"The Financial Stability Implications of Digital Assets"
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An interesting paper from researchers at the NY Fed: The Financial
Stability Implications of Digital Assets Here is the overview:
• This article considers...
3 hours ago
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36 comments:
WHATEVA!
Mark,
I apologize for the lack of lead in. I've been reading your blog for some time now and I've commented occaisionally. I just read through the little debate you had with Stevie b. in the last thread and it brought up some questions for me. Again, if you can overlook my clumsy lack of lead in... When you made the investment that retired you it sounds like you happened to be at the right place at the right time and you had no trouble recognizing the opportunity. But what if that didn't come along? What if you were much younger today and the investment that retired you never came along? Let's say it was someone else that was at the right place at the right time who was given the golden opportunity in your place back when. Let's say you didn't already build your nestegg. Let's say today you have a decent job that pays well... maybe a job at a national lobratory that's gone green allowed you to put some money aside. How would you build your nest egg from here, today? BTW, I really enjoy your blog... I think you're doing a great job.
Ed G.
Stag,
I had no idea you you invented Halo!
Mark tries to skirt the issue, probably out of trying to come down to our level but I say Mark, it's all right to have shared your gift to the world through Halo.
I realize that you don't want that fact spread around for obvious reasons, i.e. Halo groupies hanging around the site and what not, but it is something to take pride in and I look forward to hearing more from the man who created a dynasty.
Ed G.,
This is a long story so I apologize in advance.
I enjoyed my free summers growing up to the point I knew I wanted more of that as an adult. Early retirement was my dream from an early age.
I went to college and got a degree in computer science and one in physics. I then moved to Seattle thinking that the cost of living would be higher but so would the pay. Drove across the state with a net worth of zero. Had some cash, a new Hyundai, but also had debt on the car.
Worked 18 months for a tiny company. Laid off as it folded. Worked 18 more months for another company. Laid off again.
In hindsight, that was lucky. I enjoyed both jobs but there was little room to advance.
My next job was my last job. It was 1991. I've always loved computer games and the job was making them (not Halo 3 though, my regular readers love spreading that rumor to tease me, lol). I told them that I would do whatever it took to retire early. I meant it and they believed me.
As the raises came in, I continued to drive that Hyundai and continued to live in a small apartment. That allowed me some cash flow to invest and save. At that time, maybe age 60 seemed doable.
In 1994, a friend of mine at another company showed me a collectible card game and I thought it would be a big hit. They still wanted investors and I read through the business plan. I gave the president of that company a check in my friend's basement. That was the VERY lucky part. The company was Garfield Games.
The product hit the stores and I immediately started doing store checks. They blew out my expectations. People couldn't get enough. I scrounged up more money to invest. Unfortunately, there were no shares left.
There were actually two companies at that time. One was Garfield Games and one was Wizards of the Coast. Wizards was in a minor legal battle and they didn't want to expose the card game to that.
This leads me to the smartest investment I ever made. I asked if Wizards owned any part of Garfield Games. It owned a lot. I then asked if I could invest in Wizards. I could and I did! I managed to double my stake AFTER I saw how well it was doing.
A few years later the companies merged into one. It was a heated shareholder meeting. The Garfield Games investors could not understand why their shares weren't worth orders of magnitude more than the Wizards shares. They just assumed ALL the wealth was in Garfield Games. Bad assumption.
I was still trying to retire early in other ways. I continued to max out my 401k and continued to work hard for raises, bonuses, and stock options.
No matter how good Wizards looked I still couldn't count on it.
In the late 1990s, the stock options where I worked were really starting to pile up. That looked to be cutting quite a few years off my retirement plan.
One day the General Manager walked in and gave me a TON of stock options. I couldn't believe it. Talk about too good to be true!
The next day the front page of the Wall Street Journal was filled with stories of my company's accounting fraud. Too good to be true was in fact too good to be true. ALL my options were now worthless. To think that he sat here and accepted my thanks knowing what would happen next. I'm fairly sure he knew.
Now to finally answer your question.
"Let's say you didn't already build your nestegg. Let's say today you have a decent job that pays well... maybe a job at a national lobratory that's gone green allowed you to put some money aside. How would you build your nest egg from here, today?"
I think it would be extremely difficult. Knowing what I know now I'd probably do much the same things.
1. Work harder than your coworkers.
2. Live well below your means.
3. Cross your fingers that a penny saved will be a penny earned even as the government fights you on it.
In 2000, I told friends that I would put my entire nest egg in I-Bonds if the government would let me. That would have been true even if I was just trying to build a nest egg. I would have ridden the slow and steady approach to early retirement. I-Bonds paid 3.4% over inflation then. Now it is just 0.3%.
