The Ignorant Investor

Picture this: You're working on a simple document, and to divide one section from another you hit return and then insert 3-4 dashes together on the new line. Without any prompting, Word automatically changes this to a single, thick dotted line that goes from margin to margin. You try highlighting and deleting it, but that doesn't work. You try back spacing over it. No luck. You hit return above it to see if you can at least move the line further down in the document and keep working, but Word interprets this as a demand for a second line (as though one dotted line is never enough for anyone). So now you have two lines. Two ugly, black lines sitting in your document without any obvious way to get rid of them.

You check the menus, the needlessly complex help file, autocorrect menus. You know the answer is probably obvious, but you don't know where it is. You start wondering why the software writers would have the system automatically do something without giving the user the ability to easily undo it. And then it hits you: Because they never thought about it. They just kept tossing in features without ever thinking about how they might be used. The software can do just about anything, but in a cruel joke, that complexity means that the casual user is going to get hopelessly muddled whenever the software decides to get jiggy with it and start doing you favors like putting TWO FREAKIN LINES IN YOUR DOCUMENT THAT YOU CAN'T GET OUT. It's like having a word processor modeled on somebody's impulsive, out-of-control brother who is always getting drunk and then pissing himself just at the most inopportune time.

I hate you Bill Gates.

The Wall Street Journal says:

Even though President Bush signed $70 billion of tax cuts into law last week, many people still may get hit with higher taxes this year.

The reason: Congress hasn't yet extended the life of several popular tax breaks that expired at the end of last year. Among them is a provision that allowed millions of people to deduct state and local sales taxes instead of state and local income taxes. Other expired breaks include deductions for millions of teachers and for many people with college and graduate-school bills.

Congressional leaders hope to resurrect these and other expired tax provisions, including a business research and development credit, retroactively to the start of this year. "These are all provisions that should have been taken care of first" but "were left out" of the recently enacted law, says Montana Sen. Max Baucus, the ranking Democrat on the Senate Finance Committee. "Now it's vitally important" to pass another bill. "Allowing these provisions to remain expired would mean a 2006 tax hike for millions of working families," he says.

It's becoming increasingly clear that Congress has no intention of doing anything about controlling the deficit. With interest rates rising, failing to match revenues with spending and financing the resulting gap will only get more expensive as time passes. The government, just like the consumer, has grown so used to cheap credit that it now takes it for granted.

These deficits are coming at a time when the economy is booming. We are in the years of plenty, and years of plenty are inevitably followed by the time of scarcity. The time of scarcity is when the government can be expected to run huge deficits as the need for social services explodes and it seeks to 'prime the pump' with spending on infrastructure and other projects. That's no time for raising taxes, economists say. So what's going to happen when the huge deficits of today need to be serviced with the lower revenues of tomorrow, when the government will have no ability to raise taxes?

Somehow I already know the answer: Someone is going to suggest a big tax cut.

As of this morning, gold is taking another hit. Down a little over 2%. I don't know if that's because the drop in durable goods orders sent a signal to investors of less inflation or what, but a little perspective is necessary. Even at this morning's lower price, gold is still up about 5% just in the past month. Up about 22% since the New Year.

I don't know what this means for the future. I just thought it was worth noting.

Scroll down a couple of posts, and you'll see that back on May 11 I said I was fighting a strong urge to pick up some GLD shares. My strong desire to buy, I noted at the time, was a very bad sign. By the time I'm interested in buying, the horse is usually bolting out the barn door. Guess what?

Price of GLD share then: High=$72.51

Price of GLD share today: 1 pm=$65.24

That's a 10% drop in a week. Ouch. Had I bought into GLD at the time, I would have stopped out after a 5-7% loss. Factoring in transaction costs, I'd have had a nasty little loss. So I dodged a bullet there.

However, there's good news for gold bugs out there. I've changed my mind and am now comfortable not owning gold. So take heart: I've been wrong about gold so often that the next move in gold has a very strong chance of resuming its leap skyward. To believers, the current drop in the price of gold is probably only a short term correction that represents the three most beloved words in all the brokerage community: A Buying Opportunity.

We'll have to wait even longer to see who is right. Like a week.

From the L.A. Times:

Cyndi Smallwood is looking for a few strong men for her landscaping company. Guys with no fear of a hot sun, who can shovel dirt all day long. She'll pay as much as $34 an hour.

She can't find them.

Maybe potential employees don't know about her tiny Riverside firm. Maybe the problem is Southern California's solid economy and low unemployment rate. Or maybe manual labor is something that many Americans couldn't dream of doing.

Link.

This sounds like a snow job to me. If there's one thing experience has taught me, it's that in a fight between pride and money, money usually ends up leaving pride in a quivering lump of bruises on the floor. I don't know what the situation is with this woman's company, but there's more to it than the reporter is seeing.

Fortunately, there is one bright spot:

Telling Americans there are jobs they won't do isn't necessarily a way to endear yourself to them. Addressing a group of union leaders in Washington last month, Sen. John McCain (R-Ariz.) said the members of his audience wouldn't pick lettuce even for $50 an hour.

