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September 26, 2006

Portland Pirate Festival

Ahooooy! I attended the Portland Pirate Festival, scheduled close on the heels of International Talk Like a Pirate Day.

I knew it was going to be a good day even before I got inside. While I was waiting in the ticket line, a pair of thematically-dressed wenches got into a spat, hurling heavily accented insults at each other. The showdown had them standing bosom to heaving bosom until one ran out of witty retorts. Damn I love wenches.

This was a family event, and there were a lot of children there. And many of them, like the adults, were dressed as pirates. I overhead a kid asking one of the wenches, "do pirates eat pizza?" (Bless the children!)

But you want to hear more about the bosoms, and I shall oblige. I knew the costumes would be a bit exaggerated, but I had no idea how much. One woman was wearing a … well … I can only call it a boob shelf. Her costume stuck out horizontally as a platform for her ampleness to rest on. I don't know how she didn't tip over with a center of mass so far forward.

I met a celebrity: Cap'n Slappy, one of the creators of International Talk Like a Pirate Day. He was there to enjoy the festivities and to sign copies of his book. I only talked with him briefly, but learned that he didn't get any sleep for two days around Talk Like a Pirate Day. He said it's quite popular in Australia as well as in the United States, and one of the reasons he didn't get sleep was that he was doing Australian radio shows.

The major draw for me was the music. A pirate band, Captain Bogg & Salty, gave three performances over the course of the day. The first mate's blog lists the tunes they performed. Certain co-workers of mine have made fun of the very idea of a pirate band, but I thought they were very good, and always in character. The inevitable live performance technical glitches were well-handled, and one time when Captain Bogg forgot a verse, he recovered with a very funny "what do you expect, I'm insane!"

There were several other musical acts, all talented and little crazy. My main complaint was that the non-amplified acts could be difficult to hear. It was an outdoor festival so the acoustics were poor to begin with, and it was made more difficult by having musical acts performing near the pub where there was a lot of other conversation going on. I wanted to listen to the music as an activity, not merely have it in the background. I had to get very close to the acts to hear them acceptably well.

This is only a short report of what the day had to offer. It leaves out a lot. The day was very fun and I hope they make good on their threat to make it an annual event.

September 18, 2006

U.S. Mint vs. Liberty Dollar

The U.S. Mint issued a press release a few days ago that has probably made the Liberty Dollar folks very happy. This is the kind of advertisement that money cannot buy. It's also a milestone for the Liberty Dollar program — they're big enough now that the U.S. government is beginning to feel threatened.

Threatened enough to claim that it is a crime to use the Liberty Dollar:

NORFEDs "Liberty Dollar" medallions are specifically marketed to be used as current money in order to limit reliance on, and to compete with the circulating coinage of the United States. Consequently, prosecutors with the United States Department of Justice have concluded that the use of NORFEDs "Liberty Dollar" medallions violates 18 U.S.C. § 486, and is a crime. [source]

For your reference, this is 18USC§486:

Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both.

While it may look frightening, it's irrelevant, and the typically overzealous Department of Justice is overreaching. Even the casual hobbyist coin collector quickly learns that numismatics can be strict about its definitions. The word "coin" can only be used to refer to government-issued round shiny things. Privately minted round shiny things are called medallions, tokens, disks, rounds, or (yes) round shiny things.

The Northwest Territorial Mint (a private mint I've visited) has a glossary that backs this up. Even the U.S. Mint's FAQ page will, if you search for the word "coin", define it as a "flat piece of metal issued by the government as money." (See entry #115 on the search results page.)

If this weren't damning enough, the U.S. Mint's own press release consistently refers to the Liberty Dollar round shiny things as "medallions", reserving the word "coin" to refer to U.S. Government coins.

Furthermore, private mints have a prominent and interesting history in this country, especially during the California gold rush, when many created round shiny things in clear imitation of official government coins and even continued to operate alongside the U.S. Mint's San Francisco branch when it opened.

I've been unable to locate an authoritative online legal definition of "current money" but I suspect it may mean money declared to be legal tender. (This section of the U.S. Code is about counterfeiting.) If true, the Liberty Dollar is also fine because it does not claim to be legal tender. The law here is making it illegal to offer something as a legal tender when it isn't.

Full disclosure. I own a few Liberty Dollar round shiny things as a collector, from both before and after their switch from a $10 base to a $20 base. I have some misgivings about the Liberty Dollar but I completely endorse their disapproval of central banks and fiat money.

I'm much more comfortable endorsing the Phoenix Dollar because they aren't attempting to create a fixed exchange rate between their currency and U.S. currency.

September 08, 2006

Brain Getting Stuck

Over the past few days I've been unusually focused at work. Not very many meetings or disruptions. Challenging problems to work on. Lots of quality time between myself and the computer, programming in assembly language, playing human compiler.

That does weird things to a person. Many times over the past couple days when I've been roused from my concentration by some kind of interruption, I've noticed that my speaking skills were horrible. I would say words out of order, mispronounce them, and even flatly use the wrong words. This was particular to speech — I had no trouble writing verbose and grammatical comments as part of my programming.

I don't remember experiencing this in the past, but it's certainly happening now. It's been taking me several minutes to "decompress" and return to normal.

I'm not sure what mode I've been getting my brain stuck into, but it's an effective one. I finished the prototype implementation for a new feature in two days when I had previously estimated it would take four or five. (I can usually predict my implementation effort very accurately.) I was working on it urgently, to help some co-workers get past a problem, and this might have been a factor.

I don't have anything profound or insightful to say about this phenomena. Just observing and reporting it. If you work with me and I say something ungrammatical, just smile and get back to me after I've had some time to relax.

