Monetary policy and the danger of revolution

The Thinker by Rodin

My recent post on quantum computing and its impact on cyber currencies like BitCoin have taken me exploring the world of money some more. This exploration took me to this video, which discusses who controls money and how it is created.

I think this video is meant to be shocking. Most of us are painfully aware of how important money is, because we cannot survive without it. While vital, money is also completely abstract. We like to think money is a form of permanent liquid value. This video points out the “shocking” fact that money is not this and that it is created almost universally by central banks, the Federal Reserve in the case of the United States.

As you get on in the video, you also learn that banks create money when they issue loans. If you were hoping to trade in your dollars for gold bullion, those days are gone. President Nixon turned the U.S. dollar into a fiat currency. This essentially means that the dollar has value because the government says it does. If it’s backed up by anything, it’s backed up by your faith that our government can manage money intelligently.

But really, the only ones managing money is the Federal Reserve, since they are the sole suppliers of money. The degree to which the Fed controls the spigot of money generally determines the health of the economy. Quantitative easing, which the Fed (and other central banks) have been doing since the Great Recession is basically the creation of lots of money which are then used to buy assets. Doing this helped pick up the economy and over many years took us out of recession.

So one might extrapolate that it’s not how much money that gets printed that is important, but how frequently it gets circulated. If circulated a lot, the production of goods and services continues apace. If it gets circulated too much, you end up with inflation, which means the same money buys fewer goods and services. If it’s not circulated enough, you may end up with deflation, which seems worse than inflation, in that the same money tomorrow buys more than it will today. In a deflationary environment, you would rather hold onto money than spend it, and that tends to stifle economic activity.

Lots of people like Ron Paul don’t like the way money actually works, which is why they would prefer the dollar be based on a gold standard, or some standard which equates a dollar to some amount of something precious. These people are probably economic Don Quixotes chasing electronic money windmills that may have existed at one time but which are probably gone for good. They look for impartial standards of value instead, which is why they turn dollars into BitCoin and similar electronic currencies.

The video says that central banks, being run by bankers, are a system that essentially pumps money from the lower classes to the upper classes. There’s a lot of recent evidence that they are right, as our middle class seems to be disappearing. Americans owe a lot more than they used to and in general earn a lot less in real wages than they used to. It used to be that wage increases followed productivity increases, but for decades that has not been the case. Today, the level of personal debt is staggering. Without meaningful raises, it gets harder and harder to pay off debt or do things we used to take for granted, like buy cars and homes. The Uber/Lyft phenomenon may be in part a reaction to these new facts of life.

Something ought to be done. In part, Donald Trump’s election was due to these economic anxieties. Trump was going to be our fixer to these various problems by bulldozing his way through all obstacles. Of course, he has done just the opposite. There is more than $1 trillion in outstanding student loan debt, but Trump’s education secretary Betsy DuBois is actually making it harder for people to pay off their student debts, and is promoting pricey private education at the expense of relatively affordable public education. So Trump is turning the screws even tighter on the working class.

Democratic presidential candidates have all sorts of ideas for addressing these problems. My senator, Elizabeth Warren, is distinguishing herself by having the most comprehensive set of policies for addressing these issues, including a lot of student loan debt forgiveness. All these policies though are basically ways of trying to solve the fundamental problem of more of our wealth going to the wealthiest and to put more money into those who need it the most. They all depend on redistribution of income from the wealthy toward the poor.

This “socialism” of course has the wealthy up in arms, since maintaining and increasing their wealth is all they seem to care about. So they are dead set against any of these ideas. Based on how our money supply works though, all this will do is keep pushing more of the wealth toward the wealthy.

It makes me wonder how all of this economic anxiety ends. And that gets me to figuring out what money really means. Money is essentially a social compact for the exchange of wealth, and whoever sets the rules controls the flow of wealth. The Fed is essentially accountable to no one. At best, all you can do is wait for someone’s term to expire. Trump’s inability to get people like Herman Cain on the Fed speaks to Republicans true values: they want the Fed to be populated with people that think like them, and that’s not Herman Cain. He’s too out of the mainstream.

To cut to the chase, the real threat to the wealthy is revolution. That’s exactly what happens if you screw the working class for too long. Revolution is upsetting the whole apple cart and starting over because the system is fundamentally broken and cannot be fixed. I believe this is the root of the partisan tensions we see these days. It’s not about value, or whether you are white or not; it’s about money and who gets to control it and how it should be distributed and used. Revolution though is very dangerous. It brings severe economic disruption, likely civil war, complete upheaval and a fundamental reordering of society. Hopefully when it is over the new system is more fare, but as we watch these things play out in places like Brazil it doesn’t look like that’s likely.

Ideally, rich Americans would understand that giving more back to society is in their interest. Sucking ever more wealth from the lower classes exacerbates tensions and increases the likelihood of revolution. They don’t seem to believe it though, and want to maintain control of the levers of power. If they succeed they will likely bring about the real revolution that will destroy their wealth, because wealth is predicated on connected economic systems that work. Unfortunately, the rich seem to be deliberately tone deaf, increasing the likelihood of the exact outcome they fear the most. Should it occur, BitCoin is not going to save them.

As billionaire Nick Hanauer puts it, the pitchforks are coming.

Quantum computers will kill cryptocurrencies, but that’s just the start of it

The Thinker by Rodin

About five years ago I took my first gander at the BitCoin phenomenon. In that post I wrote:

In short, to trust a Bitcoin you must buy into its assumption that it can’t be hacked. Since the dawn of the computer age, hackers have demonstrated their ability to hack anything. They love the challenge. It’s reasonable to believe that Bitcoin is going to be hacked one of these days.

Five years later, BitCoin and similar cryptocurrencies are still safe, but they may not be much longer. This is because quantum computers, which are still-in-the-laboratory are going to fundamentally reinvent computing.

When I wrote this post on BitCoin, I was thinking some hacker would just figure out a very clever way to hack these coins that wasn’t so computationally prohibitive. Right now you can throw supercomputers for years at the problem and they won’t succeed.

Quantum computers though are leveraging actual quantum physics, and that looks like a game changer. If you follow my blog, you’ll realize I’ve been fascinated by quantum physics and its implications, most recently this post. Quantum physics is the study of the ultra tiny; it’s a realm so tiny it cannot be seen at all, but only inferred. The foundation of quantum physics seems ridiculous: it postulates that two things can be in two different states at the same time.

