Wednesday, May 20, 2015

Average Net Worth of Americans

How does your net worth stack up to others?  Does it really matter?

Comparing yourself to others is always a path fraught with peril - for a number of reasons.  First, most others are brain-dead fools who over-consume and under-save and vote based on social issues.   So saying you are "doing better" than your bankrupt neighbor is an exercise in self-delusion.

But we all do it.  We look to the herd for normative cues as to how we are doing.  If we are doing better than the herd, we pat ourselves on the back.  If worse, we say the game is rigged and "unfair".

You can see why comparing yourself to others is a zero-sum game.

The real comparison, is to see how much you have set aside (or in a pension or whatever) and figure out whether that is enough to meet your life goals and fund your retirement.   What Bubba across the street has saved, really isn't relevant.   You may have twice as much as he has, but still far less than you need to retire.

But, we all want to know - how much do others have saved?  Am I doing better than the norm?  Worse?  What? 

Curiosity killed the cat.

The problem is, what the average American has saved is hard to quantify, as there are a few "whales" out there who have Billions, and this skews the average.   Median savings is a far more relevant number - and far scarier.

But it gets weirder.  Depending on who you talk to , we are either the richest country in the world - or the poorest:

Middle class Americans: Not so wealthy by global standards ...
Jun 11, 2014 - Americans' average wealth tops $301,000 per adult, enough to rank us fourth on the latest Credit Suisse Global Wealth report. But that figure doesn't tell you how the middle class American is doing. Americans' median wealth is a mere $44,900 per adult -- half have more, half have less.

The Typical American's Net Worth By Age: Here's Where ...
The Motley FoolJan 26, 2015 - Photo: Quozio. Ask most people what their net worth is and they probably don't know. Show them how to calculate it and they'll be dying to ...
In the news
How does your net worth compare with the average American's? - 1 day agoIt may be surprising, however, to learn that the average American's median net worth peaks in the year just following retirement, and then slides ...
Compare Your Net Worth to the Average American's
Money - 1 day agoMore news for average net worth american

The Average American Net Worth Is Huge! | Financial Samurai
Then came a 2014 Credit Suisse survey highlighting the average net worth in America is a whopping $301,000 (see pic)! Regulars here know that I've been pretty positive about the economy for a while, and this stat just makes me even more so.

It Only Takes $10,400 to be Richer Than Most Millennials ...
The Wall Street Journal
Sep 4, 2014 - Are you a millennial with a net worth of more than $10400? ... released today, which tracked the net worth and income of American families in 2013. ... (the median) but it takes $75,500 to be richer than millennials on average.

Compare Your Net Worth to the Average American's ... - Time
1 day ago - It may not be the best way to evaluate your accomplishments, but knowing how your financial situation stacks up against your peers can offer ...

Wealth in the United States - Wikipedia, the free encyclopedia
WikipediaWhen observing the changes in the wealth among American households, one .... and 2007 incomes of the top 1% of Americans grew by an average of 275%.

To some people, the "average" savings of $301,000 seems like a "huge" amount.  To others, the "median" savings of $44,900 seems pitifully small.  Same numbers, different perceptions!  And it gets harder to pin down, as it varies by age as well.

And then there are those who have no savings (like some friends of mine) but huge pensions - well over $100,000 a year.  That's the equivalent of well over $2,000,000 in savings, yet it would not be counted by any "net worth" calculator on the market.

And then we have to ask - where does this data come from?  Well, it doesn't come from computers linked to your bank account.  It comes from surveys.  And survey data can be very misleading, as people lie (to themselves, and others) about how much money they have - or think they should have.   And then there are people like "Financial Samurai" who think $310,000 is a "huge" amount of money.   It isn't.  It isn't enough to retire in a trailer park in Florida, much less in a nice house somewhere.

And then there is the question of what is net worth exactly?  As I noted in my Millionaire versus millionaire posting, many folks don't count equity in the home as part of your "net worth" even if it would be liquidated as part of your estate.   And indeed, you can sell a house and live somewhere else fare more cheaply.

What it comes down to is another number provided by the Bureau of Specious Statistics.   The net worth of the average American is damn hard to calculate and any numbers bandied about based on self-reported data, that don't take into account pension plans and home equity, are basically nonsense numbers.

 A man with a $100,000 a year pension and $50,000 in the bank has a real "net worth" of far more than $50,000.  And if his $500,000 house is "paid for" then he is a wealthy man.  But our friends at the Bureau would have you believe he is "poor" because he has only $50,000 in the bank.  Is he?   Of course not.

