Entries Tagged 'Global Economy' ↓

According to various measurements, the price of food and energy have increased anywhere from 6% to 9% in the past year. Meanwhile the interest rate on savings accounts have been slashed dramatically to less than 2%. In this environment, it is easy for a saver to feel like a fool, but there are ways you can mitigate the effects of inflation and still save for the future.

1. Stockpile food - Obviously, you can’t stockpile fresh food for very long, but you can certainly keep quite a bit of dried, canned, and freezable goods.  If you have room for storage, things like pasta or wine can be kept for a pretty long time. Sales are even better for stockpiling. For example, in my story about Safeway’s promotion I got quite a bit of pasta roni,canned tomatoes, and toothpaste for very little money. Now I wish I bought more because we went through the food pretty quickly. Stockpiling food is a form of non-financial investment that could pay off better than stocks as long as you do eat the food before it goes bad.

2. Invest in High Yield Dividend Stocks - I have a few stock holdings that have been giving out very high dividends. The ones I own are mostly natural resource and mineral stocks. I’m not an expert in stock picking, though, so the percentage of my individual stock holding is about 6% of my entire portfolio. There are a lot of ways to pick your dividend stocks and a simple and popular method is The Dogs of the Dow. In the current market, you have to be careful with the stocks that give too high of an yield because some of them may be dying financial services. As always, do your research before you invest.

3. Buy a Reasonably Priced House to Live In - If buying a house makes sense in your area it may be a good hedge against inflation. I am a staunch bubble sitter here in San Mateo because home prices are still way too high to justify buying a home. If inflation actually drove rent to within 10% of mortgage prices, I would consider buying, but the situation I am facing now is that home prices are falling but rent is still 1/3 to 1/2 the price of a mortgage on a comparable unit. However, if you can afford a home and in your area it is cheaper to buy than rent, it makes sense to buy a house to protect yourself against further rent hikes. As long as you get a fixed rate mortgage, your payments will stay the same throughout the term of a home loan.

I am sure there are many other ways people protect their savings from inflation. I have read that many people invest in I-Bonds or TIPS, which have variable rates related to inflation. I actually own some I-Bonds because they are state tax free. The problem is that these treasury bonds fluctuate with the core inflation rate, which doesn’t include food and energy. The result is that the return is lower than the real inflation, but they are generally better than dumping all your money in the bank or in a money market. The key is that you can manage your money well and diminish the effect of inflation when you put a little time into it. What have you been doing to fight inflation?

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This morning as I drove to work I heard   a barrage of news about protests against the Olympics in China. Here are some of my thoughts about the matter since a few friends have talked to me about it. I really think that people should leave the event alone and stop these ridiculous protests, and here are my reasons.

First of all, the Olympics is an economically draining event and not that many countries could afford it. The 2004 Olympics in Athens put Greece in so much debt that they are still trying to pay it off. When someone in San Francisco’s City Hall threw around the idea of hosting the Olympics the citizens actually said “Hell no”. Basically, no matter where you are from, you should be glad that the Olympics is not in your country for the sake of your money. In the case of China, the 2008 Olympics is really a special event for every single Chinese citizen. It is the first time China is hosting, and it is a symbol that China is now a great economic force that could compete with the United States and other developed countries. The country of 1.3 billion citizens has been preparing for the event for over eight years, and it is unfair to the Chinese people for the rest of the world to be so antagonistic to this event.

Second, the Olympics is supposed to be a time for the world to lay down their differences and compete in a civil and friendly matter. The ancient Greeks created the games as a break from war. When you throw war back into these games it never ends well. For example, back in 1972 a terrorist group kidnapped the Israeli Olympic team and murdered them. Then the Mossad (Israeli Intelligence) killed the people they believe were responsible. Violence just begets more violence, and I am very disheartened to see that people are injecting hate into the Olympics.

Third, protesting against and boycotting the Olympics is extremely unfair to the athletes. The athletes who compete in the Olympics train for years to get where they are. They want to make their own countries proud, and they want to accomplish their dreams. I am sure that they are also disappointed and perhaps even afraid to compete in the games with so much opposition. I would hate to see an athlete being spat on like a Vietnam War veteran because they competed in the games in China. Once again I reiterate that the Olympics should be about peace, and not war.

I don’t deny that some rights taken for granted in America do not exist in China, but there is no perfect government. If you look on the record of any reasonable large and powerful nation you will find corruption,abuse,and other atrocities. As to the violence in Tibet, here is how I see it. The Europeans who colonized America took away the United States from the Native Americans just like China annexed Tibet. Actually the situation in America is even worse because many Native Americans are still segregated on reservations while Tibetans are free to live in their own homeland. Just like Native Americans in the United States, the Tibetans receive various benefits for being ethnic minorities in China. Now if a bunch of Native Americans took up torches and destroyed homes and stores belonging to other races in the name of freeing their nation, do you think that the current United States government will not react with force?