Quantum computers take advantage of this seemingly impossible fact of nature. By allowing a bit of storage in a quantum computer (an atom) to take on not just two values (0 or 1) but an extra value (both 0 and 1 at the same time), putting a quantum computer to a task that would challenge even a supercomputer becomes doable. As a practical matter, this puts the security of the Internet and most of our electronic trust-based systems in jeopardy. It looks like someone with the right quantum computer will be able to decode anything electronically encrypted without breaking much of a sweat!

One thing this will impact is digital currencies like BitCoin. Right now to “mine” a new BitCoin requires rooms full of servers. As most BitCoins have already been “mined”, creating new BitCoins gets prohibitively more expensive. With the right quantum computer though, creating new BitCoins won’t be a problem, even if there aren’t that many more that can be created.

But any digital currency that depends on this blockchain technology could be minted quite easily on a quantum computer. Effectively this means that the “preciousness” of digital currencies is going to go away. Quantum computers will be able to “mine” new digital currencies in whatever quantities will be desired. These currencies then move from being on something similar to a gold standard (a finite number of Bitcoins, for example) to a fiat currency.

But with fiat currencies like the U.S. dollar, some entity controls the creation of dollars (the Federal Reserve). With digital currencies, anyone with a correctly programmed quantum computer can create as many units as desired and the currency permits. In short, digital currencies will reach a point where they cannot be trusted and quantum computers should kill them.

Much scarier though is how easily these computers will crack passwords and encryption keys. Consider that electronic commerce is carried out over the Internet using pairs of public and private keys. The private key is retained by vendors like Amazon, and the public key is handed out, but you need both to make the transaction secure. If you can figure out the private key though you can certainly purport to be some entity that you are not, and once you have someone’s credit card or bank account number grabbing their money won’t take much effort. Of course, if you can easily figure out someone’s password with a quantum computer, not much remains private anymore, at least not in electronic form.

As bad as this is, it has much worse implications. Suppose North Korea or China get a leg up on us on quantum computers. Imagine the havoc they could create. Right now, China is leading on quantum computing. It’s not clear if the United States even has a strategy in this area. We have to hope the NSA is studying the problem and perhaps surreptitiously developing quantum computers too. Quantum computers will break the model of electronic trust that we take for granted. We will need something else that can’t be broken with quantum computers but which can still be done electronically. I can’t think of what can viably replace it. But moving whatever solution we come up with, we have to retrofit every system to use it instead.

The United States would be well advised to become the leaders in quantum computing, and quickly. Unfortunately, our tone-deaf Trump Administration is much more concerned about people seeking asylum on our border or getting rid of Obamacare than tackling a super-huge national security threat like quantum computing. Let’s hope that when the grownups are back in charge again, there is still time to gain the upper hand.

To get your head around this, watch this 3:44 video:

The devil in American Christianity

The Thinker by Rodin

A confluence of events is proving just how dead and unchristian most of American Christianity is today. There are exceptions, most notably the Catholic Church. If you can overlook its rampant misogyny and long history of pedophilia, it still thinks it’s important to feed the hungry and shelter the poor regardless of race, color or creed but not always sexual orientation. Moreover, it puts its time and resources where its mouth is.

You have to look pretty hard to find a mainstream Christian denomination in the United States that bears some resemblance to what Jesus preached. The United Church of Christ probably comes closest, but it’s been bleeding members for years. I could also possibly include Unitarian Universalists like me, except being creedless we can’t really be called Christians, although individual members might say they are Christian. We are also a tiny denomination.

For the most part though our churches are mirroring society: becoming socioeconomic havens for tangentially religious people mostly of the same race and social status. They mirror the values of their class and society far more than they practice Christianity as Jesus preached it. Last week in Congress though we witnessed an action that pretty much proved it was dead. Speaker of the House Paul Ryan dismissed its chaplain, the Rev. Patrick J. Conroy, a Roman Catholic priest, for apparently modeling Jesus a bit too much.

Conroy wasn’t too happy about it but while it lasted it was a great gig for a priest. Priests take vows of poverty but Congress paid him $172,500 a year, far more than I ever made annually in my career. Money though wasn’t the issue here. Conroy apparently got under the skin of influential House Republicans, including the Speaker for constantly reminding them of inconvenient truths about Christianity, such as Christians are supposed to look out for the poor rather than worship at the altar of mammon. Last November, for example, before the House debate on major tax legislation at the well of the House, Conroy said this:

May all members be mindful that the institutions and structures of our great nation guarantee the opportunities that have allowed some to achieve great success, while others continue to struggle. May their efforts these days guarantee that there are not winners and losers under new tax laws, but benefits balanced and shared by all Americans.

Well, that’s awkward when the tax legislation was mostly about funneling new amounts of government debt directly into the pockets of rich people instead. No wonder Ryan was irked. How about a little prosperity gospel instead, preacher? These people seem to form the base of the Republican Party anyhow. (By the way, “prosperity gospel” is just another name for trickle-down economics.)

Also last week we got a rare moment of candor from a Republican politician, Mick Mulvaney in this case. Mulvaney is the director of the Office of Management and Budget and the acting director of the Consumer Financial Protection Bureau. But he used to be a member of Congress. Reminiscing on those times to a meeting of the American Bankers Association, Mulvaney cut to the chase:

We had a hierarchy in my office in Congress. If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.

Mulvaney clearly believes in a government of, by, and for the corporation. If you wanted his attention, you had to bribe him through campaign contributions. No one else mattered.

Now in the ultimate irony, Evangelical Christians are wholeheartedly are behind Philanderer-in-Chief and complete moral failure Donald J. Trump. He garners at least 80% support from this group and nothing in his sinful personal life seems to dissuade them from supporting him. It’s not that they see Trump as a good Christian. Trump hardly ever attends church services. His church is the golf course. About the only time you will see him in a church will be if some prominent politician dies, and even then his attendance is iffy. He skipped Barbara Bush’s recent funeral. He clearly doesn’t read the Bible; in fact he doesn’t read much of anything.

These “Christians” tend to see Trump as a necessary evil: God working in mysterious ways. What they really care about is not his many moral failings but his willingness to move forward with a radical conservative agenda. If Trump can appoint another Supreme Court justice that overturns Roe v. Wade, doesn’t that justify their support? They must have excised Matthew 16:26 from their Bible:

What good will it be for someone to gain the whole world, yet forfeit their soul? Or what can anyone give in exchange for their soul?

