Bad Money Advice

I stumbled upon a new website in the past week and it has really pulled me in. I've added it to my blog list and would encourage you to check it out. For the most part, I think it is filled with common sense.

Bad Money Advice

Because Mainstream Personal Finance Advice Is Not What It Should Be

Bad Money Advice: About

Francis X. Curmudgeon is the alter ego of a bitterly unemployed hedge fund manager in the suburbs of Boston, Massachusetts. Surprisingly, he often knows what he is talking about, not that anyone listens.

Deflation in August

Are we headed for bad economic times, as in the Japanese experience? I do not have any special insight, but I do not think so. We have had a year of mixed economic news, with much well founded anxiety grabbing the attention away from a background hum of gradually improving confidence. All of which is typical of the start of a recovery. But, for all I know, it also describes the situation in Japan around 1993.

IRAs: Roth and the Other Kind

In the big picture, what matters are tax rates now and when retired. And for many, if not most, people that means that an old-school traditional IRA is a better choice, even if it lacks hipness and the frugal appeal of paying more now for a benefit far in the future.

Should You Invest in Gold?

Gold just sits there. If you buy actual coins and bars you can spend your evenings fondling it, but most investors today do not even get to do that. They purchase financial instruments that represent ownership of some gold in a dark vault deep underground somewhere.

The comparatively sophisticated argument in favor of gold is that it is the ultimate hedge against bad things happening to the rest of your portfolio. When it really hits the fan and panic sets in (e.g. fall 2008) gold goes up, and is often just about the only thing that does.

While this is certainly true as an empirical observation of what has happened in the past, it strikes me as a weak investment thesis. It relies too heavily on panicked investors following convention. People consider gold to be a safe haven investment only because they believe that everybody else does. If they start to doubt that and notice that gold is actually comparatively volatile and of marginal economic value, then the whole thing could come crashing down.

This Just In: Suze Turns Bearish

The problem with Suze’s prognostications is not that they are half-baked conventional wisdom, but that they are stale half-baked conventional wisdom.

Ten Things Dave Ramsey Got Wrong

The other week I finished up a five part series of posts on Dave Ramsey’s Seven Baby Steps. It seems to have been well received and still gets a steady stream of clicks. But honestly, I was expecting a larger and more Snowball attr Kamyar Adl crop hostile reaction than I got, at least as measured by comments and emails. Ramsey has a very large and devoted following, particularly, it seems, in the blogosphere.

Never Sell a Used Car

The optimal car strategy is to buy two- or three-year-old used cars and drive them until they are scrap metal. Which is what the experts recommend. But the real benefit is on the back end, not the bargain you get up front. Given the choice, and here is where I part company with the established wisdom, buying new and driving the thing until it stops running makes more sense than buying youngish used cars and selling them again when they are not so young.

Stupid Answers for Stupid Questions

I’ve written before on The Black Box Theory of The Stock Market, the idea that what drives the market is unknowable, so all we can do is make simple extrapolations from what it has done in the past. This is another example of this thinking, and a rather extreme one at that. Rather than make reasonable suppositions based on thoughtful analysis of the stock market, we prefer to carry out commercial archaeology.

Yes, the institution now known as the New York Stock Exchange did exist in 1802. It met in a coffee house. New York harbor was then filled with sailboats. The docks were worked by slaves. Business leaders sometimes settled disputes with duels. And yet Zweig, Siegel, and “brokers and financial planners” think that the price movements of the few stocks traded on this proto-market are a legitimate indication of what might happen in the 21st Century?

I Will Guarantee Your Treasury Bonds

So I am here announcing that I, Frank Curmudgeon, will guarantee up to $1 Billion in US Treasury Bonds against default for five years, for the low low price of only 1%. That’s right, the first investor to wire me $10M gets the peace of mind that only a guarantee against default can bring.

Cynics amongst you might object that I don’t have $1B to make good if need be. That’s a valid point. But the same problem exists for anybody writing CDSs on Treasuries.

A US Government default would be a financial Armageddon on the scale of, well, the Earth being invaded by robotic aliens. I should have a good analogy here involving Lehman Brothers but I am having trouble coming up with one that really captures the sense of scale. US default is to Lehman bankruptcy as the Hindenburg is to a twenty minute air traffic delay?

What to Expect from the Stock Market

Expecting 10% a year from the stock market over the long run is reasonable, but counting on it is foolish.

I think I might be able to sway his opinion on 10% returns to some degree if given time to present my case. However, even if I am right to be bearish long-term, he's already won the battle. He understands that 10% returns are not a "sure thing".