Thursday, November 26, 2015

Sometimes.... The Good Guys Win!

On Thanksgiving, something to be thankful for!
This guy is in jail - for 20 years!

From ABC News:

A federal judge in North Dakota sentenced a Jamaican man to 20 years in prison on Tuesday for a lottery scam that authorities say cost victims around the country millions of dollars.

A jury in May convicted 26-year-old Sanjay Williams, of Montego Bay, Jamaica, of 35 counts of conspiracy, wire fraud and money laundering. U.S. District Court Judge Daniel Hovland sentenced Williams during a 2 ½ hour court appearance, during which Williams was defiant and often argumentative with the Bismarck-based judge.

Williams said the allegations against him were "fictitious" and the "jury failed to use their common sense" when convicting him.

Investigators describe Williams and Lavrick Willocks as leaders of two separate scamming operations based in Jamaica.

Frank Gasper, a Bismarck-based FBI agent, said more than 80 of the victims of Willocks and Williams have been identified and their losses are more than $5.6 million. Willocks has been charged but not extradited to the United States.

Prosecutors said the case came to light four years ago when Edna Schmeets, 86, of Harvey, North Dakota, received a call from a man who told her she had won $19 million and a new car, and needed only to pay taxes and fees. The process dragged on until the widow's savings were wiped out, a sum of more than $300,000.

A teary Schmeets told Hovland that she "lost everything" and has been "hurt not only financially but emotionally."

Schmeets said she shared her story with the judge so that others would not be taken by scammers.
"It's hard to think you could fall for this stuff," Schmeets told Hovland. "I don't know how they get you, but they do. It's almost like they hypnotize you."

Marlow McMahan, of Salt Lake City, Utah, traveled to North Dakota to see Williams sentenced "and put where he can't hurt anyone again."

McMahan, 84, did not say how much he lost in the scam, though he told the judge he was forced to borrow from banks and friends to claim a bogus multimillion dollar prize.

"I come from a time when your word was your word and when somebody tells me I won millions of dollars, I believe them," McMahan told the judge.

Assistant U.S. Attorney Clare Hochhalter, the lead prosecutor in the case, also posted on a video screen a suicide letter from a 72-year-old woman who was taken in by the scam.

In recent years, estimates by U.S. officials put the yearly take by Jamaican fraudsters at $300 million, but some American authorities suspected the total was far higher. In 2012, C. Steven Baker, a Chicago-based director with the U.S. Federal Trade Commission, told The Associated Press that Jamaica's scammers could be bilking Americans out of $1 billion a year.

Restaurants as Kitchens

Are Americans eating out more than ever?  I think so.

One of the things I harp on in this blog (and I do harp a lot) is the use of a restaurant as your kitchen.   I know a lot of people who do this - many of my friends, for example.  They eat out four or even five nights a week, eat lunch at a restaurant and sometimes even breakfast.   For some folks, eating a home-cooked meal at home is a "special treat" and eating at a restaurant is the norm.   Time was, things were the other way around.

Why is eating in restaurants all the time such a bad thing?   It is bad for your pocketbook.  It is bad for your health.  It is bad for your soul.   Let's look at these things one at a time and you'll see what I mean.   And bear in mind, I am talking about eating in restaurants all the time - as in 4-5 times a week at least.   There is nothing wrong with the occasional meal at a restaurant as a special treat or occasion.   But when restaurants replace your kitchen as your primary source of nourishment, you are on a one-way ticket to broke, fat, depression-town, with little or no hope of return.
1.  Bad for Your Pocketbook:   This is a real no-brainer, unless of course, you have no brain.   In the highly flawed movie Supersize Me, they did make one valid point - a lot of people, particularly middle-class or lower-middle-class and of course the poor, think that fast-food is a "value".  A lady and her family are shown idling their monster SUV in the driver-through window of McDonald's.   When they take her to a grocery store and she is shown a head of broccoli, her only remark is, "Well, I can buy an entire Big Mac for this much money!"
But as I illustrated in another posting, you can make meals at home for a little as 1/4 the cost of dining out.  So even a "cheap" fast food meal costs 4X what it would cost you to buy ingredients and make the same thing (only better) at home.   And with fancier restaurants, the savings are even greater.

Your food budget can be a big part of your overall budget.   The government tells us the average "household" (whatever that is) spends about $600 a month on groceries.   If you instead eat at restaurants, expect to multiply this by four times, at least.   That's a lot of money!

2.  Bad for Your Health:  As Anthony Bourdain illustrated in his book, Kitchen Confidential, the "secret ingredient" that restaurants use to make food taste better is butter and lots of it.   They put butter on steaks and they taste juicier and saltier.   But high fat and salt content isn't the half of it.   The mounds of carbohydrates in everything from the traditional (in America) "bread basket" to the mountain of fries or mashed potatoes, or rice, or pasta, or grits or whatever, drives the calorie count off the charts.

And then there is portion size.   Every restaurant serves enormous portions, trying to show "value" for your money - and most of these portions are puffed up with cheap carbs.   A typical restaurant meal is easily 1000 calories or more - sometimes far more - enough to cover more than half (and sometimes all) of your dietary requirements for the day.   You eat like this, you will fatter and unhealthy over time.

3.  Bad for Your Soul:   Eating at restaurants all the time is a sign of depression and a cause of it as well.  Being pampered is bad for your soul, ironically.  Doing things yourself and creating things is good for it.   One sure way to fight off depression is to do things, be active, and be creative.   When a monkey realizes he can alter his environment with his actions, he is less depressed.

You can spot the chronic restaurant eater as they are also chronic complainers.  It is the only thing they can do, as they are completely passive in this transaction.   Their only "action" in their lives is selecting things from a menu and then complaining about them or the service, and of course, putting it all on Yelp!

This is a natural result of being pampered and having nothing to do all day but be passive and be waited on.  When you create your own meals - when you create anything - you will be less depressed and happier.   Your brain is hard-wired to want to do things and alter the environment it is in.  When you can manipulate your environment and change it, you realize you have power over your life (to some extent) and this builds a feeling of self-worth.  (And this is why teaching "self-esteem" in school will never work - it has to be earned, not taught).

On the other hand, if you are lazy and just order your meals all the time, well, the only way you can change your environment is to complain a lot and maybe get a free meal.   It is the same with people who do nothing but shop all the time.   It is a passive act of being pampered, not an active act of creating.  Being pampered leads to depression.  Being active is the way out.

So, all that being said, are people eating out more than before?  It seems to me they are, just based on anecdotal evidence since I was a kid.  Back before 1970, there were few McDonald's in the nation, and I remember that going to one near Chicago was a "special treat" - not something we did on a daily or weekly basis.   Eating in restaurants was also very special - maybe monthly at most for us kids, maybe weekly for our parents - if that.   And our parents were fairly well off, so it was not a matter of poverty that prevented them from dining out all the time - it just wasn't done.

Since those days a lot of things have changed.  McDonald's is everywhere now, as are Burger King, Wendy's, Arby's, and a host of other fast-food chains (most of which didn't exist when I was a kid).   So-called "Casual dining" chains have sprung up and taken over the nation's strip malls.  These places simply didn't exist in 1970, other than perhaps the "Bonanza Steak House" and their ilk.

Pizza delivery, once limited to college campuses, went mainstream, with blaring ads on the television and delivery to every suburb.   And the number of chains and stores has expanded accordingly.

Now granted, some restaurant segments have shrunk during this period.   In my hometown, we had a "Chocolate Shop" just like out of Archie Comics - where you could get breakfast, lunch, or dinner, served on Syracuse or Buffalo China.   Diners and small-town "greasy spoons" largely went by the wayside, the victims of fast-food breakfasts and eating in your car.