In truth though American Christians have largely thrown away the New Testament. What really engages them though is the Old Testament, particularly its authoritarian parts, parts that were largely replaced in the New Testament. One of Jesus’s primary missions was to redefine Judaism into a more benign, charitable and universal religion. American Christians though seem determined to place the Ten Commandments in government spaces. But they never demand that the Beatitudes to occupy such public places instead, and these are words Jesus actually said:

Blessed are the poor in spirit: for theirs is the kingdom of Heaven.
Blessed are those who mourn: for they will be comforted.
Blessed are the meek: for they will inherit the earth.
Blessed are those who hunger and thirst for righteousness: for they will be filled.
Blessed are the merciful: for they will be shown mercy.
Blessed are the pure in heart: for they will see God.
Blessed are the peacemakers: for they will be called children of God.
Blessed are those who are persecuted for righteousness sake: for theirs is the kingdom of heaven.
Blessed are you when others revile you and persecute you and utter all kinds of evil against you falsely on my account. Rejoice and be glad, for your reward in heaven is great, for so they persecuted the prophets who were before you.

With the ouster of House Chaplain Conroy, it’s clear that these thoughts are unwelcome in Congress. But that’s okay. It’s abundantly clear they are unwelcome as well in what passes for American Christianity today.

The devil made them do it.

Greed is a terrible sickness

The Thinker by Rodin

In the 1987 movie Wall Street, the corporate raider Gordon Gekko (played by Michael Douglas) informed us that greed is good. His character fit in well with the Reagan years, because this was essentially the mantra of Ronald Reagan and the Republican Party. If anything since then the Republican Party has become even more extreme on the issue. Not only is greed good, but also by implication being poor is bad and a personal failure. Poor people are just not trying hard enough, which they view as something of a crime.

According to Merriam-Webster, greed is “a selfish and excessive desire for more of something (such as money) than is needed”. “Than is needed” is of course somewhat relative. However, if you have or take more in the way of resources than you need almost by definition someone else gets less than they might otherwise have. Since Reagan was elected, the only constant is that more of our wealth has gone to the richest while the income for the rest of us has at best stayed the same but has generally declined.

It’s clear to me that greed is a terrible sickness, and not something that should be celebrated. It sure appears that those who are truly greedy are never satisfied. They always want more. Since they believe greed is good, they look on greediness as a kind of religion. Witness our president and most of his cabinet of very wealthy people and who seem to have no scruples. Government is for pillaging, which is why last year they gave themselves a tax cut and threw a few scraps out to the rest of us. Their reputed rationale was that tax cuts would pay for themselves, something that has never proven true. I don’t for a minute believe that they believe it. What they do believe is that if you have power then you should use it to enrich yourself, so they did, worsening income inequality and greatly adding to our national debt to line their pockets now.

Greed is bad and should be treated as a mental illness. A truly greedy person should be seeing psychologists to figure out what is the matter with them. There is something very wrong with our president, who clearly subscribes to the religion of greed. To see how greed perturbs someone, look at our EPA secretary Scott Pruitt. The “greed is good” mantra has him so captivated that he has no problem turning the EPA into the Environmental Destruction Agency. Entitlement is assumed. He has a round-the-clock staff of thirty to protect him, flies first class everywhere and built a soundproof booth in his office.

Being wealthy does not necessarily mean that you are greedy. Berkshire Hathaway head Warren Buffet seems to be one of these types: a billionaire many times over who otherwise lives modestly. To be greedy you need to flaunt it and be consumed by the need to become ever richer, and not always through entirely fair means. At its core, greed denies reality. It suggests for example that you will never die because it’s hard to actually spend and enjoy all the money you accumulate. I suspect Warren Buffet enjoys investing because he finds it personally interesting.

Then there are people like the Koch Brothers who are consumed by greed, so much so that they have no problem if their industries create their profits by foisting their pollution costs on the rest of us. That’s how much greed has perturbed their thinking. It’s not like there is another planet nearby that eight billion of us can go and populate. They either can’t see this reality or more likely simply don’t care. These people are very sick people indeed.

For much of my life, I pursued wealth. I wasn’t a fanatic about it but I wanted to be comfortable, particularly in retirement. It was a long and arduous struggle that I eventually achieved. To me, it meant feeling confident that I could maintain my standard of living until I died, that I would never go hungry or be impoverished again and that I no longer had to work to survive. It’s true that much of my wealth is dependent upon a well-earned federal pension, and I still don’t entirely trust that the oligarchy won’t take it away at some point to feed their insatiable greed. But I feel confident enough about it that I don’t worry about it anymore. In any event, I have a comfortable portfolio and plenty of cash assets set aside to handle future expenses. We have no mortgage payment nipping at our heels every month anymore, no college expenses to juggle and little in the way of electricity bills with the solar panels on our roof.

It’s reached the point where our relative wealth feels sort of surreal. What I don’t feel at all is the need to obsessively acquire more wealth. I feel no particular pull to buy a fancy car, for example. I take no particular pleasure in driving and see it as a chore. In January we took a 19-day vacation, 16 days of it on a cruise ship. It was nice but I don’t particularly feel the need for a more lavish vacation or more days dining on gourmet food in Holland America’s dining room. My needs and wants are pretty much satisfied. My financial anxieties are calmed. At my stage of life, people like me should simply enjoy life.

Today the things that give me the most satisfaction are the most prosaic: daily “constitutionals” around my community, doing the crossword puzzle in the paper, having a cat nearby that I can reach out and pet and having a spouse who I love and who loves me. And yet despite the ups and downs in the stock market, our portfolio keeps increasing. To the extent I still work through teaching and consulting (both very part time) it’s for enjoyment and to spread my knowledge to those who might benefit from it. This income is mostly saved, but occasionally it buys some nice stuff. We are planning a New York City trip next and hope to see some popular Broadway shows.

All these rich people could simply enjoy their wealth if they wanted to, rather than suffer from the psychosis that they must ruthlessly acquire more of it through pretty much any means available. A lot of our spare income now is given away to charitable causes. I feel not just a need but also a natural desire to share our wealth. I try to put it toward causes that I believe are productive uses. It goes to places like the Nature Conservancy, so it can buy up natural space for future generations. It goes to Planned Parenthood, so women in particular can make choices over their own bodies and get health care services at affordable prices. It goes to the Food Bank of Western Massachusetts, so fewer of the people I see holding cardboard signs at intersections have to go hungry. It goes to a local spouse abuse shelter, so mostly women can have a softer landing after from suffering domestic abuse. And increasingly a lot of it goes to arguably non-charitable causes: campaigns of people who seem to be sincere progressives who will work to reduce misery and straighten out the major problems with our politics most of which were caused by the greed is good falsehood.

