Why Economics Should be Required.

I came across this bill being proposed in the CA Senate recently:


The short version, is they want to raise the minimum wage from $8 an hour in CA to $9 next July and then $10 an hour July of 2016.

Really? Don’t we usually decrease the price of something when we want to sell more of it?

Economics people: We have relatively high unemployment in CA right now. Do you remember your supply and demand graphs? Unemployment means that the supply of labor currently exceeds the demand for labor. How do we fix this imbalance?

We can cut the excess supply. Given that our supply is “people” I don’t think that eliminating them is a really great option…

So we have to increase demand. OK, how do you immediately increase demand? That’s right! Put it on sale. A.k.a. decrease the price. When the milk and veggies are about to expire at the grocery store, the manager does not jack the price up. They decrease the price, to encourage you to buy it.

So, we have a bunch of people who want to work, and can’t find a job at $8 an hour. Do you think that they will find work if we increase the minimum pay to $10? You don’t have to be an economics genius to figure this doesn’t work.

Maybe instead we need a minimum wage holiday. A temporary decreasing of the minimum wage. to boost the demand for labor. When the economy goes into recession we lower interest rates to encourage spending, why not lower the wage rates. Maybe it will keep some people employed (albeit at a lower amount) than otherwise would have. $6 an hour isn’t great, but it is better than $0 an hour.

I don’t disagree with the idea of a minimum wage, per se, but with this bill it is clear someone just isn’t paying attention. Maybe next time the economy tanks we should talk to our politicians about a minimum wage holiday!

And yes, I fully expect to get an email from my brother in 5… 4… 3… 2…




When Someone Says it Better…

Cafe Hayek is an economics blog with a decidely “laissez-faire” tilt that I follow and enjoy a great deal. One of my favorite things about that blog is their quotation of the day, which exposes me to a great many other excellent books, blogs, essays, and videos.

Recently, a quote came up that resonated with me. I wrote a post a while ago entitled Work Makes Wealth. The basic thrust of my post is that no investment will make you wealthy. Investments protect and/or grow wealth, they don’t create it. There is no magic bullet.

I made that point using 576 words.

This guy did it in 28.

So, when someone says it better, give them credit and show it off.

From page six of Edmund Phelps‘s hot-off-the-press Mass Flourishing:

Understanding the modern economies must start with a modern notion: original ideas born of creativity and grounded on the uniqueness of each person’s private knowledge, information, and imagination.

Like I said, the most valuable ideas are hard to replicate. Creating something of value is the only way to accrue more valuable things to yourself.




What To Look for In a CPA

I had a very nice reader email me my thoughts about what to look for in a CPA. They were looking for someone local to their area. Offered without comment is my response to her:


As for finding someone my advice would be to make sure that you pick someone you get along with, first and foremost. If you have different work styles, generational gap, cultural issues, or just a funky vibe keep looking.


The next most important thing is to make sure that your interests and the interests of the person you are hiring are aligned. What I mean by this is, how do they bill? What other services do they offer? If they bill by the hour, then you might hesitate to call, for fear of getting a bill you can’t/don’t want to afford. This can cause you to not seek out advice when you need it! This is why I bill, and advise you to find someone who does also, on a flat fee basis. When I quote a price for a tax return, it includes tax projections throughout the year, unlimited tax questions, etc. I find it easier for everyone to just have one price to “be your guy”. It also makes sure that I do things right the first time and explain everything clearly and well. Because if I don’t, it makes more work for me, which I do not get paid for!


Find someone who takes the time to understand your business, and who works with people like you. I do not mean someone who is in the “widget” business like you are. CPA work is, for the most part, industry agnostic. What I mean is, if you work on a paper system, make sure he/she understands that. If you like face to face meetings, he/she should too. If you live most of your life online, your adviser should understand the ins and outs of how that works. In addition, when you interview them (and you should) they should be asking insightful questions that demonstrate they have a grasp of what you do to make money.


Lastly, look for professional education and designation. I would suggest a CPA, I think they are the best equipped to handle these things. I might be biased in making the recommendation though :-) Additional education and designations are great as well. Not because of what they mean, per se, but it shows a drive to go above and beyond that can be very positive.


What to avoid:

If you don’t understand what they are advising you to do, stop and ask them to clarify. If they struggle to explain it in a way you understand it stay away. This is a dead giveaway they don’t know it very well either.


Avoid people that seem to just be agreeing to fill in forms for you. Someone in your position needs so much more than forms prepped. Make sure they understand this and will offer suggestions, ideas, and insights into your business. A good adviser knows the problems you will face better than you do and will take steps to help protect you before you even know you need it. If they are reactive, not proactive, stay away.


The best place to start, in my opinion, is with people you know. See who other business owners are using. Talk with your local chamber and see who is active in the community.


That being said, I would be happy to try and answer questions you might have that are specific to your business or financial situation in general. I love working with people who have the drive to start “side businesses” and the smarts to make them successful!