Similarly, the fellow with $500,000 in his 401(k) might seem to be "rich" but using the 5% rule, that amounts to only $25,000 a year in income in retirement, which with Social Security, might net him $40,000 a year in retirement benefits - far less than the median or average income in the USA.  And if his house is over-mortgaged, well, does he really have any net worth at all?

It gets down to the same thing I have been saying over and over again - you have to use your own internal compass in these matters, and worry less about what the herd is doing, because the herd is basically insane.  They all have iPhones and think Justin Beber is a "star" or something.   I think they smoke crack.

So, if you look at the TIME article above, and see that the "median" net worth for someone in your age group is say, $150,000 and you are doing better than that, well, don't think you are home free.   You've basically saved up three years worth of income, perhaps less if you have a high-dollar lifestyle.

And sadly, most of the financial media is like this - providing data that is of little use, inaccurate, obsolete, self-reported, or just downright wrong.

* * *

NOTE:  One interesting piece of data from the Wikipedia page is the net worth of self-employed individuals versus those employed by others.  Look at it - it is startling.   But this reflects the necessity of the self-employed to self-fund their retirements.  It may also reflect that the self-employed, not getting money in weekly paychecks, tend to look at money in a different light - in terms of net worth, not monthly cash-flow.

Monday, May 18, 2015

Having it all - and Having nothing.

Like anything else, in RVing, it is possible to take a good thing too far!

We have been traveling to the Keys for a couple of weeks with our tiny camper trailer.  This was just a getaway for a while.  We usually spend about four months of the years this way.  For most folks, two weeks is about it.

Why is this?  Well, we have a tiny camping trailer that cost $8300 used, and a cheap Japanese pickup truck, all paid for.  I don't have to go back to work on Monday to earn money to make payments on toys.

Others in the campground have different ideas.   It is not unusual to see a large camper costing $100,000 to $500,000 (or more) with several cars parked next to it - including BMWs and Mercedes.  In addition to this, are motorycles, scooters, bass boats, jet skis, and the ubiquitous golf cart.  Apparently, riding around in a golf cart (not for golfing) in the campground is the height of entertainment.

I am sitting next to our tiny camper trailer and adding up the amount of motorized depreciating goods at each site around us.   And on each site, is literally hundreds of thousands of dollars of equipment, sitting around baking in the hot sun and getting rained on in the rain and depreciating by thousands of dollars a month.   Literally, some of these folks have more "invested" in camping toys than they have in their principal residences.

So what's the harm in all of this?  Lifestyle choice, right?   Well, that's true, in America you can do as you please.   But these choices are often toxic ones, as the hazardous outcomes are delayed by years or even decades.   So the victims are having fun now - but paying for it later.

As I noted in another posting, most RVs are poorly, poorly made.   The fiberglass walls delaminate over time, leaving unsightly bubbles which are testament to the leaks in the unit.  Rubber roofs bubble up and then crack and leak - often leading to the delaminating sides.  The colorful graphics fade and mildew.   After a decade or so, most of these units are trashed.   And yet many are financed on 20 year notes.

And I can see this on a neighbor's rig.  The rubber roof is starting to chalk up and run down the sides - and wrinkle and bubble at the edges.  Parts of the fiberglass laminated sidewalls on the slideouts are bubbling as the glue holding the fiberglass to the luan plywood starts to fail.   A clapped-out, cheaply made "bread truck" Class-A?   Hardly - a five-year-old "Rock Star Bus" Motorhome costing a quarter-million or more, new.

And each RV'er I talk to says the same thing.  "Well, that will never happen to my rig!  I maintain mine properly!   I treat the rubber roof each year with a cleaning compound and that will keep it from leaking or bubbling up!"   But the reality is, it is just time that wears these things out.  Time and the flexing of the multitude of joints as these things go down the highway.

Everything wears out over time.  Cars get old and go to the junkyard.   And no, buying the right brand of motor oil isn't going to get you to 300,000 miles - it is just going to sell motor oil.  It is the latest marketing gimmick - selling cars and car care, by implying that just anyone can make a car last forever, "if they have the inside secret!"   Same folks selling the "trick to the tiny belly!" and those hot penny stock tips.

The reality is, any piece of machinery or even a building or whatever can be made to last forever, provided you throw enough money at it.   But practically speaking, there comes a point where the cost of repairs exceeds the value of the item, and it is time to start over.

Replacing the rubber roof on a motorhome can cost thousands of dollars (and is a time-consuming pain in the ass).   By the time it is necessary to do this, the motorhome is worth only a few thousand dollars - and many other things need replacing as well.   Thus, it becomes time to cash it in.

