Archive for the ‘Uncategorized’ category

More Cheers For Stupidity!

July 6, 2012

Yahoo just posted an article (http://news.yahoo.com/blogs/sideshow/man-makes-final-house-payment-pennies-144051687.html) about a man who made his last mortgage payment of about $62,000 in pennies.  While this has a certain element of being neat, it’s also utter stupidity.  And of all the comments I read, everyone is cheering this phenomenon like it’s one of the most suave financial moves they’ve ever seen.

You do not need a business degree to understand the flaw in logic here.  There’s a little thing called compound interest that’s been forgotten about courtesy of Ben Bernanke’s Zero Interest Rate Policy that’s been in place for the past several years.  For those people who existed prior to 2008, there was a time where you were actually rewarded for saving.  Below is the information provided in the article:

Home purchase date: 1977.

Length of mortgage: 35 years.

Final Payment: $62,000.

Aside from the fact that they didn’t make 35 and 40 year loans back in the 70’s, I’ll make the assumption there was a refinance or two along the way.  And other than the fact that 492 pennies every single day is quite a lot, I’ll also assume the numbers provided are legitimate.

On to the math.  The standard formula for future value is 1 + I^N, where I is the interest rate per period (typically months), and N is the number of periods.  If you prefer T instead of N, go for it, it’s still a free Country for a little while longer.  I will also assume that an equal number of pennies were saved every day over the 35 year period, and a monthly deposit of $147.62 was made.  While there’s no way this is perfectly accurate, it’s a pretty good proxy considering the time frame involved.  I also have to find a reasonable interest rate to use as the compounding factor.  I decided the 6 month CD rate based on the Federal Reserve Board’s historical values (http://www.federalreserve.gov/releases/h15/data.htm) was the best rate to use for small amounts of savings by an individual.

Based on this math, which may be plus or minus a few bucks, those pennies would have grown to around $166,451 by the time they made their last payment.  So this great financial achievement really resulted in leaving $104,451 on the table.  There are various other factors that could have affected this number such as taxes, the rate at which the pennies were saved, which investment vehicles were chosen, etc., but let’s call it a cool $100,000 which was not received by this family.

It’s not the fact that the family missed out on this $100k that disturbs me, but rather the dozens of comments I saw saying “good job” or “way to pay off your house”, and phrases to that effect.  I would never be condescending towards someone who chooses to save.  I would rather be condescending to those people that don’t do it, and don’t realize the opportunity cost that they’re missing.  Perhaps in our public schools we should teach Personal Finance 101 instead of the mating habits of South African Armadillos.

The Beginning Of The End

June 28, 2012

As I’m sure you’ve heard by now, the Supreme Court ruled in favor of Obamacare, indicating it’s okay for the Government to force its citizens to spend money.  If anyone else does that, it’s called extortion.  That being said, I’m already beginning to consider the fallout from Obamacare if it’s not de-funded and/or repealed in the near future.  Below are just a few of the potential consequences and unintended effects of this fantastic piece of legislation.  I’m sure I’ll think of more after my nausea wears off, but here’s what I have so far:

1) There is already a shortage of doctors.  This will exacerbate that issue as more of them leave the profession.

2) It will take months, if not years to get an appointment to see one of the aforementioned.

3) For all of the marginally subsistent people out there, this will push many of them over the edge into foreclosures, bankruptcies, etc.

4) This opens the door for our Government to force us to pay money for anything, and call it a tax.

5) There is now a toll to be a citizen of this fine Nation.  People may begin to renounce citizenship and jump ship to other Countries.

6) If people are force to pay for something, they typically want to use it.  Now every time someone stubs their toe, they will run to the doctor.  Although this may have positive intended side effects, like catching serious illnesses earlier.

7) Not really an effect, but it just shows the members of the Supreme Court haven’t actually read the Constitution.  It’s really not that long.  They could read it over a lunch break.

8) If they have read it, their reading comprehension skills are those of a 3rd grader, which is even more frightening.

9) The costs of health care will skyrocket, as evidenced by every other Government-subsidized program they’ve ever created.

