Saturday, December 16, 2017

To "BITCOIN" or not.....that is the question....

To "BITCOIN" or not.....that is the question....


We all know about the rise of Bitcoin, and if you were wise enough to get in.....congratulations! But remember, you might not really gain if you don't ever get out and "spend" those paper gains.

I think the BLOCK CHAIN underpinnings of BITCOIN is wonderful....as are all the other crytography wonders like public key encryption we have seen in our lives. (Thank-you Whitfield Diffie)

To me, the greatness of a digital currency like Bitcoin comes from the distributed nature of the architecture and the privacy it could allow. In theory, it would NOT be centrally controlled and manipulated like normal currency always has been......it would also easily cross the artificial boundaries of nation and even natural boundaries like mountain or ocean, so long as there is some form of electronic connection between the parties. (and the rest of those in the currencies ecosystem...which might be the Achilles heel of it too)

So I see the beauty of BITCOIN.....but all of that goodness lay in its use as a currency. As a "store of value", I am not sure it has any value as of yet.

To me it is not a currency because it is not really used to buy and sell. Yes, on a very small scale, but in terms of the percent of the transactions made for buying/selling vs those made for simple speculation.....the vast majority are the latter.

Money was created to make barter efficient......so to call something money, it needs to be used as an intermediate good in barter. (check this video explanation out: https://www.youtube.com/watch?v=WCr5UVf-vKM)

So if it isn't money, some people call BITCOIN Digital Gold, to which I also laugh. Yes, GOLD isn't really money....same reason, not commonly used for barter. But Gold has industrial value, but even then, that value is low. BUT, it has value because over the many thousands of years, people used it as money...as a store of value. So even as a material, it has value for it's use.....but above that, people's subjective value for gold is high. Some think of gold as money......I am not sure I do.

Bitcoin has many of the characteristics of money which are......
  • Durability. Objects used as money must withstand physical wear and tear.
  • Portability. People need to be able to take money with them as they go about their business.
  • Divisibility. To be useful, money must be easily divided into smaller denominations , or units of value.
  • Uniformity. ...
  • Limited Supply. ...
  • Acceptability.
 The last one is certainly on the rise....though not so much for payment.....but as a speculative asset. (so, perhaps it will become used...)

Also......given its meteoric rise, I can't see it the same way I see GOLD. Store of value indicates stability to me. The big knock on GOLD is that it does not pay a dividend. It does not increase in value. But that is what I expect from a "STORE" of value....so the more stability I see in GOLD, the more I value it.....the less I feel it is being driven by speculation, and so the more I value it.

Do I with I had bought a few BITCOIN back in the day.....of course, just like I wish I was an IPO buyer of .COM stocks, and been smart enough to sell at the top. I did buy and sell Sun Microsystems stock through those years....selling as I went along...until the peak, when I bought some $3.00 options when the stock was up at $120.....I held them all the way down to $10 per share. Some of my friends held all the way to the end where it was selling at $2.50 after a 1:10 reverse split.....it was a blood bath.....but had I sold at the TOP (or as I did as it was going up)....I would have been happy.

So "speculation" is not where my skills lay......so given the trajectory of BITCOIN, I will stay out until I see stability and start using it as currency.

I doubt my post will convince anyone....check out John Mauldin's post that is information packed and mght.

Thinking about money, savings and investing



Thinking about money, savings and investing 

As I start this post, I have to confess that I don't have a final conclusion in mind. I don't have a final paragraph for this article formulated in my head as I type this.....in fact, I am writing it so I can think through some thoughts I have tossed around in my head all my life. (I am an Engineer, so working on problems is what I do, and looking at and aligning data and characterizing a situation is a very big part of sizing up and understanding a problem.....and then formulating a solution)

So what is the problem.....well, as an older human, and a saver at that, how do I move forward with both my income and savings to insure I can live the sort of life I want into the future. In short, what do I do with my savings and future income potential. (now going down). 

This would of course be so much clearer if I knew the future.....and by that I mean how economic conditions will shake out. What will inflation be, what will taxation conditions be....what will my own needs be. Without a crystal ball, this all becomes something that most people just don't really think about.....but IMHO, they should because no one us in a better situation to understand your needs than the person between your ears.....YOU!

Ok.....so let's just focus on one thing.....savings...that is, how does one park any deferred consumption / accumulated wealth so that it will be available for you, and not stripped away by others. (and others include not only robbers or unscrupulous individuals, but our own governments who now have more debt amassed than ever before....and will have to pay that debt, even if just by simply "inflating" it away...and that might be the hardest thing to protect against.)

