List, Repent, Repeat

At the end of each calendar year, we are bombarded by year end lists.  The Best Dressed, The Worst Investments, The Shortest Marriages (sigh, yes, I'm afraid it's true about Russell Brand and Katy Perry), the top ten baby names (shockingly, Sophia is #1 again).  Some of the more interesting lists I read included  ZDNet's Top Ten Sex and Tech Headlines, Arizona State University's List of Top Ten New Species for 2011 (who knew?), and Geek.com's Top 10 searches that show that people still don’t know how to use a browser"".  On Friday, Lake Superior State University in Michigan gave top honors to "Amazing” on it's 37th annual List of Words Banished from the Queen's English for Misuse, Overuse and General Uselessness, but I think my favorite has to be the Top Ten Pantone Colors for Women's Fashions, which included the colors "Russet" and "Beeswax".

Then comes New Years Eve, when we are publicly pressured into making lists of New Years resolutions.  We list virtuous goals like losing weight and getting fit, cultural goals like reading more books and seeing more art exhibits, charitable goals like volunteering at homeless shelters and reading to other people's children, financial goals like eating all that fancy organic produce before it goes bad and maybe starting a college fund, social goals like making a point of actually dining with people with whom we Facebook every day, and family goals like not calling the kids by the dog's name, and showing more appreciation for our husband's attempts at housekeeping.  

Oh, and world peace.

We're just obsessed with list making.  

And when we finish making our list of resolutions, we feel like we've accomplished something!  We fulfilled our civic duty to admit our imperfections and promise to improve ourselves by the end of the following fiscal year.  The New Years Resolution list is like confession and penance.  But there's no real incentive to follow through.  At the end of next year you can just look at the list, admit you failed, say some Hail Mary's and do the same thing all over again (I hope the Catholics forgive me for appropriating heavily, and hopefully I haven't misrepresented the whole mechanism, but I thought it would be ok since the Gregorian Calendar change marked by this "new years" thing is a Catholic invention, after all).

So how about trying something new this year:  Instead of making a list of things you plan to do, make a list of things you've FINISHED.  Start with a blank piece of paper and only add to it things you've actually DONE.  Then at the end of the year you can publish your own personal list of The Top Ten Most AMAZING Things You've Actually Accomplished This Year, rather than just being another one of those drunk people who spend the next New Years Eve talking about what you're going to do. 

Personally, I'd be honored if my future accomplishment list included the entry:  Named a New Pantone Color. 

The Benefits of Jedi Mind Control

If you live in the developed part of planet earth, you probably use credit cards.  Shopping with a credit card feels so easy and painless.  As behavioral economist Dan Ariely said in an interview I heard yesterday, you go into a store, you hand them a piece of plastic, and they give you that thing you want.  Want the Williams Sonoma Star Wars Cupcake Decorating Set? It's all yours.   Electric Garlic Roaster?   Yours.  Ariely says buying things makes you feel powerful.  And buying them with plastic, makes you feel like you're getting them without  really paying for them.  Intellectually, you know you'll actually have to pay for them eventually, but you're not that intellectual. 

My 21 month old daughter has only one time frame: NOW.  Later, after and soon mean nothing to her, only NOW.  This gives her great power.  You will comply with her demand for your jewelry NOW or she will scream loudly NOW, and don't even think you can buy her off with promises of other things later.  Adults, on the other hand, spend a tremendous amount of energy learning to live in the moment, but I'm pretty sure that the primitive part of the adult brain is still like my daughter's  --- living in the eternal now, and when we hand over that credit card, I'm pretty sure we are thinking, "I don't have to pay for this (now)."  

Give it to me or I'll scream.

But then inevitably, we get the bill, and we don't feel so good anymore.  We judge ourselves for having bought that garlic roaster.  Did we really need  that Amish fireplace?  We all know we should pay the credit card bills off in full every month, but sometimes we don't.   Then we feel like our credit card is unhappy with us.  We're letting the card down.  If we were better people, we'd pay our credit card bills off in full (now) and avoid paying interest charges (later).  But that would leave us with little or no money for other stuff right now.  And what if the payment is due now, but arrives late?  Then we're really in trouble!  The card will punish us with a late fee, and possibly higher interest rates, further reinforcing our sense of shame and failure.  The card can be so hard to please, and soon all the power that came from compelling a store clerk to hand something over to you is replaced by sinking feelings of weakness.

But guess what?  You've got it all wrong!  your creditors don't want your guilt.  They don't need your apologies.  Your creditors LOVE you!  And they especially love you for your sins.  If you can't resist buying stuff you might not need --- great!  If you don't pay off your balance, even better!  Remember? That's how they make money!  What if you pay late? They make more money!  And if you really screw up your credit score?  They charge you a higher interest rate and make even MORE money!  So relax, you are your creditor's BFF, and just like in any relationship, once you realize how important you are, you can start making demands.

I made a payment that hit one day late last month, so I called and told my credit card company they should waive the fee they had just charged me.  I felt like a Jedi knight practicing mind control when the rep on the phone said, "Okay, no problem.  And what ELSE can we do for you today?"   Well, feeling emboldened by my first triumph,  I decided to push my luck, and I told the customer service rep that I was a really great customer and that they should give me a lower interest rate.  And ya know what they told me? They said they now AUTOMATICALLY review all accounts quarterly and if you've been paying your bills and behaving yourself, they will AUTOMATICALLY give you a better interest rate.  Just like that!  You don't even have to call them and tell them what a nice person you are.  

Why are the creditors being so nice?  Well, unless you enjoy reading about credit default swaps or suffer from insomnia, you probably haven't read the 2,319 page Dodd–Frank Wall Street Reform and Consumer Protection Act signed into law in 2010, but it turns out it contained some lovely little nuggets that benefit credit card customers by forcing the creditors to play nicer than they had in the past.  And if they don't, you can always leave them, like jilted lovers with no future possibility of receiving your interest payments and late fees.  

So even if you struggle with the concept of time, doesn't it feel good to know you hold enough power to be a demanding prima donna in the relationship with your creditors?  

Of course, no matter how powerful you are, you'll still have to pay your bills.   Unless you really think the world is going to end in 2012, in which case, don't worry about it.

Don't Hate the Giant Bow

Every year around Christmas time they start running those ads on TV where someone surprises their spouse with a new car with a very large red bow on it.  Right afterwards they tell you that you can lease one of these cars for about $600/month, so I guess the implication is that you should lease one. "Merry Christmas, Honey!  Look, I got you a Lexus!  Ok, actually, I leased it, and now we have to make the payments.  Yeah, aren't you excited??  

Honey?"  