For the truly greedy, to quote Mr. T., “I pity the fools”. They might want to read some Charles Dickens, particularly A Christmas Carol. Whether overtly or innocently, what they are doing to our planet and the rest of us is intensively evil.

Bitcoin reevaluated

The Thinker by Rodin

In December 2013 I looked at Bitcoin and called it libertarian bit nonsense. Like most pundits, I’m not good at admitting I was wrong. But I was wrong about Bitcoin. In December 2013 a Bitcoin was worth about $716. As of today one Bitcoin is worth about $3250. (See this index chart.) So if bought a Bitcoin in December 2013 and traded it today for U.S. dollars, your return on investment would be 354%. That’s an annual return of 96%. You are not going to get that sort of return from an S&P 500 index fund.

The dates I picked were random so coins bought at other times might have lost money. In truth if you had bought a Bitcoin in December 2013 you would have to have waited until November 2016 to see a positive return on your investment. For the last year or so though Bitcoin appears to be picking up real traction, taking the new currency to surreal highs.

One reason I was wrong in 2013 is that back then I did not anticipate its major use. Back then it was used for shady transactions but existed on the fringes of this world. Bitcoin seems to have found its niche as a method for facilitating ransomware. Illicit hackers are using it to get money from you when they do things like hijack your computer and won’t let you access key parts of it until you pay them sufficient Bitcoins. (Even then it works only about half the time.) If they asked for dollars or yen then hiding their tracks would be much harder. Making you go out and buy Bitcoins and then sending it to them though makes anonymous electronic thievery much more possible and practical. While each transaction is recorded in the Bitcoin itself, there is no mechanism in the transaction to positively identify the buyer and seller. Thus it’s much harder to catch electronic thieves at work.

I doubt these thieves hang onto their Bitcoins. Bitcoins are still a hassle to trade. Bitcoin exchanges are few and their trustworthiness not to mention solvency are problematic. Thieves probably don’t see the Bitcoins they collect as investment since they are hard to spend on real world goods and services. Most likely they are quickly converted into a local currency where they are then used to buy goods and services.

As a libertarian currency, Bitcoin is having some success. It is theoretically money that can be stored and used independent of taxation, although legitimate sellers that accept Bitcoins probably have to charge taxes on Bitcoin transactions. The percent of sellers that accept Bitcoins though is still tiny, which provides evidence that their value comes from being able to transmit value relatively free from prying eyes. This is one aspect of cash that allows it to endure into the 21st century.

So while Bitcoins may appeal to the libertarians among us, its primary usage is probably to facilitate crime, thus its value and surging price. The harder it becomes to trade illicit money with conventional currencies, the more valuable Bitcoins become, since there are a finite number of Bitcoins out there. Most governments are getting quite good at monitoring transactions of conventional currency. Transactions that are too large result in inquiries that may slow down or stop the transfer of money. With Bitcoins this is currently not much of an issue. Governments are getting better at regulating these transactions. At one time China blocked Bitcoin transactions altogether. They are accepted on certain Chinese exchanges now, but China is proposing to make Bitcoin exchanges subject to money laundering laws and to collect information verifying the identity of buyers and sellers exchanging Bitcoins.

As I noted in 2013, the more a Bitcoin is traded, the larger its digital fingerprint becomes. Some of these coins are becoming so digitally huge that they are inefficient to verify it is a legitimate coin. This is frustrating to many in this community, which is causing other more practical digital currencies to emerge like Ethereum. Currencies like Ethereum try to address issues like the huge blockchains in many Bitcoins and to build in features like identifying buyers and sellers and a limited blockchain ledger. If they gain traction then this undercuts Bitcoin’s ability to keep these transactions confidential.

Whether Bitcoin or some other form of digital currency, all such currencies that rely on blockchain technology are inherently risky, for the same reason that I noted in 2013: they are potentially hackable because they are encrypted. So far to our knowledge no one has successfully hacked into a Bitcoin. If it happens though that a hacking algorithm or a quantum leap in computing power reveals an easy way to mine new Bitcoins then the coin should drop in value precipitously and become essentially worthless. However, if a coin can be “minted” by a provable and legitimate source, say a country’s equivalent of a Federal Reserve, then such digital currency should hold value. This could be done by such organizations holding a registrar of coins it has “minted” that are publicly electronically available.

If that happens though then the onus for having a Bitcoin also goes away, as its value is in its surreptitiousness. Electronic coins that only go through legitimate exchanges and follow policies for tracking and handling illicit uses become essentially legitimate currencies because they are issued and accepted by trusted institutions.

So there are likely to be many more digital coins in our future. Bitcoin’s future as an electronic currency though is likely coming to an end as it becomes computationally inefficient to record transactions with Bitcoins and as advancements in computers, like potential quantum computing potentially render obsolete our current methods of encrypting data, making the encryption keys faster to crack.

Bitcoin’s time has arrived but with its success it is also likely quickly passing into obsolescence. What comes next is unknown but any permanent way of electronically storing untraceable electronic value was probably always myth.

Mt. Gox: more evidence of why BitCoin is best avoided

The Thinker by Rodin

Dorothy in The Wizard of Oz learned from Glinda that if she clicked her ruby slippers, closed her eyes and kept repeating “there’s no place like home” that she would magically return to Kansas. So simple! BitCoin adherents are a lot like Dorothy. Dorothy at least made it home from her fantastical journey. True believers in BitCoin, the libertarian currency, got a splash of cold water across their faces this week instead. Mt. Gox, the Tokyo-based BitCoin exchange, has gone belly up, along with about $300M in BitCoins. Most likely someone stole those BitCoins, either someone inside the firm or some shadowy hackers. By any standard, this was quite a heist. Looking at history, you’d have a hard time finding any instance of a similar theft inside what amounts to a bank.

In any case, sorry you BitCoin suckers. Real banks and exchanges still have vaults, but they don’t carry much of their assets in cash. Much of it is commercial paper, bonds, mortgage deeds, promissory notes and Federal Reserve Notes. Whether in paper, assets on an electronic register somewhere, or gold bars in a vault, these assets are quite tangible. Someone with a car loan who defaults on their payments is likely to find their car repossessed. Those who defaulted on home loans during the Great Recession found their houses foreclosed and if they had ready cash assets, they were put under legal assault. BitCoin owners with their BitCoins in Mt. Gox now have nothing and the police just aren’t interested in serving them justice.

