Friday, February 27, 2009

Will the Market Find Support?

The market opened down this morning and under some key support levels in the S&P.  The November lows of 740 on the S&P have remained strong technical support from any pressure downwards.  This is actually a long term level of support that goes back more than a decade.  Underneath that ... well lets say there just is not very much support.

So as much as I think this market has more upside than downside, this market is trading on pure emotion and the downside risk still exists.  If the market gets much below 740 and stays there, I think you are going to see a tidal wave of selling as people finally give up on this market and just run for the exits.  If that happens, watch out below, because there really isn't much of a floor anywhere below.

Wednesday, February 25, 2009

Bailouts for All! (except the responsible)

My lord what are we coming to.  I'm deeply ashamed to say I was ever a student under Ben Bernanke.  Today, he stood in front of congress and stated that we should forget the problem of moral hazard and bailout even those who took on mortgages they knew they could never afford.  Read that again.  People who took on mortgages they knew they could never afford.

If this does not cause some amount of outrage in people I am not sure what will.  These are people who knowingly knew that they were doing something they should not be doing.  These are the people who essentially lied to get into a house.  It is akin to stealing money.  Yet now the rest of us should pay for it?  The argument goes that there is a time and place to take the moral high ground and this is not the time to take it.  But really, what is morality if people just throw it out the window when times get tough?

This nation became great because its people persevered through the roughest times.  It is that never quit, pull yourself up through your own bootstraps type attitude that we most desperately need now.  This is the exact opposite of that.

Tuesday, February 24, 2009

Right for Two Days in a Row

I should mention I actually was right two days in a row.  I mentioned at the end of my post two days ago that I was going to cover my short position.  My reasoning at that point, and which proved to be right, was that the market would have a sharp correction the other way as traders covered their shorts.  The market rallied slightly in the morning, and then pulled back toward the middle of the day.  I decided to sell my short position at that point and get out while the getting was good.

My timing in this regard could not have been better.  The market had a strong rally starting almost literally as I sold my short position.  The exact timing of the rally was certainly more luck than skill on my part so I cannot take too much credit.

The market this morning is tanking once again, stirred on by worse than expected job and housing numbers.  Well duh.  More on that later tonight.

Stimulus could rate rates

This article by CNN said pretty much the same thing I concluded this weekend, the stimulus, because of all the borrowing that the government will have to do to fund it, will likely have the effect of raising interest rates.  Of course, if it happens, it will occur at the absolute worse time for the economy.  But economics cares very little about the desires of humans.

However, what was even more surprising to me was how much debt some other countries have on their balance sheets.  What I find particularly funny though is that other countries bad planning is used as justification for the United States to do the same thing.  I am not sure if I feel comfortable being bucketed in the same class as some of the other countries who could not live within their own means.  The U.S. should be a leader, not like everyone else.

Monday, February 23, 2009

Right for a Day

Feels good to be right, for at least one day.  This is actually what I feared.  The market fundamentals are really breaking down here.  It is actually worse then it even appears on the surface.

The Dow Jones got killed today losing over 3% of its value and ending the day just above 7100.  My coworker joked today that we were going to see Dow 5000.  At least I thought she was joking.  She may not have been too far off which is a scary thing.  Now the Dow has not seen these levels in over eleven years.  But the problem is that we ahve had significant inflation since 1997.  Do not let the CPI tell you that we have had low inflation over the last decade. This is a complete farce.  We have actually had very significant inflation over the last decade.  Just look at housing and energy.   These prices are not accurately reflected in the CPI "core" data but the big lie that the government perpetuates is that this is unimportant.  Umm, don't we all have to live somewhere and pay for gas?

So when you take into account inflation, the numbers are even worse then that.  How sad is it that we have essentially washed out all progress and value in the market to levels not really last seen since the 80's?

I still have a significant short position in the market but I will probably cover tomorrow so long as the market does not do anything too crazy.  While I think the market still has some ways to go down, there is no reason to get greedy right now.  Take your gains and find a diffrent position to take.