But has restaurant spending gone up?  And has it gone up at a greater rate than the population?   According to the chart at the top, people spent about $42.5 Billion on restaurant meals in 1970.   Adjusted for inflation, this would be $259 Billion today.  And yet, today, we spend over $700 Billion on restaurant meals - more than we do on groceries for the home, according to the middle chart.

Of course, the population of the USA has increased since then, almost linearly:

If we assume around 205 million people in 1970, that comes to about $1263 in inflation-adjusted 2015 dollars per person back in 1970, spent on restaurant meals.   If we assume around 320 million people today, that number comes to $2216 per person, or a near doubling of what we spend in restaurants since 1970.  No word on whether this data includes take-out or delivery items.

Of course, our obesity epidemic can be traced to this as well - starting around the mid-1970's and increasing gradually until today.   Some blame high-fructose corn syrup.   Maybe it was all those stoners getting the munchies.   Maybe it was an increased reliance on restaurant foods.   Maybe it is a combination of all three.

The biggest growth area in recent years has been what some are calling "fast casual" foods.  These are restaurants which are not fast-food, but not really sit-down places where you will spend a lot of time.  Some are calling this the "Chipotle Effect" after the so-called "Tex-Mex" restaurant which serves burritos the size of your head.

Whatever the cause, it seems that people are eating out far more often than in previous generations, and spending a lot more money in the process, often putting these meals on a credit card and then wondering, like deer in the headlights, why years later they are broke, fat, and in debt to their eyeballs.

Now to be sure, an average of $2216 per person doesn't sound like a lot of money from your budget.  Or does it?   Again, if you have an income of $100,000 a year, after taxes, mortgage, car payments, and whatever, you may have a "disposable" income of only $10,000 or so.  If you can cut your restaurant bill to $1000 a year, well, that is a 10% increase in your disposable income.

And of course, averages can be deceiving, as they lump together the spending of the very poor with the very rich.   With most restaurant "tickets" being $50 or more (or over $100) per couple, $2216 could be reached very quickly.

And this is where it gets tricky - and people end up in trouble.   Since it seems "all your friends" are going out to T.J. McChotckey's Onion Chili Outback Neighborhood Grill (where everyone is family, doncha know!) you go with them, and put it all on a credit card.   And over time, your credit card debt load starts to ratchet up, and you can't figure out why both your credit card balance and waistline are growing.

Don't get me wrong.   Eating at a restaurant can be a fantastically great time - with good food, drink, and friends to share it with (and good service, too!).  But only a small child says, "again!  again!" as if repeating the same experience over and over again would actually enhance it, instead of detracting from it.

Only small children - and Teletubbies - find the same experience, repeated endlessly - to be satisfying.

And it seems that many folks "dining out" these days are not going out for social reasons, but merely to refuel their bodies.   Couples dine in silence, each ordering mounds of food and spending the meal on their cell phones, texting.  They take home half the meal in clamshells.  Dining alone seems to be on the rise, at least from what I can see - and others are seeing it as well.  This is not a "dining experience" this is a gas-station for your stomach.

Today is Thanksgiving.   In the past, most restaurants would be closed today, because it is a holiday, and since everyone would be at home, making Turkey or Ham or whatever, there would be no restaurant business.   But today, many restaurants are open, serving Thanksgiving feasts for people who are "too tired to cook" and don't want to go through "all that hassle" of making a meal.

And yea, for some folks, this probably is a very handy thing, particularly if you are elderly and can't even lift a Turkey, much less cook it.   But this is part and parcel of this trend of using restaurants as our kitchens.   And I am not sure it is a good thing.

* * * 

Now, when I have mentioned this topic before, some have tried to cloud the issue.   They try to argue that restaurant meals are cheaper than ones prepared at home.   This is, of course, almost never the case, unless you go to a very cheap restaurant, use a coupon or something, and then don't tip.   That is not a valid comparison.

The second argument is "opportunity cost".   The thinking is, if you are a hotshot young (attorney, doctor, IT professional, whatever) you are making X dollars an hour, and thus spending time making your own food is wasteful, as you could pay someone to make the food for you, for less money.  This same argument is used to justify hiring a maid, a lawn service, a dog-walking service, or buying or leasing a new car (so you don't waste time having it repaired, etc.).

But again, "opportunity cost" arguments make little sense in real life, as you really can't just work more hours to pay for these things - at least in most cases.

There are situations, of course, where it may make sense.  You are working on a rush project and are spending 12 hours a day at the lab or whatever.  Sending out for a meal allows the staff to work longer - but usually a smart manager pays for this.   Or you are an intern working at a hospital on a 24 hour shift (or longer, as they used to be).   You may not have a choice.

But for the rest of us mere mortals, however, it doesn't make much sense.

Another argument which is interesting is the idea that automation and mass-production should lower costs to the point where it is indeed cheaper to buy food prepared at a place that specializes in preparing food (i.e., a restaurant) just as it is cheaper to buy a car made on an assembly line at a factory than it is to rebuild one from the ground up, in your garage.

That argument would seem to have some merit, but it does seem to fall flat.   The material costs for making a meal are the same for the restaurateur and the homeowner - with the restaurateur getting only minimal discounts on the cost of foodstuffs.  He's not getting steaks and lobster tails for a dollar a pound or anything like that.   Throw in the cost of labor and the overhead of the restaurant space itself, and you have a cost that is 4X what you would pay at home.   And other items, such as liquor, wine, and beer, are usually sold at a rate 4-10X what a consumer would pay at home.   The restaurant is not a very efficient "factory" for making and serving food, not even the fast-food type.

No, I'm sorry, it just doesn't add up.   Eating in restaurants is fine and all.  When it becomes a nearly daily thing, think about where that is taking you, in terms of your diet, finances, and mental health. 

Wednesday, November 25, 2015

Riding On the Hide-A-Spare (Doughnut)

These mini "doughnut" spares are meant to take you to the nearest tire store.  Where I live, people use them as regular tires, with predictable results.  Why do they do this?  Poverty of the Spirit.

We were at a restaurant the other day - a small Irish pub that was closing down to open a new location here on our island.  The food is cheap and the beer is cold, so it is nice to go there once in a while (as opposed to four times a week, as our friends do).

We talked with the waitress and asked if she was going to move over to the new restaurant on our island and she said she was looking forward to it.  Trying to be helpful, we mentioned that there is  $6 toll to get onto the island, but if you spend $45 on an annual pass, you don't have to pay the toll.   It pays for itself in short order.

She wrinkled her brow and said, "Well, I guess I'll have to wait until next payday to buy the pass, as I don't have $45 to spend!"

This flummoxed me considerably.   If we assume they are paid bi-weekly and she is halfway through a pay cycle, she may spend $30 or more on daily passes, before she breaks down and spends $45 to buy an annual pass.  She is wasting $30 in the process because of poor cash-flow management.   I was kind of dumbstruck that a waitress making $5 to $10 per table in tips, could not budget for a $45 expense or even put it on a credit card.

And of course, I saw her pulling her smart phone out of her apron more than once to check on text messages, while we ate.   She has the money, she just chooses to spend it on other things.  Such as her tattoos, for example.  And piercings.

But where we live, the poverty of the spirit is well-imbued in the populace.   And nowhere is this more readily apparent by the number of people driving around on their doughnut spare tires!

In case you weren't aware, those "temporary" spare tires, which are common on most cars today, are good for only 50/50 usage.   They are designed to go 50 miles at no more than 50 miles per hour, tops.