And there is the rub.   It is money over time - the 4th dimension of money.  You finance an expensive motorhome, boat, or whatever, and the payments are equal for all the years of the loan.   However, for the first years, you have a nice shiny new motorhome.   For the last years, you have a dilapidated worn-out piece of crap.   Same payment.   And oftentimes, you are "upside down" for most of that loan.

So the folks I see in the campground with all the toys and cars and junk (who all have to leave on Sunday night to get back to work Monday to pay for it all) don't yet realize how much they have spent on all this crap, as they have made only the payments on these things from their bank account, but have not realized the loss in terms of depreciation over time.

At the end of the day, the $250,000 motorhome is worth $125,000 after five years.   And that represents $125,000 subtracted from your net worth.   But since folks see things only in terms of monthly payments, they think, "Well, it is only $2000 a month!" which doesn't seem like a lot of money for a house on wheels - right now.   In five years, or ten years, when it starts to wear out, well, it starts to seem like an awful lot.

Maybe if the RV had a "depreciation counter" in LEDs on the side, they could understand what I am talking about.   A $250,000 motorhome depreciates about five cents a minute, for the first five years (actually very quickly the first years and then slowing down over time).   I would be scary, to be sure, to watch such a clock tick by and run out your bank account over time.

One poor fellow in the campground was starting to feel the effects of time on his RV investment.  He had a nice trailer which was now ten years old and starting to show the usual signs of trouble.   And he had two tow vehicles, one to tow the trailer and another to tow a flatbed trailer carrying the wife's car, golf cart, and motorcycle.   A lot of junk to be hauling around camping.   And one of the tow vehicles, a Ford diesel, was firing on only seven cylinders (most likely the notorious cavitation problem with the powerstroke diesels - if you don't add water wetter to the coolant, it cavitates around #7 cylinder due to an idiosyncrasy in the design, and eventually eats through the cylinder wall).   So now he has to buy a new truck.   Or maybe just make do with less motorized shit in his life.   Myself, I would (and am) choosing the latter.

We've managed to avoid a lot of these problems by insisting on paying cash for "toys" in our lives.   It is tempting to sign those loan documents for the "low low monthly payments" but we've said "No" for more than one reason.  To begin with, usually loan rates for "toys" are higher than rates for ordinary car loans or mortgages.   Secondly, the depreciation on these things is murder, and it is all-too-easy to get "upside down" on an RV or boat loan and end up not being able to sell these albatrosses when you want to.

I guess, too, my thinking is that as "toys" they are not really necessities.  And as such, it is really sort of scandalous (at least to me) to leverage myself so I can have nicer toys - at the expense of my future self.

And since we don't have payments to make, we don't have to rush back to work on Monday morning to earn yet more money to pay for depreciating assets.   We can afford to stay all week - and maybe the next.

The guy next to us, who "has it all" has his motorhome buttoned up for the week and his boat under cover.   Come Friday, he'll fight traffic down the causeway, dunk the boat in and try to get in two days of fishing, if the weather cooperates.   It is a great way to spend a weekend.   But a lousy way to spend money.

It is possible to "have it all" and have nothing.  It is possible, too, to have less and end up with more.

Thursday, May 14, 2015

The Passive-Aggressive Media

Is the news media passive aggressive?  I think so.

  • Ambiguity or speaking cryptically: a means of creating a feeling of insecurity in others or of disguising one's own insecurities.
  • Chronically being late and forgetting things: another way to exert control or to punish.
  • Fear of competition
  • Fear of dependency
  • Fear of intimacy as a means to act out anger: The passive–aggressive often cannot trust. Because of this, they guard themselves against becoming intimately attached to someone.
  • Making chaotic situations
  • Making excuses for non-performance in work teams
  • Obstructionism
  • Procrastination
  • Sulking
  • Victimization response: instead of recognizing one's own weaknesses, tendency to blame others for own failures.

It struck me recently that many of these characteristics are quite typical of today's news media.   Ambiguity and speaking cryptically is often the hallmark of network news or newspaper articles, where "the whole story" is often not told, or if told, told poorly.

For example in a recent article about trailer parks, the Guardian words the article so poorly it is hard to figure out what is really going on.   In one sentence that claim the owner has doubled the rents and doubled the utilities (the latter being illegal in most States, as utilities are regulated, and not up to the whim of the park owner).   This ambiguity, of course, is designed to get you all riled up - thinking that he has increased rents by four times.

