monoblog

Everybody should get to know Bajuvator, the 7.2% alcohol double bock! It is brewed (although some would say divinely created) by the Tucher brewery in Germany, and it tastes much like liquid candle-wax! The phrase one uses to describe the after effect is, "Dude, you've been bajuvated!" Here are some haiku to appreciate a crisp, refreshing Bajuvator with:

Oh, Bajuvator!
There can be only one, and
It is you, my friend.

Oh, Bajuvator!
The times we shared together,
were never alone.

You are my hero,
Wonderful Bajuvator!
Coors Light, Kiss my ass...

Oh, Bajuvator!
You slay my inner demons,
And leave my breath fresh.

Oh, Bajuvator!
You taste like church candle wax,
God himself drinks you.

Oh, Bajuvator!
The times I cracked you open,
You cracked me open.

Life is way too short
Not to get Bajuvated
At least once a year.

Cheers and see you at the Great American Beer Festival this October! I booked my tickets for Friday the 10th.

For the record, I don't like McCain very much either... I will most likely write-in Ron Paul as a vote of protest. I have to admit, I do like what the folks at NOTA.org are advocating...

Here is an email I wrote to a friend regarding short term investments:

Knowing the time horizon and your risk aversion is key. Because you aren't sure about whether you're buying a house yet though, I'll list a couple options based on the time frames given.

If you decide soon that you want to get a house in a few months, I would say either a 3- or 6-month CD would work well as you are guaranteed around 3.5-4% annually. It's not a fantastic return but it is nearly risk free. Check out BankRate.com for possible places to buy one. Any other investment that could return higher could also return significantly lower in the short term, or even result in losing money. Also, if you go the CD route, make absolutely sure you are dealing with a reputable bank, as there is the chance that we will see one or more bank runs this year.

If you want to postpone getting a house (more on the topic below), you may want to consider setting up a brokerage account and investing all of your available money into the Permanent Portfolio fund, which has the ticker PRPFX. This mutual fund invests evenly into four different types of assets: gold, U.S. Treasury bonds, Swiss franc denominated bonds and natural resource stocks. It is an eclectic mix that works surprisingly well in nearly all economic conditions – of the 25 years the fund has been around, it has only dropped in price for 3 years. Also if you graph the fund over time (using Yahoo Finance or a similar website) you will notice that it gains in price in a very consistent manner. For the past 10 years the annualized return has been 9.3% and over the past 5 years the annualized return was 13.1%. For any time period over 1 year I think this is the way to go. The gold and natural resource components of this fund should do very well in the coming year for the following reasons:

• The Federal Reserve is lowering interest rates drastically. This is making money easier to borrow, which increases the money supply and devalues the currency. See this graph for a graph of the U.S. dollar compared to a basket of other world currencies. In addition to the lower Fed rates, the fiscal stimulus package that Congress and the White House passed through will serve to further devalue the currency and result in inflation. In this situation, precious metals such as gold and natural resources tend to do well because they are good inflation hedges. However, both of those types of investments can have corrections of 10-20% in short time frames so I would only recommend them for longer-term investing. In terms of the Permanent Portfolio fund, the 1/4 weighting of each asset type would shield against these sorts of drops in the longer term (>=1 year).
• As long as the Fed lowers rates, the dollar will drop and the price of gold will increase... So the gold portion of the Permanent Portfolio I mentioned earlier will stand to do well as long as that trend continues. If you want to learn more about that portfolio and why it works so well, look at the book "Fail Safe Investing in 30 Minutes" by Harry Browne. It's available on Amazon.com for a couple dollars. Also I highly recommend reading "Barron's Guide to Making Investment Decisions" – it is $0.01 on Amazon... It is a little old but it still has a *lot* of good info. It is the book that got me started.
• Also important to note is that inflation is not being reported accurately by the government. There are numerous adjustments to the consumer price index such that it is being reported lower than it actually is. For example, ground beef is used instead of steak. Also, housing and energy are not included in the CPI because they are considered "too volatile". Because inflation is not being reported correctly, any investment tied to the CPI (bonds such as Treasury Inflation Protected Securities or TIPS for short) are bound to perform poorly despite their advertised merits. See ShadowStats.com for more info on the CPI and rate of inflation is based on the government's prior way of calculating it. If your investment isn't exceeding the true rate of inflation, you're losing money. Even a CD with 4% yield will not overcome the result of true inflation, but in reality no short term investment does.

The reason why I am against buying a home right now is that home prices are most likely going to drop significantly over at least the next 1-2 years. Merrill Lynch is predicting a 15% drop in 2008 and a 10% drop in 2009, which would make for a terrible investment, especially considering the leverage involved. The number of properties entering foreclosure, as well as the excess supply of new housing, tells me there is still significant downward pressure on home prices.

