Wednesday, July 22, 2015

The Lessons of Adobe


CPM, IBM, WordPerfect, Lotus, and now Adobe - companies or products that once dominated the computer world, but were quickly relegated to marginal status.

Adobe is a company whose products used to dominate the computer graphics business.  If you wanted to print something on your HP laserjet, you have to have Adobe PostScript drivers installed.  If you wanted to play any kind of animation over the Internet, you needed Adobe Flash Player.  And if you wanted to create graphical documents you needed Adobe Acrobat in order to create, modify, and read .PDF docs.

But over the years, things have changed.   The marketplace abhors monopolies, and Adobe, once the "go to" place for graphics, is seeing its market share slipping.

I am sure some would argue that their products are still in wide use.  But the beginnings of the end are already in sight.

In the last few weeks, both Google Chrome and Mozilla Firefox have blocked Adobe Flash Player as being so buggy and vulnerable to attacks as to be utterly unreliable.   I uninstalled flash player from all of my computers and you know what?  I don't miss it a bit.  Oh, sure there are a few "legacy" sites out there that still use flash.  But for the most part, you won't notice it not being there.   And you will notice the sites that have flash animation now load faster.

I suppose we should have seen the writing on the wall when Adobe started asking us to update Flash Player on a daily basis - each time asking us if we wanted some crappy "virus protector" (that other virus protectors recognize as a virus!) created by some guy who shot his neighbor in Belize - and making us use negative option to opt out of it.   It was cheezy and sleezy and came across as some sort of come-on from some clown outfit.  How the mighty had fallen.

Adobe Acrobat is OK, I guess.  I bought one copy a long time ago.  Since then, you can download version 8.0 for free online, and it works pretty well.   Some government agencies require I submit documents in PDF format, and as such, Adobe has to tolerate some piracy in order to have their standard adopted by Federal agencies.   This means, of course, there are a plethora of programs that will read and create PDF documents - all for the low, low price of free.

And meanwhile, Adobe's free "Adobe Reader" gets worse and worse and crappier and crappier.  I finally uninstalled it, as it was just hijacking my documents away from Acrobat 8.0 where I wanted them.   And the latest version of reader wants to talk to my smart phone, which I don't own.

The point, however, isn't that Adobe is a crappy company or has shitty products.  The point is, what you think is a class leader in the tech world ends up on the trash heap in only a few years or decades.   And this means investing in tech is a dodgy deal - you can never tell when a company that is on top will end up on the bottom.  And in every situation, all the pundits would say, "That company can never fail - they have a monopoly on the market!"

But monopolies are exactly why they do fail - even if it takes decades.  IBM owned the computer world for decades.  But a mere toy - the "Personal Computer" ended up being its downfall - ironically the iteration that they designed , the "IBM PC".   WordPerfect owned the word processing field for many years, but within a few years of WORD for Windows being bundled with that O/S, well, it went away in a hurry.  Lotus 1-2-3 was the last word in spreadsheet computing for DOS systems.  Today, it is a trivia question for oldsters.

And so on and so forth.  Technology changes, and often companies fail to catch on to these changes.  Microsoft fumbled with music players, and then with cell phones.   They still command a big chunk of the operating system world, but for how long?  Does anyone really like Windows 8? 

Apple has finally cracked more than half the smart phone market, while pulling in a staggering 94% of the overall profits, according to a recent Wall Street Journal article.  That's great for Apple, but it illustrates that charging $650 for a phone is a wildly profitable business.  Samsung charges about $150.   Where does the other $500 go?   And for how long will people pay 3-4x the cost of a phone?  Maybe forever.  Maybe not.

So what does a company have to do in order to stay on top in the tech world?  I am sure that is a question being asked at Nokia, Motorola, Blackberry, and Ericsson these days.   I think the answer is twofold.  First, you have to stay on top of the technology - and either lead or quickly follow to keep up with new developments.   Second, you can't try to control or corner the market - too much.  The market abhors monopolists, and eventually tears them down.

It will be interesting to see what happens to Adobe's stock price.  The stock has shot up in recent months, to over $80 a share, with a P/E ratio of over 110, and of course, no dividends.  Some are betting that Adobe's move to "creative cloud" computing will drive profits upward in the near future.  Maybe this is so - and products like Flash and Acrobat will just fall by the wayside and the company will move on to its "cloud" customers (which won't include me, I am guessing).

Or maybe people will gravitate toward other products.  Frankly, the analysts expectations for further price rises sound like so much gobblygook to me.   Increased revenues and profits are fine and all, but with a P/E ratio of 110, this still isn't a great payback for the investor.  In other words, the stock is overpriced.

In a way, it reminds me of the fate of IBM.  IBM is still around, of course, but people are no longer fearful of "big Blue" anymore.   They have reinvented themselves as a software "enterprise solutions" company and for a while there, were quite profitable at it, too.   Maybe Adobe is headed the same way.  The bottom line is, it is no longer a software company.  But maybe the era of software - as a product - is coming to an end.

After all, if the product is "free" how are you going to make a profit on it?

Pre-Paid Credit Cards - Worse that Worthless?

Are these prepaid debit cards of any use whatsoever?  I don't think so.

If you spend any time at Wal-Mart or even the Dollar Tree, you'll see racks of these prepaid debit cards, usually VISA or MasterCard.   Are these a good deal or what?  Well, the first thing you might note is that they are being sold at places than pander to the poor, so you could just guess they are a "poor" deal and be done with it, and 99.9% of the time, you'd be right.

I bought one of these cards ($1.88) recently to try it out.  We are traveling for a few months, and those conniving bastards at Sirius XM sent me an offer for five months of XM radio service for $20 (which is about 1/5th the normal price).  When driving across the Dakotas, having satellite radio might actually make sense.

But since the conniving bastards at Sirius XM use negative option marketing techniques (which cost them more money than they make for them) you have to call and cancel the service, or they "automatically renew" as a "convenience" for you, at the regular rate of $18 a month.   The last time I used the service, I sent them a money order, so they could not charge my credit card.

This time around, I thought I might try one of these disposable credit cards and see if that worked.

It didn't.

When I tried to sign up for the service using the card, it was declined.  Reading the fine, fine, fine print (always a sign of a ripoff) of the card agreement, I realized that the pre-paid credit card could not be used for "certain transactions" such as online purchases from some retailers.  Also, some retailers won't accept these cards, particularly if they are negative option type retailers who want to suck all the money out of your credit card.  And hey, they can't do that with a disposable credit card, right?  Sort of spoils all the fun!