The reality is, if you parse through the horrific language of the article (and they say the Brits invented English?  I cannot see how) is that the owner raised the rents to $450 a month which is pretty standard for trailer parks across America, particularly in urban or tourist areas, and is now requiring tenants pay their own utilities (to the utility company).  But that doesn't create the ambiguity needed to make the story seem more outrageous than it is.   And in the UK, they love to put up stories about how rotten our "capitalistic" system is how lucky they are to have a benevolent monarch to lord over them, put them on the dole and provide a council flat.

Making Chaotic situations seems to be the hallmark of CNN.   While the Ferguson grand jury was deliberating for a week, rather than get to the bottom of the story and realize there was no story, CNN decided to engage the speculo-tron and speculate endlessly about how many riots there would be, how bad they would be, and whether they would spread to other cities.  They might as well have put up a big sign saying, "Hey everyone, let's riot!"

It is irresponsible journalism at its worst - causing rioting and death by not investigating, but rather by reporting the "story" that generates the most ratings.

The folks at Fox News, of course, specialize in sulking and victimization behavior - even as they themselves decry our "victim mentality" culture.   From the Fox News perspective, they are an embattled minority of right-thinkers who are being circled - like settlers in a doomed wagon train - by the far left and its war on Christmas, Christianity, and of course, marriage.   To hear them tell it, they are the victims here!  And until Obama leaves office, they are just going to sulk about it.

And yet, most people get their "information" from these sources, without thinking as to whether the data presented is reliable, accurate, slanted, or even clear.   Most of us want to fit the data to our preconceived notions, rather than look at the data and draw conclusions.

For a lot of young people today, continual outrage is the norm.   We are told that "Black Lives Matter" as if the Police suddenly went on a killing spree of blacks - and many of the folks protesting this are young white males.   They have a world-view that the police are jack-booted thugs, and thus any news story that fits this narrative is instantly molded to fit the world-view.

Meanwhile, weeks or even months later, we learn that the media has "spun" these stories to boost ratings.  It turns out the jack-booted thugs were the so-called victims in these cases - people with criminal records for robbery and assault that go on for pages.  Which would you rather meet in a dark alley?  The mugger or the cop?

Similarly, there is a sudden "outrage" that something called Civil Forfeiture exists, even though its existence goes back to the dawn of our country, and its use in the so-called "drug wars" has gone on for decades.   People are "outraged" that someone carrying tens of thousands of dollars in cash, on a known drug route, for no explainable legitimate reason (and large amounts of cash are almost always related to illegal activities) has their money confiscated, at least temporarily (you can, of course, go to court and get it back, but few of these drug couriers do so).

The news media, by telling you half the story, wants to get you all riled up - being cryptic and ambiguous on purpose, in order to create chaotic situations.  And most people bite on these stories, hook, line, and sinker - without considering whether there is "another side to the story".

And years, sometimes decades later, we learn the whole story, but it is too late - the story the media "sold" is already out there and has currency.   A lot of people still believe that the robber in Ferguson was shot "with his hands up" despite the reports of the Grand Jury, the Justice Department, and the President himself.   People telling the story the media wanted to report turn out not to have been there - at all.

But this sort of misinformation fuels more misinformation, until every day is a grueling grind of "another police brutality story" when some suspect decides to fight an arrest, with predicable results.

Of course, it is only going to get worse - as political silly-season goes into high gear, and the media hypes on which candidate you'd like to have a beer with, or which one ate his pizza with a fork and knife or whatever nonsense they decide is "important" this time around, because it attracts eyeballs to sell to advertisers.

Is this the media's fault?  In part.  But it is also our fault for watching this shit - uncritically and 24 hours a day.   We obsess about the "news" but rarely critique it or challenge it or assess it.   So in a way, it is our fault the news media is the way it is - we have met the enemy and he is us.

Monday, May 11, 2015

Trailer Trash - Does Living In A Trailer Park Make Sense?

Trailer Parks are an odd phenomenon.  You own the trailer, but rent the lot, with no guarantee of what the rent will be.

I live in a State Park, and we kiddingly call our house "the brick trailer" as it is an unimaginative ranch home.  We rent the land from the State of Georgia.  It is not a big deal, the lot lease goes for 80 years at this point, and our annual lot rent is less than $500.

(Before you cry outrage, I do have to pay a $640 fire fee, $2500 in property taxes, a parking fee of $90 a year, sewer, water, and trash fees of about $250 a quarter, flood insurance, wind insurance, fire insurance, and of course utilities. It comes out to about $850 a month, without a mortgage).