I hate to be such a downer, but I think the days of making money off of money are over.
1. Commodities? If you can make money buying and selling a rock when mining equipment technology keeps improving, then something is wrong. Of course, something is wrong. We know that now.
2. Stocks and real estate? I have no faith in long-term employment. Roubini thinks 25%of jobs can still be outsourced. I agree. He didn't say how many more could be automated. Perhaps that makes me more bearish than him.
3. Bonds? At best, real yields are pathetic. At worst, they are negative. The 20 Year TIPS looks to be the best of the worst and I did buy it fairly recently. Not risk free though, regardless of what the experts say.
It's possible that all those will do poorly, especially if the government continues to grow relative to everything else. There's little defense against death and taxes.
I just want to thank everyone who posts here.
When I started this blog I figured it would only be a matter of time before the hecklers arrived.
Halo 3 teasing is not at all what I expected. I think it's growing and will soon become its own sentient lifeform, lol.
I'll probably be walking down a dark alley someday. A man will approach me with a gun. I'll say, "The economy is bad. Just take the wallet." He'll respond, "No. I lost my job as a Halo game designer. They said they had proof I didn't do the work. I've finally tracked you down! So tell me Mr. Stagflationary Mark, if indeed that is your real name, who else is involved in the conspiracy?" I'll squeal, "GYSC! watchtower! mab!" There will be a lone shot in the dark as I slump to the ground. He'll wander off with a fresh set of targets.
Just warning you ahead of time. I figure it is the least I can do since I plan to rat you out in my final moments, lol.
Mark -
Did you see this? (the title of the video)
http://finance.yahoo.com/tech-ticker/article/374777/"The-Illusion-of-Prosperity"%3A-U.S.-Destined-to-Lag-Rest-of
Actually, I didn't watch the video, nor do I plan to.
I just got a kick out of seeing "Illusion of Prosperity" link high on Yahoo!
I hoped it was your blog!!
- jus me
"(not Halo 3 though, my regular readers love spreading that rumor to tease me, lol)"
Don't believe this for a second Ed G., and when you see Mark's toilet paper hoard you'll know why.
Nobody could have amassed such a collection without some SERIOUS coin.
jus me,
GYSC spotted that one for me.
The "Illusion of Prosperity" in the link seems to think the Fed is somehow responsible. Shocked! I'm shocked I tell you!
I do differ with the conclusions though. I don't think the illusion is just confined to the USA.
I think my favorite example would point to Peter Schiff.
He argues that we can't ever afford to pay China what we owe them. We'll either just plain default or default through inflation. He then says how bullish he is on China. Why? China wouldn't be paid. That's a good thing for them?
The US Government owes me a lot of money too. If they don't pay me then I have an investment idea for you...
Short me! Bet on my ultimate demise!
I joke in that gallows humor way. History may very well show that it was a good bet.
Hey all,
the last 3 threads here have featured some great ideas and thinking and i wanted to thank everyone involved for the input. Good stuff.
Just finished 5 hours of battle agianst the yard leaves. I think I won, but will have to wait until I wake up tomorrow to realize the extent of the damage to my back and arms. Getting old is not easy!
Mark,
I really appreciate all the information you gave in your answer. One of the reasons I enjoy your blog is the honesty that comes through in your comments. For all the sarcasm and fun here you can still be pretty respectful and sincere. I appreciate that.
Your answer speaks to a reality that I share. This is a very different world from the world of the 90's. I think you made some really smart decisions back then, and at the same time I think you were pretty lucky, too. Isn't luck usually a big part of the combination for success? But I also think you've got to place yourself in the position to be lucky, which you did - there's where hard work comes in.
I don't see opportunities today of the kind that you saw in the 90's. If ever there was a time when I was unsure about the future it's now. Stocks, commodities, bonds, etc., these investment vehicles don't seem like opportunities to me; they're more like bets.
Seems to me that it's enough just to have managed to put some money aside, the value of which you’re trying to keep from eroding. Good luck with that. Looking at inflation data for the last 30 years, I’m amazed at just how fast the value of a chunk of change can deteriorate.
Gold is a subject that's come up here lately. The very reason many hold on to gold - as a hedge against economic uncertaintity - is the reason holding on to it is not going to make me feel very certain. In fact, the more people holding on to it the less certain I feel. Gold as preservation is something I just can't seem wrap my mind around. A good job... maybe a business that produces something that people need? Income. That's another story.
