Anyone try to buy some milk or gas in the past week? There is some bad news, and there is some worse news.

The bad news: you probably already know: its expensive as hell.

The worse news: its going to get more expensive.

The Fed is expected to announce another rate cut today to try to stop the housing and stock markets from sliding any more than they already have…there is one major problem: trying to deflate this bubble is inflating huge bubbles in precious metals (gold at 1000/ounce, really?) and commodities (I may as well be pouring filet minion on my cereal, except that now the filet is more expensive too). The long short of it is that the rise in energy and agricultural costs have led to a large increase in prices, the biggest gain in one year since 1980.

So what is going on with the rate cutting?
What happens is that as the Fed expands the money supply, money is worth less, and so it costs more to buy stuff. The good old “I” word, inflation.

I thought fed rate cuts were saving the mortgage market?
Thats the idea. The problem is that not only are the rate cuts not perculating down, but now we have hyper inflation.

Now I am by no means a hard liner on either side. Ron Paul is probably wringing his hands like a madman right now, and on the other side people are praying for the rate to go to zero. I definitely think that cutting rates needed to happen - probably sooner than they were but I am much more worried about inflation long term than anything else. Like it or not Fed, some people are going to foreclose and banks are going to have to write off a bunch of stuff…but lets not damage the dollar long term with getting crazy on this rate cutting. Don’t get me wrong, the fed has a hard job, but we have to pay the reaper sometime, so lets get it over with now.

You can do it, but its not the best idea.

I have had a few readers mention Jim Cramer. “Have you seen Jim Cramer?” “What do you think of Mad Money?”

Yes, I have seen him, and yes I have read Mad Money. Let me just say this straight out, Jim Cramer is garbage. The first time I saw him I was running on a treadmill at my health club, his TV show was on, and his voice was piercing through my music in my earphones. They ALWAYS have him on. I had to turn my ipod up to full volume, and If I go deaf, I am blaming Jim Cramer.

All joking aside, if you see it on TV, in a magazine, or in a newsletter chances are very good it is garbage. I like to review stocks and give my take about what I would do with a particular stock. I like to give both the upside and the downside to them which is just paramount to talking about it, I have never said to go out and buy any particular single stock. I treat individual stocks more like speculative fun gambling than anything.

Cramer has some good advice when it comes to money in general but his speculating on specific stocks is just that, guessing. I saw something that did an analysis of Cramers picks. They were roughly 50% correct. What really irks me is that he will tell people to

INVEST IN SOMETHING IMMEDIATELY.

Or you could take some time do your own analysis and then invest in whatever you would like, now doesn’t that sound like a much better idea?

Ok so there seems to be a lot of confusion around the Health Savings Account that the government is now allowing. So I figured it would be good to go over the kinds of medical savings accounts currently available and point out the differences. First of all some definitions:

Health Savings Account:
Its a tax-advantaged medical savings account available to taxpayers who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. The funds in the account can be used to pay for qualified medical expenses at any time without having to pay taxes on them. Withdrawals for non-medical expenses are treated very similarly to those in a retirement account in that they provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a huge part of consumer driven health care.

Health Reimbursement Account:
These are accounts that allow an employer, as agreed to in the HRA plan document, to reimburse for medical expenses paid by participating employees. HRAs reimburse only those items (copays, coinsurance, deductibles and services) agreed to by the employer which are not covered by the company’s selected standard insurance plan (any health insurance plan, not only high-deductible plans).

Flex Savings Account:
This is actually similar to the other two but it is offered with more traditional (such as the 80/20) plans as well.

These are all (FSA being the slight exception to the rule) consumer driven health care plans.

What is a consumer driven health care plan?
It is a plan that allows members to use personal income to pay routine health care expenses directly, while having a high deductible health insurance plan that protects them from huge (catastrphic) medical expenses. Its called “consumer driven” because it gives patients greater control over their own health. It also makes consumers more health care cost conscious…though in more of a good way. For example a study showed that people with chronic problems were 20% more likely to follow their treatment regime carefully if they were part of a consumer driven plan.

What is the main advantage?
There are many advantages and some disadvantages but the main advantage is that it is before-tax money. So if you do not use health care much, you will save a good deal of money in the long run.