Others are not so lucky.   Many people live in trailer parks - buying trailer homes and then renting a "space" in a park to live in, paying a monthly lot rent and sometimes utilities on top of that.   If you watch COPS often enough, you know what a trailer park looks like.   And sadly, this cost-effective form of living is often marred by the fact that such parks attract marginal characters.

This is not always the case, however, and a well-managed and disciplined park, particularly an over-55 park, can be clean, neat, and drug and crime-free.  Of course, the rent in such parks isn't free, and utilities are extra.

Recently, a fellow in Texas made the news as he bought yet another park (he owns a bunch of them) and then raised the rents, raising the ire of the residents.  He is pretty famous, I guess, for putting on seminars on how to make big money owning trailer parks.   And according to some sources, he is the 10th largest owner of trailer parks in the country.

Remember what I said about the poor taking crappy deals all the time?  The kind of deals that look cheap at the get-go, but are actually more expensive than what the middle-class pays.   The poor are poor because they bite on shitty deals all the time, which is what keeps them poor, if in fact makes them poor.

The trailer park buyer guy got a lot of bad press as he comes across as a greedy landlord in some of his seminar presentations (at $2000 a pop, I bet he makes more in these seminars than anything!).   But is this guy any worse that the payday loan place?  Or the buy-here-pay-here used car guy?   Or the check cashing store or the rent-to-own furniture dude?   Of course not.  He's just one in a string of people who exploit the poor.

Now of course, you may say that there is no need to go to a check-cashing store or a payday loan joint or all these other bad bargains - but that everyone needs a place to live.   And you're right about that.   But living in a trailer park is often a bad bargain disguised as a good one.  Since lot rents can be very low - sometimes only a few hundred a month, it seems "cheaper" than renting an apartment, in terms of monthly costs.  But you usually have to buy the trailer, too, and that can make the cost far higher than renting an apartment.   And trailers, unfortunately, depreciate over time, so by the time you make the last payment on your trailer, well, you have to buy a new one.

And many folks do just that, thinking it is a smart choice, going from trailer to trailer, convinced they are doing well as each trailer is "newer" and "better" than the last.   But at the end of the day, all you have is a bunch of cancelled checks for lot rent and trailer payments and no equity in anything whatsoever.  The guy selling you the trailer and the guy renting you the lot, on the other hand, made out like bandits.

The trailer park dude said a lot of things in his seminars that come across as hard-hearted and downright mean - particularly when taken out of context.  Being a landlord is no easy deal, to be sure, and you can't be a "softie" as people will walk all over you.   But then again, you don't have to come across as a dick, either.

But his strategy is valid.   He buys older trailer parks from "Mom and Pop" owners who built the parks years ago, and are now elderly and ready to retire.  These are the "greatest generation ever" (and later) folks, and they are retiring in droves and want to sell out.   And usually, toward the end, they haven't done a lot of work to the park - or raised the rents in years.   Living in the park itself, they may have become too personal with their tenants and feel sorry for them and thus have kept rents far below market values.

And the tenants, of course, like this.   And no, none of them took the money they should have been paying in higher lot rents and put it into a money market fund or paid off the loan on their trailer.   They bought a new Camaro, which is now up on blocks in the trailer park.   Some of the lot rents quoted in the article were startlingly low - on the order of $165 or so, in some circumstances - including utilities.

It is easy to blame trailer park dude for jacking the rents and charging for utilities.  However, he has paid off Mom and Pop, who owned the park and are now in Florida retired.   So he has to make a return on his investment, and likely even pay a mortgage on the place (perhaps to Mom and Pop who took back a note).  You could blame trailer park dude, or blame Mom and Pop who were so nice to everyone and all, but in the end, wanted to cash out on the deal.

Not charging for utilities, of course, is insane in this day and age.  Trailer homes are notoriously poorly insulated and can be real energy hogs.  And if electricity and air conditioning is free, why not just leave all the doors and windows open?  Maybe that explains why, when you drive through a trailer park, there is always some sketchy-looking guy leaning in the open doorway of a trailer with a three-day beard and wearing a dirty wife-beater (with a beer and ciggy, natch) - or the door is just left wide open.

If you are paying below-market rents in an apartment or trailer park, you can't expect that trend to continue forever.   Eventually, the market wins out and rents will go higher.   The smart thing to do would be to realize this, bank that difference and be prepared to pay higher rents when they come, or move to another place at that time, where rents are lower.   People who live in trailer parks, of course, aren't very smart, which is why they bit on this bad deal in the first place.

