Anything you can do, I can do better... or maybe, hopefully, as good as you?

Interesting short article in the Journal today about the Wisdom Fund - a mutual fund established in 1999 that attempts to track every move that Investing God Warren Buffett makes. Turns out it's harder than you might think to be a copycat.

Article posted in the Comments.

Sim City

Just wanted to post this link to a stock trading simulation I found. Haven't tried it yet, but it looks pretty cool.

They give you $100,000 in fake money, then you can trade any securities listed on the major exchanges. Of course, I think that unless it's your real hard-earned money on the line, your decision-making process won't be the same and you won't really learn what you would and should do in a real market situation. Nonetheless, it's a good way to learn the ropes without losing your shirt.

Economist Articles on the Flat/Fair Tax

I haven't had a chance to completely read these articles yet, but I wanted to post them to get any feedback. We've had some recent discussion about the H.R. 2525 Bill being brought forward by Rep. John Linder of Georgia. There might be some issues about the cost of goods sold for business, but there also might be a provision for a rebate for businesses buying raw materials.

Both of these come from The Economist, and for the time being they are available to the public. Do you think America is ready for a Flat/Fair tax? Check out the articles and let us know what you think.

The Case for Flat Taxes

The Burden of Complexity

Adobe, Inc. Wants to Eliminate Bureaucracy

This is an article based on an interview with the CEO of Adobe Systems, Inc. Bruce Chizen. Mr. Chizen wants to make it a priority to not have a "paper-less" business, but to actually destroy the barriers that paper and the need for files create. You can read the article and see some of the great ideas Mr. Chizen has about the future of the PDF.

Savings Rate Quite Low: Is that Bad?

A great article here about the savings rates of most industrialized nations and how they are progressively getting closer and closer to 0% of net household income. New Zealand and Australia even have a negative rate (yikes!). They are borrowing to maintain their styles of living.

The article cites the example of Japan having a very high savings rate, but that had a major role in their recent economic slump.

What do you think? Are savings good? How much do you save?

Killer earnings + inflation fears = well, I don't know

While earnings are largely trumping expectations, inflation fears abound as the Fed raises interest rates. Growth in the economy as a whole remains stagnant. How can that be? How can we have rising inflation and slowing growth?

Journalist and all-around economic bad-ass Steve Liesman (listen to him talk to the guest analysts on CNBC sometime and see if you can keep up) puts it all in perspective in today's WSJ (also posted as a comment for the non-subscribers, shame on you).

Bearish on Small Stocks

I just read an article about small stocks and how historically, they have done pretty well. The author of the article believes that small stocks have seen their day and will begin to fall. He cites the average P/E ratio as a cause of this slide. He seems a bit pessimistic, but with the recent predictions of increased inflation and the problem with global liquidity, he might have a point.

The article is posted as the first comment in this thread. It comes from The Daily Reckoning.

Living on a Budget

I just finished a finance test last night. I'm glad that it is over and that I did pretty well on it (at least I think I did).

At work, this month, we have been creating our department budgets. All of the number crunching and prognosticating inspired me to discuss living my own life on a budget.

In my own recent experience, my wife and I have just begun to live on a monthly budget. We started this past January as a sort of quasi-New Year's resolution. Each month we sit down and "pre-spend" or earmark our income. Our budget has several categories, some are compulsory, like bills, medicine, groceries, and gasoline. Other categories are "flexible," meaning if there were an emergency, we could live without them. Some examples of these categories are clothing, entertainment, and eating out.

It is amazing how planning your personal finances in this way can give you complete control over your money. Before we started doing this, my wife and I got by pretty well. If a bill came in the mail, we paid it. If we wanted to go out to eat, we did. We didn't keep track of our money. Why should we? We felt free.

But when we started this budget, we realized that we had not been free. We had been spending like drunken sailors. We hadn't saved much and we were buying a lot of "things" and "stuff" we didn't need.

As we started writing down the way we wanted to spend our money, we began to discover where the money was going. It was actually quite liberating to be able to have such a command of our money. We knew where each and every penny was going and that enabled us to begin to make long-term plans.

I'd be interested to know what you think about budgeting? Do you budget your money? What keeps you accountable? Post a comment and let me know.

Aaaah.... summer.