So, the idea of using one of these cards to avoid negative option antics is outdated.   They won't let you, so just forget about it.

And as a regular credit card, it pretty much sucks.  You have to pay $1 to $3 to get one, and then $3 a month to keep it, unless you put $500 to $1000 a month into it, for example, by automatic payroll deposit.   If you are dirt poor, have shitty credit, and cannot get a credit card any other way, this might be an option for you.   If you have two nickels to rub together and have a credit score over 500, chances are, you have other options - such as a debit card from your local credit union.

There are numerous other problems with these cards, and if you go online and read the complaints, most are user-generated problems.   As I noted in the past, one problem with debit cards is that a merchant can put a "hold" on your card which can tie up your money for days at a time.  One Chinese restaurant put a series of $15 "holds" on my debit card once, when I was younger, resulting in my rent check bouncing.  The merchant - who was a nice lady - kept swiping the card over and over again and saying, "card no work!" and each time putting  another hold on my account.  When her son came to balance the accounts at the end of the week, the actual $15 charge was made and the holds released.   But in the meantime.... well, ouch.

If you are poor and have marginal funds in your account, such holds could be a problem - and it is a problem mentioned on consumer complaint sites.  However, this problem applies to all debit cards, not just these pre-paid kind.   So you have to get your financial house in order and your shit together and have a balance in your account, if you want to use a debit card.  If you want to suck the balance dry on a regular basis, it will be problematic.

While most of these cards allow you to check the balance online or by phone for free, a balance check at an ATM may cost you a buck or two.  Throw in the $3 a month fee, and we're talking some serious change for a person with limited income - enough to buy lunch once or twice a month.

In the past, some have used these cards for anonymous online transactions (translation: ordering porn from Russian websites, online gambling, or the like).   The idea was that the card was "anonymous" and could not be traced back to you.  Maybe in 1995 this was true, but today, in the post 9/11 world, you will have to supply your name and address and social security number (!!) in order to activate the card.  So these cards are not even of use for such quasi-legal purposes.

Note also that you are liable for fees charged to the card, including the $3 a month fee.  So if you just spend all the money on the card and figure your end of bargain is done, guess again.  Unless you go online (or call or write) and explicitly cancel the card, the $3 a month fee will keep being charged and you will get a bill when the balance goes negative (and perhaps additional fees for having a negative balance!).

So, what do I do with this card?  Spend it on gas money until the balance is $3 and then go online and cancel it, and remember a valuable lesson:  A lot of shit that is marketed to the poor is a poor bargain in every sense of the word.   You are better off just avoiding bargains aimed at the poor, and when in doubt, simply use this as a filtering mechanism to avoid shitty deals.

And as for XM radio, I wish they would just come up with a rational pricing scheme instead of resorting to trickery.  I mean, if they just signed people up online at a rational price, they could fire the hundreds and hundreds of call center people and "cancellation specialists" needed to prop up their tomfoolery and trickery.

But then again, these marketing types just don't get that.   Well, they were dumb enough to pay millions to Howard Stern, weren't they?

Wednesday, July 15, 2015

Amazon Resorts to Hucksterism

The entire point of buying things online is defeated when you "shop".

Amazon is losing money.  And that is not a good sign.  After all, you'd think one of the world's largest online retailers should be making a bundle, right?  Well, last year, it made 18 cents a share, so I guess that's something.  But at today's share price, that is a P/E ratio of 2570, which is staggering.   By the time Christ comes back in 2570 years, you'll have made back your investment in Amazon stock, at this rate.

So, they have to gin the numbers somehow.   Just selling stuff online isn't very profitable.   Why not take a page from WOOT! and offer "limited time specials" and induce people to buy things they really don't want or need?  At these prices, you can't afford not to buy, right?   (just in case you missed school, the correct answer is "wrong").

It is bad enough that Amazon is pushing this lame "Prime!" deal, where they try to trick you into signing up for a monthly subscription fee, in order to "save money" on things you buy at Amazon.   Of course, the gag is an old one - rake in subscription fees from folks who don't notice small charges on their credit cards, and of course, use negative option to make it hard to un-subscribe from these deals.

These sorts of shenanigans are what is making me less and less inclined to buy on Amazon.  eBay already has sort of burned its bridges with me - you buy things there, you basically are taking a 50% chance you will never get the item, or the item will not be as described - and you will have no recourse whatsoever.  PayPal has similarly shot itself in the foot, by trying to trick people into signing up for PayPal credit cards by making the checkout window confusing and hard to use.  eBay and PayPal are splitting up, which is not a sign they are both doing well.

At least Amazon was reliable and the prices were reasonable.   What is wrong with that selling model?   Instead, we get hucksterism.

And no, things sold through hucksterism are never a good deal at all, period.

Why is this?   Well, as I have noted time and time again, good deals present themselves.   A solid product at a good price doesn't need hype to be sold.   It sells out in short order.   On the other hand, marginal products at iffy prices require a lot of flim-flammery to sell.

Will someone get a "good deal" at Amazon's "Prime Day"?   Maybe.   Someone will crow they bought a $599 television for $299 and "saved" $300.   Of course, as we have talked about here, time and time again, that "savings" are what you put in the bank, not false "discounts" from arbitrary "manufacturer's suggested retail price" numbers.

So no, they didn't "save" $300.   If they did, they would buy 1,000 of such television sets and re-sell them on eBay for a $300 profit each and make $300,000 in one afternoon.   The reality is, they bought a $299 television, and we know this, because that is the price they paid for it, and only a fool would pay more.

It is sad that Amazon has gone this route.  They were sort of one of the good guys on the Internet, offering decent products at reasonable prices, as well as a great resource for online e-readers.  Perhaps the rise of the iPhone and iPad are cutting into Kindle sales and e-book sales at the site.   The iPad has already killed off the Nook, apparently.

But as this latest venture isn't a move in the right direction, I think.   It is just a descent into retail hucksterism hell.   And sadly, very few companies turn around once they go in this direction.   There is apparently new management at Amazon, and their ideas are more about how to screw the consumer than to just offer decent products at decent prices.

