Before I begin: This post is not about politics. I'm talking about this from a purely financial point of view. Numbers. If anyone leaves comments with political hate-talk, they will be deleted with extreme prejudice.

As we all know, Americans don't save much. That's one reason why we have to borrow so much from China, Japan, etc., and it's obviously a bad thing. In addition, many people are unable to retire due to a lack of sufficient money to fund their golden years. So in order to make it easier for you to save, Obama is proposing several measures. One of them is this:

In a second move, Mr. Obama said the Internal Revenue Service will allow people to check a box on their tax returns and receive their tax refunds in the form of United States savings bonds. White House officials said about 100 million families get tax refunds each year, and the average refund is about $2,000.

This wouldn't be a bad idea…if U.S. savings bonds actually offered a decent rate of return. According to the US savings bonds website, the interest rates as of September 2009 range from -5.56% (this is not a typo — the website really says that the rate is negative) to 1.5%. So the government gets to keep your federal tax refunds for years and pay you almost nothing. (You know the Chinese demand more than 1.5% on their money.)

If that's not bad enough, with the current rate of inflation, the value of your money will decrease. If you're making 1.5% on a bond and the inflation rate is 4% (let's just say), then your money is worth 2.5% less every year you leave it in the bond. So by saving, you actually lose ground.

The best way to encourage saving is not “allowing” people to put their tax refunds into some savings bonds that pay a nominal and virtually worthless rate of return. It is by raising interest rates and making saving (i.e., delayed gratification) worthwhile.

But I doubt that's really going to happen. If everyone saves, who's going to increase consumer spending, the all-important gauge of economic activity in America?

I know it seems incredible that the market can still go lower, but I'm afraid it will.

It does not inspire confidence when the U. S. administration believes that the economic plans are showing results. I suppose it is true if the aim of their plans was to deepen the recession. But I thought they were trying to stimulate the economy.

Furthermore, Obama's statement made me go “huh?” It really showed how clueless everyone in Washington D.C. is about the market and how unqualified they are in giving investment advice to people:

What you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it.

I hate to ask, but what are “profit and earning ratios”?

The only ratio with P & E that I know of is the P/E ratio, a.k.a. P(rice) / E(earnings) ratio. In business lingo profit and earning are more or less the same thing, so it's a bit odd to create a ratio out of those two because the result will always be “1”. Also looking purely at the P/E ratio to evaluate any particular company stock's potential is utterly ridiculous. There are so many variables to consider, and historical performance is not indicative of future performance.

Furthermore, earnings (a.k.a. profit a.k.a. income) should be regarded with skepticism. There are many ways to fudge the data and adopt different types of amortization schedules and so on to either inflate or deflate income. This means you must read the notes and do some heavy-duty calculation (meaning accounting) yourself to ensure that the earnings data you're using for Company A is truly comparable to other companies within the same industry and so on.

This is why IMHO the most important financial statement is not the balance sheet or income statement, but the cash flow statement. If you don't have enough cash to operate your business you will go bankrupt (unless you're “too big to fail”). You'd be amazed at the kind of insight you can gain by looking at a company's cash flow statement.

Anyway, I'll be holding onto my cash until the market has truly hit the bottom.

Although Aso cabinet is incredibly unpopular, it's good for one thing: providing lots of humor. Every night Aso or member(s) of his cabinet issues some kind of explanation or retraction of previous remarks that others have “misunderstood”. Sometimes I wonder if they're really Japanese since none of them seem to be able to speak Japanese language that the citizens can understand. Aso is so bad that he makes Bush sound eloquent by comparison.

So what is the recent “typical” screw-up?

Japan's Finance Minister Shoichi Nakagawa appeared drunk and incoherent during the G7 meeting in Rome. He denied the allegation, but the Japanese media played the tape and analyzed everything he did (and said) and declared that he must have been intoxicated, esp. since several people pointed out that Nakagawa is fond of drinking and that some call him Nakagawa Sake.

Here's Nakagawa's Q&A. You don't need to speak Japanese to know that he's totally wasted on the tape. (BTW — his Japanese was so slurred and weird that nobody really understood what he was trying to say.)

Now…you'd think that the Finance Minister from the #2 economy in the world (in terms of GDP) would display more sobriety. Japanese economy shrank by over 12%, and unemployment rate along with suicide rate is rising rapidly right now.

BTW — the latest poll showed that Aso cabinet approval rating is currently at 9.7%. Maybe it's time for Prime Minister Aso to resign. Aso's been in charge for less than six months, but still…

P.S. Nakagawa said he'd only resign if Aso asked. He also declared that his performance in Rome didn't do anything to harm Japan's standing. The opposition disagreed and demanded his immediate removal. We'll see how Aso responds. (Aso and Nakagawa are close friends.)

mood: stuffed…! Hero Material and I had three days of gluttony starting Friday
eureka of the week: figured out two important world building / plot elements in All the King's Women; must incorporate them into the current draft

Happy belated V-Day! :)

Hero Material and I ate tons of food. On Friday, I made cheese fondue — very very good! — and on Saturday, we had Italian and on Sunday, I made beef stew and a ton of garlic bread.

I still feel stuffed.

We also went to a local jewelry store on Saturday to look at some custom made rings and design diagrams (pics). I do like diamonds, but for our engagement and wedding, we decided to go for sapphires. Hero Material has six loose gems, and I love their deep blue color. The issue, of course, is the right setting.

I liked some of the designs, but it was much more than I expected to pay. And to be honest, I'm not sure if I want to spend that much money given the current economic condition (recession) and so on. Hero Material thinks that I'm fiscally conservative — meaning I don't like to spend money even during bubble — but we'll have to see. The designer told us that it takes about twenty days, so if we give her a month, she'll have all the rings ready for us.

(My mom was determined to send me hundreds of jewelry store catalogs. I had to ask her to not bother since it's really not necessary.)

Speaking of spending money…

Numerous Japanese news stations reported about U.S. “stimulus” bill's “Buy American” clause. (BTW — it was very amusing to watch it since Japan is incredibly protective of its own domestic firms.) The foreign countries' problem isn't that the U.S. is spending the money it doesn't have, but that it wishes to use that money to buy American-made steel and so on for construction projects, etc.

Now, I'm not a big fan of protectionism — I'll blog more about how it can really hurt consumers later with some examples from Japan — but come on! The bill is supposed to stimulate domestic economy. The American taxpayers are going to be infuriated if the government uses $800 billion of their money and stimulate the economy of some other countries, when American economy is in recession.

I can't help but think that the countries that complain are just looking for “free lunch”. They don't want to spend the money but still get the benefits. If they want to stimulate their own domestic industry, they too can pass a $800 billion stimulus bill.