De-FIRE Your Life

[Cipher HighwindParticipant 1144]

FIRE is an acronym for “Finance, Insurance, Real Estate.” These things have the potential to rob of a great amount of the wealth he will earn in his life.

In a free market, these things would not be odious per se and in fact would be beneficial to the functioning of an advanced economy. In this wretched state of affairs to wit a kleptomaniac oligarchy, they are instead means by which one may be plundered. According to the Dept. of Commerce, in 2014, FIRE represented 20% of the US economy. One in five GDP dollars is derived from the equivalent of a shell game run outside of an inner-city bus station.

Finance
Here, the foxes guard the henhouse as the revolving door between the regulatory bodies and Wall St. has resulted in regulatory capture. The bodies that were instituted ostensibly to keep an eye on things now serve Goldman Sachs and J.P. Morgan. It cannot be wise to let others hold one’s own wealth, much less pay them to hold it through management fees, so buy a safe or bury it, and let the foxes eat someone else’s poultry.

Insurance
This one is a bit simpler as there is only one rule in the insurance business: take in as much as possible, and pay out as little as possible. Let us say an insurance company offers a policy to guard against certain events for $100 / mo. It is economical to write this policy after they have paid for overhead (offices, office c~~~s), income tax, advertisements, and of course a profit for themselves. Therefore, if an organisation that has track record of making good calls as evidenced by its profitability, why not self-insure by putting aside $100 / mo and cutting out the middleman?

Health insurance is particularly odious as men in aggregate are now subsidising medical services that only females partake of. Medical services are a scam of their own and are outside of the scope of this post.

Real Estate
The present bubble in real estate is rooted in the thirty-year mortgage propped up by Fannie Mae and Freddie Mac, tax advantages for owning houses, and absurdly cheap mortgages. If one says that the bubble has popped, take a look at the Case-Shiller index; there has been 50% retracement from the post-bubble lows to the 2007 high. Thirty-year mortgages did not exist before the interventionist antics of Franklin the Lame; they only became the norm during the Great Depression. Obviously, thirty years of payments instead of, say, ten would results in lower payments. As for cheap mortgages, the Federal Reserve’s zero interest rate policy has kept interest rates much below the natural rate of interest. Lower interest rates result in lower mortgage payments if a house’s value is unchanged, or higher house prices if a mortgage payment is unchanged.

Let us say one can afford a $1’000 / mo payment and will bid up a house accordingly. A 10-year note + 5% will buy a $95k house, while a 30-year note at 3.875% will buy a $215k house (mortgagecalculator.org). Here we see that meddling has inflated the cost of housing to twice its initial value.

This does not account for taxation and maintenance. In 2010, the median house sold for $221’800 (census.gov). 0,87% is the median tax rate (tax-rates.org), therefore one must pay $1’929 just to own said house each year. The rule of thumb to calculate the average cost of maintenance is 2% of the property’s value or $4’436. Therefore, one is paying $6’365 merely to keep this average house from collapsing or being stolen by the local mafia.

Renting is no better as a landlord is seeking a return on investment and has overhead and expenses. Therefore, for a rental to be cost-effective, the landlord must charge rent equal to or higher than this sum of the three. At the end of the month, one has nothing to show for one’s money. Storage units, on the other hand, are rather decent value for money as they prevent one’s goods from being either stolen or ruined by the weather.

The solution I have implemented to de-FIRE my are as follows:
1) keep money in metals; no financier can play fast and loose with what is buried in an undisclosed location
2) buy no insurance of any kind, save for basic coverage to keep the truck legal ($340 / yr)
3) live out of the truck; the only rent paid is for storage
4) the 45 calibre retirement plan; old age sucks anyway

Based upon this model, one can easily live on $6k / yr, even less if one can get food stamps.

The present paradigm begets a form of neo-feudalism whereby one is prevented from fomenting capital by having interest, insurance, and rent / mortgage on an overpriced apartment or house take up one’s money.

[BeerParticipant 11832]

I’d rather think of FIRE as a different acronym…Financial Independence Retire Early. Horde as much money as you can as fast and young as you can and they enjoy an extended retirement. Think about it…if you are living off 6k a year…you don’t need very much money to cover that without working…you can buy stock in plenty of solid companies that haven’t missed a quarterly dividend since prior to the great depression that pay 3-5%…100-200k and you could survive without touching your principal. Its a great plan when you don’t have to support a wife and don’t have the urge to blow all your money on dumb s~~~ and can keep your expenses down. I’ve got my budget down to about 1k a month…I’ll be FI by 33. After that every day I work is literally for fun money and to build a little buffer so when I do pull the plug on working a single bad year doesn’t force me back to work…but I can’t wait to know I could literally quit my job tomorrow and take a year or two off without drawing my accounts down at all.