If you need to use your temporary spare tire, it should be for the express purpose of driving to the nearest tire store and buying a new tire to replace your blown-out one.   No more, no less.

And speaking of blowouts, guess what the number one cause of them is?  Low tire pressure.  And yea, around here, I see a lot of cars driving around on tires that are nearly flat and will blow out within minutes of entering a freeway.   I used to try to warn the drivers of such cars, but was either met with indifference ("Yea, I gotta put air in that someday...") or outright hostility ("Mind your own fucking business!").

Funny thing, but when tire pressure went low on one of my trailer tires and someone honked and waved, I thanked them for warning me.   And I drove to the nearest Wal-Mart and bought a new tire, as the tire was nearly flat, no doubt sidewall damaged, and a new one was only $90.  Better safe than sorry.
But around here, people blow out tires with regularity.  They put the "doughnut" spare on and then drive on them for weeks at a time, passing me doing 70 on the freeway - with predictable results.  The doughnut spare blows out, and now they are stuck by the side of the road.

They miss a day's work, which cost them far more than the cost of a new tire, and now that have to call a tow truck (because they "couldn't afford" to pay $40 a year for AAA) and end up paying hundreds of dollars for a repair that could have cost as little as $75.

And then they wonder why they are "living paycheck to paycheck" all the time.   It is not poverty so much as it is poor planning and stupidity and yes, drugs are often involved, most of the time.  Almost all the time.

Poor financial planning is what makes people poor - or poorer than they need to be.   The payday loan place isn't an "answer" to your financial problems, but the cause of them.   If you are "short on cash" at the end of the week, borrowing money at 300% interest isn't going to help much - in fact, it is going to make things worse.

Yet to the poverty mindset, money is like the weather - raining down buckets on payday and dry as a drought the next week - for no apparent reason.   And because of poor planning, the poor tend to make poor choices, which in turn makes things a whole lot worse.

And I know this because I used to do stupid things like that.   I never ran on the doughnut, of course, because I have too much respect for cars, and since I always check my tire pressures, I have rarely had a blowout or even flat tire in 40 years of driving.

But I did other stupid things when I was that waitress' age.  I would run out of money before the next payday, and then bounce a check to buy beer and pretzels (and pot).   I could have made different choices, such as not buying beer and pretzels and pot.   I could have budgeted for things in my life, instead of just spending willy-nilly.    But being young and dumb (redundant) I just wrote checks until I got a phone call from the bank.  And that meant the $15 I spent on beer and pretzels cost me another $15 in bounce fees.  Eventually the bank asked me to take my business elsewhere.

Should we feel sorry for the waitress who can't "afford" a $45 parking permit, but can afford to waste $30 on daily passes?

Should we feel sorry for the person whose car is parked by the side of the road with a blown-out doughnut spare for a week (until it is towed and impounded)?  They can't "afford" to go to Wal-Mart and buy a cheap tire for $75, so they instead end up paying $250 or more with towing charges and more with lost wages.

Should you feel sorry for the 25-year-old me who bounced checks to buy beer?  Is that any different than the folks who ride around on the doughnut spare while paying a $100-a-month cable bill or smartphone bill? 

Or what about the hopped-up "hoop-de" on the side of the road, with $3000 of rented "bling rims" and a blown-out doughnut spare tire?   Do we feel sorry for them because they are poor or because they made really idiotic life choices?

This is not a  matter of being poor so much as thinking poor.   It is a matter of spreading your finances so thin (when they are thin to begin with) that there is no headroom for unexpected expenses - which are actually, to be expected over time.

It is a matter of making poor choices which in turn make you poor or poorer.

And riding around on the doughnut spare is one of these choices.   And it is a choice, too.   Regardless of whether you "don't have the money to buy a new tire right now" it was your choice not to save money for such an inevitability - or to even check tire pressures on a regular basis and avoid such a problem.

* * * 

You know, it is funny, but if I was to be hiring people today, I would ask to see their car.   If I saw it was dirty and unkept, I might be inclined not to hire that person (they are irresponsible, don't take care of things, and are sloppy - they would do the same at my place of business).

If it was hopped up with questionable "mods" like a lime-green giant wing and cheaply made bling rims, I might similarly walk away.   You have a young person who has no respect for money and is living in a dream world where their Mom's old car can be made into a Formula 1 racer, one paycheck at a time.

And if I saw the doughnut spare on the car - with most of the tread worn off - I would just run away as fast as possible.   Here is someone with a drug habit, who likely won't show up to work, on the busiest days, on more than one occasion.

It is an interesting thought.   What someone's car looks like, no matter what their income range is, can tell you a lot about the person.

Tuesday, November 24, 2015

Debt-to-Equity Ratio

Stock-Picking is for Chumps!   Sadly, our current financial system forces us all to be investors, whether we want to be or not.

I have noted time and time again that stock picking is for chumps.   I have most of my invested assets in mutual funds, and they do OK.   I have bought some stocks, and done well with some - mostly conservative blue-chip type of investments.  Stocks for companies that actually make and do things (as opposed to Internet IPOs) and generate dividends and increase in value over time.

Some other stock picks - well, not so good.   Particularly in the early days, when I would do dumb things like watch a financial channel and listen to some "guru" tell me that XYZ stock is going to go up.   And I figured that since he was just telling me (and just a few hundred million other people) this "insider" information, I would be smart to invest in that stock!

Eventually, I stopped doing that.   And I started to ask myself what stocks were all about and what made one worth more than another.   And I realized there are a lot of variables at work, in addition to all the emotional freight.   The latter is how some folks make a lot of money in the market.   Whether it is a teenage boy in suburban New Jersey hyping penny stocks on the Internet, or some Wall Street hot-shot hyping a stock and then dumping it, the effect is the same.   People are sheep, people are uneducated, people are stupid, and people are emotional and all convinced they are going to make big bucks on "the next big thing" so if you drop a hint about some stock, the plebes will go after it like mad, which in turn drives the price up, confirming to the plebes that they made a smart choice.   And then it tanks - like all bubbles do - and they lose their shirts.

That is the emotional aspect of it - or one example, anyway.   The market is full of undue exuberance and pessimism.   Stocks overshoot in price and undershoot as well.  As in any human endeavor, it is not an exact science.

But speaking of science, surely there has to be a way to rationally evaluate the value of a stock, right?   I mean, we can't be party to insider information - the introduction of a new product, or the coming reports of lower earnings, or a pending lawsuit that could cost the company millions.   That sort of thing, unless you had a time machine or inside information, is not available to us. 

But let's assume a company is running a steady-state condition.   Acme company makes widgets, and is not facing a lawsuit by disgruntled customers who find that widgets cut their fingers off.  Similarly, there is no new widget 6.0 coming out next Thursday.  The company isn't about to report a drop in earnings.   Surely, there must be a way to quantify how much this company is worth in real dollars and cents, right?

And maybe there is.  But it ain't easy.   A lot of people use various "metrics" to measure the value of a company.   The obvious things are share price and number of outstanding shares, which when multiplied together, generate this fictitious number called "Market Cap" which as I have noted before, is utter bullshit.   The problem with Market Cap is that it assumes that all shares of a company are equal in value, which they may be, in a buyout situation.   But when purchased initially, each shareholder pays a different amount and values their stock differently.  Some shares (usually the majority with an Internet IPO) belong to insiders who paid little or nothing for them.    And if you sold all those shares at once, well, the stock price would plummet.   So it really doesn't represent a realistic valuation of the company - at least in my opinion.