I don't think I'll be able to retire early. I'll be lucky if I can keep working but that's the key, I think, to the good luck of today - to remain working, to have that income rolling in.
It's a different world...
and I'm begining to think that any extra money I have to put aside should be invested with the purpose of remaining employed or employable, or in somehow offering something to people that they need and are willing to pay for.
I appreciate your answer. I found myself shaking my head in agreement as I often do on this blog.
Ed G.
watchtower,
I did a very brave thing today. I took 15 pairs of socks from my sock hoard and added them to my daily use collection. (I was running low.)
That's like TV's Monk not cleaning up after a spill. It just felt wrong.
This is great news for the economy though. I now only have 81 pairs of socks hoarded. I'm burning through inventory.
Based on crude back of envelope calculations, I think I may need to buy a few pairs in 2037.
Sock hindsight is treating me well. I'm a big fan of gold toe socks. My feet are size 12 which is often a problem. Most socks fit to size 12, which makes them tight and uncomfortable. Gold toes are slighly bigger though.
When I saw that Wal-Mart sold them, I'd practically clean them out every visit (and they were often sold out when I got there). They were SO much cheaper. Wal-Mart no longer carries them (last time I looked anyway). They've been replaced by a cheaper brand. "Cheap" is easy to find these days. "Good" is another story.
@ Ed G
Farmland
Ed G.,
Thank you so much for the kind words. I really just want to help anyone I can here. I just hope that when I am wrong, I won't be too wrong. It's extremely difficult to manage risk these days. This explains my hoard. I cannot foresee any circumstance where it would hurt me to have extra basic necessities on hand. Nobody got hurt in 1929 doing that, nor did they in 1970. It also never requires a greater fool to feel good about the investment. And let's face it, every serious investor has been a greater fool more than they'd like to admit. Even Warren Buffett!
"It's a different world... and I'm begining to think that any extra money I have to put aside should be invested with the purpose of remaining employed or employable, or in somehow offering something to people that they need and are willing to pay for."
I truly believe that investing in yourself is the best investment of all. My girlfriend is back in school at age 39. Made more sense than the neverending layoffs she was facing in her human resources and benefits career.
Stevie b. & Ed G.,
"farmland"
My gut says there will be a greenhouse in my backyard in the coming years. I'm drawn to the smaller ones every time I see them. It seems like a decent investment to me.
I visited my hometown for a class reunion in 2002. The farming community looked a lot like a ghost town. I think if food someday becomes more important to us than Wall Street trading bonuses, perhaps that trend will reverse. Maybe.
GYSC,
"Just finished 5 hours of battle agianst the yard leaves."
Damn! I bet you could have charged $99.99 as a Pay-Per-View event. ;)
Stevie b.
"Farmland"
Something I seriously consider. Sounds like you may have given it some thought, too. Curious, how would you do it, given the scenario I gave to Mark? Would you buy farmland with savings while you work full time, a conversion of money to farmland as way of preserving the value of savings?
?
Ed G.
Mark,
"I hate to be such a downer, but I think the days of making money off of money are over."
It's a different world but it may actually be a better world. From my perspective the investment world that began to boom in the 90s resembled a giant casino for the average person enticed into the dream of hitting it big. It's stories like yours that made them feel it was within reach. This can't be good. You've been alluding the problem of inequality in some of your posts. (BTW, that link to the 2005 Citigroup paper was really interesting... I was wanting to comment on it but just didn't have the time). I really think that the investment boom that began in the 90s made the rich richer as much as it drained the middle class. I'm glad that the 90s are gone. For this reason I'm hoping that the stock market of today crashes along with gold and whatever else has been leading to false hopes that will only continue to make the rich richer while it consumes the majority of the rest of us. It's a different world and I hope the difference is more pronounced as time passes.
I'm exited. Positive. Forward looking. I can dream, can't I? lol
Ed G.
Mark said:
"I did a very brave thing today. I took 15 pairs of socks from my sock hoard and added them to my daily use collection. (I was running low.)
That's like TV's Monk not cleaning up after a spill. It just felt wrong."
I know exactly how you feel!
Say, are you my long lost brother that mom & dad never got around to telling me about?
Hmmmm, if you are then we need to talk about that Halo 3 cash of yours...
@ Ed G.
Please excuse my butting in like this but I thought I'd put my 2cents in on the farmland idea.
My wife and I do live in a rural area so this is something that I have thought about a good deal.
I think it's a great idea especially if you live in a part of the country where you could buy this land and either live on it or be close enough to keep an eye on it (trust me, you'll want to keep an eye on it).
