Lew Rockwell ran a piece by James Altucher on using a checklist when buying a house.  Some of his items are meant to be comical, although most of them are valid points to consider.  Altucher has written several times in the past about buying a house.  He is against it, although some of it may stem from his own experience of having a house and going bankrupt.

I am a big advocate of buying investment residential real estate, if you are in the right position.  You should be in a good location where the local government is not too overbearing.  You should have cash reserves for unexpected expenses and vacancies.  You also need to make sure that the math makes sense.  You should not buy for appreciation.  You should buy for positive cash flow.  Any appreciation you get should be icing on the cake.

I view things a little differently when it comes to your primary residence.  I am not completely against buying as Altucher is, but I think he has many valid points to consider.

First, it is important to realize that a house is a consumer good.  It happens to be a consumer good that is a necessity in life, just like food.  You need shelter and I’m guessing most people don’t want to live in a tent.  But nonetheless, a house is a consumer good when you are “consuming” it, as opposed to renting it out.

Therefore, anything you purchase that is above your basic needs is really excess.  I am not against having more than you need.  But it is important to realize that you are not buying an investment.  You are buying something to enjoy.  You might pay more for a house for a safer area, for better schools, for a better location, for more space, for a bigger yard, for a swimming pool, or any number of other things.  And they are all valid reasons.  But again, just realize that these are things you want, not things you need.

The best financial time of my life was right after college.  I was in a three-bedroom apartment with two roommates.  I had the smallest room and I shared a bathroom with one of the other guys.  My rent was the cheapest.  My portion was just under $300 per month.  I then contributed for cable, telephone, and electricity.  That was split three ways.  My living expenses were really cheap and I was able to save a lot of money, despite having a low salary at the time.  I did not have to worry about any repairs.  I also didn’t have to worry about mowing a lawn.

I think the biggest problem with home ownership is that people underestimate the costs.  They look at their monthly mortgage payments and don’t consider most of the other things.  Here are just a few things to consider and it is far from an exhaustive list:

• Homeowners insurance
• Termite bonds
• Lawn maintenance
• Association fees
• Property taxes
• Repairs for plumbing, air conditioning, roof, sprinkler system, blinds, flooring, etc.
• Maintenance for air conditioning, garage door, sprinkler system, dryer vent, gutters, etc. (if you skip this, then expect higher costs for the repairs above)
• Higher costs of electricity and water
• Possibly higher commuting costs if you move further away from your job
• Spending more money on upgrades and appliances

Many people are worried that we are going to have socialized medicine in the U.S.  Unfortunately, I don’t think most of these people understand that our current system is far from capitalist.  There are still certain elements of the free market in medicine today, but overall, the system if far closer to fascism and socialism than it is to capitalism.

I want to point out just some of the reasons for the high cost of medical care today.  They all have to do with government in some way.  This could include state, local, or federal government.  This is nothing close to an exhausted list.  These are just a few of the major reasons for the high cost of medical care, which oftentimes coincide with an overall lower quality of medical care.