Things like earnings per share (EPS), dividend per share, Dividend Yield, and Price to Earnings Ratio (P/E Ratio) tell a little more of the story.   Not the whole story, but more of it. 

For example, let's assume ACME has 100,000 shares of stock outstanding at $10 each.  So the company has a "Market Cap" of a million dollars - which may be more than the plant, inventory, equipment, trade secrets, intellectual property, brand, and goodwill are worth - or possibly less.   Market Cap is just a number, and not a very accurate way to valuate anything.

Now suppose Acme earns $1 per share every year (EPS: $1) which means for every share of stock outstanding, they earn (profit) by $1.   Now, for the sake of simplicity I won't go into EBITA (Earnings before Interest , Taxes, and Amortization) which might be an interesting number to look into later on.    That number, as you might expect, will be a lot higher.   Now if earning $1 a share, Acme is pulling in  $100,000 a year in profits, which is about 10% of the company's worth, and that's not a bad performance.

Now, let's also assume the company decides to keep half that money (as retained earnings) and pay out half in dividends, or a dividend of 50 cents a share.   That would generate a dividend yield of 5%, which in this economy would be considered a pretty good dividend.   You buy a share for $10 and you earn 50 cents - in effect 5% interest on your investment.   Since the company is retaining the other half of the earnings, it is assumed the company is now worth 5% more, and the stock price should reflect this.

This also means the company has a P/E ratio of 10 (the price, $10 divided by the earnings, $1) which would be a very low P/E ratio indeed.   Generally, most folks think that a P/E ratio of around 20 or so is nice (a 5% profit) but some wags opine that with certain sectors (read: Internet Stocks), it is OK to have a P/E ratio of 100 or even 1000.

Some folks look at P/E ratio as the number of years you'd have to wait - at that rate of earnings - to make your money back on the stock.   With a P/E ratio of 10, you'd earn back your stock price in 10 years (assuming the price of the stock appreciates 5% a year and you earn 5% dividends in our Acme example).  And that would be pretty good, as most economists say an investment should double in value every 7-10 years, in a normal market.

Linked-In, last year had a P/E ratio of 2092, which means you could live as long a time as from the time of Christ until today, and still not make your money back.   For this year, they are projecting a negative P/E ratio, which of course means they are losing money.   Some stock sites don't show negative P/E ratios, but rather just a "--" meaning the company is losing money.  It depends on the site.  Not all sites report metrics the same way, as we shall see.

So anyway, our Acme Corporation seems to be doing well.  It is making a profit (which they have to pay corporate income tax on).  After all, it is churning out a regular dividend (which is taxed to you as ordinary income) and also retaining earnings which should cause the stock price to going up accordingly (which you will have to pay capital gains tax on, when you sell the stock). 

Note how the same profits are often taxed twice in the United States, once at the corporate level and again at the shareholder level.  The next time a Wall-Street protester whines to you about "Corporations not paying taxes" you might want to point this out to them (and the fact that we are one of the few industrialized countries that double-tax corporations).   But then again, save your breath.  They won't understand the concept because they are predisposed not to.   So just smile and move on.

So is Acme Corporation a good stock to buy?   Well, in addition to the "what ifs" we talked about above (the nature of the market, risk of failures or lawsuits, new products, competition, and so forth) there are other aspects as well.

For example, the management of Acme Corporation might be hollowing out the place with debt.   Management is paid in stock options which allow them to buy company stock at a fixed price, regardless of the market price later on.   So for example, Fred Mertz is the CEO of the company, and when he was hired ten years ago, he was given a stock option at $5 a share, which could be executed five years later (the terms of stock options vary based on a number of terms and who the option is being given to).   So today, Fred can exercise this option, and buy 1,000 shares of Acme for $5 and instantly double his money.  In the real world, of course, the Mertz's make millions of dollars with these options - sometimes tens of millions or more.

So Fred has a big incentive to crank up the stock price.   He has less incentive to crank up the dividend rate, other than how the dividend rate affects stock price.  And there are a number of ways he can spike the share prices.   Buying back stock, as I discussed before, is one way to hike the share price.  If there are 100,000 shares outstanding and the company buys back half of them, then each share is arguably worth twice was it was before - $20 a share.   Fred obviously would like to do this.  But how?  There isn't enough money in the kitty to make such a purchase.

Fred could borrow the money - from a bank, from investors, or by issuing corporate bonds.  He loads the company up with debt, in this case, $500,000 of Acme Corporate Bonds, and buys back half the stock.  Now companies can do this, and as I noted before, there are many ways a company can get funding to operate and buy equipment, etc.  They can issue stock, they can issue bonds, or they can borrow from banks or other lenders.

Stocks are neat in that you can issue stock and you don't have to pay back your shareholders, unless they are expecting dividends over the years.  With a loan or a bond, you have to pay back the lender or bondholder, plus interest over time.   So you can see, debt is a greater burden to a company, as it has to be paid back (just as we have to pay back our debts but we seldom think about that).

The problem with debt, for a company, is that the repayment terms are pretty inflexible.  You have to pay back the loan with X payments over Y years, including principal and interest.  With a bond, it is the same deal - you have to pay interest (in those detachable coupons of yore) and when the bond matures, you have to pay the face value back.   

With stocks, well, you pay the shareholders dividends only if you are making money.  If you hit hard times, well, you might cut the dividend or suspend it entirely.   And you never have to pay back the shareholders what they paid for their stocks, unless you decide you want to buy back stocks, and even then, only at market value, which may be less than what the shareholder paid!

Now to be sure, some companies fold over their debts over and over again into new loans or new Bonds.   They are perpetually in debt, having to borrow to buy new widget-making machines or whatnot.  And unfortunately this creates another risk for the company, as the rates at which you can borrow depend on interest rates (which today are very low, but in the past were as high as 10% or more).  The rates you pay also depend on the perceived risk, so if your company is having hard times, your lenders will ask you to pay more, and that in turn will make your hard times even harder.

For example, Fred has issued $500,000 in bonds and bought-back half the Acme stock.  The interest rate on the loan is 10%.  So every year, he has to pay $50,000 in interest, which is about half their annual earnings.  This sort of cuts into the profit picture.   Moreover, this "leveraging" of the company puts the company at risk - for insolvency and bankruptcy.   If lenders perceive that Fred is not doing a good job running Acme, they may cut off his credit lines.  Bond buyers may shy away from his C- rated junk bonds.  The cost of lending could escalate quickly - to the point where interest expenses start to become some of the largest expenses the company has every year.

Our old friend Mitt Romney was in this business.  They would buy failing rust-belt companies, like old steel mills, which had Hazmat cleanup problems (unfunded) and employee pension and health plans (underfunded) that the current owners just wanted to unload.   They would borrow money in the name of the company they were buying in order to purchase the stock - sort of a snake eating its own tail.   Then they would spin off the liabilities into smaller designed-to-fail companies and then sell off the rest and make a profit - leaving the Federal government with a Hazmat cleanup problem, and retired employees with their pensions cut in half.  And if it all blew up in their face, well, they might walk away with out a scratch, as it was someone else's money anyway.   Or, if they were the bondholders, they could end up as shareholders in reorganization - as the fellow who owned Friendly's restaurants did.   Nice work if you can get it.
And this is where Debt-to-Equity ratio comes in.  As the name implies, it is just a fraction, with the numerator the amount of debt a company has, and the denominator the amount of equity the shareholders have.   It can get a lot more complicated that that, and some folks multiply it by 100 to make it a percentage for some reason.  The link above has a more detailed description of the term.   But generally speaking, the higher the D/E ratio is, the more the company is leveraged with debt.

