With capitalism the quality of life improves for everyone, not just the elite 1% as some might lead you to believe. The poor in the United States are richer than many other countries, especially if we compare ourselves to emerging countries like China. Here is an interesting stat from the Millionaire Next Door, 80% of today’s millionaires in the United States are first generation wealthy. Unlike what our politicians lead us to believe, most citizens did not inherit their wealth.

What if Apple Didn’t Exist?

Let me give you a great example to prove my point about the growing pie of capitalism. Imagine for a moment if Apple (AAPL) did not exist. The many technologies that Apple either invented, leveraged or perfected has touched so many individuals. There would be no iPod, iPod Touch, iPhones, iPads, and Apple Macintosh computers. There would be no App Store, no third party accessories, no applications for the Macintosh OS X platform.

Imagine all of the copycat products that have emerged because of Apple. Many high flying companies had to change their business strategy (cough RIMM) because of Apple. In the process this competition directly improved our lives.

Now imagine all the Apple employees, and the vendors it uses. Imagine the amount of individuals generating an income indirectly from Apple:

• Developers creating apps for the app store
• Cases for the iPhone
• iPhone battery add-ons to extend it’s battery life
• Classes offered to educate on how to use Apple’s products
• Shareholders who’s wealth has increased dramatically
• The net effect goes on and on…

Can you truly say if Apple didn’t exist, the world be as great of a place? Apple’s products changed the lives of millions, and I’ll assume for most the better. I use Apple as an example because it recently became the largest company in the world from just starting as an idea in someone’s garage.

That’s not the say other competing technologies couldn’t/wouldn’t exist if Apple didn’t exist, they certainly do. My point is businesses, entrepreneurs and workers create value from where there was none. The added value improves the lives of not just the people who created it, but increases the wealth for all.

This is specially true with information and service age we live in. With a service economy there’s no natural resource to dig out of the ground, nothing to transport, and no machines to build. It’s purely the sharing of knowledge that adds value to others.

But Capitalism Isn’t Perfect

I’ll be the first person to admit there are flaws with capitalism. Yes there is inequality with capitalism, but inequality exists with socialism, and communism. The inequality in communism and socialism is determined by the state, and favors people who have an inside connection. The only thing these economic systems do is force the economic pie to become stagnant, and the pie no longer grows bigger. There’s a reason why Cuban’s still drive cars from the 1950′s. If you ever visited Cuba, it would appear you are in a time warp.

I’m not saying Apple is a perfect company either. Apple, just like capitalism, is currently the best economic system available. History has shown all other existing “isms” have failed miserably.

Until someone divises an economic model that works best with man’s psychology of fear and greed, capitalism is the best way to collectively improve the lives of everyone. Capitalism has also proven to be much better than the path we are going towards – socialism. The only thing socialism makes equal is misery.

• Low Fixed Interest Rates Game Plan
• CNBC Commercial – Capitalize on it!
• Steve Jobs Creating Jobs

Capitalism is NOT a Zero Sum Game! is from Investor Junkie Copyright © Empowering Media, Inc.

The 2009 $800 Billion job stimulus program wasn’t as shovel ready as previously thought. The only thing shoveling was cow manure, but is to be expected from any government initiated jobs program. It has been previously reported, by Obama’s own economic team, each job created cost approximately $278,000 each. A good portion of the 2009 stimulus was not jobs related, it was mostly a stop-gap to help keep various state budgets solvent.

On the positive side, Obama has always been a great speaker. This speech was no different. It was full of passion and gusto, but lacked details. This speech was probably two years too late, and should have happened in early 2009. Obama’s speech was similar to previous speeches. It included the usual suspects:

• Tax increases on the rich (you knew Obama had to state millionaires and billionaires)
• Job works programs for union members (teachers and construction)
• Rebuilding infrastructure (roads and bridges)
• Extending the insurance for the unemployed for another year
• Extending the tax cuts to working Americans
• $4,000 tax credit to companies who hire out of work individuals for more than 6 months

Fortunately, the blaming of President Bush was finally missing.

Interestingly, Obama’s geen jobs initiative was nowhere mentioned in this speech. That’s because with no surprise it has so far been a big bust. In fact in August, three solar companies went bankrupt. Most notably Solyndra, who was paid a friendly visit by the FBI today. This is after $500 million in government guaranteed loans were given, and year after President Obama visited this company. Obama used Solyndra as a poster child for his green jobs movement. Oops!

Most of the speech President Obama stated Congress must “pass this jobs bill”, but yet no one knows the details? This sounds exactly like the Obamacare bill, and what Nancy Pelosi stated. Supposedly, in the next ten days we will get the details of the bill. President Obama states all of this spending (estimated around $447 Billion) will be deficit neutral. How the President exactly does this remains to be seen. The devil is always in the details.

Readers: What did you think of the speech? Do you think Obama’s American Jobs Act will get passed?

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Obama’s American Jobs Act Program is from Investor Junkie Copyright © Empowering Media, Inc.

Double dip recessions are “black swans” in economics. The last time we had a double dip recession was during President Reagan’s first term in 1981. Originally economists, in their ever correct ways, stated they could never happen (See my post: Why I Never Trut Economists or Weathermen).

In previous recessions they were short and recoveries sharp: Between World War II and 1990, the average rate of growth in gross domestic product (GDP) in the five quarters after a recession was 6.8%.

