Sunday, November 30, 2014

Anecdotal Evidence

We as humans, are storytellers, so we like to hear stories, parables, and anecdotes - and learn from them.

Anecdotal Evidence often trumps real data in our everyday experiences.   We ignore statistics and science in favor of stories we have heard.   And this is because of the nature of the human brain - a neural network that "learns" based on experiences.   A set of dry statistics just doesn't make the same impact.

What do I mean by this?  Well consider seat belts.   When I was a kid, no one wore seat belts, literally.  Maybe 5% of the population did, and half of those people were lying.   Many cars did not come with seat belts as standard equipment until the 1960's.  New shoulder harnesses were required on cars in the 1970's - and most people left them neatly tucked up in the roof where they came from the factory.   Others would slice off the belt buckles with a razor and let them wind up into their retraction reels.  No one wore belts, and they all had good reasons (or so they thought) as to why.

When you got a few rednecks together, they would swap stories - anecdotes - about how a friend-of-a-friend would have surely died, had they been wearing their seat belt.   "He was thrown clear of the wreck!" one would say, "And he would have been kilt if he had his seat belt on!"

The other popular scenario was driving into a lake, river, or pond.   The story would go that two people were in the car, one with a seat belt, the other not.   The seat belt jams, of course, and the hapless fool who wore it drowned.  The smart fellow who knew better, escaped the sinking car and swam to safety.   Them seat belts are no good!

A similar and even scarier scenario touted by the ignorant is the car fire.  Once again, the seat belt jams and the idiot who stupidly wore it dies a painful death, while his friend (who heroically tried to unjam his foolish friend's seat belt before he was driven back by the flames) escaped with only burned hands and tortured memories of his friend screaming as he burned to death.  Oh seat belts!  If only he had listened to me and not worn these instruments of death!

But of course, these are all just stories, and none of them are necessarily true.  Statistics are far less interesting. Most accidents occur at intersections, and usually below 30 mph. And many of these accidents are, oddly enough, fatal, if a driver or passenger is unbelted.   Rednecks love a good story, but they don't understand momentum.  When the car goes from 30 mph to 0 mph in 10 feet, the body accelerates forward into the dashboard and windshield at that speed.

If you want to experience this firsthand, sit in a kitchen chair and have a friend take a section of dashboard taken from a wrecked car, and then swing it like a baseball bat at your head, with full force, several times.  It can literally cave your head in.

A relative recently died in such an accident (yes, I know, anecdotal evidence) when she was hit by another car, at about 35 mph, in an intersection.   Statistically, however, this is a common accident.   She did not believe in seat belts and had put a "cheater" buckle in the car to defeat the warning buzzer.   She hit the windshield, of course, leaving a basketball-sized dome in the safety glass.   She was taken to the hospital and appeared to be fine, but while waiting for results of x-rays, died of a sudden blood clot to the brain.  Her accident, far from being an anecdote, is actually a statistically predictable event, if you don't wear seat belts.

And as it turns out, statistically, seat belt buckles rarely jam.  And in an accident involving submersion or fire, you are far more likely to die if unbuckled, as you are likely to be unconscious after the crash and unable to escape.  But the big deal is, of course, you are statistically more likely to survive a crash if you stay inside the car than if you are ejected from it.  Being "thrown clear" of the crash only means either you hit a tree at 50 mph or that your own car (or that of another) rolls over you or you bash your head open on the fender.

And funny thing, though, those rednecks, who all watch NASCAR, never bothered to make the connection that NASCAR drivers all wear safety harnesses, and certainly have no moronic ideas about being "thrown clear of the wreck" even as they are very likely to get into one.   But that is the nature of anecdotal evidence - it is very selective. The users select the data they want to use, and discard that which doesn't fit their world-view.

And we all do it, yes even me.