1. There are state laws that prevent buying health insurance across state lines, unlike car insurance or homeowners insurance.
2. Employers can deduct health insurance expenses.  Individuals cannot deduct medical expenses in many cases on individual tax returns.  There is a government incentive to have health insurance tied to your employer.
3. Medicare is socialized medicine for senior citizens.
4. Medicaid is socialized medicine for poor people.
5. Patent laws make pharmaceutical drugs vastly more expensive than they would otherwise be.
6. You must obtain a permission slip (a prescription) to get certain drugs from a pharmacy.  You cannot be trusted as an adult to make decisions.  A small percentage of the population might abuse this freedom, therefore we all have to suffer.
7. You must have a government license to be a doctor, even though many nurses and other people would be qualified enough to give certain medical advice.
8. Drug companies spend tens of millions of dollars, or more, getting drugs approved by the FDA.  This keeps many drugs from ever being discovered.  It keeps potentially life-saving medicine out of the market.
9. The government makes it illegal to use marijuana, even for medical purposes in most places.  This is a potentially low-cost drug with a vast number of benefits.
10. State laws mandate insurance to cover certain things.  You may have to pay for insurance against certain things like pregnancy or drug rehab, even if you don’t plan on getting pregnant or using drugs.
11. Companies that sell vitamins and supplements are not legally allowed to advertise the medical benefits of their products.
12. The government makes up a food pyramid that gives good ratings to high-carb foods, while criticizing foods high in saturated fats.  People use margarine instead of butter (as just one example), at the government’s advice.  Is this one of the reasons for the high epidemic in chronic illnesses in America?
13. There are thousands of regulations which doctors must follow, causing extremely high administrative costs.
14. The politicians are bought and paid for by the pharmaceutical industry, as well as the insurance industry.  It is no surprise that the government tries to push expensive drugs, expensive tests, and expensive treatments.
15. Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) only exist because we have a federal income tax.  At least with an HSA, you can carry over your money from year to year.  FSAs are absolutely foolish (although I certainly don’t blame people for using them).  It is a good example of unintended consequences encouraged by the government.  If you have an FSA where you must use it or lose it in that calendar year, then it actually encourages you to incur more medical expenses before the year is over.

Japan is thought of as a place with intelligent and highly educated people.  But they sure have some people who are really stupid when it comes to economics.

After Japan was devastated from World War II, the country turned to the free market and the people working in a free market system created a lot of wealth in a short period of time.  The same could be said for Germany.  It is amazing how fast these two countries recovered after the war that left so much death and destruction.  They both became two of the wealthiest countries in the world.

In the 1980’s, some Americans started to fear that Japan was going to take over, whatever that means.  They were afraid because the Japanese could sell inexpensive electronics.  Even as a child, I didn’t understand the hysteria.  Some company from Japan wants to sell me a really cheap television and I am supposed to get upset about this?  Imagine the outrage if they were giving away televisions for free.

Unfortunately, the last several decades has seen Japan turn away from the free market economics that led to its very prosperity.  The government has essentially adopted a policy of mercantilism, where it cares more about its exporting business than the standard of living of Japanese citizens.

The debt-to-GDP in Japan is ridiculously high.  It is well over 200%, far higher than any industrial nation on the planet.  Yet many Japanese investors stupidly buy government debt.  Actually, I guess the stupid ones will be those who don’t sell it before a default or massive interest rate increases.  Even with foolish investors buying government debt, it still cannot be sustained forever.

When it comes to holding U.S. government debt, Japan competes with China.  As of May 2013, Japan held over $1.1 trillion in U.S. treasury debt.  Just like China, the Japanese people are providing a temporary subsidy to the American consumer.

Back in April, the Bank of Japan promised to compete with the Fed by creating massive new amounts of money out of thin air.  This goes back to its mercantilism.  The Japanese central bank said it will double the country’s money supply, creating $1.4 trillion in new money.

Japan also has an aging population with massive unfunded liabilities.

You can take almost every problem that is in America and it seems to be magnified in Japan.  I think it is a good idea to watch what happens there, as it could be a precursor of what takes place in the U.S.

I try not to generalize too often because each individual stands on his or her own merits.  But as a whole, I really do believe that the Japanese people are smarter and more hardworking than Americans.  Again, this is only a generalization.  But I would probably give an edge to Americans when it comes to creativity and entrepreneurship.

Unfortunately, it seems that an even larger majority of Japanese people (as compared to Americans) do not understand basic economics.  If they did, there is no way the Japanese government and central bank would be able to get away with what it has.  Just like every other government and central bank in the world, the Japanese government and Bank of Japan are sucking away the production of the Japanese people.  The people suffer with a far lower standard of living than would otherwise be the case.  I hope Japan can find the free market economics that was discovered after World War II and return to being a prosperous country.

Most things don’t move in a straight line.  Even in a bull market with stocks, there will still be down days.

For someone trying to improve at golf, it is easier to go from a 20 handicap (shoots 20 over par) to a 10 handicap, than for someone trying to go from a 10 handicap to being a scratch golfer (shooting par).  Each player is trying to improve by 10 shots, but it takes a lot more detail, fine tuning, and innate ability to go from a 10 handicap to being a scratch golfer.  Even while improving, people plateau.

