Getting Insurance

Posted on February 20, 2007 by Nirav

After playing phone tag for nearly 4 months I finally met with an insurance agent today. I’ve been meaning to get disability and life insurance for myself and the wife and today I got some good quotes.

For me a $1000/mo disability policy thats indexed to inflation costs only $29/mo. Term life insurance that starts out at $300k and eventually reaches $600k in the 10th year only costs about $248/year. It increase every year but its not a lot. In the 10th year it’ll be around $745/year. The advantage with this plan over a fixed premium product is that this plan is good until I’m 80. The fixed premium product is only good for 20 years.

The cost for my wife’s policy is cheaper by about $50-60/year. We’re not getting disability for her since her company has awesome coverage already.

Since I’m getting insurance as a safety net for my family and future kids, I want to keep up my policy until they’re atleast out of college. Since I don’t currently have any kids, we’re talking atleast 20-25 years. Getting a policy that lasts for nearly 50 years is a good way to ensure this, since I won’t have to go through medical check-ups again and there’s no chance of my failing to qualify for insurance because of bad health later on.

Insurance is cheapest when you don’t need it! If you’re planning on having kids you need to get life insurance. If you have a decent job you need disability. Get it now!

GDX Called Away

Posted on February 19, 2007 by Nirav

I’ve been selling covered calls on GDX – yes I know selling puts is the same risk-reward ratio but I usually do pretty well in selling far out options. I lost a whopping $40 than if I had outright sold them on friday. I’m hopping we’ll see a small dip in the market next week so I can buy back in at roughly the same price.

I’m thinking I might actually buy CEF or SLW (Silver ETF) instead since I think there’s a chance than silver might run up more than gold on a percentage basis this year. The markets closed today, but earlier kitco.com reported that Gold was around $672.00/oz. quite a jump in the past few months. Hopefully it consolidate before resuming its next leg up.

My GG naked puts expired worthless so I made $138.50. If they had expired in the money I wouldn’t have felt bad about actually buying the stock.

Shorting the S&P 500 index

Posted on February 17, 2007 by Nirav

Looking at the unbelievable Valentine’s Day rally in the stock market, I decided the market might be heading for a correction. I read somewhere that smart money had the highest amount of short futures contracts since May of last year, when the market corrected quite a bit.

The easiest and cheapest way to short the S&P 500 is to buy a Profunds Inverse Market Fund like URPIX. It has amongst the lowest expenses for funds in that category and if you buy through TDAmeritrade, there are no fees to buy or sell. Not only that but $10k minimum is also waived.

The only problem is that it takes about 3 days to get in or get out of this trade, a move that may have been implemented to prevent people from daytrading mutual funds.

Anyway, I finally got filled friday at a price of $13.29. Lets see if this trade works out. I’m not really good at timing the market and as seen by my WCI puts, I’m actually quite terrible at this sort of thing! But since I don’t want to sell any of my stock, this way, I’m hedging my bets. But hopefully, I can get better at this sort of thing.

Speaking of WCI, Bill Gates’s foundation announced they were bailing on it but that didn’t help. The stock still went up! Its up 30% since October!

The Poor Middle-Class

Posted on February 16, 2007 by Nirav

Rich at Queercents has a good post on what it takes to be middle class and makes a great case on why being middle class (at a $75k annual income) means barely getting by.

Sadly, I agree with the post. Ever since the 1960s, where a single earner in the family could provide for a family and send the kids to college, the average american’s standard of living has been eroding at a steady pace. Of course the average house is 30% bigger than a 60s house but apart from the bump in creature comforts, there has been a drastic decrease in the amount of savings.

It now takes 2 incomes to maintain a decent lifestyle, and again, most people barely get by. There’s the choice people have to make – do I want to save for my retirement this year, or go on vacation? And with the government lying about the rate of inflation, Social Security payments (or bank savings rates) haven’t been keeping up. As a result, many seniors who thought the government would take care of them have an even more difficult choice – should we buy food or medicine?

