Let me advise any opponent to the current President of the United States: “It’s the spending, stupid!”

Bush the 41st vs. Obama the 44th

In a parallel to President Bush (the elder, that is…), President Barack Obama has very strong foreign policy credentials.  While Bush had the Cold War and the Persian Gulf war to thank, Obama merely has to point to the covert mission to take the life of Osama Bin Laden as his main success.  Does his success mean Mr. Obama is unassailable?  No, but similar to Bush, any attack on the performance of President Obama has to come from an economic standpoint.  Let me highlight one such story which concentrates on the fiscal health of the country.

Currently, the oldest living former President is Jimmy Carter (Ed: Cameron points out George Bush, Sr. is older), who first took office in 1977.  With that in mind, I took federal outlays from 1977 to 2011 (estimated) from the Office of Management and Budget (strictly on balance sheet spending) and inflation index data from the St. Louis Fed on the first on the year for every year since 1977.  I plotted  both Federal Outlays and ‘Real Spending Increases’ (namely, spending above and beyond increases in the CPI) to show Federal Spending for all living presidents (and Ronald Reagan, who served in between Mr. Carter and the elder Mr. Bush.)  Note that the OMB uses its own definition of a fiscal year; click through to the OMB to determine their methods. Also, click through if you’re in a reader… this is a Javascript graph.

The Presidents and Congress

As anyone who has completed a civics or social studies class will tell you, it takes more than a President to enact laws, it also requires a willing Congress.  Presidents have been unfairly punished or lauded for economic activity on their watch, when sometimes success or failure was merely the result of fortuitous or perilous timing.  Remember, victory has many fathers and defeat is an orphan.  Also remember (especially when you hear any politician take sole credit for something) that it takes 9 months to produce a baby no matter how many doctors you assign to the task.  Caveats aside, here are the five worst and five best years of recent vintage listed along with party control of the House and Senate.

What do you know?  You can’t trust either party!

To spoil the party again, remember that in some cases decreases may have come after increases, in effect ‘locking’ the budget in… that is illustrated in the recent period 2009-2011, all three in the chart above.  For example, if new spending in 2009 had been split into two years, 2009 and 2010 would have both been in the highest increases since Mr. Carter’s presidency.  Also note that, in many cases, spending levels are set before a new session of Congress begins (new bills passed under a previous Congress).

Back to the Spending!

I suppose now I’ll have to make an article about total spending over the term of a Presidency, or perhaps I can do something like I did when ranking Fed Chairmen.  Either way, I hope I have proven that spending increases are off the chart under President Obama.  To Mr. Obama’s opponent?  It’s the spending, stupid!

What do you think?  Did I find a winning slogan for November? If someone is a budget hawk, which party should they vote for?

	Quick, Happy Spending Graph
	Am I a Hypocrite? PKamp3′s Spending in 2011
	We Have Bigger Problems Than A Failing Deficit Committee

Casinos, over the years, have traditionally thought of sportsbooks as an amenity to offer to their customers as opposed to a real way to make money. They cap the bets made on traditional over/unders and to people who consistently win in sports gambling (known as ‘sharps’). The casinos believe that sports gambling is beatable by a select few and just hope that the losses of the masses can wash out the gains of the few. But, the obvious question is: if it is beatable, how does one stay ahead of the market/line-setters?

What if sports gambling was as easy as pushing chips?

Why the Dealer Always Wins

First, a quick word about how lines are set and money is paid out on various outcomes. Lines are set to hopefully establish even money on each side, not necessarily to predict the winner. The sportsbooks then make money no matter which side wins by the small additional odds they charge (called the ‘vig’ or ‘juice’) for an equal payoff. For example, the Patriots (-3.5) played the Giants yesterday (and, unfortunately, lost). This means that the Patriots were laying 3.5 points or were favored by 3.5 points. A bet on the Patriots paid off only if they won by 4 or more. A bet on the Giants won if the Giants won or lost by 3 points or less (they won by 4). Each of these went off at -110, meaning a bet of $110 only won $100. So if they got an even amount of bets on each side, the books won $10 off each losing bettor.