I use this as an analogy in discussing liberty.  Of course, liberty is even more complicated.  While it is dependent upon what the government does, most people don’t realize that the government will only do what is allowed by the people.

In a society with democratic institutions, the government will rarely be any better than what is tolerated by the people.  In most cases, politicians will get away with whatever they can.  They aren’t really bound down by constitutions and laws.  They are bound down by public opinion.

The only conceivable way of achieving greater liberty and maintaining it is if public opinion changes.  People must view the state as an institution that isn’t needed, or at least is needed far less than what we currently get.  This doesn’t have to include everyone, but it will likely have to include a majority of the people.  It’s not to say that a majority have to be activists, but that a majority of people must be willing to follow the small minority who are preaching and actively promoting liberty.

Just like the golfer trying to improve his game, it will not be a straight line towards greater liberty.  Most libertarians think we are getting worse.  In terms of government action, they may be correct.  But in terms of public opinion, I think there is no question that things are improving.  But there will be certain plateau points where it seems that things are not improving.  Some events may even set the libertarian movement back a bit.  But as long as there are more steps forward than steps back, then greater liberty will be achieved.

There are a lot of factors going into a changing public opinion.  I think the last two Ron Paul presidential campaigns opened a lot of eyes for people who had never been exposed to a real libertarian message before.  Of course, another major factor has been the internet and social media.  The rapidly declining price of technology has made communication wide open to most people.  It is much easier to spread the truth and expose people to a diversity of opinions.

In addition, this has all come at a time where the government continues to overstep its bounds.  Obama just went on the Tonight Show with Jay Leno and said that the government is not spying on Americans.  This was a blatant lie and I think it was obvious to many people.  Why is Obama so worried about Edward Snowden then?  Snowden provided the evidence that Americans should fear their own government.  It is one more piece of news that makes the federal government lose legitimacy with the American people.

There are so many scandals coming out of DC right now that it is hard to keep up with them all.  Meanwhile, Americans continue to grow more tired of war and interventionism, along with a struggling economy at home.

In conclusion, we may be nearing a perfect storm for the liberty movement.  Instead of looking at each new government boondoggle as a loss of liberty, look at it as one more thing that damages the government’s legitimacy.  I think we will see greater liberty in the next few decades.  But remember that it won’t happen in a straight line.  There will be ups and downs.

There is a lot of confusion about interest rates and the direction they will go, particularly if the Fed “tapers” its so-called quantitative easing.  While I am uncertain myself about which way interest rates will go, I want to point out a few things so that you can avoid making wrong assumptions.

Some investors think that interest rates will go up when the Fed stops, or even slows down, buying government debt.  In a vacuum, this is a rational thought.  If the Fed, the biggest buyer of bonds, stops buying government bonds, then this should make bond prices go down, if all else stays the same.  Lower bond prices mean higher interest rates.

But the key phrase is “if all else stays the same”.  If the Fed slows down or stops its monetary inflation, this will likely strengthen the dollar and lead to a recession.  The demand for money will likely rise.  People will seek safety and will look to lock in guaranteed returns.  In other words, investors are more likely to buy bonds, thus possibly offsetting (or more) the Fed’s lack of buying at that point.

On the flip side, many investors assume that rates will stay low or go down if the Fed keeps up its quantitative easing (monetary inflation).  It is possible the Fed could even increase its bond buying program.  When there was discussion of tapering back in June, the 10-year yield went up.  So it would make sense that the 10-year yield would go back down if the Fed keeps up its bond buying or even increases it.

But again, this is only if “all else stays the same”.  I think the idea of rates staying low if the Fed continues its monetary inflation is a solid prediction, as long as the perceived threat of price inflation is low.  But if investors start to worry about being paid back in a depreciating currency, then they will start to demand a higher premium.  Investors are not likely going to buy a 10-year bond at 2.5% if they think there will be price inflation of 4% (although this is not impossible if a 1.5% loss per year is the best they think they can do given the inflation).