One of the interesting things trailer park dude did was charge a parking fee for cars.   At first, this just seems like outright greed.   However, there may be a method to the madness.  You see, one problem with a trailer park, is that people tend to collect old and run-down cars and park them next to, behind, or in front of, their trailer.  "I'm going to fix that someday" is a phrase commonly heard.  And Mom and Pop, being nice and sharing a beer with Cletus now and then, tend to forget about the Camaro on blocks, and if you mention it to them, they say, "what car?"

The parking fee is a neat way to limit how many cars are on the lot, and get rid of them (by having them towed for not having a permit) and also keep track of who is on the property.   One problem with trailer parks is drug dealing - and drug dealers do not bring up property values or make life better for the tenants.   So a parking sticker is a neat way to police the property and discourage those 15-minute visitors.

But what about the pee-pul?   The folks in these parks are indeed mostly working poor, working at low-wage (but not minimum wage) jobs.   They have money, but they spend it often as fast as they make it, often on very shitty deals like payday loans, rent-to-own furniture, and trailers and trailer parks.

The article cited above claims that the tenants "can't afford the $3000 to $5000 it would cost to move the trailer" and thus are stuck.   Why it would cost $5000 to move a trailer worth maybe $5000 is beyond me.   Commercial haulers aren't cheap, to be sure, but $5000?   That seems a bit specious to me.  Of course, the tenant always has the option of selling the trailer, but that is another problem with the trailer park - used trailers are hard to sell, and not many people want to live in your trailer in your park.   But that illustrates why living in a trailer park is a raw deal - you can't pick up and leave, if you want to, even if your home is on wheels.

But these people have rights!  They should sue and win!   Well, I hate to see anyone get their hopes up on that.  Because they will lose, in the short run or the long run.  The landlord (trailer park dude) claims they are all on a month-to-month basis, and if so, he can evict them if they don't pay their lot rents.   If they do indeed have a lease, they may win in court, in the short-term, but at the end of that lease, which is not more than a year, well, guess what happens?   Yea, you have to pay the increased rent or leave.

This is why I say living in a trailer park is a shitty deal - the kind of shitty deal the poor bite on.   You own this trailer, which maybe costs tens of thousands of dollars new, but is now worth nearly nothing, and expensive to move.   Worse, it is parked on someone else's land, and unlike me, you don't have an 80-year guarantee of what the rent will be like.  You are at the mercy of the park owner - or the new park owner, if the current park owner decides to sell, which he will eventually do someday.

With an apartment, you have to pay rent, to be sure, but the rents are based on what others are willing to pay.  And since you don't have some enormous trailer to move, you can pick up and leave at the end of your lease, if the landlord raises the rent.  This is why as a landlord, I charged slightly less than market value for rent, and did not raise rents every year - vacancy kills, and I would rather have a long-term tenant paying a little less, than tenant "churn".  You actually make less money when you charge more, sometimes.

Of course, the guy I sell the  building to, at a profit, will have to charge more money for rent, to pay for the mortgage he has to service, which is why it is common that rents go up (to market values) when a new owner buys a property.  This isn't rocket science.

So, are there no checks and balances at all?   Unlike an apartment renter, these folks will find it much harder to pick up and move on.  However, over time, if the landlord is charging over-market values for rent, the tenants will leave - and no new ones will replace them.   On the other hand, if he is charging what others are charging - fair market values - well, he really isn't "gouging" anyone, is he?  The tenants were being undercharged and now are paying market values.

And certainly, it is not "outrageous" to pay for your own utilities in this day and age.  And if you read the article closely, you'll see some of the instances of "doubling the rent" (which by my math, isn't doubled.  Twice of $370 isn't $610, it's $740) are actually a slight increase in lot rent plus the utility bills the tenants are now required to pay.  $450 a month plus utilities is about what most parks charge, across the country.  If are paying less than that and getting free utilities don't expect that to last long.

But of course, that is not as good a "capture the eyeballs" story as "greedy landlord (nearly) doubles the rent on poor working immigrants!" which is what generates click-through revenue and sells newspapers and raises ratings.  Oh, and it sells newspapers in the UK, where citizens will "bite on" any story that makes greedy old capitalist USA look bad and makes socialist UK look like heaven-on-earth.   Right?

If you are thinking of living in a trailer park because it is cheap, think about what you are doing.   It is akin to the families who live 10 or 12 to a house in the ghetto, with bars on the windows and lots of expensive electronics, new cars, and fancy clothes, as many of the GS-2 clerks at the Patent Office did.  They traded real wealth for the appearance of wealth as many rural poor do in trailer parks.  They may be living in a trailer, but they have a fine ride and a new smart phone!   Well, some of them do this, anyway.