This was not supposed to happen to this libertarian currency. Freed of its tie to governments, it was supposed to soar above inflation and always retain a finite empirical value. It was all secure and such through the power of math. After all, exchanging a BitCoin involves keeping a record of who its next owner is. Unless, of course, it just disappears. Undoubtedly these stolen BitCoins were converted into a real currency, just unbeknownst to its owners, and perhaps with the help of some money laundering exchange, perhaps Mt. Gox itself. BitCoin is after all the preferred currency of drug dealers, at least until their fingerprints have disappeared and they can convert the digital money into something more tangible and fungible, like U.S. dollars.

I keep my cash in a couple of credit unions and a bank. It’s unlikely that a credit union like Pentagon Federal, where I have a couple of accounts, is going to go under like Mt. Gox. In the unlikely event that it does, I’ll get my money back because it is backed up by what amounts to the full faith and credit of the United States. Mt. Gox was backed up by the full faith and credit of, well, Mt. Gox. It’s like asking the fox to guard the henhouse.

And there’s the rub with BitCoin exchanges. When you create a currency detached from a government that will assert and protect its value, there is no one to complain to when your BitCoin bank goes bust. The government of Japan is looking into the event, but it is mostly hands off. It never promised to underwrite Mt. Gox, and Mt. Gox never asked it to. In any event, Japan underwrites its Yen, not BitCoins. Japan has a vested interest in keeping its currency solvent. It has no such interest in keeping another currency, particularly one it cannot control, solvent.

An exchange like Mt. Gox could of course seek out local governments for underwriting of their exchanges. Those BitCoin exchanges and banks that want to remain viable are going to have to do something just like this. Good luck with that. In doing so though they are of course defeating the whole purpose of BitCoin. BitCoin is about a libertarian ideal; it’s about money having a value independent of government apron strings. Affiliate the BitCoin currency in a BitCoin exchange with a government, and you tacitly admit that BitCoin is not a libertarian currency after all. In short, you have to give up the notion that money can be decoupled from government control.

It’s unlikely that many governments will be willing to protect BitCoin exchanges. It is reasonable to protect assets that you can actually control: your national currency. For a government to protect a BitCoin currency, it is reasonable to expect that they would also be able to control the amount of BitCoins in circulation and set rules for their use and misuse. They can’t do that, which means that they would be asked to put the good faith and credit of their country against an erratic currency that could prove digitally worthless at any time. This strikes me as a foolish thing to do, but there may be entrepreneurial countries out there, say, the Cayman Islands, that will take the plunge. The risk might be worth the rewards.

I don’t think you have to worry about governments like Germany, England, Japan, China and the United States doing something this foolish. If there is any organization that might see profit in this, it will probably be the Mafia, or other criminal syndicates, many of who are already using BitCoins as a mechanism for money laundering.

Doubtless other BitCoin exchanges will work real hard to sell trust that is now deservedly absent from these exchanges. As I pointed out in an earlier post, it’s going to be a hard sell given that BitCoin’s value is essentially based on faith in its mathematics and algorithms.

Absent from the minds of BitCoin true believers is an understanding that money must be tied to a governmental entity to be real money. It’s tied to governments for many reasons, but primarily because governments are required to govern, and this includes having the ability to enforce its laws and to collect taxes. Money is based on the idea that entities can force everyone to play by the same rules, including using the same currency as a means of exchange within the country for lawful debts. The truth is, there are no rules with BitCoin other than its math. It is a lawless currency. That Mt. Gox’s treasury of BitCoins can be plundered with impunity proves it.

Libertarianism is built on the idea of caveat emptor: let the buyer beware. No warranties are expressed or implied, but even if they are expressed they depend on the trust of the seller. No one can force the seller to do squat. The best a buyer can hope for is to track the thief down and take justice with his fists or a gun. That’s no way to run an economy, which is why libertarianism is an ideology that simply does not work in the real world.

Again, a word to the wise: just say no to BitCoins.

Bitcoin is libertarian bit nonsense

The Thinker by Rodin

Are you intrigued by Bitcoin? It’s a digital currency much in the news these days. It even got a hearing on Capitol Hill last month. Surprisingly the foundation overseeing Bitcoin came out relatively unscathed. Some places are accepting Bitcoins as payment for actual goods and services. They do so on the assumption the currency has value. Like any other currency it has value because some people assert it has value.

Which raises the question, what is its value? There are clearly things you can do with Bitcoin that are convenient. It’s a sort of digital cash for our electronic age. Only it’s not really cash. Real cash doesn’t leave fingerprints. You make a Bitcoin transaction and the transaction is recorded in the coin itself.

If there is value in Bitcoin, maybe it is from the faith we place in its math. There is not much we trust anymore, but you can still trust math, and Bitcoin depends on math, not to mention encryption algorithms, to assert its value. The number of Bitcoins has a finite limit because of the power of math and algorithms. Each attempt to mint a new Bitcoin requires lots of computers to spend lots of time and use lots of energy. For all its electronic novelty, it’s hardly an environmentally friendly currency. In fact, it’s bad for the environment.

You can’t say that about gold. Granted, the process of getting gold out of the ground is often bad for the environment, but once you have it, there it is, probably to sit in highly protected bank vaults and never to be actually moved or for that matter seen. A Bitcoin is entirely virtual but it depends on lots of computer hardware to mint and to assert its value. You won’t be creating one of these with a pad of paper and a slide rule. In fact, a Bitcoin is entirely dependent on computers and high speed networks. No wonder then that it was abruptly devalued last week when China blocked Bitcoin transactions. Keep it from being used in the world’s most populous country and it has lot less utility. Of course, it’s useless to anyone without a computer or some sort of digital device, not to mention some network so you can trade the currency. So it’s not even universal. You can’t say that about the U.S. dollar.

The larger question is whether a currency built on nothing but math really can have value. It does have value at the moment, as I can actually trade Bitcoins for U.S. dollars, which in my country is what everyone accepts as currency. In the long run though I think Bitcoins are going to be worthless. I don’t plan to own any of them and maybe I can make a case why you shouldn’t either.

