"How Rich Are You" Calculator

Umm, . . . no.

But first, . . . the thread title is from the title of calculator on its web page.

Optimism, . . . hmm? Perhaps in troublesome times realism is mistaken for pessimism.

DonDiego does not expect significant economic or social improvement in the new year.
The economic collapse of 2008 was predictable; the primary cause was excess debt, . . . and bad debt. The bad debt has not been resolved, . . . the Government is likely to take much of the eventual losses to save the banks, . . . again. And the total debt is higher now; just this month the US National Debt exceeded the US Annual GDP. [note 1]
And the growth of debt is accelerating. One should expect a request for an increase in the National Debt Ceiling of over $1-trillion in January.

The civility and liberties of US society continue to deteriorate. Manners, language, entertainment become ever coarser and meaner. Legislation to limit citizens' freedom proliferates. If one thinks the NDAA or SOPA or PIPA improve one's life, one is likely in for an unpleasant surprise. [note 2]

Overseas the outlook is similarly glum. European Nations are likely to default on sovereign debts - there's that pesky debt again. Economic consequences are likely to be unpleasant.
The Muslim World is becoming evermore worrisome. Mr. Ahmadinejad of Iran fears his own citizens and Western nations; his mental stability is questionable; and Iran is on the verge of building nuclear weapons. He is threatening to shut down the Straits of Hormuz. [note 3]

Oh, wait ! Talking about Muslims, DonDiego expects the new regimes in Egypt and Libya will turn out to be Islamists who like the USA even less than those whom they replaced.

But, . . . on the positive side, . . . DonDiego is living a pretty good life. His health is not bad for a gentleman entering decrepitude; he remains omnivorous, enjoying coffee, wine, beer, and whatever other alcohol he can procure and ingesting whatever food he pleases. He has a good woman. And together they've traveled to two NFL games this Fall, flown to a wedding in Nevada earlier in the year, and just got back from visiting their grandson in sunny Florida this month.
DonDiego did foresee the market collapse of 2008 and escaped the consequences by selling most of his stocks over the preceding 18 months. Since mid-2008 by investing based upon his continuing "pessimistic" analyses of events, he has doubled his net worth. He is about as well-prepared as he could be for the coming troubles.

DonDiego wishes everyone Good Luck in the coming year; everyone will likely need good luck.

Note 1: DonDiego recommends one read It's Different This Time by Rogoff & Reinhart to find out what a debt-to-GDP ratio this high portends historically, . . . always.
Note 2: NDAA, SOPA, PIPA - one should look these up.
Note 3: While one is looking up NDAA, SOPA, and PIPA, one should look up "Straits of Hormuz".


Oh wait, . . . Rock'n Rick asked about a New Years Resolution.
DonDiego just learned today on the internet that apparently there are no ATM machines in Heaven, . . . and presumedly Hell. Therefore DonDiego resolves to spend more on his woman and himself and his family to enjoy whatever life remains as best they can.

DonDiego seems to share my mindset in many ways. I admit I am a die hard liberal but I wish Washington would play the game between the 40 yard lines rather than the 10 yard lines.

Obama has many positive traits but he is sorely lacking as a leader. Unfortunately the GOP isn't offering much in the way of hope either.

DonDiego I have always taken the slow steady route with all things in life. Several years ago I put my investments in a fixed account paying 4%. I am glad I did. People tell me constantly what a bad idea this is. Consequently between that and my fire department pension I am retiring next month at the age of 54 years young. Our income will be exactly the same as if we both were working. We also get a 3% COLA every year.

DonDiego many people in our world seem to want the quick fix to everything. Whether it is their work, play, investments or the world in general. Sometimes that works out for them but I am an old school guy who believes in commitment and hard, steady work.

You know, fail to plan, plan to fail.

My wife and I decided to get out when we are young enough and healthy enough to enjoy it before the inevitable happens.

It will be interesting to see where all us are ten years from now. I just hope Washington decides to not worry about party lines and get back to trying to make sure our country survives.

I only wish I had seen the bust coming. My wealth would likely be double what it is today.

Like many others I put my investments in the hands of a professional broker. Bad mistake.

Ten Myths That Won't Die From The WSJ

1 "This is a good time to invest in the stock market."

Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir -- step this way!"

2 "Stocks on average make you about 10% a year."
Stop right there. This is based on some past history -- stretching back to the 1800s -- and it's full of holes.

About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.

3 "Our economists are forecasting..."
Hold it. Ask your broker if the firm's economist predicted the most recent recession -- and if so, when.

The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.

4 "Investing in the stock market lets you participate in the growth of the economy."
Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.

5 "If you want to earn higher returns, you have to take more risk."
This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.

6 "The market's really cheap right now. The P/E is only about 13."
The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile -- they're elevated in a boom, and depressed in a bust.

Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.

7 "You can't time the market."
This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.

If you invest in shares when they're cheap compared to cash flows and assets -- typically this happens when everyone else is gloomy -- you will usually do very well.

If you invest when shares are very expensive -- such as when everyone else is absurdly bullish -- you will probably do badly.

8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.

But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.

9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?

10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."

Write to Brett Arends at [email protected]