The are no "bargains" on "Prime Day" - and no, I will never, ever sign up for "Amazon Prime" no matter how they try to trick me into doing it.

Is There a Difference Between the Parties?


A reader asks why I am not a Republican.  Let me think about this....

A reader writes:
"Given how many points I agree with you on, I was surprised that you vote Democrat. This causes some dissonance for me as I believe I am motivated by the greater good."
An interesting question.   But first, we should ask ourselves, is there really any difference between the two parties?   Other than style points, that is.

Both parties pander to the extremes in their ranks in order to "get out the vote."   The difference is, the GOP panders to a much more odious extreme.   Although both extremes, taken far enough, eventually merge.

But for the most part, an extreme leftist wants to force me to recycle.

An extreme rightist wants to hang me from a tree.

As for the rest of "politics" there isn't much difference, as exemplified by "Liberal" Obama pushing through a trade agreement that is lauded by... Republicans.

Hillary would have done the same thing.   Clinton DID do the same thing.

Economically speaking, there is little difference between right and left.    The right whines about welfare and all that, but then again, the farmers love food stamps, as does Walmart (where Hillary was on the board) and McDonald's.   As I pointed out in another posting, these forms of "welfare" are corporate welfare, as they subsidize wages and allow employers to pay less.

It is no coincidence that both Walmart and McDonald's, on their "employee" websites, suggest that employees apply for food stamps and other government swag.

Leftists argue we should pay a "fair wage" of $15 an hour.   If we did (and some cities are) then people would no longer qualify for food stamps, obamaphones, section-8 housing, etc.

These "poor" people would even start paying taxes!   And you know what happens when people start paying taxes - they turn Republican.

I am not sure the leftists have thought this through all the way
________________________________________
But I guess the greatest reason I am not a fan of the GOP is that they are so anti-intellectual. A party that promotes creationism and primitive thinking is not for me. A party that thinks repeating the word "Benghazi!" over and over again is a "logical argument" is not for me. A party that thinks that having sex is a "sin" is not for me. A party made up of people who talk like illiterate hillbillies is not for me.
__________________________________________

One reason our economy is doing as well as it is, is that wage subsidies have allowed wages for unskilled labor to drop dramatically.  Even union wages are lower - paying today what they did in 1978.   As a result, our manufacturing costs are only slightly above that in China, and much less than Japan and Europe - which is why all the car makers in the world have plants in two countries (other than their own): US and China.

So, all this hue and cry about "welfare" by the Right is just a smokescreen.   I hear rednecks all the time saying "Obama gave all my money to those n****ers!" but in fact more white folks collect welfare than blacks, and of course, the redneck I am talking to doesn't pay any taxes at all (in terms of Federal income tax) but only medicare and social security taxes.  Oh, and the GOP wants to cut his Social Security to "save it" because it is "in danger."

The GOP has chosen to stoke the fires of hate, divisiveness, and fear as a means of getting elected.   And they use this to get poor people, who have nothing to be gained by tax cuts for the top brackets (or eliminating the estate tax) to vote for them.

There are other ways to get elected.

Or do you think Sarah Palin, Donald Trump, and Ted Cruz are examples of great GOP thinkers?

For example, today, the GOP is stoking the fires of FEAR by saying crazy things (in local newspapers) like "Baptist Ministers will be forced to perform gay marriages, or their church will lose its tax exemption!"   This is, of course, nonsense.   The Supreme Court decision allows for same-sex marriage, but does not mandate anyone (outside of the government) perform it.   The point of same-sex marriage is not to get the church to recognize the marriage, but the IRS and Social Security Administration to recognize it.

The GOP knows this, but stokes the fires of fear anyway.  And some nutjob, like the one in South Carolina will shoot up a gay bar before this is all over (as happened during the Olympics in Atlanta, when a lot of hate-language was being bandied about).   And yes, this is as irresponsible as the anti-police language being bandied about these days, which has resulted in assaults and murders of police officers.  Hate is hate, period.

The other thing that bothers me about the GOP is that they believe that check cashing stores, payday loan places, and other rip-offs of the poor are "legitimate businesses" that should not be regulated.

The first item on the agenda, if Bush is elected, is to wipe the new consumer protection agency off the face of the earth.

Imagine the gall of telling people they can't loan money at 300% interest!   Spoils all the fun!

But I guess the greatest reason I am not a fan of the GOP is that they are so anti-intellectual.    A party that promotes creationism and primitive thinking is not for me.  A party that thinks repeating the word "Benghazi!" over and over again is a "logical argument" is not for me.   A party that thinks that having sex is a "sin" is not for me.  A party made up of people who talk like illiterate hillbillies is not for me.

And this is where the GOP has failed in recent years.   A friend of mine who was a staunch Bush supporter told me he voted for Obama - twice.   Why the big switcheroo?   Simply stated in two words:  Sarah Palin.    A guy with a Masters degree in economics (my friend) couldn't bring himself to vote for such an utter idiot.   And when he looked around and saw who else was running under the Republican banner, well, he got scared.  Very scared.

Sadly, this time around, we see the same old collection of racists and yahoos coming out of the closet to run.  And the longer the primary season is, the better it is for Hillary.   Every night, I am sure she prays that "The Donald" will run as an independent.

The Democrats, on the other hand, only have to worry that Bernie Sanders might say something too leftist.   But if he does, he'll use big words that the plebes won't understand anyway.

The leftists in the Democratic party think Hillary is "too conservative."   That's all the endorsement I need!

Friday, July 10, 2015

Spolier Alert!


Third party candidates don't get elected.  They do insure that the candidate with opposing views to their own, are.

Third party candidates are nothing new in American politics.  Immature emotional thinkers decry the lack of viable third parties and point to parliamentary governments overseas as examples of better systems of democracy.   Unfortunately, these are often bad examples, as fringe candidates and fringe parties can end up spoiling elections as unsavory coalitions are made so that one party can assume power.   As part of these coalition agreements, often bizarre and harmful concessions have to be made to some splinter party.

We have the same problem in this country, except that third party candidates usually end up electing their diametrically opposed political opponents, rather than strengthening the candidate with views more similar to their own.  In short, they are spoilers.