Don’t forget the special offer that I am doing right now. If you get in touch with me and let me prepare your taxes via dropbox or Evernote, I will give you 25% off my normal price! This won’t last forever, so give drop me a line soon!


Evernote, Taxes, & A Special Offer

Hello again friends.

As that lovely time of year sneaks up on us again, I wanted to re-post something I wrote last year at this time. A about a year ago, Brett Kelly and I wrote blog posts about how we did his tax return entirely via Evernote. It was a great post and was a really fantastic proof of concept. Brett’s post was better though.

This year, I wanted to take it one step further though. Because I love Evernote so much and I love having a digital workflow so much I want to offer you cash to let me do your taxes via Evernote.

That’s right. If you contact me, mention this blog post, and share an Evernote notebook with me where you have stored your tax documents  I will give you 25% your tax prep fee. In some cases, that can be as much as $250 (or more) in your pocket.

No, I am not kidding. You can save 25% on your tax prep if you let me do your taxes via Evernote. 

So check out my side of how it worked here and also from the client side.

And if you want to make your life easier and save some serious dough, email me at andrew@nchwealth.com  and we will get started.



LIBOR and a Reality Check

A friend asked me what I thought about the LIBOR scandal and specifically, the Tim Geithner quote saying that he had sent “a detailed memo to regulators expressing his concern” some time before the actual scandal came to light. I thought the rest of the world might enjoy hearing my response:


I have a couple of thoughts:

On this article specifically, yes this makes perfect sense. Everyone knew that the system was corrupted, or at least corruptible (everyone meaning regulators and governmenty people in the know) but so much was based on it that no one wanted to do anything. In that situation, they likely believed that shaking confidence in the number would likely do as much or more damage than the actual manipulation. So they send “memos” to each other that they can point to when it blows up, which “proves” they were the good guy.

That being said, LIBOR was never designed to be a metric that we base almost all fixed income things on. What the hell does a mortgage in Argentina have to do with what rate London Bankers are offering each other? It is an old system that created decades ago and the designers never dreamed it would be used this way.

No one thought far enough ahead. It seemed like as good a thing as any to use at the time, so they did. And then one day, they woke up and realized they had built a house of cards  and said “well shit, no one sneeze”.


Well, someone sneezed.


But it illustrates what is something that I tell clients all the time. There are powers that be out there that wield WAY more influence than us mere mortals could ever understand, let alone control. I do not mean in a conspiracy theory kind of way. I just mean that our world is very, very large. And very, very, complex. And the wealth that any one individual (the 1% aside) is basically worth nothing overall. So thinking that you are “in the know” and have the scoop, and aren’t going to get taken for a ride is crap. If George Soros or Warren Buffet want to flatten the price of gold, they can do that. You, however, simply don’t wield that kind of influence. And this is probably good. Our world has built so much wealth by getting very specialized in what we do. So much so, that it is unreasonable to think that you can understand all the ins and outs of everything. If every banker could fix their own car, mechanics wouldn’t be worth much. If every mechanic can do their own investment analysis, bankers wouldn’t be worth much. But they both agree to specialize and understand that, by relying on the other person, they can both produce more value (which means become wealthier).

So all you can do is invest smart, diversify, work hard, and you have a little faith. Trust that there are experts out there who know what they are doing. And that you cannot do everything yourself.

Also, at the end of the day, manipulating LIBOR is still just a shell game. Those who have capital are making money on it. Those that can create value will be compensated for that value. Those that consume less value than they produce will become wealthier. And those rules NEVER change. So blame the capitalists pigs if you want, but at the end of the day, if you are in the same lousy place as you were yesterday, it is (99% of the time) NOT anyone elses’ fault but yours.


Investing From a Place of Fear

A client emailed to ask me about a book they had seen. It talked about how the only way to invest was to put money into gold, how house prices were still not done falling, but that REITs were the way to go. That the dollar was about to collapse because of the government printing money and gold was the place to be. They also said to turn your dollars into other currencies (Canadian dollars) since the dollar was going to be unstable. Here is the response I wrote back, and thought some of you might find it interesting:


The premises are not dissimilar from what a dozen pundits are throwing out there. Most mainstream folks will agree, conceptually, with some of his thoughts. The difference is that he ignores certain checks and balances that would come into play so he can take the thoughts to their theoretical extremes (you know how well fear sells!). But some thoughts I have on it are this:


Long-Term Treasuries: Obviously rates are going to go up. They are at nearly zero which means they have to go up at some point. But we know this, which is why most of our bond portfolios are more heavily weighted toward shorter duration bonds which have less timing risk. But in the meantime, we still want some longer term ones because they are yielding pretty decent. Running away from completely from an asset class just seems extreme to me.


