There isn’t much privacy left in this world. But the recent information about the data collection by the National Security Agency made at least some people more concerned about how much of their personal business others can know. But the question is, can you protect some of your privacy short of unplugging from the modern world and perhaps living in a cave?
You can, to some extent. Absolute privacy is very difficult, but you can take steps to limit the ability of agencies such NSA from learning a lot about you. This piece from The Washington Post gives five steps you can take. Granted, they all aren’t things each of us wants to take. But that’s the trade off. You have to give up some convenience and other things if you want to increase privacy.
But an Internet telephony application called Silent Circle is believed to be impervious to wiretapping, even by the NSA. Like OTR, it offers “end-to-end” encryption, meaning that the company running the service never has access to your unencrypted calls and can’t turn them over to the feds. The client software is open source, and Chris Soghoian, the chief technologist of the American Civil Liberties Union, says it has been independently audited to ensure that it doesn’t contain any “back doors.”
Once a global brand that dominated its market, Kodak now is finishing a bankruptcy organization. It sold or closed its film businesses and now is trying to develop a few businesses that will sustain at least part of the company. One interesting story is whether it can reinvent itself. But the more interesting story to me is what happened to Kodak. You can read about it here.
The “what happened” story is more interesting to me, because it is a story of failure to notice and adapt to change. What makes the Kodak story really interesting is that Kodak invented the technology that eventually killed it. As longtime readers know, one of my themes over the years is that “retirement has changed and will change again.” I routinely hear from or run into people who learned a their personal rules of finance some time ago and are sticking with them. That’s too bad, because in many cases things have changed. You have to keep up if you want to keep your standard of living. The Kodak story is important for those who don’t own or manage businesses, because its lessons also apply to your personal finances.
The tipping point had come years earlier, in 1975.
That year, Steve Sasson was a 25 year-old electrical engineer working in Kodak’s Photographic Research Laboratory. His assignment was not considered pressing or significant to anyone but himself, his team, and his supervisor: the task was to find a way for captured light to be converted into an electronic signal with a numeric, or digital, value.
For digital imaging, this was the genesis.
To many people at Kodak who were not involved with the project, Sasson’s camera looked more like a device built by a hobbyist, recalls Robert Shanebrook, a retired Kodak employee who worked near the research lab at the time. It was impressive and interesting, they thought, but it was a toy, like their Instamatic plastic cameras. “Electronic photography was certainly paid attention to by some, but many didn’t think much of it,” he recalls.
That’s the word from the Federal Reserve’s latest Flow of Funds report on the the nations asset values, debt, and net worth. But those surface numbers don’t tell the whole story, as you can see here. As a percentage of GDP, household net worth still is below previous peaks. In addition, the net worth figure includes private debt but it doesn’t include government debt. If you add total debt or give each household a pro rata share of government data, the picture isn’t as attractive.
Most of the debt reduction has come from defaults and foreclosures, not from people using higher incomes to pay down debt or from conscious decisions to be less leveraged.
These are among the reasons why economic growth will remain slow. It probably will be positive as long as the Fed continues quantitative easing and Congress doesn’t do anything really bad, but growth will be slow.
Mortgage debt declined by $53.2 billion in Q1. Mortgage debt has now declined by $1.27 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).
The value of real estate, as a percent of GDP, was up in Q1 (as house prices increased), but not far above the lows of the last 30 years. However household mortgage debt, as a percent of GDP, is still historically high, suggesting still more deleveraging ahead for certain households.
There’s a lot of talk about how Cyprus essentially seized a portion of the larger accounts in Cyprus accounts. The talk accelerated when a European official remarked that the action is a template for future European rescue operations, a statement which other European officials quickly downplayed or refuted.
The question I hear a lot is will that happen here? The questions intensified with the circulation of items similar to this web posting. Note the reference to an FDIC report. Steve Forbes of the magazine with his name on it also made this contribution to the debate, asserting the potential for higher taxes and limits on IRAs and other investment accounts.
