Windmill Zoning in Residential Areas - I plan to try!

My father recently ran across a new windmill designed for residential wind-power applications that sure sounds like it has potential. It is called the Skystream 3.7, and is one of the first I have seen that employs low-wind-speed generation capabilities, and a reasonable size and form-factor, uses modern blades, and is also of a reasonable cost -- a typical install is supposed to run around $9,000 USD currently.

I really like how the unit is sold as a complete "system" that includes all the hookup to your residential power supply from the electric company, and has all that crossover electronics and such included. This makes for pretty much a one-stop-shopping experience from the looks of things. The windmill is rated at 1.8KW, and is designed to offset 40-60% of the average home's power utilization requirements. Not bad. Heck, give me two of them and it'd be even better.

I hope Skystream doesn't mind my copying a bit of their promotional information, since the following is a direct copy/paste from their page showing the basic specs.

• Product Brochure: Skystream 3.7 brochure (PDF)
• Rated Capacity: 1.8 KW
• Rotor: 12 feet / 3.72 meters; 50–325 RPM
• Alternator: Gearless, permanent magnet brushless
• Voltage Output: 240 VAC (Optional 208 VAC)
• Estimated Energy Production: 400 KWh per month at
• 12 MPH (5.4 m/s)
• Weight: 154 pounds
• Tower: Towers from 35-110 feet are available; height is
• dependent by site
• Technical Specifications: Skystream 3.7 Spec Sheet (PDF)
• Warranty: Five year limited
• Availability: October 2006

Now, my main concern is how to get this thing through my local zoning regulations, since I live in a residential "R1-A" region, and after giving the local codified ordinances handbook a perusing, I have found no regulations that address windmills in particular. There are provisions in the local zoning code for things like TV antennas, satellite dishes, building height, and so forth, but no mention of windmills. So, chances are, I am going to have to set precedence by trying to gain a variance for my windmill. If I can really get a unit like this installed and operation for $9,000 or so, and if I can get it through zoning, I plan to install one. I think it'd set a great example of what this country needs to do in order to free itself from the strangle-hold the oil cartel (OPEC) has on us now. Wish me luck!

The toothless and useless UN

I recently wrote a blog entry about how I see China as the player of utmost importance in this whole North Korea (NK) nuclear standoff. And, as I wrote in that prior blog, I expected China to do what is in their best interest regardless of the outcome of any UN Security Council resolutions.

Well, I sit here watching the news this morning and listening to pretty much the exact thing I prognosticated: sanctions will be imposed on NK, including inspecting vessels going in and out of the country (supposedly for weapons technology or nuclear related stuff), but China says it will not inspect any of the trade going in and out of NK by land (i.e., through China). Of course, China is NKs biggest supporter and trading partner, and regardless of what the UN says they are "united" in resolving, the fact of the matter is that China's disregard for the resolution to inspect inbound and outbound shipments for NK says a world about where they really stand -- anything but "united" with the rest of the council. As always, with any country in the UN, personal interests always come before doing what is right.

Oddly enough, the next country that could be an issue with enforcing any sanctions against NK is South Korea. A fair amount of cash-flow into the North comes from the South. Southern commercial interests in Northern real-estate development (like, mountain resort communities) propel cash-flow northward. And, the whole time, people living in Seoul seem to think that NK may actually target them with a nuke given the chance. Talk about a strange double-vision thing when viewing the North from the South!

The fact is, unless truly united (and consistent) action is taken against the NK, this latest round of resolutions and sanctions will end up exactly where all the prior actions have: in the useless and toothless resolutions graveyard. NK will continue its nuclear arms progress and its threats against the world, and politicians will blame their predecessors for the situation that arises.

North Korea Nuclear Threat : China the beneficiary?

I have been contemplating the whole North Korea nuclear threat for years. I am especially interested in how this threat may fundamentally alter the world power-scheme among major nations, particularly with regards to China.

Now that North Korea has apparently followed through on its threat to test a nuclear weapon, the inevitable "world response" will emerge. Having completely lost all faith in the UN's ability to accomplish anything, I am convinced any such response is a complete waste of time. So many "warnings" and "urgings" and so forth have been issued to North Korea (who, as expected, simply ignores these discussions) and Iran (who also snubs such communications) in regards to their nuclear ambitions; isn't it obvious to the rest of the world that talk isn't going to accomplish anything? Countries like this have learned how easy it is to just ignore the "international community", since they have figured out this community is all talk and no action.

Much of this all-talk, no-action persona of the UN has to do with the fact that, even though the organization's name implies unity, there is anything but singularity of conviction or action among this group, especially the UN Security council. The Security Council members do everything in their power to push their own agenda (the USA included in this) instead of unite in a cause -- and, the world at large has learned how this works and takes full advantage of it. It's almost always predictable how the members will vote: if the USA wants to pursue a particular direction, you can be assured that the Soviet Union and China will oppose it; and, the reverse is true if China wants something we do not; the UK usually buddies with the USA and vice-versa; and then there is France - the "swing vote" in many situations; etc.

In this particular situation, China has incredible leverage for reasons of geographical proximity to the aggressor (North Korea), and its status as a nuclear super-power. And, simply put: nothing is getting done with regards to NK unless China wants it done. Although China is our largest trading partner, and a supposed ally, it can not be forgotten that China is a Communist country acting to protect its own interests throughout the region. China has been escalating their own military buildup, their manufacturing capabilities (much of it with the assistance our consumer feeding-frenzy on Chinese goods), and their deals with commodity sources (like Iran and Venezuela) - perhaps the NK crisis can be used as an excuse for some of this now?

China seems poised to gain additional world power and influence from this NK situation. Since, as the way I see it, only China can tip the balance against NK, they have positioned themselves to now become a larger player on the world political stage. Having the power to defuse a potential nuclear crisis surely increases their relevance. I will not be at all surprised to see China realize this and exploit the situation to maximize their power throughout the world and world organizations (like the impotent UN). But, would we or any other UN member country do any differently? -- perhaps/probably not.

As certain as the UN's inability to unite is the global quest to gain or retain power. Many nations of the world promise to ignore all sense of reason or regard for humanity's best interest in pursuit of power and relevance. And, today's power-tool of choice is the nuclear weapon -- you get one, and you suddenly have percieved power; consequences be damned (as humanity ultimately will be).

Demand Credit-Freeze Rights!

Are you aware that 22 states in this "United" States of America have laws that offer a much greater level of protection from credit identity-theft scams for their citizens than the other 28 states do? Yes, if you happen to be lucky enough to live in California or one of the other 21 states with consumer-friendly legislation that allows you to "freeze" your credit files at the major credit-authorization/scoring firms (TransUnion, Experian, Equifax), you have an extra layer of protection against the rampant identity-theft scams than persons in other States.

But, perhaps not for long! Congressman Steve LaTourette (R-OH), is trying his darndest at a Federal level not to offer this extra protection to all of us, but instead to remove that extra layer of protection certain States offer. He has introduced legislation that, if enacted, would reverse the efforts of over 22 State Attorney Generals who have sided with consumers in the battle against the massive problem of identity theft.

In congressman LaTourette’s bill, consumers would only be allowed to freeze access to their credit information if they had filed a police report indicating they had already become an identity theft victim. That's right, he wants to make a Federal law that says only after being victimized could you freeze access to your credit, and not before. Why lock your door -- let someone steal everything and then lock it It sounds insane because it is insane!
And what the heck are the banks getting out of your deal anyhow? Is obviously-fake / stolen-credit business still "OK" to banks, just so they can show extra "business" on their bottom lines or what? I can't understand this one bit -- it SEEMS so insane that banks would want this law either (perhaps someone can explain this to me).

Anyone with even half a brain can see the obvious ignorance and insanity of such lock-the-door-after-theft-occurs logic. Oh, but wait, we forgot the powerful lobby group of the American Banker’s Association - the most vocal supporter of LaTourette’s bill! Ignore what every average citizen wants... just do what the lobby (read: money) wants. This kind of thing is a sick abuse of power, and nothing short of the typical audacity of our elected leaders that supposedly work for "us, the people", but seem to constantly ignore the overwhelming voice of the populace in favor of the voice of power and money exhibited by lobbyists in our nation's capital. This blatant disregard of our rights to information security and protection must be dealt with. Voice your opinion, and if/when the opportunity arises, vote this turncoat out of office! (hopefully the next elected "representative of the people" will actually listen to the people!).