So if fears of price inflation pick up because the Fed keeps creating new money out of thin air, then it is possible that interest rates could rise to reflect the inflation premium.  It is important to remember that interest rates were going higher and higher in the late 1970’s, even while the Fed continued to buy government debt.  But there was also high price inflation during this time, which made investors demand a higher interest rate.

I write all of this not to make any predictions, but just to caution people about different possibilities.  Some people think they can’t go wrong in shorting bonds (betting on higher interest rates).  But it is not inevitable that interest rates have to go higher, particularly in the short term.  There are several factors that have to be considered and the Fed’s bond buying is just one of those factors.

I am a strong proponent of setting up a permanent portfolio, or something similar, as described in Harry Browne’s book Fail-Safe Investing.  For this post, I am going to focus on PRPFX, the permanent portfolio mutual fund.  I have my criticisms of PRPFX in that it strays a little from the true permanent portfolio, but a look at the mutual fund will serve its purpose for this post.

PRPFX has performed quite poorly over the last couple of years, particularly by its standards.  As of this writing, the fund’s one-year performance is showing a loss of approximately 2.5%.  This is during a time when the stock market has done quite well.

While this may be disappointing for people holding a large portion of the fund (or some kind of a permanent portfolio setup), we have to remember its purpose.  PRPFX is not supposed to mimic the stock market.  So if the stock market goes up and PRPFX doesn’t go up with it, that is acceptable.  We don’t hold the fund for short-term speculation.  It is for longer-term scenarios.

We also must remember that the permanent portfolio’s primary purpose is one of defense.  We are trying to avoid huge losses, such us what pure stock investors experienced in late 2008.  The primary objective of PRPFX is capital preservation.  Growth is secondary.

I think another important thing to remember is that PRPFX has an inflationary bias.  This is not necessarily a bad thing.  Most people will measure their investment returns on a nominal basis.  So someone could brag about earning an 8% return, but if inflation is running at 3%, then the return is really only 5% (before taxes).

The good thing about PRPFX is that it will tend to provide higher nominal returns during times of higher inflation.  This is really how you should want your investments to perform.

Right now, monetary inflation is high, but the demand for money is also high and bank lending is low.  Therefore, even though the Fed is creating a lot of new money out of thin air, consumer price inflation has been relatively low.  So in that respect, we shouldn’t be expecting huge returns out of the permanent portfolio.

The permanent portfolio is going to be unpopular amongst a lot of people right now, especially the “professionals”.  But this doesn’t make it a bad investment.  Just because it has performed poorly in recent times, it doesn’t mean it will continue to be that way.

I think the permanent portfolio is far from perfect, and you can adjust it if the bond portion scares you too much.  But I really haven’t found a better strategy for preserving capital, while also providing some growth.

Murray Rothbard wrote that there were only 2 just wars in American history.  They were “the American Revolution, and the War for Southern Independence.”  Of course, when he wrote the War for Southern Independence, he was referring to what is called the Civil War.  But he was correct that the Civil War is an inappropriate name, because it was not two factions fighting for control over the government or for power.  The southern states simply wanted to secede and be left alone.

Most Americans think that World War II was just, at least on the American side.  But they ignore (probably because they don’t know or don’t think about it) a lot of facts about the war.  They ignore that Japan was provoked into attacking through actions such as oil embargoes.  They ignore that Roosevelt likely knew that an attack on Pearl Harbor was going to happen but did not tell anyone so that he would have an excuse to enter the war.  They ignore that the American government teamed up with Stalin, who likely murdered far more people than Hitler.  They ignore that Hitler likely never would have come into power if the American government had not entered the first world war and imposed harsh reparations on the Germans.  They ignore that millions of innocent Jews were slaughtered, despite American involvement.  They ignore that innocent people were sent back to Stalin’s Russia after the war, only to be murdered.  They ignore that dropping atomic bombs on Japan was completely unnecessary in “winning” the war.  There are a lot more interesting details that are unknown to the vast majority of the American people.

