“Honey, I want to sell some naked puts.”

Naked?

If my husband Bigfoot wanted to do a little nude sunbathing on our enclosed, private patio: No problem.

If he got a wild hare to streak the local campus: I’d put it down to post-midlife crisis and file it away for future dementia monitoring.

But no, he wants to write an option to buy a stock if it falls below a certain price,  hoping it doesn’t so that he can collect a premium. The financial newsletter he reads says it’s one of the safest bets you can make.

Bets. I already don’t like the sound of it, so I do a little research. Sounds pretty straightforward. Assuming there are no complications, which could lead to “potentially catastrophic losses,” according to Wikipedia.

Now that kind of exposure offends my moral sensibilities!

But what do I have to offer as a sensible alternative? No matter what we do with our savings, there’s no safe place anymore.

We’re not alone. If you own a 401k, you’re a gambler too.

Consider the alternatives.

I could trust a money manager and pay him a fee to do the same kind of things my husband wants to do.

Financial managers used to say, just hold onto a diversified mix of stocks and bonds and you’ll do well in the long run.

Now, after the Great Meltdown of 2008, many of them are out of business. They didn’t even survive to profit from the Great Meltup of 2009. Those who did are understandably skittish. They tend to take profits and leave the table sooner, leading to even more market volatility, and greater potential gains–or losses.

I could buy Treasury bonds, which used to be considered the ultimate safe haven. But how safe are they really, now that China, the big buyer who’s kept the market stable for the past 20 years, is making threatening noises about our debt? And you can see why: We now have $13 trillion in outstanding public debt, the Treasury Department says, or $43,000 for every man, woman, and child. Paid for by Treasury bonds owned by Chinese, Europeans, Americans, and everyone else who bought them, all expecting to be paid back with interest some day, because surely there’s no way the U.S. government will ever default on its debt.

Is there?

For the first time, ever since Greece defaulted, the question is being raised in some financial circles. Because the mind-boggling $13 trillion, bad as it is, is likely to keep growing. There may be more stimulus packages. There may be more wars. And there will definitely be more people on Medicare.

What if we just imploded, like Greece?

Actually, the mainstream business press says Greece is doing OK, at least for now. The Euro community decided it was too big to fail, so Germany bailed it out.

But I don’t know. Does this look OK to you?

Still, maybe Greece will manage to survive and stay in the European Union.

But what happens if you’re too big to fail and too big to bail out?

Just thinking about it makes my head ache, and anyway it seems like one of those remote,  “fat tail” chances.

Just the same, I think I’ll pass on government debt as a safe investment.

What about gold, the investment standard that has held up through the ages? As the value of government debt and the dollars the indebted government creates fall, the value of gold rises.

Image courtesy of www.platinumgoldcoins.com, broker/dealer for precious metals

Value of the Dollar Relative to Gold, courtesy of Charles Vollum, http://pricedingoldlcom

I could buy gold coins and gold bars and put them … hmm, where could I put them? Under the mattress? What if a burglar steals them?  In a safe deposit box? There are reports of things disappearing from them sometimes. Maybe I should bury gold in a hole in my back yard like a pirate and hope I don’t forget where I put it, like the old guy in Hans Brinker and the Silver Skates.

But gold bugs say the yard is too close. If you want gold or silver, you need to keep it abroad somewhere, out of the reach of long-armed Uncle Sam, who made owning it in this country illegal during the Great Depression. (We couldn’t have another one of those again. Could we?)

Gold and silver may be shining investments, but they are unwieldy and complicated. And the world market for them is much smaller than stocks and bonds, small enough that a few huge banks have the ability to corner and manipulate it to a large degree. Which is exactly what the gold bugs accuse them of doing.

I could put my money in an index fund. Now there’s a simple concept. Mutual funds that merely track an index, such as the Dow Jones, as a class actually perform better than those managed by experts. They’re said to be so simple, even a monkey could run one. (A Dilbert  cartoon once featured a hedge fund run by carefully selected monkeys. Yes, their fees are higher… but high performance has its costs.)

Smart Monkey

But it’s still going to be a bumpy ride in an uncertain market. No matter what I do, my fortune and my savings – my retirement! — are tied to fast moving, volatile forces way beyond my control.