Of course, any of these things are possible in the U.S., though they aren’t imminent. The FDIC report, for example, says that legislation would be needed to implement the plan outlined. The U.S. also has at least one thing Cyprus doesn’t have: the ability to print money and generate inflation to pay back its debt in cheaper dollars. Most of the things people fear would require a vote of Congress to implement, and I think right now most members of Congress fear how voters would react than they are about the consequences of current spending and debt. But the potential somewhere down the road for such actions is why I recommend diversification of accounts and investment vehicles in addition to the usual investment diversification. Don’t bet on one particular outcome on these issues. Accept that you can’t know how things will turn out and spread your money in different accounts so you won’t be burned under any one scenario. If problems become worse and extreme actions appear more likely, you can adjust your finances for the new outlook.
There have been rumblings from some revenue-hungry Democrats about finding ways to tap into individuals’ retirement accounts. Several years ago Argentina nationalized the private pension plans of its populace, and recently Cyprus has been talking about taking similar action. One can already hear our politicians’ rationale: Most of the money in 401(k)s is pretax dollars and grows tax free, depriving the government of needed revenue. Why not integrate them with Social Security and then means-test the benefits?
Holders of Roth IRAs may be in for a rude shock. Their contributions have been made with aftertax dollars, with the promise that the ensuing benefits would be exempt from federal income tax. Slapping a special “emergency” levy on these assets will become an irresistible temptation for politicians as the pot of assets gets bigger. Impossible? Your Social Security “contributions” are made with aftertax dollars, and it was promised that those benefits would be tax free, but Washington started chipping away at that vow back in the 1980s. Today millions of Social Security recipients find a portion of their benefits subject to the IRS.
The annual wealth listing in Forbes always are interesting and entertaining. It’s instructive to see how people obtained their wealth, and especially the changes over the decades in how the wealthiest obtained their fortunes. What’s also interesting is the work that goes on behind the scenes to make up the list and estimate fortunes. For example, over the years I’ve known a person or two who I thought should have been on the list but wasn’t. Forbes can’t do much when a person’s wealth isn’t publicly held. When someone owns small, privately-held but very profitable businesses, the media often don’t know about it and can’t value it without help from the owners. There are a number of wealth people that own real estate through different entities instead of through one large company. There are other ways people accumulate wealth under the radar.
I bring this up because of the very public dispute between Forbes and Saudi Prince Alwaleed. The Prince wants his wealth to be listed as significantly higher than Forbes pegs it, while Forbes says the Prince routinely exaggerates his wealth and uses unreliable ways to establish his value. Forbes also implies that the Prince, or someone, manipulates the price of shares on the Saudi stock market to boost the Prince’s net worth on key dates. It’s entertaining and interesting reading.
But for the past few years former Alwaleed executives have been telling me that the prince, while indeed one of the richest men in the world, systematically exaggerates his net worth by several billion dollars. This led FORBES to a deeper examination of his wealth, and a stark conclusion: The value that the prince puts on his holdings at times feels like an alternate reality, including his publicly traded Kingdom Holding, which rises and falls based on factors that, coincidentally, seem more tied to the FORBES billionaires list than fundamentals.
Alwaleed, 58, wouldn’t speak with FORBES for this article, but his CFO, Shadi Sanbar, was vociferous: “I never knew that FORBES was a magazine of sensational dirt-digging and rumor-filled stories.” Our discrepancy over his net worth says a lot about the prince, and the process of divining someone’s true wealth.
Periodically in Retirement Watch I remind people that they need to examine and update their homeowners’ insurance and other policies. In a recent issue I pointed out that the retirement and the years before retirement are the most critical times to have insurance in order. A major loss at this point would severely derail a retirement plan. Here’s a real life example of these points. Hurricane Sandy swept through the northeast. Many people still aren’t able to rebuild, and one reason is that any rebuilding of or changes to their homes need to meet the current building and zoning codes, and that often is very difficult and expense. Be sure your insurance gives the protection you need.
Before you could get a building permit, however, you had to be approved by the Zoning Authority. And Zoning—citing FEMA regulations—would force you to bring the house “up to code,” which in many cases meant elevating the house by several feet. Now, elevating your house is very expensive and time consuming—not because of the actual raising, which takes just a day or two, but because of the required permits.
Kafka would have liked the zoning folks. There also is a limit on how high in the sky your house can be. That calculation seems to be a state secret, but it can easily happen that raising your house violates the height requirement. Which means that you can’t raise the house that you must raise if you want to repair it. Got that?