A better bet is to live in a better neighborhood, even if it means you have no flat-screen TV, no fancy car, and no smart phone - and even if it means that you spend a huge chunk of your take-home pay on rent or mortgage payments.   The middle-class does this which is what separates them from the poor, in many instances.
The poor choose differently, or become poor by making poor choices.   The very poor will live in a trailer in the country and spend hours driving to work, on the premise that being able to hunt deer makes it all worthwhile.

Choices?  Yes.  Poor choices?  Yes also.  Often the choice which has a lower monthly cost (or allows you to buy "more stuff") is a worse choice than the choice involving a higher monthly cost, but a lower overall transactional cost over time.

This is not to say that living in a trailer park is always a bad choice in every circumstance.  My late sister started out renting a trailer in a trailer park.  As a result, they were able to live cheaply and save up some money to buy a real home.    Since they rented the trailer, they had a lease with the trailer owner, and were not tied to the trailer, if they should decide to move.  The trailer park was a transitional place for them - like renting an apartment, a means to an end.  But as a lifestyle choice, well, you are trading low monthly cost for security in the long run.

As for trailer park dude?   Well, he will likely make a lot of money, if he fixes up these older parks and can thus justify higher rents.  That, of course, requires investment and risk.   If not, well, the competition will clean his clock.   Just because it doesn't happen instantaneously, doesn't mean it won't.   These things may take weeks, months, and years.

(And given property values in Austin, Texas, I would not be surprised if someday, the entire place is bulldozed and made into a housing development or condos, or some other better use of the land.   When you rent in a trailer park, you have no guarantee of perpetual ownership, unless the trailer park is a co-op, and that's another nightmare entirely!)

But quite frankly, I don't think these tenants have a legal leg to stand on.   A Judge is not going to decide sua sponte that he has the power to set rents and whether or not utilities are charged.   And wishing it were so, is just an exercise in futility.

Sunday, May 10, 2015

Normative Cues and Financial Markets

Investing is confusing as the media hypes all the wrong messages.

It is funny (and sad) to hear some comments from folks about investing.  People say things like, "It's all a scam!" or  "No wonder the market keeps going down!"  or "I just don't know how to invest!".  And given the normative cues that the financial media and the trading companies provide, it is no wonder people feel this way.

Some folks have been burned so often that they believe our economy is "imaginary" and that only a "real" economy of bartering will survive the "coming meltdown".   Ron Paul is one of those who believe this sort of thing.   And he is selling a "financial survival kit" of course - to those same people who got burned over and over again by other con-jobs in the past.

Why do people feel this way?  Why are ordinary Americans mystified by our financial system?   The answer in short is, poor normative cues.   What we are told to watch and concentrate on, is only a small portion of the overall financial system.  As a result of these skewed norms, we have a distorted or inaccurate view of the markets and investing.   And perhaps this is by design.

What sort of things am I talking about?  Here are just a few:

The Daily DOW:  Every day, the financial channels and sites hype what the DJIA (or the S&P 500 or the NASDAQ or whatever) did today, or even in the last hour.  If you think about the "stock market" chances are you think of that ticker, which appears on most investment pages and financial channels, giving you the latest prices on various stocks.   Who reads this?  No one.   No one, that is, other than stock traders buying or selling a particular stock at a particular time.   And even then, they look at individual prices of stocks on computer screens, not some "ticker" scrolling at the bottom of the CNBC page.

So why do they have the ticker?  Back in the day of ticker-tape, it was the only way to check the prices on stocks in real-time.   Today we have computers.  The "ticker" is just a decoration at this point, something to fill up the screen and make things look busy and important.   And the normative cue is this:  The price of a stock is everything and you should concentrate on stock prices on a day-to-day basis if not a minute-by-minute basis.

That, of course, would be the worst way to go about investing. 

Big Losses, Small Gains:   Many folks who don't invest will tell you the stock market is in the tank and that the economy (the "Obama Economy") is in ruins.   Nothing is further from the truth, of course.  But why do people think this?  Again, normative cues at work.   When the stock market drops dramatically - by a percent or more, it is reported widely in the press.   But a gain of 5% over several weeks or months barely gets a mention.   Only after years of gains, does someone point out, "hey, this is the largest bull market since...." and even then, the story is couched in terms of "when will it crash?"

So the average person thinks the market is doing badly - or far worse than it actually is - even when the market is doing well.   I have had people tell me that the market did poorly under Clinton (of course, he's a Democrat, right?) and then even worse under the first part of the Bush Presidency.  And it goes without saying that Obama screwed everything up.  If this was all true, the DJIA should be at 50 right now.  But of course, it isn't.