It’s like throwing your money into a hurricane.

How did we get into this mess?

Back in the olden days, most people didn’t have much in the way of savings, but they did have extended families and communities to depend on in their post-working years. Many had a vegetable garden, and maybe some chickens and a cow to help with the grocery bill.

Later, when more people were living in cities among strangers, companies had pension plans for those who were lucky enough to live past retirement, which many did not. But then health started to improve, and they did. Lots of them. Underfunded pension plans started going broke.

The government’s solution? ERISA, the 1974 law that took us all out of defined benefit pension plans and put us into defined contribution 401k’s.

Whole industries sprang up around the change. Enormous amounts of money were invested–into the hurricane. Some prospered, some got smashed to bits. It’s still going on.

Isn’t there a better way?

It seems like there should be. Maybe if the country didn’t borrow so much and have to  worry about paying it all back with interest, we could go back to collecting our measly 1.2 percent on a savings account (Remember those?) and still be OK, because we wouldn’t have to worry about our savings eroding through inflation.

But I have to deal with today’s reality.

Should I let my husband try his naked put strategy?

The gains are uncertain, and we have everything to lose.

But the way things are now, that’s true no matter which way you turn.

Investing: The Naked Truth is a post from: Domesticus

Image courtesy of Mundo and www.FreakingNews.com

Has technology really made life more efficient?

Or have things gotten worse?

Today we have:

But we remember when people got things done without them.

When Domesticus was a kid back in the Pre-Digital Age,

• Digits were on your hands, for easy use as a math tool (and somewhat later, a math tool hidden under your desktop).

• Texting wasn’t available, but American Sign Language and crumpled paper balls did the trick.

• Transportation was getting everywhere you needed to go in one pair of Keds or loafers, usually with at least one hole in the bottom.

• Meals were consumed at a table with the family, after being cooked in an oven by a grownup; and

• Toilets worked!! Did the job with one quick touch, and almost no need for maintenance. True, they wasted some water. But what about the human energy we waste now, when they don’t get the job done the first time around? What about the disgust factor?

Then there’s hot water faucets. Used to be, you turned on the tap and right away, the water that came out was hot enough to make instant coffee (a beverage from the pre-espresso era.) Now you have to wait. It probably has something to do today’s 3000-square-foot homes requiring longer pipe extensions than our old 1050-square-foot apartment. Which somehow housed three people comfortably. (We stored a lot of things under our beds. It was quite efficient  in its way.)

Garbage. Used to be, you bought stuff at the store and carried it home—on foot—in a brown paper bag. Later on, the bag went into a big metal trash can, along with apple cores, milk cartons, chicken bones, coffee cans, and once a year, a pair of Keds or loafers with rundown soles and a hole in the bottom. The trash men came and picked everything up. End of story.

In Seattle, where I live now, every household is provided with one large plastic trash can and two gigantic plastic bins: one for recyclables and one for yard waste. Over time, some of these plastic containers get holes in them, or their lids blow into the street and get smashed, or their lids get cracked by people who place heavy rocks on them in a vain and pathetic effort to keep out raccoons.

So the city kindly replaces the cans unasked and at no extra charge—until your monthly rates are inevitably raised.

The city also provides you with a 12 x 17-inch color brochure that can be posted on your refrigerator, as long as you don’t plan on putting up anything else there, and which illustrates what to put in Garbage vs. Recycling vs. Food + Compostables vs. Other Collection Services vs. Beyond the Curb.

Just one side of Seattle's recycling brochure

The brochure is helpful, but it requires some deep study to get it all down. Once you do, it is a surefire way to impress out-of-town guests as they stand helplessly in front of your refrigerator, empty beer can in hand.

This city is serious about recycling. Trash collectors can and do leave your can on the curb if more than 10 percent of its contents are recyclable. And what’s recyclable? That depends, and even the people who work for Solid Waste get confused. (Read William Barrett’s entertaining blog post on the subject here.)

But Domesticus is actually OK with recycling. Just don’t ask us to compost, which involves keeping rotting tomatoes and swarming flies in our back yard. Recycling is good because it gets us to start thinking and caring about the environment in a warm and fuzzy way.

