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Retire with more wealth
Power up tax-free account
Retire with more wealth
Showing posts with label wealth. Show all posts
Showing posts with label wealth. Show all posts
Friday, January 01, 2016
Maxing Out 2016 IRA Contributions
The first financial decision I made in the new year was to make the maximum allowed contribution to my traditional IRA. The IRS contribution limit for 2016 is $5500. I always have more than enough cash at the end of one year to ensure I can contribute the maximum amount at the start of the new year. The IRS did not make any COLA increases in any tax-advantaged retirement accounts for 2016. Our tax authorities must think inflation does not exist, echoing the Federal Reserve's narrative.
The lack of statistical evidence for inflation is deliberate government policy. Shadow Government Statistics notes how government agencies massage their numbers to minimize entitlement payouts. Contributing assets to a tax-advantaged retirement account is a necessary but insufficient condition for building wealth. Holding the right kinds of assets in a retirement account matters during periods of high inflation. Hard assets protect wealth during inflation.
Many Americans don't even have retirement accounts, and some of the ones who do won't find ways to make the largest possible contributions. One need not hire an elite "income protection service" catering to billionaires to prepare their retirement assets for safety. Everyone who doesn't splurge during holiday shopping can save cash meant for their IRA in the new year. Anyone can find publicly traded securities for hard assets that will fit in an IRA. Structural modifications making the account "self-directed" are expensive, unnecessary, and legally questionable. The simplest, cheapest solutions are already at hand.
The lack of statistical evidence for inflation is deliberate government policy. Shadow Government Statistics notes how government agencies massage their numbers to minimize entitlement payouts. Contributing assets to a tax-advantaged retirement account is a necessary but insufficient condition for building wealth. Holding the right kinds of assets in a retirement account matters during periods of high inflation. Hard assets protect wealth during inflation.
Many Americans don't even have retirement accounts, and some of the ones who do won't find ways to make the largest possible contributions. One need not hire an elite "income protection service" catering to billionaires to prepare their retirement assets for safety. Everyone who doesn't splurge during holiday shopping can save cash meant for their IRA in the new year. Anyone can find publicly traded securities for hard assets that will fit in an IRA. Structural modifications making the account "self-directed" are expensive, unnecessary, and legally questionable. The simplest, cheapest solutions are already at hand.
Thursday, June 11, 2015
Friday, December 05, 2014
Saturday, October 04, 2014
The Haiku of Finance for 10/04/14
Building wealth is hard
Compounding takes a long time
No magic money
Compounding takes a long time
No magic money
Sunday, August 17, 2014
The Limerick of Finance for 08/17/14
Carlos Slim says Latinos need wealth
Pushing funding for training and health
There's no doubt they'll succeed
Following Slim's own creed
No need to chase business by stealth
Pushing funding for training and health
There's no doubt they'll succeed
Following Slim's own creed
No need to chase business by stealth
Saturday, August 16, 2014
The Haiku of Finance for 08/16/14
Finer things in life
Only wealth can afford them
Start saving up now
Only wealth can afford them
Start saving up now
Thursday, January 23, 2014
Wednesday, January 22, 2014
Thursday, January 16, 2014
Holiday Sales Results Show Power of Affluence
America's divide between the affluent and everyone else becomes more obvious by the day. Mass retailers had trouble making money over the holiday season. Best Buy's holiday revenue was so disappointing that its turnaround strategy is in doubt. This invites comparisons to other declining retail chains like Sears and JC Penney. Contrast this holiday performance with American Express' stellar holiday profits. AmEx's cardholders have always been significantly more affluent than most other cardholders. High-income earners are having no difficulty shopping, while more downscale retailers have trouble attracting spenders. This was the holiday season, for crying out loud, when most retailers traditionally make most of their profits.
The pending end of the Loehmann's retail chain shows just how America has changed. Loehmann's sold brand names at discount prices. Brand name clothiers are turning away from discount outlets to protect their brands. Feedback from affluent clients is clear; they like the exclusivity of the clothes they wear and they don't want to see elite emblems worn by poor people. Middle-class consumers with aspirations toward brand-name lifestyles can't even afford the discounted versions of high-end apparel. They will have to become downwardly mobile and shop at other discounters out of necessity. There is no middle ground left for high-quality apparel at affordable prices. The center cannot hold, as it were.
The pending end of the Loehmann's retail chain shows just how America has changed. Loehmann's sold brand names at discount prices. Brand name clothiers are turning away from discount outlets to protect their brands. Feedback from affluent clients is clear; they like the exclusivity of the clothes they wear and they don't want to see elite emblems worn by poor people. Middle-class consumers with aspirations toward brand-name lifestyles can't even afford the discounted versions of high-end apparel. They will have to become downwardly mobile and shop at other discounters out of necessity. There is no middle ground left for high-quality apparel at affordable prices. The center cannot hold, as it were.