At Cheyenne Mountain High School in Colorado Springs, Colo., Jessica Clayton scored 1540 out of 1600 on her SATs, aced five advanced-placement courses last semester, volunteers two days a month at a middle school, works after school at a smoothie shop, is on the varsity Lacrosse team and runs cross country.

But she worried that wasn't enough: An Ivy League recruiter told her about a rival applicant who composed harp music, recorded the compositions and sold the CDs for charity. "I don't even play the harp," says Ms. Clayton. "There are kids who have sent up satellites that have orbited the Earth. At my school, I'm pretty average."

So, with money she earned and a scholarship from the Where There Be Dragons tour company, Ms. Clayton signed up last summer for the company's trip to Peru, where she painted a school, helped harvest wheat and organized a trash cleanup. "I guess I knew that it would kind of give me an edge," she says. Five colleges accepted her, she says, including Bowdoin, Vanderbilt and Colgate; she's wait-listed, she says, at Pomona.

I was a bit startled by an article in today's Journal about how many high school kids are spending their summers: doing anything possible to better their chances of being admitted to a "top college." In some cases, it's whatever money can buy. In fact, an entire industry has sprouted up to counsel teens and their parents (One counselor advised against volunteering at the local hospital because every single teen does it... why not spend $2000 - $24000 and do something to make you stand out).

Besides driving a bigger wedge between the economic "haves" and "have nots", I think all of this is ridiculous on a more basic level: these poor kids are going to be burnt out by the time they get out in the "real world" after college. Fifteen and sixteen year-olds should be taught that there is more to life than the school one gets into, the number of lines on one's resume and the number of points on an exam. These kids are being set up for a lifetime of ruthless competition for Status.

If it's their parents who are pushing them, well, don't even get me started. James told me about a parent who is making their kid take the ACT test again and again to raise his near-perfect score of 35 to a 36. That parent should be tied to a school desk and given a thousand paper cuts with the test booklet.

There's nothing wrong with doing well in school, having aspirations or trying to do the best you can do. But the school you get into and how you eventually earn your money is only part of life and, in my opinion, a very small part to be devoting so much time, money and soul to at such a young age.

Future of the Economy?

Today's core CPI of 0.4% was twice what economists predicted, and did not follow in lockstep with yesterday's low core PPI. That means inflation may indeed be lifting its head and growling, as the Fed believes. Bummer. I was hoping for a low number. Nonetheless, the markets are running slightly higher today on news of killer earnings from, well, every single company that I heard about on CNBC this morning. Even airlines are doing better than expected. Airlines that don't have Southwest printed on their tail. How?

There is an excellent exchange in today's Journal between two economists about the state of the economy and where it's headed. Although differing in their views of the size of government's role in the economy, the two agree on many fronts.

They both argue that things seem to be "between booms", as we were in the 70s. The 60s had pushed people to the suburbs, causing an explosion in consumer goods. The 70s, well, were not so good. In the 80s, the tech boom began - first with personal computers and ending in the bursting of the internet bubble in the early part of this century.

So what's next? What new technology or consumer trend is going to bring us out of this "soft patch" and drive growth for the next X-many years? Read the article, and let us know what you think.

Easy Money in California

Here is a controversial op-ed piece published by a Stanford Economist, Thomas Sowell. He says that in San Mateo County (near San Francisco) people are making $2,000 a day. This amazingly high return is caused by unfair building practices and a restriction of the natural forces of supply and demand.

Well, the PPI report came out this morning and things are not all that bad. Being one of the key indiactors of inflation, the Producer Price Index also is a pretty good indicator of what the Consumer Price Index will look like when it comes out (later this month, I believe).

Despite an overall increase (0.7%), if you take out oil and food, the increase is only 0.1%. Plus, adjusted for annual terms, the overall "core" level of inflation actually dropped to 2.6% from 2.8% in February.

I think that's a good sign of things to come, possibly signaling that the economy is not in as bad of shape as some investors fear. The markets are opening higher this morning. Let's see if we can get a rally going!

You can read more about the economic reports here.

Use your Tax Refund "Foolishly"

A great article here about what to do with your tax refund. Don't take a trip! Don't waste it on the newest gadget! Pay off your credit card debt or begin investing. Read the details here. Let me know what you think of the advice.

Stock Market Simulation

A few weeks ago, I stumbled across this shareware game on the net. It's called Wall Street Raider. It is a fairly sophisticated simulation and covers a lot of the tactics of trading securities.