First, a definition of savings:
"Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recurring costs."

Let me me expand the definition to include the parking of value into investments of any and all kinds for the sole purpose of maintaining value such that it might be converted now or in the future to an income that one can spend. 

If money were energy, I would think of savings as "potential energy" and income and spending as kinetic energy. (WORK can therefore be stored in SAVINGS which can then be later recovered into WORK for you)

So, we need to consider the parasitic losses of SAVING as we save.....things like inflation, taxes, storage fees and any other losses that "eat away" at those savings and provide you no value. This makes for a very tricky environment because there isn't a single place one can easily think of that offers a place to park one's "deferred consumption" (savings) that offers zero risk. (and don't forget those DEBTs I referenced above.....those can only be paid by taking from current productivity or savings......a better way to think of that statement is that people without productive skill or savings can not be donors to the cause......i.e. the old blood from a stone problem)

So how does one "store" savings in a form that does not lose value.....this is the $64,000 question, and the answer might be considered if I follow my comparing money to energy, and savings to POTENTIAL ENERGY. We might want to consider the laws of Thermodynamics.

The initial law that comes to mind is perhaps the one that I like to summarize as "ENTROPY RULES". Let to it's own devices, energy will naturally migrate to it's lowest form....heat. I guess things like government debt are a sort of "negative potential energy".....they are akin to being able to make WORK with a promise of payment back. The difference between those sort of promises from governments vs those from private sources is a matter of "risk"....as well as buy-in. That is, when I take my savings and buy a company bond, the company will go off and use they money to make something happen....and they promise to pay me. Something might very well happen that results in their default to that obligation, and I am well aware of that the moment I hand them the money. In fact, they pay me an interest rate that is very closely proportional to the risk taken in loaning them that money.

But with government debt, we come to think of it as having NO risk. We believe that sovereign debt to be risk-free. But worst than that, you could argue that those BUYING that debut are aware of the risk of non-payment, but that is really not true. In fact, we citizens not only have very little say in the DEBT spending our governments do on our behalf, but many of our "secure" assets are in fact secured by the holding of what is considered to be default-free assets.....those very same government bond obligations.

Does that mean they are in fact ZERO risk.....not really.....you can ask holders of Puerto Rico bonds that....or those who held the debt of Venezuela....there you see cases loss by default and having value inflated away. (It didn't really matter whether the sovereign has the ability to "print money" or not.....holders of debt of either of those two have lost)

So besides the risk of fire, what would be wrong with just stuffing your mattress with greenbacks.....well, other than that greenback is really akin to that government bond above....actually, just an obligation for nothing but that green paper it is, but backed by nothing really. 

OK.....so what are we "trying" to do? I would suggest that we have been saving, and at the very least, we want to find a "store of value", and maybe even "put our savings to work" to grow it. (at least in order to maintain the value we originally stored)

So what will be "needed" or "productive' in the future.......that is the question that I believe to be important. Why, because if you and your savings are supplying some value, it will a lot less likely that society will work to strip it away from you. (what you have or are doing is valued/needed)

Not knowing the future leads me to think that diversification needs to be on top of your mind. By that, I don't just mean spreading across different company stocks or asset classes.....even wider. Consider different assets, different productive resources. Not knowing what will be valued or needed, you might NOT want to concentrate on one or even a small area....if you were right, you would be golden.....but if you are wrong, you might as well have been the person working at Enron who held all their savings in savings in Enron stock!

From all that, it seems to me that idea of future "need" and "productive resources" are key.....but just as important is future "cash flow".....by that I mean that the asset or capacity you put your savings in needs to consider and be able to cover the operational costs needed to keep it's existence / operation viable. Depending on the situation between now and when ever "then" is, it is not clear how good or bad it will be to have debt.....it might be wonderful if it is fixed rate and we suffer a sort of inflation, or it could be horrible if we suffer a deflation. 

Saying that, it seems that considering a "middle road" or at the very least a position where you have fair amounts of liquidity would be important so you can move from one side of the boat to the other should conditions require it. (so, we might need to be flexible......)  

So for now, diversification.....then as we move along and things get clearer, flexibility and an eye toward a more optimal and proactive re-balancing.