You know what Mr. LaTourette: if your bill becomes law, and I am not able to freeze my credit information when I otherwise would, and someone takes advantage of your open-credit-door policy for crooks, I and everyone else affected by your obvious disregard of our privacy wishes may just ban together and sue you for neglecting your fiduciary responsibility to uphold the will of the people. Something needs to change: start listening to the people at large, and not just the lobbyists. Only an idiot could argue that your approach to "privacy" is at all effective in identity and credit-theft protections.

Why don't PCs have built in battery backup?

I poked around the web looking for a PC (not a notebook) case or power supply that comes with its own "built in UPS" or "built in batter backup" of sorts. I own various UPS (Uninterruptible Power Supply) devices, and I find myself looking at them thinking - why?

Yes, I know the obvious reasons why you should use an UPS (in case power goes out, or a surge or brownout occurs), but the "why" that I asked myself was why don't the PCs include a *small* battery unit internally to at least handle a few minutes of uptime and protect against surges/brownouts without the need for an external device sitting there taking up floor space. It seems to me it would be much more efficient if a rechargeable batter was placed inline with the PC's power-supply (on the outgoing, DC side of things) where if AC power was dropped, it would provide the necessary 12V and 5v (or whatever other low voltage requirements) power to the computer. In addition, a built-in unit like that could easily interact with the motherboard and "inform" the computer (and/or OS) that A/C power was compromised.

With today's Lithium-Ion batteries (like notebooks use) the battery unit could be quite small and easily power the computer for a while. Or, even less expensive lead-acid batteries (like UPS's mainly use) could be incorporated.

I'd also go as far as to say that PC manufacturers could then get together with external component makers (like Flat-Panel LCD makers), to work on a "standard" for low-voltage external device connection that could also make short-term use of the PC's proposed internal battery. Have you ever noticed all those AC-to-DC adapters for your LCDs, some external hard-drives and CD/DVD-ROMS, etc? Seems ridiculous to me. I know that USB allows for some very low-current connections, but there is probably a good case to be made for higher-powered external devices to have a way to plug into my (theoretical) PC with built-in-backup-power.

The main thing would be to just have enough time for the system to perform an orderly shutdown if needed. I think there have been manufacturers of the PC power supply that I envision, though I could not find such a thing on the web.

Just thinking as I write my technology blog entries again, and hoping for improvements in the PC/computer world.

VMware for Apple Intel Mac OS-X coming!

VMware for Apple OSX has been announced! This is great news for anyone that has an Intel-based Apple Mac machine that wants to run Apple OS-X as their host operating system and still have the ability to run other operating system like Microsoft Windows, Linux, Netware, Solaris, and any other supported OS's.

I have been contemplating the Mac OS-X platform for sometime, but I need Windows for some of my software development activities (Borland Delphi in particular, and MS SQL Server enterprise manager). This opens a new world of possibility to me. I have had the ability to run Windows under Linux already (using VMware Workstation and/or Player products), but the Apple system prospects were not so clear. I didn't want an Apple just to "play" with it, though I'd consider it much more with the ability to run VMware on it.

So, the product announcement says that beta versions will be out later this year. I'll keep an eye on it, and see what OS-X 10.5 has to offer as well. The only detractor left is the whole pricing of Apple boxes (a premium over commoditized PCs to say the least).

What I still did not notice (perhaps I am just not seeing it anywhere) is the ability to do the reverse -- run OS-X virtual machine on my PC! Now, THAT would entice me into buying a copy of OS-X 10.5 as soon as it was available - just for kicks.

War on the Middle Class? Lou Dobbs tells only part of the story.

For all you Lou Dobbs fans, I want to discuss his ongoing series about the "War on the Middle Class". Let me start by stating that I find Lou Dobbs to be somewhat intelligent, eloquent, and well informed on many topics. His efforts to maintain a focus on border security are admirable. And, his Exporting America dialog is thought provoking and something we all need to give more consideration to.  [update: his true colors eventually showed with his "birther" conspiracy theory crap and other issues, prior to his premature death]

But, I really think Lou Dobbs needs to expand the breadth of his investigation with regard to this purported war on the middle class he so often speaks of. For brevity, I will refer to the "war on the middle class" as just "war-mc" throughout. Tonight's war-mc segment discussed how the housing downturn was yet another thing responsible for putting the squeeze on America's middle-class, citing various statistics about how:

• 40% of mortgages now are zero-down or other "exotic" types
• inventories of homes on the market are rising
• 1/2 a trillion in ARMs will adjust this year
• 700 billion in ARMs will adjust next year
  
• people are facing huge increases in mortgage payments at the same time they are being squeezed by energy costs
• (and, a common theme not necessarily mentioned today is how wages have stagnated)

All of these items may very well be fact. But, how is this representative of a war-mc? I am likely to upset quite a few persons that would like to have everyone believe that their woes are all due to this supposed war on the middle class, but I must put forth another side to be considered -- I believe that a significant part of this war-mc is a self-inflicted war.

Why self-inflicted? Because so many of the issues Lou Dobbs talks about result from our own actions ("our" being the middle class generally). Though I can not fully develop my reasoning in a single blog article (it would take a book), here are some of my reasons for calling this war-mc "self inflicted":

• Mortgages. It is this simple: only you are responsible for taking on more debt that you can service, for believing that interest rates would never rise again, and to think that house prices were taking an endless upward climb that would always allow you to increase your home value and equity with little or zero effort.
• Mortgages/housing: from what I see, the "middle class" is the driving force behind the housing bubble. It's the middle class that banks and lending institutions have targeted with excessively easy of access to debt. Not a day goes by without another offer for a credit-card, home-equity loan, or the likes for most of the middle class. And, the middle class bought into it all hook, line, and sinker, taking out as large of loan as possible, pushing their finances to the edge, and acquiring the biggest and most extravagant house they could possibly "afford" (afford being a term that has lost all meaning these days - it now simply means how much a bank will let them borrow... little to do with truly afford). The belief that home prices would constantly climb has made many feel they could do no wrong with such a move. Well, this all worked as long as the Federal Reserve made money so cheap (to borrow) that the house of cards kept going higher.
  
• Housing add-ons: the large houses (and loans) are usually just the tip of the iceberg. With those homes come all sorts of products and services. The larger the house, the larger your costs - be it lawn service, landscaping, watering, heating, cooling, or simply the property taxes on that thing! Yes, one excess begets others. And, per the rules of supply and demand, the larger draw on energy resources to heat and cool those extra square-feet raises energy costs for everyone; many of the resources used (in larger amounts) to build and maintain a larger home are petroleum based too (roofing, vinyl siding, and much more), all increasing demand for limited resources.
  
• Automobiles: you have to get to that fancy house in the suburbs, and you certainly do not want to rely on public transportation (which, is of course harder to even find out in the burbs). Instead, you have to have a veritable fleet of cars to go along with that house. These cars can not be too old, or they dare not fit your image (or match your house). Instead of driving 10 year old affordable vehicles, the norm is more like 4 years or newer. Those cars bring along a host of bills: insurance, fuel, tires and consumables. Note to all: all the extra demand for fuel raises fuel prices further.
  
• Credit-Card Debt: I think everyone knows the story on this -- simply put, it is out of control.
  

Whether you want to admit it or not, many of the costs that are "waging war" on the middle-class are a matter of choice. That is what people like to forget, ignore, or make excuses in order to evade. It is your choice to purchase a 4000 square foot home, a Hummer, a Harley and all your other toys and niceties. And, even if you are nowhere near that level of expense, but still stretched to the edge, there are still likely to be many choices that you have made that led to you feeling like there is a war-mc.