Sunday, February 22, 2009

The Secular Bear Market

A Secular Bear Market

This weekend, I thought about where I want to be invested over the next several years.  I want to be building the foundation of my investment strategy now while we are in the midst of an extremely weak market.   I thought long and hard about which types of sectors and companies will be winners three, five, and even ten years down the line so that I can start to take positions that reflect better times.

But I kept coming back to the same conclusion, the US equity market probably in not going anywhere but down over the next several years.  Why am I so negative?  We are in the midst of a secular bear market.  These things can last twenty or more years.  I think we started in 2000 with the popping of the tech bubble and will continue for another decade.  The run up we saw from about 2003 up until 2007 was an illusion created by our government, temporary relief in an otherwise grim picture  Here are the facts that I just cannot get past.

  •  American's are net debtors both as individuals and as a nation.  This debt is going to come due, and it is going to come due faster than any of us would like.  We have gone form creating net value and exporting it to other countries, to importing that value and sending away debt that we cannot really afford.  That brings us to the next problem.

  • Inflation.  It is pernicious when it strikes, and it is looming around the corner.  Anyway you slice it, inflation is almost inevitable.  Foreign countries hold vast amounts of our currency.  These same countries are growing at an alarming rate as they modernize.  They will compete with us for the same resources causing inflation in commodity prices which is the basis for all goods.  You couple this with really low interest rates that we have now, a result made by our government because they are printing money and you can see that there is no other logical outcome then we will have inflation.

  • Boomers need to retire.  This is demographics, and you cannot fight demographics.  Most of their assets are tied up in real estate and the stock market.  That means this very large and wealthy group will become net sellers.  This will cause the price of all assets to drop as supply will greatly outweigh demand.

  • Interest rates will rise.  This will have negative effects on bond prices and the stock market.  This is a direct result of the first point.  At some point, other countries will get sick of our debt.  However, we will have no choice but to keep borrowing.  The only way to do this is to raise the interest rates we are willing to give on those bonds.


So given all of this, I am rethinking some of my long term investment strategies.  I'm not so sure I will continue to short the market from here, I think we are going to see a short term rally very soon, but I will look to invest very differently in my long term holdings.  Sure, I might buy some U.S. equities, but it will have to be a very solid company I am sure can reach international markets.

I will mainly be looking to short U.S. treasuries.  Something that can be done very cheaply now as everyone is fleeing to safety.  I will also look to a few more commodity plays.  The price of real assets, especially those denominated in U.S. dollars, is likely to soar over the next few years.  Luckily, these assets have sold off with the rest of the market.  This should provide an excellent buying opportunity now, something we probably won't see again anytime soon.

Thursday, February 19, 2009

Real Estate Investors & A New Plan

I saw a post on CNBC today and had to laugh.  It was an article written by their real estate reporter declaring that not all real estate investors are irresponsible.  Here is a brief excerpt from the end of the post that gives her point:

Mr. Obama, it is not wrong, irresponsible or even negligent to purchase an investment property. Not every American can afford a home; we’ve learned that the hard way. There is no shame in renting. But a rental home is not always an apartment in a building owned by a large developer. It is often a single family home or a condo, owned by another American who purchased an investment property, legally, responsibly and ethically. Why exactly are we penalizing these homeowners? You might consider the fact that when these properties go into foreclosures, the responsible renters are out on the street as well.

Now I agree that there are many investors who acted responsibly.  But why should I help those guys out any more than I should help out the people who lost money investing in the stock market (of which I am one)?  How is not helping real estate investors "penalizing" them?  Seems like everyone feels entitled to a handout these days huh?  This is the exact type of language someone would use if they feel entitled to something.  If they do not get it, it is not fair because everyone else got it too.  Give me a break.  Seriously, I do not care one iota if every investor loses their home.  Would it be an economic calamity?  Sure, but that is why it is called "investing".  Investing has risks associated with it.