I blogged almost a year ago about how mass retail chains that don't appeal to affluent clientele are on their way to extinction. Rich people like to be seen spending money in public and crave the attention of personal shoppers. They have the money to support a high-ego, high-entropy lifestyle. Discount stores catering to the poor have a huge market and good pricing power over their supply chains. Mid-market retailers chasing a disappearing middle class consumer will suffer the most. The American middle class is heavily laden with debt and has experienced no real income gains since the early 1970s. Anyone catering to their aspirations is in for disappointment, because upward mobility is becoming an endangered species in America.
Full disclosure: No positions in any companies mentioned. I may do some shopping in the men's section at the Loehmann's in San Francisco before it closes.
Friday, November 08, 2013
San Franciscans Misunderstand Middle Class Erosion at Commonwealth Club
I really like being a member of the Commonwealth Club of California but sometimes the people who attend lectures there need to be smacked upside their stupid little heads. Today I attended a noontime panel on the danger facing America from a skewed allocation of wealth. I'm pretty sure there was more collective intelligence among the three panelists than among everyone in the audience (minus me, of course, because my intellect reigns supreme).
The panelists correctly identified the risk of social instability from the erosion of the middle class, which in many societies throughout history has prevented open class conflict between the proletariat and plutocratic classes. They noted that a majority of the US's GDP growth is now generated in a minority of its metropolitan statistical areas. They also noted that the gap between rich and poor cities is increasing and persistent, with some cities becoming permanent enclaves of wealth and innovation. It should go without saying that high-tech sectors generate a wealth multiplier effect that supports skilled service trades but the idiots protesting outside Twitter will never figure that out.
One economist on the panel was kind enough to identify some key factors that drive commercial real estate investment. We've all heard the mantra about location, location, location for retail outlets. Large commercial projects take it further into six factors: income levels in a region; types of jobs available (especially high-skill, high-income); quality and availability of skilled labor; education; civic infrastructure; and the regulatory environment for business. She noted that the US is falling behind other countries in middle-class job creation, infrastructure investment, and economic mobility.
It pays well to have expert panelists correctly diagnose a problem only if the audience members can absorb the lessons. Sadly, that may be asking too much of the average San Franciscan. The audience's questions expressed desires to redistribute wealth and raise taxes to spend more on public education. That is the kind of failed statist thinking that has contributed to the destruction of the middle class. Centrally planned redistribution has brought middle class entitlement programs to the brink of insolvency. The public education model no longer delivers increased value for marginal increases in spending. Putting more money into either of these failed paradigms will only exacerbate the middle class's woes with more taxes and less benefit.
The panelists knew the way ahead but the audience could see neither the forest nor the trees. One panelist cited San Francisco's restrictive housing ordinances and "inclusive zoning" as a hindrance to development. Competitive housing markets allow development and attract affordable housing. The difficulty I see with getting from problem to solution was right there in the room. The audience members from San Francisco love rent control and the quaint character of neighborhoods frozen in time. No way are they ever going to vote for politicians who can give The City the policy reform it needs to make affordable development happen. Just look at the anti-Twitter loudmouths on the street. Try telling them that gentrification moves lower-income renters into areas where developers will meet their demand for low-income housing. They won't understand and neither will most educated San Franciscans.
The cognitive dissonance the audience members expressed was amusing. One guy asked what it would take to fill the high vacancy rate among East Bay and South Bay commercial properties with "high-paying jobs" (I think he meant business tenants, but he was an idiot). A panelist later said that many urban areas would have to undergo a prolonged period of contraction to a sustainable level of concentration, starting with Detroit. I may have been one of a few people in the room who saw the connection. Read my own blog posts on Detroit. Those vacant offices and stores in the Bay Area will remain vacant because their regions were overbuilt, and now they must be unbuilt. No amount of job training will fix it until unused office space becomes farmland.
I would have started laughing in people's faces if this seminar had lasted one minute longer. None of these idiots have a clue about why society is falling apart. They need to read the panelists' works (specifically Dr. Enrico Moretti's The New Geography of Jobs, Dr. Claude Gruen's New Urban Development, and Dr. Asieh Mansour's research) but I'm pretty sure they won't. If they do, they won't learn anything that will change their minds. I know exactly how to solve the middle class crisis and it won't be pretty. Here it comes. Entrepreneurs spawning MOOCs will cut the cost of education and eliminate the debt burden preventing young college graduates from saving for a home or starting a family. The public education establishment and its union drones will fight that tooth and nail until they earn the public's wrath. Smart urban growth will favor multi-use urban infill development that civic infrastructure can serve efficiently. The enemies of common sense will close ranks to defend rent control and inclusionary zoning until municipalities that do favor those reforms attract all of the wealth creators away from San Francisco. Only then, when all looks lost, will common sense return to the city by the bay after all of our current foolishness has been discredited.