We all have the worst example of all to follow when it comes to living beyond our means: our own government. They spend money far beyond what they have, and appear to have little to no concern about the long-term ramifications of ballooning debt and related obligations. The Federal Reserve, during the last recession, saw that the fastest way to make the economy look wonderful and robust was to enable the middle-class to take on excessive amounts of debt (just like our government) at low interest rates and allow a housing bubble to take shape -- and pull us out of a recession. Once could argue that it was a cure, but I believe a significant amount of this emergence from recession was simply a postponement of the inevitable adjustment that must occur when the realization that debt funding by overseas investors must eventually hit a ceiling. Until we ourselves save and control spending, we will be at the mercy of others.

I was raised in an environment where money was tight, and things had to be very strictly budgeted for. Debt was something to be avoided, as it makes you work to service it, and it introduces excess and avoidable fear when times are rough. Debt has its place in our economy for certain -- without it, growth would stagnate. But, debt abuse and easy debt has crept in and taken over for anything that I would consider sane and safe levels - for individuals, business, and government.

For those of you not already mired in excessive debt, please, think twice (and many more times) prior to entering into further debt. A simple solution is to live beneath your means (especially beneath the level of debt your income will allow you to get in today's age of easy loans). You do not have to do it forever; but, do it long enough to acquire solid savings skills and debt-avoidance skills. Then, you will not have to be part of those that interpret every negative bit of economic news (like the housing downturn) as a "war against the middle class"; instead you will see it for what it is (primarily), a war against those who chose to put themselves in the line of fire.

As a close, I must acknowledge the fact that there are a significant number of expenses that could be considered part of a war-mc. These expenses will nearly always exhibit some commonality in that: they are difficult to avoid; are for services/products you can not live without (and I do not mean your cell-phone); there are few supplier options (leading to easy and widespread price-fixing opportunity); their average rate of annual increases will far outpace inflation as a whole. Some examples include: health care and prescription drugs, food, other insurances, fees (e.g., banking fees), and taxes (or other government fees). I did not mention energy simply for the fact that we consumers control demand (though we do not exercise that control very well) for the most part.

Currency Hedging with American Depository Receipts (ADRs)

For those of you who have already read my May, 2006 posting about Investing in ADR (American Depository Receipt) Stocks, you may have been able to make impressive investment returns, for two reasons. If you watched both the currency-rates and the stock prices during this time and jumped in when the stock market had a mini correction that bottomed out early-mid June:

• the stock markets, both here and abroad, performed rather well since that bottom;
• the United States Dollar (USD) tanked against the British Pound (GBP) and other currencies worldwide during that same period.

The overall stock market move is a bit irrelevant to the ADR thing, but the second ROI reason is all about currency fluctuations and how they affect your ADR share-price returns.

A couple of London Stock Exchange stocks that have ADRs here in the USA that I regularly follow are Barclays PLC and HSBC Bank (which I used as an example in the 5/13/06 article). Let's say you timed things very well and got into each at roughly their bottom in mid-June, and examine what your returns would be and why:

• Barclays (ADR ticker: BCS) - on the London Exchange, it was trading at 586 Pence at its low, and closed today at 653.5 Pence. Return on the London market: 11.52% . . . Impressive, but, the BCS ADR during the same time hit a $43.23 bottom, and a $49.64 close today, or a whopping 14.83% return, which is quite nice, especially considering we are talking about large blue-chip type banks that roll off a healthy 3-4% dividend! Your ADR returned an extra 3.3% on your investment during the same period! The difference in returns reflects the tanking USD during this period.
• HSBC (ADR ticker: HBC) - on the London Exchange, it was trading at 913 Pence at its low, and closed today at 951.5 Pence. Return on the London market: 4.22% ... and, the HSBC ADR during the same time hit a $84.34 bottom, and a $90.35 close today, or a 7.126% return, which is darn solid too for such a short timeframe. Your ADR returned an extra 2.9% on your investment during the same period! That extra return reflects the substantial drop in the purchasing power of the USD during this period.

Now, you may be asking why both stocks did not return the same 3.3% "extra" due to currency swings: simple, one stock hit its low on a different (later) date than the other, and the currency exchange rates had already changed some.

So, keeping these examples in mind, there can be opportunity to hedge against the falling dollar by purchasing American Depository Receipts (ADR) stocks. This is not as direct as simply playing the currency market on a ForEx trading platform or such, but it is probably less likely to cause you to lose all your money doing risky currency-swing trades. Do some research, and consider the options that are available. There are ADRs for UK stocks as well as German, Japanese, Israeli, and many other firms.

Keep in mind, as I pointed out in my prior article, you can play this swing both directions. If the US Dollar strengthens greatly while you hold an ADR, you can just as quickly see the multiplier working against you. If you want more information, read that first posting of mine. If you still need more, let me know and I will try to dive deeping into investing in foreign stocks in this manner, especially in order to hedge against any devaluation in the US currency.

Increasing prices to remain competitive?

According to the dictionary, competition (in business) is referred to as "Rivalry between two or more businesses striving for the same customer or market." Now, common sense dictates that this rivalry for the customer would be by offering a better service / product, or the same service / product for less money.

Well, you and I understand this, but do the companies that are competing for us consumers understand it? What got me started on this blog were a couple of rate increases from our cable TV company over the prior year or two; in particular, the small plain white piece of paper with a list of old and new prices, plus a quick explanation of why ". . . in order to remain competitive, we are raising our rates . . ." Gee, excuse me??! Did I hear right? You are raising prices in order to remain competitive?

Only marketing "experts" could try to put such a spin on increasing the price of a commodity such as cable TV and feel OK about telling us how it is all about remaining competitive. I guess that sounds better than all of the more likely real reasons for an increase, such as:

• We know you have limited choice in who provides this service to you, so we do not have to be competitive at all, since there is barely anything left that could truly be called competition; (most likely imho)
  
• We have aging infrastructure that needs updated or you may leave for a competitor - and, we have not planned accordingly and now need funds to pay for it; (at least this may have been somewhat honest);
• Our debt burden is now your problem -- sorry, but we grew too quickly using debt to make us look like a fast growing, high flying company that is best for everyone, at least long enough to push others out of the market; (common place)
  
• Our top directors have taken advantage of the company through excessive pay, stock options, and the likes, and well, you get to pay for their mistakes and greed; (in this case, their is truth to this scenario, since the company we have is Adelphia, and we all know about how the founding family got in a bit of a legal jam for fraud).
• We do not care about being competitive on the price offered to you, our customer, but we do know we want our stock price, P/E ratio, and the likes to be competitive and need to increase cash flow to do so (oh, and some bonuses will certainly have to be paid to top management as soon as this plan works).
  

Regardless of the real reason for price increases, please keep in mind, you do not raise prices in order to remain competitive - you do so because you can, because a competitor has recently raised the price on a similar service, or perhaps your raw material and labor costs have increased. But, do not consider the consumer ignorant enough to accept a price increase as a means of competition! Then again, maybe I need to increase my prices to remain competitive? Hmmm... sounding a bit better now. heh.

Income is NOT Wealth

This posting goes along with some other posts I have done about saving money in order to invest and plan for the future. America as a whole needs extra encouragement to consider saving money, and I hope this posting helps motivate you.
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Perhaps you make a great income in your current job. Well then, you must be wealthy! Wrong! Granted, you are good at making money, but unless you are equally good at being an accumulator of wealth (i.e. Savings!), you will forever remain income-rich and wealth-poor.

Perhaps you see your friends with new cars, homes, flashy clothes and accessories, and so on, and you presume them to be wealthy or rich. Well, unless they have inherited a large sum of money to begin with, or have been prodigious accumulators of wealth prior to spending money on these easily observed signs of spent cash, chances are they are not wealthy at all. First of all, most self-made wealthy people don't spend money on all sorts of flashy things - it goes against their entire formula for having accumulated their wealth to begin with, and furthermore, it would jeopardize their ability to remain wealthy. Chances are, the persons you perceive as wealthy are either (or both) good at producing income or even better at using credit, and their appearance of wealth is just that - appearance. As soon as their income slows or they can no longer service the credit they've taken on, it's all over for them; this may take many years to catch up with them, and if they are one of the lucky ones, they will maintain or increase their incomes over the years to keep up with, or further expand, their spending and perceived wealth.