Teddy Roosevelt ran on the "Bull Moose Party" platform in 1912, after having served two terms as President.  He siphoned off enough votes that it insured a Democratic victory for Woodrow Wilson over the Republican Taft.
In an era of party loyalty, Roosevelt failed to move enough Republicans to vote a third party ticket. He did win 4.1 million votes (27%), compared to Taft's 3.5 million (23%). However, Wilson's 6.3 million votes (42%) were enough to garner 435 electoral votes. Roosevelt had 88 electoral votes, and Taft had 8.
In other words, had Teddy stayed loyal to his party, Taft would have won.  Instead, he insured the election of the candidate least aligned with his own party and own views. 

In our modern era, we have seen this effect twice, and are poised to see it a third time.  When Clinton went up against George Bush, third-party candidate Ross Perot acted as the spoiler for Bush, siphoning off just enough votes to insure a Clinton victory.   Perot had no chance of winning, and his views were more closely aligned with Bush.  He insured a victory for his opponent.

The Bush-Gore debacle illustrated exactly how slim election margins can be and how 3rd party candidates can skew elections.   Ralph Nader, whose only credential is writing books on auto safety, decided to run as a 3rd party candidate, even though he never served in any other elected office.   He had no chance of winning, of course.  But he siphoned off enough votes in Florida to turn that State for Bush, and thus the election.

You can argue all you want about how "unfair" the vote count was in Florida - the bottom line is, that if the Nader voters went for Gore, he would have been elected President.  Third party candidates are just spoilers.

We are poised to see this happen yet again.  Bernie Sanders is running for President, as a Democrat, even though he is not affiliated with the party as a Senator.   Best described as a socialist, he is the darling of the far-Left.  Since he was elected to the Senate as an independent, it is not farfetched to see him running for President as an independent (or affiliated with a fringe party) when he loses the Democratic nomination to Hillary (which he will).

And I predict this is how it will play out.  And once again, Florida will be the key.   After screwing around with fringe candidates themselves, the GOP will nominate Jeb Bush.  Bush will have the home-state advantage in Florida, and the election there will be close.   A good turnout by Democratic voters could turn the State for Hillary.   And once again, on election night, we will have a hair-raising photo finish.   But since Sanders will siphon off just 1-3% of the vote, the State will go to Bush, as will the election.

In his first year in office, Bush will dismantle Obamacare, eliminating health insurance for millions of people.  Emergency rooms will be flooded once again with the uninsured.  The poor, unable to afford cancer treatments and other life-saving care, will be left to die. 

And a lot of other odious things will be passed by the Republican controlled House and Senate - and passed into law by President Jeb Bush.   Consumer protection agency? Gone.  Banking regulations?  Gone.  Stock market regulations?  Gone.

But you can say "Hello" to the Confederate flag again, as well as a "Marriage Protection Amendment" to the U.S. Constitution. 

That, in short, is the GOP strategy for 2016.   In recent weeks, it seems that America has gone very liberal.  But to some extent, this could be a ploy to generate backlash and resentment in America's heartland.  The GOP needs to get people riled up - about immigrants and social issues.   Obamacare isn't selling well as an issue, as more and more people are getting on it, and realizing that having health insurance for the first time in their lives is a pretty neat thing.

So, you use "social issues" to rile up the base.   And you attack Hillary with vague claims of malfeasance.  And a third party candidate like Sanders, well, he is just icing on the cake.

What puzzles me is why these third party candidates run at all.   They must realize that their only effect is to get the opposition candidate elected - one with views extremely opposed to their own.  Wouldn't it be better to have a candidate whose views are only slightly different that yours, elected?

Sadly, it seems they never make this calculation.  And usually because they are all first-class narcissists.

Let's hope Bernie doesn't make that same mistake!


Why I Am Not (Too) Worried About China and Greece

Should you be afraid of a meltdown in the Chinese Stock market or Greece leaving the Eurozone?  Maybe.

In the fear media today, gloom-and-doom talk about the meltdown in the Chinese stock market and the implications of Greece leaving the Eurozone.   Both events, we are told, will drag down the US stock market and cause it to crash.

Maybe.  Actually, a lot of voices are saying otherwise - that while we will take a hit as a result of these events, they will not necessarily hurt the US economy.  In fact, if the market goes down (as it has) it may be a good time to buy stocks or mutual funds, as many are at a 6-month low.

But why I am not (too) worried about these events?   Well, my direct exposure is limited.  I own a few thousand dollars of a European bond fund.  That will take a hit, to be sure.   And I am sure some of my mutual funds are invested in some "emerging markets" such as China.  But since I don't have all my eggs in one basket, it won't take me out entirely - lets hope.

That being said, I lost enough in the last few days to buy a fairly nice car.  That is the problem with having money in your IRA or 410(k) - you have to just take your lumps and not panic.  I didn't panic in February 2009, I'm not going to panic now.

The Chinese stock market has been poised for a "correction" for more than a year.  In the last 18 months or so, the value of Chinese stocks went up at a staggering rate - like Condos in South Florida in 2007.   The Chinese have a lot of money to invest - their personal savings rate is staggering.  China holds a lot of US Government debt (and no, despite what radical right-wing conspiracy sites say, they cannot "call" the debt and demand payment).   They invest in everything, and in recent months, their own stock market has taken off - with people paying ridiculous prices for stocks, far beyond what their earnings and P/E ratios would support.

So a crash in the Chinese stock market was not only expected, it was long past due.   There will be a lot of losses "on paper" but only the foolish few (Motley Foolish?) who bought at the inflated prices of the last year or so will feel real pain.  Those who invested a long time ago, for the long-haul, will still be solvent.   Don't believe everything you read in the press.  The press will say how many Billions or even Trillions were "lost" but in reality, most of that imaginary market cap never really existed in the first place.

Greece is in trouble, but we aren't.  Greece represents a paltry percentage of the overall EU market (some sources say 2% or so) and the EU will do fine without Greece.  In fact, it may do far better, not being dragged down by its wayward member.   The EU is discovering what the United States struggled to understand 200 years ago - that having a central bank and a central fiscal policy is necessary to maintain a healthy economy.  When one member State can effectively "print money" through excessive spending and borrowing, it can dilute the underlying currency.

And a lot of the posturing of the Greek government is just that - posturing or political theater.  The Greek government has to appease their constituency by appearing to be holding off the evil Angela Merkel, while at the same time, coming to the bargaining table and offering concessions, as was the case today.  So we hear a lot of brave talk and meaningless referendums, followed by concessions.   It seems that maybe the Greeks really don't want to exit the EU after all.