First, there is whether counterfeit Bitcoins can be created. New ones can be minted if you have the computer horsepower and these are “legal”, but if they can be created for virtually no computer time then they would be counterfeit. Call me suspicious but I bet either the NSA has already figured out a way to hack it or will soon. In short, to trust a Bitcoin you must buy into its assumption that it can’t be hacked. Since the dawn of the computer age, hackers have demonstrated their ability to hack anything. They love the challenge. It’s reasonable to believe that Bitcoin is going to be hacked one of these days.

Second, there’s the question of what its value represents. I’ve discussed the value of money before. My conclusion is that money essentially represents faith that the country coining the currency will remain solvent and viable. I based this conclusion on the observation that currency value falls whenever these assumptions are shaken. Having a currency based on the gold standard doesn’t seem to make any difference, as the United States has been off the gold standard since the 1970s. Printing new currency doesn’t seem to be that big a deal either, providing the new currency is used to acquire assets of value. This is what the Federal Reserve has been doing since the Great Recession: creating money (none of it actually printed, apparently) and using it to buy long term securities like mortgage-backed securities. Curiously, just printing money is not inflationary when it is used to buy tangible goods. This is providing that the institution printing the money is trusted, and the Federal Reserve is trusted. In any event, investors can value or devalue a currency based on examining its monetary system and the country’s economy. With Bitcoins, you can’t do this. It is backed by no country, which is its appeal to its adherents.

What is Bitcoin really about then? It’s about a political idea; more specifically it’s about libertarianism. It’s trying to be a means by which libertarianism becomes institutionalized. If you are not familiar with libertarianism, it’s all about freedom, buyer beware and minimal (and ideally no) government. Libertarians (at least the committed ones) are vesting their wealth in Bitcoins because it’s how they show loyalty to the cause. They want money to be frictionless and outside governmental control. Arguably, Bitcoin does a good job with this, providing buyers and sellers will accept it as having value.

But libertarianism is an idea, not a thing. Libertarianism is really more of a verb than a noun. A currency though has to be based on something real. The U.S. dollar is essentially backed up by the collective wealth of all of us who possess dollars, or assets valued in dollars, or really any property within the United States. It’s based on something tangible. You buy a house in dollars instead of Bitcoins because everyone in the transaction has faith that those dollars mean something. This is because everyone else is trading in dollars too to buy real goods and services. If the U.S. dollar gets too low, there are things we can do about it. We can petition Congress or the White House to take action. There is no one to go to to complain about the sinking value of your Bitcoins. Assuming the currency cannot be counterfeited, its only value is its finiteness, enforced by math and increasingly expensive computational processes to make new coins. That’s it. As those libertarians say, caveat emptor (buyer beware). Bitcoin buyers, caveat emptor!

This tells me something important: Bitcoin is a bogus currency, at least in the long term. Yes, you can buy stuff with it now, but only from a very limited number of sellers: those who have faith in the idea of a libertarian currency. It’s obvious to me that libertarianism is just not doable as a sustainable way of governing. I have no faith it in whatsoever because its philosophical underpinnings do not actually work in the real world.

I would like to see it in Glenn Beck’s libertarian community, however, if it ever gets built. One thing is for sure, no one is going to build it for Bitcoins. They are going to demand U.S. dollars.

Why to drive on the wrong side of the road, or the power of rebalancing

The Thinker by Rodin

Whew! It’s been a long week, which makes it hard to find time to blog. When I slow down the frequency of my posts, traffic to my site sinks as well. Well, sorry, I’ve been busy. It’s not that I have run out of ideas. I generally blog about whatever is on my mind on a particular day. It does help though to know your market.

This blog attempts to be part education, part inspiration and part entertainment. The education part of it is because I probably spend too much time reading disparate stuff and when I find some wheat in the chaff I feel an obligation to get it out. Inspiration happens less frequently as most of my really good ideas and insights came out years ago. (Fortunately, a lot of those posts still receive regular hits.) The entertainment part is to give visitors a reason to come back. Sex sells, even on my obscure blog, as evidenced by a disproportionate number of hits on my posts on stuff like Craigslist Casual Encounters. Apparently I am vain enough to care about these hits, hence I am more than happy to do a monthly post on Craigslist casual encounter weirdness, or harpoon a recently uncovered philandering politician. I just can’t write about it everyday.

Today money, not sex, is on my mind, mainly because my financial adviser and I have been buying and selling mutual funds. So this post can be classified as education. I keep learning stuff from him and I thought I’d share what I’ve learned about the power of rebalancing.

When I speak of rebalancing, I mean shuffling funds you own around. In the case of my wife and I, these are mostly retirement funds. You may have an IRA or a 401-K and you may have the power to move funds around from one kind to another, say from stocks to bonds. This may not apply to many of you because you don’t have any funds. But you may someday, in which case keep reading. And if you do have some funds, you may learn some new stuff.

So let me ask you. Suppose you had a hundred shares of Google, purchased for an average of $500 a share, and are now worth about $1000 a share. You’ve been watching it trend up regularly with few bumps down. Would you sell it?

Most investors would say, “Hell no!” It’s the human tendency to be greedy, of course. After all, it could go to $1500 a share. 200% return sounds a lot better than 100% return.

Rebalancing a portfolio though is all about selling funds that are making money and putting it into funds that are not. Is that crazy or what? It is crazy, but crazy like a fox, and it is the secret to acquiring wealth for us ordinary mortals not fortunate enough to be Warren Buffet. Of course, most ordinary people aren’t buying stocks. We are buying mostly mutual funds, which are combinations of stocks, bonds and securities, and it is being done somewhat abstractly, probably through our 401-K or IRA plans. We buy mutual funds to minimize risk. Yet the principle remains the same. If you have money invested in a hot mutual fund returning 30% a year, it sounds crazy to take profit from it and invest it in some underperforming fund category, say a CD fund. Why would any sane person do this?

It’s because the only thing that is certain in the world of finance is that nothing stays static. In reality, investing is like playing a game of whack a mole. One fund class/mole gets hit and another one will pop up to replace it. It’s as given a phenomenon as the seasons except when it will happen is unknown. It’s well known that over time that certain kinds of funds pay better than others. Stock funds, for example, generally return more money than bonds over thirty years, although their value may swing up and down a lot. Investors chase profit and they chase wealth retention. Moreover, there is a lot of a herd mentality, at least among professional investors. Many take their cues from channels like CNBC. For the most part these investors aren’t looking ten or thirty years out. They are looking tomorrow, next week or next month. They want to grab some profit now. Investors like you and me though are more likely to want to gain wealth in the long term. We can’t time the market. In truth, financial gurus can’t time the market either. They like to think they can. Anyhow, since we can’t time the market all we can really do to acquire wealth is to intelligently ride the dynamics of the market.