And if he didn't lease it for you and just paid cash?  How many of us would be really happy to hear that our spouse just spent $30-$100k of OUR money without even discussing it?  Who are these people?   

These ads are pretty obnoxious.  Is it my imagination, or is it always the man getting a Lexus for his wife? The message is either (a) If you really loved her, you'd buy her a Lexus for Christmas, or (b) If you were a good wife, he'd have bought you a Lexus for Christmas, or c) Discussing the purchase of an expensive car with your spouse is something only poor people do.

The Lexus "December to Remember Sales Event" ads have been running every year for over a decade now, and during that time, the economy and has tanked, and the ads have started to seem more and more bizarre.  Besides the whole "we are the 1%" vibe, which seems somewhat unfashionable right now, I have a feeling that not everyone feels more loved when their spouse commits them to an extra $600 monthly payment.

The other night I Googled the ad, and you can't believe how many blogs and forums are dedicated to hating it.  Some of them are actually pretty funny.  (If you're not too delicate, try this one, for example: http://www.somethingawful.com/d/news/lexus-commercial-rant.php)  It seems people's hatred of this ad has reached a new pitch along with public anger over the wealth disparity in this country.  This ad just seems to rub salt in many open wounds, and lot of people feel those ridiculous giant red bows are somehow the ultimate insult.

This was Honda's response to the Lexus ad: http://www.youtube.com/watch?v=3OThgvHPQkc

It starts with their pitchman saying, "Are you a millionaire? No?  Well, then you probably don't give cars to people as presents," as he knocks a big red bow off a Honda Civic.

Should Lexus perhaps try another approach?  Maybe one based less on making the wealthy appear smug to the non? This is apparently considered to be a very effective ad campaign.  The demand for the oversized red bows is so strong that Lexus keeps a warehouse full of them in Torrance, CA.  The bows cost dealers almost $300 each and apparently must be returned post-surprise (which I found surprising in itself).

The company that makes the bows is King Size Bows in Newport Beach, CA.  http://www.kingsizebows.com/bow-uses/lexus-december-to-remember-car-bow, and by the way, they encourage you to contact them to discuss your oversized bow needs (for all those other enormous gifts you weren't quite sure how to wrap).

I keep wondering how I would feel if my husband surprised me with a Lexus under a giant bow, and I just can't imagine it because that would be about as likely as him buying me shoes.  He knows better than to get me something that says, "in all our years of marriage, I've learned nothing." 

To me the ads also say, "Don't worry, doll face, I'll take care of you and buy you diamonds and furs and cars. Don't worry your pretty little head about the numbers."  I guess none of that is insulting if it's 1940 and you're in a Raymond Chandler book, but I think this creates an opportunity for the wealthy to hate this ad too.  And I haven't even gotten into how much people hate the theme song from the ad (or the fact that you're supposed to recognize it and look out the window, because you know what comes next!), or the people who find it particularly nauseating to watch politically correct lefties giving each other hybrid SUV's.  In fact, I'm pretty sure there's something in here for EVERYONE to hate.

And isn't that really what the holidays are all about?  They're about setting aside our political and socioeconomic differences and coming together in peace and harmony around our mutual hatred for a car ad.  Maybe we should thank Lexus.

Pre Holiday Shopping Econ Refresher

My son is doing an oral report this week explaining the law of supply and demand.  As I'm explaining it to him, It strikes me how easily we forget that this basic idea explains just about everything.  So before you go do your holiday shopping, I thought maybe the adults in the room could use a refresher.  

Let's start at the beginning:

High supply + low demand = low price.

Low supply + high demand = high price.

High and low supply are easy to understand (the thing is either plentiful or scarce) but how about demand?  WHY is there high or low demand?  Why does a little house in LA cost much more than the same house in Michigan?  well, because not that many people like snow AND high unemployment.  Why is Groupon giving you such cheap deals on skydiving lessons?  Because not that many people can justify spending money tempting fate while they are also trying to pay for groceries AND health insurance (and not that many people have spouses who will let them).  

My son says some things cost more because one thing is "way more cool" than the other.   Which brings us to the next point: perceived value.    

Why is a Mac more expensive than any other computer, and Apple almost never has to give people deals to get them lining up at their doors with credit cards drawn?  Because we think a Mac is "way more cool".  We are willing to pay a premium for something we think is better.   Why would you pay $1,000 for a Prada purse?  Because you think it's better than other purses (or that people will think you are "way more cool" when they see you out with your Prada purse). It doesn't matter if it's actually better than a purse that sells for a fraction of it's cost, it's about whether you think it's worth it.  

We are willing to pay a premium for goods and services as long as we believe we're getting a good value.  An $800 an hour lawyer isn't just being a pig, she's getting paid what people are willing to pay a person that they believe is giving them the best service, and there's a limited supply of her time.  Not to say it is the best, but If you hired the $100/hr lawyer, and it didn't go so well, you'd say, "well, I guess I got what I paid for".  

Perceived value changes over time.  My father just reminded me of how electric typewriters cost $500 when they first came out.  So remember that the law of supply and demand really only tells us what anything should cost in this particular moment.   If everyone thinks a certain thing is "way more cool" at a certain moment, the price will be high.  

Now sometimes you get a bargain.  Sometimes, low demand is just a function of limited awareness.  Sometimes the hairdresser at the salon around the corner who only charges $60 a haircut is actually just as good as the one in Beverly Hills who charges $400.  And sometimes you score a really nice, original Eva Ziesel bowl for a buck at a garage sale  (yes I did, thank you very much).  That's what's called "arbitrage".  Taking advantage of the difference in the value assigned to the same item in two different markets.  Milk costs $3 a gallon at market A, and $2.50 a gallon at market B.  Arbitraging is what we think of as getting a good deal.  Every housewife should really be thought of as the Chief Arbitrager for a small family firm.  My husband has been scouring Ebay for years trying to find an arbitraging opportunity on a reissued '59 Les Paul (i. e. buying it for less than he could sell it for.  Not that he would sell it).  Then he could tell all his friends about the deal he got.  And everyone loves to tell the stories of a great deal they got --- it's not a complete experience if you can't flaunt your arbitraging triumph. And a great deal is like money in your pocket, right?  

Well, no, it's not actually.