This is also why I do not want to help most people out now, even the "responsible" ones.  They too took a gamble.  Now you could argue, that many people did not buy a house for an "investment" reason.   They just happen to be the happy beneficiaries of a rising asset.  In that case I propose the following plan since government seems to want to protect homeowners, but not investors, and make the rest of us pay for it.

When you buy a residence, you must declare if it is for you to live in or for you to have an investment.  If you declare it is for you to live in, great.  You will get all the benefits that exists today.  You get to deduct the interest on your mortgage.  And if what happens today, the price of your home drops, the government will protect you so you can stay living in your home.  HOWEVER.   Let us say you are going to sell your home.  You should not reap any of the profits of you selling your home.  The government should get part of your windfall.  You after all were not in it for the money and the government was protecting your losses.  They, and by that I mean all of us, should reap the benefit of protecting your home.

The inverse would be true for any house you declare an "investment".  That is, you should not get any protection or benefit from the government of any kind.  You should not be able to deduct the mortgage and you should not get any assistance if your house becomes worth less than what you paid.  However, if you sell it, you get all the profit.

This is a simple idea really.  Why should we have privatized gains and socialized losses, the exact scenario we are in now?  We need to get back to a system of private gains and private losses & social gains and social losses.

Wednesday, February 18, 2009

Housing - The Party That Won't Start

Today, Obama announced his housing rescue plan.  It basically boiled down helping out "responsible" home builders by giving them access to low cost financing so long as they are not too underwater on their mortgage.  It also created some incentives for lenders to modify loans for "at risk" homeowners who are in danger of defaulting.

All of this will be in vain.  I really just do not understand how others, supposedly smarter people do not understand this.   Let me try to explain in very small words.

Rising housing prices is bad.  If housing rises faster than incomes, then you are pricing out a class of people, new homeowners.  People who get happy when the price of their primary residence rises are foolish.  It does absolutely nothing for you if everyone's house is rising in price as fast as yours.  If you sell your house, you are going to buy another one.  Rising housing prices will in fact hurt you because you pay taxes as a percentage of your house's value.  You also pay closing cost and other real estate fees when you sell your house as a percentage of the sale.  So you are paying more and more for each of these transactions.

Now, this may be just fine if you are in housing already.  You can swap houses with other homeowners and pay more and more for that asset. But at some point, for the asset to really be worth more, you need outside money to come in and buy the asset from you.  For you to "move up" you have to get someone to buy your starter home.  How is this going to happen if your price is too high for the average person to afford?  It won't.

This is a simple economic fact.  Housing prices will not stabilize until an average family can afford the average house and we are still far away from that.  Anything that attempts to prevent the housing price correction, such as this plan, is only stalling the inevitable.  This plan does not and cannot create demand at the bottom.  It actually does the exact opposite by keeping demand artificially low by keeping prices artificially high.  The government can throw however many billions or trillions they want at the problem.  Until someone addresses the question of how the average American can become a homeowner, prices are either coming down or we are staying flat for another dozen years.

Monday, February 16, 2009

How To Become CEO

CEO BookI read a book this weekend by Jeffrey Fox titled How to Become CEO: The Rules for Rising to the Top of Any Organization. I eventually do want to run whatever company I may be working for so I figured I would pick up this book to see what it had to offer.  The book offers several short tips that can be summed up in one sentence.  These tips range from "See the Job through the Salespeople's Eyes" to "Homework, Homework, Homework".   This tip is the title of each small chapter.  The chapter, in one or two pages, goes slightly deeper to explain what is really meant by the advice.

The good thing about the book is that it small and very easy to read.  I finished the book in about an hour, maybe less than that.  I agree with much of the advice, and disagree with some others.  But having never been a CEO, perhaps I am not the best person to really judge the veracity or the efficacy of the advice given in the book.  Here are some of the better pieces of advice, and some of the worse.