On the American Revolution, it was obviously just for the American colonists to secede.  It is debatable whether more could have been done to avoid violence and outright war.  It can also be pointed out that some of the “Founders” who are thought of as great men perhaps had more than good intentions in supporting independence from the British.  But overall, there is no question that the American side was in the right and the British side was in the wrong.  War is not usually black and white.  It is not like the movies, or even history classes, where one side is good and one side is evil.  But with the American Revolution, one side definitely had a far more just cause than the other.

For the so-called Civil War, things get even more cloudy.  There is no question that the southern states were less at fault than Lincoln and his cronies.  Lincoln turned into something of a brutal dictator.  His main stated purpose of the war was to preserve the union.  It was not to free slaves.  Lincoln had a quest for power.  You can read Thomas DiLorenzo’s book The Real Lincoln for a good history of the brutality of Lincoln.  It is completely ridiculous and evil that someone would start a war, which ultimately killed far more than half a million people, even if his intentions were to free slaves (which is not the case).  If he really had cared about slavery, he would have eliminated the federal Fugitive Slave Laws.  It would have made it difficult for the southern states to hold onto slaves and keep them from escaping.  There were other ways to undermine slavery without resorting to violence.

With that said, both sides were really evil on this.  The southern states, while also unhappy with tariffs and other things, did use slavery as one of the principle reasons for seceding.  In addition, even aside from the issue of slavery, the south was far from some libertarian paradise.  They had their own taxation, their own funny money, their own draconian laws, and forced people off to war.  On top of that, the morons stood in a line in an open field and fought battles.  They did not learn from their American ancestors to fight a guerrilla style war.  They seemed to care more about “honor” than about actual freedom.  And they sure didn’t care about freedom for slaves.

In most wars, it takes two to tango, or perhaps we should say tangle.  There is usually evil on both sides.  The American Revolution is a rare war where one side was clearly more justified than the other. The so-called Civil War is not as clear, although the southern states should have been allowed to secede peacefully.  While the southern states were evil, Lincoln and his army were far more evil.  I can’t think of any other wars in American history where American fighting and involvement was justified.

While I am a long-term optimist, I am quite pessimistic in the short run.  It is not that I want to be pessimistic.  It is just that I am a realist and I can only conclude that there are some rough times ahead.  I’m not sure if it will become evident this year, next year, or a few years from now.  I can’t imagine that 5 years from now we will have avoided economic turmoil much worse than what we have now.

I like to look at the adjusted monetary base and the excess reserves held by commercial banks.  It gives us a good picture of what the Fed is doing (massive monetary inflation) and what the banks are doing with the vast new money being created (not lending it out).  The monetary base indicates that we should have massive price inflation, but the huge increase in excess reserves indicates just the opposite.

But these are not the 2 statistics that I am referring to in this post.  I think 2 statistics that can give us a good warning shot are the Consumer Price Index (CPI) and the 10-year yield on U.S. treasuries.

I understand that many people do not like the CPI.  It is a government measure and its calculation has been changed in the past.  I agree that it does not give us a really accurate measure of price inflation.  However, I do think it gives us a good enough picture of the trend of consumer prices.  And if consumer prices are rising, then the Fed may worry that it has to stop its monetary inflation.

The 10-year yield is important in a lot of ways.  If interest rates rise, then the government will have to pay higher interest for newly issued government debt.  In addition, mortgage rates are highly correlated with the 10-year yield.  A third possible factor is that the value of the Fed’s holdings will actually go down as interest rates rise.

And to tie the two statistics together, if the CPI starts rising rapidly, then this could cause interest rates to rise rapidly.  There is not much of an inflation premium for U.S. bonds right now, but this will change if investors perceive rising prices as a major threat.

It is hard to say what the Fed will do in such a situation of a rising CPI and rising rates.  It has not had to worry too much about this yet.  But if it does happen, it will have to decide whether to keep the monetary inflation going and risk even higher price inflation or to stop the monetary inflation and risk a depression.

Either way, there is going to be trouble ahead.  It is not that I want it to happen or that I think it will happen because of future policies.  It is already baked into the cake.  We cannot avoid the consequences of previous bad policies.  We can try to minimize the damage by getting policies right going forward, which would include ending monetary inflation and massively cutting government spending.