OK, so what will win.....GOLD, REAL ESTATE, BITCOIN, opening a BUSINESS....my first thought is that keeping your own skills and knowledge might be the first best thing. If your skills are in demand, they will be paid for. As for the other stores of value listed above.....they will each have some value over time, but how much is the question. It might be wise to hold a little of each. (Though I personally worry about the frothy nature of Bitcoin at the moment)

The value of your asset selection might be the key.....and knowing the value it has. (with land, it might be timber value.....rental value.....value for building housing....etc)

Sorry....no answers to be found here......maybe just common sense that you have already considered, or perhaps a few nuggets of perspective that might help you in your journey. Keeping the idea of "productive resources" is probably central to it all!

Sunday, January 01, 2017

First post of 2017......a view of an OLD NPR article about the transformation of a country to our most formative competition!

I figure my first real post of the year should have some significance to it.....no, it isn't something of my own creation, but rather a lesson learned by a group of people in a country we think of as Communist....but who are in many ways much more competitive in their capitalist ways than we here....and we can learn from that!

Good point....and here is another "REAL LIFE" story of a country from people who saw this lesson first hand!

Saturday, December 31, 2016

Wealth Creation / Maintinance In the Coming Times (Saving and keeping the value of your savings)

Well....I have written about this in the past, and things have barely changed....but that is (in some senses) a good things.

DEFINING THE PROBLEM:
The world is awash in debt, and I am talking about public as well as private debt.....the old saying is:
"we owe, we owe, so off to work we go...."

Well.....IMHO, the problem is that given the low interest rate environment we have had for the last 8 years or so, we might have "piled-up"more debt than we can actually service (pay for) in more normal times. Normal times...what do I mean by that.....I mean in times when interest rates are more normal!

What do I say this....because debtors need to at the very least pay the interest on their loans......if they could pay off the principle, they would not be in debt after all.

We are currently just coming out of our ZERO interest rate environment......the Federal Reserved has not raised their interbank lending rate to about 0.5%....still crazy low....and the market rates say for 30 year fixed mortgages ave risen from a low of about 3.65% up to around say 4.1%....still not a high rate, but moving closer to what might be more "normal"....say perhaps say 7%. (IMHO)

I am quoting mortgage rates, but the rate that the government pays for its finance is the thing I most fear......because the government needs to pay that debt, and they do so by extracting it from taxpayers. (or from everyone by debasing the currency via inflation....which is a sort of TAX on everyone)

So why does this bother me.....well, because I am a saver.....and as the old saying goes: "You can't extract blood from a stone"....when it comes to paying the debt, the government can't take money from those who don't have it. (As the bank robber once said: "Why do I rob banks, because that is where the money is!"....ditto for government tax collectors)

SO WHAT CAN I DO:
This is something that is difficult to fully appreciate because we are NOT really sure of how the government will "extract" their pound of flesh on savers.....they can do it directly by raising existing taxes......and one would be wise to find the various "incentives" government creates to get around that. (think along the lines of the tax-free growth of a ROTH IRA) But then the government might just throw us all a curve ball and create a NEW tax like a VAT or SALES tax that scrapes money from you whenever you spend or move it!

Worst than that, they might just crank up inflation and strip it from us by just making the value of ALL money less. (so that the dollars they pay back are worth less...easier for them to gather)

CREATE A PRODUCTIVE CAPACITY (Adding Value to the world):
One thing that is for sure.....no one wants to see progress grind to a halt.....we need things, and we want to see progress like cancer cures and higher efficiency cars and homes. No matter how things go regarding government tax collections, they would dare NOT kill the goose that is laying the golden egg....the goose that is producing!

So....as over simplified as this sounds, I suggest we all consider transforming our savings into something with a productive capacity.....think in terms of a marketable business. or skill.....think in terms of income property. Think in terms of production / service capability in the form of a business.

LIQUIDITY.....THE TRICKY BALANCING ACT:
Now if you think my statement above is far too vague, then you will really get turned off by this next point.....given that we don't know how the wealth "scraping" will come to us, nor at what pace, it will be difficult to know exactly where, how and how fast to invest in one thing or another. Investment has a certain "stickiness" to it....it often takes time to grow and generate profit.....and especially if you need to be side-stepping the various taxation schemes that will be creating what might be a less than fully stable investment climate.....and there is ONE thing for sure....business needs to make payroll....to have the cash flow to exist tomorrow......you need to have some level of "margin" or liquidity as things change.....so putting all one's eggs in one basket in one trip might not be the wisest move......being agile....


How this all comes to roost...no one knows. But I believe just sitting on vast sums of savings is NOT a safe place to me....you are an EASY target for a society hell bent on "redistribution of wealth" ....but even those people see the value of their landscaper, their grocer or their snow plowing company. Adding value to the lives of people will always be popular and in need.


