I want to briefly discuss the wonders of free market competition.  While the U.S. tax code and free market economics do not really go too well together, this is an exception.

Tens of millions of Americans have to suffer through tax time during this time of the year.  Billions of man hours are wasted filling out tax forms.  This doesn’t account for the huge expenses in time and money that companies have to go through just to abide by the law in providing the proper tax forms.

You can take your tax information to a professional for help, which will set you back a few hundred dollars or more if you have anything complicated such as investments, rental property, or a business.  If you want to attempt to do it yourself, there is software that can help.

The biggest name in tax software is TurboTax.  The biggest name in tax preparation help is H&R Block.

In 2015, TurboTax decided to shake things up a bit.  The company changed its software from what it previously offered.  For example, if you have investment capital gains and dividends, or if you have a rental property, you could previously have used TurboTax Basic and it worked for these things.  You could upgrade to Deluxe or Premier for more help or more in-depth items.

This year, for the 2014 tax year, TurboTax Basic does not do much, unless you are just filling out a basic tax return with a W-2.  If you have investments or rental properties, then you will have to get the Premier edition, which will probably run you around $75 or more.  In the past, you could use the Basic for $20.

Needless to say, TurboTax has received a lot of complaints.  If you look at the reviews on Amazon, it is mostly one and two star reviews.  When you raise prices on loyal customers from about $20 to about $75, there is probably going to be a backlash.  And to make it worse, some people bought the Basic edition or the Deluxe edition thinking it would do the same as last year.

I wonder what bureaucrats at Intuit (the owner of TurboTax) sat down and came up with this brilliant idea to raise more revenue.  I can just imagine a bunch of senior executives dressed in suits sitting in a conference room scheming about this brilliant plan.

Who knows; maybe it will be a good move.  Some people are paying the higher price, which is a lot higher.  But I also know of people refusing to use TurboTax, not only because of the high price, but just out of principle because they see this as a sleazy tactic by the company.

Meanwhile, H&R Block, a competitor, is offering free software for this year only to certain TurboTax customers if they can show their receipt.  This is a great marketing ploy by H&R Block to obtain new customers.

Even if Intuit increases revenue this year from TurboTax, what is to say that more customers won’t leave next year?  Here is a company with a solid customer base and it just turned its back on its customers.  Sure, they have apologized for “the confusion”, but there really is no confusion now.  Customers are going elsewhere because they don’t want to be treated this way.

This is really the free market at work.  It just shows that companies cannot just take their customers for granted.  They can’t just raise prices like crazy and expect that the customers will take it.

If Intuit is wise, it will revert back to the old TurboTax editions from the 2013 tax year.  It is too late this year, but we’ll see what happens next year.  If not, I expect customers to continue to slip away and find other alternatives.  In a relatively free market, the customer is king.  The customers vote with their money and where to spend it.  If a company doesn’t respect its customers, it won’t be around for too long, assuming it doesn’t get help from the government.

There is little question that there is some kind of asset bubble that has been created by the Federal Reserve.  The Fed has quintupled the adjusted monetary base since the fall of 2008.

While much of this new money went into excess reserves at the commercial banks, it is still monetary inflation.  It has served to bail out the banks, fund deficits by Congress, and misallocate resources.

Consumer price inflation, as measured by the CPI, has been tame.  But this was also true in 1929 before the stock market tanked and the Great Depression came.  The monetary inflation resulted more in asset price inflation, rather than consumer price inflation.

I see the same scenario now with stocks.  I really do believe we are in a stock bubble.  I am not saying this is just like 1929 because there are major differences, such as the existence of the FDIC.

Even if this were comparable to the 1920s, we may not be in 1929 yet.  We may be in 1927 or 1928.  That is the thing with bubbles.  The mania can last for a long time.

I thought the Chinese real estate bubble would have popped by now. And while there has been a slowdown there, it has not yet come crashing down yet.

There is a quote attributed to Keynes where he said that markets can remain irrational longer than you can remain solvent.  I think this is good investment advice, particularly in times like today.

I am not recommending a big position in stocks.  I am quite fearful of stocks right now and trying to warn people.  At the same time, the bubble may go for another major run before things turn down.  Maybe we will see Dow 20,000 first.  Maybe it will be even higher.