The Fed is happy right now.  It is getting a free ride in a way.  It is creating huge monetary inflation, bailing out the banks, and we have had relatively low consumer price inflation.  This cannot last forever.  The pain can only be delayed for so long.  So when you see the CPI rise significantly and you see rising rates with it, then that is your warning that you should hunker down and get ready for some rough weather ahead.

In today’s economy, some people will point out that the younger generation of today may actually be worse off than their parents.  This would be the first generation since at least the Great Depression era where this could be said, and even the Depression era is arguable.

Today’s world is bizarre in many ways.  There is some truth that we are actually poorer, at least in a sense.  When it comes to things like housing, medical insurance, and education, we really are poorer.  Wages have not kept pace with the costs of many of our basic needs.

On the other hand, today’s young people enjoy technology that was not possible just a couple of decades ago.  The internet did not take off until the 1990’s, and even in the late 90’s it was just a fraction of what it is now.

I think one of the most important investments you can make, if you are in the minority of middle class Americans who does not already own one, is to have a smartphone.  I believe in frugality up to a certain point and I know that hardcore savers (like Mr. Money Mustache) will say that you can have a pre-paid cell phone or something equivalent for just a few dollars per month.  If you own a smartphone and have a plan that allows internet usage, you may pay something close to $100 per month.  You may be able to get a little discount for a family plan.

I think for many people, they would be fools not to have a smartphone, especially if their time is valuable to them.  Of course, every individual has a unique situation.  If you are unemployed with little income, then it is probably a good idea to cut your monthly expenses to the bone, which would include not having an expensive plan for a smartphone.

I know some people criticize smartphones.  They like the good old days.  They think they are anti-social.  On this point, they may be right to a certain extent.  If you are having dinner with friends or family, put down the phone unless it is an emergency.  But this is just a matter of being courteous.  You have to use good judgement in your life.  However, it also doesn’t mean that smartphones are a bad thing just because some people may be rude.

I think the biggest point that needs to be reinforced is that your time is worth something.  Some people’s time is worth more than others.  This doesn’t mean that one person is more important than another.  It just means that some people’s time is more valuable.  A heart surgeon’s time is more valuable than a guy sitting at home who can’t find a job.  One guy is short on time and long on money and the other is short on money and long on time.  Sometimes it is important to put a price tag on your time.

For this reason, smartphones are amazing.  You can convert what was previously unproductive time into productive time, even if the productive time is for entertainment purposes.  I tend to read more about the latest news in the world or the financial markets.  Other people may just look at their Facebook account and what their “friends” are up to.  But even the person using their phone for Facebook and other entertainment is far better off if the alternative is just sitting there and looking at a wall.

I think about this in certain settings.  For example, think about waiting in a waiting room for the doctor. Before,  it would really annoy me if I had to wait a long time.  It might still annoy me if I had somewhere to be, but having a smartphone makes the situation a lot more tolerable.  I can visit some of the websites that I like to visit on a daily basis.  I can also check email.

This could apply to almost anywhere that you can get cell service.  If you find yourself sitting there waiting, you can convert that into productive time.  If I read a few articles while I am in the waiting room, then that will free up my time to do other things later on.  Or maybe I will have read something that I otherwise wouldn’t have seen.  In the past (and smartphones have only been around for a few years), you would have been stuck reading some magazine that you probably didn’t care about.

Also, consider your commute to work.  If you have a commute to work, you can convert this into productive time.  Some people spend over an hour a day in the car.  You can use your smartphone (or an iPod) and listen to podcasts or speeches.  (I would recommend listening to it through your car stereo if you have the capability.  I actually have an old school tape deck in my car that I can use to listen to my iPhone through the car stereo.)  Even if you like to listen to music, you can mix it up between podcasts and music.  And even with music, technology has made us much better off, allowing us to listen to songs we like instead of waiting for something on a radio station, or doing endless searches on the radio.

In conclusion, if you have some money to spare and you value your time, I think a smartphone is a great investment.  You can convert waiting time (unproductive time) into something productive and enjoyable.  In this way, we are much better off than past generations.