So the bottom line is:  When you go out and spend money this holiday season, remember that 

a) The person receiving the gift may not want skydiving lessons. 

b) They won't enjoy them more because you got a good deal on them. 

c) A young child perceives the packaging to be of equal value to it's contents, so you can save money by just giving the little ones boxes. 

d) Bigger kids often perceive value differently than their parents.  Mine enjoy obsolete technology, like an old polaroid camera or that typewriter, which you can now get for pretty cheap.

e) Whenever possible, wait until AFTER christmas to buy stuff, so you can take advantage of retailers attempts to right supply demand imbalances (i.e. sell off all that stuff no one bought) because you are now totally savvy about arbitraging.  

and finally, 

f) Forget the whole "money in your pocket" thing, no matter how good of a deal it is, if you're broke, don't shop!

Serving the 99%

Lots of people are out of work.  Feeling betrayed by the system, they have taken their anger and their tents out and occupied parks.  

Certain politicians out there are telling them to quit their whining and just go get a job, like it's just that easy.  Recently, Fed Chief Ben Bernanke spoke of something called "structural unemployment", as distinct from "cyclical unemployment".  WHAH?  It means that your job isn't coming back.  Basically, the structure no longer includes your profession.  It looks like we just don't need any of those anymore. You've been unemployed too long, and that means you're less employable, because those months or years you've spent out of the workforce have caused you to lose skills , fall out of the loop on changes in your field, lose contacts, and mostly, they've made you desperate, which is somehow not so attractive to an employer.  You changed from being a person who was temporarily out of work to a person without a viable career.  As stated in an article I read recently, "20 people working on classified ads at Craigslist took out 20,000 jobs in newspapers." (great article, btw: http://queenstreetcommons.org/2011/11/14/the-job-is-dying-the-need-for-a-new-way-to-make-a-living/)

So now what?  Well, you can probably stop sending out those resumes printed on pretty paper.  One option is to become the type of professional that's in demand.  Apparently, there is currently a strong demand for astronauts, precision tool makers, genetic counselors, cyber security specialists and underwater welders.  But if you can't see yourself transitioning smoothly into one of these professions, it's time to get creative.

Think services rather than products.  Most of us don't want more stuff mucking up our houses, but plenty of people hire organizers to help them get rid of stuff.   Making a product requires equipment, facilities and supplies.  It might require R&D, marketing, warehousing and logistics.  Are you feeling tired just reading about that?  Hey look, another bill just came in the mail. 

Instead, be the marketing consultant to that person who makes those products.  You'll get paid even if the product doesn't sell!  Be the person who tweets and blogs and gets their product noticed.  Demonstrate your abilities rather than describing them.  Reinvent yourself, preferably as something that can't be automated or off-shored.  Declare yourself an expert at something, and establish your cred by constantly referring to your expertise on the internet, where everyone believes whatever they read over and over again.  

Remember those "team-building retreats" from the old dot com days?  You and your colleagues would camp out in the woods, and learn to trust and rely on each other by doing falling exercises?  In some ways, it's kind of like the Occupy thing.  You camp out together, and rely on each other for food and security.  Great networking opportunity!   The 99% are a huge customer base, and they aren't all broke.  Maybe you can facilitate team building exercises for the Occupiers? You could also cater to the Occupiers other needs.  Perhaps a tent pitching service or a service that drives their kids to school while they occupy something.  Maybe you can write clever signs for people who aren't naturally very clever.  Maybe you can help the protestors refine their message so that other people are more clear on what it is exactly that they want (maybe something less vague than "justice").  Perhaps a consulting service to harness that angry energy, and help the protesters transition into political careers.  Legal services will be needed to bail people out of jail.  The movement will need a good anthem (how are your songwriting skills?) and a documentary film. There will need to be funding (you can write grant proposals, can't you?) and websites (can you still do HTML?).  Business opportunities abound.  And there is a real opportunity to capitalize on the viral brand that the 99% have created.  Someone will shamelessly co-opt that brand for marketing purposes, so why not let that shameless person be you?  I'm sure McDonald's and Pepsi are already working on this.  But you can create the business network of the 99%, establishing an online marketplace for goods and services provided by the 99%.  Made in America.  With integrity.  Handcrafted, even. 

Darn, I just checked and the URL: wearethe99.com is already registered.  Of course.  So get moving already --- before this golden opportunity passes you by!

Unexpected Financial Benefits of Gender Reassignment, and other headlines you may have missed

I've been busy recovering from the Kardashian thing, so I haven't gotten around to finishing a new blog post, but I have been collecting some good headlines.  Here are a few of my favorites from the last few weeks (with very minimal commentary!):

1) Reebok Loses $25 Million Law Suit Over Fitness Claims. 

It turns out they don't actually give you a better butt.

2) Holly Madison Insures Breasts for $1million.  

The article in People Mag says Hugh Heffner's girlfriend "took out the policy in order to protect herself and others in her Las Vegas show".  From what?

I wonder what type of insurance that is….. business equipment?  Can she depreciate her boobs over the years too?  Was Kim Kardashian's butt insured?  Did she wear Reeboks?

3) Toy Maker Mattel's Sales Up Sharply Due to Strong Barbie Sales.  

It's good to know that in a weak economy people can at least still treat their daughters to a toy that will give them a permanent inferiority complex.  I wonder if Mattel ever test marketed "Unemployed Barbie" or "Drowning in Student Debt Barbie" (but still smiling and beautiful despite her many disappointments) to reflect a contemporary female role onto which every young girl can project herself.  No?  

4) Statistics Indicate the Birth Rate Has Fallen in Down Economy.  

That's easy, no one feels like having sex when they lose their job/home/life savings.

5) Cheating on One's Spouse May Be On the Rise in These Tough Times.

After extensive research, they discovered that extra marital affairs tend to boost the egos of those who are not feeling good about themselves.  Go Figure.  

6)  Sex Change Surgery is Now Tax Deductible.

Just when you thought all the headlines were depressing, we finally get some good news about taxes!   The tax code is written to encourage certain behaviors:  Letting you write off mortgage interest subsidizes home ownership, letting you deduct charitable or retirement contributions encourages giving and saving.  So I guess maybe with this tax break, the government is encouraging gender reassignment.

So in summary, go buy your son a Barbie, because later, if he wants to realign his body with his inner gender identity, it will be tax deductible, and he can insure his new breasts so they don't hurt anyone.  And while the Reeboks won't help his butt, treating his "gender Identification Disorder" may make him happier, reducing his need to cheat on his spouse and making him want to have more sex even if he can't find a good job (although it may not increase the birth rate).

Do you have any favorite headlines or commentary to contribute?  I think you're supposed to click the little pencil icon.

Divorce, part II; Kardashian Style

No sooner had I posted my article on divorce than Kim Kardashian announced hers (I'll wait while we all collectively gasp in disbelief).   

My article addressed the subject of managing the high cost of divorce, but Kardashian actually managed to go far beyond managing costs ---- she actually turned a profit!  Granted the lawyers haven't done all their work yet, but I still think she comes out ahead financially.  