Dividends:  You never see a ticker for dividends.  In fact, on most financial websites, it is hard to find information about dividends.  The same is true for the financial channels, who never mention dividends, other than once a year when they trot out the "dividend geek" and have him bite the head off a live chicken for entertainment value.   Then it's back to share price, share price, share price!

I have accounts with multiple sites, and only one of them, E*TRADE, even gave you a concise listing of your dividend payments (and projected future payments).  But even that site presented your overall "profit" on a stock in terms of share price only.   So, for example, if you bought 100 shares of ACME for $1000 which paid a 5% dividend, and ten years later, you sold it for $1000, your online trading site would show a 0% gain overall (which in terms of capital gains, is true) but would not present clearly that you made $500 on your $1000 investment in dividends - a 50% profit if you will, over ten years.

Most financial sites hide dividend information.  You might find it in a monthly statement (on page six) every quarter.   Financial news programs rarely mention it, as noted above, other than on slow news days.  But dividends are a big part of investing in stocks, particularly these days, when treasuries are paying so poorly and yet many companies are paying 3-6% in dividends.

Note also there is something called the effective dividend rate that is never, ever discussed, as far as I can tell.   For example, I bought a stock for $100 a share that paid a 3% dividend.   Pretty paltry rate of return, right?  Well, today the stock is worth $200 a share and still paying a 3% dividend.   But since I only paid $100 a share for the stock, not only do I have a nice capital gain here, but my effective dividend rate on my investment is now 6%.   That's not bad in this day and age.

Hype:   The financial media hypes things like IPOs because they are interesting - something is happening in real-time and it generates viewer interest.  They also tend to hype tech stocks as they are sexy and can shoot up and down in price.    There is no "story" about a company whose share price slowly goes up over time and cranks out a nice dividend - a company that is not run by crooks or MBAs looking to cash out.  These quiet companies are all over the place, but never mentioned by the media.

So your average Joe reads about the WILGROWCO IPO and puts $5000 into it and loses half his money and then says the whole thing is a scam.   Which would be true if the entire investment market consisted of over-hyped tech IPOs.   But it does not.

Stocks, Stocks, Stocks:   To hear the financial channels and investment sites tell it, the only thing to invest in is stocks, either directly or through mutual funds.   But there are other investment instruments out there, of course.   You can buy bonds - debts basically.    And some of these bonds can do better than stocks - even stocks in the same company.  I bought GE stock and GE debt.   The debt is worth more than I paid for it.  The stock it not.   Tech company stocks never pay dividends, but tech company bonds pay interest.  And when a company goes bankrupt, stock holders are wiped out, while bond owners may get some payback on their money or stock in a new company formed from the wreckage of the old (such as happened with GM).

There are a host of things to invest in, from REITs, to municipal bonds, to government securities, to insurance vehicles, to Real Estate, to Annuities, to, well, even gold and other commodities.   Not all are suited for every investor in every market, and it goes without saying that investing all in one thing is never a good idea.   But it doesn't hurt to shop around and explore different options.

* * *

 The 401(k) and IRA laws have forced us all to become investors - or end up destitute in our old age.  It is an interesting experiment to be sure, but one fraught with peril.  And the largest peril, as I see it, is that a large number of people in the US either choose not to invest at all (but rather buy a new Jet-Ski) or invest poorly in over-hyped schemes that end up costing them money instead of making money.

Joe Blow buys gold at $1500 and now has lost nearly 1/3 of his "investment".   He bought a mini-mansion with a liar's loan ten years ago and lost that.  Before that, it was Enron stock, or maybe some dot-com IPO in the 1990's.   Today, he hopes to make it all back with some new tech IPO coming out tomorrow.   

He's not investing, he's gambling.   And all gamblers eventually lose, the longer they play, particularly when they constantly play sucker's bets.

Sadly, our educational system today fails to teach even how to balance a checkbook or how compound interest can make money for you, over time.   I know I never learned such things in High School, college, or even law school.   Finance is something of a mystery to most of us, and what they "teach" us on television are all horribly wrong things.

What I have learned is that there is no real secret to success - no short cut or insider deal to making lots of money.  Just put aside a little bit every week, every month, every year, and invest in a panoply of different things - some conservative, some more aggressive.   Walk away from anything hyped on the television - once an "inside tip" is broadcast to 300 million people, it no longer is an inside tip.

And when something sounds too-good-to-be-true, like flipping houses for 30% profits in a week without doing any work, or stocks that shoot up in value while the underlying fundamentals of the company remain unchanged, then just walk away.

Walk away from the hype and disinformation.