10) Taxing the already-overtaxed middle class even more is clearly going to create an economic recovery.  But then it won’t be referred to as a tax, colloquially, it will simply be a fine for failing to comply with the law of the land.

It should be interesting to watch this unfold.

Road Trip – RIP

June 28, 2012

I recently got back from a road trip of sorts with my wife and son.  We went out to Indiana from Philadelphia to see my newly-minted 1/2-step-nephew twice removed (or something like that).  The drive out there was atrocious.  We hit at least a dozen construction zones, about ten of which were inactive.  Obviously our Government has a ton of money to start projects, but no money to actually fund any of them.  The roads were all fine, and I didn’t see any power lines or fiber optic cables being put in.  It was just a bunch of orange cones left out because no one wanted to remove them.

The most enjoyable construction-induced traffic jam occurred shortly after we entered the paradise known as Ohio.  Nothing for miles except over-sized over-weighted semi’s and dump trucks, and people with barely enough cranial nerve activity to tie their shoes.  For some reason unknown to thinking hominids, this wondrous state decided to close one lane of a two-lane road for the better part of 100 feet.  This caused a 20-mile backup, took over 3 hours to get through, and was there for no sensible reason that I could discern.  I’m debating sending the state of Ohio a bill for our gas that was wasted sitting on that pathetic excuse for a road.  Thanks to our 3+ hour delay, we also got to Cincinnati just in time for the heart of rush hour.  Tack on another hour.  All in, it took us about 15 hours to get to the mecca known as Columbus, Indiana, so I could hang out with some very bizarre religious zealots for the day (yes, I know, bizarre and religious zealot in the same sentence is redundant).

On the way back, we decided to go 100 miles out of our way to avoid the train wreck (no pun intended) that we took on the way there.  It saved us at least 2 hours, probably more.  Needless to say, I won’t be venturing westward toward the flat cornfields of the Midwest any time too soon.

Impressive Net Worth Numbers

June 14, 2012

By impressive, I mean disastrous.  The Federal Reserve issued a bulletin for June, 2012, indicating the changes to net worth of American families between 2007 and 2010.  Here is a quick summary of the data:

 

Does that seem okay to you?  Me neither.  The median household net worth is down 40% in 3 measly years.  And that only includes 2010.  Despite a tepid recovery in equities (about 9% in the past 18 months), I would guess the numbers are even worse for 2011 and YTD 2012.  Not only is the decline pathetic, but so was the starting point.  The year 2007 was at a high point in the economic cycle, and is up there with the highest net worth estimates of all time.  So at one of the best times in recent history the net worth of people under the age of 34 was a whopping $12,400.  I can’t remember the last time my checking account fell below that number.  And this FELL to $9,300.  Young people can’t save $1,000 a year?  They have so little the equity markets can’t be blamed for much of that loss, and they obviously can’t afford a home.  I’m going to surmise that since there are no jobs that people are raiding their savings accounts to pay the bills.

And the situation is almost as bad for the next age group.  People that are around 40 years of age only have $42,000.  Assuming they’ve had 18 years to work since graduating college, that’s a savings of a whopping $195 a month.  This also assumes zero growth, dividends, or interest in that time period.  For those that didn’t go to college, it’s only $159.  A lot of people are irresponsible, credit-loving dolts.  That’s a fair statement.  But many people would actually like to save, and gain some financial stability while they are still of working age.  So why hasn’t it happened?  Because there are serious structural issues in this poorly-run nation of ours.  There are so many things to blame I’d need an anthology, but here’s a few culprits:

1) Sending our jobs to China

2) Importing far more than we export.  Although we have exported quite a few millionaires.

3) Stagnant wage growth.  Actually, wage declines.  This can be blamed on Wall Street.

4) Wall Street

5) Our good ole’ Government.  Which pretty much encompasses the first four points.