Even those celebrities with all their flash and "Bling" are primarily dependent upon their income and not wealth. Certainly there are some famous people with plenty of wealth, but many of the "star of the moment" type have little going for them beyond their income, since many can not imagine being anything but famous and rich once the cash has started flowing, and likewise they don't prepare for the time where it no longer runs like water. And, many end up with very little in the end - consider famed performer MC Hammer, who even though making $33,000,000 in a year, was able to outspend his income with the help of his 40+ member entourage (for this any many more examples, see: http://www.legalzoom.com/articles/article_content/article5466.html. What you see in the actions of these very public displays of income and cash-disposal is not how the average wealthy person lives, since most self-made wealthy persons know what it takes to accumulate wealth to begin with, and do not want to jeopardize their way of life so hard earned.

I know it will be very difficult to live a life based on saving and investing when everyone around you exhibits a life based on spending and debt, and demonstrates their purchasing power everyday through their flashy cars, daily restaurant dining, and so forth. Trying to mimic this behavior will be quite costly, and very addictive. Leo Tolstoy described this type of situation perfectly in his book Anna Karenina - when the character Levin, who was never in debt and always saved money, found himself surrounded by persons that spent much money on all sorts of goods and services, and soon found himself doing the same, whether he could afford to or not, as this quote describes: "There are no conditions to which a man cannot get accustomed, especially if he sees that everyone around him lives in the same way." This is a timeless condition and threat to your wealth: just consider that Tolstoy's book containing this quote was written in 1877 in Russia. Some things never change, and the desire to spend and consume first, and worry about saving later, is just human nature, and something that you will have to, and can, overcome by following advice to constrain spending and save money.

Why worry about accumulating wealth when you make enough income to support your desired standard of living, and, why reduce your standard of living in order to save and invest more? Well, consider the following:

• Income can go away quickly - your job, no matter how "safe" you feel in it, may not be here in the future. Your business may encounter massive overseas competition, or technology may render your current service obsolete. Another possibility none of us wants to consider is that we may no longer be able to perform our job due to illness or injury or even age.
• Reduced Stress: think about how less stress you would have in your everyday life if you knew you could quit that job you hate so much, knowing you could afford to live without any wage income for 6 months, 12 months, or more without additional income.
  
• Income tends to make you do things you otherwise wouldn't do - like taking a less-than exciting job, just because you have to, because you need the cash-flow to feed your expense-habits, and because you have no savings to fall back on and no income from investments to offset any loss of wages. Start reducing your expenses now, and attempt to save as much as possible. I always have considered savings / wealth a tool that gives you the power to say "I Quit" when you should; and, oh how good it would feel to know that if a situation is intolerable, you can simply leave. And, even more so, perhaps you'll soon find out that with the ability to "Quit" on your terms if necessary, you become more bold and take more chances, and end up securing more responsibility and more income in your career because the fear of job-loss does not constantly weigh you down.
  
• I also see income-dependence, and lack of savings (i.e., wealth) as why most people will not even consider starting their own business for (justifiable) fear that they will not be able to instantly replace their existing income. Starting a business requires proper capitalization so you can get up and running. Starting your own business is a risk, but keep in mind that employers would not pay you what they do (in general) unless your value to them is more than what they pay you. So, if you can find a way to capitalize on your skills directly, you may find the risk returns equal rewards; but, it will likely take time to become established, and time requires savings to cover your expenses (side note: for this reason, I highly recommend starting a "side business" while employed full time in order to gain business experience and get a footing, or jump-start, prior to quitting your job -- it should reduce the savings required to make the leap to self-employment should you choose this route).
  

Saving, and wealth-building, is a long-term-plan approach to living; and a marked difference from an earn-and-spend approach to living. It takes commitment, and progress is slow. But, progress will also be noticeable within a few years when you start seeing noteworthy income being produced from the money you have saved and invested. And, you will feel a sense of accomplishment as your efforts progress. Worst case: you save, save, save, and feel no different -- well, at least you will have a chunk of money to spend on something when you cave in and return to the spending-path :)

Software Prognostications

I've regularly contemplated what the future holds for software on a macro level. Over the years, I have observed the cycle between centralized and decentralized computing, and every time I see centralized solutions come to the forefront, I look past them to see yet another round of decentralization on the horizon.

I believe that centralized computing paradigms, including the current push to offer "hosted solutions" is reflective of the lack of sufficient system-interconnectivity-bandwidth to support what ultimately becomes the follow-on generation of more widely distributed computing solutions. Mainframes and minicomputers with attached terminals pre-dated the client-server push; client-server solutions came into their own as Ethernet bandwidth in the office expanded; HTML and "thin client" solutions then pushed processing back to the servers due to Internet (and inter-office Intranet) bandwidth limitations (and, sacrificed user experience for widespread accessibility), then richer Graphical web-interfaces using Flash, Client-Side Java, AJAX, and the likes have pushed some processing back to the clients. So, what is next?

Since the late 1990's, with the advent of widespread high-speed Internet connections, I have said that the time will come (soon) when networking speeds will allow for software with very powerful client-side processing and robust GUIs (Graphical User Interfaces) to dominate the desktop once again (supplanting lame or lackluster HTML and web-applications). Many programs now do this, using powerful client-side software with rich GUIs to exploit the processing power of the client machine (aka, PC) as well as the network bandwidth of the Internet and the power of Servers on the Net. Some examples include BitTorrent clients, stock-trading interfaces, and so on. Again, what is next?

Well, we aren't quite where I wanted to see us by now. I envisioned a world of native-executable applications being downloaded on demand over the Internet as users need a particular bit of functionality. In late 2000, the Cleveland Software Development and Consulting firm (Intersoft Development, Inc) that I owned and was CEO of, actually created a rudimentary software infrastructure to support the hosting, distribution, verification (authenticated / secure software signatures), and automatically updating of native executable applications -- calling the whole thing "Robust Internet" featuring the "Robust Widget/Package Manager". We stored full blown single-file EXE's on a server, along with various information in an accompanying database (like, software description, owning-company, version info, software-dependencies including OS, and so forth), coupled with the "Robust Widget Manager" GUI that allowed users to: search (over the web) for particular software/packages, download the desired software (executable), verify the issuer/certificate, track what downloaded software was currently available on their machine, and update/remove as desired. Some companies have emulated this methodology to some extent since, though still not quite as I envisioned. I still think it is a viable method of robust client-side software distribution that would nearly eliminate all the hell that accompanies installation/removal of programs, since any and all files needed by a program were to be kept in one directory-tree "owned" by that downloaded program and only that downloaded program (making updates/removals a snap since no DLL dependencies would exist, no inter-program conflicts would exist, etc). And, now that disk space is nearly free, and RAM is also quite affordable, Dynamic Link Libraries (DLLs) in general should be a thing of the past - they served their purpose, and generally no longer make any sense on the client.

Ok, so that is what I envisioned back in 2000,... and, it may still happen... but, I am now seeing further into the future. And, what do I see? Something quite similar to what I envisioned with the Robust Web experience, but a step further down that path, especially now that it is obvious that processing power, disk space, RAM, and bandwidth potential can support what I have in mind.

The future, in short: "applications" will be completely and totally self-sufficient and not rely on anything outside themselves except for a network connection and the hardware they run on. How can this be? Won't applications need an Operating System? Yes, but, in my future "applications", the OS will be an integral part of the "application". Thus the "application" will be completely autonomous. In essence, each application will be the software you desire, already installed in a completely configured Operating System that contains exactly what is needed for that software to perform its functions. So, if you want a word-processor, that "word processor application" will be the word-processor plus the OS it needs to run (plus, as I mentioned, proper network/Internet connectivity built in). If by now you think I have lost my mind, consider that what I am really talking about is highly specialized virtual machines that are pre-configured and ready to run. Though not quite what I portend to see, the VMWare Virtual Appliances are a precursor to my vision.

