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Old 07-06-2008, 08:24 PM   #161
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Now this despite making three critical mistakes in the market the last year. Taking out a Home Equity loan to invest in the market, deliberately reducing my AA from 70/30 equities to 80/20 and buying financial stocks much too early. Now I suppose that it is possible for a retiree to screw up worse than I did but it isn't easy.
We should form a support group...
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Old 07-06-2008, 08:51 PM   #162
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ok clif, MAYBE I am panicking too much for the scenario as it stands right now, which is what people seem to be reacting to. I am not worried by this drop per se (for me -11.8% ytd incl. w/d). How bad could you or I have "screwed up" if we both come so close to VG (which if it is VAAPX I see it at -11.9%; I couldn't find the stock/bond ratio there)? But I am trying to look ahead and to see whether I can take measures that will protect me to some extent in a very bad, very long contraction with continued decline of the dollar beyond the 40% it has declined over the past eight years.

Where I screwed up is not in asset class allocation, it's on the currency end in hindsight. Because I assumed currencies would just go up or down maybe ±10-20% around a sort of fuzzy mean. Having a paid-off house in euros I'm far from being as bad a loser as I could have been.. imagine have to pay the rent in USD!! Brrr. I could move back to the states, buy a cheap house and be ahead in absolute NW (having sold high leaving, and selling high again in euros) but I don't want to affront the drain of $12k health care and $3-8k prop. taxes which in the long run would eat up twice that gain. Here my health care is basically free and prop. tax (with new legislation) is zero.

I'm really not wanting to sell/rebalance/cash out any more than will keep me under the AMT. All I need is a 28% hit on CG (lots) to add insult to injury! Between taxes, exchange commissions, price inflation (here it's 3.75%), etc. every option seems riskier than the next, including holding pat.

Let's pretend for a minute the financial world as we know it is NOT going to come to an end => Compared to most people I am doing great. For a little while I had the best of both worlds! Maybe it's the pain of seeing our plans here scaled back so much that hurts the most, whereas if I had been poking along in my old life it would be far easier to cope.

Ok, so I will have to keep the old crummy kitchen and the crumbling blue cement hole that might have been a real pool or fishpond. Ok, so I will take up teaching English. Ok, so DH will have to scrounge for a full-time software gig in an illiquid job market that hires only under-35s, instead of the odd project for pocket money. We can move to an apt. We have options and thank God we are 48/49 and not 68/69 with half our egg. But I looked at DH eating a crappy industrial ice-cream sandwich he bought at the supermarket and thought "geez, that cost a dollar-and-a-quarter!" I'm going mad. I'm becoming my mother.

I asked here long ago if anyone knew how currencies behaved, whether they tend to average themselves out in the long run, but no one knew. I see more bad news ahead for the dollar and I guess that's my main preoccupation because it magnifies every loss, and I also see more losses ahead. I think I am quite calm for someone who has lost, not 12% but effectively 52% of my projected day-to-day purchasing power (not counting inflation on either side, just currency loss).

What do crappy industrial ice-cream sandwiches cost where you are?
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Old 07-06-2008, 09:57 PM   #163
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Boy! I always learn something in this forum.

I have as much in after-tax accts as in before-tax, so always tweak my before-tax first to avoid taxes. I am lucky.

But then, I found that even of some of my long-time held mutual funds that have gains, the gains are not a whole lot more than reinvested dividends that I already paid taxes on. So, I could have sold some to rebalance too.

I now appreciate your frustration in earlier posts. For a short while, I entertained the idea of retiring in Malta (they speak English), but did not appreciate the currency conversion problem. I now know it's a bit more complicated. Talk about Euro/dollar rate, I have some foreign funds (mostly European stocks) plus European ADRs. They seem to do well the last few years. But if I convert to Euro, perhaps they might just be flat, i.e. showing no gain at all?