Here's the math:

The wedding cost about $10 million, which I don't think included the cost of Kim's 20 carat ring ($2 million).  Her earrings ($5 million), and her headpiece ($2.5 million) were apparently borrowed.

Kim and Kris apparently made $18 million on the wedding itself through various "media partnerships", like letting E! film and broadcast the event for $15 mil and selling the pictures to People magazine for $2.5 million. 

So the costs were about $12 million (give or take) and the income was about $18 million.

That's like a 150% return in 72 days.  Nice!

We don't know how much Kim paid her lawyers for writing the prenup, but that will save her money in the divorce process.

In any case, Kim proved me wrong; divorces are apparently not a financially devastating event after all.  They are a profit source to leverage, if you're Kim Kardashian.  All moral judgement aside, Kim gets an A+ in business!

The other headline today was that Frank McCourt has agreed to sell the Dodgers.  As I mentioned, his divorce is costing about $19 million.  Maybe he should start dating Kim Kardashian.  Despite his vast experience relative to hers, she can probably teach him a thing or two about business.

Getting a Good Deal on a Divorce

For the financial planner, the Serenity Prayer should say:

God grant me the serenity to accept the risks I can't manage, the know-how to manage the risks I can, and the wisdom to know the difference. 

Some risks are just really hard to manage.  Like marriage.  Well actually, not marriage, but divorce.  Technically, I think marriage qualifies as a "peril" (in insurance terms), with the "risk" being that of it possibly resulting in divorce.

We know the statistics: roughly half of all marriages don't last (actually, 41% of first marriages, 60% of second marriages and 73% of third marriages. see a pattern?).  Not the best odds.  And for the ones who don't stay together, divorce is often devastating financially.  Two households, spousal support, child support, lots of lawyers, (many of whom apparently now charge $700-800 an hour). 

So what's the best way to manage the financial risk of getting divorced?  Don't get married, of course!  I mean why assume that kind of liability?  Is the marital tax benefit really that significant when compared to the possible costs of a divorce? How bad is your need to get on your boyfriend/girlfriend's employee sponsored health insurance plan?  Yes, I know,  there are also estate planning, Social Security and insurance benefits to marriage, but is that really why people get married? No.  Most people get married because they're young and in love, of course. (I'll just hold any cynical comments and leave it at that.)

The McCourts, by the way, are reported to have just spent 19 million on their divorce.   

So let's say you're an incurable romantic or you want your children to have what you never did, and you just gotta throw a really big expensive party where you publicly declare your undying love and commitment to your soul-mate.  Fine.  Sadly, a few short years later, when you're sitting across the table from each other in mediation, you will take full advantage of the opportunity to really stick it to your former love, dredging up every last drop of resentment in an attempt to financially leverage your pain.  That, of course, is the biggest reason why divorce is so expensive.  Bickering takes up a lot of time, and so does going to court over and over again, and your lawyer is going to charge you for that time.  You are paying  $800 an hour to have a lawyer sit there and listen to you and your ex act like children, and before you know it, your retirement money, college savings and everything else has evaporated.

Since it seems like a lot of people around me are getting divorced, I thought I would write a column about the price of a divorce, and maybe uncover some way you can get a great deal on one (maybe a Groupon?).  

Nope, no deals.  And if you buy a $50 divorce kit you may seriously live to regret it. 

So what CAN you do to manage the divorce risk?

Let's review:

• Top cause of marriage? Naivete (love). 
• Top cause of divorce?  Marriage.
• Second place? Money.
• What to do? While you're still in love, hire a financial planner to help you deal with your financial differences before they lead to divorce.
• What else? Go to a therapist to deal with your issues. You can get a really good therapist for less than $200 an hour, and that means you can argue for about 4 times as many hours in front of your therapist as you can in front of your lawyer for the same price.  It's like a 75% off deal! 

Maybe you can't help falling in love and getting married, and maybe you can't always help it if your marriage isn't quite as perfect as you had mistakenly believed it would be, but maybe a good financial planner and therapist can help you work things out, and I say it's a great investment if the return is a lowered risk of divorce.  If love or the kids don't provide a strong enough motivation, just think about how much money you'll save by not getting divorced!  And if your marriage has already fallen apart, you should definitely hire a financial planner and a therapist because you've got a whole list of new issues to figure out, and even if you paid him $1,000 an hour, your lawyer won't help you heal emotionally or learn what you need to be doing with your money.  And if you save enough money, maybe you can use it to go to law school before you get married again...

Greece, how can you do this to us?

Several people I know seemed to have been vacationing in Greece recently, and they were posting lots of beautiful pictures.  And as I looked through those beautiful pictures of them posing on sandy beaches, eating grape leaves in romantic cafes and posing in front of the Parthenon, I was struck by the complete contrast between those images and the ones I was seeing on the news, of rioting in the streets of Greece against the new austerity measures.  The Greek people are kind of pissed off right now, and the world is a little pissed off at Greece right now.  Especially the Germans and the French, who aren't too happy with having to mop up the Greek mess after their drunken spending spree has resulted in massive debt, threatening the very existence of the Euro, and leaving the more disciplined European nations with the choice of either bailing Greece out, or risking massive economic collapse.  

So why should YOU care?  Because you probably own stocks or funds in your 401k of companies that either have operations in Greece, do business with Greece, own European debt which is dependent on Greece, etc.  One planet, one people, one mess.

And then I was thinking about Greece, the birthplace of philosophy and logic, and I thought Greece, how can you be so unreasonable?  What would Socrates say?  I mean, this is kind of embarrassing.  

Remembering the basics of the Socratic method from college, I was thinking that Socrates might have a few questions.  Like:

Is It reasonable to continue spending sums of money that are disproportionately large relative to the sums you bring in?

How exactly can Greece sustain debt that is hovering around 162% of its GDP, while continuing to employ a really large workforce, providing a really cushy social safety net,  and not being really good at collecting taxes?

Well, one of their answers is to grow tourism some more.  Tourism already accounts for about 15% of the Greek economy, but surely there are some more people who can be enticed to come frolic on those sandy beaches, eat Greek salads and polish off some Ouzo.

Another solution the Greek propose is to sell off some assets.  

But if I were Socrates, I might wonder how, if they sell off the Parthenon, will they be able to use it to make more money off the tourists?  Hey, maybe I should start a hedge fund that buys distressed Greek monuments…

Oh, and generally speaking, I don't think it's a great idea for anyone to spend 162% of what they earn.

Really, Mr. Greenberg??