The Good:

  • Always take the job that Offers the Most Money - It is the first tip and I agree with this one.   Many will tell you to follow your passion, but if you want to rise to the top quickly, you should take the job that pays the most money.  The reason for their advice? You are more visible to upper management, you will be expected to do more and thus be given more responsibility, and all things being equal, it is easier to give the promotion to the higher paid employee.

  • Keep Physically Fit -While I agree with it, I will admit to falling behind in this one.  Strong body = Strong mind.

  • Don't have a drink with the gang - I never drink with coworkers.  There is absolutely no upside to this and there is only downside.  If you get drunk, it shows a lack of control, and leaders are always in control.  Most people do not get this one, but it is one I agree with.

  • Know everybody by first name - People really appreciate that you know who they are and what they do.  It is crucial to get

  • Always say "Yes" to a Senior Executive Request - Even if it is crazy, you should try to figure out what the problem actually is and attempt to solve it.  People who get the job done get the top jobs.

  • Never surprise your boss - This is very important.  You cannot let your boss look foolish and if you surprise her, she will.  Your ascent to the top requires that your boss speaks well of you.  She will not if she does not trust you.

  • Never Panic or Lose your Temper - Leaders do not panic. They remain calm in front of any crisis.

  • Don't be an Empire Builder - This one is counter-intuitive but I totally agree with it.  Most people think the only way to become more important is to have more people under you.  I disagree.  You need to produce, and producers can win no matter what their resources look like.  They can do more with less.


The Bad:

  • Skip all Office Parties - The reasoning on this is do not mix business with pleasure.  Parties are for pleasure, so you should not mix the two.

  • Don't take work Home from the Office - The reasoning on this is sound.  Your family comes first and you should be able to manage your time such that this is unnecessary.  Just do not know if I can ever get behind this idea.

  • Don't get Buddy-Buddy with Your Superiors - And the same goes for your workers.  This one is hard for me.  One I'm trying to get a better grasp of.  I do agree with it to some degree but not fully.  The book actually does not give sound reasoning on why this is such a bad idea, it just states it as fact.


There are several more that are probably worth mentioning but I won't recite the whole book here. Go check it out. Like I said, it is a quick read, and one that is at least worth the 45 minutes it will take you to read through it.


Thursday, February 12, 2009

Buying Selectively

Over the past several weeks, I have been looking to take some positions.  While I don't think the market is going to turn around and take off anytime soon, I am trying to take a few positions right now.  I do not want to try and pick the bottom, so I've decided to just try and take a few positions here and there over the next several months.  I have a very large cash position and I want to be well position if this market ever turns around.

So I am deploying some of my cash right now and I'm trying to be smart about it.  Things I am buying right now are for the most part, long term holds which I do not plan on getting in and out of anytime soon.  I've taken three positions.  Some of them I think are relatively conservative in this market, one of them is going to sound crazy.

  • Health Care spider (XLV) - This is an ETF.  I actually picked this one slightly due to my fianceĆ© saying she thought I should get into some healthcare stocks.  I had a hard time picking a winner in this space.  I had considered Johnson and Johnson or a Pharma like Pfeizer, but decided to just buy the basket of stocks.  The reasoning is simple here.  Not only do I think this sector will continue to fare well in the down economy, but I actually think there is some huge growth opportunities in the next few years.  The U.S. is aging.  You cannot fight demographics.

  • Biotech ETF (IBB) - This is another ETF.  This ETF actually has  many of the same holdings as the other ETF (Gilead and Amgen for example) which means this is an undiversified pick.  This is OK if you know what you are doing and it does not represent an unusual amount of your portfolio, which these holdings do not.  Anyway, the same logic applies but with a twist.  This sector will continue to see consolidation over the next few years.  Many of the smaller players are going to get snapped up and the winners are going to become very big players.  On this one, I struggled between picking Gilead or Celgene as individual stocks rather than the ETF, but decided to just go the basket approach.