It can be said many on main street never left the original recession that started in December 2007. This is just a continuation of this trend after the artificial prop-up via fiscal and monetary policies that have failed miserably. Though technically this might be considered a new recession, since the way a recession is defined. This recession might occur too far from the first one that started in December 2007. Either way, with every new data point being presented is increasing the chance for a recession. I suspect Friday’s unemployment rate and amount of new jobs created in July will be dismal at best, and will confirm this trend.

Signs Of a Double Dip Recession

Regardless of the distraction we saw in Washington DC, we may already be in a recession. Here are the various signals summarized:

1. The ISM Report came in at 50.9%. The lowest score in the past two years
2. The yield curve is moderate to flat. The 10 year treasury bond yields only 2.63%.
3. First quarter GDP was revised downward to 0.4%, and second quarter GDP was estimated to be 1.3%
4. The Federal Reserve ended QE II in June. Which ends the prop-up of various assets.
5. Hard and soft commodities have increased in price and have not decreased even with the softening of the economy this means more pain for consumers.
6. The increase in commodity costs affects consumer spending which decreased 0.2% in June.
7. Unemployment is currently at 9.2% and is expected to increase when the June 2011 numbers are released this Friday
8. The U6 unemployment number is at 16.2% and the trend is increasing.
9. The average unemployment length has ballooned to over 37.1 weeks. Also a poor reflection of future economic growth.
10. Home prices are officially in a double dip
11. There is risk that Italy is the next country to have credit problems. Italy is no Greece. Italy is a real country with a GDP that’s two times the amount of Greece, Spain and Ireland combined.

From an antidotal perspective: a Gallup poll released in April 2011 found 29% thought the economy was in a “depression” and 26% thought the original recession had persisted into 2011.

With my business I’m not seeing much growth, and from talking to my small business customers they are stating the same thing. All I hear is they are treading water, and don’t see business improving anytime soon.

Update: Unemployment came in at 9.1% and the U6 number came in at 16.1%, down from 16.2%. In July, the non-farm payroll 117,000. This was higher than what was expected. The expected consensus was 85k new jobs for July. So this news is better than expected, but still lower than the at least 200k new jobs needed monthly just to keep up with population growth.

Readers: What do you think? Do you think we are in a recession, and how are you investing in this environment?

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Are We Heading For A Double Dip Recession? is from Investor Junkie Copyright © Empowering Media, Inc.

You would think the cost would stay the same based upon your income, but no. According to the USDA, the costs for raising a child increases when your household income increases:

• Less than $57,600 per year income you can expect to spend a total of $163,440.
• If you make between $57,600 and $99,730 it will cost $226,920.
• If you make over $99,7300 annually you will expect to spend $377,040

So in our case with three children, and our income level, we are expected to pay over $1 million in today’s dollars. That’s not even including if you were to invest that money over 21 years at say 6% annual increase! With the USDA survey, I wonder if they factor into account the cost of living in specific areas of the country. Also do they factor the cost increase when you have more children? In our case we had no choice but to hire people to help us like our nanny. Do anything with, or without, our children becomes a coordinated project. Our weekend date night out last Friday also shows this and to go out becomes a more costly endeavor. I kid you not, I can’t remember the last time the wife and I went out on a ‘date’.

The knee-jerk reaction for most people is children are worth every penny. Based upon growing up with my brother, that argument can be somewhat debatable. Of course I’ll do everything in my power to ensure my children become good citizens. I want them to be productive citizen’s and contribute to society, than take from it. Thought there’s no guarantee “they will become assholes”, like Marty McFly stated in Back to the Future. They have their own freewill and personality, so in the end when they become adults it’s their own decisions. My wife and I can only guide them.

I’m also not suggesting I am some overbearing father that is a control freak. It’s important that we raise our children with good ethics and morals. Also very important to me that they understanding finance. In my opinion nothing is more important than teaching your children about money, since it touches every aspect of your daily life. I do plan on teaching my children about entrepreneurship and about money. Unfortunately in school we teach about sex education and how to bake a cake, but rarely do we teach them about how to balance a checkbook or about debt. I’m not suggesting that school should be a replacement of parents, I’m only suggesting this life skill should be taught along with the other important “street smart” skills. The U.S. housing bubble proves my point about the lack of financial education in this country.

My oldest child is now five years old now, and do plan on plan on starting a financial education with all of them. In the future I do plan writing posts that discusses more about money and children. I think it will not only be helpful to me, but to my readers.

Readers: Do you have any suggested topics you want me to write about with children? Is there any money advice you would give your children?

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The Cost of Raising Children is from Investor Junkie Copyright © Empowering Media, Inc.

If I had the chance to start my career path all over again, I would choose to be either an economist or a weatherman. What other field could you be wrong most of the time, and still get to keep your job? Weathermen for example have access to all this computing power, complex mathematical forumlas, million dollar satellites, yet are still wrong at least 20% of the time with the next day forecast! I’m not even talking about the five day forecast, but the next day.

With economists, you have many different predictions from many different pundits. Who is correct? It was once said by Harry S. Truman “give me a one-handed economist. All my economists say, ‘on the one hand…on the other hand’”.