This is not at all a prediction.  If I had to bet, I think the market will go down this year.  But again, timing is difficult, especially when you are dealing with bubbles.  That is the problem with bubbles.  It is a mania and you can’t really use rational thought to bet against it.  A mania defies rational thought.

In terms of real estate, I am not too fearful of a bubble.  It is certainly quite possible that real estate could go down 10 to 20 percent if we hit another recession.

There are a few areas where I would be worried.  New York and San Francisco come to mind, where real estate prices are sky high.  There are also portions of Canada, such as the Toronto area.  Of course, I already mentioned China and its real estate bubble.

There are certainly good reasons why prices are higher in some big cities, but it just makes it more risky to own real estate there.

In most places in the U.S., you are probably going to be ok if you own real estate, as long as you aren’t trying to flip something.  The best test is to compare rents to mortgages.  If you can buy a place for less than 20% down, and the rent will cover your expenses (mortgage, taxes, insurance, association fees, repairs), then you shouldn’t worry about a bubble.

When the housing bubble popped from around 2007 to 2010, rents did not go down that much.  They went down a little, but nothing compared to prices.  So if you are buying an investment property and you can get positive cash flow, you shouldn’t worry about a housing bubble as long as you plan to keep the place for a while.

I think real estate is a better investment than stocks right now.  In a couple of years, they may both be attractive investments if the asset bubble pops.  At that point, some people may give up on stocks.  That will be a better time to buy them.

The FOMC has released its latest monetary policy statement.  You can read it here, but it probably isn’t necessary this time around.

The big news is that the word “patient” has been dropped.  Janet Yellen has assured us that this doesn’t mean the Fed will be impatient either.  Analysts are taking this to mean that the first rate hike will not occur until June or later.

Analysts are also now expecting the rate increases to be less dramatic once they start coming.  For this reason, markets soared on Wednesday.  Stocks were up.  Gold was up.  Bonds were up.

Yellen held a press conference at the end.  One interesting thing I noted was her saying that the Fed will consider stopping its policy of rolling over maturing debt at some point in the unspecified future.

Right now, it is the Fed’s policy to roll over maturing debt.  This keeps the monetary base stable.  If the Fed allows debt to mature, it essentially removes assets from its balance sheet.  This would be monetary deflation.

I find it almost impossible to believe that the Fed is going to reduce its balance sheet in any significant way in the future, especially if the CPI remains relatively low.

As far as the rate hikes go, I don’t think they matter much except in terms of perception.  Since the Fed won’t be significantly reducing its balance sheet any time soon, the only way to raise the federal funds rate is to increase the rate paid to banks for their excess reserves.

I see this whole big deal about raising rates as nothing more than giving another bailout to the banks.  Raising rates is not going to affect the monetary base in the near term.  Raising rates may not even affect market interest rates.  The 10-year yield continues to hang around the 2% mark, despite expectations of a Fed hike later this year.

I think the big things to pay attention to are the CPI numbers (because the Fed watches this) and the overall economy.  If we see signs of a deep recession coming or if the stock market tanks, then I think all of the talk will change quickly.  The question at that point will be when the Fed starts another round of so-called QE and how big it will be.

For some reason, Rand Paul has a lot of supporters who also support his father – Ron Paul.  Many Ron Paul supporters found the liberty movement in 2007/ 2008  or 2011/ 2012 during his presidential campaigns.  They are hungry for some decent politicians (oxymoron?) and for some real change.

Some Ron supporters have defaulted to Rand.  But Rand is no Ron, as some are still finding out.

Rand Paul is a politician.  It was always hard to consider Ron Paul a politician.  He has always been principled and he just happened to get elected to Congress.

Rand Paul is going to run for president, unless he figures that he has little chance.  He plays politics.  He will say different things to different crowds.

I understand you don’t go to a Christian group and lead off with ending the drug war.  I understand you don’t go to a minority group and lead off with ending all laws against discrimination because they violate property rights.  However, with that said, Ron Paul did speak to a group of Cuban-Americans and told them he favors ending the embargo on Cuba.

My point is that you deliver your message in a way that is likely to be well received, at least by some people.  You are selling your message.  The problem arises when you change your message and you don’t stick to principles.