Could you have hedged against currency by investing on the European market? Just a naive question.
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Old 07-06-2008, 11:00 PM   #164
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ok clif, MAYBE I am panicking too much for the scenario as it stands right now, which is what people seem to be reacting to. I am not worried by this drop per se (for me -11.8% ytd incl. w/d). How bad could you or I have "screwed up" if we both come so close to VG (which if it is VAAPX I see it at -11.9%; I couldn't find the stock/bond ratio there)? But I am trying to look ahead and to see whether I can take measures that will protect me to some extent in a very bad, very long contraction with continued decline of the dollar beyond the 40% it has declined over the past eight years.

Where I screwed up is not in asset class allocation, it's on the currency end in hindsight. Because I assumed currencies would just go up or down maybe ±10-20% around a sort of fuzzy mean. Having a paid-off house in euros I'm far from being as bad a loser as I could have been.. imagine have to pay the rent in USD!! Brrr. I could move back to the states, buy a cheap house and be ahead in absolute NW (having sold high leaving, and selling high again in euros) but I don't want to affront the drain of $12k health care and $3-8k prop. taxes which in the long run would eat up twice that gain. Here my health care is basically free and prop. tax (with new legislation) is zero.

I'm really not wanting to sell/rebalance/cash out any more than will keep me under the AMT. All I need is a 28% hit on CG (lots) to add insult to injury! Between taxes, exchange commissions, price inflation (here it's 3.75%), etc. every option seems riskier than the next, including holding pat.

Let's pretend for a minute the financial world as we know it is NOT going to come to an end => Compared to most people I am doing great. For a little while I had the best of both worlds! Maybe it's the pain of seeing our plans here scaled back so much that hurts the most, whereas if I had been poking along in my old life it would be far easier to cope.

Ok, so I will have to keep the old crummy kitchen and the crumbling blue cement hole that might have been a real pool or fishpond. Ok, so I will take up teaching English. Ok, so DH will have to scrounge for a full-time software gig in an illiquid job market that hires only under-35s, instead of the odd project for pocket money. We can move to an apt. We have options and thank God we are 48/49 and not 68/69 with half our egg. But I looked at DH eating a crappy industrial ice-cream sandwich he bought at the supermarket and thought "geez, that cost a dollar-and-a-quarter!" I'm going mad. I'm becoming my mother.

I asked here long ago if anyone knew how currencies behaved, whether they tend to average themselves out in the long run, but no one knew. I see more bad news ahead for the dollar and I guess that's my main preoccupation because it magnifies every loss, and I also see more losses ahead. I think I am quite calm for someone who has lost, not 12% but effectively 52% of my projected day-to-day purchasing power (not counting inflation on either side, just currency loss).

What do crappy industrial ice-cream sandwiches cost where you are?
Again, I completely understand the pain and I have been wondering myself how I would hedge against large currency moves year over year if we retired in Europe. And the best I could come up with was to hold half my assets in dollars and half in Euros. When the dollar goes down, I would spend my assets denominated in Euros and let my dollar assets accumulate, untouched. When the dollar goes back up, I would sell some of those dollar assets that have accumulated and replenish the Euro stash. The problem with this theory is that currency cycles are typically pretty long (10-20 years), so you need enough assets to survive the multi-year down cycle.

The other option I was pondering was to invest our money in an all-world index fund (which happen to have about half US assets and half foreign assets). It sounds like it could be useful to smooth out currency fluctuations while providing diversification.
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Old 07-07-2008, 12:16 AM   #165
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.... I'm becoming my mother.
Hope she was a good role model. Many of us are too hard on our parents even in our memories ... and also too hard on ourselves.
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I asked here long ago if anyone knew how currencies behaved, whether they tend to average themselves out in the long run, but no one knew. I see more bad news ahead for the dollar and I guess that's my main preoccupation because it magnifies every loss, and I also see more losses ahead. I think I am quite calm for someone who has lost, not 12% but effectively 52% of my projected day-to-day purchasing power (not counting inflation on either side, just currency loss).
I really don't know where the dollar is going. You've probably seen this Fed chart before:
St. Louis Fed: Series: TWEXMMTH, Trade Weighted Exchange Index: Major Currencies
Some people would be tempted to use technical analysis on such a chart to try to devine where the dollar is going. For those rooting for the dollar the Economist has said that the Euro is overvalued vs the dollar. Last I recall they said it was something like 25% overvalued based on Purchasing Power Parity (don't ask me to explain PPP but maybe Wiki has something). Also one fund that I own Dodge & Cox International has decided to hedge the Euro, so they feel it could fall and want to remain neutral on currency risk there. Hope that helps a little.