Whatever the outcome of the Greek debacle, reform of the EU will surely occur, with better financial  checks and balances in place.  If Greece leaves, they will suffer, to be sure, trying to re-establish their own currency as well as facing imminent bankruptcy.   On the other hand a good time to visit Greece, provided desperate citizens don't take to robbing tourists to make money.

Could the same thing happen here? That is the real question.  While the national debt of Greece is 175% of its GDP, ours is hovering just over 100%, which is not good.  Worse, some States and territories appear to be headed for financial disaster.  California has a massive pension debt problem.   Puerto Rico has obvious financial difficulties.   But are these unsolvable?

As I noted in Awfulizing and Fear, I have been told since the day I was born that the economy was on the brink of collapse.  In the 1970's, we were told that the world would "run out of oil" by the year 2010.   When I went to GMI, the professors told us the era of powerful muscle cars was gone for good.   Both predictions turned out to be wrong.  In fact, a lot of these predictions turn out to be wrong - on a large scale.

In the 1970's, we were told that New York City was going to go bankrupt.   If you visited the city, you would get mugged.  Crime was rampant, subway cars were covered with graffiti and no one gave a shit.  Porno theaters dominated Times Square.  Today, Times Square is an extension of Disney World.  Things can change - and change for the better.

Fear is not an emotion to be trusted.  And when people start to crank up the fear, you should think carefully about why they are doing this.  Usually, it is an attempt to exploit you in one way or another.

Fear, however, often disguises opportunity.  When fear causes people to exit the stock market or the housing market, it is often a good time to buy.   Fear can be useful, as when people are fearful, they make stupid mistakes.  You can profit from this, if you are astute.

Monocular Vision

When all you see is tech stocks, you might think they dominate the economy.

I am staying in a hotel in Atlanta, and they give you a "USA Today" every morning for free.  It was fascinating and horrifying to read, particularly the "Money" section, as it had a monocular view of the investment world.  It reminded me of a small child, looking through a cardboard tube and seeing nothing but Apple.

The articles were all about tech companies, which for some reason includes chip makers, computer makers, software companies, and Alibaba.   Really?  An online retailer is considered "tech"?

But it was fascinating to look at - sort of like slowing down at the scene of a bloody SUV accident.   The articles, if not about tech stocks, were about technology like NEST and OCULUS.   It was an advertisement for these companies and their products.

In the "America's Markets" section, they hype a service called "SigFig" and then gathering data from the site tell us what "we" are investing in.   Everyone, it seems is buying or holding Apple, and that is the single largest stock in their portfolio!  Everyone is selling Netflix - last year's tech darling.  And everyone is buying something called "Fitbit".

This is, of course, a horrific way to invest - putting all of your money into volatile tech stocks.  And yes, Apple could be a volatile stock, if its next product is not as successful as the previous.   It certainly isn't a horrible stock, but the single largest  stock in your portfolio?   Not a smart move.

It is stock-picking at its worst - trying to "get in on the ground floor" on "the next big thing!" and hope that the product is successful and the company you picked is the most successful selling that product.   But as we have discussed before, first to market is often last in the marketplace.  So even if you could identify a product as "the next big thing!" (for example, 3-D printing) you also have to successfully identify which company is going to be the successful company selling that product.   You have to make two consecutive bets here, like winning the trifecta.

But it made me realize why so many people lose so much money in the stock market and figure that it is "rigged."   They go to USA Today for financial advice and see nothing but chatter about tech stocks.  Nothing is mentioned about the health sector, energy sector, manufacturing sector, banking sector, or anything not tech-related.   Moreover, only stocks are talked about.   It is a very narrow view of the market.

This is not to say the tech sector is bad, only that it is not the entire market.  And if your whole portfolio is based on gambling on tech stocks, you could lose a huge chunk of your investment - if not all of it - if tech goes bust, which it does, on a regular basis.   About every five to ten years, in fact.

Diversify, diversify, diversify.   If you are invested in a panoply of things, you cannot "lose it all" on one bet on technology.

But to read the paper (and watch the cable channels) you might get the impression that investing in stocks consists solely of gambling on what the "next big thing" will be.

Thursday, July 9, 2015

Cheap Loans Lead to Inflated Prices

Easy student loan money lead directly to tuition rate hikes.  Sadly, college graduates can't figure this out.


The Federal Reserve Bank of New York has said what I have been saying all along:  Cheap student loans lead to massive price increases in tuition.


When students fund their education through loans, changes in student borrowing and tuition are interlinked. Higher tuition costs raise loan demand, but loan supply also affects equilibrium tuition costs—for example, by relaxing students’ funding constraints. To resolve this simultaneity problem, we exploit detailed student-level financial data and changes in federal student aid programs to identify the impact of increased student loan funding on tuition. We find that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent. We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong. The subsidized loan effect on tuition is most pronounced for expensive, private institutions that are somewhat, but not among the most, selective.

Even if you have the most rudimentary financial skills, you can understand why this is true.   For example, you go to buy a car, but loans are not easy to get (as in many other countries in the world).  So you have to pay cash for the car.   Since you don't have a lot of cash, you can't buy a lot of car - you look for the cheapest car you can find, that you can buy for cash.

But if you have financing available, well, it is a lot easier to buy a more expensive car.  The "LE Option Package" is only $52 more a month, not $5000 more on the sticker price.  In real terms, as well as emotional ones, you end up spending more, because money is more freely available.

We also see this in the housing market.   Loans for personal residences are subsidized in a number of ways as the government wants to encourage home ownership.  Interest is tax-deductible.  Loans are guaranteed by the government.  And so forth.  As a result, interest rates for home loans are far lower than they should be - compared to commercial rates, for example.  And yet arguably, home loans are far riskier, as the borrower is likely to be an amateur, and there are a host of laws making it difficult for banks to foreclose on a property.

When loans become ridiculously easy to obtain - and the interest rates are artificially slammed down using gimmicks, then prices skyrocket.   Suddenly, everyone qualifies to be a buyer, so they buy - and the market meltdowns of 1989 and 2009 occur.   The meltdown in 2009 was much larger - in direct proportion to how much more ridiculous the loan terms were.  3-2 buydowns of the 1980's pale in comparison to the "liar's loans" and "optional payment" loans of the 2000's.