Rand Paul posted the following on Facebook: “Hillary Clinton simply does not recognize the threat that the world faces from a nuclear Iran.  Play our ‘Who Said It?’ game and see if you can tell the different between statements from Hillary Clinton and and Ayatollah spokesman.”

First, Hillary Clinton is a warmonger, so he is doing a complete disservice to make it sound as if she is some kind of non-interventionist.

Second, if Rand Paul is being hard on Hillary Clinton for being too soft on Iran, I wonder what he is saying about his dad.

Third, Rand Paul is showing that he simply cannot be trusted, particularly in regards to foreign policy.  I have seen through him from the beginning and have never trusted him.  I have spoken to libertarians who have criticized me for this, or at least disagreed.

This Facebook post comes right after Rand Paul joined most of the Republican senators (47 in all) in signing a warning letter to Iranian officials that they would not go along with Obama’s attempts at making peace with Iran.

Again, Obama also has a bad record on foreign policy, but the Republican Congress actually makes him look good, despite his drone bombings, sanctions, and war making.

The best part of that Facebook post were the comments by his “friends”.  They are calling him a neocon.  They are telling him to stop beating the war drums.  They are telling him that he needs to listen to his father.

I once thought Rand Paul had a decent chance of getting the Republican nomination.  I no longer think this is likely, unless he just completely abandons his base, whatever that is.

I don’t think Rand can succeed just from establishment support.  Why wouldn’t the establishment just support Jeb Bush or Scott Walker?

Rand Paul has been trying to play both sides of the fence since the time he started running for the Senate.  It hasn’t changed.  It is probably getting worse now that he is in the Senate and he is probably running for president.  He isn’t going to succeed by losing most of the supporters of his father.

If he really wants to play politics, he would make sure to at least appease his base, which is mainly a portion of Ron Paul supporters.  I don’t think supporting a Fed audit is going to cut it, especially when he is beating the war drums on Iran.

I will not vote for Rand Paul in 2016.  I will at least consider Jesse Ventura in 2016 if he runs.  I probably agree with Rand Paul’s economics more than Ventura’s.  But I trust Jesse Ventura more to do the right thing.  I particularly trust him more when it comes to foreign policy, which is the most important issue for a president.

It amazes me how many Americans are really house rich and cash poor.  If you do a measure of net worth (assets minus liabilities), I’m guessing that a good portion of Americans have a majority of their net worth as equity in their house.  This is even after the housing bust from the late 2000s.

Home ownership is obviously encouraged in the U.S.  Most middle class families will own, as opposed to renting.  Perhaps part of this is due to incentives by the government and Federal Reserve (artificially low interest rates and inflation).  But part of it may also be societal pressure.  Part of it is also just wanting to own something and make it your own.  This last piece is particularly true for women.  Women don’t want a house.  They want a home.

I see buying a house as something of a forced savings plan.  As long as you don’t continue to move or refinance or tap an equity line of credit, then you are going to slowly pay down the principal balance on your mortgage.  If someone stays in the same house for 30 years and doesn’t refinance for an extended term, then they will find themselves owning a house outright after 30 years.

Owning a house doesn’t always make sense.  There are many reasons to rent, especially for people with less money and people who want the flexibility to move quickly.  But since so many Americans lack the discipline to save, owning a house can be beneficial because it is like a forced savings plan.  That is why the majority of wealth for middle class Americans is in their house and 401k or other retirement plan.

Of course, it is best if you can be a disciplined saver and put money aside that isn’t just going to pay down your mortgage.  The decision to rent or own should be done on its own merits and not be decided just because you are a terrible saver.

I find this similar to a whole life insurance plan.  I generally recommend against whole life insurance.  I am definitely one who would say that you should buy term and invest the difference.  But whole life plans have probably benefitted a few people over the years because it has forced them to save money.  It may not have been the optimal way to save, but if they hadn’t bought the whole life insurance, they probably wouldn’t have saved at all.

One thing I find crazy is when I hear people who own expensive houses/ properties and yet have almost nothing in retirement or savings.  I have heard stories of people with million dollar houses in California, that are often paid off or closed to paid off, yet they don’t have any liquid savings.

If I were in this situation, I would sell the house and either rent or move.  If you have a high income, such as a successful Hollywood actor, then moving may not make sense.  In this case, you can rent.