  • Morgan Stanley (MS)  - This one might seem like the oddest pick given how I feel about the economy, the housing sector, and the financial sector.  But like I said, I am not looking to bottom pick.  As I have said over and over in this blog, the government is making it EXTREMELY profitable to be a bank in the future.  While there is certainly cause for concern, the banks that come out of this mess are going to make lots of money.  Morgan Stanley is going to survive.  They have already taken the very painful step of writing down their assets and deleveraging.  So I want to start getting into banks.  Not just any banks, the right banks.  These stocks may easily triple over the next few years and the winners fall aside, and the winners start reaping the benefits.  Many of which are on all our backs.  I thought about going with Goldman on this one, but in the end decided Morgan was the better play right now.


I was actually looking to buy a few more things today, before the market turned around.  But the government announced a plan to help out borrowers, and the market reacted positively to the news erasing earlier losses.  I really really wish the government would just shut up and stop changing the rules.  These wild swings in the market are making it hard on me, and everyone else, to be able to make any rational choices.  They are distorting behavior at every turn causing people to rethink decisions or act in ways they might not normally act.  I was about to do the very thing they are trying to get people to do.  They want people to start taking some risk and get back confidence in the outlook.  But when prices move wildly like they have been, it makes it impossible for me to get any sort of comfort level.

Wednesday, February 11, 2009

Are You Planning on Staying?

I had lunch with a coworker today who has decided to leave my company.  He tells me he was not looking, and I believe him.  He was in charge of a group that was gaining significant responsibility within the company and he was seen as a very strong leader.  However, he got a job offer that was "out of market".  For those who are not sure what that means, it basically means he got a job offer that was way more than anybody could reasonably expect and something that was unmatchable by anyone, including my current employer.

Most of the people who leave my company naturally ask me if I am on my way out as well.  They see me as a strong contributor and someone who likely has options outside the company.  However, I always feel like this is a strange question.  I always answer it the exact same way, I could leave at any time if the right offer came along.  It is the truth and anyone who says otherwise is just fooling themselves.

Now, I have no desire to leave.  I recently got a promotion to the Director level and I wish to stay and see a few projects through to completion.  But it would be silly to say that I would not entertain offers if they came my way.   I do not see something coming along that would cause me to want to leave, but it definitely could happen if I received an "out of market" offer.  Also, if I am honest, it is not like my current employer is going out of the way to keep most of the employees.  I was one of the lucky ones, I got a raise, albeit small, because I got a promotion.  But this was the exception, not the rule.  Most people got no raises.  We are in the middle of cutting back some perks (some of the perks were a little over the top and deserved to be cut).  A situation like this leaves the door wide open to leave, it is just a matter of time before someone walks out.  The irony of it all, the people who walk out are the people you most want to stay.

Tuesday, February 10, 2009

Executive Pay Caps - Political Theater

Last week Barack Obama announced pay caps to executive compensation for any firm receiving money from the TARP.  This was in response to public outrage over executives and high-level managers receiving billions of dollars in bonuses last year despite the fact that their firms were losing billions of dollars.

However, this plan is, like almost all government plans, going to be completely ineffective.   The very minute that it was announced, I assure you there were people at every company that might be affected looking of loopholes.  The plan calls for the top five executives at any company needing "exceptional" assistance to be limited to $500,000 in pay.  There is no limit to the amount of stock compensation an executive can get.  However, the stock cannot vest until the money from the TARP is paid back.  Do you see all the problems with the plan?  Let me just point a few of them out.

It only applies to those needing "exceptional" assistance - Further, it is not retroactive, so it only applies to companies needing new aid.  This can only be a handful of companies.  I would be surprised if this applies to more than a dozen or so.

It only applies to the top 5 executives -This provision is bound to get manipulated in many many ways.  People will take "demotions" so as not to be in the top five.  Since there is no rules about paying external agencies, you could just spin off a separate company and use them as "consultants".  This is much like what happened when there was an outrage over high salaries to those who ran Harvard's endowment.  They simply outsourced the work to the same people who used to run it inhouse. What's worse, this might have some really awful unintended consequences.  You want top talent fixing the toughest problems at the highest levels of an organization.  If I am top talent and my firm wanted to give me a promotion that put me in the top five, you could see how someone would turn down the job.