So, for example, at Acme, we have a debt of  $500,000 and equity (the vaunted "market cap") of $1M, so our D/E ratio is now 0.5 (or 50, if expressed as a percentage) which would be very, very low for many industries.    Of course, shareholders read annual reports (well some of them do, anyway) and they see this debt piling up on the company ledgers.   So they think, "Well, with all this debt, maybe the company is worth less" and the market value of the stock may decline.  Like anything else with stocks, it is not an exact science, and even with this "simple" example, it is hard to quantify anything with certainty.  Of course, if the stock value declines, the fraction gets larger, so the D/E goes up even more.  It can be a vicious circle.

What got me started on this was a small piece of Stock-picking I did the other day (I know, only idiots are stock pickers - I'm an idiot, first class!).   I bought some Ryder stock - not a lot, and thanks to FREE TRADES, a small investor can afford to buy a small amount of stock (e.g., on the order of $1000 to $5000) and thus not risk a lot on any one trade.   Ryder seemed like a good company with good metrics.  The P/E ratio was around 10-14, which is astonishing, and dividend yield of about 2.5% which in this economy is better than what banks are paying.  Since then, however, the stock has dropped about 20% in price, which is kind of depressing.

What is going on that is making the stock worth less (but not worthless)?   Well, although their profits are up, revenue is pretty flat, and they are cranking out dividends like clockwork, their debt-to-equity ratio has been going up during the last year.  Total debt has gone from 4.7 Billion in 2014 to 5.4 Billion in 2015, and I guess the market has noticed this.

Annual reports or quarterly reports are boring to read.   But this little tidbit explains what is going on:
Total debt as of September 30, 2015 increased by $720 million compared with year-end 2014, due to investments in vehicles to fund growth. Debt to equity as of September 30, 2015 was 279% compared with 260% at year-end 2014. Debt to equity increased due to investments to fund growth and foreign exchange impacts. Due to the increase in leverage, the Company elected to temporarily pause the anti-dilutive share repurchase program early in the year. The Company will evaluate resumption of the program in 2016. Total debt to equity was slightly above Ryder’s long-term target range of 225% to 275%; however, this metric is expected to be within the target range at year end. 

So they borrowed more money, to buy new equipment.  But that also meant they had to suspect their stock buy-back program, which was jacking up the stock price a bit.   Note how they show the Debt-to-Equity ratio here as a percentage (279%) versus the fractional value (2.79).   Not only is the D/E ratio important in evaluating a stock, but the trend of the D/E ratio as well.   If the D/E ratio is going up, that may mean more debt on the books.  It may also mean the share price has gone down, as it is a fraction.

If D/E is trending downward, it means the debt load may be going down and/or share price is going up, both of which are good news for investors.   GE, for example - everyone's favorite whipping boy - has seen its D/E ratio go from over 4.0 to about 2.2 today.   And not surprisingly, the stock has been going up in value.  Arguably this is a good trend.

So, does this mean Ryder is in trouble?  Should I dump my shares and take a loss?   Or double-down my bet and buy more?   Well, this is where stock picking becomes more like gambling.   Maybe not so much as in playing roulette, but more like picking the ponies - trying to divine from bloodlines and racing history what is going on and how is going to win.  With a very low P/E ratio, solid profits (that seem stable anyway) and new investment in hardware, some analysts are predicting that the company will prosper even further in 2016.   And perhaps also, the market has over-reacted to the drop in share price.   Some people, when they see a stock dropping, will sell, which drives the stock price even lower.

And debt can serve a purpose.   In this case, they claim the debt is being used to purchase new vehicles, and over time, these new vehicles will generate new revenue, which in turn will generate more profits and help pay down debt.   The report goes on to further state their leasing business is increasing, with deliveries of leased vehicles (that they buy) in 2016.   So perhaps this is where some of the debt is going.

I guess we'll have to wait-and-see.

By the way, the D/E ratio and its trends are not always readily visible on most financial sites.  Most site hawk the share price and its trends - as if anything could be divined about the health of a company from share price alone.   Some of the better ones show P/E ratio and Dividend Yield.   But you may have to search on "Acme D/E Ratio" to see charts of the trends.

And yes, you may have to actually read the company's quarterly and annual reports, as boring as they are.

Like I said, stock-picking is for chumps.   And it can be a painful learning experience!

Monday, November 23, 2015

How the Media Works Today - Frightening!

At one time in this country, journalism was an honorable profession.   Woodward and Bernstein investigating Watergate.  Today, journalism is all about capturing eyeballs to sell to advertisers.

Once in a while, Reddit is not just SPAM advertisements for Fallout 4 (which apparently turned out to be over-hyped - I hope the same is not true for Star Wars, but I fear it will be) or something called Rhonda Ramsey (which is a toothpaste, I think).   Every so often, they let something slip through the cracks - something that sort of illustrates how Reddit actually works.   This posting was in response to a question as to why "scientific breakthroughs" reported in the press are never followed up by real scientific progress:
"When I was a 'journo' I'd use sources like to find nice stories that I could rewrite so they were unique and then promote them on social media sites.  Eurekalert is already Buzzfeedy in its headlines, and you can tell when you read a little deeper into the article that the research was not as groundbreaking as the headline makes it appear. It might be a mouse model, it might be just a survey of 2000 people, it might be a study involving 20 people.
Then when I wrote it up, I would purposefully try to avoid anything that highlighted how meaningless the study was, and I'd try to write something even more Buzzfeedy than the actual article. AIDS cure 'around the corner', 'Study: AIDS can be cured by bananas'. If I put some of the headline in 'snatch quotes', i.e. apostrophes, or put a colon indicating that someone had said something, i.e. 'Cameron: Fuck Daesh', then I would have covered my ass from misrepresenting the topic, provided I didn't totally misrepresent it.
And I was churning out 5,000 words a day, often researching and spinning a 200-word article in 20 minutes. I would honestly just skimread the original source, I'd only actually read it to fully understand it if I was personally interested in the research. Furthermore, my understanding of complicated science is nowhere near good enough to be able to criticise a scientific study, all I'd do is 'spin' it. Churnalism, it's called.
Shockingly, one of my skills is being able to push things to the top of Google search results. Quite often, when writing something more meaty, my research would be reading whatever was at the top of Google search results, which I know full well is written by someone who's just as big a moron as me and who's just as pressed for time as me.
The internet is a tapestry of bullshit

Here's an example, in fact if I was spending 20 minutes on 200 words I would've spent 5 of them on Facebook.
See it's all full of confusing stuff but I might think 'this is the kind of thing people will read'. This doesn't comply with all the rules of news writing but it's pretty close:
Could e-cigarette users face a higher cancer risk than smokers?
Alternatives to tobacco, such as e-cigarettes, have become increasingly popular in recent years, and are much-touted for their health benefits.  However, a new study, which found that smokeless tobacco users have higher levels of carcinogens than smokers, could end any claims that alternatives to cigarettes are better for you than cigarettes themselves.
The research, which was published in Cancer Epidemiology, Biomarkers & Prevention, a journal of the American Association for Cancer Research, found people who use smokeless tobacco have higher levels of tobacco constituents cotinine, NNAL and other deadly toxins than people who exclusively smoked cigarettes.
Brian Rostron, PhD, an epidemiologist in the Center for Tobacco Products at the U.S. Food and Drug Administration, said that these biomarkers show that smokeless tobacco users face "adverse health effects, including cancer".
"Our findings demonstrate the need for continuing study of the toxic constituents of smokeless tobacco as well as their health effects on the individuals who use them," he added.
As well as e-cigarettes, other popular nicotine-replacement devices include snus, snuff and chewing tobacco.
PS it's all bullshit man, the study's about smokeless tobacco products, and I strongly assume that this means snuff and snus and chewing tobacco and that ecigs don't even count. But nobody's gonna sue me and it's the kinda thing people would share."
Scary stuff, no?   But it illustrates how "journalism" today works.  Say something catchy that captures eyeballs, generates click-through revenue, and whatnot.   You want an article that says something contrary or controversial, so that Joe Lunchbucket has something to talk about by the water cooler the next day.  "Say Bill, did you hear that those e-cigarettes are actually worse for you than regular ones?  I'm going back to filter-less Camels right away!"