I recently read a column by Jeremy Greenberg on MSN.com's "the family room" section, called "When Kids have Home Envy".  Admitting some insecurities and hinting at a certain sense of apology, he was asking readers what would be the best way to explain to his child why they live in a house that's not as big as those of some other people.

Well, let's see…. I can come up with a few answers to that one. 

How about:

1) Large homes require far more cleaning, and unless you like scrubbing lots of toilets, we're staying here.

2) Large homes require a lot more power to heat, cool, and light.  This energy is created by electricity, which is largely produced by burning coal, which despite all claims to the contrary, is a huge environmental pollutant.

3) Electricity is very expensive.  Do we want to spend all our money on heating and cooling rooms no one ever uses anyway, or do we want to go to Disneyland sometimes?

4) In large homes, it's easy to lose things.  Keys, sunglasses, special toys, your homework, your children.

5) When you wake up in the middle of the night and you're scared, it's no fun to have to wander large halls and staircases to find your parents.

6) In a large house your mom can't hear when your brother is torturing you.

7) If we got a large house we'd be having to work crazy hours to pay for it and we'd never see you, and that's not a trade-off we want to make.

8) We think it's important for you to learn to think of how much you actually need rather than how much you can possibly get.

9) We'd like to teach you to tread softly upon the earth and leave a small footprint.

10) We think that having an excessively large house, teaches you to focus on material excess, which will ultimately lead you to a life of emptiness and constant longing.

11) We'd rather not spend our lives walking past huge, empty rooms with cathedral ceilings, that we just don't have the heart or energy to furnish because they won't be used in any case, so why bother.

12) We could have moved into a bigger house, but we chose not to.  

13) We don't like big houses.  We think they're cold and lonely.

14) Bigger doesn't always mean better.

15) We like our house just the way it is, because we all have enough space for our selves, our stuff (more of less) and it is a warm and intimate place into which we invite our friends and family because we want to be near them.  Our house embodies so many of the values we want to teach you, as you grow up and make more of your own choices about how you want to live in this world.  

16) We love you and we want to be close to you.

How's that for a start?

On Morality and Shoes

Every now than and then a person needs a little lift ---- the kind that can really only come from buying a new pair of shoes (I'm speaking for all of us, right?).  So I'd been feeling the shoe urge building in me over the last few weeks, and finally, last week, I found a little window to quench it.   I didn't want to totally splurge, so I figured I'd go into DSW and see if I could find a great deal on something nice.  Walking up and down the isles, I found lots of cheap shoes --- I mean, not just inexpensive, but also cheaply made, with cheap materials, not really interesting or comfortable.  And yeah, they were inexpensive, but most of these shoes weren't that expensive even before they were discounted.   

Deep thought #1:  It's far more satisfying to find a cheap expensive pair of shoes than to find a cheap cheap pair of shoes.

Then I tried on some higher quality brands, and boy, did they feel great.  What a difference!   But the ones that ended up at the discounter  were in some pretty hideous colors and styles.  I have no questions about why those shoes ended up so deeply discounted, and I tried to talk myself into some super comfortable Cole Haan yellowish snakeskin moccasins with……oh, never mind, they were so ugly!  

It's clear that some products are really better and deserve to be priced higher, but since I really didn't need new shoes, I started thinking about what my budget should be for this admittedly frivolous purchase.   Would a cute cheap pair of shoes scratch the itch, or did it have to be something really great that cost more?  

The first question is, "why do I want shoes?"  To that, I have no answer.  It just is.  It's like when, at the age of three, one of my kids asked, "mommy, why is blue?"  Some people eat, some people drink, some people like shoes.  

As I mentioned in a previous column (Your Budget is Failing Because of Glenn Close), you need to allow yourself the occasional indulgence, but how do you determine the appropriate budget for that splurge?  Clearly a person with limited means and meaningful debt should probably just indulge in some new lipstick, but what If you're a fairly wealthy person with a nice income, and you won't be damaging your financial position by walking into Prada and buying a $1,500 pair of boots?  Should you?  Or would that just be wrong?  Would it bring you pleasure or guilt?  Should you just buy yourself something modest and give the rest to charity, for example?  

It is at this point that you must "take a dive into Lake You", as my husband would say.  You must think through your feelings before, during and after a purchase, and you must find where exactly the thrill resides.  Is it all about the hunt (or bargain hunt), and after you bought the thing you're not that interested in it anymore?  Is it about the feeling of power and control when you confidently swipe your credit card and are able to buy yourself something nice?  Is it about rewarding yourself for an accomplishment (like having just paid off your credit card)?  Or is it really about the pleasure you will get from the use of the purchase?  It's important to be able to answer these questions, because it reveals something about your basic values.  Misunderstanding your shopping values, and the source of your shopping pleasure can lead to a misalignment of your values and your spending,  and that inevitably leads to all kinds of unhappiness and guilt.  When I plan to go shoe shopping, I am just full of excitement and optimism, and I'd hate to have the experience ruined by feelings of regret and self loathing.  And Who knows ---- you might discover you love to try on lots of shoes and not even buy anything.  Try it sometime, I have.  It'll save you a ton of money!

So I was exploring my feelings about shopping and shoes while browsing countless pairs of boots and wedges and those horrible strappy, Roman warrior looking sandals from last year (I tried, but they never grew on me).  Since I was finding nothing that really excited me, I was starting to think I should just forget the whole expedition and go home, but going shoe shopping and not finding anything is really depressing (oh, don't judge me!).   And then I found them.  A totally cute pair of Kenneth Cole flats marked down to $30!  I realized that on this day, at least, I was a thrill-of-the-hunt kind of gal, and I had totally found satisfaction.

I walked out of the store with a feeling I soon identified as RELIEF.  Weird, huh?  But that's definitely what it was.  But why relief? Well, I felt relieved that (a) I didn't have to go home empty-handed, (b) I didn't buy something ugly just because I really wanted to buy something, and (c) I didn't spend a lot of money, which would have made me feel guilty.  

Deep thought #2:  If you insist on turning it into a deep, emotional exploration, buying shoes can be a really draining experience.

The 89% Solution

I love HGTV. Who can resist watching shows where shiny, optimistic, young couples live the American Dream of starting out their life together by buying a house?  Which one will they choose?  So exciting. There are shows with ideas for redoing your kitchen, shows about choosing colors, shows about solving common decorating problems people have.  It's all very comforting.  Then there are the shows I love to hate.  They have a show called "Bang for you Buck", for example, that tells us what percent return we can expect on our remodeling costs.  The episode I watched today showed 3 houses where the homeowners each spent $50K remodeling their back yards, adding pergola's and fire pits and outdoor kitchens, and the experts decided what percent return they would each get.  I always have a lot of questions about this part.  How do they know? I mean, knowing what percent return you'll get on the 50k you just spent on your yard means (a) You know exactly how much your house will sell for, and (b) You know exactly how many of those dollars are coming from that $50k backyard.  How are either of those things knowable?  

