NOTE: This is a repost of the previous episode, encoded in MP3.
Given todays crisis with the rising prices for oil and the rising prices for food, I thought it would be interesting to look back at George W. Bush's statement "America is addicted to Oil". As astonishing as it was for GW to be so honest as to admit the national addiction, as I reread the State of the Union speech this statement was embedded among some interesting promises related to freeing the U.S. from dependence on oil.
Yesterday Democracy Now had a pair of interesting segments about the crisis in the mortgage lending sector. Subprime Lending Crisis: Millions of Families Face Losing Their Homes to Foreclosure and In Debt We Trust: America Before the Bubble Burst ... the idea they present is that 'predatory lenders' have been roaming the country stealing peoples houses and forcing people to run up enormous debts.
As an avid motley fool member I've been exposed to their investing rhetoric. One of these points is the Rule Breakers and Rule Makers (Audio CD) duopoly of thinking. In it they examine two kinds of companies .. the Rule Makers who are the 800 pound gorillas of their individual market niches and govern how that section of the market operates ... and the Rule Breakers who go in and disrupt existing markets with new ways and business models.
You see the deal advertised ... a hot new sofa, only $1000, 90 says "same as cash". Cool, I don't have to pay anything and I get this sofa. And ever enticing is the option of buying something on a same-as-cash deal, and holding onto the money for a few months. You can earn some interest, and pay off the credit later.
Since the cut in taxes on dividends by the Bush Administration (part of his bad tax breaks for the rich strategy to get re-elected), dividend-paying stocks have been getting more attention. One of the measures, yield seems so simple but leads to confusion.
Yield is basically the return you get from an investment, as a percentage, or:
yield = (income / price) * 100
The mathematics are simple enough, but there are several ways of interpreting this, and therein lies the rub. Even experienced investors get it confused, such as this Motley Fool article How to Achieve 20% Yields.
In the personal finance section of this web site I go over a model for living that some call Living Beneath Your Means. It isn't a new model for living, and in previous generations they might have called it making do. The general LBYM idea is, no matter what your income is, you can live such that your costs are less than your income, and you then set aside (invest) the remainder. The more money you can invest from the remainder, the more freedom your future has.