January In Minnesota

Why do I love this state? Because I do. I cannot think of anywhere on the Earth I would rather live. Except for maybe the West coast of the Big Island of Hawaii for January and at least half of February every year.

My mailbox is almost buried in the snow, and has been since mid-November. We have had colds, (all four of us), strep (various strains), and now God only knows what crud we are fighting off even though we continue downing airborne and vitamin D.

I am sitting in my office freezing my ass off. It is -9 and the low tonight is -13. This is better than last nights low of -20, but who's complaining.

Still, the irony is...I love this. Some of the best moments of my life have unfolded in subzero temperatures.

Today my father and I took our dogs for a walk in the woods. We really didn't say much, and it was perhaps -2, but it was a time I will never forget. The beauty of the dogs, enjoying the snow. They were running across the ice as if in paradise. The shining snow, shimmering among the branches that the dogs picked off the low brush to chew on. My father, shining in all his glory, just walking, and loving his dogs....and me.

I remember when my now husband and I had one of our first apartments together, I believe it was our second. It was tiny. His 6'1" frame hit the ceiling from time to time, but he didn't care, because he was with me. It must have been the last week of January 1993 and it was something like -34 that night without the wind chill factor. We hunkered down on the futon under a huge comforter and told jokes about how we would die if we went outside. We kept each other warm and watched "Star Wars The Next Generation" together. Ice built up on the window panes of the old house we lived in, but we kept each other warm. I will never forget that night.

My neighbor cheers me on every time I go out to shovel even one inch of snow. "Way to go Bridget!", he says. He is a Vietnam Vet who apparently has realized that every moment of life is a good one. I feel so blessed to have him cheering me on.

Even the dark nights of the soul one experiences in these months have a purpose. They make the Spring so brilliant! The Self-exploration and surrender one must endure to stay sane during these months is a blessing in disguise.

So, raise your glass to January in Minnesota tonight, and make a memory of your own.

Remember, the light has no meaning without the darkness, and if you can see the light in the darkest days, you have indeed found salvation.

"Putting Money To Work"

I am growing tired of listening to the bull argument that the market is going to go up because people have to start "putting their money to work".

This argument rests on the tenant that all investments in the stock market are the same. Anyone who follows this logic has never taken an investment valuation class. In addition, they do not really understand accounting rules. "Profits" are not a mystery. However, in large corporations they are not as simple as they seem. Shady accounting practices (especially with the suspension of mark-to-market rules) can make corporations appear profitable, when they are indeed insolvent.

If you really want the tools to understand investment valuation, go take a course on it, or read a book about it. A class on pricing options and bonds would also be valuable. If that is not of interest to you, you can understand that I already have and either listen to what I am telling you, or not.

Ultimately, (not in the short run) it is the discounted value of "expected" future cash flows that determines the value of a stock. When the "actual" does not equal the "expected", stock prices fluctuate rapidly in either direction. The trading game, or arbitrage opportunity, centers around who's perception is closest to the "actual". The guy (or gal) whose perception is closest to reality, or the "actual" will win in the end. We are now in the gap, with different interpretations of reality battling each other. Only time will reveal the winners.

Let's make it easier to understand:

Let's say I have a start-up tax preparation firm, which just happens to be true. I ask you to "invest" in my firm. I want you to "put your money to work". What questions would you want to ask me before you gave me your money?

Wouldn't you want to have some idea of when and if I was going to actually pay you a return on your investment? Wouldn't risk matter? If I could show you, with business plans and models that I was going to pay you 2% a quarter, or 8% a year, at some undefined point in the future. Would you take the deal? That would depend (thanks Andy, if you ever read this)...it would depend on your risk tolerance, your assessment of my work ethic, your assessment of my business plan, the level of debt I was taking on to finance the firm, my intelligence, perhaps even my integrity. There would be many factors to consider.

Now, let's say I "went public" and invited a vast amount of investors to "put money to work" in my firm. This would allow me to finance a large expansion and perhaps increase your return. So now I have this hot IPO, I haven't actually paid you anything yet, but you are very pleased because the "value" of your investment has increased dramatically, and on paper it looks like your money is working really hard. On paper you are rich.

The next day the government passes a flat tax. Ooops. Now, my firm is worth 25% of what it was originally. My creditors are calling, but nobody needs tax preparers anymore. Ooops.
I try to pay you back, but I am bankrupt, and can't.

You didn't do your research. You didn't know the House and Senate were working on a flat tax. Plus, even if you had known, you wouldn't have believed it possible. (A Black Swan Event)

Was that a good use of your money?

Now, let's extrapolate that to the entire market. To the S&P 500. Can you truly make an informed decision in this uncertain economic environment as to whether "putting your money to work" in an index fund is a wise move? I'll give you that you now have diversification on your side, which could limit your risk, but it will also cut into your returns.

So invest away, but not in an index fund at this juncture in history. Don't believe you know more than you actually do. If you want to buy a stock because you have done research, analysis, you understand its balance sheet and you truly believe in the business, and you want to take on some risk to beef up your return, go ahead. But buy and hold index investing is a thing of the past because of the bursting of the credit bubble, at least for the next 7 years or so. Know the environment you are operating in. The rules of the game have changed.

Save your money, so you have some to "put to work" when the economic environment stabalizes.
Then you do the work, the work of finding a truly good investment.

Because, in truth, money doesn't "work". People do. Some investments are good, others are not. Do your homework on each and every investment you make.

And that's the way it is, according to Econmom.

Muni Meltdown Coming

Don't say you weren't warned. Much of the debt out there is not safe. Remember, a bond is just a loan. If the borrower can't pay you back, or make the interest payments, your investment falls dramatically in value. If the borrower defaults (cannot pay you back), you may have a claim on underlying assets, or you may not.

http://www.marketwatch.com/story/vanguard-move-highlights-muni-market-turmoil-2011-01-14