Is This Graphic Troubling to You?

Take a look at this graphic I found in an article in today’s Wall Street Journal:

Government Debt as a percentage of GDP (Source: WSJ 7/31/2009)
Government Debt as a percentage of GDP
(Source: WSJ 7/31/2009)

Of course things could change (and they probably will) but if this graphic is true, the U.S. is on track to have government debt equal to about 110% of GDP (it looks like it was around 63% in 2007 according to the chart). Things don’t look much better for the other nations in the graphic.

The concern with a huge debtload is that interest rates will rise, which could put a damper on any sort of recovery. But, before we come to that conclusion, we should read this post first. According to the author, he only finds a slightly negative correlation between deficits and interest rates. Interesting… Of course, the deficits of the past are NOTHING like the one we face in the future. We are in uncharted waters. That’s what’s so troubling about the above graphic.

A Review of the Cuisinart Fully Automatic Burr Grind & Brew Coffeemaker

Cuisinart Fully Automatic Grind & BrewThermal

On July 7, I decided to program my old Cuisinart Grind & Brew so that I would have coffee ready when I woke up the next morning. I had noticed for several months that water would pool under the coffeemaker after I brewed a pot of coffee. I thought the water leaked during the brewing process. I was wrong. The water was leaking from the reservoir. I found that out because I woke up the next morning to find lots of water all over the countertop, and the coffeemaker totally jacked up—they tend to do that when they try to heat water that isn’t there. The water had all leaked out of the resevoir overnight so there was none for brewing the next morning.

My coffeemaker was dead…

So, my wife and I headed out to Bed Bath and Beyond to pick up the Cuisinart Fully Automatic Burr Grind & Brew Thermal Coffeemaker that I had had my eye on for months but couldn’t justify purchasing when my current coffeemaker worked. At around $200, it’s a little pricey (I did have a 20% off coupon, which brought the price down to $160). But, I have to say that this thing is AWESOME! I love it and it is so much better than the old Grind & Brew for several reasons:

1. It has a bean hopper on the top that holds about half a pound of beans. You simply set the grind control to the number of cups you desire, choose the strength control (mild, medium, or strong), make sure the filter or basket is ready, add your water, hit the on switch, and let it go to work.

2. It has burr grinder rather than the standard rotating grinder, which has the potential to burn the coffee beans and gives you uneven cut beans (see here). The burr grinder is a superior way to grind coffee beans.

3. It has fewer parts to wash. With the old coffeemaker, the grinder was exposed to the steam created when the coffee was brewed, which made a coffee-ground coating on the grinder. It had to be washed after every use. That was a pain. With the new coffeemaker, the only thing that must be washed is the basket and basket holder. I also wipe down the inside of the maker each time and rinse out the carafe.

4. Because of the bean hopper, I don’t have to count out scoops of coffee each time I want to brew a pot. That’s a nice time-saver.

It is important to note that Cuisinart recommends cleaning out the shoot fairly often as ground coffee tends to accumulate and can cause clogging. I haven’t had that problem yet.

One thing I don’t like about this maker is that it is hard to pour the coffee from the carafe. Other than that, it works like a charm (not everyone is as impressed by this coffeemaker as I am). One of the 1-star ratings came from a person who hadn’t even used the coffeemaker. How do you review something you’ve never used?

Anyway, I’ll be sure and let you know if I come across any issues.

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22 Investment Maxims from Sir John Templeton

Looking through Peter Krass’ The Book of Investing Wisdom*, I came across a 22 Investment Maxims from Sir John Templeton. For those of you who don’t know, Sir Templeton was a successful international investor and founder of Templeton Funds. As you’ll see from his maxims, Sir Templeton was an active manager (my thoughts in italics).

1. For all long-term investors, theres is only one objective— “maximum total return after taxes.”

2. Achieving a good record takes much study and work, and is a lot harder than most people think. Many people doubt that this is even possible on a consistent basis. I’m on the fence on this one. I see proof that it can be done but realize that most people won’t be able to do it.

