Steve Forbes on Gold and the Fed

Steve Forbes, in November's Commonwealth Club magazine, says ignore the Fed and look at gold prices:

How do you know whether this thing [market situation] is getting better or not? Don't listen to the Federal Reserve--they speak what sounds like the English language but is designed to leave a fog of confusion. [Instead] Just look at the commodity markets, particularly the gold price. This has worked for 4,000 years; it'll give you a good indication whether they're doing it right or wrong. Right now, gold has come down a little bit, but it's still high, $870 or $880 an ounce. If it stays in that range, expect that more strange things will happen. If it comes down to the $600, $500 range, and they keep it there--don't let it fall below that--we'll be okay; we'll get out of this pretty quickly. Just watch the commodity markets, not what these folks [at the Fed] say.

Snarky. And probably true. As of October 29, 2008, gold was between $740 and $750 an ounce.

Alec Baldwin on Family Court

Behind Alex Baldwin's funnyman persona is a libertarian--at least when it comes to the family court system. In the Commonwealth Club's November 2008 article (pp. 45), The Ex-Files, he talks about "parental alienation" and government corruption. Most citizens think the court system is there to protect them and be fair. Mr. Baldwin's experience should hammer home the reality that court systems are not blessed with any special fairness--they are government agencies, and like all government agencies, have the same incentives and disincentives to work hard and to achieve just results.

The difference in family court, Baldwin argues, is that the incentives are aligned to work against the family and against fairness:

The whole custody evaluation system in Los Angeles is corrupt. It is bankrupt. That is the problem. The judges can do whatever they want to do, which is what you learn about all courtrooms in this country.

In other words, your case is only as good as the judge you (randomly) get. Baldwin points out that state court judges are subject to political pressure, causing an "implied corruption":

These judges are there by appointment, or they run for political office. Either way, there's a mechanism by which they can be punished if they don't get it. If they don't serve the pit boss, you make a call to Sacramento and say, "Get rid of this woman." ... So there is implied corruption in the terms that they work for these law firms.

[J]udges and lawyers are never going to help us. Schmucks like me walk in...and they suck it [your money] out of you. They think it's great. Why change that?

In other words, the incentives for lawyers to work things out are misaligned in civil litigation, and even more so in family court.

I used to work in a family law firm's offices, and the first action they usually took upon being hired was to file for a restraining order and include the worst possible allegations against the opposing side.  Allegations of physical or verbal abuse (no matter how slight) would be submitted to the Court, which expected these kinds of allegations and seemed inclined towards granting a restraining order.  So of course the other side would get one or try to get one, and now you've got these emotionally-charged allegations going back and forth, which required the use of mediators, facilitators, and numerous government employees. If you ever get divorced, look up collaborative divorce--it may be cheaper and, more importantly, easier on your soul.

Update on November 23, 2008: I found a link to Alec Baldwin's speech:

http://weimarworld.blogspot.com/2008/09/alec-baldwin-discusses-la-family-court.html/pres02.htm

Cops and Robbers

In today's SJ Merc (October 27, 2007, page 2B), John Woolfolk talks about police officer pay in San Jose:

Basic pay for a San Jose officer is now $108,167, excluding overtime; with benefits, the total cost comes to $147,614.

Note that the basic salary excludes overtime pay, which can be substantial. The SJ Police Department is now asking for a 4% raise. Each 1% in raises costs San Jose taxpayers 1.9 million dollars each year. If the city is inclined to grant any raise, it should be in the form of a higher salary, which can be more easily tracked than benefits. The costs of increased benefits, such as pensions, are almost impossible to determine until they become due.

Vanguard's John Bogle on Investing

John Bogle on Investing:

http://www.nytimes.com/2008/10/26/business/26bogle.html

“If you were to put your money away and not look at it for many years, until you were ready for retirement,” he said, “when you finally looked at it, you’d probably faint with amazement at how much money is in there.”

Corporate Bond Yields: the Best Indicator?

I was watching CNBC today, and one manager made perfect sense. He said stocks were low based on valuation, but he was in cash. He indicated he was going to wait until the market stabilized before investing in stocks, because right now, the market was behaving irrationally, and he did not want to risk timing a recovery too early. He also said that when yields on safer (GE, etc.) corporate bonds narrowed, that might be the time to buy stocks. He was long cash and corporate bonds. If you want to follow his advice, you may want to consider buying iShares S&P U.S. Preferred Stock Index (PFF), a preferred shares ETF, and/or T. Rowe Price's Corporate Income Fund. I own PFF, and may buy some of the T. Rowe Corporate Income fund.

The Government's Pension Plan

The AP's Erica Werner on why government employees aren't like average Americans:

http://finance.yahoo.com/focus-retirement/article/106022/Meltdown-Retirement-Blow-Is-Softer-for-Lawmakers

She has some interesting points about why government's interests may not be aligned with the people's interests.

Frigor Chocolate and the Economy

So many people have made sensible comments about the bottom being far off, I feel anxious. Their arguments, unfortunately, make sense:

1. The recession is just beginning to hit Europe.

2. The unemployment rate will rise, as companies lay off employees (e.g. Yahoo).

3. The ARMs (adjustable rate mortgages) are going to be re-set at higher interest rates, causing more foreclosures, and placing more downward pressure on housing prices.

4. The dollar will weaken, as the Chinese and Japanese begin to put more of their money in Euros to diversify their holdings.

When anxious, I suggest eating chocolate. Here is a link to the best chocolate I know of, called Frigor:

http://www.cailler.ch/en/sor/fri/default.asp

At least Warren Buffett is buying U.S. shares, so the optimists have good company.