And since the only constant in investing is change, we have to ride change to acquire wealth. So if we have a fund that invests heavily in sexy tech stocks like Google, Microsoft and Apple that has had a good and steady return then we need to sell it when it is profitable. We probably don’t want to sell all of it. There are two parts to this wealth business: gathering more wealth and hanging on to the wealth we have. So typically we own a lot of various fund classes, accepting more risky investments when we are younger and less of these investments as we age. So we can and probably should hold on to that sexy mutual fund, just bleed off some of its profits and put it into something that is not so profitable. We obviously don’t want to invest the money in a class of funds known to be a loser, such as a junk bond fund, but one that is currently undervalued and should become profitable once market conditions change fundamentally. Recessions are not events that might happen, they will happen. When they will happen really cannot be predicted, but when they happen a whole lot of panicked investors will quickly sell their new unsexy assets and buy U.S. Treasury securities and various bonds. We saw this during the Great Recession.

Reinvesting is all about buying low and selling high. If you don’t sell those sexy funds when they are high and buy something undervalued with it, you won’t lock in your profit. And if you don’t lock in your profit, you defeat the whole purpose of investing. The purpose of investing for the average person is not to get rich quickly, it’s to be rich in the future and retain your wealth in the future so you can spend it the way you like.

So that’s what my financial adviser and I have been doing: carefully looking at the value of our portfolio, seeing where we made money and to the extent its value exceeds the percentage we want to be vested in it, putting the profits into well managed funds that haven’t done as well instead. Because when market fundamentals change, as they will, we will have bought those funds when they were undervalued and will be prepared to sell them at a profit, probably for those stock funds that will then be undervalued.

In principle this is quite simple, with the hard parts being picking well-managed, low-fee funds in each asset class. The other part requires patience and discipline: ignoring day-to-day fluctuations and rebalancing regularly.

So it turns out that being a financial wizard is not that hard. You just have to have patience and be a methodical, slow and steady type of investor. You also have to adopt a counterintuitive financial strategy. It’s like driving on the wrong side of the road. Except by not following the crowd, you will actually be on the right side of the road.

Ca-ching!

The fool’s gold in gold

The Thinker by Rodin

I was born upon the fathoms
Never harbor or port have I known
The wide universe is the ocean I travel
And the Earth is my blue boat home

Peter Mayer, Blue Boat Home

Are you paranoid? Good! I might not have swampland to sell you, but I am sure I could be unethical enough to try to sell you some gold, albeit at hugely inflated prices. Owning gold suggests you own something with eternal value. Our currency may get suddenly devalued by ninety percent tomorrow but the thinking goes that as long as you got your gold coins locked up somewhere you still have wealth. You can maintain that standard of living because you own something no one can take away, and whose value none can diminish. You own gold! You are a survivor, you shrewd investor you!

I will grant you that gold will probably maintain its value much better than, say, the Zimbabwean dollar. Gold is pretty to look at, quite malleable, won’t tarnish and it must be worth something or it would not make up the majority of wedding rings. Mine is made of gold too, albeit white gold. It seemed better at the time than a ring from a Cracker Jack box. And since I have gold on me at all times should a financial apocalypse arrive, my wedding ring might buy us some food, a tank or two of gas, and maybe a couple of days in a hotel in our post deflated dollar world. Beyond that my gold wedding ring has far more sentimental value than monetary value. It turns out that its real financial value would be if I sold it for, say, American dollars. Dollars are convenient in pre-apocalypse America in that I can use it for an even exchange of value. Gold: well, not so much. Exactly how do you get change for your gold coin or ring in something that will retain value? It might help if everyone else kept a stash of gold coins too, but of course most of us don’t own gold and if we do it probably won’t be gold coins.

How good will gold be in a post Apocalyptic world? Well, it will be better than nothing but in a post Apocalyptic world when push comes to shove you will gladly exchange a large value of gold for basic foodstuffs and medical supplies. See, it’s that stuff you really need to survive the Apocalypse. Gold has no caloric or nutritional value.

Most people who own gold coins don’t keep them at home because they are worried they will get stolen. Gold coins are worth quite a lot, obviously, with an ounce of gold worth roughly $1600 at the moment. A one ounce gold coin though is probably going to cost you more than $1600. Someone has to make the coin and distribute it, and that’s a profitable business. Curiously no one buys gold with gold, but they do buy it with money, which gold dealers are eager to accept. Money, unlike gold, is fully fungible. Which makes money in general far more valuable than gold, which is why people prefer money to gold.

Some people with enough means pay a banker or a company to store their gold in a vault somewhere. It’s nice to know it is somewhere safe, but it’s unclear if everything goes to hell whether you will actually be able to withdraw your gold. I’m pretty sure most vaults are not safe from nuclear weapons. Even if they are, it’s likely that your banker won’t be around to open the vault. How would you make a withdrawal even if you could get to the bank? Hopefully there would be enough infrastructure in place and you will have an armored car to make the trip safely, providing the bridges have not collapsed and the roads are serviceable. Of course, once you have your bullion you would then feel the need to protect it from theft, not an easy thing unless you own a Brinks truck.

So maybe you need a more fungible form of gold. You could invest in gold stocks. Get a piece of paper that says you own twenty pounds of gold instead. Maybe in a post apocalyptic world showing your gold certificate will let the local black market distributor advance you some credit. Or maybe not. Maybe there just won’t be anyone around to barter for goods with anyhow. In a real Apocalypse, gold will be the least of your problems, because you probably will be dead. We’re pretty sure you cannot take it with you.

Are there reasons to invest in gold? As a hedge against inflation its record is pretty spotty, and people often tend to buy it when it is overpriced, i.e. when they are feeling scared. Perhaps having some part of your total assets in gold makes a certain amount of sense for the same reason some part of your assets should be in cash. In the real world though it won’t be gold that you will use to buy goods and services. It will be good old-fashioned money. You will want to convert your gold into money and use that. And unless gold appreciates in value over time, it’s probably not going to be a great investment.

