Here is a press release about a recent post on the fiscal cliff:
http://www.free-press-release.com/news-fiscal-cliff-and-lucky-charms-1356923512.html
http://www.free-press-release.com/news-fiscal-cliff-and-lucky-charms-1356923512.html
Sunday, December 30, 2012
We have finally reached the end of the fiscal cliff drama. Tomorrow
is the last day, or so we are told. this fiscal cliff is nothing more
than an opportunity for ego driven politicians to get on TV. It is a
manufactured crisis that draws the nation’s attention to the
politicians, rather than where it usually resides like the Dancing with
the Stars finals or the latest Kardashian rumor.
I think the best course of action for the country is to go over the cliff. Why? It all has to do with Lucky Charms. I was the type of kid who would eat the grains in my Lucky Charms and leave the colorful marshmallows to the end. My sister, like most kids, would eat the Lucky Charm marshmallows first and then try to get out of eating the “bad stuff.” Mom always made her finish the grains even if she sat at the kitchen table for an hour. While I enjoyed my colorful, marshmallow ending, my sis gagged down the soggy wheat globs (if you ever let cereal sit in a bowl of milk for an hour you know what I mean by wheat glob). I could delay gratification while my sister could not. As I look at the fiscal cliff, my Lucky Charm behavior emerges: take a little pain now and enjoy the ending. The politicians, and most Americans, want their marshmallows now. Their hope is the wheat bits can be avoided altogether. Unfortunately for them, the economy, starring as Mom in this instance, forces you to eat the wheat at some point.
But the media says the fiscal cliff will cause a recession
It might, but it might not. To understand the ramifications, let’s look at the cliff and the two opposing plans out there today (graphs courtesy Agora Financial). If we ride over the cliff, we will experience a $607 Billion event in 2013 ($504 in tax increases and $103 in spending cuts). Our economy is just over $14 Trillion. The cliff amounts to 4.3% of our GDP. Certainly, we would be eating some wheat now as this could retard economic activity, but a $14 Trillion economy won’t be waylaid by a 4% event.
The current plans offered by the President and Republicans are certainly less taxing on the economy today. President Obama wants $1.8 Trillion in tax increases and spending cuts over the next 10 years while the Republicans call for $2.2 Trillion over the same ten year period. Both plans derive the vast majority of spending cuts from Medicare/Medicaid savings. History has shown that these savings never appear. Projected cuts to doctor payouts, thesignificant savings in both plans, are usually overturned at the last minute. So the spending cuts by both plans probably won’t emerge.
If the President and Republican plans would spare the economy in 2013 more than the fiscal cliff, why would I want to recklessly drive over the cliff. It has to do with Lucky Charms. I prefer the whole grains now while they are crunchy, rather than later when the grains are soggy glumps.
Learn From History or Repeat It
In This Time Is Different: Eight Centuries of Financial Folly, economists Ken Rogoff and Carmen Reinhart examined 800 years of debt fueled financial crisis. Every single case of currency collapse, high or hyper-inflation, or government defaults happened when a government breached these two metrics: borrowing 40% or more of annual government spending and government debt to GDP of 100% or more. It doesn’t happen immediately upon reaching these levels, but if governments do not alter behaviors shortly after surpassing these metrics, calamity has always ensued. Today, the US government violates both of these metrics.
While the fiscal cliff may harm the economy today, it would reduce our annual deficit from $1.2 Trillion (40% annual borrowing) to $600 Billion (20%). To put this in perspective, a $600 Billion annual deficit would have been a record before 2009. As if I haven’t depressed you enough, Social Security and Medicare spending will strain our budget no matter what in the coming years as the baby boomers retire in mass. The President and Republican plans maintain trillion dollar deficit levels even if the Medicare savings magically appear. A recession today would certainly hurt. However, a normal downturn today certainly trumps a default or currency crisis down the road. We can eat our whole grains now or wait until they turn into a soggy, disgusting mess.