What good is a weatherman’s or economist’s forecast if it’s not accurate at least 90% of the time? How do you weed out the bad predictions from the good? How many times has a pundit made forecasts, and been wrong? Yet society on the whole doesn’t ask these questions. We accept these people are “experts”. Most of a weatherman’s education is in communications. Most of their information comes from the National Weather Service, and they mostly regurgitate their information. Yet it amazes me the weather forecast is the most watched portion of prime time news.

My wife used to ask me what’s the five day weather forecast from the news. I explained why even bother getting this information, when it changes so often and many times wrong? It’s a waste of time, a waste of energy, and also the reason why 90% of my portfolio is in index funds. I do reserve only 10% of my portfolio for hedging bets, and making risky investments. With that 10%, I know that the “expert” predictions might be wrong, but it won’t affect my retirement portfolio.

If forecasting the weather is a science that is often wrong, but economics is not a science, why should I trust an economic forecast? Take Nobel Prize winner Paul Krugman. He’s given out many predictions, but also been wrong on many occasions. Particularly with his blog with it’s revisionist history, adjusted statistics to fit his agenda, and mostly shown to be no more than a partisan hack with his statements. Why should I accept an economist’s predictions, when it’s so heavily biased, and in reality it’s opinion? Predicting the future is hard enough when dealing with nature, it’s next to impossible when dealing with people.

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Why I Never Trust Economists or Weathermen is from Investor Junkie Copyright © Empowering Media, Inc.

During the 1970′s we also experienced a previously unheard of term called stagflation. Stagflation is when the inflation rate rises faster than real GDP. The word is a blend of the two words: stagnation and inflation.

Before this period, the always correct, economists thought this event could never occur. How could a country be in a recession, yet also see prices increase? This blew the traditional Keynesian economic theory out of the water. Keynesian’s theory is mainly based upon slack in the labor force. This then determines wage inflation, which in turn increases prices for everything. So if unemployment is high (just like we are seeing today), we should not experience any measurable amount of inflation.

From the news reports we are seeing today, first quarter real GDP rose only 1.8% (July 2011 update: real GDP only grew 0.4%). This is while the annual inflation rate for that same quarter was 3.8%; the highest we’ve seen since 2008. Gold has reached an all time high of $1,800/oz. Gold’s evil stepsister silver, will more than likely close near it’s all time high. Also in the news was an ‘unexpected’ increase in unemployment claims. Crude oil is currently at $85/barrel. We are getting reports from the likes of McDonald’s (MCD), Coke-Cola (KO) that they have been affected from the previous quarter’s food inflation, and expected to increase pricing to keep up.

The dollar has continued it’s long term trend downward. Fed Chairman Ben Bernanke, in yesterday’s unprecedented press conference, stated the commodity inflation we are seeing is transitory. Ben also said the same regarding the slowdown in GDP. At what point does the trend in commodities and the dollar become a trend, and not transitory? We’ve seen inflation trends for the past two years, and the same applies to the dollar devaluation.

Are we going to experience stagflation in 2011? Since I’m more a believer of Austrian school of economics, I would have to say a resounding yes. For the curious, wikipedia has a good summary of stagflation and the various viewpoints.

July 2011 Update: First quarter 2011 GDP was revised downward from 1.8% to only 0.4%. Gold is now at $1623/oz. Unemployment is at 9.2%. Oil though is slightly under $100 a barrel.

Readers: What do you think? Do you think the inflation we are seeing is “transitory”, or something more permanent?

Disclosure: Long MCD and KO.

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Stagflation in 2011? is from Investor Junkie Copyright © Empowering Media, Inc.

Now you may be wondering why this is considered to be a worrying trend as surely they are helping the economy by paying for goods and services as opposed to hoarding their cash in offshore savings accounts.

Which is a completely rational train of thought but the reason for it being a worrying trend can be summed up in one word – inflation!

And what we have seen over the last couple of years is a situation whereby the top earners, worried that their money is no longer holding it’s value, are foregoing the usual investment routes, such as stocks and shares ISAs, and putting their money into alternative investments.

This, in turn, causes an increase in the cash value of real goods and so inflation goes on an upward spiral.

And even when the Bank of England began a process of quantitative easing – creating money to buy assets, increase credit growth and stimulate the economy – this did not work as expected as, although the potential supply of money was there, it did not translate into a real supply of money as investors were not investing financial assets such as government and corporate bonds.

Instead, those with the wealth were buying into alternative investments like art, wine or good, old-fashioned bricks and mortar.

And it appears that it’s not only the super-wealthy that have stopped saving as figures from HSBC have shown that those earners in the £100,000-£150,000 pa bracket are also looking to spend their way out of recession.

A survey of 1,000 UK consumers found that those with a household income of over £100,000 expected to increase their spending by 7.8 per cent in 2011 and were also likely to decrease the amount that they save by 10 per cent.

Richard Brown, head of savings and investment at HSBC said: “It seems saving is giving way to spending for many affluent households in 2011. It will remain to be seen as the year progresses if this is indeed the case and the correct decision.”

One reason why this may not prove to be the correct decision is that, although their cash probably won’t hold it’s value in the medium term, alternative investments such as expensive wine may only be growing in value due to it’s current popularity artificially inflating it’s cost.

Investing in the housing market can be volatile at best but such is the lack of confidence in the economy, coupled with the Bank of England’s current love of printing money, that many high earners are opting to invest in things that they feel will retain at least a high percentage of their value.