The solutions are simple.  They really are.  They’re just not “politically favorable”.  Reduce the corporate tax rate, slap some more tariffs on Chinese import goods, and get the hell out of our way.  That would solve 90% of the problem.  But no one has the gall to make the tough “politically unfavorable” decisions.  So our net worth will continue to crumble, our nation will devolve into the 3rd world, and we’ll all have to get ready to live out of a cardboard box eating ramen for dinner.  Welcome to the new America, and enjoy the ride.

1st Birthday Party

May 21, 2012

My little guy turned one about a week ago.  We had to push back his party to the 20th due to a friend of mine getting married.

We did the standard invites – e-vite, facebook, and verbal.  After all responses were received, we tallied up the totals shortly before the actual party.  110 “I’ll be there’s” and 30 “maybe’s”.  So we planned for about 130-140 people.  The number of people who actually showed up?  About 70.  And of that 70, around 20 of them stayed for an hour or less.  My wife and I spent close to $1,000 on this party between food, favors, alcohol, drinks, coffee, etc.  You only turn one once, right?

That being said, we are adults and our feelings will not be hurt if you cannot attend.  I’d rather you just say “no” from the get-go.  If you’re a Maybe or a Yes, you should probably think about the planning that has to go into a party, and have some respect for those throwing it.  We spent about $400 more than we needed to, and wasted at least 10 extra hours we could have used for something more valuable.  This is money not going towards our son’s college fund, and the time was spent not spend doing something “fun”.  We’re very busy and value our free time considerably.

The next time you’re invited to a party, grow a spine and just answer the question.  Maybe is a response for people who like to sit on the fence and don’t do anything for themselves.  Yes is a response that requires follow-through.  If you tell your boss “Yes, I will do that” and you don’t, you get fired.  If you say you’re coming, and don’t show, I consider that disrespect towards my son.  These people should be considered “fired” from future invitations.  Perhaps more people should heed this cautionary tale, and think about the negative effects of not being able to answer a simple question.

Harvard B-School – Only Morons Need Apply

May 16, 2012

The article below substantiates my long-running theory that Ivy League schools pump out some of the dumbest jackasses the world has ever seen:

http://management.fortune.cnn.com/2012/05/16/student-debt-business-school/?iid=HP_LN

The fact that Dell hired this guy and is paying him six figures tells me I should short their stock.  Their decision-making abilities are obviously lacking.

The whole concept of trying to pay off $100k in debt in a year is just stupid.  The opportunity costs are exorbitant, and you’d screw yourself when it comes to taxes.  And that is exactly what this imbecile did.  This is so dumbfounding I’m having difficulty deciding where to start, so I guess I’ll start at the top.

In the last paragraph of the first section, he checked his loan balance and was “shocked” to see it was just shy of $91,000.  While he was busy getting his Harvard degree, I was learning about the compounding effects of interest, payment acceleration, and amortization schedules at my state school.  I wonder who got the better value.

Shortly thereafter, he says what has to be one of the dumbest quotes I’ve ever heard in my life.  I mean this quite literally, and cannot believe it came out of someone’s mouth who actually finished high school (in theory).  I have reposted it here for your jaw-dropping consumption:

“Unlike a payment towards a car loan or a mortgage, a student loan payment doesn’t go towards something that is benefitting me in a direct way.”

It states right in the article that he obtained a job paying $52,000 more than his previous job.  THAT is the direct benefit, you numb-skull.  You didn’t get a 100% raise because the company likes you, you got it because of your stupid piece of paper.  The car payment is going towards a depreciating asset, so your direct benefit of your depreciating BMW is not as good as it sounds.  Is that car generating an extra $52k a year in cash?  I didn’t think so.

As if that wasn’t foolish enough, the article then goes on to show his ingenious financial moves like stopping his 401k contributions.  Assuming the company has a match, you’re throwing away free tax-deferred money.  And when you’re making six figures, you should probably consider learning the basics of the U.S. tax system.  Or do they not teach that at Harvard?  But it’s okay, he sold his EXTRA car AND motorcycle, which clearly he needed in the first place.  He also sold his stock, which I can’t completely blame him for, if it’s used to reduce debt, but liquidating his IRA?  That’s almost as stupid as the 401k debacle!  There’s a limit on what you can put in, you get a tax break, and the earnings are tax-deferred.  Not to mention the fees, penalties, and taxes associated with early distributions.