3. It is impossible to produce a superior performance unless you do something different from the majority.

4. The time of maximum pessimism is th ebest time to buy, and the time of maximum optimism is the best time to sell. Sounds like something Warren Buffett would say.

5. To put “Maxim 4” in somewhat different terms, in the stock market the only way to get a bargain is to buy what most investors are selling.

6. To buy when others are despondently selling and to sell wehn others are greedily buying requires the greatest fortitude, even while offering the greatest reward. This is so true.

7. Bear markets have always been temporary. Share prices turn upward from one to twelve months before the bottom of the business cycle. Bull markets are temporary too.

8. If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and, when lost, won’t return for many years. Interesting. The NASDAQ Composite Index comes to mind.

9. In the long run, the stock market indexes fluctuate around the long-term upward trend of earnings per share.

10. In free-enterprise nations, the earnings on stock market indexes fluctuate around the replacement book value of the share of the index.

11. If you buy the same securities as other people, you will have the same results as other people.

12. The time to buy a stock is when the short-term owners have finished their selling, and the time to sell a stock is often when short-term owners have finished their buying. Not quite sure how you’re supposed to know when this is.

13. Share prices fluctuate much more widely than values. Therefore, index funds will never produce the best total return performance. I always thought that this was true because the goal of the index is to capture the market’s return, minus fees.

14. Too many investors focus on “outlook” and “trends.” Therefore, more profit is made by focusing on value.

15. If you search worldwide, you will find more bargains and better bargains than by studying only one nation. Also, you gain the safety of diversification. Unless of course the nation you are studying is heavily dependent on exports to another country that is in trouble.

16. The fluctuation of share prices is roughly proportional to the square-root of the price.

17. The time to sell an asset is when you have found a much better bargain to replace it.

18. When any method for selecting stocks becomes popular, then switch to unpopular methods. As has been suggested in “Maxim 3,” too many investors can spoil any share-selection method or any market-timing formula.

19. Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded and sekptical. Long-term top results are achieved only by changing from popular to unpopular the types of securities you favor and your methods of selection.

20. The skill factor in slection is largest for the common-stock part of your investments.

21. The best performance is produced by a person, not a committee. Interesting that he would say this.

22. If you begin with prayer, you can think more clearly and make fewer stupid mistakes. Sir Templeton was a religious man and started each meeting with a prayer.

RELATED: 12 Laws of a Successful Life

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Fun, Fun, and More Fun

I have been preoccupied the last few days with computer issues.

I first noticed a couple of days ago that my computer was extremely slow when I tried to surf the internet. I found out from my brother that I had probably picked up a spybot or something along the way. I ran the Malwarebytes that was installed on my computer and it found a couple of items. I cleaned those out but my computer was still running slow. So, at the urging of my brother, I downloaded and installed Spybot Search & Destroy, which found a TON of stuff. After I cleaned all that stuff out, my computer ran fine.

Then this morning I woke up to find that my Norton Anti-virus software had expired. I have never liked Norton. It’s expensive and it seems to slow down my computer. I remembered reading somewhere that various internet service providers offer free anti-virus software to their customers. I checked with my provider, Roadrunner, and found that they offered anti-virus software from Computer Associates. I downloaded and installed the software and am in the process of getting it set up as I write this post. We’ll see how it works.

Social Security History

Take a look at the following graph which shows the maximum dollar amount subject to social security taxes each year:

Income Subject to Social Security Taxes

Using the base amount of $3,000 in 1937 and $106,800 in 2009, I calculated that the amount subject to social security taxes has increased 7.67% per year (the CPI has increased an average of 3.88% over the same time period). Yes, these are the MAXIMUM amounts subject to social security tax. So, I decided to run the numbers again using average wages. I found the data for average wages on the social security website (here). Notice that it runs from 1951 – 2007, so it’s not an exact comparison with the other numbers. Here’s what I found:

Social Security Taxes on Average Wages (1951 - 2007)

Expressed as a graph it looks like this:

Social Security Taxes on Average Wages (graph)

NOTE: None of these figures include the employer’s portion of the taxes.