Did I mention this episode was filmed in Phoenix?  Phoenix, where home prices are in the toilet.  In some neighborhoods you can now get a house for $30,000.  But who could argue with putting a $50k backyard onto a $30k house?  You could get an 89% return on your investment!  That's what the winner was told he'd get.  An 89% return.  That's exactly $44,500.  Boy, was he happy!

I still don't know how they do it.  How can they know, "you will get a 39% return"?  I mean, why not a 42% return?   And they don't say, "you will get a 39% return on the money you spent when you resell your house", they say "you will get a 39% return on your investment"!   Does that mean you would get the $50k back plus another 39% ($19,500) on top of it? Do they mean you will recoup 89% of the $50k expense at sale?  Not clear.  And could you somehow get that money without selling the house?   It's pretty hard to sell a house in Phoenix right now. In some parts of Phoenix home prices are down as much as 81%, because there just aren't any buyers. The median home price in Phoenix is now down to roughly $124k.  But with an 89% return on his $50k investment, the winner will be able to sell his house for what? $168,500, which is {(124k+ .89(50k)}?  or $218,500 which is {124k+50k +.89(50k)?  I'm not totally sure.  And the couple who lost? They will apparently only get a 39% return because they didn't put in enough grass.  Grass.  In Phoenix! 

This is one of those ridiculous shows that makes me scream at my television. 

Maybe this was an episode filmed a few years ago, before things got ugly.  Before people got stuck in those Phoenix houses because they couldn't sell them, and they couldn't refinance their loans because they were so far underwater.  But should they really still be showing those episodes now??  I mean isn't that a little insensitive?  I'll bet those people aren't thinking damn, I wish I'd spent $50k on my backyard, they're thinking Damn, I wish I HAD $50k!  Or maybe Damn, I wish my house was worth $50K!  I'll bet they're thinking that renting wasn't such a bad thing after all, and that all those episodes of House Hunters may have given them the wrong idea.   But all those episodes made home ownership look so great!  And anyone with a pulse could get a loan, even if they could only qualify for the teaser rate on an option ARM.  And surely home prices would continue to appreciate at 20% a year, and unicorns would prance, smiling, through your $50k back yard.

Despite what everyone always says, a home is not such a great investment.  I mean by the time you factor in the financing costs, insurance, property taxes, repairs and all the other unexpected joys of home ownership, even in a normal market, home prices historically appreciate at a whopping rate of 5% annually. You're lucky if you break even.  Don't confuse a home with an investment.  Buying a house just means you have a place to live, where you can paint the walls whatever color you like, but no one will come fix your plumbing problem for you in the middle of the night for free. 

So if the 50 thousand dollar backyard isn't a great investment, what should you do with that money?  Two words:  Data Centers.  Big buildings that house computer servers through which all our cyber stuff is shuttled and parked.  They're in huge demand.  All those little packets of data, including this blog, need a home.  Data Center are full of tenants before they're even built.  According to the LA Times article I just read, the tenants for a new data center they're currently building in Redondo Beach just signed a lease for $12 million.  Nice, huh?  I wonder what percent return the owner of THAT building is going to get.  And you know who some of their biggest tenants are? Media companies.  Like maybe… HGTV?   I wonder if these data centers store hundreds of episodes of Bang for your Buck…

Until now, these data centers were just chilly, dark bunkers, with massive security (entry granted by retinal scanners),  but now they want to make them more pleasant and homey for the customers and the employees.  This new one they're building offers Starbucks coffee, video games and big screen TV's in its lounge.  Hey, here's an idea:  A new show on HGTV where 3 data center developers each spend $50k to remodel their lounges and then the expert tells them what percent return they'd get on that investment.  89%? 39%?  Whatever, we can just make up numbers. They could call it "Divine Data Centers".  Can't you just see Vern and Genevieve and Candace all discussing their feelings about the furniture placement and color choice?  And the episodes would be filmed, and then stored in the data center, until such time as they became economically offensive.

See? That would be an investment.  But you probably wouldn't want to live there.    Although, maybe with the right staging….

Really, I think it's only a matter of time before we start seeing shows on HGTV like "Curb Appeal Your Data Center", or "Extreme Makeover; Data Center Edition".

And I want credit.

Couple's Therapy with a Payback!

We love our spouses and life partners, and we try to show that love with nice gifts.  In fact, every birthday, anniversary, valentines day, and whatever else you celebrate gives us yet another opportunity to show our significant other just how much we care about them.  But often, we don't do so well with the gift choice.  Hey, I thought all men liked watches.  Turns out my husband never wears one.  Never.  He thought all girls liked pearls.  Surprise!  

In our twelve years together we've bought each other a lot of the wrong stuff.  Probably thousands of dollars worth of bad gifts, followed by painful and ridiculous displays of false gratitude.  "Wow, a crystal sugar shaker!  That is just so thoughtful of you, honey.  How did you know?"    It's that game couples play.  We've all had to fake it at least once (if you have never had to fake it because your spouse is always the perfect gift giver, don't think you're going to win any friends by making a point of telling everyone).  In any case, your alternatives are to either:

A. Buy yourself a gift and thank your partner for it.  ("Honey, look at these awesome boots your just bought me!")

B. Tell you partner what you want them to buy you. ("Now go to Furla, and buy me the large satchel in Aubergine.")

C. Learn to pay close attention to the hidden message behind the hints your partner is dropping about what they want.

Years ago, a friend of mine gave me a book called Self Help for the Bleak by Rich Hall (Price Stern Sloan, Inc., 1994), which contains a bevy of fine advice on every topic.  In the Love section, he says:

"the most memorable gifts are those that say, "I was thinking about you, and I'd really feel awful if you died."  In other    words, it's a gift  that makes her feel safer.  Here are some sure-fire winners:  

A brand new set of steel belted all-weather radials

A radon dector

Pepper Mace for fending off grizzlies

Orange reflective clothing of any kind

But always include flowers or poetry! You don't want to give the impression you're unsentimental."