All of that being said here is an overview of the differences:

There seems to be a lack of information around on these types of accounts so I hope this helps clear things up a bit. I personally am going to open a health savings account for next year. My employer pays for everything for a high deductible plan, and I am currently on an 80/20 plan but I just don’t go to the doctor very often despite a very serious injury from a few years ago. I especially like that it can be rolled over into retirement and that it can sit and collect interest.

Because I don’t go to the doctor, I have one fixed monthly medical cost: $69/month for propecia. Now, I have all my hair. My dad has no hair (not that he looks bad, I’d like to just wait until I can pull off the “Im old and bald but I am a BA” ala Patrick Steward/Bruce Willis). I decided Id like to keep mine for a while, so propecia it is. Thing is, health insurance doesn’t cover it, so its all out of pocket. If I used a health savings account this WOULD cover it, so by using that to pay for it every month I would effectively be giving myself a $30+/month raise.

Of course this banks on no huge medical bills, but I figure this is the only time in my life that I could get away with that. Maybe you can too.

I’ve had quite a few friends ranting and raving about Apple stock, that its just going to keep going up, mac sales are up, iPhones are hot, and Jesus himself might come back to earth early so that he can get his hands on a new iPod nano. They are all  going hog wild buying their stock….BUT while Apple is doing well, there are some less obvious things going on that could (potentially) cause a DROP sometime in the not too distant future. Its just one more reason you should diversify, don’t bank on any one stock. ALWAYS diversify. Even the so called experts are 50-50 guessers.

So for your benefit, here is an analysis of Apples last quarter earnings I did for an investment site, and due to the advantages of freelance writing, I can post it to my own blog too…

Apple released its quarterly earnings statement and overall things were positive. Macintosh and iPhone sales are way up. There is, however, one very troubling thing. Until about five years ago Apple was on its way to Packard Bell-esque oblivion and Steve Jobs seen as “the guy who could have been almost like Bill Gates.” Then the iPod helped the company come roaring back. Well, it appears we have come full cycle. The iPod is now the apple product on life support and Apple is now a computer company again.

Ok, so life support might be a bit of an overstatement but there is no denying that the iPod has seen better days. During the companies holiday quarter this year Apple sold only 5% more iPods than it did last year. Of course the knee jerk reaction is to blame consumer spending and the threat of a looming recession. The problem with that is that over the same time period Mac sales increased by 44%. A more likely scenario is a combination of changing consumer interests and market saturation. I was at a store when a six or seven year old came up to me to show off his new “iPod.” I looked down as he pulled out his Zune. That goes to show just how widespread the iPod has become, MP3 player is now synonymous with iPod. Though that kind of statement might give Microsoft PR a bad case of heartburn, for a product that prides itself on being edgy, sleek, and cool, commonality is not necessarily a good thing. Add this to format incompatibility and steep itunes prices and this may only be the beginning of the decline of the iPod.

In a way Apple is helping to bring about it’s own product’s demise. Media capable mobile phones are outselling dedicated MP3 players six to on. You can argue both sides of the same coin: Apple was too late introducing the iphone when they had the market cornered on MP3 playing devices or that the introduction of the iphone is fueling the iPods downfall. Why should I buy an iPod when I can have an iPod that can make calls and surf the internet too? Of course when it is all said and done Apple is still the leader in personal music playing technology but if they don’t want to go the way of the walkman it is time to take some steps to invigorate the product that put them back on the map.

Let me sum up: yes they are still good, but its not all roses and champagne and caviar.

Ive heard some rumblings about stock market instability and the fact that the new forever stamps are another thing to invest in since postage rates climb fairly often. However they are NOT a good investment. To the right is my new and improved design for the forever stamp. Lets go over why:

1) Buying a ton of stamps sucks. Do you really want to go into the post office and buy a truckload of stamps? Added bonus they WONT EVEN SELL YOU that many. Thats right, they are limited to a “reasonable” quantity. Though it might be funny to walk into the store and ask for 10,000 stamps, I’m pretty sure they wont consider that a reasonable quantity.

2) You can’t even sell stamps for face value. Check ebay. Just because something costs 42 cents doesn’t mean that you can buy it and turn around and sell it for 42 cents.

3) Why aren’t you putting that money into your debt payoffs/retirement fund/emergency fund/index fund/fund to go to cabo?

4) The postage rates are increased yearly based on inflation** and this just in: pacing inflation is not a good investment.