Microsoft is one company that wants to successfully combat the hosted-application siege that is coming at it from all sides (including Google and the likes). I say, take it up a notch Microsoft! As bandwidth, storage, processing power, and the likes increase exponentially and price per unit of each falls, it will be possible for Microsoft to offer pre-configured purpose-built Windows Virtual Machines that target specific user needs. This is a bet that MS executives would probably find incredibly tough to take, but perhaps the sum of all sales of task-specific pre-configured VM's could actually exceed the sales that their traditional (complete desktop domination) approach is able to maintain in the future as other players come on line with hosted solutions or solutions similar to what I'm discussing.

You need just a Word Processor? Well, Google may likely offer an online word processor soon, or Microsoft could offer a Word Processing VM (that will only run Word). Better yet Microsoft, think of this: every software developer that would want to offer its Microsoft-Centric-Solution in a pre-configured Microsoft Windows VM would pay Microsoft a license (reasonable) fee for a per-client-VM fee to host its application on your OS inside a VM. Notice I have not mentioned Linux yet -- well, if you looked at that VMWare appliance directory, you will have noticed that it is predictably all Linux / Open-Source operating system based appliances, since only such open-source solutions can be freely distributed. Take notice now MS.

What I am proposing would require a significant paradigm shift for Microsoft - having it adopt and welcome a fee-per-VM-hosted-application in order to maintain its OS dominance. Moreover, there needs to be some grand software vision implemented to make this all possible, whereby the OS is marginalized a bit (it is no longer the focus, the applications are), a "usage governor" is placed in the OS to only allow licensed applications to run in the OS-VM, and a simple inter-VM-connectivity framework is implemented to facilitate standardized inter-program communication between applications hosted in various VMs (much of this does exist via TCP/IP, and such, though a clean simple abstraction layer could make this much simpler and standardized), and data-storage on one or more VMs (and/or a "host" OS if desired).

I personally believe that my ideal application-VMs should only contain the programs and OS needed to run the application, and that all user-settings, user-data, and the likes should be stored on a "host" OS (or specialized user-data-VM), since this will allow for the application-VM to be completely and totally replaced at will (with an upgrade or whatever). Which, if you have been thinking, "gee, how will I perform a Windows update on 20 Windows VMs?",... I say not to worry, just download the entire application-VM from MS (or any application-VM vendor) that has all the latest OS and application updates applied, since inevitably bandwidth will support this! And, there we are: the ultimate evolution of decentralized processing!

If anyone wants me to further expand on this vision, I will gladly address questions and ideas in a future posting. I have much more to say about this vision, but this posting should be enough to stimulate discussion :)

Virtual Machine Advantages with VMWare

Stop wasting your time "setting up" and "fixing" your computers!

Ask yourself:

• How many times have I purchased a new computer only to then waste hours (or days) installing the operating system (OS) and my your favorite applications?
• How long did it take restore my backup when my hard-drive crashed last time (better yet, how long did it take me to find a recent backup)?
• How difficult was it is to move my application settings over to a different machine?
• When was the last time I installed an application on my system only to cause chaos for other existing applications or cause the system to crash completely?
• How long will it take me to setup 25 computers with a similar development environment for each member of our programming team?
  
• Oh no! Did I just get a Virus from that Word document a friend sent me?!!
  
• Finally: how many machines do I have to host all my favorite OS's and applications? Gee, I wonder why my electric bill is so high! :)

If you have experienced any of the pain just mentioned, then you know full well how much time, money, and resources can quickly be wasted setting up, configuring, and restoring your computing environment(s). There is a better way: Virtual Machine (VM), or virtualization, technology! And, VMWare's product(s) in particular.

If you have yet to put VM technology to use, whether for your personal computing needs or for your business, you are really missing out on some incredible productivity and efficiency opportunities. VMs can save you some serious time, make better use of your computing hardware, and nearly eliminate the pain associated with setting up a new computer or computing environment. In more industry specific terms, VM technology enables:

• server / desktop consolidation;
• simplified development and testing environment setup;
• easier business continuity plan execution;
• simplified server / desktop environment management and security.

If VM technology is a complete unknown to you, then here's a quick description of what it does: it allows a single computer to appear to be more than one computer. Your computer becomes the "host" for one or more virtual computers ("machines"), by using software such as VMWare Workstation or the free VMWare Player to allow another "computer" to run on your system (there are also Server-level products like the free VMWare Server that is currently in beta).

If you are still not following what the technology is, I suggest reading this article entitled "what is virtualization technology". And, better yet, just dive right in. How? Simple. Download and install the free VMWare Player. Next, get ready for something really exciting! There is a super simple way to see a VM in action. Just download a pre-configured VM! There are many pre-configured VMs available for download, referred to as Virtual Appliances, that feature all sorts of pre-configured applications and operating environments. VMWare hosts a directory of virtual appliances to help you quickly find one that fits your needs; currently over 50 choices exist, and there are more showing up every day! I recommend trying out one called "Damn Small Linux" for starters, since, as its name implies, it is a reasonably small download (55MB), and once you "unzip" the download into a directory of your choosing, simply double-click on the ".vmx" file and watch your VM start to run in a window of its own, as if it was a computer running on your computer (which, it is -- just a software-only computer!)

Now, if the lightbulb in your brain has gone on and you think: "now I get it!", that is great! And, perhaps you see how VM technology can make your life easier. But, just in case it is a mystery to you yet, why would you want this VM anyhow? That's simple. You can keep the host system installation and configuration to a bare minimum, and invest your time getting your VMs to contain the applications you need access to most. Then, you can easily move / copy that VM to another machine and run it from there on short notice. Because the "machine" is just a few files, copying it, backing it up, and moving it is quite simple. And, you can make "snapshots" of the VM at different points in time (and, using VMWare Workstation, you can easily manage these snapshots and roll-back to prior verions, and so forth).

By way of examples, perhaps I can further encourage thinking about how VMs can help you:

1. Let's say I have 4 different PCs running web servers that each host their own web site. These PCs are rarely at or near capacity in terms of computing power utilization. In fact, they are at a fraction thereof. Wouldn't it be nice if I could have all of these web-sites remain completely independent of each other (since one uses PHP, another uses Python, one DotNet 1.1, another DotNet 2.0, and that is just the web-dev language!) but yet get rid of some machines? This is where the "server consolidation" side of VM technology is a perfect fit. Replace the four PCs with one box capable of running all the sites, and have each of what was a physical web-server now be a Virtual web-server. With ample NICs, each can even be bound to their own physical network connection.
2. I have a complex developer-desktop configuration where each person in my team needs a Windows XP environment with Visual Studio, SQL-Server Client tools, OpenOffice, a few utilities, and so on. Well, this is a perfect time to create a VM with these required applications, and distribute the VM to each of the team members. When an update to Windows needs to be applied, or a Visual Studio Upgrade is ready for use, and so on, simply roll out the new developer-VM to the masses. Note: this implies that the VMs will not be altered by the team members lest their changes be lost when the new VM is put in place; I will discuss in the future ways to minimize issues with this approach.
   

So, the VM technology is here to allow you to:

• Ease movement and migration of entire systems;
• Simplify large-scale deployment of a common system configuration;
  
• Quickly restore to a particular state in the event of a system failure, program-installation chaos, or virus infection or other issue (notice: you still need to have a snapshot/copy of your VM stored somewhere safe, but it is as simple as copying a directory with a few files in it -- I burn DVDs with my VM images for safe keeping);
• Reduce the number of physical machines that are sitting in your home or office sucking electricity, taking up space, and producing excess heat.
• Easily test new programs and/or OS's, especially with pre-built "appliance" VMs and/or ISO-Images (see my prior post on Linux Live CDs that discusses running bootable-ISO images in VMWare).
  

There are a couple caveats to keep in mind with VM technology currently. First, because the VM must "abstract" the underlying hardware, it does not make full use of things like hardware acceleration in your super graphics card, and it may not make optimal use of your Gigabit NIC, and worse yet, it may simply not allow access to various devices on your system. So, you will want to install your latest 3D first-person shooter game directly onto your PC (host system) in order to realize the benefits of your 20GHz PCI-Express ultra-mega-video-card. But, many business, software development, and office applications will run quite adequately inside a VM.