With student loans, the same effect takes place.   Parents are desperate to "launch" their children and make them self-sufficient.  There is also a lot of emotional baggage tied up in keeping their kid in the middle class, having bragging rights to other residents of Foreclosure Mews Estates, and so forth.  Kids, brainwashed from birth that college is the ticket to high living and a high income, sign their life away at age 18.

In addition, many private loans are often obtained not for college expenses, but to enhance the lifestyle while in college.   College students are no longer starving, but in fact have nice cars, smart phones, designer clothes, and whatnot.   For some, it is rich parents picking up the tab.  For others, it is borrowed money - used to maintain the appearance of wealth, as many striving middle-class people tend to do.   These kids learned the lessons of their parents - go into hock over your head to keep up with the Joneses.

Colleges have huge overheads.  Alumni donate buildings, but not the electricity to heat and cool them - nor the funds to re-roof them and remodel them when needed.   Union janitors and maintenance workers outnumber faculty 2 to 1, if not more.   Administrative staff is bloated.  Everyone is a "Dean" of something, including the parking lot.   Oddly enough, one of their smallest expenses these days is the teaching staff.  Most are part-time "adjunct faculty" or graduate students, paid little or nothing and never offered tenure.  The school's new rock-climbing wall costs more to maintain.

And therein lies another aspect - college as entertainment.   Schools are vying with each other to attract and smaller and smaller number of high school graduates.   While the "Millennials" are starting to outnumber the Baby Boomers (because the latter are dying, and the definition of "Millennial" has been expanded to encompass a larger time frame) the number of high school graduates each year is declining.  The Boomers had higher birth rate numbers - numbers which have not been matched since 1960.

So the schools offer grandiose "student centers" and extracurricular activities to attract students.  College isn't all hard work and studying, it can be fun, right?   Well, unless you are in the Engineering curriculum.  Then it's pretty much all hard work and studying (and a job at the end of the pipeline).

Another aspect that baffles me is the idea that the cost of education doesn't matter.  I met a young high school graduate the other day, and they were considering several colleges.   They gave me their logic behind each selection - the location, the reputation, the courses, the professors, the available majors, etc.  Even the rock-climbing wall was mentioned.  However, tuition was not discussed, which I thought was odd, as the various schools on the list had radically different tuition rates, some as much as three times what others were.   A private college might cost three or four times what a State school costs.

When you shop for a car, the first thing you settle on is your price range - or at least you should.  You do not make up a shopping list of "Hyundai Accent, or Cadillac Escalate, or Bentley" as it would make no sense.  If you could afford the latter you would not consider the former, and if you couldn't afford the latter, the former is a foregone conclusion.

But kids for some reason have this "Well, Dad will pay for it" mentality, or figure they will just sign more student loan debt, and figure the more expensive degree will be "worth it" as they will make three times as much money.  This is, of course, not true.

And that is where student loans come in.  Some folks protest they have "$25,000 in student loans" which is a pathetic amount of debt to worry about, even if you are working slacker jobs.   The kids who signed up for $100,000 in student loan debt -  to get the same degree as the $25,000 guy - are the real issue.  When you read these stories, you ask yourself, "What prompted them to make these poor lifestyle choices?  Why didn't they go to a cheaper school?"

And the answer is, the funny-money student loan debt, which they did not cognitively realize at the time would have to be paid back someday, took pricing out of the equation - or at least dampened its effects.

The good news isn't student loan debt forgiveness.  In fact, that would be the worst thing.   I am sure there are students today, signing loan docs and saying, "no big deal, by the time I graduate, student loan reform will make it so I can duck out on the debt!" - and people really think that way, too!

No, the good news is that I am hearing more and more about students considering college costs and more aggressively shopping on price, rather than just picking schools willy-nilly.    If more students voted with their pocketbooks, colleges would be forced to lower costs - as the law of supply and demand dictates.

Plus, we are hearing more stories of expensive outmoded institutions (usually smaller liberal arts colleges) facing struggles as their high costs are unaffordable and their outmoded educations unmarketable.   And yes, some school are starting to re-think their pricing strategies - offering lower tuition and (gasp!) looking for ways to reduce costs.

But regardless of all these external forces at work, you as an individual, are free to make better choices, smarter choices, richer choices, in deciding which school to go to, and how to pay for it.   Personal decisions you make trump just about everything.  Cheap loans or not, you can't get into trouble with student loan debt if you don't take any out - or at least minimize your exposure.  And if you are going to college, think hard about what you want to major in.  What sounds like "fun" is probably least likely to lead to a job when you graduate.


Monday, July 6, 2015

Awfulizing And Fear

Are things all that bad, or is fear just taking hold of us?

The news today isn't very good, it seems.  Wars going on around the world, acts of terrorism, businesses failing, currencies in the decline, corruption in government, assassinations, crime in the streets, riots, a younger generation that seems not to care about the values of its elders.   Where will this all end?

That indeed would be the question one would ask in 1968.   Indeed, that was a bad year, with Bobby Kennedy and Martin Luther King both being assassinated, riots at the Democratic convention, a war in Vietnam, and so on.

Or take 1973.  The Arab oil embargo doubled the price of gas overnight.  Inflation started to skyrocket.  We went off the gold standard.   And a small investigation called "Watergate" was expanding rapidly.

Perhaps 1979 is a good example.  Even and odd gas days.  10% inflation, 14% mortgages, hostages in Iran.

Pick a year - any year.   Chances are, if you read the news of that era, you could convince yourself that world was going to end, any day now.

And I am just picking some years at random here.   There have been terrorist acts, hijackings, political scandals, wars, crime, financial meltdowns, and whatnot, since the day I was born.

One of two things is going on here.   First, you could argue that world conditions have gotten worse over the last few decades and this is the new normal.   Second, you could make a better argument that bad things are always happening somewhere at any given time and since we live in the present, we tend to think our situation is particularly bad.   I would go with the second proposition.

Consider years or decades which were considered "the good old days" when things were going relatively well.   The "Gay 90's" (1890's that is) were anything but gay for a lot of people, as economic panics and recessions took place.   At the end of that era, the President (McKinley) was assassinated by an anarchist.  Scary times, no?

Or take the "roaring 20's" which were certainly better the previous decade and World War I, right?  But then again, we had prohibition, gang violence, and of course, the decade ended with a stock market crash.