And whilst this could lead to an even greater increase in inflation, it’s also worth considering the flipside of the coin; that consumption could affect growth and it may well just precipitate a turn around in the economy.

To paraphrase HSBC’s Richard Brown, it remains to be seen whether alternative investments, and spending over saving, will prove to be the correct decision.

This guest post from the other side of the pond, was written by Les Roberts. He is an aspiring top earner and journalist at Moneysupermarket.com.

Learn more about Fisher Investments, and the financial opportunities available.

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Are Alternative Investments Causing Inflation? is from Investor Junkie Copyright © Empowering Media, Inc.

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I miss great interviewers like Donahue who would spend an hour with a guest. He would go into great detail about a topic, and argue from his liberal (though mostly incorrect ) viewpoint. Back then the interviewer, and guests were also much more civil. Today, it’s about short attention span theater. Channels like CNBC it’s two minutes on a complex topic with six talking heads. Each person only has enough time to get in a small sound bite – Jerry Springer style. It’s about who can shout the loudest, and not make the most profound comment.

So it’s ironic in two ways that CNBC would include a 1979 interview with Donahue and Milton Friedman. The first way is GE (CNBC’s current parent company) is no free market purveyor, and much prefers crony capitalism. The second is Donahue’s interview style is nowhere to be found on CNBC. It’s all about bold flashy comments with a sound board that includes “Sell! Sell! Sell!”. Boy how times have changed.

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CNBC Commercial – Capitalize on it! is from Investor Junkie Copyright © Empowering Media, Inc.

With that said, I have been watching the events unfold in Wisconsin for the past two weeks. I have been reading commentary on both sides, and I have come to some decisive conclusions. My primary question is why should public sector unions be treated differently than private sector unions or non-union employees? The obvious answer, they shouldn’t. Private sector employees during the past three years have seen major economic disruptions. High unemployment, decreases in pay, loss of value in their retirement funds, increases in local taxes, and decreases in government services. For the most part, public employees have been unaffected by this downturn.

In addition, premiums for health care continue to rise for the private sector workers. While some public sector union employees, put in little to no money to support their healthcare. How is appropriate for a private sector tax payer, who has none of the guarantees for retirement or healthcare, asked to pay for government employees who do? Isn’t it logical for when private sector experiences an economic decline, shouldn’t the public sector also?

It use to be said, if you worked for government, yes you would make less money, but it would make up in your benefits. I can speak at least for the New York, Long Island area, this is definitely not the case. In many cases public sector employees make more, and in addition get better benefits. This goes for teachers, police and public officials. This path is unsustainable, and has to end now.

We’re Broke

In my opinion, this is just the beginning of future protests, and more than likely will get ugly. Be it from unions, seniors, or other parties that claim some stake in the government entitlement pie. We cannot afford to continue to go down the path that we are currently on. If we continue, it most certainly will not end well. We don’t have a tax problem, we have a spending problem within our government. The most obvious example is this graph from Mary Meeker (the same Mary who wrote in the 90′s the Internet Report).

This picture is certainly worth a 1,000 words. 58% of our current (not future) federal budget is to pay entitlement programs. It does not take a rocket scientist to know this isn’t sustainable, and based upon baby boomers soon to retire it will only go up. So a word to public sector unions, the game is up. We all must make sacrifices, and you must also unless you want to become the next Greece. The ability to pay little or no money towards health insurance, and get a hefty pension plan with little contribution is the thing of yesteryear. Private sector employees don’t have these benefits, why should public sector employees?

Now I’m sure some of you will argue – the continuation of the Bush tax cuts are the cause of this shortfall. You would be wrong though, as typically 18-20% of our GDP is collected in taxes. We always seem to collect the same amount relative to GDP no matter what the tax rate is on the rich, poor or middle class. Yes we did experience a shortfall in taxes collected for the past 3 years, but that should bounce back to typical rates as the economy improves. Our government is currently 25% of GDP, yet we are only collecting 18%. Does anyone see a problem with this?

But Teachers Didn’t Create The Problem!

I have a very liberal college friend who lives in San Diego, and is head of the local teachers union for his district. His claim, along with the others who protested this weekend, he is helping the keep the middle class. His argument is teachers didn’t create this financial mess yet are being blamed for it. While there is some truth to that statement, it’s really unrelated. The commonly stated “evil doer” Wall Street can be partly to blame for the 2008 economic crisis. The funding issues of public union employees is a much earlier problem, and unrelated to the crisis specifically. It all boils down to public employees have much better healthcare and pension plans compared to their private sector counterparts. Funding for their pensions has been underfunded for years. Through either accounting tricks that if any private company would do would put them in jail, or politicians kicking the can down the road. I find it ironic, my friend lives in one of the worst economic states, yet is pushing harder for more union collectivism.

The bottom line regarding anyone with a public sector job, as NJ governor Chris Christie has stated, if you don’t like your job, quit. No one is putting a gun to your head stating you must do the job. This would be no different than working for a private company. I have quit working for companies because the hours, and pay were awful. I moved on to a better paying job at another company. The problem is (at least with teachers), private schools typically pay much less. If that isn’t an indicator of what the free market salary for a teacher should be, than I don’t know what else is. The problem comes down to teacher benefits are too generous compared to private teaching jobs.