Also, keep in mind that VMs do not get you out of proper licensing. I.e., if you distribute 25 copies of your development VM to 25 desktops, and that VM uses Windows XP or another commercial OS (plus any commercial applications you may have installed), you need to purchase as many copies of the appropriate licenses are you are using simultaneously. Consult with your software provider(s) for the specifics of how they treat licensing for VMs.

A final note: there are even ways to convert a physical machine into a virtual machine (P2V), and vice-versa. That is a bit out of scope for now, but it is possible, and lends even more flexibility to computer utilization scenarios.

Consider the possibilities for simplifying your computing life with VM / virtualization technology now, and act soon - you have nothing to lose, and much to gain!

Amazing Linux Live-CD Technology

For those of you that are new to the "Live CD" technology that many Linux and open-source distributions now offer, I will attempt to impart a concise introduction to this amazing software achievement.

In short, Live-CDs (or DVDs) allow you to boot your computer into a fully functioning Operating System (OS), from a CD or DVD containing the OS, without any need for installing the OS or any additional applications onto your hard-drive - and, in as little as one minute! Perhaps this does not sound very exciting at first. But, consider the length of time it takes to perform a complete install of Microsoft Windows XP, and a few popular programs like MS Office, Adobe Acrobat, and the likes to your computer's hard-drive so that you can have a "working machine" (or, at least one that has enough installed to be useful). At best, you would probably face 2 or 3 hours of "fun" trying to get a machine up and ready, and perhaps another 2 or more hours just to apply the latest security updates, service packs, and other critical fixes. There is a better way!

Live CD's must detect your machine's hardware configuration on-the-fly, and configure the OS to make use of that hardware upon booting. This is quite a feat, seeing that this same task takes MS Windows an exorbitant amount of time to accomplish even when installing to your hard-drive. Most newer variants even detect my Gigabit Ethernet card and high-end graphics cards OK, though none to date have detected my Linksys Gigabit Cardbus adapter successfully (I wait eagerly for that to change) on my notebook.

So why should you be interested in a LiveCD, especially if you do not particularly want to use Linux? Well, I have provided the following few reasons why I consider this technology so important:

• Virus Protection: since you are running from a CD, your system is rather isolated from the impact of any virus you may encounter. If one was encountered, simply rebooting from the CD will restore the original pristine state of your operating environment. No changes are saved to the CD between reboots, though you can save documents and settings changes to a USB KeyDrive or a partition on your hard drive if you choose.
• System does not "degrade" in performance over time: unlike a hard-drive install of Windows or any other system that suffers from slowdown as the number of temporary files increases, security-updates have been applied, and a host of other software "patches" are applied. The CD remains the same each time you start up -- a nice clean "fresh" system!
  
• Privacy and Security: once again, you are running your OS from a CD and in RAM; so, once you turn off the computer, there is no trace of what you were doing while running the OS (unless you specifically choose to save such information to a more "permanent" device). Don't worry about leaving copies of confidential files in "My Documents" or what have you; for, if you did, they will just not exist next time you boot from your CD. There will not be any "malware" or "cookies" left to track your Internet activity either - so there is no chance someone will acquire any saved user/password information from anywhere on your machine (if any was stored, it is wiped when you reboot).
  
• Debugging and Forensics for your Windows machine: even if your Windows installation has failed utterly, you can perhaps recover valuable files from your hard-drive by booting with a Linux LiveCD and accessing what is left of your file-system from Linux. Then, you can copy files off to somewhere while attempting to repair your Windows environment. And, with some LiveCD variants, you can use tools like CaptiveNTFS to actually modify the contents of Windows files that may be the cause of your system failure.
  
• Testing new Software: if you are interested in trying out various popular open-source softare prior to installing on your hard-drive, this is a great way to go. Not only the OS can be tested, but most LiveCD images include a range of applications like OpenOffice, Gaim, FireFox, and many, many more - all preinstalled and ready to run!
  
• Portability: you can run these CDs from nearly any computer that has a CDROM or DVD drive; regardless of what OS is already installed on those PCs or Mac systems. Simply pop in the CD and reboot into your Linux environment of choice.
• Speed: you can have a fully operational computer in as little time as it takes to boot from CDROM. Compare that to the length of time it takes to perform a complete install of Microsoft Windows XP, and a few popular programs like MS Office, Adobe Acrobat, and the likes. When I get a new computer, I quite often first "test drive" the computer using a LiveCD, prior to committing many hours to installing software on my hard-drive.
  

You can also easily run your LiveCD from within a Virtual Machine (VM) using VMWare's free VMWare Player technology, coupled with this tiny ISO-Image-running-virtual-machine-config. I say tiny, because you only need to download one file (vmwarez.com-Generic-LiveCD

-Virtual-Machine.zip) to make this possible, and it is only 4KB in size! This tiny VM-Player config lets you start VMWare Player up with the intention of loading the booted-machine with the contents of a LiveCD (Linux variant) ISO-IMAGE. The zip file contains the VMware config files, and all you need to do is copy the ISO Image for ANY LiveCD variant you want to try into the directory with these VMWare .vmx/.vmdk files (and, rename it to livecd.iso). Then, run the VM. What a neat way to try out your latest LiveCDs without any shutdowns/reboots, making LiveCDs even more awesome!

I personally prefer Kanotix and Kubuntu Linux variants for their Live CDs, and I have had excellent experiences with these distributions automatically detecting all of my hardware and making it available from within the OS. A great resource for locating additional Linux derivations and Live CDs is distrowatch.com. This site is a fantastic resource for keeping up with the latest Linux and open-source distributions, applications, and the likes.

Though many applications are pre-installed in the LiveCD environment, you may wish to have other applications available. Have no fear, most new LiveCD setups include a technology called UnionFS that allows you to actually "install" additional software. Kanotix makes this even simpler by supporting "klik" applications, which can literally be installed with a click!

Now, wouldn't it be fantastic if Microsoft would release a Live DVD (yes, a DVD would be necessary due to the bloated size of the OS and applications) version of Windows XP that came with pre-installed Microsoft Office and other essential Windows applications? There have been many times where I so wish I could have such a thing available instead of facing the hours of installation and preparation time it currently takes to get a Microsoft-centric system up and running from scratch. I would not count on this happening any time soon though, since Microsoft will unlikely be able to find a way to thwart the subversive efforts of software pirates that would all to quickly make illegal copies of such a thing if it existed! (not that pirates don't do that already with existing Windows and Office software).

So, download an ISO (i.e., burnable CD/DVD ROM Image file) for a LiveCD today, create your bootable media from it, and give it a test run. Once you get acquainted with these OS's and recognize their usefulness, they will likely become an invaluable tool you keep close at hand.

Will you be able to retire?

A couple days ago, PBS's aired an episode of Frontline entitled "Can You Afford to Retire?" If you did not have the chance to watch this enlightening story, I will give a quick recap here of some key points that may very well encourage you to save more for your retirement.

In summary, the study of the American Workforce conclusively demonstrates that most Americans will not be able to afford retirement, regardless of whether or not they save money in 401Ks or not, since their rate of savings is grossly inadequate for them to maintain their current lifestyle and standard of living at retirement (unless they continue to work into what should be their "retirement years" - which rather defeats the purpose of calling it retirement). This lack of preparedness occurs across a broad segment of the workforce, and includes both white-collar and blue-collar workers alike. And, most individuals think they will have enough to retire, regardless of the statistics and reality they must face.

This Frontline episode focused on the shift from company pensions to 401K plans over the past couple decades, as well as how corporations have been unloading their under-funded pension plans on the American taxpayers at an alarming rate. Right now, the PBGC, or Pension Benefits Guarantee Corporation (read: yet another taxpayer funded corporate bailout corporation), is $23 Billion in the hole. This is a result of massive corporate Bankruptcy filings (like the United Airlines filing) that allow companies to drop massive amounts of pension-debt onto this government agency during their (Chapter 11) "restructurings". The most frightening fact is how much under-funding of corporate pensions still exists that has yet to be dumped on the PBGC -- total under-funding has jumped from around $100 Billion USD to nearly $450 Billon in just the past 4 or 5 years! Why should this concern you? Well, aside from the fact that you the taxpayer will be taking on even more debt for these bailouts, if you happen to rely on a corporate pension that ends up being turned over to the PBGC, be ready to see your monthly benefits drop considerable, thus jeopardizing your retirement lifestyle.