In California, where the median house price is $550k (and dropping), being middle-class is even more difficult. I have friends, where both spouses work. One of their incomes goes totally towards house payments! So far I’ve turned down my wife’s complaints about moving into a bigger house on the grounds that we can’t afford it. I’d rather make the extra payments into areas where the house prices are appreciating and the rent covers most of the mortgage. Its better to have 5 appreciating assets you can afford than 1 depreciating “asset” that you can’t. (isn’t that really a liability?) Of course, the popular press will make stupid comments like “your house is your biggest asset” instead of saying, “if your house is your biggest asset, it just means you don’t really have any assets and are probably broke”. (that deserves a separate rant of it own!)

Just goes to show that no one will take care of you. Its up to you to make your own financial future, to learn about finances and investing, to make the right and smart decisions, to live below your means, and to develop alternate means of income. And thats Kiyosaki’s philosophy in a nutshell! Now you don’t have to read the book 😉

Book Review – Guns, Germs & Steel

Posted on February 14, 2007 by Nirav

I’m currently half way through a great book by Jared Diamond called Guns, Germs, and Steel: The Fates of Human Societies.

It delves into 30,000 years of human history and tries to answer the question how some cultures were able to dominate over others and become successful. Its an incredibly interesting book and the author has done a ton of research. If you’re too lazy to read it, its also available on DVD from National Geographic.

It doesn’t have anything to do with investing but I had to recommend it nonetheless. On the other hand, anything you learn can spark a million dollar idea! Check out some really dumb ideas that made millions.

BoA To Give Credit Cards to Illegal Immigrants

Posted on February 13, 2007 by Nirav

Bank Of America is going to start giving out credit cards to illegal immigrants who don’t have social security numbers.

Apparently there will be some checks in place to make sure they’re not financing terrorists. The applicants must maintain a bank account for 6 months and pay an upfront fee.

What I’d like to know is how on earth can they open bank accounts without a social security number?

Sub-prime Lenders In Trouble

Posted on February 13, 2007 by Nirav

According to the Mortgage Lender Implode-o-Meter Website, 21 of the top 25 sub-prime lenders have closed their doors or gone out of business since december 2006.

According to various sources, 25% of all borrowers last year were sub-prime and another 25% were speculators(or atleast people who can afford a 2nd home, investors and some speculators). Assuming minimum overlap between the 2 groups, that means only 50% of the loans last year went to homeowners who could actually afford them! Okay, thats a bit of a stretch but no wonder the sub-prime lenders are doing poorly.

WAMU was smart to sell its sub-prime portfolio to a french pension fund and HSBC who paid $8 billion for a sub-prime lending company and is now putting aside another $9 billion for bad loans wasn’t.

Land Trusts Offer Great Tax Breaks

Posted on February 13, 2007 by Nirav

According to the WSJ, Landowners Rush to Take Advantage of New Law That Boosts Deductions for Blocking Development.

Here’s how it works: A landowner typically donates a conservation easement to a land trust, a type of non-profit organization that helps put together the easement and monitors its restrictions over time. The value of the donation for income-tax purposes generally is the difference between the land’s unrestricted value and its new value with limited development or usage rights.

Landowners can now deduct the value of a donation up to 50% of their adjusted gross income per year, up from the previous ceiling of 30%. That means if your adjusted gross income is $100,000, you are now eligible for as much as a $50,000 tax deduction a year, instead of $30,000. And if your income is too low to deduct the full amount of your gift in one year, you can now carry forward the deduction for 15 additional years, up from five years previously.

The law is even more generous for career farmers and ranchers who earn at least half their income from their land. These property owners, who are often land-rich, but cash-poor, can now deduct up to 100% of their income. “If you’re a farmer you could pay no federal income taxes for 16 years,” says Rand Wentworth, president of the Land Trust Alliance, a coalition of 1,600 land trusts across the country.