Sure there are many things I personally would like to do as a career, but if it’s not paying the bills, I would choose another career. Otherwise I would suck it up and understand this is what the career I chose pays. Why should this be any different with teachers? Mind you, I’m not suggesting teachers aren’t important. They most certainly are. My point is government employees, should be making a similar salary and contributing similar amounts to what’s seen in the private sector. The discrepancy is painfully obvious.

Repugnant Senators, Doctors and Teachers

Now on to the Democratic Senators who left Wisconsin and Indiana to hide in another state. Their actions are completely deplorable. My response would be the same, if they were any other political affiliation. As Obama has stated when he was elected President, “elections have consequences”. The past 2010 elections, the people elected a Republican governor and a Republican majority in their senate. All were elected to represent the people. If you don’t like the bill, that is fine, state your opinion on the floor, and vote against it. If the people of Wisconsin don’t like the results, they will vote anyone out in the next election. That’s the way a republic works plain and simple. You didn’t see Republicans during the health care debate, leave D.C. because they didn’t like the bill. They all just voted no. So get back to your state, and do your job you were elected to do. Otherwise you aren’t fit for the post, and a coward trying to circumvent the democratic process.

Let me now discuss the teachers protesting and the doctors involved in giving out “sick notes”. The doctors in fact admit they are doing this for the protestors, and is another deplorable issue. Do these doctors not have any ethics? They should be investigated for fraud, and have their license revoked. I’m all for the right to protest, but you shouldn’t get paid while protesting. It’s on your own time, and your decision to protest. I also find some teachers in contempt for taking their students to the union protests. From the reports, it wasn’t for an education in politics. A private sector employee would more than likely get fired for any of the shenanigans mentioned.

So What Should Be Done?

Mind you I’m not completely against unions. My beef is with just public sector unions. With unions in the private sector, if the union becomes too demanding and gets a stronghold on the business the business either goes under, or moves business to another location. There is room to negotiate so the union doesn’t kill off the golden goose. Unfortunately, this didn’t happen during the 80′s with the steel mills in the United States. The unions became too greedy and powerful. In the end the businesses became unprofitable and shutdown. The checks and balances that exist in the private sector, do not exist with public sector unions. Since the government is effectively a monopoly, there isn’t any other government to compete against, and the source of all income is the taxpayer. I’m not going to politicize the Democrats and their incestual relationship with unions. I will say it’s too easy for government officials to give into union demands, and kick the can down the road.

Sanity needs to be brought back into government employment. Public sector unions must be limited in power, and what was suggested by Wisconsin’s Governor Scott Walker makes reasonable logical sense:

• To make paying into a union optional. Let the worker decided if they want pay into a union member. Making a public employee automatically pay union dues is a slush fund plain and simple.
• Pay 12% of healthcare costs (private sector pays much more). The union members only pay only 6%.
• End collective bargaining rights. Not eliminating it allows the same mess to happen in the future. Effectively unions bargain with themselves

Now according to the news reports, if by Tuesday this bill isn’t passed, then 1500+ employees will get the pink slip. No government should be held captive by missing senators, and public unions. That’s the risk one must take by belonging to a union. After all, working in the private sector you can get laid off at anytime, shouldn’t the same occur when you are in a union?

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Why Should Public Sector Unions Be Treated Differently? is from Investor Junkie Copyright © Empowering Media, Inc.

I will say the daycare is a great environment for our children, and it’s great they are socializing with other kids their age. We notice our neighbor’s child, who was watched by nannies, and notice how less mature he acts. Without question our children have benefited from going to daycare.

So while we really like the daycare, and the people that take care of our children, it’s been a really stressful experience for us. The issues we’ve had are:

1. All three children are very often sick. In fact, it’s almost a weekly occurrence. The youngest got so sick in December that we had to hospitalize him for bronchitis.
2. When they are sick, I often have to watch them. This takes time out of my workday.
3. From this and other issues related to daycare (snow days, vacation days, etc.), it’s been very hard to schedule my work life around their schedule. It seems like they are on vacation more than they are at daycare.
4. My wife often has meetings early in the morning and late in the evening. I often have to drop and/or pick them up from daycare. This can suck at least an hour from my work routine.
5. The dropping off, and picking them up for my wife can be a major chore. Dropping off two children, and picking up three, to put it nicely, is a complex task.
6. It’s been very hard to find someone to babysit our children. For either times when they’ve been sick, or had an evening engagement. Don’t ask me when was the last time we went out for a romantic dinner. Our relatives have helped somewhat, but it’s not been easy.

The aspect of hiring a nanny that makes me unhappy the most is the cost. A nanny is expected to be at least $5k more than what we are currently paying for daycare. My wife recently got a raise that should cover the additional costs. Though I really wanted to use the money for additional savings for the children’s education and other investments. I promised myself we shouldn’t experience lifestyle creep, but it seems like we have no other viable alternative. From my end it makes me nervous, with the economy still being somewhat unstable.

It will help free up my time to be more productive with my businesses, so I hope I can earn more income to make up the difference in cost. The other aspect that somewhat concerns me is bring a stranger into the household. If we do bring a nanny in we do want them to feel comfortable with us, and our children. I do understand, like managing your money, no one cares more about your children than you do. So as you can see, I’m somewhat hesitant about hiring a nanny.