I've always liked one of the quotes from T.R. Fehrenbach's This Kind of War that says something about how most human beings abhor competition, and that is why most people are acted upon by history instead of being the actors. I will act upon these audience members as much as my will to power will allow and they will like it. I took as many chocolate chip cookies as I could on the way out of the Gold Room because I didn't want them going to waste among anti-development fools. Much of the knowledge available at the Commonwealth Club is similarly wasted on people who won't use it.
The panelists correctly identified the risk of social instability from the erosion of the middle class, which in many societies throughout history has prevented open class conflict between the proletariat and plutocratic classes. They noted that a majority of the US's GDP growth is now generated in a minority of its metropolitan statistical areas. They also noted that the gap between rich and poor cities is increasing and persistent, with some cities becoming permanent enclaves of wealth and innovation. It should go without saying that high-tech sectors generate a wealth multiplier effect that supports skilled service trades but the idiots protesting outside Twitter will never figure that out.
One economist on the panel was kind enough to identify some key factors that drive commercial real estate investment. We've all heard the mantra about location, location, location for retail outlets. Large commercial projects take it further into six factors: income levels in a region; types of jobs available (especially high-skill, high-income); quality and availability of skilled labor; education; civic infrastructure; and the regulatory environment for business. She noted that the US is falling behind other countries in middle-class job creation, infrastructure investment, and economic mobility.
It pays well to have expert panelists correctly diagnose a problem only if the audience members can absorb the lessons. Sadly, that may be asking too much of the average San Franciscan. The audience's questions expressed desires to redistribute wealth and raise taxes to spend more on public education. That is the kind of failed statist thinking that has contributed to the destruction of the middle class. Centrally planned redistribution has brought middle class entitlement programs to the brink of insolvency. The public education model no longer delivers increased value for marginal increases in spending. Putting more money into either of these failed paradigms will only exacerbate the middle class's woes with more taxes and less benefit.
The panelists knew the way ahead but the audience could see neither the forest nor the trees. One panelist cited San Francisco's restrictive housing ordinances and "inclusive zoning" as a hindrance to development. Competitive housing markets allow development and attract affordable housing. The difficulty I see with getting from problem to solution was right there in the room. The audience members from San Francisco love rent control and the quaint character of neighborhoods frozen in time. No way are they ever going to vote for politicians who can give The City the policy reform it needs to make affordable development happen. Just look at the anti-Twitter loudmouths on the street. Try telling them that gentrification moves lower-income renters into areas where developers will meet their demand for low-income housing. They won't understand and neither will most educated San Franciscans.
The cognitive dissonance the audience members expressed was amusing. One guy asked what it would take to fill the high vacancy rate among East Bay and South Bay commercial properties with "high-paying jobs" (I think he meant business tenants, but he was an idiot). A panelist later said that many urban areas would have to undergo a prolonged period of contraction to a sustainable level of concentration, starting with Detroit. I may have been one of a few people in the room who saw the connection. Read my own blog posts on Detroit. Those vacant offices and stores in the Bay Area will remain vacant because their regions were overbuilt, and now they must be unbuilt. No amount of job training will fix it until unused office space becomes farmland.
I would have started laughing in people's faces if this seminar had lasted one minute longer. None of these idiots have a clue about why society is falling apart. They need to read the panelists' works (specifically Dr. Enrico Moretti's The New Geography of Jobs, Dr. Claude Gruen's New Urban Development, and Dr. Asieh Mansour's research) but I'm pretty sure they won't. If they do, they won't learn anything that will change their minds. I know exactly how to solve the middle class crisis and it won't be pretty. Here it comes. Entrepreneurs spawning MOOCs will cut the cost of education and eliminate the debt burden preventing young college graduates from saving for a home or starting a family. The public education establishment and its union drones will fight that tooth and nail until they earn the public's wrath. Smart urban growth will favor multi-use urban infill development that civic infrastructure can serve efficiently. The enemies of common sense will close ranks to defend rent control and inclusionary zoning until municipalities that do favor those reforms attract all of the wealth creators away from San Francisco. Only then, when all looks lost, will common sense return to the city by the bay after all of our current foolishness has been discredited.