Stock grants are unlimited - Remember the backdating scandals just a few years ago?  Want to know what caused that?  It was caused by the $1 million cap that was put in place in the mid 90's.  What on earth makes you think something else like that will not happen again?  What is worse, there are some serious tax consequences to the company to pay out this way.  This ends up being really bad for shareholders which are some of the very people the government should be looking to protect.

Grants vest when the government is paid back - This one is a doozy and seemingly innocuous.  But boy can it have some bad side-effects.  Think about this one carefully.  If I am an executive, and I do not get paid until I pay back my loan, what am I going to do?  I am going to pay back that loan as fast as I can.  Is that a good thing?  Probably not!  This is how we got into the mess in the first place.  Executives traded off short term profits for long term financial stability.  This does not align the executives with the interest of the public or the shareholders of the company.

Income, how do you define it? - This one will fail for some reason I cannot even conceive of.  Why?  Because someone is going to come up with a very creative way to pay without paying.  That is because income is notoriously difficult to define and can come in so many creative ways.  This is why I hate the income tax and believe it should be abolished.  There are just way too many ways around it.

For all these reasons, the Obama Executive Pay plan is nothing more than some political theater.  It sounds good, but it just really does not do very much.

Monday, February 9, 2009

Meetings - Know Why You are There

Lately, I've been in a bunch of meetings that were not very productive.  Since the promotion, I seem to be in even more meetings than usual despite the fact I am trying to delegate more and more.  One of the jobs I have tried to delegate, unsuccessfully, is to not run meetings anymore.  I have tried to stay on the side and not get directly involved with running the meeting but I have had to step in and do it.

One thing that most meetings fail on is that not having a plan when you get there.  This is not even about having an agenda.  I can forgive that.  But you absolutely need to understand why you called the meeting and what you hope to accomplish in it.  Most of the time, if you are focused, you can get in and out of the meeting quickly.  But when you just have a meeting where you have to talk about a problem, and you do not understand what you actually want decided, you are wasting time.

This is especially crucial for someone like me who has lots of meetings throughout the day.   This has further importance if you call a lot of meetings.  If you are someone who has this responsibility, believe me on this.  You are being judged by how effective your meeting is.  If your meetings tend to be scattered, if you are unprepared, or if you do not have control of your meeting, people are noticing.  If you cannot demonstrate leadership of a meeting, how is anyone expected to believe you can lead a team?

Sunday, February 8, 2009

Finding Time to Exercise

Gym Weights

As I write this, I am extremely sore from a workout I did last night.  This is because I have not hit the gym in the last two weeks.

As I get older, I find more and more excuses to not work out.  Last week, it was because my Fiancee was sick and I stayed at home to take care of her.  The week before that, I was extremely busy at work trying to work through all the layoff issues.  The week before that, I was busy at work with reviews.  The funny thing is, I do not think I am any busier than I was a few years ago, I just think I got better at making excuses. I do not even play basketball anymore, and it used to be the case that absolutely nothing got in the way between me and some court time.

It really is too bad.  I think staying in shape is an important thing and something that is highly underrated.  When you exercise you look better, you feel better, you think better, and you are treated better.  Yet when things start backing up, and life becomes busy, it is one of the first things to go even though it should really be the last.  I never thought I would give up exercise.  I enjoyed it so much growing up and I cannot believe I am now having to force myself to go do something I used to enjoy so much.

I have decided to carve out some time somewhere to work out.  Most likely it will have to be during lunch.  I am too lazy to get up early in the morning and I am usually wiped out after work.  The only time that will work is sometime in the middle of the day, and that means I am working out at lunch.

Thursday, February 5, 2009

The Downside of Promotions

Part of the problem with rising through the ranks of the corporate ladder is that you have to start acting the part.  I try and make it a point to be a model employee now.  For example, I keep very regular hours.  While I realize that a lot of people do this, it is not the norm in technology.  At almost every technology company, hours are relatively flexible.  People come in late or leave early; sometimes employees do both!