Readers: What would you do? Do you think hiring a nanny will really be more beneficial to us than daycare?

• Note To Employees. Be On Time!
• The Cost of Raising Children
• How to Hire the Right Accountant for You
• Weekend Reading for February 13th 2011

Should We Hire a Nanny? is from Investor Junkie Copyright © Empowering Media, Inc.

• US Bond Market – Even with QE2 set sail rates will continue to go higher and doing the reverse of what was intended.  QE2 will be considered a failure by most people except the FED, and will discuss QE3.  I am waiting for the bond prices to go lower before I purchase any more bonds or bond funds.
• US Debt – While everyone is talking about it, it will continue to grow at an alarming pace and our government will only nibble at the edges to slow down expenses.  No major structural changes will occur this year.
• GDP – We will not see a double dip recession, but growth will remain anemic at best with sub 3% GDP growth in the U.S.
• Unemployment -  It will remain structurally higher for a least the next two years.  Since we will see low GDP growth this will not take the slack out of unemployment anytime soon.  Unemployment will hover around 9-10% (U-3) throughout the year and may bounce around.
• Inflation – Some sectors are seeing artificial inflation and growth because of government support.  The injected money has to flow somewhere with a 0% FED rate. Hence why you are seeing some disconnect in the stock market with other factors.  Inflation as measured by the government will remain tame around 2-3% because of unemployment.  By other measurements, we will see inflation in the goods and services we really care about.  The volatile commodities like oil and food will increase this year more so than last. Deflation or disinflation will not be an issue this year.  While not exactly matching the formal definition, stagflation will be here again.
• Stock Market – The market for the most part will be sideways (moderately slightly higher) until middle of next year.  Volatility will remain increased during this period, so we will have wild swings up and down.  I expect a 10-15% pullback this year, with the S&P 500 higher 7% for the year overall.  I will be buying on the dips with the dry powder I have.
• Commodities – Will see a 10-15% pull back this year.  While I’m a bull for the long term on gold and silver, I believe it’s run up too much too fast.  I may buy more gold and silver on the dip.
• Fed Rate – The Federal Reserve does not raise rates at least until 2012.
• State Government Crisis – We will see more issues in California, which will affect muni bonds.  I don’t predict an outright default of California this year, but it will eventually happen.  If the Federal government intervenes, other states will not be happy
• European Government Crisis – Another country in Europe will have a debt crisis, more than likely it will be Spain.

Readers: What are your financial predictions?  Do you see the Obamacare law repealed?  What “black swans” do you think will happen this year?

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2011 Economic Forecast is from Investor Junkie Copyright © Empowering Media, Inc.

Yes there are also industries like waitress who employers don’t pay them much money, and much of their income is derived by tips.  In many cases others tip not only on the quality of service, but the food.  If the food was awful, they reduce the tip.  This usually isn’t fair to the service staff.  I completely hate going out with a large party that then the restaurant automatically adds 15% gratuity.  This give the service staff no incentive to work for their tip.

But I’m not talking about these types of service jobs.  I’m talking to you the decently paid, healthcare receiving, Starbucks employee.  My short list this includes:

• Starbucks/Dunkin Donuts
• Garbage men
• Newspaper delivery

My local newspaper delivery boy, er guy, has the gall to mail me an envelope to send in my “donation”.   There was no holiday card thanking for being his customer, just an envelope with the words “Happy Holidays“ written on it. I thought they were supposed to deliver the newspaper to me on time, and to my house.  Isn’t that part of the fees I’m paying when I ordered my newspaper? Or is this a “feature” I must tip for?  Serious question..Is newspaper delivery that complex of a task that requires a tip? Are they going above, and beyond their job description? Hand delivery would be above the call of duty.

Then there are industries like garbage men.  According to this web site, the average salary of a garbage man around my area is $42k.  Not a great salary, but not minimum wage either. At least in our area, they get great benefits.  When living at my old residence I tipped them, and two days later they left my garbage can out on the road only to get destroyed by a car.  I guess my tip wasn’t good enough.  The next year they did not get a tip.  Then at my current residence, the garbage men must have a union quota on how many cans they can take at once.  I have 4 cans, they only empty two unless I lug them to the curb myself.  Mind you the town I live in has specific rules and regulations on when I can leave out my garbage.  Otherwise I could get a fine. They won’t be getting a tip either since I’m already “tipping” the garbage men through my very high property taxes.

At least for me, when I interact with customers I always try to do a great job.  While it would be nice to even receive a simple “thank you”, I’m not expecting anything in return. Over the years we have received some gifts from our customers and I really do appreciate it, but it’s not necessary.

People we do tip:

• Our cleaning lady – Always goes above and beyond what we pay her to do.
• Day care assistants – The ones we have take care of our children really well and do care about them.
• FexEx/UPS guy – We get a lot of packages to our home, and they are always lugging the heavy boxes inside our house.

Readers: Is there any group of people you don’t tip?  If so, why?

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Does Everyone Deserve a Tip? is from Investor Junkie Copyright © Empowering Media, Inc.

People who struggle with numbers were about twice as likely to fall behind their mortgage payments as more mathematically inclined people were. A fifth of these people got into foreclosure while only 7% of the financially literate people ended up in foreclosure. These patterns held up across all kinds of data: risk attitude, type of mortgage (30-year fixed versus ARMs, for example), income level, FICO score, debt ratio, etc. They learned that a financially illiterate person gets himself in more trouble than a financially literate person, even if they are in pretty much the same situation.

