Cooking the Golden Goose

Duffy has taken a little break but is in blogging mode. Today we're going to discuss Duffy's take on all the recent scams and Ponzi schemes that have been unearthed in the past year. Let's start with the Madoff scam, the largest Ponzi scheme ever discovered and one that apparently went on for more than 20 years. Many books will be written about how Madoff pulled this off (some already are) but I think Madoff shows the main factor of how these things get started and keep on going. And that factor is, trust. Madoff was noteworthy in that he preyed on mostly his Jewish friends and contacts and continued to burnish his own reputation as a Wall Street insider who "knew the rules and how to play the game". His genius was to credit his victims with a reasonable steady return on their investments, never too much year by year but always a steady investment income. In other words, what most investors want from their money. His undoing was the astounding collapse in the entire financial system that panicked his investors who wanted to get liquid as much as possible. Like a receding tide exposing hidden shipwrecks, Madoff quickly ran out of money to redeem to his clients. So far, many other Ponzi scams have been uncovered due to the unprecedented recession the past two years. Duffy suspects more will be uncovered in the months ahead.

Why would otherwise intelligent people entrust their funds, even life savings to one individual? Greed is one aspect but more importantly in Duffy's view is that people trusted ole' Bernie to do right by them. Apparently a lot of proper due diligence was not done because of Madoff's reputation and insider status as well as testimonials from his early clients who, in fact, got paid oftentimes more than they put in.

Fraud like this is hard to detect and a lot of people are going to change their investment philosophy due to the numerous scams that have been unearthed the past year. "Trust but verify" as President Reagan said.

Duffy has never been scammed (not yet anyway) and has followed some iron core rules over the years that has enabled him and his family to maintain their lifestyles even into retirement. Let me share them with you.

First of all this treatise is intended mainly for young folks, single , married and married with kids. During this Great Recession a lot of these pointers will be disregarded or ignored for folks who are treading water in the shark tank without a life preserver. Nevertheless, when things do get better, and trust ole' Duffy the economy will get better and hopefully will be back to "normal" (whatever normal is) by the end of next year. Elections are coming up and the Democrats need people back to work. They will do whatever it takes to get folks working again. "Normal" won't be like partying like it's 1999 but it won't be like panic in 2008 either.

1) You need insurance. Health of course but also life insurance, especially for those with families. If both parents work then both should have adequate coverage, at least five times your salary.

2) A reserve fund. Duffy's rule of thumb is six months equal to the highest wage earner's take home pay. Start at three months as a goal and work up to six. Duffy got it as high as a year at one point. That pile of cash is a nice safeguard if one or both lose their jobs.

3) Never finance a car longer than 48 months. Longer and you will be "underwater" the entire period of car payments. Cars last longer and you get a nice paycheck from yourself if you can pay off the car before the loan period ends.

4) Proper use of credit. Duffy believes you only need two credit cards. One for normal use and one for emergencies. An emergency is not a new HD TV or Coach purse. Get into the habit of PAYING OFF YOUR CARD EVERY MONTH! Think about using VISA's money for free for a month, every month. You are using their money for 30 days for free! What a deal is that? You have to determine what your limit is every month. That is the hard part as well as having the fortitude to stay within that limit.

5) If a deal sounds too good to be true, it probably is. Just because Uncle Fred is investing in cocoa futures and making a killing does not mean you should too.

6) Diversify. Never put all your funds in one investment. Don't heavily invest in your company.Spread your investments around many different asset classes, e.g. stocks, bonds, real estate funds, cash. Find a solid, reliable and strong financial institution to use as investment managers like Fidelity, Prudential, Vanguard, etc.

7) Make a budget and stick to it. Both spouses have to buy into the budget and even though little emergencies will pop up from time to time, keep your eye on the ball for the long view.

Finally, in spite of the worst recession since the Great Depression, Duffy believes this too shall pass. Wall Street and Washington have been scared silly by what happened last year and Duffy believes will take corrective action to make sure something like this won't happen for another fifty years. The above suggestions are all common sense and I'm sure people who read this blog have their own systems to manage their affairs but being diversified, sticking to a goal and being sceptical,prudent and reasonable in expections will save a lot of heartache if followed.

Have a great Thanksgiving!

"Can't we all just get along?"

Rodney King's question posed back in 1994 after the California riots seems even more pertinent today. Duffy has seen a steady increase in the amount of intolerance and incivility in the public discourse year after year. Talk radio, talking pundits on the cable channels, blistering opinion columnists in the New York Times and Wall Street Journal, all engaging in screaming, hollering, yelling, insulting, denigrating "the other guy", whoever it is that doesn't share their opinion, on whatever topic (and they are always right, by the way!). It's enough to make someone of Duffy's age wish for the peaceful days of, say, 1962 when people said, "please" and "thank you" and listened politely to other's opinions even if they didn't agree with them.