In the health field, this is particularly scary, as it illustrates why most lay people will say things like, "Those scientists don't know nothing!  One day they tell us eggs are bad for you and the next day they are good for you!  Why don't they make up their minds???"

But of course, most "scientists" (nutritionists?) made up their minds a long time ago.  Too much of any one thing is bad for you.   But a lot of what gets reported gets twisted around.   Some say a high-fat diet is bad for your heart.  Somehow this gets translated into lay-speak as "low fat foods will help you lose weight"   They won't.  They can't.  Not now, not ever, and no, scientists aren't confused about this, lay people are.

Folks like to take tidbits of information - which are often distorted by the media for sensationalist purposes - and then twist them around even further.   I am sure it is a matter of time before people start to think that "gluten-free" foods are going to help them lose weight.  Just wait for it.  Oh, wait, we are already there.   Here's an article along the lines of the one written above.

And once again, we are given a headline with a question in it, and the answer is "No."   A fellow named Betteridge noted this trend and today it is called Betteridge's law:  If a title to an article has a question in it, the answer is usually "No".   As a corollary, you can save a lot of time by simply not reading such articles as they contain no useful information.

And another corollary is that articles that are titled, "You are never going to believe...." are about things that you likely will have no trouble believing.   Or titles about "incredible" things will turn out to be fairly ordinary.

To a young person today, of course, this may all seem quite normal, as this sort of "click-bait" behavior has been around for more than a decade.   But I would like to think that in the past, it wasn't as common.   And I can point to almost an exact point in my lifetime, where the change occurred.

Back in the 1960's, we had television news.   It was a 22-minute format, and all three networks (there was no Fox) put the news on at the same time, about 6:00 PM every evening and 11:00 every night.  There was no 24-hour news "cycle" or endless news reporting.  There was no Fox News.

Newspapers like the Wall Street Journal (which is now owned by Murdoch) were pretty staid and stuffy.  While conservative, they did not rely on sensationalist headlines to sell copy.   Today, the Murdoch empire owns National Geographic and this is the sort of headline they use:

The Murdoch-ization of the news.

This is not to say that Rupert Murdoch is to blame for this trend.  I saw the start of it in the late 1970's, when television started advertising television.   The first time this happened it was like, whoa, did that just really happen?   Television stations started using "teasers" to get people to watch programs later on.   And one way to get people to stay up until 11:00 for the "news" was to use a teaser like "Snow in the forecast?  Stay tuned for news at 11:00!"

But of course, they could have just said, "No snow forecast" or "30% chance of snow forecast" in the same amount of time.   But that would be responsible journalism.   They wanted to increase ratings, attract eyeballs, and then sell them to advertisers.  News departments became part of the entertainment divisions of their networks, and it all went downhill from there.

And then Fox appeared on the scene - willing to do just about any outrageous thing to get ratings.  Early television shows like "Married....with children" celebrated the breakdown of American family life.   Then Fox News would come on, and decry television shows which....celebrated the breakdown of American family life.  The irony was lost on most folks.

Somewhere along the way, from three channels and one fuzzy UHF, to 500 channels of crap, we went from providing entertainment with sponsors, to capturing and "selling eyeballs" to commercial interests (as was explained to me by a Cable TV executive).  The name of the game was to manipulate and confuse people and no matter what, get them to keep watching.   Coming up next!  Hitler's home movies!  In Color!   90 minutes later, you still haven't seen them.   That's how the History Channel works.

The Internet is just an extension of this.   Only now, we can sell people's eyeballs one click at a time.   No more relying on messy and inaccurate Nielsen ratings to see how many people bite on an ad.   You can count the suckers one at a time, and even divine their demographic information.

And this is how most people today get their '"information".   Much of it is outright faked-up data.   It makes a big splash in the press or online, but the retraction or refutation or clarification comes only days later and is never read - or read by few.   People say they are "informed" by being "plugged in" to the media, but in reality, the more they are plugged in, the less informed they are.

And this is not only sad - it is dangerous.   You need to be able to perceive reality as it really is in order to make rational decisions in life.  Act rationally in an irrational world, someone once said, and you'll end up wealthy.   But if all the data you receive in life is skewed - skewed to favor marketers and salesmen and companies trying to sell you things - how can you make rational decisions in life?

When it comes to more important national issues, how are we supposed to be able to parse out who to vote for, when sensationalism carries the day?   People put Trump at the top of the polls because he says outrageous things - things that people click on, or like to watch on television.   The media loves Trump, because love him or hate him, you'll watch - and watch the ads.   Meanwhile, the more "Presidential" candidates who are more reserved, languish in the polls, until they too, say something stupid to get in the limelight.  This is the system we have created for ourselves.

Oddly enough, as I was thinking about this, the folks at South Park created an episode (and story line) about the same thing.   Entitled "Sponsored Content", the episode explores how getting Internet news online can be a frustrating experience.  "It's as if I am chasing the news rather than reading it, clicking on one page after another...." - this struck me as particularly relevant.   The episode also illustrated how embedded content and product placement can be used to subtly influence people's perceptions, and how only a few people are able to see what is an ad and what is not.

We like to think we are sophisticated and astute.  We are not.   We like to think we have original ideas.   We don't.   We hear about things online, in the paper, on television, or from friends.   So we start to think, "Gee, maybe I need to be buying [fill in the blank]" and before we know it, we are.   Hey, there's a line around the block for the latest iPhone - better get yours now!  And be sure to obsessively use it, too!

Maybe our world was always thus.   Maybe not.   Because I remember a time when product placements were quite obvious.   The announce would say "brought to you by...." or Dinah Shore would step to one side the stage and sing the praises of the new Chevrolet.   You were aware that you were being marketed to.    When you watched Efrem Zimbalist, Jr. in "The FBI" you knew the presence of all those Ford cars was no accident, as it was plainly listed in the credits in large letters.   Today, you watch an episode of "Blue Bloods" and notice that for some reason, everyone is driving a new Nissan in this episode.   What's up with that?

There was a time when newspaper ads were clearly ads, and the word "advertisement" didn't have to appear on the pages of newspapers and magazines to let people know that the cleverly formatted "article" is just a paid ad.    But those days are long gone.  Newspapers and Magazines are dying off in droves.   Many have morphed to the Internet - taking on Internet journalism values at the same time.   Something fundamental has changed in our society, and it is not a change for the better.

Advertising has become a lot more subtle.   And the way we are steered to it is to use sensationalist headlines and eye-grabbing graphics.   Because that's the name of the game - grabbing eyeballs, one pair at a time!

Sunday, November 22, 2015

Shaddap and Vote for Hillary!

A protest vote for a long-shot candidate is a really, really bad idea.

Dear Millennials:

There is an election coming up, and while it may seem like a joke at this point, it is kind of important.  In fact it is very important, perhaps the most important election of the last 50 years.   Yes, even more important that getting Barack Obama elected.  For many of you, this may be the first time you vote, or the first time you vote in a Presidential election.   And it may be tempting to say, "Gee, I should vote for Bernie Sanders, because he represents exactly what I believe in!"   But that would be a grave, grave mistake.