Regardless of the pension issue, Americans in general are not prepared for retirement. They nearly all underestimate what funds will be needed for retirement. You essentially need to put away 15% of your earnings per year at a minimum (some experts recommend 25%!) to maintain your standard of living into your retirement years. And, this means you must save NOW! The longer you wait, the higher that annual savings contribution must be, until you finally reach a point where it is impossible to defer enough of your income into savings to reach your goals.

Many obstacles to a secure retirement exist, but some are within your control. Get control of your discretionary spending now, not later. Saving is a tough thing to get used to: it doesn't give you that instant feeling of satisfaction like you get when making a discretionary purchase like that $4 Smoothie or Coffee-drink you like so much, or that Cell-phone plan you so desparately need in order to survive. Make smart choices now, and the pain will be a lot less than if you have to make severe lifestyle changes in the future.

You can afford to retire, but only if you control your spending and meet substantial savings targets now.

US Tax Policy Bad for the Long-Term : Part 1

I start by calling this "Part 1", because there are so many issues with the current US tax policy with regards to the long-term health of this country, I will undoubtedly be writing many a subsequent article about this mess.

I begin by discussing a topic closely related to prior blog entries (about the falling dollar, lack of savings, and the likes) - in particular, how current US income-tax policy encourages the average person to not save.

Whereas recent tax law changes give favorable income-tax rates to earnings from capital gains and dividends (which disproportionately benefits the wealty), earnings that the "average" person makes from their investment activities are more likely to be taxed at normal income tax rates. The current maximum tax-rate on long-term capital gains and dividends is only 15%. What is the normal income-tax rate compared to this 15% maximum? The 2006 tax-rate table below is provided courtesy of: http://www.irs.gov/formspubs/article/0,,id=150856,00.html

(2006 Rates for Married, filing jointly - other tables are available via URL above)

Taxable income >	And, <	The tax is:
$0	$15,100	10% of the amount over $0
$15,100	$61,300	$1,510.00 plus 15% of the amount over 15,100
$61,300	$123,700	$8,440.00 plus 25% of the amount over 61,300
$123,700	$188,450	$24,040.00 plus 28% of the amount over 123,700
$188,450	$336,550	$42,170.00 plus 33% of the amount over 188,450
$336,550	no limit	$91,043.00 plus 35% of the amount over 336,550

As you can see, if you are married and make over $61,300, or single and make over $30,650 in taxable income (i.e., you are squarely in the so called "middle-class" realm), you will be paying 25% or more in taxes on your any investment income that is taxed at normal income-tax rates.

Now, consider the following "investment options" that the average person may have:

1. Savings Accounts, Money Markets, and other similar cash-accounts: any interest earned is taxed at full income-tax rates;
2. Savings Bonds (also Treasury Bills, Bonds, etc): any interest earned is taxed at full income-tax rates, though at least the interest is free of State taxes;
3. CD's (Certificates of Deposit): you guessed it, earnings are taxed at full income-tax rates;
4. 401K retirement accounts: though a more thorough discussion is needed, the bottom line is that all those earnings you see on your 401K account statement are, for the most part, capital gains and dividends your investments have earned. But, when you go to withdraw funds from your 401K in the future, those earnings are taxed at full income-tax rates (sorry, the government isn't giving you a capital gains and dividends reduction on earnings in that 401K; presumably, this is because you had the benefit of investing pre-tax dollars into the 401K fund to begin with - though you had that same benefit before taxes were cut on capital gains and dividends).
   

So, why do we not encourage savings in this country by extending the 15%-maximum-tax-rate to these investment earnings the average person has? Since our national savings rate is zero, how much could this possibly cost the government in lost tax-revenue? And, a common argument for tax-relief on dividends and capital gains is to encourage business investment and growth. Well, any extra dollars sitting in savings accounts or other investments still encourage investment and growth, since banks make loans against deposits, and the government funds it debt with bonds (and, US citizen purchases of bonds reduces our dependence on foreign buyers, and reduces current account deficits with foreign countries, which ultimately helps our ability to grow and prosper).

The argument can be made that your funds are not "at risk" as they are when invested in equities. That may be, but historical rates of returns are also lower on fixed-income funds vs. equities as well. I personally believe that funds are still "at risk", though at a significantly lower level. When you place your money into CDs or Bonds, you are taking a risk that interest rates will not rise substantially during the time you hold these investments - since, if they do, you suffer the opportunity cost of not being able to realize those new, higher rates. As for short-term interest (on money markets, checking, savings accounts), you may not have nearly as much risk, but once again you are probably not realizing as high of rate as you would if you locked up your money for a longer term, thus you risk not getting the maximum amount you can on your funds. Bottom line: there is always some risk, and since the reward possibilities are tied to the risk level, why not give all these investment vehicles the same tax-preferred-earnings status of a maximum 15% rate? It would go a long way to encourage the masses to save; and if it didn't, what is lost - nothing, since we save zero currently!

For the long-term health of this country, we must encourage and promote savings so we can invest in ourselves in the years ahead when capital from abroad may become less free-flowing.

The Dollar, Cheap Imports, and No US Savings...

A friend of mine, who has businesses in the USA and China, emailed me some wonderful feedback about my recent blog entry about “Currency Markets and the Falling Dollar”. His perspective and insight add further dimension to my discussion.

Here are some quotes and excerpts he provided, plus some commentary I offer in return:

“In regards to the Chinese currency revaluation, we need to first realize that there are two camps interested in the rate, the first are US investors who do not want to see the exchange rate change as that increases there costs of doing business [in China]. The second are those who want to try and make up gaps in the trade deficit and make Chinese goods more expensive so they can compete. In my opinion cheap Chinese goods are an asset to more people then poorly competing US firms that have higher production costs. Chinese have along history of not importing and it is not because the foreign goods are too expensive – it is that they do not cater to the Chinese culture. The US has been an expert in exporting its culture around the world, however when there are countries who are not willing buyers, they [US firms] resort to other means to try and force the issue. Imagine a 40% revaluation of the currency and how that will affect prices of everyday goods for Americans, versus how much revenue it will bring in for US companies that export a few more goods to China. The Chinese government is taking steps to change the exchange rate, and personally it has already cost me quite a bit of money as a US investor in China.”

“Since I have been here [in China] I have already seen a few percentage points drop [in Yuans / USD]. It’s a strange feeling because I understand the market fundamentals and how a revaluation will make things fairer for other competing nations, however I feel the side that wants to keep my costs low, and that influences my thinking. I can now see how big business/governments get so corrupt.”

True, the currency (the Chinese Yuan) is allowed to “float” now against the USD, though within certain parameters that limit the amount of float per day. Here is an article on the recent value of the Yuan, and how it is making gains against the dollar.

Regarding the comment about how big business and governments can get so corrupt, my friend is dealing with the influence of the exchange rate on a relatively small business and investment in China (< $5MM USD / year). And, even at his current investment level, he sees how keeping the value of the Chinese currency depressed works to his advantage and keeps his labor and direct costs in China low. Can you imagine how badly the largest corporations with huge investments in China must want the Yuan to remain week vs. other currencies? It is in their best interest for the Yuan to stay low, so long as countries like the USA continue their Chinese-imports-feeding-frenzy.

And, speaking of this import feeding frenzy, my friend has this to say:

“The fundamental problem with the US financial state is that it is a culture of [people who are] spenders and not savers. The savings rate in many Asian countries is near 40% and the US, I believe, is close to single digits [Mike comment: actually, it is ZERO – read this recent article about the savings rate in the USA hitting ZERO]. This creates a large need for capital in the US which cannot be supplied by the little saving Americans have. This by its very nature forces the US to export its money and other counties are willing buyers at a low price. The sucking sound you hear is the need for US capital because there is none here [in the USA], we have spent it all. This is why a large trade deficit isn’t a bad thing for the US. This is an indication of foreign countries willing to invest in US Dollars. The question is: are we doing the right things with the foreign capital? If we are buying expensive houses and sports cars, then the answer is no. If we are improving education, funding cutting-edge research, and so on, then yes. As we export our culture and turn these [other] societies into spenders and not savers, this competition for capital will increase, and with more competition, the Dollar will slide further against other currencies.”