**Our government works in strange, mysterious and non efficient ways, so who really knows.

5) There are better ways to spend your time and messing around with stamps. Yeah I know that is pretty general, but lets think this through. Ok so you buy thousands of forever stamps. You hold on to them for a few years. Now its time to sell. Where are you going to sell thousands of stamps? Ebay? To a store maybe? Logistically its just not feasible. I will probably have a nightmare tonight about running around from store to trying to sell them my crappy boxes full of stamps.

What are forever stamps good for?
Convenience. Buying one cent stamps is annoying when they hike rates. So if you hang onto stamps for a long time, buy yourself some forever stamps to reduce the hassle. Otherwise, leave em alone!

I recently read an article on Advanced Personal Finance and though I have been reading him for quite a while and I like a lot of his articles, I wanted to pull my hair our when I read his article on Phantom Capital Gains. For a quick background on what he was talking about I will paste his first paragraph as he does a good job of explaining it:

Phantom capital gains
The term ‘phantom capital gains’ refers to the fact that when you sell appreciated assets (e.g. stocks), you pay capital gains tax based on your basis (the price you paid for them whenever you bought them). Since then inflation has likely eroded the buying power of the dollar. So now that you’re selling them, the cash proceeds you receive are worth less in ‘real’ terms. You must pay taxes on any gains, regardless of that gain’s real buying power. With me so far?

Rudy Giuliani and other anti-tax advocates think people should not be taxed on the full nominal amount of those capital gains. In Giuliani’s plan, the capital gains that are subject to taxation would be indexed for inflation.

Great explanation, I love it and I actually did not know that was part of Giuliana’s plan. So I read on.

…So who would benefit from an indexing of capital gains to inflation? Drum roll please. Not surprisingly, the wealthy will be the overwhelming winners if a plan like Giuliani’s becomes law. Doing something like this is the opposite of progress, to me. It increases rather than decreases wealth inequality.”

Uh oh. Though I find it admirable that APF personally wants to help people with less invested in the market than himself, I find it immoral to take more away from people who are planning for the future and have taken control of their financial life.

More and more people are realizing that social security is not something to bank on and are investing in their future themselves. Aside from that, one of the great things about America is that generating wealth is available to anyone, its not just the rich investing in the stock market anymore. Though you can debate the morality of the top 1% holding so much wealth, it makes no sense to do something just to punish them that might also hurt the middle class. Those that take the time to manage their finances WILL come out ahead. And if you are reading this right now, that is YOU. Remember there is nothing immoral about increasing your wealth, eliminating your debt, and taking advantage of the country you live in.

The long short of it is: capital gains is your enemy here…and not just for those reasons.

Reducing Capital Gains taxes would bolster the economy by encouraging invest­ment in promising enterprises and by making div­idend payments to stockholders more attractive to companies. Dividend payouts allow companies to reward shareholders in a way other than just trying to focus on increasing the stock price.

My girlfriend is an avid supporter of E! network (or it could have been ET, I am not sure to be honest) and so I get a healthy (or unhealthy, depending on who you ask) dose of pop culture every day. Anyway they made a quick mention the other day of ‘The Federal Reserve cut rates, what do celebrities think of the economy?’ Well, I’m pretty sure most celebrities don’t care, but I can tell you what it means for you.

First off, what happened?
Earlier this week the Federal Reserve cut the prime lending rate by .75%, which is the interest that banks charge each other for short term loans.

How does it affect me?
The main benefit to consumers is that interest rates on almost everything will go down. Because banks are charging each other less, they can also charge you less. Mortgages, car loans, and even credit cart interest rates will all go down. This is great news if you are planning on making a big purchase in the short term. In fact thats what they WANT you to do…

So what is the idea behind a rate cut?
The idea is to free up peoples money so that they keep buying goods and invest in the stock market to keep the economy strong.

There are pros and cons to doing so and it really is just a temporary fix, but that will have to be the subject of a whole separate article.