The authors of the study also found that people with limited numerical abilities make other financial mistakes that get them into trouble with their mortgages. They spend too much, they save too little, and they do not know how to respond correctly to income and/or consumption shocks. When the economic environment changes, those mistakes become visible rather quickly and very suddenly cause financially illiterate people lots of financial and emotional grief.

Two recommendations stood out. First, it makes sense to combine some sort of financial literacy indicator with the FICO score since financially literate people with the same FICO score are less likely to fall behind their payments.

Second, giving young people more intensive financial education could substantially improve the financial decisions they will make later in life. On this one, you can actually do something about it now instead of waiting the powers that be to take charge.

If you have missed out on getting a solid education in personal finance, you can still catch up. Here’s how:

1. Read finance books. Go to a bookstore or your public library and check out what books are available. Select the one that is presented in a way that works for you. There is no need to pick the bestseller or find the best personal finance book. Just start with one or two that work for you.
2. Read the top personal finance blogs. Again, check out the range of different blogs available in cyberspace and subscribe to the ones that speak to you.
3. Take classes at a school near you or online.
4. Talk to financial planners at your bank, or to independent financial planners. Make sure that the initial consultation is free. You will likely benefit from discussing your financial situation with a professional even if you do not hire them.
5. Find a trusted person whom you can use as a sounding board. You can discuss your financial plans and other money related ideas with that person, and you may get fairly objective feedback.

This was a guest post by Christian of Money Obedience.  A virtual financial coach that offers a free budget planner. If you enjoyed this article, please consider subscribing to the MoneyObedience RSS feed

Readers: Do you have any other recommendations to help improve someone’s financial education?

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Financial Literacy and Mortgage Delinquency is from Investor Junkie Copyright © Empowering Media, Inc.

My father, who passed away 5 years ago, I’m sure is turning in his grave.  A NYC police officer for 20 years on the force was a man of honor and dignity.  A man of the law, and unlike my brother always respected it.  My brother has always seem to have gotten into trouble over the years.  I’m not saying I’ve been a perfect person.  I’ve certainly made some mistakes in life, but nothing as morally wrong, and involved the legal troubles he’s gotten himself into.  I’ve observed, and so have other noticed, we are completely different people.  I’ve always wondered what makes my brother and I so much different?  We were both raised by our loving parents.  While my parents were far from perfect, we had what I would consider a normal childhood.  I can say one event that dramatically affected my brother’s life was being diagnosed with dyslexia.  I’m not suggesting it’s the cause of his behavior, but has affected his confidence and self esteem.  How we’ve decided on what the events in our life meant, I believe one of the main differences in our lives.

From all of the pain, grief, and anger I’ve experienced in the past week, I’ve come to the conclusion that decisions matter:

• The friends you pick
• The career you take
• The person you marry
• What you say to others
• How you treat others

The actions you take, be it positive or negative, have consequences.  Like Newton’s Law, for every action there is a direct and opposite reaction.  I also believe, for whatever reason, my brother is self destructive.  As I’ve discuss in comments on other blogs, self destructive greed as Ayn Rand discusses is bad.  Though there can be a fine line between healthy greed, and self destructive.  One example of my brother crossing that line in buying new tires and rims for his Corvette, which really didn’t need replacement.  Yet, not replace badly needed tires and brakes in his wife’s SUV.  His wife drove the car daily with their child.  The tires were obviously balding, and should be replaced.  He was only concerned about himself, put the safety of his wife and child at risk – which has been a long part of his self destruction.  This, along with many other factors, destroyed the relationship with his wife.

As a parent of three children, I can only imagine what my mother is going through.  Raising a child from infant, having high hopes of what your child will become, only to be saddened with reality.  To say my brother was a disappointment would be an understatement.  It is something I hope I’ll never go through, and wouldn’t wish it on my worst enemy.  As awful as this statement might sound, it might be easier on my mother if my brother wasn’t still alive.  At least she would have closure with the situation.  I’m of course emotionally there for my mother in this difficult time.  I may have not agreed with all of my parents decisions in raising my brother, but it was their decision to make and not mine.  I’m also not sure anything my mother or father could have done that would make the outcome any different.  As a parent also, we can only hope we instill a moral compass that stays with them throughout their life.  Unfortunately it seems not everyone compass stays pointing North.

I believe no matter how negative, sad, painful or traumatic a situation may be, there must be some lesson learned.  I don’t think I have all the answers, nor I may ever, but it’s something to help in the healing process.  My brother is going down and uncontrollable and unsustainable path.  This might a wake up call for him, though with previous incidents it has not.  I hoping for the best, but preparing for the worst.

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Actions have Consequences is from Investor Junkie Copyright © Empowering Media, Inc.

I recommend at least 80% of your equities portfolio should be low cost, tax efficient and indexed based investments. If you feel you can outperform the market, do so with no more than 20% of your assets. When the market zigs one way, you zag the other way. That way if you are wrong, you didn’t bet the farm. Adjustments in your asset allocation strategy also make sense when investing this way.  This doesn’t mean 100 equities and 0% bond allocation. This means making adjustments within say your equities and increasing your exposure to emerging markets.