September 04, 2006

New Essay on Rates of Return

As I thought a bit more about my early retirement post I realized I was getting the itch to do something mathy and graphy. So I've written a new essay defining the "true" rate of return that discusses the surprising interaction between taxation and inflation, and how it affects your investments.

September 03, 2006

Financing Early Retirement

How much money does it take to retire early? It's actually very expensive, because there are powerful tax incentives against it. Retirement accounts get preferential tax treatment, but have the drawback that your money is locked up until you're old. You can't use them if you retire early. You'll have to do it with regular taxable investments, instead, and any money already contributed to retirement accounts is basically unavailable.

I'm thinking about this because I realized I have enough liquid assets that I could pay off my mortgage if I wanted to. (I crossed the threshold last month but didn't realize it until I was looking at this month's numbers.) I won't do it, because I'm only paying 5% interest and I can easily earn that much in safe investments. The relevance is that the key enabler of retirement is that you have enough money to pay the bills, so the ability to get rid of my single largest monthly bill is an important milestone.

The typical retirement-planning fear, "will I outlive my money?", is more acute for people thinking about early retirement. Because they have a longer remaining lifespan, it's more dangerous for them to draw down their savings. It's preferable to live on the income generated by investments. But how much is needed?

I keep a lot of data on my monthly expenses, so I know with high confidence that I typically spend a little less than $1,000/month on bills, food, and gasoline. Assume another $250/month for transportation (using the nice round numbers of keeping a $30,000 car for 10 years). I like big, safe, round numbers so let's assume another $250/month each for housing maintenance, medical expenses, and entertainment/travel. So with generous padding, my lifestyle costs about $2,000/month.

Of course, inflation will cause my cost of living to rise over time. Let's be pessimistic and assume a 4% annual rate of inflation, and a reasonable 8% nominal rate of return from investments. That puts my real rate of return at 4%. To generate $2,000/month, or $24,000/year, I would need to have $600,000 in regular taxable accounts — after having my mortgage paid off.

Working out some crude projections strongly underscores how despicable the combination of inflation and taxes really is. Inflation creates paper (but taxable!) gains by increasing all prices. Taxes make no distinction between real and nominal earnings, so the portion of nominal earnings that was caused by inflation and does not affect your economic position is taxed just as if it were an ordinary gain.

Here's an example using interest income, which is taxed at the same rate as wage income. If you had $1,250 invested at 8%, it would return $100 over a year. If you were taxed at 37% (Federal 28% plus Oregon 9%) you would be able to keep $63 of that $100. But when you consider the 4% inflation, $1,250 the first year is equivalent to $1,300 the second year. After keeping $63, you have $1,313 the second year. Due to the combination of taxes and inflation, your true rate of return was only 1% — one eighth of what you thought you were making!

If your income was in the form of (long term) capital gains and dividends, taxed at 24% (Federal 15% plus Oregon 9%), you would have $1,326 the second year, for a 2% true rate of return — one fourth of what you thought you were making!

Congress and the Federal Reserve are extremely effective at screwing investors. If there were widespread education on this matter, I wonder how deafening the outrage and demands to go back on the gold standard would be?

Clearly "buy and hold" is a useful strategy, because it allows for a longer period of compounding before the government takes its cut.

I've made some extremely crude projections based on my actual savings rate over the past year with the 2% true rate of return, with the (poor) assumption that there would be no significant changes in my life. And by these projections I could afford to retire in 2016. I would have almost paid off my mortgage by this time, anyway — less than $10,000 remaining. If I stopped contributing to my 401(k) and put that money into a taxable account instead, I could return in early 2015. And if I also stopped contributing to my Roth IRA, it would be pulled in to late 2014. Withdrawing my old Roth contributions makes almost no impact.

How much impact does inflation have? You may be surprised. If inflation was only 3% rather than 4%, my "true" rate of return would increase to about 3% and I would only need to invest $480,000 to generate the necessary income. I project I could do that by the end of 2013 — a little more than two years earlier!

September 02, 2006

Net Worth Report - End of 08/06

August was a great month for my finances. But there's a special item that makes comparisons a little difficult. My ESPP purchases shares in February and August but the payroll deductions are continuous. I don't smooth these effects by counting those payroll deductions as an asset, leading to jumps in net worth in February and August. The amount of the jump this time is between $5,000 and $6,000.

Net Worth Figures

The majority of the rest of the improvement comes from the recent run-up in Intel stock. Short-term holdings are higher than normal because I just sold an (older) ESPP lot. I'll be paying property taxes soon and reinvesting the remainder.

Recall that I'm defining "Adjusted Net Worth" as net worth excluding the value of autos and unvested stock. The "Estimated Contribution" is how much money I believe I'll need to invest in order to meet the following month's ANW target. A declining EC indicates that I'm ahead of plan, and an increasing EC indicates that I need to save more in order to reach my long-term goal.

Goal-Tracking Figures
Adjusted Net Worth$422,503.48$437,900.27
Next Month's Target$425,169.41$440,460.25
Estimated Contribution$269.89$93.72

My credit card balances are 100% backed by time deposits and/or savings accounts earning interest at a higher rate than I'm being charged by the credit card companies. The monthly payment is estimated as 2% of the balance. (Most credit cards are now using a 2% minimum payment, and due to this it is important to have a strong cash flow and/or pay with funds from your credit card arbitrage savings account.)

The 0% period on one of my credit cards is ending very soon. I was able to transfer $4,000 to a different 0% card (but only for a few months) and paid the other $5,000 off.

Credit Card Arbitrage Figures
Balances @ 0% APR$31,682.32$26,248.72
Monthly Payment$633.65$524.97

You can keep track of other personal finance bloggers at NetWorthIQ. I've updated my entry there.

Tiny Island