There’s also one last thing that no one taught him at his highly-sought-after institution.  Student loan interest is tax deductible.    Oops.  So whether he realizes it or not, he’s keeping a LOT less of his “hard-earned” money than he thinks he is.  And he’s gloating about it at the same time.  It’s people like this that get jobs on Wall Street and accidentally lose their company $2 billion on one trade.

What he should have done?  Accelerate payments on his student interest by a couple hundred dollars a month.  If I assume he had a 101k loan @ 4.5% for 15 years he could have put $500/month towards it and had it paid off in less than 7 years.  An extra $1,000 per month would get it paid off in less than 5.  And since that’s only about 15% of his take-home pay, it’s not unreasonable.  He could then put at least 5% into his 401k, or whatever the company matches.  Sell ALL of his vehicles, and buy a cheap economy car like a Honda, Hyundai, or Toyota, put as much as he can into a Traditional IRA or Roth IRA (If he can keep his AGI low enough to qualify), and just ride out the loan for 5-7 years until it’s gone.  Instead he has nothing in his IRA, a pittance in his 401k, and a huge tax bill.  And more importantly, he has lost a great deal of time.  You don’t need an Ivy League degree to see the lack of value associated with one, or the stupidity of the business leaders they produce.

False Advertising, I Do Believe

May 16, 2012

On my way to work this morning I heard an advertisement on the radio.  I immediately  thought to myself, “who would believe this crap?”.  It was clearly an example of false advertising.  The great legislators of this Country created a law to prevent that, right?  Oh yeah, here it is:

“Any advertising or promotion that misrepresents the nature, characteristics, qualities or geographic origin of goods, services or commercial activities” (Lanham Act, 15 U.S.C.A. § 1125(a)).

Now I’m supposing the spineless legislators who are owned by major banks and other companies have found it exceedingly difficult to “prove” something false, so that’s why you never hear about any grievances or disputes of this flavor. 

The ad was for a major regional bank, with a nice young couple talking about their trip to Europe that they planned, CLEARLY being paid for by the interest generated from their savings accounts!

I decided to look it up.  I presume they went with the highest-rate and best performing version of this account.  The interest rates range from 0.25% to 0.70%.  Based on the tiers, your first $500,000 would earn you $3,488.50 a year, and 0.70% on anything above $500,000.  Other than the fact that this would be stupid as it’s not FDIC insured at that point and you could lose it instantly, let’s go with it for the sake of my example.

A standard no-frills trip to Europe is going to cost about $4,000/person, and that’s without all the fun extra side trips.  It’s basically to stay in your hotel room.  But let’s make that assumption since no details about the trip were provided.  So the total cost is $8,000 for the couple (I presume they were BOTH planning on going, or else it would be pretty boring).

This would require another $644,500, on top of the $500,000.  Oh wait!  I forgot to account for taxes.  It’s highly probable that a young couple with over a million dollars in their savings account are in a high tax bracket, but let’s be conservative and assume they only pay 15% because they got a huge inheritance.  So now they must generate $9,412 to cover their vacation after paying taxes.

Our final tally is $1,346,214.  This is the amount they must have to fund their boring, no frills vacation at this amazing bank with amazing savings rates.  But there are a lot of people with this kind of money in savings.  Certainly at least some!  Well, per the Census, granted it’s 2004 data, the median assets at financial institutions is $4,700 per household.  It’s been a while, so let’s adjust this with a 3% annual savings rate, compounded, to get a more accurate figure.  Now we’re at about $6,000.  MUCH better.  And only 12.8% of households have $500,000 or more in assets.  And of course this would normally include home equity, retirement accounts, baseball card collections, etc. 