By making smaller calculated bets, that can be somewhat speculative, you might be able to come out ahead. A proper asset allocation in my opinion is the most important thing to ensure investment success. As I have mentioned in the past, any predictions about the future are like football color commentary. While the assessments might be correct, it’s sometimes easier to make predictions when you have no skin in the game.

With all of the disclaimers stated, here is my opinion of what I see happening for the remainder of 2010 and 2011.

• US Bond Market – The ultimate be-all bubble. In the long run, rates can only go higher, but not sure of the time frame. We will not experience the same low rate for 10-15 years like Japan. We don’t have savers like Japan does, and a big portion of our bond investors come from outside of the USA. You are best investing in other alternative investments. Things like Ginnie Mae Bonds, MLPs, dividend stocks (see dividend aristocrats), and preferred stocks. If you do invest in bonds remain on the short end (less than 5 years).
• Unemployment - It will remain structurally higher for a least the next two years. This is because of deleveraging of consumers, business and the government. Tax increases all around, and government intrusion into every aspect of business. This is causing uncertainly by small businesses to hire. States like California cannot keep going at the rate they are going and will need either some sort of Federal bailout, or reduce their workforce. We will not see under 7-8% unemployment during this time.
• GDP – It will remain subdued for the next 2 years at under 3%.
• Inflation – Some sectors are seeing artificial inflation, and growth because of government support. The injected money has to flow somewhere with a 0% FED rate. Hence why you are seeing some disconnect in the stock market with other factors. While it should be higher than the March 2009 lows, it ran up too much, too fast. The S&P 500 P/E Ratio at the moment is 19.53, while not at the 2000 highs is above the average of 16, so the market overall is not cheap but not outrageously overvalued. Only a few weeks ago the P/E was over 22.
• Stock Market – The market for the most part will be sideways (moderately slightly higher) until middle of next year. Volatility will remain increased during this period, so we will have wild swings up and down. The VIX will remain slightly elevated above historical averages.
• Fed Rate – The Federal Reserve does not raise rates at least until after the election and is expected towards the middle of 2011.
• Double Dip Recession – While not 100% ruled out, it is unlikely based upon the existing growth rate. in my opinion at least 50% chance.
• November 2010 Elections – Based upon the tea party movement with the US many people are unhappy with the amount of government intervention. Expect a big change with incumbents in government. Expect a pop in the stock market based upon this news either before (because the results will be obvious) or after the election results.

In my overall opinion we’ll see really crappy growth in most of the economy for the next year and half. My opinions may change over the period of the next year and half, and will revise this page without deleting by striking through the original predictions and listing the revised date. I will post new tweets on my InvestorJunkie account via Twitter.

Readers: What is your opinion with the economy?  What do you think will happen?

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Economic Forecast for 2010 and 2011 is from Investor Junkie Copyright © Empowering Media, Inc.

Being a business owner, I looked at this post much differently than the negative commentators.  I saw it as she had enough of a savings cushion to allow her to become super focused on the things that she likes to do.  By allowing someone else (who also might be better than she is) do the task, it frees up her time to focus on other things.  The free time could be used productively to increase her income even more. The money from the sale of her business has allowed her some financial freedom.  After all isn’t that the purpose of becoming wealthy? Why else would people be reading a blog named “Get Rich Slowly”?

While not everyone is equal in society – some come from a rich family, others have a better education, some came from better neighborhoods, and some are more lucky than you.  We are all equal in one thing.  We all have the same amount of time each day. What we decide to focus on determines how successful we are with the goals we set.  If you already own a business, I don’t have to tell you it’s not a 9-5 job!  You understand you have other things outside of your business – a family to take care of, a house that needs to be maintained, and errands to run.  There are only so many hours in a day.

With my family, we have quite a few people that assist us with our daily living.  I’ll mention the obvious ones that only twenty years ago were considered “luxuries” to most.  We have daycare, a cleaning lady, and lawn service.  Even other things most don’t even flinch at, we are technically outsourcing to others: getting my hair cut, getting the car’s oil changed, having my accountant do our taxes, etc. etc. etc…  I could technically do all of them myself, but I choose not to.  Why not?  It’s because I value my time, more than the money to have someone else do it.  It’s a decision I deal with as a business owner on a daily basis.  Some of the questions I ask when doing a task:

• Should I do this, or is someone else better suited to do this work?
• Do I have the time to perform a knowledge transfer and offload the work to someone else?
• Can I find someone else to do the work who will do it better than me, and at the same time are they cheaper?
• If I do have someone else do the work do I have the budget for this?
• Could I be doing something else that’s more productive with my time?

What applies to business, I also believe can apply to your personal life.

The thing is, when you have little money, and more time, the choice is obvious.  You will do it yourself, because you have no choice.  I suspect the personal finance bloggers that post ways to save money by doing “X task” yourself, have more time than money.  That’s not to say you should never do something yourself, or at least understand what it takes to do it.  While I feel it’s important we have a clean house, and have done it many times previously, we choose to hire someone to make sure it’s clean.  We can then focus our time to do something else more productive.  It’s as simple as that, nothing more or less.  I value my time more than the money it costs to have someone do the work.

Readers, which do you value more, your time or your money?  What tasks would you never let someone else do and why?

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Do You Value Your Time Or Your Money More? is from Investor Junkie Copyright © Empowering Media, Inc.