The "Fabulous Fifties?"   Ask someone who had to fight in Korea - the "forgotten war."  Or the civil unrest and racial violence accompanying desegregation - troops being called out to let a little girl go to class in Little Rock, Arkansas.   Hardly a time of peace and harmony, right?  And while the economy boomed, it crashed back to earth in 1958.

The 1960's?  Well in addition to all the problems alluded to earlier, we also had the Cuban Missile Crises where everyone was convinced that World War III was about to start.  That is scary stuff.  And let's not forget the Kennedy Assassination.

How about "Morning in America" in the 1980's?  The economy recovered and the market boomed.  But then it crashed again, and "Reganomics" quickly turned into "VooDoo Economics" in short order.  A small war in Grenada, a scandal involving Iran-Contra, and of course bloody civil war in Latin America.  The real estate market crashed at the end of the decade as well.

Well, what about the Clinton era?  The longest stretch of prosperity since World War II - right?   Except that a lot of people did lose their jobs and never worked again.  The tech sector crashed, at least once.   And let's not forget the partisan bickering and impeachment proceedings against the President.

The 2000's?  The "Bush Era?"  Well, we had 9/11 two wars which have not been completed yet today, one invading the wrong country.   We ran up the national debt in an orgy of spending, and convinced ourselves that our houses were made of gold.   Oh, and the $5 a gallon gas and the collapse of the economy - again at the end of the decade.

The point is, the "ain't everything awful" crowd can always point to current events and tell you that the end times are nigh, democracy (or capitalism) is "broken", that the economic system is on the brink of collapse, and so forth.  You will never be wrong predicting gloom and doom, as every economic situation can be classified as "dire" in one way or another.

Today, we worry about the collapse of the eurozone and whether Greece will default on its debts.   We worry about Russia and Putin, and whether he will start a war over the Ukraine.   We are paranoid that ISIS will take over the world and blow up our shopping malls or radicalize our children.   We worry that Donald Trump might actually be elected President.
 
The reality is, of course, that things are not all that bad.   Yes, if you are holding Greek debt, you may lose some money.    The reality is, of course, that what this means is that your bonds may go down in value, but likely they will not evaporate entirely.   And unless you put 100% of your portfolio in to Greek bonds, this likely means you may take a hit to your investments, but will hardly end up broke.

Will they exit the eurozone?  Does it matter?   Will Greece survive one way or the other?   Likely the answer is "yes" to that last question.   The Greeks won't sit by and let their country revert to stone-age levels.  People have a vested interest in their own future, if nothing else.

Will Putin try to invade Eastern Europe?  It seems implausible, as it looks as though Russia is about to go bankrupt - a second time.   As for the Ukraine, I would give a shit if the government there was something other than a kelptocracy.

ISIS will fizzle and die - it is just a matter of when.  And the simple reason for this is that ISIS has declared war not just on the West, but on half the Arab world as well.   Once again, we will sit on the sidelines and watch Arab kill Arab - supplying just enough arms to each side to let the slaughter continue, while we pump the peninsula dry of oil.  That may sound crass, but that has been the strategy of the West for almost a century, if not longer.   See, for example, the Iran-Iraq war. 

What about North Korea?  What about it?  We've been worrying about the regimes there since the 1950's, and really not much has changed over time.   I suspect that reunification of the two Koreas will happen someday, maybe soon, and far more quickly than we imagine.   Recall that right before the Soviet Union utterly collapsed, we all thought it was a potent adversary.   It turns out to have been a hollow shell, instead.

Will global warming kill us all off and flood Miami, New York, and LA?   Probably not in the near future.   Much of what you read in the press about rising sea levels is not really based on real science.  Even the government's own websites claim that water levels will rise only inches - over a century or more.  Yet a lot of people take it for granted that most of Florida will be underwater in just a few years (which may be an intentional disinformation campaign - when Florida fails to sink, the deniers can say, "See, I told you it was all a hoax!").

But issues with pollution and climate change are nothing new.  In the 1960's, we dumped toxic chemicals directly into rivers.  Fish died - rivers actually caught fire. People toss their garbage by the side of the road.   Smokestacks belched pollution in places like Pittsburgh, PA, where you couldn't even see the city, most days.   And smog from automobiles made the air in LA unsafe to breathe.

You may remember in the 1980's the "Ozone Hole" problem - one rarely talked about today.   It isn't talked about because we stopped using Chlorofluorocarbons, and the hole has started to mend itself - which some people today are now saying is a problem!   The Ozone Hole problem illustrates a couple of things.  First, when countries get together and apply themselves to developing new technologies, great and amazing things can happen.   The Ozone Hole problem was largely fixed - or will be fixed by 2080, according to some sources.  We don't give ourselves enough credit for that.   We can manage our environment if there is political will.

The second thing to note was the doom-and-gloom predictions didn't come true.   Some claimed that even if we phased out the offending refrigerants, the hole would never patch, and the UV rays would give us all cancer, cause a greenhouse effect, and overheat the planet.  Today, as I noted above, now they are saying that fixing the hole may accelerate global warming!

We have made huge strides in pollution controls for cars.  Smog still exists in LA, but it isn't as bad as it was in the 1960's - and far better than it would be today, if nothing had been done to improve emissions for automobiles.   The improvements are not trivial, either - more than a 10:1 decrease in emissions since those "good old days" - and ironically, cars today are better, safer, more reliable, faster, handle better, and have tons more horsepower.  These are the good old days.

Trash by the side of the road is a rare sight today.  Pittsburgh is no longer enveloped in smoke.   We have improved our environment, or at least decelerated the degradation.   Positive change is possible.

And this is not to trivialize carbon emissions or global warming - which like the ozone hole, are real things (and many on the Right denied the existence of the ozone hole at the time as well!).  It is only to say that it may be possible to fix these things - and many people are taking action in that regard, including China.  If China can do it, so can we.  Great things may be possible.

And if you think about it, a lot of the strife and unrest that we see in the world is a result of positive change colliding with older traditional views.   It is like the birth of a baby - a wonderful event, even if accompanied by pain, blood, and violence.     If you connect the dots in the history of our species, it has been a continuous upward climb through the ages.   Sure, there were some setbacks - the dark ages, the 1,000 year Reich.   But enlightenment always seems to win out in the end, simply because people prefer freedom to slavery, free thought to rote learning, wealth to poverty, pleasure to pain.