It turns out that only 4% of American households are “millionaires”, and 44% of net worth is tied up in an illiquid form called home equity.  And in case you’ve been living under a rock for the past four years, this particular asset class has not performed in a stellar manner.  So how many homes have over $1M in their savings accounts?  A lot fewer than the number of people who heard that broadcast this morning.  But people love hope.  They love to dream.  They hate logic and reality.  So they’ll all be lined up around the street corner to sign up for that magical savings account that will pay for their next vacation.

Facebook IPO- huh?

May 15, 2012

The highly anticipated Facebook IPO has everyone on the edge of their seats.  Except me.  They just decided to increase their IPO price to increase the supposed value of the company to somewhere between $80B and $100B.  Here are some numbers I found from various sources.  The only logical conclusion I can draw from these is that no one really knows what’s going on, and the Executives at the company in question must have a very good poker face:

In 2010, they made $500M.  Or maybe $600M.  And this was on revenues of $1.6B.  So we’re looking at an operating margin of between 31% and 38%.  Not bad.

The “projection” for earnings for 2011 was $2B on $4B in revenue.  That was recently revised to $1.2B in REVENUE.  Yes, you read that correctly.  Their revenue = 60% of their expected earnings?  That sounds like a company falling off a cliff.

For the sake of analysis, let’s go with some friendly estimates:

40% operating margin.  Let’s assume the company became even more efficient than their previously highest estimate.

$1.3B.  We’ll assume the estimate was close, and throw in a little buffer.

1.3B X 40% = $520M.  This is about the same if not lower than the previous year’s earnings.  And this is with very conservative estimates, which means it’s probably down.

Let’s go with $500M in earnings, for ease of math.  For a company worth, on the low end, $80B @ $35 a share at the IPO, they’d be floating approximately 2.3 billion shares.  This brings EPS to about 22 cents, and a nice low and comfy P/E ratio of 159.

WHAT?  Did I read that correctly?  Yes, you did.  As a frame of reference, a P/E ratio of somewhere between 10 and 25 is usually a good range to consider purchasing a stock.  There’s also a few other variables, which are not empirical, but rather editorial.  Regardless, they’re still worthy of a mention:

1) Anyone who wants to be on Facebook is probably already on there.  I found I am on there a lot less than I used to be.  I believe I’m suffering from “Facebook Fatigue”, and I’m probably not alone.  I would assume at this point the rate of fall-off will exceed the rate of new users, hence reducing the user base and revenue potential.

2) They generate very little from advertisements on mobile devices, which are now surpassing PCs and Macs as the primary electronic communication devices.  If they start blasting people with advertisements on a 4-inch screen, people will exodus faster than drunk underage kids at a busted party. 

3) There is really no barrier to entry.  Look at MySpace.  It went from great to gruel in a matter of days after Facebook took off.  There is nothing to stop “the next great social media site” other than the fact that it hasn’t been built yet.  Not if, but when, that occurs, Facebook’s stock will plummet so fast there will be no buyers for the newly-minted penny stock.

4) Impending privacy lawsuits and/or hacking.  I foresee a whole bunch of these if they don’t get their act together.  As a public company they have to follow a completely different set of rules and are more accountable than a private company.  Even a small slip-up can cause major damage, and they’ve already had quite a few.  I’ve never seen a class action lawsuit involving hundreds of millions of people, but there’s a first time for everything.

In conclusion, a more reasonable offering price for this company should be in the $10 range, and that’s assuming you don’t believe it’s past its peak.  One last question for you.  If your $5 latte at Starbucks all of a sudden cost you $18, would you push people out of the way to buy a dozen of them?

There are some serious problems with the logical circuits of people in this country.  My advice – if you’re planning on buying Facebook stock at or shortly after their IPO, see a psychiatrist first to make sure your brain is functioning correctly.

Pepetual Energy? No Thanks, I’d Rather Watch Bieber

May 15, 2012

So I was scrolling through countless articles on Yahoo today, trying to find something eye-worthy.  After clicking “next” about a dozen times, and seeing useless drivel like “Kristen Stewart’s dress” and “Justin Bieber’s ugly shirt”, I finally found something buried in the back that caught my attention.