Anyway, I am trying to say that China’s political flaws and racial tensions really shouldn’t be the reason for people to douse the Olympic flame. I think it’s despicable for people to advance their own political agendas by knocking down this wonderful event meant to foster world harmony. Supposedly there will be a giant protest in San Francisco when the torch arrives on Wednesday, and I hope it will not get out of hand. I really wonder if those protesters have been to China, and if they know what the games mean to a Chinese citizen; I wonder if they know the original purpose of the Olympics, or if they are just following the herd. I sincerely hope the Olympics torch will burn brightly in San Francisco, and the games in August will be a huge success.

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I don’t write much about politics, because I absolutely loathe it. I am also not an American citizen so my opinion doesn’t count in this country anyway. Nevertheless, I have no idea why anyone would want to be the next president of America right now.  With everything that is happening, it truly is a horrible time to be president.  Here are some of my predictions of what would happen regardless of which candidate gets elected.

1. Taxes will increase - How is it possible that America could wage an extremely expensive war for five years and cut taxes?  I’m not sure how the government does its accounting, but it did borrow a crapload of money from the rest of the world to fund this multi-trillion dollar war.  The war is funded on debt, and Americans have not really started paying for it. The interest on the debt will pile on, and we will be paying for it for years to come.  Taxes will increase either because the Bush tax cuts expire in 2010 or because the next president will just have no choice but to raise taxes and pay down some of that debt.

2. The recession will be felt more acutely - This is really anecdotal, but yesterday I walked around downtown San Mateo and at least three shops and restaurants were out of business.  One restaurant just said, “LOST OUR LEASE” on the door. The recession is really just beginning, and usually in an election year the government does whatever it could to prop up the stock market, but once the next president gets up to serve it will come crashing down.

3. The housing market will fall some more - Of course the NAR is calling a bottom now that housing sales went up a measly 2.9% nationally in February. They are not highlighting the fact that this February was a whole day longer than last year, which means that the month was 3.5% longer.  Prices were down 8.2% and housing sales still declined in the west. I am not sure if the bottom will come in the next presidential term, but the housing market will definitely decline a bit more.

4. The war will go on - It is unfortunate, but I don’t think the war in Iraq will be over as soon as the democrats promise.  The Americans are just too entrenched in that country to suddenly pull out.

Whoever the next president is, God help him/her.  I really think that a major problem with American politics is that power changes hands every four years so that every president tend to do short term fixes and make his/her four years look as glorious as possible and leave the seething crapbag to the next person in line.   The entire system fits with the American culture of “I want it right here right now”, and that results in policies that borrow against the future. For example, billions of dollars have been taken out of Social Security in the last couple decades to pay for operating expenses. Unfortunately, I don’t think this prevailing attitude and policy of sealing mortal wounds with bandages would change with new leadership.

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We are officially in a recession! I have written about how I would deal with a recession previously, and also shared the views of one of my company’s founders.  I think most of us saw this coming, and a lot of us will just go on quite unaffected as long as we have a source of income. There are some effects I am seeing due to the recession all around me and I feel like I should address them here.

1. Cuts to education in California- Unfortunately I am hearing a lot of news about good teachers being fired all across California and student walking out of schools  to participate in protests in the hope of keeping their teachers.  It is a pretty difficult situation for everyone, but with 1 in 240 or so homes in foreclosure, the state of California is losing billions in tax revenues.  The former budgets made in the flush housing bubble years are just not sustainable anymore. The funding cuts are necessary because I heard that municipal bonds are not selling well these days and there just isn’t enough money.  I still think it is stupid to fire good teachers, and I hope it really is the last resort.

2. Devaluing of the dollar - The value of the dollar is plunging around the world.  This is going to make travelling quite a bit more expensive for Americans. I know my trip to China later this year will be much more expensive than the past two years.  It will also make everything we import more expensive.  Since we import almost every thingamajig from China and the Chinese Yuan is 12% higher than last year, I expect household goods will increase in price quite a bit. However, it also makes American exports more attractive so hopefully that will make our economy recover more quickly.

 3. Food prices skyrocketing - This is insane, but last  month I picked up pizza dough for 99 cents at Trader Joe’s, and this month it was 1.29!  The same item increased 30% in a month.  Then I heard on the radio that flour prices are skyrocketing and many bakeries are paying 2 to 4 times what they paid last August for flour.  The reason is that wheat supplies dwindled this year and the demand increased.  Other foods are also getting more expensive because of increased  global competition for food and gas.