Gold simply offers the illusion that your worth can maintain value regardless of the uncertainties in life. Rest assured this is an illusion, but perhaps it has some value because you won’t need to regularly pop Valium. Real worth is predicated on people thinking something has value. Moreover, real worth is the consequence of the way society is ordered and your place within in. Worth rests on a complex web of relationships, which must be there for your worth to have value. Worth depends not just on your job and your assets, but in the investment that society makes in civilization. It depends on the networks that make ATM machines possible and people’s willingness to work for a living wage, yes even at Walmart. It depends on roads being there so you can get to where you want to go. It depends on a justice system so the criminals aren’t preying on you and your neighbors. Without these and much more gold is worthless. Which means that chasing gold in the hope that it will keep you safe from calamity is foolish. It is fool’s gold.

As Peter Mayer put it, we are born upon the fathoms. Our home and our standard of living is an illusion. In reality we are living on a boat adrift in the sea, a giant Noah’s ark that we all share. There is no permanence; we are just around for the ride, but it’s a ride that we are all in together, so it behooves us to play nice and share our toys. So if you want to maintain your wealth and standard of living, stop looking at gold and try investing in society instead. Let’s make our world a place where we all have the likelihood to achieve our potential. Let’s keep investing in roads, good schools, new drugs and technological inventions. All these things though depend on a healthy and sustainable natural environment. Which means that our real treasure is not our personal wealth, but our shared natural world.

Now there’s a solid investment.

Sell

The Thinker by Rodin

I won’t claim to be an economist or financial wizard. I don’t bother to try to time the stock market. I buy in mutual funds in good times and bad times, hoping that general growth in mostly proven funds will mean I won’t eat dog food in retirement. So I was buying in March 2009 when stock indices reached their Great Recession bottom and I am still buying funds today, albeit steadily and incrementally.

That’s one way to make money in the stock market: keep buying in good times and bad and count on general growth for appreciation. That’s the boring and safe way to make money from the market, as long as you do it in the long term and keep plugging away. Hopefully you are not buying crappy stocks, funds and bonds, but ones with decent track records for beating the market.

The other way to make money is to follow the maxim: buy low and sell high. The smart people with capital were doing just this in March 2009. They were fearlessly investing while others were willing to part with their stocks for just about any screwy lowball price others were willing to bid. Oh my God, the world is going to hell. Gotta turn this stock into cash right now and maybe survive the next Great Depression. That was the wisdom of those times, just four years ago. People were chasing their fears and their fears told them to horde cash. As I noted in June 2009, stock in the bluest of blue chips, General Electric, briefly fell below $6 a share that month. GE, like many stocks, was crazily undervalued. Those with cash and nerve should have been telling their brokers to buy GE in bulk. If they had, and I wish I had enough spare cash to buy it, they would be sitting pretty right now. On March 5, 2009 you could buy GE common stock for $5.88 a share. Today four years later it closed at $23.67 a share. That’s an appreciation of 403% in just four years, or 100% appreciation per year, on average. It was, as I said then, a crazily great investment. Granted this is not as high as GE stock has ever gotten. On June 22, 2001 right before the tech sector collapsed GE traded at $51.86 a share. It was crazily overvalued then.

Most likely GE stock and the market in general are suffering now from irrational exuberance as well. Stock prices are inflated, largely because the Federal Reserve is keeping interest rates artificially low. While the Fed has no immediate plans to change this policy, you know it cannot last forever. In fact, some are speculating that even if the Fed continues to keep interest rates low, the market will correct this artificial imbalance through inflation. Inflation happens when too many dollars are chasing too few tangible assets. With nowhere else to put money in hopes that it will grow, people are buying stocks. This tells me that stock prices are inflated. But also I can sense they are inflated. I can tell from the anemic growth in our GDP, the 7.7 percent unemployment rate and median wages that continue to fall. While increasing stock and home prices will help stimulate growth, if it comes it will come much later, and it is likely to only help stocks reach their current valuation, not actually meet their current valuation.

March 2009 was, in retrospect, the time to buy and hold. Arguably, March 2013 is the time to sell and profit. Convert that valuation into cash, while other irrationally exuberant buyers are willing to buy your stock at inflated prices.

Of course if you followed the crowd and sold stocks and funds in 2009 and are buying them now again in 2013, you are guilty of two things. First, you are guilty of being like most everyone else: following the herd. There is some comfort perhaps in that you were not alone because your neighbors were doing the same thing, which is one reason their net worth (and likely yours too) fell. Second, you are being stupid a second time. You are the bottom fish that the bigger fish are about to consume. They are picking your pocket, not the one you have now, but the one you think you will retire on. You are buying what is likely to be overvalued stock in the long term. Why are you doing this? You are probably doing this because you cannot make a decent return for your cash by having them in savings and money market accounts. You are frustrated and you see the stock market surging up 26% in one year and you are thinking, “I deserve a piece of that action”.

And you do, but you are probably chasing an illusion. There is a stock market correction coming. I cannot tell you if it will be this month, this year or five years from now. But it’s not too hard to see that it is coming. Economic growth is anemic and profit depends on growth. Growth also depends on people having more money to spend. While the rich do, they are a tiny part of the populace. People like you and me are probably watching expenses like a hawk.

What do you do if you have been following the herd? My suggestion is to stop buying stock, most of which is dramatically overvalued at the moment, and put that money in a cash account for future investing. You are unlikely to get much appreciation for your investment, but you are likely to lose money buying stocks. Wait for the next market correction, when the stock indexes have lost a third or more of its value. Then steel your nerves and buy, probably in blue chip stocks. Then hold and sell many years later when the signs are clear the market is overvalued again. That’s when you lock in the profit.

If you did buy GE stock in bulk in March 2009, you are probably smart enough to do what you are already doing: selling it and converting it into cash for future buying opportunities. In general, if you have genuine appreciation for your stocks and bonds as a result of buying them low, now is the time to lock in your profit. Profit may also be found in selling your house. In most markets it is a seller’s market and prices have fully recovered from the Great Recession. If this is true in your area, your house is mostly equity, and you want to lock in that wealth, selling your house may make sense. (Of course there may be capital gains and other tax implications from doing this. Consult a financial adviser before doing this.)

Will I be doing any of this? No. As I mentioned, I don’t time the market. I invest regularly and I invest long term. If you are not this kind of investor though, look at your portfolio carefully and note those funds that now are valued significantly more than what you paid for them. Unless there are some special circumstances for these particular stocks and funds for future growth, now is the time to sell them and convert them to cash. Most likely you will find this to be a very profitable experience.