Regarding ice cream, we buy Skinny Cow ice creams here -- not too many calories.
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Old 07-07-2008, 12:23 AM   #166
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To NWBound: no, not naive..
If you mean "investing IN the European market", at the time I felt I was already overweight in int'l. stocks (>50-60%, back when that was very racy). Buying & holding and fully invested, using the cash to build up more in (supposed) US "blue chips" since that's where my allocation was weak at the time.

If "investing ON the European market" you mean with an account overseas there were a number of factors:

1.) Pollyanna (ducking) prejudice: "the US is strong; the US is best; our economy can't be beat; we are more transparent, etc." I drank that Kool-Aid at the time.

2.) having one foot in each world and wanting not to burn all my bridges. I fell down the rabbit hole into Italy and wanted the rabbit hole there to get back up and out to the 'real' world. But things got inverted and now the US seems wackier than here.

3.) convenience factor, dealing with institutions that 'make sense' to me. In 2000-2002 when we were planning this move and trying to figure our lives out, Italy didn't have accessible online brokerages, or really any pure brokerages that I know of. Investing is done through banks, and the banks are not that customer-friendly. They love to put people in (wait for it..) annuities and oddball equities mixstruments that guarantee a maximum/minimum linked to the performance of some basket of stocks (kind of like a hybrid between an annuity, a managed fund, and an ETF). I wasn't desirous of having to physically go to the bank and wrangle with a rep to make individual stock trades. Only a tiny minority of Italians own any stocks at all (a couple years ago I heard 5%) so there's not been the experience or the commodification of trading aspect on the part of institutions.

4.) Expense. Banks here have also traditionally had ridiculously high fees, even fees to close the account. You could leave money in savings, forget about it, come back later and find an invoice for fees in arrears because the fees ate all your money. This has changed somewhat lately with reforms, and now there are a few American-style online brokerage/bank operations with inexpensive trades and low fees (or waived fees with a higher balance). This has all developed just in the last couple of years.

5.) Ah! and don't forget, the euro was brand spanking new in 1999-2000. What was its track record? The monetary union could cede at any time. Everyone was skeptical, including the europeans, about its future. The Italians were furious at the euro inflation and the Second Coming of Berlusca in 2001 was threatening euro stability on a couple of levels. Who knew that the tables would be turned in such a short time?

6) House purchase. Sold my US house owned outright and put almost all the value of that into a house here, making one big cash transfer. There was an amount left over to live on for a year, year and a half as well, before I had to start withdrawing from the US. The house purchase at the time looked to me to be a whopping big euro investment (in fact it was 1/3 of our egg).

7) I couldn't really have foreseen that • the US would go to war and that • people would go SO much into debt to buy houses. I turn my back for ONE minute and you guys break the country..! WTF!

8.) In the interim, no worries. I call Schwab; they send money. In 3/4/5 doses per year, so I figured I was kind of DCA'ing as I went along and investments doing ok so as long as I had more dollars I wasn't as concerned as I should have been that they were buying less... until I started hearing more about the housing crisis, and started to investigate more what is behind it. Now my fear for the dollar is pretty serious.

I'm not sure what would have been better.. IF I had been watching continuously then maybe I could have "done something" and adjusted??.. yet now many recommend I should just take a chill pill. But I'm the one responsible for the money and I feel I would let DH down if I can't avert collision with a possible oncoming train.