I've always liked one of the quotes from T.R. Fehrenbach's This Kind of War that says something about how most human beings abhor competition, and that is why most people are acted upon by history instead of being the actors. I will act upon these audience members as much as my will to power will allow and they will like it. I took as many chocolate chip cookies as I could on the way out of the Gold Room because I didn't want them going to waste among anti-development fools. Much of the knowledge available at the Commonwealth Club is similarly wasted on people who won't use it.
Thursday, October 24, 2013
Sunday, July 21, 2013
The Limerick of Finance for 07/21/13
It's never too late to build wealth
You'll need it if you lose your health
Just save and invest
Let markets do the rest
Getting rich is fun when done by stealth
You'll need it if you lose your health
Just save and invest
Let markets do the rest
Getting rich is fun when done by stealth
Friday, February 01, 2013
No-Money-Down Mortgages Can Destroy Affluent
Here comes another lame idea in finance, made especially for affluent investors with little sense. Banks are offering no-money-down mortgages secured by portions of an investor's portfolio. Maybe this is a sign of how desperate high-end homebuilders have become to move new inventory. It's definitely a sign that parties to mortgages are once again throwing common sense out the window.
Limiting the stock portion of the mortgage's collateral to 50% means little in the event of a stock market decline. Let's say a flash crash hits the market and the investor's stock portfolio takes a 5% hit. Now the stock collateral is (0.95 x 50) is at 47.5% of the loan's original balance. The servicing financial institution can presumably see the investor's portfolio if it's been pledged as collateral, and is most likely custodied with the servicer if it's a TBTF bank. If less than 2.5% of the loan's principal has been amortized with principal payments up to that point, the homeowner will face the equivalent of a margin call to put in cash that will restore the value of the collateral. The danger here is that affluent investor pledged securities because they didn't have the cash or were unwilling to sell securities to raise cash. Forcing a margin call would be the equivalent of an unpayable balloon payment and probably put the home into foreclosure.
Collateralizing 80% of the mortgage's value with bonds is likewise no sure thing. High inflation could reduce the real value of that fixed-income collateral faster than it reduces the real value of the loan's balance. It's an unpredictable relationship because this country has gone so long without serious inflation.
Securing a mortgage with liquid securities rather than cold cash is a dangerous "innovation" in an extremely unstable macroeconomic environment. I've blogged before about the risks of an equity market crash and hyperinflation in the U.S. A sudden reversal of fortune for the economy would jeopardize a mortgage whose down payment is secured with anything other than a large cash payment at the beginning. Some affluent people will go for this anyway. I'll quietly await their distressed asset sales.
Nota bene: This is not any kind of advice to either use such a mortgage or avoid one. I'm sketching out a possible scenario and I risk nothing by watching to see what happens with these instruments.
Limiting the stock portion of the mortgage's collateral to 50% means little in the event of a stock market decline. Let's say a flash crash hits the market and the investor's stock portfolio takes a 5% hit. Now the stock collateral is (0.95 x 50) is at 47.5% of the loan's original balance. The servicing financial institution can presumably see the investor's portfolio if it's been pledged as collateral, and is most likely custodied with the servicer if it's a TBTF bank. If less than 2.5% of the loan's principal has been amortized with principal payments up to that point, the homeowner will face the equivalent of a margin call to put in cash that will restore the value of the collateral. The danger here is that affluent investor pledged securities because they didn't have the cash or were unwilling to sell securities to raise cash. Forcing a margin call would be the equivalent of an unpayable balloon payment and probably put the home into foreclosure.
Collateralizing 80% of the mortgage's value with bonds is likewise no sure thing. High inflation could reduce the real value of that fixed-income collateral faster than it reduces the real value of the loan's balance. It's an unpredictable relationship because this country has gone so long without serious inflation.
Securing a mortgage with liquid securities rather than cold cash is a dangerous "innovation" in an extremely unstable macroeconomic environment. I've blogged before about the risks of an equity market crash and hyperinflation in the U.S. A sudden reversal of fortune for the economy would jeopardize a mortgage whose down payment is secured with anything other than a large cash payment at the beginning. Some affluent people will go for this anyway. I'll quietly await their distressed asset sales.
Nota bene: This is not any kind of advice to either use such a mortgage or avoid one. I'm sketching out a possible scenario and I risk nothing by watching to see what happens with these instruments.
Monday, December 31, 2012
Alfidi Capital New Year Resolutions for 2013
I resolve to be controversial and provocative.
I resolve to post blog articles that are obnoxious and hilarious.
I resolve to make stupid people angry.