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
I think the best course of action for the country is to go over the cliff. Why? It all has to do with Lucky Charms. I was the type of kid who would eat the grains in my Lucky Charms and leave the colorful marshmallows to the end. My sister, like most kids, would eat the Lucky Charm marshmallows first and then try to get out of eating the “bad stuff.” Mom always made her finish the grains even if she sat at the kitchen table for an hour. While I enjoyed my colorful, marshmallow ending, my sis gagged down the soggy wheat globs (if you ever let cereal sit in a bowl of milk for an hour you know what I mean by wheat glob). I could delay gratification while my sister could not. As I look at the fiscal cliff, my Lucky Charm behavior emerges: take a little pain now and enjoy the ending. The politicians, and most Americans, want their marshmallows now. Their hope is the wheat bits can be avoided altogether. Unfortunately for them, the economy, starring as Mom in this instance, forces you to eat the wheat at some point.
But the media says the fiscal cliff will cause a recession
It might, but it might not. To understand the ramifications, let’s look at the cliff and the two opposing plans out there today (graphs courtesy Agora Financial). If we ride over the cliff, we will experience a $607 Billion event in 2013 ($504 in tax increases and $103 in spending cuts). Our economy is just over $14 Trillion. The cliff amounts to 4.3% of our GDP. Certainly, we would be eating some wheat now as this could retard economic activity, but a $14 Trillion economy won’t be waylaid by a 4% event.
The current plans offered by the President and Republicans are certainly less taxing on the economy today. President Obama wants $1.8 Trillion in tax increases and spending cuts over the next 10 years while the Republicans call for $2.2 Trillion over the same ten year period. Both plans derive the vast majority of spending cuts from Medicare/Medicaid savings. History has shown that these savings never appear. Projected cuts to doctor payouts, thesignificant savings in both plans, are usually overturned at the last minute. So the spending cuts by both plans probably won’t emerge.
If the President and Republican plans would spare the economy in 2013 more than the fiscal cliff, why would I want to recklessly drive over the cliff. It has to do with Lucky Charms. I prefer the whole grains now while they are crunchy, rather than later when the grains are soggy glumps.
Learn From History or Repeat It
In This Time Is Different: Eight Centuries of Financial Folly, economists Ken Rogoff and Carmen Reinhart examined 800 years of debt fueled financial crisis. Every single case of currency collapse, high or hyper-inflation, or government defaults happened when a government breached these two metrics: borrowing 40% or more of annual government spending and government debt to GDP of 100% or more. It doesn’t happen immediately upon reaching these levels, but if governments do not alter behaviors shortly after surpassing these metrics, calamity has always ensued. Today, the US government violates both of these metrics.
While the fiscal cliff may harm the economy today, it would reduce our annual deficit from $1.2 Trillion (40% annual borrowing) to $600 Billion (20%). To put this in perspective, a $600 Billion annual deficit would have been a record before 2009. As if I haven’t depressed you enough, Social Security and Medicare spending will strain our budget no matter what in the coming years as the baby boomers retire in mass. The President and Republican plans maintain trillion dollar deficit levels even if the Medicare savings magically appear. A recession today would certainly hurt. However, a normal downturn today certainly trumps a default or currency crisis down the road. We can eat our whole grains now or wait until they turn into a soggy, disgusting mess.
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
Friday, December 7, 2012
Christmas and Economics - What Could Be Better?
Here is a humorous take on economic theory wrapped in a Christmas carol (h/t Daily Capitalist). The parody attacks the claims that wealth is created by consumption – a common misnomer preached by Keynesians like Paul Krugman. The reality is wealth is created through savings, investment and improvements in productivity. Think about it for a second. Does your personal wealth increase when you buy TVs, iPads, and clothing or when you invest in stocks, bonds, and real estate. Many Keynesians claim that on the individual level savings increases wealth, but it doesn’t work on a macro level. Huh? Isn’t the macro simply a compilation of the micro? Anyway, this will be enjoyed by those of you who are as boring as me and find economics fascinating (yes, I just said I find economics fascinating).
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
Saturday, October 6, 2012
Kyle Bass Interview - Must See
If you scroll through previous posts, you will I am a big fan of hedge
fund manager, Kyle Bass. In fact, once I even called him a man crush.