I'm personally looking for ground myself that has some wood acreage on it plus acreage that is tillable (to rent out to farmers), and if it had a nice pond on it I wouldn't be opposed to that either(I have a 10 year old daughter who loves to fish).
My partner at work has over 300 acres (he is not a farmer, nor plans to be) and is in the process of trying to make it pay for itself (he is not there yet, I won't lie to you).
He had a logging company come in and cut out a certain percentage of the oak trees and received a handsome sum for them.
In addition he has hunters come in from all over the country to hunt our state's abundant whitetail deer population and gets paid for the hunting rights(of course this may not be an option if your views don't lean in this direction).
The point I'm trying to make is that if a person put his mind to it he could come a long way to making the land pay for itself.
I don't know if you have kids or plan on having them but they would always have a place they could live on if worse came to worse.
I personally only want about 20 - 40 acres but I won't take a loan out on it.
Been there, done that and don't plan on ever doing it again.
Take care
What is funny is that I read "field and stream" and I appreciate hunting for all the skills needed. I love reading about tracking and scouting and all that. But I just could not pull the trigger and kill something wild. I know very starnge, especially from me!
Watchtower,
You must be east of the Rockies; I’m at the south end of that range. I am married and have kiddos. Water rights are a big deal here and expensive! I almost bought 35 acres in the mountains. It was part of a little village. Farmable, it had alfalfa growing on it and had irrigation from a stream that ran through it. There was an old little house on it, too… livable condition. One edge ran up against a National Forest. Great hunting. Good price. Out there, though… a long way from work. And I wasn’t sure about the people and how they would take to an outsider - I had my doubts.
I live in a rural area, about 30 minutes north of a small city. There’s agriculture here but nothing much. Just these little hobby operations with cattle/horses. And, like I said, it’s very expensive with good water rights, which is something you want. If the prices weren’t so stomach-churning! Maybe the prices will come down some but I’m not counting on it. They’d have to come down a lot more! In the meantime… Every so often I look at farmland in other states where you can get a lot more for your money and some rain with it. Then I forget about the whole thing.
I thought about buying a plot in the city and building a small one-bedroom cottage type home on it. I’d build it myself just to rent and to have… just to have that store of value instead of cash.
I hope you and your wife find something you like.
Ed G.
Ed G.
I'm the wrong person to ask really, but all I'd say is that perhaps you need to think carefully about the sort of crops the land can grow relative to global demand, and the potential effects of climate change could be a factor, whether you believe in it or not. I am indeed sort-of toying with the idea, as I have a wee second home in the middle of nowhere where there could be the possibility of buying an adjacent field or 2.
Perhaps forestry could be an alternative option - here in the UK I think there may still be tax-breaks available on that, but I'm not really in that particular loop any more. Maybe you could drip-feed money into a fund or 2 that specializes in these sorts of things, but I don't know if the costs involved in doing that, together with management costs, would make it an uneconomic proposition.
Maybe there are some sort of partnership deals you could consider. All in all, not easy but, whatever else has changed there, the old Mother Merrill adage of "investigate then invest" still applies today.
Good luck!
Here's a word of caution regarding farmland in the short tem.
It's Confirmed: Farmland Prices Are Correcting
http://seekingalpha.com/article/154248-it-s-confirmed-farmland-prices-are-correcting
"And, if you believe like I do, that we are experiencing a "sucker's rally" to be followed by some hard lessons from kicking cans down the road these past ten months, then you will probably agree with me that farmland is not a wise investment right now in the U.S. because it is in the early stages of a decline."
Farmers need credit too, this country does have a lot of land, and it did rise in price just like other real estate.
Just offering a view from the deflationary camp, of which I am currently a member.
US Farm Debt Raises Concerns: USDA
http://www.newsroomamerica.com/usa/story.php?id=472964
"Despite the sectors long-term financial strength, the report says these developments have created concerns that farmers may be unable to meet debt service obligations and pay household expenses if financial conditions worsen."
My take on it is that you may get cheaper farmland soon. However, in the grand scheme of things farmland still seems far cheaper than a tiny condo overlooking Wall Street.
It also depends how you wish to use the land. The idea of growing food for my own personal consumption does sound appealing. Growing it to resell and compete with professional farmers doesn't. I'd simply be too ignorant to compete effectively. They've got generations of knowledge.
Mark - I'm sure you're absolutely correct to be cautious short-term and maybe the research to find the right investment taking your comments into account will take a while anyway, bearing in mind however that the best negotiated deals for buyers are often done when sellers think things are still going to get worse.
Stevie b.,
I don't really think the price of an acre of farmland is much of an issue for a desperate Califonian who is simply attempting to flee his state's ongoing financial difficulties. In that respect, I'd even suggest 5 acres. Why not!