I resolve to bad-mouth liars, thieves, and miscreants.
I resolve to satirize incompetence from Wall Street and other financial centers.
I resolve to associate with people who appreciate my extraordinary wisdom and to avoid wasting time with losers who can't understand what I say.
I resolve to remain financially independent and strive for even greater wealth.
I resolve to share my extreme genius with the world, especially at investment conferences.
I resolve to remain stunningly handsome and irresistible to attractive women.
In other words, I resolve to keep going exactly what I've been doing my entire life, especially since I started this blog. Happy New Year for 2013.
I resolve to post blog articles that are obnoxious and hilarious.
I resolve to make stupid people angry.
I resolve to bad-mouth liars, thieves, and miscreants.
I resolve to satirize incompetence from Wall Street and other financial centers.
I resolve to associate with people who appreciate my extraordinary wisdom and to avoid wasting time with losers who can't understand what I say.
I resolve to remain financially independent and strive for even greater wealth.
I resolve to share my extreme genius with the world, especially at investment conferences.
I resolve to remain stunningly handsome and irresistible to attractive women.
In other words, I resolve to keep going exactly what I've been doing my entire life, especially since I started this blog. Happy New Year for 2013.
Thursday, November 22, 2012
A Very Alfidi Capital Thanksgiving in 2012
I grew up watching those corny TV holiday specials like everyone else in Generation X. There was always some special message about giving, sharing, kindness, or some such that those cute little animated characters wanted to share with us. I've got some cute little messages of my own that are just filled with holiday cheer.
I'm thankful for whoever the heck clicks on my pages. You people must be geniuses or else you wouldn't be attracted to my compelling content.
I'm thankful for the sponsors of business conferences who allow me to attend and even have me in a speaking role once in a while. Those folks know talent when they see it and I obviously have it.
I'm thankful to be a self-employed blogger, where I can say whatever I like in public and make stupid people angry. I'm thankful not to live in a police state where some pompous poobahs can have me arrested for goring their sacred cows.
I'm thankful to live in San Francisco, the greatest city in the world. My social calendar is always full of fun events, especially during the Christmas season. I'm also thankful that lots of attractive women show up at these events.
I'm thankful for today's buffet spread at the Palace Hotel. I marveled at the wide variety of menu items. I had ham, turkey, roast beef, salmon, shrimp, steak medallions, several different seafood and vegetable salads, paella, sushi, specialty cheeses, ravioli alfredo, caviar, pate, and champagne. I overdid the dessert servings; someday I'll learn not to have more than a couple of confections. I'm also thankful for the hot chicks in form-fitting dresses who attended. Why were they dressed like they were at a cocktail event looking to score? Beats me. I was too busy eating to get their phone numbers so maybe I had my priorities all wrong.
Most importantly, I'm thankful to be financially secure enough to afford the things I mentioned above and to have the good health needed to enjoy them. The bounty on display at the Palace Hotel is the product of a capitalistic society, where people are free to pursue their dreams. The bottom line is that I'm thankful to be an American. I don't expect Americans to be thankful for my existence but that's okay.
I'm thankful for whoever the heck clicks on my pages. You people must be geniuses or else you wouldn't be attracted to my compelling content.
I'm thankful for the sponsors of business conferences who allow me to attend and even have me in a speaking role once in a while. Those folks know talent when they see it and I obviously have it.
I'm thankful to be a self-employed blogger, where I can say whatever I like in public and make stupid people angry. I'm thankful not to live in a police state where some pompous poobahs can have me arrested for goring their sacred cows.
I'm thankful to live in San Francisco, the greatest city in the world. My social calendar is always full of fun events, especially during the Christmas season. I'm also thankful that lots of attractive women show up at these events.
I'm thankful for today's buffet spread at the Palace Hotel. I marveled at the wide variety of menu items. I had ham, turkey, roast beef, salmon, shrimp, steak medallions, several different seafood and vegetable salads, paella, sushi, specialty cheeses, ravioli alfredo, caviar, pate, and champagne. I overdid the dessert servings; someday I'll learn not to have more than a couple of confections. I'm also thankful for the hot chicks in form-fitting dresses who attended. Why were they dressed like they were at a cocktail event looking to score? Beats me. I was too busy eating to get their phone numbers so maybe I had my priorities all wrong.
Most importantly, I'm thankful to be financially secure enough to afford the things I mentioned above and to have the good health needed to enjoy them. The bounty on display at the Palace Hotel is the product of a capitalistic society, where people are free to pursue their dreams. The bottom line is that I'm thankful to be an American. I don't expect Americans to be thankful for my existence but that's okay.
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