So after years of pretending to love jewelry that I didn't, I have started coming to terms with the fact that I am the one who's unsentimental.  The best gifts I've received are the Bose Noise Canceling Headphones my husband gave me 3 years ago and the Breville Personal Pie Maker my sister just gave me.  Yes, it turns out that I'm that girl who likes a nice, functional device or appliance.  Taking notice of all this, my dear, astute husband hit the nail right on the head when I had a birthday a few weeks ago.  He bought me a Jawbone Era, simply the coolest bluetooth earpiece ever.  You shake it twice and it instantly pairs with your iPhone, and it has apps you can download that enable you to text and email hands free!  Is that cool, or what? And it's beautiful, too!  He didn't even read the book, and he got me "a gift that makes her feel safer", because I can now talk, text, etc., hands free!  And he even fulfilled the second part of the Rich Hall instructions by including something sentimental ---- he wrote me a song!  It was an awesome birthday.

Instead of spending untold fortunes on golf clubs or perhaps a tattoo you might regret, pay closer attention to your partner's signals, and give them what they really want, not just what you think they want.  Who knows, maybe your partner even likes free stuff, like the pleasure of your company.  You could even go crazy and throw in a couple of beers.  Then you can put the money you saved toward paying off all that credit card debt you ran up buying all those bad gifts over the years.

I'm still trying to figure out what my husband is REALLY saying when he "hints" he wants yet another guitar……hmmm….

Your Budget is Failing Because of Glenn Close

Something very interesting happened at Target last week.  High end fashion design house Missoni created a special (cheap) line for Target, and last week it went on sale.  Crazed shoppers stood in long lines from before dawn for a chance to get their hands on anything from the Missoni collection.  For those who don't follow the world of fashion, real Missoni dresses typically sell for thousands of dollars, and the Target line included skirts priced around $40.  Anyway, by 9 a.m., the racks were empty and the area designated for the Missoni merchandise looked positively war-torn.  I listened to reports from the scene, describing shoppers going into an absolute frenzy, indiscriminately clearing off entire shelves of every item and size, maxing out their credit cards at the check out, and fighting other shoppers for possession of just one coveted item.  

But how can this be??  Aren't we in the middle of the worst recession since the great depression? Isn't everyone's scared and cautious with their spending?  So what, all of a sudden everyone went completely nuts?  I mean this was not a case of carefully selecting a high quality item with which to treat yourself, this was a complete and utter chaos!  

It's just that we have been so careful with our budgets.  We have mastered the art of self deprivation.  We will forgo all those frivolous, momentary pleasures for our lofty, long term goals!  We will practice extreme couponing!  We will pay down our debts, and we will save to send little Billy and Suzy to college, and we will max out our retirement account contributions like good upstanding citizens.  We will teach our children the difference between wants and needs, and we will start acting like mature adults, damn it!  We will be austere, and pretend we enjoy staycations, because the future is more important than the now!

Until Target releases a cheap line of Missoni.  And then we will BINGE!  Because when we see a Missoni skirt for $40, all this careful budget stuff goes right out the window.  We hear a voice in our heads ----- an old familiar voice, the voice of our inner child who desperately needs the Ben10 Ultimate Omnitrix watch, and has no concept of anything beyond RIGHT NOW.  The voice screams  "I NEED THAT"!  And strangely, the voice of our inner child sounds just like the voice of Glenn Close as she tells Michael Douglass, "I'm not gonna be ignored, Dan!" (Fatal Attraction, 1987)  And the voice is the reason why budgets generally fail.  

Psychologically, we can't handle extreme deprivation for long.  Ever go on a no-carb diet?  We need some occasional rewards for our good behavior.  We have to build into our budgets a category for treating ourselves to something nice here and there.  It can be an overpriced latte in the morning, or a nice manicure --- whatever makes you happy.  I like kitchen gadgets.  You decide how much you can allow yourself, based on your income and debts, but don't leave this category out.  In the end, this strategy will give you a much better shot at achieving your financial goals.  And you won't go on some weird shopping bender and find yourself buying the $3,000 Saeco Xelsis Digital ID Fully Automatic Espresso Machine. (I'm totally not making that up: http://www.bedbathandbeyond.com/product.asp?SKU=17848658&RN=278&.)

Is it still a good time to invest in children?

About a millisecond after the kids go back to school, we parents are not asked to donate money to the school, as much as we are asked to "invest in our children".  Well, as a financial planner, I feel compelled to investigate that idea.  

Let's start with the classic definition of an investment, which is  an asset or item that is purchased with the hopes that it will generate an income or appreciate in value in the future.  

I'm not at all certain that kids meet these criteria. Whether or not we ever see a return, we don't purchase our children, and I generally consider mine as more of a liability than an asset.  Also, I'm not sure about appreciation, because children are hard to appraise monetarily, and we aren't allowed to sell our kids (despite frequent temptation).   But if we're really lucky, they might generate an income.  

If you're a farmer, having kids can probably be a good investment.  They help plow the fields, and such.  But it's hard to evaluate the investment quality of a child because we can't easily use the typical methods of comparing the returns to those we might expect on other types of investments.

And what kind of investment is a child, really?  To which asset class does a child belong?  Is a child like a bond?  Where you lend money that get's paid back year after year with interest?  Well, no, not really.  mostly you just pay and then pay some more.  So are kids more like depreciable business assets that get written down bit by bit over the years?  Hmmm, that actually sounds more like a description of the parent.

ok, so what about stocks?  Well, just like a stock, a child can presumably go up or down in value, but as mentioned earlier, you can't sell them to capture the gain in value, nor can you harvest a tax loss by unloading a child when his or her value has degraded.  Also unlike stock in XYZ corp, children generate constant upkeep and maintenance expenses.  We're talking about at least 18 years (and possibly quite a bit more) of payments towards an asset (i.e. the child) with a highly uncertain ability to create a positive cash flow.  Moreover,  a stock can go down to a value of zero, with the investor losing all the money he put at risk, but a child could potentially put at risk a great deal more than your initial investment, and leave you in a position of unlimited losses.  

Generally, investors would need the potential for tremendous returns in order to compensate them for assuming such risk. The odds are so long that your Return on Investment (ROI) would ever exceed the capital expense. 

But parents are irrational and we have some biological compulsions to breed, whether or not we consider the return on our progeny.

So it seems that a child is less like a stock investment and more like a very bad annuity.  You pay in to the policy month after month, as the premiums continue to rise, but with no guarantee that you will ever live to see a payout.  I don't even want to think about the surrender fees!  The annual appreciation is not monetary, but emotional (or as your credit card company says: Priceless), however, in the best case scenario, your kid will make enough money to take care of you when you're old.  Additional children are like additional insurance policies, increasing the probability that SOMEONE will take care of you (thereby lowering your risk).  If you've done your job well, your child can be like a little deferred annuity policy with a lifetime payment guarantee, shifting the risk from you, in the early years, to the child, in the later years, and it's a fairly effective hedging strategy against the possibility of outliving your money.  So in that sense a child is really the ultimate investment!  