That said, probably not the best time to quit the job and borrow the money to buy 2,000 acres of farmland and patiently sit on it in the hopes others will soon be beating a path to the door. Very hard to know for sure of course.
It still comes down to debt to me. If I knew for sure serious inflation was coming I'd take out a loan against my house and buy hard assets with the proceeds. That doesn't sound like a good idea to me right now though. It might work, but heaven help me if it doesn't.
Ed G. et al. If it helps, the future looked pretty bleak in the 30's and again in the late 70's/early 80's.
Taking the 70/80's since we're all old enough to remember them personally, at least to some extent, energy was expensive, inflation was high, employment was bad. Japan seemed like a juggernaut. Sounds a lot like now doesn't it?
I don't think we'll have the easy way out of a tech revolution as we did in the 80's/90's, neither did we have one in the 30's. Nor do I believe WWII is what restarted global growth; more like 10-15 years of pent-up demand and restored balance sheets.
As Mark has indicated, short-cuts to wealth are going to be few and far between. But those doing it the old-fashioned way, *saving* will always succeed in the long-term.
****
As an aside, I think most of the wealth from the Tech Revolution was utterly pissed away. At the societal level we squandered a chance for better living (more and varied leisure, higher quality food and goods, closer communities) for consumer schlock and all "investment" structurally dependent on never-ending population growth. While it is an utter shame on the societal level, individuals still have unprecedented autonomy and unthinkable wealth and freedom to pursue their own happiness. That's a pretty great thing.
Yes it will be harder; no it won't be impossible.
All,
I wanted to work on a post next week concerning the Japan 20 year deflation/mutli recession thing. While every effort here has been to avoid the same fate (with limited success) what has it been like in Japan? Last I checked the country is still innovating, still going forward and there are no "tanks in the streets" so just what kind of pain are we trying to avoid? Appreciate any thoughts.
off-topic - mark - is this some common logo or is it yours?
http://pensionpulse.blogspot.com/2009/11/illusion-of-prosperity.html
gysc - all i know is that Japan did ok cos the developed world was still doing ok - not quite the situation now..
Stevie b.,
No, that is not a common logo. That's my dog in the picture. I really appreciate you pointing this out to me.
I think this requires a special post and a link to his site. I plan to have a field day with it.
The Halo 3 'Candy Mountain' is hilarious!!!
I just now got a chance to check this out.
http://tinyurl.com/ycnx4os
Hey Mr. Kolivakis at 'pensionpulse' does have your pup's picture on display.
Good catch Stevie B.
Mark said:
"I think this requires a special post and a link to his site. I plan to have a field day with it."
This is gonna rule!
GYSC,
I'm having another one of those optimistic days. I've been known to have them. I think your comments on Japan are spot on (although I think it may get much worse for them sooner rather than later).
It's very easy to just extrapolate the present into the distant future, and the present kind of stinks, lol.
I just subscribed to Scientific American again (the school was having another one of those subscription drives and I cannot say no to a sales kid :)).
The cover of the magazine says...
"A Plan for a Sustainable Future"
"How to get all energy from wind, water and solar power by 2030"
That would sure change the bearish equation a bit, or at least prolong the eventual collapse.
There's also something else worth mentioning in the magazine, mainly because we've been talking about it so much lately.
There's a full page ad for Viking Gold Nobles. Never heard of them? Me either. It is the "gold coin that never was". I think you know where this is going. Let's just cut to the chase. 1/20th of an ounce, $144.95 each, limit 5 per household (just to be "fair to all our readers"). Let's see. $145 x 20 = $2,900 per ounce. Ouch. Not exactly the smart way to be buying gold.
There's also a full page ad for a diamond ring. "The fifth C?" is chemistry. 2 1/2 carats for just $145. It's "perfection from the laboratory". I've written about that in the past as it applied to falling industrial diamond prices.
This is in Scientific American no less! You know I'm a bit bearish on gold and very bearish on diamonds. I can say without reservation that the gold you and others here own is a FAR better deal than what's offered in the magazine. The risk for you though, especially if you believe that gold is money, is that the bad money really is driving out the good again. The last thing you need to see as a gold investor is the dumb money flocking to pretend gold. Further, I'd like to think that those reading Scientific American are actually smarter than most. I'd like to think that, since I AM reading it, lol. ;)
I also want to add that I saw the updated Day the Earth Stood Still movie last night.
The central theme was that people don't change until pushed to the edge. There is some hope we too can change. I just wish we weren't leaning over the edge right now and looking down.
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