Eventually, science, logic, and statistics won the day - it only took about 100 years, though.  Today we have seat belt laws in all 50 States and seat belt usage is about 87% nationwide.  Laws help, of course, but also many more people see the light and see the logic of wearing one. Today, if I get in a car without my seat belt on, I feel naked.  And the reason I changed my own mind about belt usage (before laws were passed) was that I got tired of being tossed around inside a car, if I was not belted in.   That and getting into a few wrecks, changed my mind.  Personal experience trumped statistics.

While logic (and laws) took the field in the arena of seat belt usage, anecdotal evidence still reigns supreme in most parts of our lives.   In politics, people love to tell stories about a friend-of-a-friend. Politicians give speeches about "Joe the Plumber" and how he was disadvantaged by nefarious Democratic machinations.  Of course they aren't true.  We are talking politicians here.  And it makes me wince when I hear some politician mention someone by name.   Even Obama does it.   Actually he does it a lot.

And here's a rule of thumb that is probably 99% accurate:  Whenever a politician gives a speech and uses the example of Suzie Homemaker or Willy Worker, and how he talked with them and understood their plight, chances are they are lying to you. Of course, some would use a simpler rule: If the politician opens his mouth, he is lying to you.

Anecdotal data is useful and helpful in illustrating how concepts can work - but can also be dangerous in spreading misinformation. For example, the description of my relative's accident above is an anecdote - but one that illustrates a statistically predictable and common outcome.  The anecdote about being "thrown clear of the crash" and remaining uninjured is less useful as it is based on a scenario that rarely, if ever, happens.

And that is the problem with anecdotes.  They can be truthful or lies - and you can't tell the difference. 

But anecdotes are powerful teaching tools.  Jesus used them - parables - to teach basic principles.   Why are they so powerful?   Again, our brains are neural networks - and are trained by experience.  We can learn from direct experience (our own story so to speak) or by watching or hearing about the experiences of others (anecdotes).   Only the very smart can look at raw data, such as accident statistics, and then formulate a "story" they can learn from. We can learn from direct experience, indirect experience, or projected experience.  Very few are capable of the latter.
The problem with anecdotes is that they can be hijacked.  As I noted before, there is a lot of false data spread on the Internet, and very little done to debunk it.  Much of the political belief in this country stems from this outright false data - not from actual events or hard data.

Immigrant-haters believe the stories they tell each other about how immigrants get special stores to get free furniture from, free cars, tax holidays, and untold riches in the form of cash grants or monthly payments.  None of these anecdotes are true of course - but these "stories" are more compelling that dry sections of United States Code that prove no such freebies exist.

The "birthers" (who still exist, but have yet to go after Ted Cruz) follow the same pattern.  They will believe whatever far-fetched tale you tell, but won't look at real evidence.  The tall tales that are found only on paranoid conspiracy websites are the real truth - as evidenced by the fact that the mainstream media doesn't report them.   On the other hand, actual evidence is always dismissed as "fabricated" - out of hand.

There is a huge danger in this sort of thing - and I have only given two examples of this sort of distorted thinking.   Many others abound, on all sides of the political spectrum.   Obama is going to take your guns away.   The Republicans are going to round up people and put them in detention camps and make Christianity the national religion.   9/11 was an 'inside job'.  It goes on and on.    And the scary thing is, today, most people believe one or more of these stories.

I have friends that believe this nonsense.  Well, not really friends anymore.   Hanging around with crazy is not good for your personal psyche. And trying to dissuade them of their beliefs, I have found, is fruitless and time-wasting.  Just walk away.

From a financial perspective, anecdotal evidence rules the roost.   There are a few people in this country who really "get it" and understand that finances are not all about wishful thinking and the coupon mentality.   But most others, don't.

On one credit card discussion group, the topic was which "rewards" card was better - and from their perspective, the name of the game was how to score rewards points or cash-back bonuses.   And each regaled the other with an anecdote about how they scored such deals.   Contrary stories - about people who didn't pay their minimum balance and ended up broke with 25% interest-rate cards - are shouted down.

Our housing crises was another case in point.   When we lived in South Florida, you would hear friend-of-a-friend stories about how so-and-so bought a house for $200,000 one day and sold it for $400,000 the next, without any labor, work, or other investment.   Everyone was making money the easy way - and no one bothered to ask, "Who are these fools you are selling these overpriced houses to?"