The reason is he is able to take the 30,000 foot view. He isn’t the
typical pundit-clown you see on financial news extrapolating one data
point to push his or her investment view. Of course, I may like him
because my view coincides with his. Psychologists call this confirmation
bias where we tend to identify with like minded folks. It can be
dangerous if ignore other well reasoned, but contrary, points of view.
However, as I continually read and challenge myself, this is the
viewpoint I see as most plausible. Timing is impossible, but the overall
trend will probably play out. If you believe that thirteen bankers
behind closed doors can devise plans to magically negate any debt build
up, then this view will be contrary to your thinking. This is certainly
worth a few minutes of your time.
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
Saturday, September 22, 2012
Alternative to Paltry Money Market Yields
Admit it. You hate bankers. It’s ok – I admit it. Banks assume a
massive amount of risk yielding enormous profits. When the risks
implode, the banks get a bailout. How do they repay us? They give us
sub-1% yields on our money. I am not saying all banks are bad. I love
credit unions and community banks that avoided the dangerous tactics
undertaken by the To Big to Fail Banks (TBTF). Over the next couple
weeks, I am going to examine a few ways to kick those bankers to the
curb without taking on loads of additional risk. If you are tired of
earning pennies on your balances, these might be better ideas.
The first idea is peer-to-peer lending. Why would you want to look at peer-to-peer lending? Let’s face it. Banks are nothing more than glorified middlemen. They take your money and pay you a whopping sub-1% return. The banks take your money and loan it as mortgages, business loans, auto loans, and credit cards at substantially higher rates. You get 1% while the banks get 5% or more. Peer-to-peer lending cuts out the banks. You get a higher return while the borrower pays a lower rate than the banks charge.
I focus on two premier peer-to-peer lenders, Lending Club and Prosper, which have both been around for five years or more. These two companies have loaned over a billion dollars since inception through 112,000 loans. Essentially, these companies created a platform that brings lenders and borrowers together. The beauty is Lending Club and Prosper do a credit analysis on the borrowers using FICO scores and other proprietary methods. Borrowers deemed a solid credit risk can usually borrow from 5% to 8% while the riskiest borrowers get high double digit rates. These two companies review thousands of borrowers and turn down those they estimate are unlikely to repay. As a lender, you can review the borrower’s profile and decide to invest (or not) with that borrower. You can invest as little as $25 for each borrower. With $1,000, you can diversify into 40 loans. For those who would rather not go through numerous borrower applications, Prosper and Lending Club have a tool that lets you set initial criteria such as desired credit risk or interest rates then they invest the money for you.
Lending money to people you don’t know or taking money with an FDIC backing to an alternative without this guarantee may scare you – and rightfully so. However, the companies have years of data to give investors a solid understanding of the default rates. At both organizations, the most creditworthy borrowers default less than 2% of the time while the riskiest borrowers default about 13% of the time.
Let’s assume you invest $1,000 into 40 loans at $25 per loan evenly across the highest to medium creditworthiness. If the numbers provided by the companies is true, you could expect a 5% default, meaning you only receive $950 of your initial principal back upon maturity. However, over the course of the loan (the options are usually 12 or 60 months), you would earn approximately $78 per year on that $950, which is an 8.2% return. That sure beats the 1% you receive from the bank.
One downside is the liquidity of the loans. You can sell them, but you have to use the Folio Trading platform. No guarantee is made that you will find a buyer or that you will get the full value of the loan. Also, the companies are not registered yet in every state. You need to determine if your state is registered. Even with no FDIC, a default risk, and lack of liquidity, peer-to-peer lending is an excellent alternative to money markets and CDs.
For full disclosure, I have a Prosper ad on this site so I can receive compensation from Prosper if you click on my link and sign up. If you think peer-to-peer lending is right for you, I would love for you to click on that link. My kids are getting close to needing braces. LOL
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
The first idea is peer-to-peer lending. Why would you want to look at peer-to-peer lending? Let’s face it. Banks are nothing more than glorified middlemen. They take your money and pay you a whopping sub-1% return. The banks take your money and loan it as mortgages, business loans, auto loans, and credit cards at substantially higher rates. You get 1% while the banks get 5% or more. Peer-to-peer lending cuts out the banks. You get a higher return while the borrower pays a lower rate than the banks charge.
