacting in different ways. Some are getting frustrated and giving up, while others are re-doubling their efforts and looking to the future. I know which camp I am in.

Here are a few other posts about the downturn and about how people are handling it:

All Financial Matters wrote this brief post introducing Kiplinger's economic recovery index. Interesting. I have my own metrics which I consider - including LIBOR rates, TED spread, unemployment, treasury yields, international shipping rates and commodity prices.

Investoralist is looking at the crisis and its impact on China.

Spilling Buckets has a post about how the Buy American provisions in the federal stimulus package are bad for our economy. I completely agree. In fact, I have an interesting personal story to tell about these Buy American provisions. Look for a post in the coming days.

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