The Mars Rover Opportunity landed in 2004 and was supposed to last about three months. Yet, it keeps cranking away and sending data back to Mars. Its twin, Spirit, also far outlasted its estimated useful life. It ceased being useful in 2010 after becoming stuck in a sand trap and being unable to point its solar detectors in the right direction.
This is why we have to look at all forecasts, predictions, and assumptions with care. One would think that something couldn’t be more of a hard science with definite right and wrong answers than a NASA project. But there are a lot of assumptions and unknowns even in NASA projects. In personal finance and investing, the uncertainty and range of possibilities is even greater. That’s why I recommend balance, diversification, and alternate plans.
In its nearly nine years on Mars, Opportunity has driven more than 22 miles, crossing a Martian plain and stopping by several smaller craters. During its travels, it came across minerals that pointed to flowing water in Mars’ past, but these minerals formed in highly acidic conditions. “Battery acid kind of numbers,” Dr. Squyres said. “And that’s a challenging place for life.”
Clays only form in more benign conditions. “The thing that’s different here is that these clay minerals point towards a neutral chemistry — water you can drink,” Dr. Squyres said. “And that’s a different story, a different world.”
These rocks appear to date to the early warm and wet era of Mars, perhaps when the planet was more hospitable to life.
An important report to track is the Federal Reserve’s quarterly Flow of Funds. It reports the net worth of households and businesses. It also break down the net worth by types and amounts of assets and debt. What the latest report shows is that household net worth increased in the third quarter through a combination of higher asset prices (stocks and homes) and lower debt. That’s the good news. The not-so-good news is that household net worth still is below the 2007 peak. Also, household debt, while down from the peak, still is higher than the long-term average. There still is a lot of deleveraging to go. Mortgage debt has declined over $1 trillion since the peak. Unfortunately, most of that decline is due to defaults.
In Q3 2012, household percent equity (of household real estate) was at 44.8% – up from Q2, and the highest since Q1 2008. This was because of both an increase in house prices in Q3 (the Fed uses CoreLogic) and a reduction in mortgage
debt.
Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 52+ million households with mortgages have far less than 44.8% equity – and over 10 million have negative equity.
People make a lot of mistakes when buying Christmas gifts. One estimate is that recipients typically value a gift at 20% less than the giver paid for it. Gift giving mistakes fall into several distinct categories, according to economists. Read this list and avoid gift giving mistakes, or at least reduce the number you make.
- Focusing illusion: When people focus on a product or an activity, or on a single feature of a situation, they tend to think that it matters a lot more than it does. For example, people in both California and Iowa have been found to think that people in California are happier than those in Iowa (which isn’t so). The reason for the mistake is that people focus on the most salient difference between California and Iowa, which is the weather, even though a warmer climate doesn’t much affect people’s happiness.
The same can be said about holiday gifts. People have a tendency to focus on an eye-catching object that produces an immediate “wow!” when it is given, but that goes promptly into the desk or the closet, never to emerge again. The solution? Give serious consideration to gifts that people will actually put to daily or at least weekly use.
One of the hallmarks of the Dodd-Frank financial reform bill is creation of the new Consumer Financial Protection Bureau. It’s not clear why we need yet another layer of bureaucracy to regulate areas that already are regulated by a range of agencies at both the state and federal level. There are unique features of the CFPB. Basically, it can do whatever its employees want and isn’t accountable to anyone, including Congress and the President. Because of those qualities, there’s a good chance the agency is unconstitutional, something that will be tested in the courts shortly. Read the summary by George Will of the CFPB’s failings.
The CFPB nullifies Congress’s power to use the power of the purse to control bureaucracies because its funding — “determined by the director” — comes not from congressional appropriations but from the Federal Reserve. Untethered from all three branches of government, unlike anything created since 1789, the CFPB is uniquely sovereign: The president appoints the director for a five-year term — he can stay indefinitely, if no successor is confirmed — and the director can be removed, but not for policy reasons.
One CFPB request for $94?million in Federal Reserve funds was made on a single sheet of paper. Its 2012 budget estimated $130?million for — this is the full explanation — “other services.” So it has been hiring promiscuously and paying its hires lavishly: As of three months ago, approximately 60?percent of its then 958 employees were making more than $100,000 a year. Five percent were making $200,000 or more. (A Cabinet secretary makes $199,700.)
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