I focus on two premier peer-to-peer lenders, Lending Club and Prosper, which have both been around for five years or more. These two companies have loaned over a billion dollars since inception through 112,000 loans. Essentially, these companies created a platform that brings lenders and borrowers together. The beauty is Lending Club and Prosper do a credit analysis on the borrowers using FICO scores and other proprietary methods. Borrowers deemed a solid credit risk can usually borrow from 5% to 8% while the riskiest borrowers get high double digit rates. These two companies review thousands of borrowers and turn down those they estimate are unlikely to repay. As a lender, you can review the borrower’s profile and decide to invest (or not) with that borrower. You can invest as little as $25 for each borrower. With $1,000, you can diversify into 40 loans. For those who would rather not go through numerous borrower applications, Prosper and Lending Club have a tool that lets you set initial criteria such as desired credit risk or interest rates then they invest the money for you.
Lending money to people you don’t know or taking money with an FDIC backing to an alternative without this guarantee may scare you – and rightfully so. However, the companies have years of data to give investors a solid understanding of the default rates. At both organizations, the most creditworthy borrowers default less than 2% of the time while the riskiest borrowers default about 13% of the time.
Let’s assume you invest $1,000 into 40 loans at $25 per loan evenly across the highest to medium creditworthiness. If the numbers provided by the companies is true, you could expect a 5% default, meaning you only receive $950 of your initial principal back upon maturity. However, over the course of the loan (the options are usually 12 or 60 months), you would earn approximately $78 per year on that $950, which is an 8.2% return. That sure beats the 1% you receive from the bank.
One downside is the liquidity of the loans. You can sell them, but you have to use the Folio Trading platform. No guarantee is made that you will find a buyer or that you will get the full value of the loan. Also, the companies are not registered yet in every state. You need to determine if your state is registered. Even with no FDIC, a default risk, and lack of liquidity, peer-to-peer lending is an excellent alternative to money markets and CDs.
For full disclosure, I have a Prosper ad on this site so I can receive compensation from Prosper if you click on my link and sign up. If you think peer-to-peer lending is right for you, I would love for you to click on that link. My kids are getting close to needing braces. LOL
Kirk Kinder, CFP® is the Founder of Picket Fence Financial, a fee-only financial planning and investment management company dedicated to saving folks from Wall Street. Picket Fence Financial does this through a few different ways. One, our fee-only approach ensures our advice is tailored to our clients needs and not driven by commissions. Two, we minimize costs for clients by utilizing low cost Exchange Traded Funds (ETF) and aligning our internal operations to keep our company costs down (and passing this along to our clients). Third, we offer a la carte planning, which means our clients decide how they want to work with us. Rather than forcing clients into our model of planning, we offer hourly, retainer, or asset management options (or a combination thereof).
All information on this site are the opinions of Kirk Kinder, CFP® and should not be construed as investment, tax, estate or insurance advice. Please consult your own specialist for personal assistance.
Saturday, September 15, 2012
Press Release on Estate Planning Webinar
Here is the recent press release regarding the recent estate planning
webinar featuring Dax Nelson, J.D. LL.M, of Dax Nelson law.
http://www.free-press-release.com/news-five-common-estate-planning-mistakes-1347761529.html
http://www.free-press-release.com/news-five-common-estate-planning-mistakes-1347761529.html
Five Common Estate Planning Mistakes
In a recent podcast, which can be found here, Dax Nelson, J.D. LL.M, discusses the five most common estate planning mistakes he sees people make. Among the routine errors, misunderstanding the asset protection provided by revocable trust is the most common. Other errors are choosing the wrong people to administer your estate, not updating your estate plan, and issues with medical issues.
Dax Nelson practices law in Tampa, Florida. His website is http://www.daxnelsonlaw.com.
Picket Fence Financial saves people from Wall Street with its fee-only approach, use of Exchange Traded Funds (ETF), education of clients, and flexible service options for clients.
Dax Nelson practices law in Tampa, Florida. His website is http://www.daxnelsonlaw.com.
Picket Fence Financial saves people from Wall Street with its fee-only approach, use of Exchange Traded Funds (ETF), education of clients, and flexible service options for clients.
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