However, now that I am a director at my company, I do not really have the same luxury.  It just would not be OK to keep odd hours when others look to you as the model.  For the last 8 years, I have had the luxury of rolling in at ten o'clock if I had a late night.  This is no longer the case and it can be hard to adjust to.  Further, I force myself to stay somewhat more aloof.  In most technology companies, there is usually some sort of amusement around.  Maybe there is a TV, a video game system, or a foosball table.  Being the competitive person I am, I would normally take part but I have drastically scaled this back.  I have done this for a numbre of reasons.  Part of it is that I have too much work now and do not honestly have the time.  Some of it is that I do not want to give others excuses to goof off.  And still further, and perhaps the saddest is all, is that it is important not to become too chummy with the people who work for you.

That does not mean I am not friendly with my staff.  It just means that I have to be very careful about it looking like I play any sort of favorites.  Since only some employees partake in the games, I have to be sure not to make it look like I am "too friendly" with that group.

Oh well.  I am not really complaining.  I enjoy my job much more now than I have ever have so it is not like I would trade these "perks" in.  But still, being less visable sometimes really has advantages.

Wednesday, February 4, 2009

Don't Spend that Bonus!

I got my company bonus in the last week.  It was not the full value of what my bonus should have been, but it was very generous when you consider the economic climate and the struggles my company went through in the last year.  Truth is, I was expecting to get nothing.  So were most of the people under me.  Most were very appreciative of getting anything, however small it may have been.

So how did I spend this windfall?  I am not doing anything I would not have done otherwise.   I have never ever decided to do a little more spending just because I got a bonus.  Ironically, there is no real need for me to do this because I honestly have quite a bit of savings.  It is true, I will have lots of expenses this year.  There will be the wedding and I want to buy a house sometime soon if housing prices continue their precipitous decline. I have my eye on a new Home Theater receiver, but if I buy it, it would have been something I would have done regardless of my bonus situation.

Now my advice now is the same as my advice would be regardless of the economy; you should not do any extra spending just because you get a bonus.  If you want to celebrate, do it in a small way.  But under no circumstances should you buy something just because you happen to get more money.  This is how people become poor.  Their pockets are like sieves.  As soon as money comes in, it goes out the other end.  Most people do not have money problems because they do not earn enough, they have problems because they spend too much.  It is easy to spot these people.  These are the same people who get upset that there might not be a bonus.  They are upset because they have already spent the money!

So do yourself a favor and ignore the fact that you got a bonus.  Believe me, saving it will bring you much more happiness than anything you can possible buy.

Monday, February 2, 2009

The Double Journey Stimulus Plan

Before I write this post, I will admit I have not read in detail the plan in front of Congress.  Part of this is my cynicism.  I know I will not like any sort of plan that comes out of Washington because it will be filled with special interest or policies that have no real chance of doing what they meant to do.  If they do happen to have a positive effect, it will be almost completely by accident. Worse, it will put our government even further debt.  Debt that will eventually be paid by you and me.

The plan, as far as I can tell, revolves around two main goals.  Create new jobs and stabilize the housing market.  Most of the plan seems to revolve around these key points

  • Give tax breaks to individuals to encourage spending

  •  Business tax cuts for capital investments

  • Increase the tax credit for home buyers


Let us forget for a second I think it is a completely idiotic thing to try and stabilize the housing market.  The best thing to do would be to let housing find its natural equilibrium and we would get to the true price of housing sooner rather than later.  Why people think high housing prices, higher than is justified given national income levels, is a good thing is beyond me.  But nothing in the plan that I can see actually will do what the government hopes to accomplish.

