Personal Finance And Investing

29 May 2009

Debt and Moral Hazard

While we struggle to try to return to “business as usual” in America, we gloss over how things have fundamentally changed.

The current economic situation represents not necessarily a fundamental shift, but the eventual realization of moral hazard. We’ve rewarded the wrong kind of behavior for too long and lost sight of sound decisions making.

Is it too late to return to sound practices?

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29 April 2009

Why Now May Be the Right Time for Green Stimulus

For those who have accepted the idea that government stimulus is a wise idea, the problem remains of determining what to stimulate. While there are many differing opinions on this, one of the key properties of a desirable strategy is the creation of jobs. While Green stimulus may attract the attention of private investors is it as effective as it’s cracked up to be?

While there are risks with any approach, Green tinged stimulus may provide the best opportunities for maximizing the stimulus dollar. For many reasons, now may be the best time for Green spending.

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23 April 2009

The Difficulty of Investing in 2009

The current economy is a very difficult environment. Competing and conflicting situations make a coherent strategy difficult. Several things make 2009 a particularly difficult nut to crack:

• Asset Class Issues
• Government Interference
• Conflicting Short and Long Term Issues

How can an investor overcome these issues?

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16 April 2009

Is the Financial Sector a Utility?

I am a fervent believer in free markets. More specifically I believe that they, much like Democracy, are flawed but vastly superior to any alternative. As various elements in the world decry the current financial crisis as an indictment of the flaws of capitalism, I wait patiently for them to suggest the proven alternative.

Despite this, I am left wondering if the financial sector is an exception to the wisdom of free markets.

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28 March 2009

A Different Kind of Stimulus – Rewarding Our Troops

President Obama has been struggling to sell America on the efficacy of his stimulus plan. While we are looking for “shovel ready” projects to which to direct our stimulus dollar, why not look at our troops? Increased spending and benefits to soldiers would be a public good and morally rewarding.

Is spending money on benefits for soldiers less appealing than spending it on bailing out banks?

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17 March 2009

AIG and Populist Rage

Populist rage is all the…well…rage. Everyone right now is outraged over how much people get paid to do their job poorly, or how much more some people have than everyone else. Now of course you can make arguments that the income distribution of modern society is counter-productive, but one key question is:

Why Do We Care RIGHT NOW?

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5 March 2009

Handling the Bank Bailouts

As of this writing, the Citibank closed the previous day’s trading at $1.20 per share. This gives them a market capitalization of just over $6 billion dollars. Specifically, this means all the common stock of Citibank is worth $6 billion dollars. In November, the US Government “injected” $20 billion and guaranteed $306 billion of Citibank’s assets. Citibank has been “bailed out” repeatedly and has had a total of $45 billion of taxpayer money channeled to it. This leads to one simple question:

How is Citibank Solvent?

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22 February 2009

Investing Step 10: Techniques

Once you’ve decided how your money should be allocated, it then becomes a matter of execution. There are many details that can make a tremendous difference in how your returns are realized. How you get your money into its allocation is nearly as important as what allocation you choose.

Some key techniques are diversification, dollar cost averaging, index funds and rebalancing.

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25 January 2009

Protectionism: A Prisoner’s Dilemma?

In game theory there is a “game” called the “Prisoner’s Dilemma”. The details of the game are that two players have been arrested. If they cooperate and neither “rats” on the other they will both go free, if one “rats” on the other then the one gets off light and the other one gets a stiff penalty. If they both turn on each other they both get a moderate penalty. In common usage, the basic idea is a situation where each of the parties would be best off if neither of them participated, but much worse off if they don’t participate and the other party does. Is Protectionism an example of such a “game?”

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17 January 2009

What We Should Fear Volume One: Inflation

The economy is always fraught with peril. Your savings and investments are always subject to risk, and it’s your job to protect them. Unfortunately, if it were easy to identify the risks out there, we’d do a better job of avoiding them. One problem that seems to loom in the future of every investment decision is monetary policy. The current crisis is one of deflation. People have less money and feel less secure, so they spend less money. This means that companies have to charge lower prices and make less money, which leads to layoffs, which leads to people having less money and feeling less secure.

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