It is crazier when I hear someone in California who makes $80,000 per year.  They could move to Texas or Florida (no state income taxes) and make $60,000 per year instead.  But the key is that they could buy a similar house for 20% of the cost of a house in some areas of California.

I understand that some people like the lifestyle or they have family ties in a particular area.  But some of these people are so house rich and cash poor that they could become instant millionaires just by moving.  They could practically retire or go down to part-time work just from the sale of their house.

Houses are things.  You need some form of shelter to live in, but there is a lot of flexibility as to where that is.  Money can buy you lifestyle.  It doesn’t do you much good to live by the beach in California if you have to work most of the time to pay for it.

The central bank of Ukraine raised interest rates in the first week of March to 30%.  According to this article, inflation is expected to hit at least 26% this year.  The currency used in Ukraine (the hryvnia) has lost about 80% of its value in less than a year.

I won’t get too much into foreign policy and war in this article, although the violence and conflict in Ukraine is obviously partially a cause of the major economic troubles there.

Ukraine is an extremely poor country.  In comparison, Russia is well-off economically.  It should not be too surprising that most people in Crimea wanted to join Russia, just looking at it from an economic standpoint alone.  If geo-politics weren’t a factor, I’m not sure why Russia would want to absorb Crimea.  Why would you want to take on a lot of poor people?

It is interesting though that the central bank had to take these drastic measures just to prevent its currency from being completely abandoned.  This is what happens when hyperinflation threatens.

The point here is that there comes a day of reckoning and there are limits to even what a central bank can do.  Being in the United States, I know it seems that the Fed can do practically anything without limits.  But there really are limits.  That limit is massive price inflation, or worse, hyperinflation.

When there was double-digit price inflation in the 1970s, it took Paul Volcker to come into the Fed and allow interest rates to skyrocket.  He stopped the monetary printing presses.

There are going to be consequences to the Fed’s previous monetary inflation of the last 6 and a half years.  We may fall into another deep recession.  If the Fed tries to pump in more money, we are eventually going to hit a point where a lot people start questioning the dollar.  The Fed cannot keep injecting massive amounts of money forever.  It is on hold right now, but I don’t think it will stay like this if we hit another recession.

I’m not predicting 30% interest rates in the United States.  What I am saying is that there are limits to what the Fed can do.  At some point, it will have to let all of the misallocations reveal themselves and let the market correct.  I don’t think the Fed is going to allow hyperinflation to happen.

Hillary Clinton has been in the news, especially if you get your news on the web.  The latest scandal involves her use of private emails and it is coming at a time when presidential contenders are making their aspirations known.

Anyone who has followed Hillary Clinton knows that she has wanted to be president for a long time.  Saturday Night Live has made fun of her for this and continues to do so.

She is addicted to power and control, and any advocate of liberty should be very concerned when someone seeks power this intensively.

I don’t really care about this whole email scandal.  She may or may not be guilty of something.  But don’t think this is a vast right-wing conspiracy.  I think this may be the establishment taking down Hillary.  It may be the Democrats more than the Republicans.

I see two possible reasons for this.  The first is that there is simply Clinton fatigue in the U.S.  The same thing could happen to Jeb Bush.  I actually don’t think the establishment wants a Bush vs. Clinton matchup because it would be too obvious.  The American people might begin to realize that these elections are a sham and that we are ruled by oligarchs.

To go along with this, Democrats may not want her to get the nomination for the simple reason that she will lose.  Most people love her or hate her, but the hate side is at almost 50%, which makes it tough to win an election.  She could win if she had a similar scenario as her husband where a third-party candidate runs.  She might win with 40% of the popular vote.

The other possible reason for the establishment all of a sudden turning on her is because they are afraid of what might be revealed if she does run for president and she gets the nomination.  They may just be hoping that she goes away quietly.

The Clintons have a lot of skeletons in their past.  There are Clinton body counts on the internet.  I know there are conspiracy theories for almost anything out there, but it really is crazy how many people associated with the Clintons have died at a young age or went to jail.

Vince Foster is the most famous one associated with the Clintons.  He committed suicide, if you believe the official reports.  He was a close associate of the Clintons and was a partner at the Rose Law Firm in Arkansas.