=====
In hindsight, I would have done two things differently. This is not 20/20-type hindsight on my particular situation, just my biggest recommendations for retirees looking to live in another country.

a.) buy an "average" abode. I was tempted to buy a house about 80% of the then-dollar value of the one I left behind, without taking into consideration the local std. of living. It's a very nice stone house, with a big yard. It's huge by Italian standards, and small by McMansion standards.. 4BR, 3 bath. The problem was we wanted a detached house, not an apt. condo, and those are few and far between on the market here. Anyway your wallet will thank you, you will fit in better with the locals, and you will have lower expenses in taxes, heating (ouch!, it's our biggest expense after food) and maintenance.

b.) make sure you have a firm timeline. Think hard and decide if this is a move for 10 years only, for 20, or for forever. Then try to adjust your investments and currencies accordingly AND adjust your mindset. We were just 'winging it' and have always been figuring "well, we could go back to the US, so..." but that is really deadly on more than one level: it's psychologically problematic because you are not fully invested emotionally in the new surroundings - they are 'temporary' and so you don't always devote attention to the right things, and financially because you could be blindsided like me. Of course if you have a really whopping amount of money you can do as you like.. I'm just talking about a modest retirement. I have heard of a couple of expats who retired on fixed USD pensions and have been forced back to the US due to exchange rate woes; you don't want to be one of those statistics.
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Old 07-07-2008, 12:27 AM   #167
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Could you share your reasoning on this Isbcal?

Ha
Well the long term average for real rates on intermediate bonds is about 2.3%. The current 5yr TIPS is 0.5%. Eventually (who knows how long?) I'd expect to see real rates back up around the averages. Until then staying short term might avoid loosing some $'s especially if rates go up quickly. Seems hard to believe but 5yr TIPS were around 2.3% as recently as late August of last year.

I'm just tending to follow a strategy outlined by Larry Swedroe where one sells 10yr TIPS when real rates are very low and stays in shorter term bonds until rates are at or above average. Of course, you could just buy 10yr TIPS at those better rates and hold. This is a little more active strategy and more risky too.
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Old 07-07-2008, 12:44 AM   #168
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Hope she was a good role model. Many of us are too hard on our parents even in our memories ... and also too hard on ourselves.
Thanks! She's a scrappy gal, and a partial role model for my frugality.
1980s when I'd started working -and shopping- she eyes my purchase: "I NEVER paid FIFTY DOLLARS for a PAIR OF SHOES IN MY LIFE!"
Me: "yeah, ma.. but you have ten pairs of $5 Kmart shoes instead so "

I inherited the shoe-shopping gene, too, but I have recently undergone therapy for that.




As for the PPP, I subscribe to the Economist and am all over that. It does seem to be descriptive rather than prescriptive; its most famous element is the "Big Mac Index" which tracks the prices in various currencies of this single world-wide commodity item. They only do it every 6 months or so, but I should really go back and study its history to see if I can spot any correlation to my life. You also have to think both sides of the comparison: is the euro overvalued or is the dollar undervalued? There's doesn't seem to really be a "right" answer! I think it's a fairly new conceit though, maybe only a couple of years old. Thanks for reminding me of it.

Anyway, after they fix US companies up with the foreign accounting rules that will pave the way for the global currency the one-world-order folks are hankering for and this will all be moot. [See! after all my explications you almost started to think I was sane! ..gotcha!]
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Old 07-07-2008, 04:48 PM   #169
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About investing IN/ON European market, I meant both, and you addressed both.

Your post should be on the must-read list for people whose only knowledge of retiring in Europe is acquired through watching "Under the Tuscan sun" and reading books by Peter Mayle (like me!). Not that I would consider Italy, the language barrier being most formidable to myself (What verb gets conjugated to manchi as in Mi Manchi?). But France, and particularly Malta beckon to yours truly. Not so fast now! And here you are, with an Italian husband, and apparently know the language yourself, and have these problems.

About the Euro/dollar conversion, I have read/heard from pundits (what they are worth) that the ratio had at least stabilized, and started to come back. So, last month I sold my European ADRs such as Unilever to raise cash. Last I looked, they have been down since I sold, but so have other US stocks.