There is a shareware version that will let you play 2 years before the game ends. The companies also are not real, as they are in the registered version, but it is still a challenging game.

Read about it and download it at this site and let me know what you think.

Overreaction?

The Dow, Nasdaq and S&P 500 are all down sharply since the beginning of the year... consumer spending and confidence have both dipped... profit outlook from bellweathers such as IBM and GM are dismal... oil prices continue to meander in the 50s... the Fed is slowly raising rates to combat fears of inflation...

Yes, the market has seen better days. But is everyone overreacting? Is this just a short-term correction or the beginning stages of a protracted bear market? What do you think?

Looks like a world-wide stock market slide

Thought I'd post this information. It looks like stocks are sliding all around the world. Some markets have lost more than 3% since Friday. You can check out the individual market returns here.

There is some speculation that this could be caused by a number of reasons including Japan's Nikei index falling nearly 3.8% on alleged fear of the US budget deficit getting out of control and the protests against Japan in China.

The Financial Times reports that this may be the result of lower-than-expected first quarter earnings in a lot of American companies. Car manufacturers and technology experienced the brunt of the fall.

This might be a good time to buy an index fund.

We'll have to see what effect today's trading has on the US markets.

The 5 Forces of Finance

Picked this up from my Finance class, taught by Tom Rietz and thought I'd pass it along.

1. More money is better. This assumes that all things being equal, people would rather have more money than less.
2. Having money now is better than later. People would rather have $10,000 today as opposed to a year from now.
3. A sure thing is better than a risky thing. If everything else was equal, people would rather stay away from risk.
4. Taxes are bad for investors. Because there are only two sure things in life, death and taxes, in order for companies to get people to invest with them, they have to compensate people who pay taxes (everybody).
5. Inflation is bad for savers and investors. Inflation erodes the value of an investment or savings account over time.

American Car Companies Face Tough Times

Both the New York Times and The Economist have had some interesting articles about the current state of American car companies. The Times article paints a bleak picture and even mentions that both Ford and GM may not be around in the near future. The article from the Economist discusses the strategies of Daimler-Chysler and GM for trying to resucitate their global brands.

Last year, I bought a Subaru Outback. I suppose I should have thought about supporting the United States more, but I was drawn to Subaru for two reasons: high quality (meaning safety and a low rate of break downs) and high re-sale value.

When I was doing research on cars at sites like Kelly Blue Book and Edmunds, it seemed to me that not many US cars had these key factors included. What I would like to know is what kind of car(s) do you drive? Why did you choose that type of car? If you were going to buy a car today or in the near future, which type would you purchase and why?

Let us know.

If you get a Tax Refund, you are loaning the government money for free!

Just thought in the Spirit of taxes, I would post this brief explanation of Income Tax witholding. A nice quote from the article:

"Ideally, the amount of income taxes you have withheld from your income is equal, or close to equal, the amount of taxes you will owe for the year. If too much is withheld, a refund may be appealing but remember that a refund has a hidden opportunity cost: Instead of you earning interest on your income, you're making an interest-free loan to the IRS!"


The article is posted by H&R Block and can be found here

Renting better than Buying?

I'm going to post an article in the comments section from the March 3rd edition of The Economist. If anybody is thinking about buying, they might be interested.

It is amazing how fast home prices are rising these days.

Tax Day today

April 15th is Tax Day. I hope you have all submitted your tax returns. In honor of this horrid day, I'd like to post an article by George Will which discusses a proposed tax reform bill in the US House of Representatives.

The bill, H.R. 25 was created by John Linder (R) from Georgia. The general gist of it is that he would abolish all taxes as we know them (including the IRS) and replace it with a 23% income tax.

Read the article and let me know what you think.

"Fair Tax Bill"

Smart Money Article

Here's a cool (& pretty short) article I stumbled on... it covers this
guy's views on lots of stuff: the economy, interest rates, energy, the
stock market, hedge funds... cool stuff.

http://www.smartmoney.com/theproshop/index.cfm?story=20050414

Welcome!

This is the first post for the new blog, "Cash Talk." This blog is run by Agent Disco and James H., two people interested in economics, business, accounting, finance and investing. We like to chat between each other about these topics and hope that you will feel free to join in, too.


--Agent Disco and James