"Another interesting problem that I think underpins many future issues will be that of investment in research. Currently the US has shifted from traditional production to high tech production, and this I believe will cause a fundamental problem in the future. The issues stems from the combination of government’s inability to fund long term science projects that will help keep the lead, so to speak, for the US in the technology sector, and market driven economies inherent weakness in encouraging long term investment. As “third world” countries invest more in higher education and at a higher rate than the US, the low hanging fruit the US currently eats will be going away very soon. I feel and this includes software development, technical management, and high tech production and research. The higher hanging fruit requires massive long term investment that just doesn’t seem to be a priority in a heavily market driven economy where the pressure is to meet quarterly expectation, and where no one cares about the company’s growth ten years from now. The government has been in a freefall of cutbacks on research since the 70’s and there doesn’t seem to be any comeback on the horizon. This, coupled with the inability to cut back spending in general, leaves us [the USA] in a bad situation; the government is spending far more on things that will not take us into the future […] it seems whenever countries historically get on top, they then look for ways to maximize their lifestyle and loose the “eye of the tiger” [that got them to the top to begin with]. The danger of this is that the US will find itself on equal ground with many new nations, and couple this will a falling dollar, it may cause countries currently holding dollars to start to sell, and we all know what that will do."


Wow! Those are all great points and wonderful insight! Keep it coming people!

The final comments from this friend also covers the topic of my other blog entry about stock market investing. His overall take on investing is an interesting one we should all keep in mind, since it focuses on the macro pseudo-psychological factors behind buying and selling stocks, currencies, and the likes (and, how their expectations drive price determination in the market):

"One observation you made [in your blog] which I think is critical for people investing to understand, is that relationship between good and bad news and the price of the stock, currency, or whatever instrument being trading. The point that I think is often misunderstood or forgotten is that the market price already reflects the expectations of that market on the instrument. Simply put: the dollar doesn’t go up much on good news because people are expecting good news! You expect good news from Microsoft, and not bad news, which is why it is a blue chip stock. Bad news on a stock that is expected to do well is really bad news for the pricing expectations, and therefore has a greater impact on the percentage change. People need to remember that when they invest in a stock that they think is going to really go up, that you are betting against the market, which sets the price based on what everyone thinks will happen. This [logic] is the same on the downside. [...and] why you find stable companies that have modest returns, and are expected to pay dividends. This [logic] is especially true in the case of the dollar, which has been such a large tool for countries to help stabilizer themselves with (by holding lots of US dollar reserves). As I said before, as more countries start down the road of spending as the US (such as the EU, China, etc.), there will be more competition for the money from countries that save, and this will push down prices paid for currencies currently held by [savings countries that move towards] spending countries."

Investing in ADR (American Depository Receipt) Stocks

Invest in Foreign Stocks from the USA

When a company's ordinary shares (ORD) are based in another country, and are home to a foreign country's stock exchange (such as the Tokyo or London Stock Exchange), and trade in a foreign currency, how can you easily invest in these non-US equities?

The answer may be ADRs (American Depository Receipts), which can be a great way of owning shares in foreign companies. Not all foreign companies have ADRs, but those that do give you a way to trade shares in these foreign firms right here in the USA on our own exchanges like the NYSE (New York Stock Exchange) for example, and trade in US Dollars (USD).

NOTE: see my related blog about Currency Trading Basics: Understanding the Exposure Implications (on your Forex holdings) Related to Exchange-Rate Fluctuations (includes a quick-reference diagram / visual-aid for magnitude-of-move comprehension).

Understand the Implications of Underlying Currencies on ADR Share-Prices

Before trading ADRs, you need to understand how they are priced, and the impact that currency-exchange-rates may have on your investment!

ADR "shares" will represent some multiple or fraction of an ORD share. This ratio of ADR:ORD is important to understand, especially if you trying to figure out how the ADR is priced as compared to the ORD. The ADR:ORD ratio will be one of the following:

• (1:1) — meaning, a single ADR share is equivalent to a single ORD share. E.g., Bayer AG (ADR ticker: BAY) whose ADR trades 1:1 with the underlying ORD share trading on the German Stock Exchange in Euros;
• (1:n) — meaning it takes multiple (n) ORD shares to equal 1 ADR share. E.g., HSBC Bank ADRs (NYSE ticker "HBC") trades at a ratio of 1:5, with the underlying ORD share trading on the London Exchange in Pence (i.e., 1/100 Pounds, or a British Penny in essence)
• (n:1) — meaning it takes n ADR shares to equal 1 ORD share. E.g., SAP AG (Ticker SAP), trades at a ratio of 4:1, with the underlying ORD share trading on the German Stock Exchange in Euros;

Though ADR prices are quoted on US Exchanges in USD, you may wonder how they come up with the price. And, this will be important for the next point I'll make, which is: the rather substantial potential impact of currency fluctuations on your ADR price.

Using HSBC (ADR: HBC) as an example, whose closing price was approx. $90.00 USD, here is how that ADR price value is arrived at from the ORD price:

1. Start with the ORD price (in Pence) was approximately 950. I.e., 9.50 Pounds;
2. Now, obtain the ADR:ORD ratio, which is 1:5 in this case;
3. Obtain the currency-pair exchange rate: e.g., the British Pound (GBP) was trading at approximately $1.89 USD per GBP;
4. Finally, perform the calculation.  Start by multiply the ORD price by the ADR:ORD ratio (5 in this case), since one ADR represents 5 ORD shares, giving us 47.5 Pounds (i.e., 9.50 x 5). Next, convert to our local USD currency by multiplying the prior result (GBP 47.5) by the current effective currency exchange rate of 1.89 USD : GBP, which yields the current value that foreign share should be worth in local currency equivalent, or $89.775 USD.

Voilá!, it really does come out to the price the ADR is trading at!

So, one thing that should become quite clear in this "lesson" is the impact of the foreign-currency-exchange-rate in the pricing of the ADR. You may choose a wonderful foreign company to invest in, but, depending on whether the dollar strengthens or weakens against the currency that foreign stock's ORD shares are priced in, you could still lose money. Conversely, a poorly performing foreign stock could make you money on your ADR holdings if the dollar tanked against the currency the ORD shares are priced in.

To make this fact clear to you: Presume you buy HSBC stock at an ADR price of $100.00/share. Even if the HSBC stock underlying ORD shares on the London Exchange never move at all, but the dollar swings downward by 2% against the pound, you will have made 2% on your ADRs, since it now takes more dollars to buy the same amount of HSBC stock ORD shares in Pounds. Likewise, if the dollar gains 5% against the pound, it takes fewer dollars to purchase an ORD share of HSBC, and you will have lost money on your ADR shares. So, be sure to keep currency fluctuations in mind when investing in ADR shares!

Useful ADR Resources

Check out foreign stock exchanges to get quotes (in base currency for ORD shares) for the stock you are researching. For example, to see HSBC quoted on the London Exchange, go here: HSBC Bank, PLC (ticker HSBA) on its native London Stock Exchange website, quoted in pence (i.e., pennies in the GBP or Pounds Sterling currency system).

A nice resource for checking out ADRs is the Bank of New York Mellon (BNY Mellon) Depository Receipts web site. They have a rather comprehensive DR directory that allows searching by region, industry, and many other criteria. It also shows ADR:ORD ratios, underlying country, and more.

Continue to read this Software Development and Technology Blog for computer programming articles (including useful free / OSS source-code and algorithms), software development insights, and technology Techniques, How-To's, Fixes, Reviews, and News — focused on Dart Language, SQL Server, Delphi, Nvidia CUDA, VMware, TypeScript, SVG, other technology tips and how-to's, plus my varied political and economic opinions.