At the end of the day if the s~~~ truly hits the fan your stock pile of physical metals is going to be every bit as worthless as my brokerage account, the only things that will matter will be food and ammo. Even real estate will be practically worthless other than a primary residence or land to grow food on. What good is that rental property going to be if the system collapses and nobody can pay you rent? The way I look at it is if the system is going to collapse some day I might as well do whatever I can between now and then to get decent gains, especially with a 45 caliber retirement plan…its like you are just aiming to fail from the start.

[Cipher HighwindParticipant 1144]

Beer –

1 – Backronyms are silly, and your eponymous beverage smells foul.

2 – The stock market, and finance in general, is ill-advised for the reasons I have already discussed. Stocks have failed to hold their own against gold; f~~~ 3-5% pre-tax dividends if I am losing principal! If you wish to play with fire (pun intended), go right ahead, but be warned that men smarter than you have been burned.

3 – “The s~~~ hits the fan” is usually followed with wishful thinking precisely because no one bothers to define the term. Therefore, one may concoct a scenario whereby the 1s and 0s in some computer that somehow indicate your ownership of certain stocks are somehow worth as much as physical assets, and present it as plausible if not probable. One sews gold coins in to his clothes when he flees, not share certificates, and not flash drives.

The most likely monetary scenario I see for the United States at this juncture will be chronic inflation, like what was seen in the late 1970s – early 1980s. This will occur as a result of further money printing, a continuation of the present (near-)zero interest rate regime, and a deterioration of the dollar’s status as a reserve currency. The scenario is most likely because it is the most politically expedient solution to the issue of social entitlements as it prevents a nominal default. The symptom of inflation is an increase in prices in general, is easily blamed on other parties. A 26% inflation rate will double prices every three years and 15%, like they were in 1980, will double them in five.

[BeerParticipant 11832]

The relationship between gold and hyper inflation wouldn’t make gold any more valuable if you plan to stay in the country. If 1 gold coin is worth 100 dollars today, and 100 dollars buys 1 jacket, or hyperinflation hits, you just end up in a situation where 1 gold coin will be worth 10,000 dollars, but a jacket is going to cost 10,000 dollars. If all you want gold for is to hedge against our country tanking so you can leave foreign investments provide the exact same hedge.

Plus, I don’t know if you realize it or not, but gold peaked about 4 years ago and its dropped almost 40% since then. Sure stocks have periods when they drop but so do commodities. Gold prices are every bit as manipulated as the rest of the market, and like I said, if the system tanks to the point of total collapse gold is junk. You can’t eat gold, you can’t use it as a tool, you can’t hunt with it, its not good as a weapon, it can’t provide shelter, and it can’t keep you warm or dry.

[Elric GreenstoneParticipant 1637]

Cipher Highwind wrote:

The most likely monetary scenario I see for the United States at this juncture will be chronic inflation, like what was seen in the late 1970s – early 1980s. This will occur as a result of further money printing, a continuation of the present (near-)zero interest rate regime, and a deterioration of the dollar’s status as a reserve currency. The scenario is most likely because it is the most politically expedient solution to the issue of social entitlements as it prevents a nominal default. The symptom of inflation is an increase in prices in general, is easily blamed on other parties. A 26% inflation rate will double prices every three years and 15%, like they were in 1980, will double them in five.

I think you’re conservative in your estimates as to what’s going to happen. Defaulting on pensions and the like will collapse the system; there is currently no option but default. There’s no way to inflate the government out of its obligations.

Beer wrote:

gold peaked about 4 years ago and its dropped almost 40% since then

The price of gold has been manipulated almost beyond belief by various governments, and generally is a fair marker of a truly nominal mean of exchange. Oil is down right now for a variety of reasons, including (obviously) increased supply and decreased demand.

The stock market has been so manipulated – and expectations for return on investment are so bizarrely low because of our false interest rate – that at the least, I’d stay the hell away from index funds. There are some good companies out there; the collapse of the government will make certain companies rather more valuable than others.

I myself see us ending our Weimar phase at some point. It’s unclear to me exactly what will replace it. Given that both Trump and Sanders are basically winning, I assume that most Americans are in fact fed up with our crony capitalist government and the total and absolute corruption we suffer under. There are a number of ways, historically, things can go from here . . .

"You can either love women, or understand women. You can't do both. Because once you understand women, you realize that there is really nothing to love."

[Cipher HighwindParticipant 1144]

The elections are too soon to call; my money is on Hillary because the majority of the electorate is female, and Tammany Hall Democratic Party electoral fraud resulted in victories in swing states during the 2012 election. Even if a reformer was put in the White House, the unelected bureaucratic leviathan inside of the beltway whose interests are governed by companies on the other side of the revolving door would not give way. This country is f~~~ed either way, the question is what comes of it.

I do not rule out the possibility of a more severe scenario. Because it is more probable, I am assuming the scenario as I described and will plan accordingly.

That being said, I would request that future posts in this thread address the topic at hand i.e. how to avoid being hosed by the FIRE sector.

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