I was reading my favorite weekly football column called TMQ and he did a blurb about mutual funds that hit the nail right on the head:

Suppose the General Manager of the Miami Dolphins Awarded Himself the Same Bonus as the General Manager of the New England Patriots: Last week, this story appeared buried inside the business pages of The Washington Post. Why wasn’t the story on Page 1? The Post reports that the blue-blooded five, Wall Street’s five top investment banking houses, awarded their management $39 billion in bonuses for 2007 — a period when those firms combined to earn investors about $11 billion in profits. Merrill Lynch lost $8 billion in 2007, Morgan Stanley $3 billion and Bear Stearns $230 million, yet the executives of these companies were showered with billions of dollars in bonuses. Otherwise, they would refuse to do any work! Which, apparently, would be in shareholders’ interest. Merrill Lynch and Morgan Stanley could have done better by their shareholders in 2007 by simply purchasing Treasury bills; a software program designed to make simple conservative investment decisions about market-following mutual funds would have performed better in 2007 than the top management of most investment banking houses. And the software program would not have paid itself billions of dollars in bonuses for screwing up! (TMQ owns no stock in any of the mentioned firms.)

It’s one thing when profitable firms shower money on their CEOs and other top brass; often the amounts are indecent, but as long as shareholders come out ahead, the executives have at least some justification for their windfalls. But in the modern milieu of corporate kleptocracy, even when the company does terribly and the CEO makes decisions that blow up in the firm’s face, the CEO awards himself hundreds of millions of dollars, anyway. Why is this not seen as white-collar crime?

Last week’s buried Post story included this priceless quote: “‘To many people, [the bonuses] will be shocking and questionable,’ said Jeanne Branthover, managing director of Boyden Global Executive Search. ‘People in New York in the world of investment banking will understand it. It’s critical that pay is still there or you’re going to lose really good people.’” Beyond that executive headhunter firms such as Boyden have a self-interest in running up CEO pay — this can increase the search firms’ headhunting commissions — consider the reasoning: OMG, we can’t lose the really good people who cost our shareholders billions of dollars with dim-witted decisions! The notion that top corporate managers must be paid fantastic amounts because they possess incredible, astonishing expertise often is used to justify CEO pay, even when the managers who claim the incredible, astonishing expertise make foolish decisions. “We’ll put billions of dollars of money entrusted to our care into subprime gimmick mortgages backed by no documentation of income; my incredible, astonishing expertise tells me this is totally safe!”

Today the market fell sharply, while Wall Street executive bonuses rose in futures trading.
If corporate managers who screwed up received $5.85 an hour, the federal minimum wage, for the year in which they screwed up — that is, if their wallets were at risk when they perform poorly — then they might fairly argue for huge bonuses when they perform well. But there is no evidence that the people who made the big investment calls on Wall Street last year (except at Goldman Sachs, which avoided the subprime mess) are any better at what they do than people chosen at random off a Brooklyn street. You bet “people in New York in the world of investment banking” will understand huge executive bonuses paid in the same year as huge losses. What’s happening is basically a hustle, intended to enrich the executives while separating the investors from their cash. “People in New York in the world of investment banking” understand that, all right!

Pretty unbelievable… but then again I have been railing against actively managed mutual funds for quite a while.  They are making much more money on you than most people realize.

Recently at work a coworker was in the break room talking about how they have a “fully diversified portfolio.” Because I am a smart ass, I asked them how I could convert my partially diversified portfolio into a full diversified portfolio. She of course had no idea how I could do so because, well, she had no idea what she was talking about. So I thought maybe it would be a good time to give a good overview about what exactly this means.

The basic idea is very simple: invest your money into a bunch of different places so that you don’t have all your eggs in one basket. To take it a step further it generally means spreading your investments around into different investment areas such as stocks, bonds, mutual funds, money markets, gold, real estate, and the hippies down the street selling beads. If I were you, Id stick to the first few.

There are a few different types of diversification:

Horizontal Diversification:
This is when you diversify between same type investments. So this is like buying stock in Microsoft and Enovia.

Vertical Diversification
Vertical Diversification is the investment between different types of investment. It can be a really broad diversification, like diversifying between bonds and stocks, or a more narrowed diversification, like diversifying between stocks of different branches. This gives much more protection against changing economic conditions or say the collapse of the stock market.

As a general rule the upside of diversifying is that you have protection from losing all of your investment should something go wrong with one company or one sector. The downside is that the average of all the investment parts will always be below the return of the top performer. Stocks have the greatest upside, but also can have a huge downside where as some things such as bonds tend to be lower performers but stable. Just one more thing to think about.

So I saw something on the binary dollar that I absolutely love.  Its a how to get rich Venn diagram…however I thought that they left out one huge thing.  Their two points were make lots of money and save lots of money.  I decided to take it one step further (anyone hear the money truck coming?)

Ah yes, beautiful.