However, the more you think about it, the less warm and the more fuzzy it gets.

For instance: What is the environmental (as well as monetary) cost of having three types of trucks, run by three separate companies, come to your door on trash day?

How much water do you waste cleaning out a peanut butter jar for the recyclables bin? And what if you have cold hands and use hot water (Guilty!)

What happens to the old plastic trash cans when they are replaced with new ones? And do they really have to be made out of plastic?

You could allow this kind of thinking to go on and on and eventually trash the whole environmental movement. But that would be a mistake, even for those of us who’ve been around long enough to think that the old way, in its way, worked. Less recycling, with all its complications and contradictions, and also less stuff. A lot less stuff.
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But we’re not going back to one-pair-of-shoes-a-year or oldie-but-goodie toilets. And even as disjointed as things are now, it’s better to care than not. You need to care to have any hope of ever improving things.

And so far, there’s no app for that.

Efficient Technologies is a post from: Domesticus

Doing God's Work

What’s going on at Goldman Sachs? Are they really as evil as trader Greg Smith said in his very public resignation letter published in the New York Times? Or was it merely a case of sour grapes on the part of Mr. Smith, who, though he made $500,000 to $700,000 a year, failed to achieve Master of the Universe status at Goldman, where he is now being called a “disgruntled mid-level employee.”

To find out the truth, Domesticus decided to interview another trader at the busy firm. We caught up with Mr. Stikit Tuem as he was hastily clearing the remains of a Subway Spicy Italian sandwich from his desk.

Domesticus: Gee Mr. Tuem, you’re a top trader at the Big G–where’s the three-martini lunch?

ST: Are you kidding?! Our hours here are 7 to 12. That’s a.m. to a.m. Breakfast is a bowl of Wheaties at your desk. Lunch is Subway, and for dinner we get Chinese take-out. That’s our culture. We call it diligence.

Domesticus: I see. And speaking of culture and diligence, is it true that Goldman traders call their clients “muppets”?

ST: I’ve never used the term myself. It’s mostly the Brits who use it, even though the actual  Muppets were created right here in America! Over in India, they say “gandu,” and in South Africa, it’s “domkop.”   In China it’s sometimes “baichi” and sometimes “shazi.” We’re a global firm, you know.

Domesticus: How accurate was Matt Taibbi’s Rolling Stone article that called Goldman a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”?

ST: He didn’t do his research. He doesn’t know the half of it. Goldman has been around since 1869 and has a very long and colorful history.

Domesticus: Are you saying–

ST’s Secratary,  poking her head in the door: Excuse me for interrupting, Mr. Tuem, but you’ve got a client on the line.

ST: On the line! Well, let’s reel him in! Is he a big fish?

ST’s Secretary: I’m not sure what you mean. He said he’s a childhood friend of your mother’s and he just lost his home to foreclosure. He’s considering bankruptcy and really needs some financial advice. He sounds pretty down, and said something regarding taking some pills and jumping off the Brooklyn Bridge if he can’t straighten out his affairs.

ST: The Brooklyn Bridge! How corny can you get?! Guy’s got the imagination of a slug! No wonder he’s bad off. Tell him I’m in a meeting.

ST’s Secretary: But what if he jumps?

ST: In a meeting, I said!

ST’s Secretary: Closes door and leaves.

ST: Let’s see, where were we?

Domesticus: We were on the culture at Goldman. What do you think about Fabulous Fab, who boasted of being the only one left standing when the market collapsed from all the exotic derivatives he created?

ST: Those Frogs. Always think they’re superior to everybody else. Well, look where he is now!

Domesticus: So I take it you’d agree with your chief executive’s statement that you are just bankers “doing God’s work.”

ST: Damn right! We bust our balls for our clients. And if those 404s don’t even realize it, they deserve to  have their eyeballs ripped out!

Domesticus: Thank you, Stikit Tuem. In just one short interview, you’ve taught us as much as we ever want to know on the subject of Goldman Sucks…er, Sachs. Have a great evening, and stay dry.

Miss Piggy and Kermit, photo by Ross Hawkes. Miss Piggy says, "The early bird gets the worm--which is what he deserves."

Goldman Sachs is a post from: Domesticus