Real Estate: This one confuses me, he says the real estate is going to drop, but recommends you buy REITs? Sounds like a great hedge on being right no matter what happens! But yes, I do think that there is still some instability in residential real estate but that it is still a historic low time. So not over investing in real estate right is a good idea, but the low prices can still make it an attractive long-term investment.


US Currency: The scale of the capital market in America, and for Dollars, is more vast than most people can even comprehend. I do think there will be inflation coming, but that inflation will not necessarily be just in dollars. Europe is going to inflate their way out of debt as well and the emerging economies are already showing some signs of overheating (China has been steadily increasing its core interest rate recently to combat inflation.) The point is, America is still the largest market for basically every economy on earth. Looking at Canada is a great example. How much of Canada’s economy is based on exporting to the US? And if the dollar “weakens” against other goods, then all it does it make it more profitable to produce here instead of importing (which, conversely, will create jobs and spending IN the US, which strengthens the economy and the dollar). To not risk collapsing their economy, other countries will have to weaken their currency to match the dollar, to compete with our local manufactures. And this story repeats all over the world.


Gold can be a great investment, but the price of gold has two components: hard demand and speculative demand. Hard demand is the demand for real uses (e.g. manufacturing). Speculative demand is the amount that speculators have bid the price up. It has been a little while, but the last time I saw some research nearly 80% of the price of gold was based on speculative demand, not hard demand. So, it might be a great investment, but it can be a HIGHLY volatile investment. This is neither good nor bad, and it should (and is) a part of your portfolio. But we cannot put a huge chunk of your money into something that can turn on a dime like gold can. Speculators can change their mind quick and when they do, that price of gold can drop to the hard demand lever QUICK.


These folks like to use fear and statistics to sound academic and sell books. And MANY of the things he is pointing out are correct. But it is rarely, if ever, the whole story. I like to take a step back when I get entrenched in these types of things and do a reality check. What country has one of the most productive work forces? What country has one of the highest standards of living? What country has the largest, bar none, capital markets? Which country is still one of the most advanced in research and technology? What country has the largest economy, by orders of magnitude, than any other country in the world? (Fun fact, if you took New York City by itself, just within the city limit, its GDP would make it 13th largest economy in the WORLD. Only 12 COUNTRIES have a larger economy than the city of New York.)


My point being: This guy’s investments could be a good plan, but they are a risky plan because they are an extreme bet on one thing. I always advocate a more measured approach. Which is why you should have some commodities, but are not 40% in gold, which is why your bonds should probably be weighted towards shorter term bonds, and why you might have a strong showing in international equities, as well as US equities. But people should not bet the farm on one idea.


And if America fails, your money won’t be worth anything anyways, so I wouldn’t worry about it! I would say that if you want to read the book, go for it. More education can’t hurt, just make sure to take it with a grain of salt. There are lots of great books out there that can help you understand this stuff better. I usually like to go right to source though, and read pure economics books so I can interpret data for myself.


Hope this helps!


Welcome to the Future!

Something amazing happened yesterday in my tax practice. For the first time ever, I did a tax return with my client Brett Kelly entirely via EverNote. For some of you, this might not seem like a big deal. CPAs talk a lot about having “paperless” offices. Despite their best intentions though, very few actually do it. Sure, they might have LESS paper. But I’ve never seen a CPA firm do a return without any paper at all.


Until now. Of course, the night Brett and I agreed to write our posts about this, Evernote came out with their own post that stole our thunder. But, their post is mostly about the theory of how it can be done. Brett and I actually did it!


As tax documents came in throughout the year, Brett clipped them all to EverNote. He shared the notebook with me, then came to my office for his appointment. I opened the notebook on one monitor and my tax software on the other. I went through all the documents one by one and prepared the return.


Then I printed all the vouchers, signature sheets and a copy of his returns to pdf and dropped them back into the notebook. When Brett got home, he had everything he needed to file the return, already stored. We even had to make a few adjustments the next day, all of which was done by Brett uploading some additional notes and me just swapping out pdfs.


And that’s it. No paper. None. Not a single piece. And everything is stored and searchable for easy future reference.


Welcome to the freaking future folks!

A Professional Pants Kicking…

My oh-so brilliant brother pointed out that, while he agreed with many of my points, I tended to still use some of the partisan political language that may lead to some misunderstanding… To that end, he sent me this excellent article from the greatest newspaper on Earth (no exaggeration, it is the only news media I have ever found that is worth following and I read it every week): The Economist. Don’t let the name fool you, while it does have a business and economics tilt, there is a great deal of straight news along with political commentary and reporting.

After reading the article I responded to my brother by saying “Yeah, thats what I said…” albeit I could never have said it with the numerical support and elegant writing that The Economist does.

So check out the article here. And you can see a more detailed (and supported) version of what I was saying…

And although it is not a book, I am going to officially add The Economist magazine to my Business Guru Reading List. You won’t find a better updates or analysis on current events anywhere.