Here is an Excel file I made that comprehensively compares renting vs. buying. It also compares which option is cheaper and optionally invests the difference so you can get a better apples-to-apples comparison. If you enter in an annual drop in home prices, it shows that it would be a poor investment because of the leverage of a mortgage.

Another really good idea you may want to consider is opening an account at EverBank.com. In addition to being able to open a gold storage account, they have foreign currency CDs and other interesting investment opportunities. Their commodity CD holds CDs in four different currencies that are closely tied to the price of commodities... It is currently returning 5.4% annually. Another good one is the South African rand single-country CD – it returns 8.5% annually. About the only risk you'd need to worry about is currency fluctuations, but I don't think that the U.S. dollar isn't going to appreciate any time soon. I wouldn't put all your eggs in these baskets but certainly consider a 20-30%. Here is a link to their foreign currency CD webpage.

Let me know what you think, or if I can elaborate on anything further. As always, please seek a professional investment advisor or decide for yourself which route to take. The statements above are for information purposes only and are not advice.

Here is a chart of the U.S. dollar relative to other world currencies:

Notice a pattern? That's right, the U.S. dollar is headed straight down. If you have any savings denominated in U.S. dollars, those savings are losing their value daily. That's also why gas, food and housing have gotten so expensive in the last couple years. So, how do you help the situation? First, reduce your consumption level so that you can save more. Next, stop using banks and switch to a brokerage. Then set up your paycheck to direct deposit into it (assuming they offer checking/debit -- otherwise don't do this). Now, when you get money deposited into your brokerage account, invest it in real assets like natural resources or precious metals (for example, oil and gold, respectively). Two examples are "GLD" for gold, and/or "PSPFX" for natural resources. When the dollar goes down, generally these things go up. There are numerous reasons why the dollar could continue to go down: prolonged war in the Middle East, a decrease in exports, an increase in imports, lower short-term interest rates which cause foreign countries to stop buying U.S. Treasury debt, and so on. Generally all of these are happening already. Sadly there are not many reasons for it to come back up at the moment. As a result, gold has almost tripled in value the last five years, and the PSPFX natural resources fund has risen over 420% in the same time period.
If you're not familiar with investing, buy this book for a penny on Amazon. It will teach you everything you need to know. In the interests of disclosure, I own the two above equities. Also, I am not a financial advisor, so please do your own research and come to your own conclusions, or seek assistance from a professional financial advisor.

For more on this subject, please watch this video of 2008 presidential candidate Ron Paul as he questions Federal Reserve chairman Ben Bernanke on the falling dollar:

Something unique is happening in the stock market... The volume is nearly double what it normally is for the Dow Jones Industrial Average. Look at the right-most portion of the volume graph below:

As you can see, the volume starting in July '07 is nearly double that of pre-July. This is most pronounced on the S&P 500 and DJIA, but not as much on NASDAQ. While I already knew that credit concerns are increasing market volatility, I hadn't noticed that the volume has surged until today. My guess is that the fear of credit problems spreading into other markets has brought out dormant investors. I think if the Federal Reserve lowers rates or keeps rates the same (as it just did recently), market conditions will bode well for Treasuries, TIPS (Treasury Inflation Protected Securities), and gold. The only problem is that the yield curve is not curved — it's flat. And gold lately has been reacting similarly as the dollar. Does anyone know of a good investment right now, besides a fund that shorts the market?

In case you aren't worried about the stock markets yet, read this article. The problem of excess borrowing is being "addressed" by the central banks by infusing even more cash into the system. Call me crazy but it sounds like adding fuel to the fire... I think I'll be placing my order for gold and silver soon.

Update: The rise in volatility has been partly blamed on the SEC repeal of the uptick rule. The repeal will allow short sellers to more easily profit when stocks fall.

If that isn't enough to make your stomach churn, consider these articles: a mystery options trader is betting $1 billion that the global markets will crash by 30% by the third week of September. Some traders are betting that there will be a 52% decline. Some people are calling these "bin Laden trades", as they indicate that there is another attack pending. September 11th does fall inside the window of these trades, which makes this speculation all the more interesting to follow.

From the Business Wire...

FreedomWorks officially closed its Republican Presidential Straw Poll early this morning after 16,371 limited government conservatives cast their votes over 3 days of polling. Texas Representative Ron Paul won by a wide margin with 56 percent of the vote. Senator Fred Thompson snatched the second place position, with Duncan Hunter taking third. The FreedomWorks Straw Poll provides the most complete view of the limited government movement heading into the Iowa Straw Poll on August 11th. For complete results, visit http://www.freedomworks.org/strawpoll