Things today are not significantly better or worse than conditions a decade, 20 years ago, 30 years ago, or at any point in time of the history of the planet - for the most part.   Granted, there are obviously times far worse than today, such as World War II, or 9/11.   But even during those dark days, life still went on.   On the other hand, it is much harder to point to a period of time where things were better than they are today - at least not for long.

So why do we think everything is going to hell in a handbasket?   Simply stated, it is the nature of "the News" - which most Americans watch obsessively.   Bad news sells.  No one tunes in to hear how wonderful things are.   And it is human nature to Awfulize - talk about how bad things have gotten.  No one will bend your ear for an hour about how great things are, except perhaps me.

So cheer up.  Don't panic.   Things aren't all that bad.  We've been through far worse in the past, and it was "business as usual" the whole way.   The pessimistic view of life serves to accomplish little, and can be crippling as well.

Financial Abuse


There are many ways to be abused.  Financial abuse is one of them, and not often talked about.


On Reddit, this plea from a woman who lost her job and "just discovered" her husband ran up $90,000 in credit card debt:
1) I only recently found out that my husband has been secretly building up $90k in credit card debt. He was paying just the minimum until he could no longer do that and I found out when a card was declined. It includes medical debt for our kids. He was helping his mother out without my knowedge. Some of it was just wasteful spending. He's always paid the bills, and in 24 years we have never carried any debt before other than a mortgage, not even a car loan. Our credit rating is fantastic. So believe me when I say I had no idea.
2) I recently went back to school after being a stay at home mom and got a degree but lost my first job within 3 months. I've been applying like crazy for 6 months now with no luck. It doesn't help that I'm older and haven't really worked in 15 years. I am now working 55-60 hrs a week in retail while I'm looking, but even with those hours, the pay is not close to what I need to make a dent in that debt.
3) Our kid starts college in a month and we were counting on my income to help. We don't have the down payment for her tuition.
4) Husband refuses to declare bankruptcy because he is proud and says "it's only money" and that I will find a better paying job and we can pay it off if I put all my income to it in the next few years. Apparently, he thought our income would double when I graduated and so he just started spending it ahead of time.
I'm very depressed, very angry and at a loss on what to do.
 This is a pretty clear example of financial abuse and it happens more often than you think.   A marriage, instead of a partnership, becomes a "race to the bottom" where each partner tries to get the most out of the relationship (in terms of possessions or money) before it all falls apart.

And like with physical and sexual abuse, I believe that men are largely the players in financial abuse as well, although women can also play this game - spending a family into the poor house, while having a good time, themselves.

Living here on retirement island, I've seen examples of financial abuse.   Usually, it isn't discovered until one spouse dies, and then the surviving spouse - who did not handle the finances - discovers they are in a world of woe.

In many traditional marriages, the wife is usually 3-5 years younger than the husband.   And since women live longer than men, retirement communities tend to trend female over time.   Husbands die early, leaving the wife to soldier on with what is left of the marital assets.  Often there is little left.

What would cause people to do this?   And how can it be stopped?   Well, to answer the first question, some people use emotional thinking to self-justify whatever it is they want to do.   Others have gambling habits, mistresses, or drug problems, that they are keeping a secret from the wife.   My own father spent an inordinate amount of money on a mistress that was blackmailing him - money that was a joint marital asset.

The second question is easier to answer:  Never let anyone, even your spouse, control all the purse strings.   You should know the names and account numbers of all your investments, bank accounts, and other assets, held separately or jointly by the both of you.   You should also know the amount of debt you have, how many credit cards you have, and what is being spent, on a monthly basis.

You need to know this information for a number of reasons.  First, if your spouse dies, you need to know where all the money is and who you owe.  Many a spouse has discovered that their husband's record-keeping was less than stellar, and as a result, they had no idea about the monthly finances, how much the bills were, or who they were even paid to.   When you are planning a funeral, it is not a good time to be trying to sort this stuff out.

Second, a marriage should be a partnership, and you both should have everything in joint accounts, including your credit cards.  This idea of "her money and my money" is just ridiculous.  If you want to live that way, why bother getting married?   In addition, you really shouldn't have secrets from each other, particularly financial ones.

Third, two heads are better than one.  If the wife in the above scenario had been keeping up with the bills and investments, she would have noted the increasing debt load a long time ago and talked to her husband about it.   Or at least tried to.

But sadly, financial abusers, like physical, emotional, or sexual abusers, use financial power to intimidate or control their spouses.  In this example, the husband refuses to declare bankruptcy, putting his personal pride above the needs of his own family.   Divorce, expensive as it is, might be a better option.  It doesn't sound like much of a marriage to begin with, does it?

What amazes me, is how people can live like this for years and decades, with a spouse who clearly is selfish and self-centered, and is also abusive in this manner.   It is also hard to believe the warning signs of impending financial collapse were not seen by the wife sooner.   It doesn't sound like either husband or wife bothered to budget or live within their means - but just went out and spent money they didn't have on things they felt entitled to owning.   I am sure they both have the latest smart phones and all the cable channels, too!

If you let your spouse handle all the bills and finances, that's fine.  But you should be able to log into these accounts and figure out what is going on and where the money all is.  You should know this stuff.

Calculating your net worth (listing up all your assets and debts) on a monthly basis is one way of keeping track of this.   The Merrill Edge Net Worth Calculator, despite its flaws, can be a handy tool to see which way your financial situation is heading.  Creeping credit card debt would clearly show up on such a report.  Your net worth is like an altimeter on an airplane.  Without this piece of data, you have no idea whether you are flying high, or about to crash into the side of a mountain.

I print out a monthly net worth calculation and give it to Mark.  If I die, he knows where all the money is, what we own, and who we owe.  I also keep binders with monthly statements an information for each investment.    And when we make purchases, we talk about them jointly and reach a joint decision.  No one goes out and buys things (more than $100 or so) without consulting with the other.   It seems like such a simple thing, but I guess it eludes most people.

Thus, while it is tempting to "feel sorry" for the lady in the story above - and blame her husband for clearly abusing her financially, she does bear some culpability in this scenario, for not taking an interest in her own financial life and lifestyle.   You can't be a co-pilot in a marriage without at least occasionally glancing at the instruments!