That is pretty much the essence of making money in keeping a sportsbook. But, how does a gambler make money off of a sportsbook? That is a bit more difficult and many books have been written (and fortunes lost) attempting to gain this recipe. This article doesn’t deal with how to win in sports betting, but deals with an even more interesting development in sports betting. The M Resorts Spa and Casino currently encourages sports betting. And, unlike every other sports book in town, they offer live odds on every single event. This could be a strikeout on a single at-bat, an interception on a specific drive, the number of points in a certain quarter in a basketball game, etc, etc. They are able to offer this through advanced algorithms that can determine the odds of every particular event in real time. The sportsbook itself currently feels that they can make money off of the small amounts of vig they gain from each trade and encourage people to try to beat them. As mentioned above, if the odds are correct and 50% of the bets come in on each side, then bookmakers always win. The key is to always have the same money laid on each side, and that is where the complex math comes in.

New Avenues for Betting

This amount of liquidity in gambling allows interesting propositions for gamblers, too. For example, if you bet on a certain basketball player to score 10 points in a quarter at odds of 3:1 and 6 minutes into the quarter, he currently has 8 points, you can then bet that he will only score 8 points. The odds at the beginning of the quarter may have been short, such as 1.5:1, but are now trading off at 4:1! Betting this will guarantee that you will make money with another bucket, either at 3:1 or 4:1 (so long as they don’t get 9). This allows the accurate timing of certain bets the ability to leverage one’s own mistakes and mitigate risks. In this way, much more advanced betting methods can develop!

This is very new technology, and Cantor Gaming feels that they can increase revenue twenty-fold in a few years, which will give them even more accurate live price setting (due to accumulated history of past betting). All of this is very exciting to a math nerd like myself who believes that markets can exist in, well, everything.

Cheers,

Cameron Daniels

	Which Political Demographics Watch Which Sports?
	Neuroeconomics: A New Way of Examining Markets
	Retirement Saving is Not Gambling

Feel like helping push DQYDJ closer to the top of the world (loosely defined)?  We’re 2 followers away from 200 on Twitter and 2 likes away from 65 on Facebook.

Carnivals and Featured Links

Thanks to those who linked to us!

• The Carnival of Personal Finance
• The Frugal Toad
• Net Worth Protect
• Everything Finance Blog

Links of the Week!

• “Quit Your Job and Die Alone” – it’s a catchy title, but far from being about how tough it is to make friends once you leave a career, this article is about why most online businesses exaggerate their revenues – or completely ignore expenses!  From our pal the Financial Samurai writing at Untemplater!
• Nelson at Financial Uproar (commonly abbreviated ‘F.U.’) implores his readers to rethink weddings – or at least stop spending so much…
• Our friend JT at Money Mamba, in his new position on Darwin’s Money wrote about Mitt Romney’s effective tax rate.
• Meanwhile, north of the border… Boomer of Boomer and Echo discussed OAS, roughly comparable to Social Security here in the States.  Guess what – at its current course it is unsustainable in Canada, and they are slightly changing the eligibility.  A glimpse of our future?
• Teacher Man at My University Money channels Aldous Huxley and asks how many citizens should be allowed higher education?  An interesting piece!
• 101 Centavos once again finds itself in the roundup, due to this piece on clever engineering.  How can I resist linking it?
• The Frugal Toad trains his sights on customer service.
• Over at Political Calculations, Ironman takes exception to Jonathan Chait misrepresenting the numbers.  Hopefully something interesting is brewing!
• Control Your Cash talked about Master Limited Partnerships, a topic we’ve covered before (yet many people still aren’t familiar with these investments…)

Oh Yeah, The Republican Primary

Bored with the primary?  We aren’t!  In lieu of a Florida breakdown, we will give you this… a total primary vote count.  We reserve the right to bring them back whenever we feel though, haha!

2012 Republican Primary Votes Through IA, NH, SC, FL

So, Mitt Romney has around 40.5% of total primary votes while Newt Gingrich has 30.89%.  However, Romney has 87 delegates to Gingrich’s 26, owing to Florida’s double rule break and not awarding proportional delegates.  An insurmountable lead?  Hardly!  Remember, 1,144 delegates are needed to win.  Even though the media (and, well, the betting markets) have heard fat ladies singing, there’s a lot of race left.  Also, note that Ron Paul’s Iowa delegates are in dispute (along with the Florida delegates).  Let the battles continue!