You see, there are a lot of serious issues on the table today.   We have Obamacare, which has a lot of problems and the Republicans would like to just toss out.  If a Republican wins the White House - and they take the Senate, you can kiss your healthcare goodbye.

But there are other things as well.

I am sure you are all psyched about legalized marijuana.   And I'm happy for you.   But you see, it is still illegal at the Federal level, and the DEA is frothing at the bit to take down all those medical and recreational marijuana dispensaries.   What is holding them back?  A Democrat in the White House.  If a Republican is elected, the Feds will close down all the marijuana dispensaries - recreational and medical - put every one who owns one or who worked in one in jail, for a very long time, and then seize all the assets of these businesses and shut them down for good.

Do you want that to happen?  Of course not.

But wait, it gets worse.   Remember that consumer protection agency that Obama pushed through?  The Republicans will abolish that first thing - as they have promised to do.  They want banks to offer you crummy credit deals on onerous terms.   But you know that, right?

And your student loans?  Well, if there is any hope for Student Loan reform, it ain't gonna happen with President Cruz in the White House.

Now, I know what you are going to say, "President Sanders will fix all of those things!"   And if he was elected, yes, you would be right.   But let me tell you something that is 100% honest truth:  America is not going to elect a Socialist from Vermont as President.   Not today, not in my lifetime, not in yours, either.

It is a nice fantasy, but it ain't gonna happen.   Let's be realistic here.

Oh, wait - you really think a majority of Americans will vote for a Socialist?   You need to get out more.  You see, the far rightwing nutjobs in this country are a minority - as is the far left.  The majority of people in the USA are middle-class and middle-of-the-road.  They don't want to rock the boat that much.  They vote for the candidate who seems the least extreme.

I had friends who voted for Bush - twice.   When I asked them if they were voting for John McCain, they said, "Hell, no!" and the reason why was Sarah Palin.   They voted for Obama not because they were Democrats or Liberals.  They voted for Obama because he seemed a lot more rational and middle-of-the-road than the crazy show at the McCain/Palin camp.

If the choice was Saunders or Jeb Bush, I can guarantee you my friends (and the majority of Americans) would vote for Bush.   He seems more middle of the road in comparison.   But if the choice was Hillary or Bush, she would likely win.   You can decry this as "unfair" and all, but it is the honest truth, and the polls back this up.   And no, the polls are not wrong in this regard.  Sanders has no hope of being elected President.  The most he could hope for is to run as VP and then hope....... well you know.

What could happen, though - and has happened in the past - is that Sanders could run as an "independent" (indeed, he is registered as such) and act as a "spoiler" and allow a Republican (likely Jeb Bush) to be elected.   Yes, Jeb will get the nomination, once GOP silly season is over.  You can bank on that.

You see, there is huge precedent for this.   Bill Clinton was elected, not because he beat George Bush by a popular vote, but because a fellow named Ross Perot ran as a third party candidate and siphoned off enough GOP votes to allow Clinton to take many key States.   Third Party candidates just act as spoilers.

That was probably before you were born.  But you may remember the Bush v. Gore election and the debacle in Florida back in 2000.   Some folks say the Supreme Court messed that up.  Others say Dick Cheney and his minions were at work.   The God's honest truth is, though, that a third party candidate named Ralph Nader is to blame.   If all the Nader voters in Florida voted for Gore, he would have won that State, and won the election.

And then we would not have invaded Iraq, and ISIS likely would not even exist.  Hell, 9/11 might not even have happened, if Gore was at the helm.   We'll never know.

But some folks thought, seriously, that a guy who wrote a book about cars was qualified to be President of the United States.   Why did they think this?  They were young.  They were naive.  They though they should vote for the candidate who thought what they did, rather than the best candidate who had a chance of winning.

It takes political maturity to realize that there is no such thing as a "perfect candidate" unless you yourself are running.   Is Hillary perfect?  Hell, no.   She has some personality issues.   She's done a lot of weird things over the years.   And we know about this because she has lived almost her entire life in the media spotlight and in public service.    Do I agree with everything she says?   Hell, no.   But I agree with her a lot more than I do with Donald Trump or any of the other 12 munchkins the GOP is touting for the office - some of them having never served in public office.

So yea, Bernie Sanders is a nice guy and all.  And he believes in what he believes in.   But the majority of Americans aren't going to vote for him - just accept that and move on.   If he runs as an independent, it could mean a disaster for Hillary.   And that would be a disaster for your legalized marijuana, your medical care, your student loans - a whole host of things.

Oh, yea, the protest vote.   You're going to vote for Bernie Sanders as a "protest" to "show those fat cats how we really feel!"   And they will chuckle, as your 3% of ballots cast force Hillary to lose Florida and a couple of other swing States.   But no, they won't be shaking in their boots over your protest vote.  Grow the fuck up, for chrissakes!  Protest votes are for losers.

Now, on the other hand, if Donald Trump decides to run as an independent, that would be really, really sweet.   Because the far-right nutjobs would vote for him and take away enough votes from Jeb Bush so that he would lose Florida and a couple of other important swing States - insuring a Hillary victory.  Let's just hope that happens.

There is a LOT riding on this next election.  Don't fuck it up by being an idiot.  And I say this because we see what is going on, on college campuses today with these idiotic protests and "safe space" nonsense.   It seems plausible that a lot of you might be tempted to vote for Bernie Saunders.   Not only will you be throwing your vote away, you'll be insuring a GOP victory - and a lot of what you have fought for in the last eight years will be swept away in a matter of months.  And I am not kidding about any of this in the least.

Yea, I know this.  Because when I was your age I was an idiot, too.  I voted for John Anderson.  What the fuck was I thinking?   I wasn't!   Reagan would have won without Anderson as a spoiler candidate.   However, Carter would have taken quite a few more States, had Anderson been out of the picture.  It would have been a much closer race, rather than a landslide for Reagan.

Third party candidates are just spoilers!

EDIT:  It might not be Jeb Bush.  It could be Rubio.   Is there really a difference?  Of course not.

Sneaky Billing Practices - Modem Rental Fees.

Should you pay a monthly fee to rent a modem that costs less than $100?

I recently was viewing my AT&T bill and noticed it was $13.30 higher than normal.   I went on the website to check what was going on.   It seems they decided to start charging me $7 a month for "equipment rental" for my UVERSE modem.   What the heck?

When I returned from vacation, both my UVERSE modem and NetTalk DUO were burned out - no doubt the victims of a power surge (either a lighting strike or a power interruption).   AT&T sent over a technician who installed the new modem (in ten seconds) and then left.   Nothing was mentioned about there being a charge for this service.

The original modem was free with the setup of the service.   There were no monthly "rental" charges.  Now, since the modem was replaced, I am told I have to pay a monthly rental fee.

No doubt, buried in the "Terms of Service" there is some boilerplate language to this effect.  I will have to check on that.

Now, a lot of people would say, "Gee, Bob, it's just $7 a month!  Why bother with this sort of thing?"   But as I have noted before, the biggest single hole in your budget is recurring subscription charges and over time, you end up with subscription creep as these charges get larger and larger, and subscription fatigue as your monthly bills start to escalate.   $7 a month is a 12% rate increase, all without having to enact a rate increase.

Under my existing contract, the modem was free.   Since I had it replaced, they now charge $7 a month.   As an Electrical Engineer who has written a number of modem Patents, I can tell you it is not that difficult for a service provider to disable a modem remotely and then tell the customer it is "broken".   This sort of thing is ripe for fraud.