In my opinion, the damage has been done to your portfolio, and in my own experience, when I couldn't stand the loss anymore and bailed, that was usually when things turned around. I survived mostly from my mistakes by doing a little at a time, to limit my mistakes to smaller ones, rather a huge one I couldn't live with. Just my 1.3 cents (converted to Euro).
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Old 07-07-2008, 05:05 PM   #170
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ladelfina - I don't always have time to post a response, and often don't think I have anything meaningful to add (although sometimes that doesn't stop me!), but just wanted to say that I have picked up a lot of good information from your posts and enjoy your perspective (both geographic and otherwise).

My long-terms plans involve living in the EU so one of these days I'll have to go back, search for an read more of your posts, and then pick your brains :-)
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Old 07-07-2008, 05:24 PM   #171
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You also have to think both sides of the comparison: is the euro overvalued or is the dollar undervalued? There's doesn't seem to really be a "right" answer! I think it's a fairly new conceit though, maybe only a couple of years old. Thanks for reminding me of it.
May be they are both overvalued - only the euro more so, and it's less about euro vs dollar and more about euro/dollar vs developing world currencies.

The Economist BigMac index is interesting but not useful. Investing in currencies is a dangerous game, but if I were in euroland right now I would be looking at US$ fixed income, and for equities a healthy dose of emerging markets.

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Old 07-07-2008, 06:21 PM   #172
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What verb gets conjugated to manchi as in Mi Manchi?
Mancare is the verb infinitive. But the structure for 'mancare' (to miss) and also 'piacere' (to please, which is used for "like") is passive on the part of the speaker. [There must be a technical grammar term to categorize this kind of verb, but I don't know it.]

So *I* don't miss YOU.. YOU are missing to me, so the second person plural or singular is the verb conjugation to use.

Io manco a te = Io ti manco = Ti manco* = You miss me. Verb is first person.
Tu manchi a me = Tu mi manchi = Mi manchi* = I miss you. Verb is second person.
Gli spaghetti mi piacciono = The (plural) spaghetti are pleasing to me = I like spaghetti! Verb is third person plural.
*Since the verb conjugation contains information about the subject, the subject is often left out.

MichaelB, thanks for the advice. Upping the fixed income sounds good and I'm strong in emerging markets. It's confronting the cap gains of 20 years that could be gruesome if I really re-structured my holdings the way I'd want to now.

Also, I don't want people to get the wrong idea and decide my financial system concerns merely 'sour grapes' just because I am in a euro-bind at the moment. They are two separate issues; one merely caused me to have looked into the other. If the shoe were on the other foot currency-wise I probably wouldn't have had REASON to investigate the gross inadequacies of the current capital markets, but that doesn't make me any less convinced that their infrastructure is cracking.
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Old 07-07-2008, 07:02 PM   #173
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...It's confronting the cap gains of 20 years that could be gruesome if I really re-structured my holdings the way I'd want to now.
This may not help at all but don't forget that for 2008 - 2010 the cap gains tax up to the top of the 15% bracket is ZERO.

P.S. Have enjoyed your posts. Fascinating situation.
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Old 07-07-2008, 07:03 PM   #174
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Mancare is the verb infinitive.
I loved the song "Mi Manchi" as rendered by Andrea Bocelli though not understanding a single line of lyrics, hence had looked up the meaning of its title. I saw the complications as you describe, and quickly decided that my chance of learning Italian with the few brain cells I have left was zilch. I have a tough enough time reviving my French.

Just a diversion ...
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Old 07-07-2008, 07:37 PM   #175
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I have a tough enough time reviving my French.
Alors il va falloir pratiquer!
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Old 07-07-2008, 08:17 PM   #176
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Oui, oui ... mais je n'ai pas le temps.

We are hijacking this thread big time. Now, I do not know the French for that.