When some in the crowd angrily dissented, McCain demurred: "You can't do it, my friends." Three dozen demonstrators later showed up at the senator's Phoenix office, bearing lettuce-picker applications as well as heads of lettuce.

You want to know what the toughest manual job in America is? Being the guy with a crowbar who has to help McCain squeeze his enormous head through the door. This is the second time in a week one of our oh-so-hardworking senators have told Americans that they have no work ethic. Get a real job, douchebag. Then shoot off your mouth.

I must say I'm tempted to buy some these days, only to make myself feel a little less irritated by its rise. As I've made clear, I dislike the idea of gold. It doesn't earn money. It doesn't distribute a dividend. It doesn't even get consumed so people can make money on its replacement. Almost all of what comes out of the ground just sits in a vault. You are thus tied in completely to what other people are willing to pay for the right to possess it. Or can afford to possess it. And it's something that can be sold easily in a time of financial hardship, meaning that the price can drop easily. But that's only my own opinion, which counts for literally nothing (it's something I give away free and still have no takers).

What we could be seeing now is a lot of new money coming into the gold market not just in speculative money chasing anything that promises outsized returns (which are becoming harder to find), but also by people who want to have a kind of insurance
against inflation and currency fluctuations. If a large swath of investing professionals or the retail market begins to decide that having 5-10% of a portfolio in gold is a good idea, that's a lot of money chasing a limited product.

There's nothing more tempting right now than the idea to buy some gold through very liquid ETFs and try to manage the downside risk with a stop-loss order. If it keeps going up, I win. If it drops 5% past what I paid for it, I'm out. (It's not like I'm doing anything mroe compelling with my cash right now). Yet I assume everyone else is doing the same thing. If the price were to drop significantly, wouldn't all our orders go through simulataneously, dropping the price even more?


So gold is tempting me. Which should worry all gold investors. When I become seriously interested in investing in an asset, there's a very good chance it's about to tank.

From today's news from the United Kingdom:

The extremist campaign against animal research moved to a new level on Monday when private GlaxoSmithKline shareholders received threatening letters, demanding they sell their shares within 14 days or face public exposure. Campaigners have not previously targeted individual investors in a multinational company.

The unsigned letters - from a previously unknown group called Campaign against Huntingdon Life Sciences - reached shareholders in yesterday's post. GSK said about 50 worried recipients, mainly elderly people, contacted the company but it had no way of knowing how many of its 167,000 registered shareholders would receive them. Many were likely to find letters on the doormat when they got home from work

Since I've often spoke about owning GSK, GlaxoSmithKline (or whatever the hell name the conglomerate is going by these days), I'm wondering where my angry letter is. Frankly, a little exposure could only help this blog. The least they could do is leave a comment. Hello? Any animal rights folk out there? Anyone pissed at me for owning GSK?

I always try to avoid the doomsday scenarios that I see on the web predicting that the U.S. political economy is coming to resemble that of the average banana republic, but sometimes it's very hard:

WASHINGTON - Striving for a badly needed congressional score,
President Bush urged Congress Wednesday to pass a multibillion-dollar bill extending tax cuts for businesses and families, especially at a time of soaring gas prices.

...

"If the people have their way who want this tax relief to expire, the American people will be hit with $2.4 trillion in higher taxes over the next decade," he said.

"It would be handed over to government — that's where the money would go. It would be taken out of the economy and given to people here in Washington, D.C., to spend."

This is flat out dishonest. He knows the Congress will keep spending. Republicans have shown themselves incapable of real budget cutting. So the money is going to be spent no matter whether we have a tax cut or not. Rather than pay for operations with tax revenue, we'll just borrow it at a time of rising interest rates. Somewhere down the line someone will have to pay off those loans, and to do that the government of the future will need to raise taxes.

Continuing the current low rates of taxation on dividends and capital gains benefits the upper echelons of society, because they are the people who own stocks outside of tax-deferred accounts. So basically, everyone who has money in a tax deferred account will likely pay more tax down the road when they begin withdrawing funds because future rates will have to be higher to cover the debt. Yet another way in which the Bush Administration has stuck it to the lower and middle classes. It's a shame those people are too ignorant to realize it.

Fiscal fantasy continues to be played in D.C., and it's unlikely to change soon.

It's become an annual thing in the small caps vs. big caps game: small caps win. By a lot. The paper reports that that small caps have outperformed the nation's big caps for the seventh time in the past eight years, and that during that time, "the small-cap Russell 2000 index is up about 81%, compared with about 7% for the Standard & Poor's 500-stock index and about 24% for the Dow Jones Industrial Average."

According to the Journal, small caps are trading 20% above their historical average price. And fund giant T. Rowe Price "calculates that small-cap stocks are trading at their highest premium to large-cap stocks since 1983."

That's been my message for a while now, and so it's not like I'm out in left field all by myself. I've been buying the S&P 500 big time over small caps on the valuation issue; ignorant investors chase returns, I thought, so I won't. As you can imagine, it's extraordinarily frustrating to make an investment for the right reasons and not see it pay off.