And remember, you heard about the Ron Paul and Mitt Romney alliance here on DQYDJ first.  Welcome Reason Magazine and The Washington Post to the party!  Who cares if they have between 1,000x and 100,000x more readers (I’m just guessing here…)?  Bring on the recognition!

Buehler?  Buehler…?

	The DQYDJ Weekender (Week of 1/9/12)
	The DQYDJ Weekender (Week of 1/23/12)
	The DQYDJ Weekender (Week of 11/14/11)

At the same time as this is occupying financial headlines, the Fed has declared that they will endorse a policy of more transparency, opening up their forecasts to scrutiny and understanding from market observers. Due to continued slow job growth and stagnant real estate market, the Fed claimed that they will keep the federal funds rate (the rate at which banks lend to each other overnight) low throughout 2014 to spur economic growth (hopefully). This decision has not been met without controversy, especially among inflation hawks who believe that expansionary monetary policies such as these will lead to future inflation. Due to the deleveraging that has occurred in the credit industry as well as general asset deflation, this effect has not been seen yet; inflation continues to remain at a relatively low level.

Still worried about Greece?

In the flight to the relative safety of Government debt, yields are generally pushed downward as bonds and treasury notes increase in price (price and yield move in opposite directions). The European sovereign debt crisis has spurred what many believe is a flight to safety, pushing bond yields and treasury yields even lower in perceived ‘safe’ countries. This has affected the long-term yield curve of those entities, shifting them downward. In the US, fixed rate mortgages are hitting historical lows. For comparison’s sake, rates peaked at around 18.63% in the early 80s coming off late 70s stagflation and the oil embargo. At the same time as this flight to safety, the purchasing of short-term bonds by the Fed pushed the shorter end of the yield curve downwards. This massive shift of money toward both short and long term bonds has caused interest rates, in all forms, to hit historical lows. This manifests itself in magnificent credit card rates (short term cost of funds), mortgage rates (long term cost of funds) and auto loans (medium term cost of funds), as well as other intermediary installment loans. This offers great flexibility in rates and products to borrowers, such as the loans at moneysupermarket.com. Refinancing rates are remarkably low (as are home equity loans), reflecting the deleveraging occurring throughout the country.

So is this all positive? Of course not, quite the contrary, in fact. The key is to find the silver lining. The reasons for some of the low rates and low inflation is due to a lessened economic outlook: a potpourri of conditions including slower-than-expected job growth, a weaker-than-expected real estate market and a continuously-widening fiscal debt load. These conditions are not going away and could be signs of endemic issues in the American economy. Of course, as long as interest rates are low, it is important to consider the benefits of personal leverage (weighing building up assets before paying down debt you currently have).

Cheers,

Cameron Daniels

Portions of this article promoted by moneysupermarket.com.

	Debt: Invest in Yours
	More on ‘AAA’ S&P Debt
	How to Pay Off Debt… Stealthily

Options?  Intriguing.  How Does Your Method Work?

When you invest in a stock, you have to be right on one aspect: direction.  Sure, you want your stock to move in the direction you choose – either increasing in value if you went ‘long’ and bought shares, or decreasing in value if you went ‘short’ and sold shares.  You have some idea that you want the movement in the near future, and you’d prefer a big move in the proper direction (although you’d certainly be happy for any move).

Options investing brings two new aspects into the game.  Options investing, like stock investing, allows you to predict direction.  Options contracts also have a defined expiration – so they require you to pick a time-frame.  Finally, options contracts have a strike price – the value at which they are declared either in the money or out of the money on the day they expire.  In total, with options, you have to predict direction, magnitude, and time-frame.

To the Charts We Go!

I have selected numbers which imply roughly a 75% chance that the price on a certain date will be in my range.  That means that one quarter of the time we should see the S&P 500 outside of the predicted range on the expiration date, and three quarters of the time it should fall in the range we predict.  This method is based at actual trading values at a point in time (see ‘implied volatility‘, below).  That means I’ll get two curves – one for the implied prices of ‘calls’ (roughly the equivalent of going long) and one for the price of puts (roughly the equivalent of going short).  Let’s take a look (numbers retrieved over weekend – this method uses publicly traded options contracts so the curve continually moves) at numbers for options expiration in Febrary, April, and December.  One last note: this information is based on options for the ticker ‘SPY‘, an ETF that tracks the S&P 500, not the index itself.