Seriously, I love to travel, and when you know a bit of the language, it's a heck of a lot more fun. One time in Italy, I just said "Ricevuta, per favore", and the owner of the small restaurant on Capri started to say a whole bunch with a lot of hand gestures when he handed me the receipt. Obviously, he thought I knew more than the 2 words I just looked up in my phrase book. I just smiled and bowed goodbye, not knowing a thing of what he was saying.
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Old 07-07-2008, 08:31 PM   #177
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Isbcal (or is it lsbcal?).. yep, but at some income point which is unclear (roughly $150k?) you wander into AMT territory so 28% min on everything w/no exemptions (? IIRC). Hard to know when you're nearing that, esp. when some of my div. & interest comes in after Dec. 31 and I love those revised 1099s that come in in March. If anyone who's reading this has been subject to AMT I'd appreciate their advice. I have only sold off all of my IWM which is recent, plus some AMX for a CG of around $42k so far. I would like to sell more. Income last year was $58k AGI with no adjustments. About $25k of that was an involuntary CG - stock liquidation of a bank failure from the S&L days (gee, I just seem to go from bank crisis to bank crisis!).
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Old 07-07-2008, 08:49 PM   #178
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The AMT limit really depends on your personal situation. According to the HR block AMT estimator, we won't be subjected to the AMT until our gross income reaches 170K (we have few deductions). If you have a few kids and live and a high income tax state or have large CGs, it could be a lot lower.

Give it a try and plug in the number:
Tax Calculator - Tax Tools and Calculators - H&R Block
(the AMT calculator is located in the bottom half of the page)
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Old 07-07-2008, 08:54 PM   #179
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For those of us who are lucky enough not to have a pension or SS or income (yes, I am being facetious here) and have cap gains so can take advantage of freebees in the 15% bracket, this special tax break is nice. If you have a pension or lots of income + dividends + SS that pushes you out of such low brackets then you have the consolation of counting your blessings .

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Old 07-07-2008, 09:23 PM   #180
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No, *this* is thread hi-jacking!


Mi manchi
I miss you
Quando il sole da la mano all’orizzonte
When the sun weds the horizon
Quando il buio spegne il chiasso della gente
When the darkness extinguishes the clamor of the people
La stanchezza addosso che non va più via
The tiredness I bear that won't go away
Come l’ombra di qualcosa ancora mia
Like the shadow of something that is still mine

Mi manchi
I miss you
Nei tuoi sguardi
In your glances
E in quell sorriso un pò incosciente
And in that slightly unconscious smile (unconscious in the sense of unheedful or uncaring)
Nelle scuse di quei tuoi probabilmente
In those excuses of yours, probably (odd because the gender of "scuse" doesn't match "tuoi")
Sei quell nodo in gola che non scende giù
You are that lump in my throat that won't go down
E tu e tu
And you, and you

Mi manchi mi manchi
I miss you, I miss you
Posso far finta di star bene ma mi manchi
I can pretend to be fine but I miss you
Ora capisco che vuol dire
Now I know what it means
Averti accanto prima di dormire
To have you beside me before sleeping
Mentre cammino a piedi nudi dentro l’anima
While I walk barefoot inside my soul ('barefoot' having the connotation of being 'in one's most essential state')

Mi manchi e potrei
I miss you and I could
Cercarmi un’altra donna ma m’ingannerci
Find myself another woman but I'd be fooling myself
Sei il mio rimorso senza fine
You are my endless remorse
Il freddo delle mie mattine
The chill of my mornings
Quando mi guardo intorno
When I look around me
E sento che mi manchi
And I feel that I miss you

Ora che io posso darti un pò di più
Now that I can offer you a little more
E tu e tu
And you, and you

Mi manchi e potrei
I miss you and I could
Cercarmi un’altra donna ma m’ingannerci
Find myself another woman but I'd be fooling myself
Sei il mio rimorso senza fine
You are my endless remorse
Il freddo delle mie mattine
The cold of my mornings
Quando mi guardo intorno
When I look around me
E sento che mi manchi
And I feel that I miss you

Sounds a lot more emotional in Italian, no?
It's so funny when I came here and looked on a map; all the place names seemed so exotic:
"Montalcino!" (Oak Hill)
"Ponte Vecchio!" (old bridge)

...and even if you live in the cheapest dingiest flat... still, it's in a "palazzo'! (pretty much any large building)

----
FIREdreamer, thanks for the link. I had used another calculator but will see what yours tells me.
Lsbcal, it's a good break to take advantage with, but not if you want to sell a lot of things with large gains because you've never sold in 20 years.
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