Perpetual Energy.  Well, not exactly, but close enough that I can’t believe this new discovery is not on the front page of every newspaper in the Country.  I guess since it’s not a reality-based TV show, and has nothing to do with if gay people should be allowed to get married, it doesn’t warrant much attention.

It turns out scientists at Berkeley have engineered a harmless virus that can produce electricity via piezoelectric (generating electricity using force) means.  It’s like a bunch of tiny hamsters running in their wheels, except it’s more like they’re dancing the polka.  At this point, it’s a very small amount of electricity, and then there’s also the issue that it’s a virus doing the polka.  But the idea that microorganisms could one day power our homes and businesses sounds pretty darn good to me.

Although as usual, the comments are the best part of the article.  All of the products of public education are out in droves making inane comments about things that they simply don’t understand.  Perhaps if they finished high school, or considered post-secondary matriculation, they’d understand the very basic concepts of physics and biology that most of us learn in third grade.  And for once, I’m not being sarcastic.  In third grade I hooked up a light bulb to a potato for my class, and it turned on.  In fourth grade I hooked it up to a generator, where it would turn on when I spun a wheel.  They don’t even have to go that far.  Just google “hoover dam”, and anyone can find out that by using “magic” the enormous amounts of water that fall over the edge via “gravity” spin turbines (big wheels) which then generate a significant amount of energy.  But I wouldn’t expect the average coddled entitled American to know how to read, so the drones will continue to prosper and ridicule scientists who may hold the future to the success of our Nation.

Oh well, I think American Idol is on tonight, and maybe Dancing With The Stars if I’m lucky.  I can’t wait to watch the people on those shows produce actual real sustainable economic value via an overload of advertisements.

Dimon = Coal

May 8, 2012

Jamie Dimon is a numbskull.  He recently stated that the U.S. economy is holding a “royal straight flush”.  This alone shows his ignorance.  If you’re going to utilize an analogy like this, at least consult someone who’s played poker.  No one has ever heard of a royal straight flush.  This is because, by definition, a royal flush IS a straight flush.  10,J,Q,K,A.  These are the only cards that can provide this fantastic hand, and what do you know!  They’re all in order.  This makes it a straight.

That being said, his other comments show a disturbing amount of ignorance coming from someone controlling so much money.  Here are a few excerpts:

“The world’s strongest military”.  Does he know we basically stopped funding this, and all of our F-22 Raptors are from 2005, have never seen active duty, and have issues with their oxygen systems leading to hypoxia and death of our fighter pilots?  Menwhile, back in China, they’re building aircraft carriers at a pretty serious clip.

“Best businesses”.  If he’s referring to the embezzling banks, well of course!  Except that when you take Apple out of the Fortune 500 earnings are zero, and if our businesses are so great why is our net GDP (adjusted for inflation) still negative after 4 years?  Employment rate?  Yep, still high.  So what are they doing that’s so great?

“Most entrepreneurial”.  This used to be true.  Until the existing administration added so much red tape and fees and taxes for small business owners that they can’t even get out of the gate.  Once again, if this is true, where’s the tax revenue?  Where is the job creation?  Sorry.  I haven’t seen any empirical evidence that ANY of this is taking place.

“Deepest Capital Markets”.  Deepest in what?  Red ink?  Great, the stock market is going up, and Facebook is about to have an IPO that puts the P/E ratio at about 99.  The problem with the stock market is it’s a secondary market that doesn’t create any actual real economic value.  And anyone over the age of 18 knows that the “wealth” created from it can disappear in a flash.  The truth is the stock market is at 1996 levels when you adjust for inflation.  In 16 years it has generated exactly squat in terms of returns.  But yeah, it’s doing great. We should all pray to the stock market Gods that this artificial ponzi scheme doesn’t collapse under its own weight.

While we’re at it, we’ll ignore the $15 trillion in debt, the dysfunctional Congress, the ridiculously high unemployment (shall we adjust for labor participation rate?), and the nearly 18% of the nation on food stamps and welfare.  Sounds like a “royal straight flush” to me.


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