For conspiracy theorists, the most interesting one is John F. Kennedy Jr., who died in a plane crash in July 1999.  There are some reports that he was about to announce his candidacy for the U.S. Senate out of New York.  He is probably the one person who could have beaten Hillary Clinton, who was elected to the Senate a year later.  Hillary saw the senate as a stepping stone to the presidency, in case it wasn’t obvious.

Regardless of whether you believe this stuff, I believe that the establishment is nervous about having a Hillary Clinton candidacy.  The internet has reached new proportions and things get exposed and uncovered as never before.  If Hillary runs for president, there will be a spotlight on her and you never know what story from her past may come back to haunt her.  It isn’t going to be something relatively minor like private emails, unless those emails are fully exposed.

The establishment wants to keep the status quo.  They don’t want bad publicity.  They would rather have presidential candidates who have a cleaner past.  That is my guess anyway.

I just recently wrote an article about the NASDAQ hitting the 5,000 level, which is just short of its all-time high reached briefly back in 2000.  Right after I wrote that, Mark Cuban wrote an article stating that we are in a tech bubble that is worse than the tech bubble of 2000.

I generally like Mark Cuban.  He has his obnoxious moments on Shark Tank, but he also has his many moments of helping people out.  He is very intelligent and obviously very successful.  And from what I can tell, he actually made his money honestly, through hard work and good decision making.  He really is a great entrepreneur with a great story.

Now he is saying there is a tech bubble.  He doesn’t specifically address the NASDAQ, but that is really where the tech bubble was of 2000.

I think Cuban makes some valid points in his recent piece, but I also don’t necessarily agree with it all.  First, I just want to point out that just because somebody is very successful, it doesn’t make him all-knowing or intelligent in every area.  Warren Buffett is one of the greatest investors of all time and I consider him to be terrible on economics.  His father, Howard Buffett, understood economics.

I think Cuban understands economics much better than Warren Buffett, so I do take his opinion more seriously on this subject.

Cuban is right about people just picking stocks back in the bull market of the late 1990s.  You could pick almost anything, especially tech related, and you would look like a genius.  Cuban was smart enough to cash in on some of his endeavors at that time.  Most investors got caught in early 2000 when the bubble finally started to burst.

In his piece, Cuban talks about angel investors and crowd funding.  He thinks this is part of the bubble.  This may or may not be the case.  But I would hope that people understand the risks of these ventures.  Many of them will fail and some will be successful, just like any business startup.  I actually think these are creative ways of funding startups and it is mostly being done by the free market, although I’m sure some of the money is being directed there because of a previously loose monetary policy.  It is also a way to go around the tradition of getting a loan from a bank.

I actually do think the stock market is in a bubble.  I’m just not sure when it is going to deflate.  Much of it is going to depend on Federal Reserve policy.  I don’t think this is just technology related.  I think the S&P 500 is just as vulnerable as the NASDAQ.

If we hit a deep recession, then maybe a good percentage of these startups will go bust.  And yes, many investors will lose their money.

But I want you to think back to the tech bubble of the late 1990s and the ramifications.  Was it really a tech bubble, or was it just a stock bubble?  The NASDAQ came crashing down, but it wasn’t really the end of the technology boom.

Some of the little startup dot com companies went bust and many investors lost a lot of money.  But look at the companies that survived and have since thrived.

Amazon is an amazing company.  I don’t necessarily think it is a great company to invest in, but it is a great company for consumers.

Apple is enormous now and has been a huge innovator in new technology.

Then there is Google, which has thrived since the NASDAQ crashed 15 years ago.

The internet is 100 times better or more than it was 15 years ago.  Technology is so much greater.  Computers are far faster and far cheaper, even in nominal terms.

In other words, there wasn’t really a technology bust.  It was a stock market bust that brought back realistic expectations.  So even if Cuban is completely right in all of his predictions, it isn’t anything close to the end of the world.  Some companies will go bankrupt and the good ones will survive.  Capital will get reallocated and new projects can begin.

I think the big threats are Federal Reserve policy and big government.  The Fed is responsible for any stock bubbles that currently exist.  Resources have been misallocated on a grand scale and it is going to be painful when the misallocations are revealed and they start to adjust.

I’m not so sure we are in a technology bubble so much as we are in a big government bubble.  The government bubble is going to burst and a lot of people aren’t going to like it.