So if you’re one of the lucky rich people who can afford to buy land out in the wilderness for horse riding or camping or whatever, you can now write it off. All you need to do to promise not to build on it. Now thats a neat tax deduction.

Friday Rant

Posted on February 9, 2007 by Nirav

I came across this article last night, 32 Reasons Why The Stock Market Will Jump This Year.

While its written as a serious prediction, I personally feel its more like a christmas wish list or a list of finalist answers at the Miss World Beauty Pagent!. Here are some of the gems

#1. Housing and Auto-manufacturing weakness will subside
Based on what? Major layoffs in both industries?

#5. Unemployment with stay at record lows.
Hmm…with the massive layoffs in Housing and Auto-manufacturing, you really think so?

#7. Inflation will continue to decelerate, with CPI averaging around 2.0%.
Hmm…ever since the minimum wage was jacked up, small business around where I live jacked up the price of everything along with it. That doesn’t sound like low inflation to me. Anyone who thinks that CPI is an accurate measure of inflation makes way too much money to begin with. Once you take out all the factors that cause inflation, of course you’ll be left with 2%. What a doofus.

#11. The US Dollar will firmer up and even maybe become stronger
With almost all the worlds major currencies strengthening against the USD how is this going to happen? Oh yeah, Bank of Japan is enforcing a weak Yen policy. And of course the USD will strengthen against the Iraqi Dinar! And with China owning a Trillion USD do you think a strong Dollar is actually in our interest????

#12. The U.S. budget deficit, which is currently 1.5% of GDP, well below the 40-year average of 2.3% of GDP, will continue to trend lower as healthy economic activity continues to boost tax receipts substantially more than estimates.
Uh…isn’t the US GDP is currently mainly comprised of government spending? Thats not really a show of healthy economic activity. Although it is true that the tax receipts are up more than estimated.

#15. The mania for commodities will completely end.
Yeah Right!!! All those millions of people in India and China who can now afford to buy a car and a decent place to live will choose to buy plastic go-karts and tents instead of regular cars and houses that use steel & copper. Is he completely blind to the global industrialization thats taking place? Every year China adds to its electricity generating capacity by the same amount as the entire UK. This electricity comes from coal and is used to make more cars and power more houses. The dude’s smoking crack now.

#16. Oil falls to $35 to $40 per barrel and eventually $20-$25.
#19. Gas prices will drop below $4/mcf.
#20. Gold will drop below $550 per ounce
This was written on the 1st of Feb 2007 when Oil was around $50/barrel. Its since gone up to nearly $60 and is probably on its way up. Corn has quadrupled to over $4/bushel making ethanol almost as expensive as gasoline now. Similarly Gold is also up to $665. I actually bought some GLD (the gold ETF) 2 days ago and I’m already up 7%. I predict its going to $800 in 2 years.

#17. Peace in the Middle East.
HAHAHA.

Some of the points are actually valid, but the ones I’ve mentioned are pretty stupid. Like I’ve said before, I’ve taken exactly opposite bets in my stock investing, so of course my views are out of line with the authors.

What do you think?

Deals On Electronics?

Posted on February 9, 2007 by Nirav

Circuit City, the No. 2 electronics retailer behind Best Buy, is closing 69 stores in the U.S. and Canada. The company quoted gross margin pressure from lower prices on flat-panel TVs as a large reason for its troubles. The closings represent nearly 5% of Circuit City’s stores. The company will not announce which stores it is shuttering, but keep your eyes open. The targeted stores will close on Monday and reopen Wednesday for a major clearance sale.

Guess there’s no return policy on these items!

Achieving financial freedom through passive income

Monthly Archives: February 2007

Getting Insurance

GDX Called Away

Shorting the S&P 500 index

The Poor Middle-Class

Book Review – Guns, Germs & Steel

BoA To Give Credit Cards to Illegal Immigrants

Sub-prime Lenders In Trouble

Land Trusts Offer Great Tax Breaks

Friday Rant

Deals On Electronics?