Implied Volatility

Implied volatility in options prices is the volatility which is priced into an options contract based on an options model.  The method I am using is a live model, and uses the closing prices of the options contracts after Friday (options expiration Friday).  Basically, implied volatility is a forward looking measurement of how much an instrument will change in value over a period of time.

To the Charts!

First, the charts.  Remember, the model implies a 25% chance SPY (our S&P 500 proxy, multiply by 10 for a S&P 500 guide) will close outside the range listed.  This first chart is calculated using puts.

The second chart is calculated using calls, and gives predicted closing prices on the same dates.

Want to See the Numbers?

You can see that as you go further out, the ‘spread’ for 75% of the price range widens.  This makes sense because it should be harder to predict a price for dates further out than immediate.  As for our model itself?  We’ll have to start logging results before we know if it’s worthy!  Here are the numbers:

	Predicting Recession?
	Stock Picks for 2012!
	Carnivals and Links, Week of January 18

I’ve hidden my political math until the end of the article.

SOPA Links

We got a fair amount of love for our screed against SOPA & PIPA we used to black the site out last week.    I’d like to individually thank everyone for linking to the article – good to know you all read the whole thing instead of just saying, “I’ll be back tomorrow!”

• Wise Bread
• Financial God
• Invest it Wisely

What next?  You click the links and subscribe, of course!

Carnivals and Featured Links

• The Carnival of Personal Finance
• The Totally Money Carnival
• The Yakezie Carnival
• Free by 50, Smart Family Finance and Rambling Fever Money all enjoyed my chart of average starting salaries by major.  When you head over to their sites, check out FB50′s post on cost of living in various areas for Programmers (I can relate), SFF’s post on mistakes couples make in home financing (With a well placed link to the St. Louis Fed!  Nice…) and Matt’s post on financing vs. buying a car!
• Our friends at 101 Centavos lit up our site again, liking our post on the S&P ratings cuts in Europe.  We are particularly interested in the 101 Centavos sanctioned book on investing like a redneck.  The Tight Fisted Miser also enjoyed the post, see more from him on cash back credit card strategies!
• Our good friend Jeff at Money Spruce dug into our archives and produced a gem on preparing for tax season.  It’s a must read, plus check out his comments about our site!

Links of the Week

• Kevin the Thousandaire aired his grievances with tax policy and pointed out that even without a personal income tax, the United States could support a modern government (funding it would be possible in the semi-recent past).
• Double feature from Len Penzo this week – a hilariously titled guest post from Paula Pant and a thorough beat down of some money myths.  The site was in the… um… Len Penzone this week… (and yes, I’ve made that joke before on his site.)
• Our good friend JT at Money Mamba called out utility companies!  I think there is a larger point here about Government creating regional monopolies. .
• The site we spent way too much time on in 2011 (and will continue in 2012!), Burbed, had a hilarious entry about what may just become the funniest perk ever offered to buyers of real estate.  (They also featured one of our images for their redesign!  It’s in the rotating banner, and it was used in our original Bay Area Home Pricing article.)
• American Debt Project considers investing with Bluth Company.  Help steer the first real estate investment!  (Drink every time the house breaks!)
• Andrea, our grammatically correct pal from So Over Debt, discussed the value of a Jackson.
• The Car Negotiation Coach makes a point made in the fictional – but one which you definitely shouldn’t ignore – a blocked tailpipe is incredibly dangerous.  Click through for other winter necessities!
• Fellow displaced New Englander Ashley at Money Talks Coaching wrote an article about using your Monopoly skills to succeed in life.  However, she didn’t include ‘cheat if you can get away with it’…

Speaking of Debates…

Watching the political betting market Intrade can be an interesting thing during debates – such as the debate which occurred Thursday in Florida (broadcast on CNN).  Since bets can come in at any hour, the markets should reflect the real time predictions of a betting market on the likelihood of an event.  To wit?  Odds for the candidates to win the Florida primary at a half hour cadence on the night of the debates, the 26th.  The debates were from 5:00 – 7:00 PM EST.