I haven’t really heard of massive job loss here in the Silicon Valley…yet.  It seems like companies are hoarding tons of cash, and that could be a good thing.  Today our CEO said that “difficult economic times are times for great companies to shine”, and I agree with him.  Anyway, I feel like my life hasn’t been affected greatly by the current recession, but that may change in the future if food gets more expensive than rent.

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Apparently some of my friends and family were wondering where I was the past couple days. I was not online at all and my phone was out of reach. Well, I was actually at a company sponsored retreat for all of the engineering staff and it was absolutely awesome. We stayed at a camp ground in Pescadero called Costanoa and even though the surroundings were beautiful it was raining the entire time. However, all of our activities were indoors so it didn’t matter. One of my favorite professors from college came to our retreat and gave a week’s worth of lectures from his computer security class and I actually learned a lot. After dinner there were a myriad of fun activities including Scrabble, Belgian beer tasting, a poker tournament, and lots of arm wrestling. (I won the Scrabble and bested a Stanford grad and an MIT grad! Berkeley FTW in Scrabble!) The next day we had a security contest where we were all given an open source project to hack. My team didn’t win but it was still a lot of fun. Amidst all the fun our CTO gave a speech on the economy of all things, and I thought it is interesting enough to share.

Our CTO is a very smart guy that has been around the Valley for many many years (possibly longer than I’ve been alive). He said that he has been through many economic downturns and booms in this crazy place. As he tells it, when he attended college here the semiconductor industry was booming and highway 101 had traffic from 8am to 11pm. Then all those jobs were outsourced and the Valley was quiet once again. Then came the famous dot com bubble and bust. He recounted a conference he attended back in 2002 right after the burst. He and several other people were scheduled to speak to a room full of newly unemployed engineers. The first speaker was a recruiter, and he told the room full of people that there are absolutely no jobs, and advised people not to talk to him to look for positions because there is none. The second speaker was someone who was sort of an expert on real estate and basically told everyone that they will see a housing downturn and lose their homes. The third person was some sort of reporter and also said something depressing. Our CTO was last and he thought to himself, whatever I do I have to say something positive to this crowd of people. So he went up there and asked everyone, “How many of you are unemployed engineers?” Practically everyone raises their hands. Then he asks, “How many of you were doing mundane work like getting data from database and displaying it on a website and got paid obscene amounts of money for it?” A large percentage of the room raised hands. Then he says, “you know what, this is how you can fix our problem. I am sure there is someone smart enough in here to start something truly interesting, and all it takes is one of you to start a company that is amazing and not mundane and the rest of us can work for you.” Supposedly, that is the year our company grew from an idea to a band of the best engineers and researchers. Then he went on about topics such as the mortgage crisis and globalization, and here are my take aways from his talk:

1. Do Not Be Afraid - I came back from the retreat and the stock market was going crazy because of the Fed’s extremely large interest rate cut and various economic problems. The CTO did say that this is going on because of a lot of fear. There is a lot people who are afraid of what is happening to the banks and what is happening to businesses, but in the end things will get better because of innovation and increased productivity. Most of the fear people have is because of uncertainty. There is no clear indicator that everything is alright so there is panic. The right thing to do is to be innovative and try to profit.

2. Economic Downturns Can Be Great Opportunities - The CTO said that the best time to staff up a company and rent office space is in times of economic downturns. If a company has money, then they are getting a bargain because people are more willing to accept lower wages and commercial real estate rents drop drastically. So if you have cash during a downturn, then you are able to snatch up many bargains. As I wrote in a previous article, I will be on the lookout for sales in stocks or real estate.

3. Globalization is Necessary - He said that the world has been changed so much by technology that globalization is no longer an option. Every company and country needs to establish footholds globally to become big. Even though people are always complaining about immigrants in America and jobs being outsourced to India, these things are necessary and probably good for everyone in the long run.

4. Make Yourself Valuable - The CTO asked if we were afraid that we would be outsourced, and only one person raised his hand. He thought that was a good sign because we are a great group of engineers. He further said that if you keep yourself at the top of the pack then you can demand to be paid well and you will not be outsourced. I think that is good advice because there is no need to sell yourself short and if you keep on improving yourself, you should be able to charge a higher price.

5. Surround Yourself with People Smarter Than You - This is  something the executive officers say at almost every speech they do. They always say that they hired people smarter than them to create a great company. I think it is great advice because I learn a lot from those who are smarter than me, and in turn I become smarter. There is also a chance that one of them will start a company one day that is the next Google or the next Microsoft and I can go along for the ride.

Anyway, I thought the CTO’s speech was very motivational and candid. I am sure he can make a living by hosting success seminars, but instead he does funny things like making movies and cheering us on. So once again, do not be afraid and do the best you can this year.

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