I contacted the billing department and they issued a credit for $13.30 immediately ($7 for one month rental and $6.30 for a partial month).   However, they indicated they could only refund money on the issued bill and could not take this recurring charge off the bill.

The two options, I was told, was to either keep paying the $7 rental fee, or pay a one-time purchase fee for the modem.  I was transferred to a "specialist" who informed me that AT&T no longer sells the modems.  So unless I bought a third party modem, configured it myself (which I am sure AT&T would not go out of their way to help with) I am stuck with this charge.

I checked online.   It seems that AT&T will not support third party modems, although they used to sell the modems to customers.   Today, you have to use their modem, and you have to pay the rental fee.  Period.  This amounts to a rate increase, slammed to the customers.

AT&T is not alone in this practice.   Time Warner was recently sued for "slamming" a $3.95 rental fee on existing customers.   As the attorney in that case noted, people don't notice these small fees, taxes, and whatnot added to their bill, and often just pay it without thinking.  Over time, a $39.95 a month bill morphs to $49.95 to $69.95 and eventually to over $100 a month.   It is the old slow-boiling a frog trick - you raise the temperature a little bit at a time and the frog won't jump out.

Of course, as a consumer you do have choices.   You can try the competition, or you can choose simply not to consume.   At the present time, having a business (even part-time) I have to have reliable Internet service in order to be able to upload documents to the Patent Office.   It would also be nice to be able to stream Netflix, but that is not as important, nor is it like oxygen.  We lived without streaming for years, and we could learn to live without it again (and in fact, it might be an improvement to our lives!).

The competition is limited.   We have Comcast Cable (now called Xfinity - who comes up with these names?) and no one has nice things to say about Comcast, of course (1.1 stars on Google!).   They offer promotional come-ons, such as $24.99 25 Mps service (about three times faster than UVERSE).   But once again, they have a $10 a month modem rental fee - the highest I've heard of so far.   Some bright young MBA no doubt came up with this modem rental fee business.  He will be the first one up against the wall when the revolution comes.

In addition to the modem rental, there are "taxes and fees" which are not enumerated.  Plus an installation fee of $50 or so (it could go as high as $500, in some instances).   So the "promotional" rate could be as high as my current rate plan.   Once the promotion is over, the base rate goes to $66 a month, plus modem rental, "taxes and fees" etc. or close to $100 a month.  OUCH!

This takes us to another strategy, of course, and that is the constant-cancellation model.   As I noted with Sirius XM, if you sign up for a $5 a month promotional rate, you can get the service for cheap, so long as you cancel it before the rate goes to $17.95 a month.   Then you wait a month, they send you another promotional offer in the mail, and you start over again.   This has to be a staggeringly expensive way to do business, as each transaction requires a half-hour call-center call for what is in effect a loss-leader transaction on a dying business.

But some of my neighbors play this game with television and internet.  They go with UVERSE and DISH (as a package) for 12 months, and once the promotion is over, they unplug and then go to COMCAST and XFINITY for the next 12 months - each time, paying the low "promotional" rate.   By constantly cancelling their service, they get the best rates.   And as with Sirius XM, if you do cancel, they send you to a "cancellation specialist" who then makes you a low-ball offer to keep with the service.

This is a staggeringly inefficient way to do business!   Techs are shuttled back and forth to connect and disconnect and do installs and whatnot.  Equipment has to be picked up or abandoned.   Cables have to be routed, installed, and then ripped out.   It is, to say the least, idiotic.    Wouldn't it be better to offer a lower rate and retain customers?

This was my philosophy as a landlord.  Most landlords increase rents every year - to the point where the tenant decides to move out to a cheaper place, or to buy a house (by raising rents, you made this decision easier for him).  But I always kept rents flat (after all, I had positive cash-flow, why raise them?) or if I had to (due to tax increases) kept rent increases as modest as possible.   The result was, tenants who stayed for five years or more, and were maintenance-free, low-hassle, and low-cost.   The damn thing was on autopilot.

But, it is like my previous posting on scalpers.   The cable companies and AT&T are not going to change their practices in my lifetime.  So railing against them is futile.   You do have choices, however.

There are other vendors out there.  For example DishTV offers Dishnet, but the data rates are limited, the caps are low, and the service cost is pretty high.  Ditto for Hugesnet.

I do have a Verizon "hotspot" which is a cellular device.  It is a cell phone without a display, basically.  (Most cell phones can be used as hotspots, too, but there are pretty steep monthly fees and data charges).  You pay $X per month, and you get internet service (wirelessly) through the device, up to the data cap limit (based on how much you pay).   The data rate depends on signal strength.   In better areas, I found it could stream video, but whether it plays an entire movie on Netflix, I don't know.  I think, over time, perhaps the wireless carriers will expand their networks and this could be competitive with wired approaches.   But for the time being, it is only practical as a mobile solution and could put wired companies out of business.   But that is in the future.

As I noted in my Scalper posting, we always have the final option:  to consume less.   Do I really need Internet service?   No, not really.   It is handy to have a fast internet connection to upload and download data for work.   But I was able to use slower connections, including WiFi hotspots, while on the road.  And funny thing, while on the road, I was more relaxed, not being plugged into the Internet all the time.

And as I lurch toward retirement, I can see a time where maybe I will sell my PC computer and maybe once a week, ride my bicycle to the local cafe and use their WiFi to erase all my e-mails, or perhaps look on line for things I might need.   It would be a lot cheaper and a lot less stress.

You see, I find the Internet - like cable television - to be less and less enjoyable over time.   It has become a sewer for the most odious of people on the Left and Right, as well as the sort of place where all sorts of bad things happen.   Nothing good ever came of Facebook, Twitter, or whatever.  On the other hand, people have lost lives, jobs, and careers, over the nonsense that goes on there.   Unplugging from the media is always a good idea.   And the Internet has become media.

It is hard to imagine, of course.   But then again, over a decade ago, the idea of people unplugging from Cable TV was unimaginable.   When I gave away my television to my neighbor back then and told her I was unplugging from Cable, she was appalled.  I might was well have said I was joining Al Qaeda.

But maybe unplugging from the Internet will be the next big thing - in a decade or so.    And maybe the world would be a better place for it.   We are too connected today, and I am beginning to think that the Internet, far from being a savior of mankind, will be its ultimate downfall.

UPDATE:  These sneaky billing practices do have one positive aspect - they force us to look at our bills and shop around.   Since I spend the months of August and September on the road, one thing I might try is to disconnect UVERSE when I leave (saving two month's service, or over $120) and then sign up anew under Mark's name, or sign up with Comcast.   Then next year, repeat the process.  Since you are constantly getting the "introductory" pricing, you may come out ahead, playing one company off against the other.

One thing is clear:  With more cord-cutting going on, and more and more people streaming videos, the ISPs now realize they control the gateway to the home, and are pricing the service accordingly.   When I first started out here with AT&T (then Bell South) in 2008 my Internet AND Phone service was as little as $21 a month, combined.   Today, these charges are about three times as high, while inflation has remained relatively flat.

One downside to the "constantly cancel" strategy is that (1) the telcos and cablecos will catch on to what you are doing and stop making discount offers, and (2) with each new contract, you are signing on to the new ToS, which means you may lose "legacy" privileges, such as no modem rental fees, or no data caps.

Ultimately, not consuming at all, or consuming far less, is really the only weapon you have in your arsenal.  Streaming television seemed like a great, low-cost alternative to cable - until the ISPs started raising their rates!