Notice anything interesting?  The consensus before the race was that Newt Gingrich had to have a big night in order to beat Mitt Romney in Florida.  The largest slide to Romney came after the debates – almost as if people waited for the press to weigh in on the debates which had just ended.  And weigh in they did – the consensus after the debates?  Romney was slightly shaky, but Gingrich seemed off his game.  Since even a tie was a win for Romney (in this case, I would argue he won outright… but sentiment during the debate moved towards Gingrich, as you can see), the markets shifted in the run up to midnight.

And as this article is going out?  The odds are 95.3% for Romney and 4.4% for Gingrich to win the Florida primary.

See you next week!

	The DQYDJ Weekender (Week of 1/30/12)
	The DQYDJ Weekender (Week of 1/9/12)
	The DQYDJ Weekender (Week of 1/2/12)

You can read the cross-tabs here.  Hope you’re ready for the debate tonight on CNN…

Side note (skip if you hate/dislike sports): Does anyone else see the Republican Primary in 2012 as college football in the mid-00s?  Let me lay it out for you:  Mitt Romney is USC, Rick Santorum is LSU, and Newt Gingrich is Texas.  Ron Paul is probably Boise State, a strong football school that didn’t get the respect it deserves.  Anyway, Rick Santorum won Iowa (LSU won the BCS championship), yet Mitt Romney was declared the winner by the AP… that covers 2003.  Mitt Romney was heavily favored in New Hampshire and won easily (2004).  Mitt was expected to cruise to victory in South Carolina (2005) and ran into Newt Gingrich.  Ridiculous?  Well, at least I tried.  Give me a break, USC is my alma mater.  Just wait until I find a parallel for the Reggie Bush scandal!

The Vote by Age Groups

Once again, Ron Paul proved his appeal to, by definition, an incredibly important age group in the future: those under 30 (yeah, I know, they get older.  But so does the < 18 crowd).  Considering the break down of the election in 2008, gaining support from a younger crowd would be  a huge deal for the Republican party.  Note that Ron Paul has won this portion of the vote in every state that has voted so far – and consider that two of those states were primaries, not caucuses.

Breakdown (youngest to oldest): 9%, 19%, 45%, 27%

This is an incredibly important demographic to watch – not just for the 2012 election, but also for future elections and the future of both major parties.  My theory?  The younger crowd is more libertarian than previous generations.  Blame/thank the Internet for that one… but that’s a different article (and certainly 1,000+ words!).  Of course, the cynical quote that some would say applies is: “If you are not a liberal at 20, you have no heart. If you are not conservative by 40, you have no brain” (Thank you Mr. Churchill!).  Where do the libertarians fall in that quote?

The Importance of the Debates

Do debates matter?  Do the Republicans want someone who can debate President Obama or perhaps a candidate accepted by the ‘base’?  That’s one theory being pressed by the intelligentsia of the Republican Party.  Remember: the Republicans voted for someone against the best wishes of the base in Barry Goldwater (1964).  They lost.  However, enforcing party discipline was a good move in the long run, when a man named Ronald Reagan rose to prominence espousing many of the tenets of the Goldwater platform.  In 2012?  People love Newt Gingrich’s charisma and presence on the debate stage.

The breakdown?  13% said it was the most important factor, 51% an important factor, 23% a minor factor, and 11% not a factor.

Ron Paul’s Growing Influence… in One Graph!

If you still aren’t convinced Ron Paul is a huge deal, this next chart is for you. Exit pollsters asked how voters would react to a Romney candidacy if he emerged from the pack.  The choices were ‘would not support’ (13%), ‘would support with reservations’ (48%), ‘would enthusiastically support’ (38%).  Where were most of the ‘would not support’ voters falling?  Newt?  No, and not Rick Santorum either – Ron Paul locked up that demographic.

Reading the South Carolina Tea Leaves

Where the Ron Paul voters end up is going to be the most important open issue of the rest of this campaign.  Consider that defections from the Republicans might lead to additional Obama votes, or perhaps even votes for third party candidates (even though I doubt Paul makes a third party run).  Watch who compliments Ron Paul in the next debates – the debates Monday had a fair amount of sucking up from Mr. Gingrich on Monetary Policy and Fed-Auditing.

On the greater picture?  Intrade still has Romney at better than a 80% chance to win the nomination (Gingrich second, with small amounts allocated to Santorum and Paul).  It’s not over yet, pay attention to Florida!