The NASDAQ hit 5,000 today.  It briefly went above 5,000 back in early 2000, right before the tech bubble came crashing down.  It started going back up and then fell back again in late 2008.

It’s hard to believe that the index went from below 1,500 in 2009 to over 5,000 today.

We do have to consider that the index is still way off its all-time highs in real terms.  Since 2000, consumer prices have risen approximately 35% according to the government’s CPI inflation calculator.

We also don’t know if this is a bubble that is about to pop.  I am pretty certain it is a bubble, but we haven’t seen the parabolic stage yet.  It’s possible we could still see some huge gains before the big fall.

If you invested in nothing but stocks since the spring of 2009, you have done very well.  Of course, this is assuming that you could time the market and buy at the very low point when everything looked really bad.  This is also assuming that anyone who bought at that time is smart enough to know when to get out.

That is the problem with bubbles.  You don’t want to miss the ride up, but you also don’t want to get out too late.  You would rather get out early than too late.

Warren Buffett’s Advice

As I saw the NASDAQ hit 5,000 for the first time in almost 15 years, I saw this article about Warren Buffett giving bad advice.

Buffett doesn’t practice what he preaches (in more ways than one).  In this instance, he says that investors should buy an index fund and hold it.  He says you will beat most hedge fund managers, which may be true to a certain extent.  As Buffett points out, you pay big fees to fund managers, as opposed to small fees when buying an index fund.

The article points out that you would have been better off buying Buffett’s top 5 stock picks over the last 6 or so years than buying an index fund.

I don’t like Buffett’s advice for a couple of reasons.  First, that is not how he got rich.  He bought specific companies that were winners.  This is the main point of the article.

But what about for capital preservation or those who simply don’t have the skills to pick winning companies?  Should you buy index funds?

Personally, I think you should preserve and grow your capital using a permanent portfolio setup, as originally described by Harry Browne.  That means that only 25% would go towards stock index funds.

You aren’t going to get rich investing in the permanent portfolio, but you won’t do that investing in index funds either.  It is to protect wealth that you have already accumulated.

In terms of investing, people like to look at stocks, but they fail to invest in themselves in learning new skills or starting a side business, etc.  This is really the best way to make a lot of money in the long run.

As for Buffett’s advice in buying stock index funds, I wonder if he would give the same advice to someone in Japan.  If you had bought the stock market index in Japan at its high over 25 years ago, you would still be down about 50%.  Buffett would respond that it can’t happen in the United States.  It may be true, but we don’t really know for sure.

The documentary film Citizenfour recently won an Academy Award for Best Documentary Feature.  The film was directed by Laura Poitras and follows Edward Snowden and his exposing of NSA documents to the journalist Glenn Greenwald.

I find that asking someone about Edward Snowden is one good litmus test on someone’s stance regarding liberty.  On this subject, I will tend to find more in common with liberals (in the modern sense) than with conservatives.

You can ask someone two questions and get a pretty good idea of their overall political philosophy.

1) Do you think Edward Snowden committed treason?

2) Do you think we need more government control over healthcare?

If someone answers no to both questions, he is probably a libertarian, or at least somewhat libertarian leaning.  If someone answers no to the first question and yes to the second, then he is a leftist.  If someone answers yes to the first and no to the second, he is probably a conservative.

Then there is the person who answers yes to both questions, who is an authoritarian and almost completely against the idea of liberty.

I really like Glenn Greenwald, even though he is a leftist.  He is principled.  But the most important thing is that he speaks about the issues that he is really well-versed on.  He speaks mostly about war and civil liberty issues, both of which he is really great on.  He doesn’t talk a lot of economics, which I am thankful for.

Greenwald looked kind of nervous when he was up on stage at the Oscars.  I don’t blame him.  He is probably paranoid and he should be. I’m sure the government is following his every move.

https://www.youtube.com/watch?v=WesxK21N3E4

Neil Patrick Harris told a joke about Edward Snowden not being there “for some treason”.  I understand he needed to be funny as host, but I think there is a time for a serious message.  I don’t know if Harris was trying to undermine Snowden or not.

Either way, I am happy that Citizenfour won the Oscar.  The reason is because it draws more attention to the film.  Hopefully more people will see it and recognize the crimes of the NSA and heroism of Edward Snowden and Glenn Greenwald.