Duffy can date the descent into the current morass back to 1987 when Teddy Kennedy and other Democrats led a vicious campaign against Robert Bork to join the Supreme Court. In Duffy's view this televised hearing set the tone for future attacks of one political party against the other. Duffy is convinced that the Bork hearings and the later Clarence Thomas hearings gave the Republicans the license to ramp up a continual vilification of Bill Clinton for his entire presidency. The rise of Talk Radio and the Fox TV channel gave Republicans and conservative outlets a way to "push back" against a perceived (and in Duffy's view) correct Democratic/liberal bias of the major networks. It didn't take long for MSNBC to become the Anti-Fox network. Folks like Rush Limbaugh, Lou Dobbs, Keith Olbermann and lately Glenn Beck all discovered that their more outlandish claims against the opposition got them higher ratings and bigger paychecks.

The election of America's first bi-racial President just seemed to increase the hostility. The Democrats swept into office believing they have a mandate to sweep away all the sins of the Republican administrations going back to Reagan and finally completing all the unfinished business of FDR , LBJ and the New Deal and Great Society. In this they have misjudged the electorate of a country that is more centrist and conservative than liberal. Nancy Pelosi and President Obama will find this out in November 2010.

Meanwhile, Duffy suggests that in one's day to day life one should act with consideration and kindness to as many folks as one can. Broaden your views. If you watch Fox all the time, watch CNN and MSNBC to find out what the "other side" is saying. Even if you don't agree with it, you will have a better understanding. Don't believe ridiculous assertions like Obama isn't an American or Bush caused 9/11. If it sounds ridiculous, it probably is. A well rounded person shouldn't have just a large waistline but also be able to listen to and decide between both sides of an argument. Duffy has no patience with pundits who yell at their guests or belittle them or interrupt them. Duffy has no respect for comedians who insult or belittle public figures.

Duffy thinks the next three years are going to be the most contentious between the two halves of America that he has seen in his lifetime. There is a widening gulf between the Democrats/Liberals and the Republicans/Conservatives. Moderates and Independents are disgusted and turned off by this. Duffy thinks it will get worse before it gets better. Unfortunately for the country....

TV Commercials are driving me crazy!

Duffy, who has been around for a while, has seen many profound changes in the television industry. Both "hardware" i.e. TV sets, and "software", i.e. programming. He has been pleasantly amazed at the technological changes over the past 50 years, particularly over the past 10 years in the incredible transformation of TV sets. Having purchased a large screen HD plasma set last year, "watching football games" has a whole new meaning. Cable transmission means over a hundred stations to choose from with more of them becoming HD every day. DVR time shifting is a wonderful invention for people with busy schedules to be able to record their favorite programs and then watch them when convenient. Wow, what a difference when Duffy remembers his father bringing home the neighborhood's first color TV (a 21" RCA) in 1958. This is definitely the Golden Age of television technology.

Duffy also remembers from the early days watching programs that lasted 30 minutes with three commercials, one at the beginning, one in the middle, and one at the end. The commercials lasted no more than a minute each and several commercials were included in that minute. Fast forward to today. Duffy never watches a program more than an hour unless it's sports as he can't bring himself to watch the multitude of commercials jammed into every program. Now eight minutes of commercials are allowed in each 30 minutes of programming with more than that allowed on cable channels. It is extremely annoying to watch 8 minutes of an interesting program and then have it interrupted in the middle by 5 minutes of commercials. Another 8 minutes, another 3-5 minutes of commercials. One of Duffy's pet peeves is seeing the same commercial at the front of the commercial break, followed by several others, then repeated again at the end of the break. Every year it seems somehow broadcasters manage to jam ever more commercials in an hour time slot.

It is Duffy's opinion that Congress, being as feckless as it is, holds hearing and passes laws on the most ridiculous subjects that usually have not very much, if anything, to do with the well being of the country. The latest example being the hearings held on the BCS system for college football. But Duffy would love to see a law passed either outlawing (probably unconstitutional) or delaying to a later time, commercials promoting prescription drugs. This is a relatively new phenomenon but has been increasing the annoyance factor. The most egregious example are commercials on erectile dysfunction in the prime 6-8 p.m. dinner slot. Duffy just imagines the scene around the dinner table when the 6 year old asks his daddy what erectile dysfunction is. But we also see commercials on drugs to treat Alzheimer's, diabetes, sleep disorders, heart conditions, you name it. All have to be prescribed by a doctor. Duffy counted 5 commercials in a row for prescription medication the other night. The drug companies spend billions of dollars hiring cute women to visit doctors to promote their latest new miracle drug. They don't need to spend billions more on TV commercials when they can spend that money instead in additional research. In Duffy's opinion, "There ought to be a law!"

The networks wonder why they are losing viewers. They ought to just count the number of commercials each hour to get the answer. Just like a newspaper can't be all ads, the television programs can't be all commercials.

Duffy longs for the day when a TV manufacturer makes a set that will automatically blip out commercials.