What do you think about Ron Paul’s candidacy?  Do you support his strategy of gathering delegates?  Who do you think will get the nomination?  Who will win Florida?

	Rick Santorum… Tea Party Candidate? (And Other Iowa Exit Poll Oddities!)
	Mitt Romney in a Landslide! Also, Ron Paul Just Drew Pocket Aces…
	Things That Don’t Matter

Business Cycles

Returns by Year in the Chinese Calendar (The Economist)

Economic theory, news headlines and politics often revolve around the theory of business cycles, loosely defined as periods of monetary, investment and GDP expansions followed by contractions. If there is a trend of ups and downs in an economy’s growth, it would be highly likely that a few of the years would be hit more heavily by the highs or lows because of the cyclical nature of that growth. For example, the years of the dragon coincided with the years 1976 and 1988 which happened to be two solid years of returns for the S&P 500. The year of the snake (next year’s zodiac sign) was hit hard in 1977 and 2001. Any gain in the year of the dragon might be counteracted by the year of the snake just due to randomness in the data.

Election Year

Some studies have been made showing a correlation between the stock market and the point in a presidential cycle. Returns in the final year of a president’s term tend to be greater, which would fall on the years of the dragon, monkey and rat. It’s possible (assuming no political manipulation) that these spurious relationships based off of noisy data are just pointing to the same random out-performance. Election years, much like zodiological signs, have no more correlation with the stock market than what I roll in a game of craps… but the two noisy indicators allow relationships to be imagined.

So what does this all mean? As has been stated many times by behavioral finance and behavioral science pundits/critics/skeptics, there will always be a correlation between past events and past results, even with random data. The chance that there would be no trend with so few data points is near zero. The chance that this trend will hold up over time is still completely random, so it is also not correct to say that it needs to start regressing to the mean and bet against these outcomes (known as the gambler’s fallacy). In other words, this article is just another reminder that there is no way to cheat stock market gains with goofy theories.

Cheers,

Cameron Daniels

	Know the Signs! Pyramids and Ponzis…
	Using Treasury Bond Yields to Determine Economic Signs of Health
	Fascinating Study: How One Economist Used Garbage Production to Estimate Consumption

Mitt Romney, it was revealed in financial disclosure documents, has an Individual Retirement Account worth somewhere between $20.7 and $101.6 million dollars.  Note that IRAs have a small limit when compared to 401(k)s and other employer retirement accounts, so this came as somewhat of a shock to people with IRAs.  How did Mr. Romney achieve such an impressive sum in his retirement account?

Making Wild Assumptions

Well, unless Mr. Romney releases all of his tax returns back to 1975 (when the IRA was first created), we’ll never know for certain. However, here at DQYDJ we’re not opposed to wildly speculating on the causes of his IRA balance.

Mitt Romney has an impressive IRA Balance (Wikipedia, Gage Skidmore)

Mr. Romney was in the workforce for the entire duration of the IRA’s existence, up until 1999 when he left to be President & CEO of the 2002 Olympic Games in Salt Lake City.  From 1981 onward, the IRA limit was $2,000 (previously, it was $1,500).  His wife, Ann, is a stay at home mother.  Non-working spouses were unable to contribute until 1982 when the limit was $250.  From 1997 – 1999 the Romneys would have been able to take advantage of a change in the law allowing Ann a full $2,000 in contributions.  We are going to assume that the Romneys maxed out their IRA contributions, putting a total of $57,000 into the accounts.

Even with huge growth in some of the years, $57,000 seems small, doesn’t it?  Well, consider that much of the contributions likely came from rolling over 401(k)s.  We will assume that the Romneys used the Financial Samurai’s strategy of maxing out their 401(k)s.  Mr. Romney worked at Boston Consulting Group from 1975 until 1977, then either Bain & Company or Bain Capital (which he founded) until 1999.  Here’s where things get weird – 401(k)s have a contribution, match, and a separate company contribution limit.  We’re not going to count the 401(k) until 1982, since most companies didn’t have one yet (no word on BCG or Bain & Company).  That year, it was possible to get up to $45,475 in the plan.  The next year, that limit was cut to $30,000, until 1986.  In 1986?  The limit was frozen at $30,000, but employees could only contribute $7,000 (we’ll be generous and assume Bain made up the difference).  The next major changes in Deferred Compensation plans didn’t come until 2001, so we’ll assume that the Romneys hit the $30,000 mark in the years between.