Friday, January 15, 2016

"I will pay you tomorrow for a hamburger today".....or how the stock market was juiced up by the central banks!

Very interesting comments about the markets being "juiced up" by FED policy.....and here we are today....what now?

https://www.youtube.com/watch?v=7nuzT3rchPU

Tuesday, January 15, 2013

Decision Time Once Again

So our economy has been on a fairly wild ride since perhaps the year 2000......even earlier when you consider issues in 1987 and even back with the inflation of the '70s.

But in the past decade we lived through two bit bubble collapes.....the .COM bubble, and then the housing bubble.

So what was the big issue in the last bubble.....well, how about a debt that could not be sustained. That debt was in the hands of home buyers and that was then semi-transfered to banks and the government when homes went into the toilet.

But did we mop up that debt and get everything back in balance.....well, not really. In fact, I would say that you can not fix a problem of debt by adding even more debt. So I would say that we have essentially papered it all over for how.

Now what? Well....I think we have been blowing up another bubble....the bubble is now in our currency.....we have printed money like drunken sailors.....and if we are nor on our toes, it will fall on us like a lead balloon!

So now what? What do we savers invest in? Our money gets nothing in the bank, and I fear the money printing will cause inflation! What do we do to escape that?

Well....how about creating some sort of productive capacity....how about owning a business?\
That is what I think the best protection against the loss of savings, the development of a productive capacity....a skill or kind of useful work that people would pay for. We will see money printing taking a toll on the evaluation of our money.....that is, we will see inflation.

With our county is looking for is productive capacity....a skill or job that is in needed and people would barter for. Having a skill will be a good trade for the goods and services of all

Saturday, February 18, 2012

Where do er go from here? (Who will lead us???)

Just a quick post of a recent meeting where US Treasury Secretary Timothy Geithner admits to Representative Paul Ryan that the current proposed budget plan is a sort term plan at best. That sounds fine until you realize that it is really a matter of kicking the can down the road.....that this is NOT leadership. That is is exactly how we got into the mess we did in 2008.....that this is the problem that was laid out for us by Ross Perot and Morrie Taylor back in an election primary in 1996!

At that point I can see why people resisted getting excited about it all....but we have just survived a problem decade, are living with an imploding Europe as I type and have our debt problems staring us square in the kisser.....the TIME IS NOW for action!


Now what? I suggest we deal with out problems and not bury our heads in the sand.

As for what we personally do besides vote for people addressing things.....I suggest diversification of assets and around the world!

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Saturday, October 29, 2011

Another interesting video and some of my thoughts on investing.....

This video talks about a vision of how America pulls out of our current slide....I find Mark Dow to be well thought out and very bright. (I wish I could look so deeply at the big picture as people like Dow do)

Watch the video and then continue down to some thoughts I have on this, and how I am thinking about the future and my own savings capital.



Well, I also believe the USA will continue our slide and continue to lose our importance in the world. This will result in higher prices because of our slipping dollar and our slipping value to the world.

So what to do.....first, it depends on how we pull ourselves out of what I think of as the 'Occupy X Inequality". I think the Occupy Wall Street  simply want to strip the wealth from anyone who has it and give it to anyone who does not. If this is the way the country decides to go, then the obvious answer is to get out of dodge.....not so much flee the country, but make investments elsewhere where things might be sheltered or hidden from the grabbing claws of those doing the "redistribution"....I hate to think like this, but I also think I have done the right thing over my life in saving, and my gains are in no way "ill-gotten".....so like you would expect anyone to do, I want to keep them.

Having said that, I hope the government tries to try another tack....let's try to "grow" our way out of things.....let's make jobs by giving incentives to business in areas we so badly need.....areas we might be able to lead the world in.

So I am thinking I need to convert my savings to some sort of business....what that is, I am not sure.

Energy is something I think we will all see changes to in the future....I am thinking about some sort of wood pellet business. Perhaps dove-tail that will a recycling gig....but I don't want to get too deep into something I have not fully grocked out.

But the concept is the same.....to make money, one needs to take risk, and to add value. The value I see for the future is to create something....and create a business around that which adds value. (here and abroad...)

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Interesting perspective about where the problems lie......

The problems of our economy is an interesting thing to think about. How things have gone bad is not so obvious....the whys anyways. This video describes one opinion.....and then if that is true, this article makes me wonder if we are not in for a world of hurt.