What’s sad is that even with all these increases over the years, the program is still destined to go broke unless they…

1. raise taxes (either by raising the tax rate or by increasing the maximum amount subject to taxes).

2. reduce benefits (somehow I don’t see this happening with the one of the biggest blocks of voters retiring at this very moment).


3. a combination of the two

I’m against raising taxes. We pay in enough as it is and I’m certain that my wife and I will NEVER receive back the amount we paid in.

My solution: Make social security like a “medicaid for retirement,” essentially taking it back to what it was meant to be when it was created: a safety net. We could reduce the amount taken in taxes or even create individual accounts. Those who needed assistance in retirement would have to qualify for it.

I think what has happened over the years is that the program has morphed (with the help of our politicians) into a program promising bigger and better benefits (entitlements) on the backs of the Baby Boomer Generation due to their large numbers. Now that they are beginning to retire, we are figuring out the flaws of the pay-as-you-go system. It’s too late now…those politicians already got those votes.


Social Security Tax Rates
Contribution and Benefit Base
CPI Data

Understanding and Conquering “the Wanting Mind”

How is it that I can have over 13,000 songs (over 1,100 CDs) on my iPod but STILL want more?


How is it that I can have a decent library of books—many of which I haven’t even read yet—and yet I still want to buy MORE books?


Why am I looking forward to my cellphone contract ending so that I can upgrade to a different phone even though I was perfectly happy with my BlackBerry Curve when I got it just a year ago?


Why do I want a Buick Enclave even though my 2002 Buick Rendezvous is in great shape and is PAID FOR?

According to Brent Kessel‘s book, It’s Not About the Money*, all of the above can be attributed to something called the Wanting Mind. We always want something different from what we currently have. It’s the feeling that something has to change in order for us to be happy. From the book:

The Wanting Mind continually takes us out of the present moment in its attempts to make us happy in some better tomorrow. And unless we inquire into the subtle and often hidden workings of the Wanting Mind, including whether its promises of happiness are actually ture, we remain its slave and will likely spend a lifetime chasing its images of freedom.

In other words, people (myself included) buy things because we think those things will make us happy. And, for a brief time, they do bring us happiness because they keep us from wanting more. But, the happiness fades and the wanting returns.

So, how do we overcome the Wanting Mind?

If we look carefully and honestly, we are able to see that the happiness we feel when we get what we want comes from the absense of wanting. If we could experience the same absence of wanting regardless of whether we buy something we crave or not, we would be able to fully accept our present experience and not seek happiness from the objects or experiences we crave. That way, our deepest selves and not our Wanting Minds would be in control of the important financial decisions that will either contribute to or undermine our true freedom.

Kessel’s advice is simply to NOT SATISFY the object of the Wanting Mind. You can do this by telling yourself that what you want won’t make you happy in the long run and will not satisfy your wanting mind for very long.

I can practice this with regards to buying CDs by telling myself that I have enough music to listen to that it would take me 1,217 HOURS of solid listening to listen to it all! I can also take the same approach to buying books. In other words, I need to tell myself enough is enough.

As far as the Enclave goes, all I have to do is sit down with a loan calculator and take a look at how much a monthly note would be to purchase one. Then, all I have to do is go wash the Rendezvous and the desire is squashed for the time being.

One other suggestion I have is to STOP LOOKING for a replacement of what you currently have! I have no business checking out the Enclave website and looking at pictures and specs because I DON’T NEED A NEW CAR! Yes, they are nice-looking and it would be fun to have a new car, but like I said above, I don’t need or want a car payment and new cars become old cars.

I’m still undecided on the phone…lol.

NOTE: Brent Kessel is the co-founder of Abacus Portfolios

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