All in?  The Romneys may have contributed $57,000 to IRAs and $555,475 to 401(k)s.  Once rolled over, the cost basis would be $612,475 – a very good number, undoubtedly helped in our example by company contributions.  After 1999, Mr. Romney entered public service – first, the Olympics, and second, in 2002, as Governor of Massachusetts.  Since we’re assuming (so we have free reign to do whatever we want), let’s assume that no additional money was added to the IRA in the years from 1999-2011 (the year of disclosure).  Let’s figure out what the average rate of return would have to be, factoring in compound interest, to get $20.7 or $101.6 million dollars.

Crunching Fake Numbers

By running our garbage assumptions through actual formulas, we found that to get a value of $20.7 million in 2011, the Romneys would have to average about 16.44% annual returns.  To make their upper hand number fit, returns would have averaged 23.81% annually.  It would be tough to achieve similar gains today without inflation to distort the numbers… to wit, something costing $1 in 1975 would cost roughly $4.23 in 2011 by this measure (Roughly 4.09% annualized from 1975-2011).  the numbers look huge – but remember that an IRA can be self directed, so it is likely that Mr. Romney had access to some very interesting investment opportunities through Bain.

Potential Growth of the Romney Family IRA, 1975-2011

Lessons Learned from Mitt Romney’s IRA

The most important thing to recognize is that the growth rates achieved means that the appreciation of the assets held by the funds well outpaced the cost basis of the fund.  $612,475 is a huge amount of contributions even without appreciation.  But, as you can see from the graph above, most of the appreciation in the assets may have come when the Romneys were no longer contributing to the IRA.  It is very important to contribute early and often.  Contributions near the end don’t make as big a difference to the terminal balance.

What lesson can you take home from this discussion?  Does the massive Romney IRA balance make more sense with these numbers?  Isn’t compound interest huge, especially when applied to the fake numbers above?

	Mitt Romney in a Landslide! Also, Ron Paul Just Drew Pocket Aces…
	Rick Santorum… Tea Party Candidate? (And Other Iowa Exit Poll Oddities!)
	The DQYDJ Weekender (Week of 1/9/12)

Thousand of Ineffective Words?

When does politics invite introspection?  When a site takes an overt political stand on an issue unprecedented in the history of that site.  If it’s true for a whale like Wikipedia, it’s true for a site like DQYDJ – except I can shut the site down without buy-in from Cameron and Bryan (Jimmy Wales, are you jealous?  For the record, I didn’t ask them for their stances.)

So, including the ramblings on this article, I’ve written thousands of words on this SOPA/PIPA kerfuffle.  And that’s just it – it’s words, not figures, that are behind my opposition to the bill.  I’m sure that readers of DQYDJ aren’t subscribed for my moments of soaring prose – I’m fully aware that my writing style overemphasizes puns while remaining consistently pedantic.  You’re here for the numbers, not the rhetoric… and I can appreciate that.  Just know that the passing of these bills, as written, have tremendous consequences from a censorship perspective.  The chilling effect on blogs – already in existence and not yet started – is just the smallest of my concerns.

Carnivals and Featured Links

• The Carnival of Wealth at Control Your Cash.
• The Yakezie Carnival at Saving Advice.
• The Carnival of Personal Finance at Diva in Debt.
• Paula at Afford Anything wrote a piece on civility in internet discussions, where I introduced her to Godwin’s Law.  Paula is a tremendous writer, and she also reads a book per week!  Open a new tab and read her site when you’re done with this one.
• Jeff at Money Spruce also liked our articles on savings which popped up last week.  Jeff is advocating a move away from setting goals – at least the super long term ones we often see.
• A Blinkin linked to our article on Major Starting Salaries.  We link to his treatise on mental accounting (well, maybe not a treatise.  But it is two articles!).