So go write a big fat check to your kid's school!   Otherwise you'll feel terribly guilty when you're sponging off him later.

How to Make Yourself Feel Better When the Market Plummets

You look at the headlines, and the market is dropping.  I mean really dropping.  Hundreds of points.  The headlines are dramatic, with words like "bloodbath", "bloodletting", and the day ends with "blood on the street".   You feel bad.  Really, really bad.  You've lost a bunch of money.  You don't even know how much, but it must be a lot.  And the reason you feel so terrible is because you feel stupid.  You know that somehow this is all your fault.  You shouldn't have been putting your money in the stock market; You should have read all those articles;  you should have allocated your portfolio better;  you shouldn't have bought that European fund.  You kick yourself for being so dumb.   And then you feel much worse.  And since you're feeling so worthless you decide to really torture yourself by actually checking your portfolio value.  You lay there wallowing in the pain and humiliation of watching your net worth dwindle.  But hey, why stop there?  While you're at it, why not go for an in depth exploration of all the other pain you've caused yourself in life?  Or perhaps the pain you've caused your mother?

So there you are, feeling rotten.  The market just dropped about 10%, and when you filled out that risk-tolerance assessment questionnaire you just never imagined that in real dollars and cents it would be this painful.  The experts tell you to hang on because the market will come back and you'll feel really dumb if you sold at the bottom.  You know that after the market fell apart in 2008-2009 it sprung back about 100%.  But you still feel awful.  Then suddenly it occurs to you that the people who are much richer than you probably lost a lot more money, because 10% of their net worth is a lot more than 10% of your net worth.  And then you think of someone REALLY rich, like Oprah.  She's apparently worth about $2.7 billion, according to Forbes.  You calculate that 10% of $2.7 billion is $27 million.  You imagine what it would be like to lose $27 million, but you can't, because you can't imagine HAVING $27 million (if you DO have $27 million, just play along and don't rub anyone's nose in it).  And you wonder, did Oprah just lose 27 million dollars?   Does she know about it?  Does it bother her?  Does she feel stupid about it?  Well, if she DOES, you wonder if she feels more stupid than you because she lost a lot more money, and if she DOESN'T feel bad about losing $27 million, then what are you so worked up about?

Money is such an abstract concept.  We humans went from being hunter-gatherers, to being barterers, to using currency, and our brains still haven't really managed to make sense of it all.  Rather than creating or gathering all we need right NOW, we receive a certain number of dollars for goods or services we provide, and we trade those dollars for food, shelter, iPads, braces for the kids, trips to Mexico, and what we think we will need to cover our living expenses when we're old, based on random guesses of how long we think we will live and how expensive our healthcare will become.   And we're not naturally very good at thinking about anything besides RIGHT NOW.  So we try to stockpile our money (or as investment philosophers call it: the return on our human capital) for the abstract and unknowable concept of our future needs.  

Based on all that uncertainty, how can you ever know if you have enough?  And that's really the question:  How much is enough?  And then you look at the value of your portfolio, and you try to figure out what's the correct level of bad/stupid you SHOULD feel.

And then you think about someone with much less money than you.  You think of that broke musician friend of yours who's always just barely scraping by.  That friend has no savings or investments at all, so all this means nothing to him.  He lost no money at all during this market selloff.  He probably doesn't feel any differently about himself now than before all this.  He's not kicking himself and feeling stupid.  He may not even have heard that the market just tanked.    

So if you were broke too, you wouldn't be kicking yourself either.  But you would still be broke, rather than just down 10%, and that 10% isn't anywhere near Oprah's $27 million, which you imagine would probably feel worse to lose, so you start feeling a little better about yourself.  You may be dumb, but you're not stupid enough to have lost $27 million dollars, and you're not completely broke, which is good because however much you're going to need in the future, it's definitely more than zero.  

See how smart you are? 

Now go reward yourself with some chocolate, and later you can find a new reason to kick yourself.  Maybe for indulging in too many sweets.  Does that bring us back to Oprah?

Only Donald Rumsfeld Can Predict the Future

When the U.S. invaded Afghanistan looking for Osama Bin Laden, then Defense Secretary Donald Rumsfeld appeared in a news conference to announce the following:

"We do know of certain knowledge that he [Osama Bin Laden] is either in Afghanistan, or in some other country, or dead."

Well, that pretty much covers all the options.  I mean, it's hard to ever be wrong with a statement like that.  So this has become one of my favorite quotes, because it can pretty much be applied to all predictions.  Especially financial predictions.  Do you ever read those headlines in the financial section that ask things like "Is the market just taking a breather, or is this the beginning of a bear market?"  Well, yes, it's probably one of those two things.  Or neither.  Or the articles that tell us how "technical analysis suggests that if the market breaks above 1200, then we might really see it go much higher from there."  Well, yes, we might.

We all want to know what the market is going to do next, and we think there must be some really smart person out there who knows, and can save us from making a terrible mistake and losing tons of money.  But the smartest people out there know better than to try and tell you what's going to happen, so they tell you what COULD happen, which leaves them generally safe if it doesn't.  

Now periodically, someone boldly claims he KNOWS which way the market is going next.  None of those wishy-washy "could's" and "might's", just "wills", and "musts"!  They command you to "get out of healthcare now!" or "buy energy stocks now!"  And who ever calls them on it if they're wrong?  Nobody!  By then we've already moved on to the next headline, and we've forgotten who said what last week.

So a few months ago, Bill Gross, probably the biggest bond guru out there, told everyone to get out of US treasuries, and his fund dumped the bonds en masse.  Ooops.  Yesterday he said, Remember what I said a few months ago?  Yeah?  Well, that was clearly a mistake.  So if Bill Gross made a wrong call on bonds, doesn't that mean that everyone else has at least as much of a chance of being wrong as of being right?  No matter who tells you they know what's going to happen next in the financial markets, they don't.  Not your neighbor, your stock broker, or even the REALLY big experts.  They're just playing odds.  The only proven method for improving your odds of successful investment is to diversify your portfolio so that you have some of those  "could's" and "might's" covered.

Okay, so what did we learn here today?  We learned that no one can predict the future, except Donald Rumsfled, because his predictions cover the full range of possibilities.  If you want to successfully predict the future, just name all the possible outcomes and you're good. 

So the next time you read a headline that asks, "Is this the time to buy Apple?" Think of Donald Rumsfeld, who also said:

"I would not say that the future is necessarily less predictable than the past. I think the past was not predictable when it started."