The housing problem is almost intractable.  You cannot, over the long haul, create artificial demand for an asset.   That is all the government will do if it tries to prop up housing prices.   But lets just say they really want to do this.  Rather than just give money in the form of a tax credit, they should make the long term value of owning a home very attractive.  They could do all sorts of things with the tax code to encourage the long term viability of owning your home.  They could make it such that anyone who buys a home to live in over the next two or three years could write off DOUBLE the interest that they pay on the mortgage.  While it sounds radical, and it is, it would certainly spur demand for housing.

Any who on earth would you try to create jobs by giving individuals tax cuts and business tax cuts for investment.  Rather than that, why not do this.  For any business who increases their workforce over the next two years, they can write off certain percentage of that employee's salary based on how large they actually increase their workforce.  This would be a tremendous incentive for companies and would directly address the issue of employment.  Why try to be cute with the plan?  Why not just get to the heart of the matter and create a direct incentive for the behavior you want to see?  Want more jobs?  Make it very attractive for companies to hire more workers.

Thriving in a Crisis

About two weeks ago, my company just went through a second round of layoffs.  This is happening about six months after we already had one round of layoffs.

Most people in my situation would probably be very concerned right now.  I am not.  I have been through layoffs before, and these are not quite the same.  This round was truly a right sizing of the company.  The company is still profitable and there are very few situations which would cause that to change.  Now, we have not been making as much money as we had forecast a year ago, but the fact is that we are still making money.  This is contrast to my experiences at a former company where we were bleeding cash and were doing everything possible from going under.   That was a pretty miserable experience as there was very little chance of turning that company around.

This is not the same situation.  There is very much some good opportunities for the company and for its employees.   How can I say this?  Some of the best opportunities are created when things look their worse.  One can just look at Warren Buffet's strategy, buy assets when they are distressed.  Right now is a great time to invest in the market if you can buy the right things at the right price.  While it can be scary to double down when things look so awful, those are when the best opportunities arise.

The same is true during layoffs.  For those individuals who step up and do more, the opportunity is great.  During most layoffs, it is not as if the work just disappears.  The work has to get done somehow.  In fact, most of the time, there is more work to do as the company must better execute on a plan if it hopes to return to the "good" times.  During this round of layoffs, I have had to take on much more responsibility.  I had originally come in as the senior Program Manager on the team.  Shortly after the first round of layoffs, I inherited the responsibility of managing the development staff on a temporary basis  It was a responsibility I took reluctantly even though many saw it as a step up (I did not see it as a step up but that is another discussion). After this round of layoffs, I inherited even more responsibility and am now in charge of another development group as well as the entire testing organization.  Along with the additional responsibility came a promotion to a Director level position.   While I would have achieved this promotion in due time, it was much easier to obtain given my additional level of responsibility and the current organization structure.

My career growth has been quite fast and most of that has been through hard work and a good attitude.  But I've been lucky at times because I have been in the middle of turbulent and often difficult situations.   If things do not change, new opportunities are not created.  This is why change is good.   This is why I am not panicking even though my portfolio has taken a huge hit in the last year.  I planned carefully and was prudent when I should have been.  Because of this, I can now take advantage of opportunities when they present themselves.

Sunday, February 1, 2009

Why You Should Not Spend Money on Your Pets

Kitty in Crate

One thing I have learned over the years is to not try to spend money on my cat.  When I first got my cat, I used to go to the pet store and try and find things he would like.  I spent lots of money on toys, and bedding in an attempt to make him happy.  The thing I quickly learned was that my cat often did not like anything that I spent money on but would instead prefer the scraps off other things.

I first learned this lesson the first Christmas I spent with my cat.  I got him a few catnip toys and a few fake mice.  His favorite gift?  The ribbon and paper that everything was wrapped in.   Just to make sure that I learned my lesson my cat decided that he would make as his new bed the cardboard crate that the new dartboard I bought came in.  I am not sure why he likes it, it is not particularly soft and is kind of noisy with the plastic wrap, but he sleeps in it pretty much every chance that he gets.  So save your money and instead just give your cat the refuse off of the things that you buy.  I promise you, your pets' tastes are probably pretty different from yours.