Links of The Week

• “Distraction” (pdf).  What if our default conscious behavior is daydreaming, and anything ‘productive’ we do is consciously overriding that tendency?  Don’t laugh – it could be true.
• Nelson at Financial Uproar takes a step towards online dating with a post on his small town.  Make sure you read his criteria before becoming his neighbor, however!
• Control Your Cash, in the spirit of anti-advice advice (which is quite solid once you unwind it) has this article on how to lose money in real estate.
• Darwin at Darwin’s Finance defends the ratings agencies.  Brave move!  (You can guess where I fall by reading my recent articles)
• “The Physics and Traffic Homepage of Martin Treiber” – Oh yes, it’s a traffic simulator.  It’s also awesome!
• Jen at Master the Art of Saving demands emergency fund accountability from her readers.  Everyone should have one!
• Jackie at Money Crush warns the PF blogosphere that she’ll break ranks and let her husband get a Lotus Elise if her finances agree.  I, for one, applaud!
• 101 Centavos guilt trips me into relearning High School Spanish.
• JT at Money Mamba legitimately feels bad for Suze Orman!
• The Mr. Money Mustache family isn’t just good with money – they also are good with calories!  Read their eating manifesto.

Politics and the Cockroaches in Light Effect

Around noon Pacific time on Blackout Wednesday, the effect of the wide ranging blackouts on the SOPA and PIPA legislation was already evident.  An article in the Los Angeles Times noted that, with hours to go, co-sponsors of SOPA and PIPA were dropping like flies (or, scattering like cockroaches when the light goes on).  The response to the blackouts were so great that constituents were overloading the contact methods of their representatives.  Let’s just say that the nuclear option was a success.  The battle may have been won, but the war definitely continues.  Just wait for the provisions of SOPA or PIPA to be attached to a child pornography or defense funding bill then try to get politicians to vote against it – it’s much easier to oppose SOPA, PIPA as they are then attached to political winners such as those.  Think I’m lying?  How hard would it be to include SOPA provisions in must pass legislation such as this, also sponsored by Lamar Smith?

Here’s how support for the bills looked before and after the blackout.

The Irony of Copyright Length

The point of a copyright (and/or patent protection) is to encourage original ideas, inventions, designs, and strategies by allowing an inventor exclusive right to a product in exchange for their cost in developing the idea/product.  All that is well and good, and as a creator of content (on a blog, in this instance, but also software in my Day Job) I support the protection of IP within reason.  ‘In reason’ – those are the weasel words… why would I say something like that?

Consider that the patent protection for a drug developed in the United States is extended for 20 years.  That 20 years includes clinical trials, so in practice the product sells for much less.  A copyright, on the other hand, starts from when something is published.  The words you are reading are copyright 2012, for example.  For how long?  Well, it can be argued that this article is written as a form of corporate authorship so you can’t copy this article until 75 years after I’ve passed away.  Sorry, pirates!

The original copyright law in the United States extended 14 years of protection.  So, the irony is I can create a drug that saves millions of lives for a chance at less than 20 years of protection.  On the other hand, a company like Disney can co-opt the story of Pocahontas and have copyright protection for over 100 years.  Nifty!

The Worst Part of this Whole SOPA/PIPA Mess…

Not a cynic?  Read this article in the New York Times.  Yes, a lobbyist said, “Why can’t they just hire a lobbyist like everyone else?” about technology companies.  Are you kidding me?

I’m not worried about companies that are huge now, and probably will start to have a lobbying presence in DC.  Congratulations Google, Yahoo, Twitter, etc.  I’m worried about the start-ups.  I’m worried about the companies that don’t start yet.

Look, I had (and have) major problems with Sarbanes-Oxley – but startups still happen.  They may have to aim for higher revenue before IPO or pursue other exit strategies like being bought out (or staying private).    With laws which have the possibility to crimp an entire industry – how do we represent the interests of companies that haven’t been created yet?  Why does every industry have to go through an era of openness, only to be lobbied and held down with overburdening laws and regulations?  (One example, the hyperbolic attacks on VCRs by Jack Valenti.  Mr. Rogers was on the side of openness.)

So that’s why I’m cynical.  I agree with Maddox on this point (warning: adult images/graphics – yet poignant).  Unless we replace the people who wrote these ridiculous excuses for piracy laws, how can we call slightly delayed bills a success?  Maybe we do need a way to deal with piracy by foreign web sites.  Let’s not jam that eventual bill with vague statements at the expense of free speech.

See you next week…

	The DQYDJ Weekender (Week of 12/12/11)
	The DQYDJ Weekender (Week of 11/14/11)
	The DQYDJ Weekender (Week of 11/21/11)