And they didn't ask, because we all thought the other guy was the fool in this maniacal game of musical chairs.   Fortunately for me, I was sitting down when the music stopped.

All the bad deals in your life are sold to you based on anecdotal evidence.   If you lease a car, you pay only for the part of the car you want to own!  Right?   That is the "story" or anecdote they tell you, because it gets you to sign the papers.  They don't tell you the other story - that you are paying twice as much as you would to buy the same car, secondhand, and that with excess wear charges and back-end fees, you could have likely bought the same car new for the same amount.

And so on and so on.   Payday loans, check cashing stores, rent-to-own furniture - the companies that offer these services, all have a "story" to sell - with the happy smiling faces of customers depicted (usually waving a fan of money).   On a rent-to-own furniture truck I saw a new pitch recently - that by renting your $400 television set, you wouldn't have to worry about it breaking.   Yes, spend as much as it would cost to buy two or three televisions outright so you don't have to worry about one.   Makes sense to me!

Stories are fine and all, as teaching tools, to illustrates how a scenario can play out.   For example, I used such anecdotes to illustrate why co-signing a loan is a bad idea.  These stories, based on actual experiences which illustrate the very typical scenarios that occur which lead to co-signing, and the inevitable results.   Inevitable as according to the FTC, SEVENTY FIVE PERCENT of cases, the co-signer ends up paying off the note.

The stories that low-life lenders tell - about happy-go-lucky people who get their parents to co-sign a loan, which all ends well with junior getting an improved credit history as a result - are just made-up.   It rarely plays out that way.  Junior defaults, the parents are stuck, and both have horrible credit as a result - and all so Junior can have something he wants but doesn't need - a brand new car.

Of course, a lot of these stories are told as post hoc justifications by folks who have made bad financial decisions - and we all do this.   No one wants to confront harsh reality very closely, or we'd just weep all day long.   We self-justify bad choices, in order to feel better about ourselves.  The problem with these scenarios is that eventually fantasy crashes headlong into reality (as it did in 2009) and people wake up and wonder what the heck happened.   If they had been living in reality, they would have seen it.

Anecdotes are great, and can be a great way to illustrate a point.   But when someone tells you an anecdote, check the stats to see if the scenario they describe is grounded in reality, or just a fantasy that is not likely to occur.

NOTE: Anecdotal evidence is usually relied upon when one party has no evidence to back up their claims.  For example, the NRA likes to trot out stories about people who stopped crimes or defended themselves with guns.   While these individual stories may be true, it is also true that in most cases, when you wave a gun at a criminal, they take it away from you and shoot you.   And if you shoot first, well, you end up getting sued for "wrongful death" and your life is ruined.  And of course, you are far more likely to shoot yourself or someone you know with a gun in your home.  Home invasions and home burglaries are just not that common - but suicides and murders (between spouses and family members) are.

Smokers like to use stories like this.   "Well, old Grandma smoked like a chimney and she lived to be 80!" they say, as if this negates the vast majority of people who die from cancer, emphysema, heart disease, and the number of other ways cigarettes kill.   It also doesn't take into consideration that Grandma could have lived to be 100 if she hadn't smoked.

In tax debates, the GOP likes to trot out "Joe the Plumber" types and then posit that they have been harmed by letting the Bush era tax cuts expire - or that they ended up not hiring new employees or expanding their businesses because their personal income tax rates have gone up.  Since most people don't understand the difference between gross revenues and net profits, such arguments "make sense" - not realizing that salaries of hired workers are tax deductions  (business expenses).

When you don't have a leg to stand on, a story about a friend-of-a-friend, or your Uncle's brother's nephew, is the way to go.   Because it is a nonsense argument - and you can get people to believe nonsense with such arguments!

Saturday, November 29, 2014

Hillary Pillory

Running for President isn't cheap.

I was at the bank the other day, sending a wire transfer, and they had Fox News on.  I struck me that Fox, of all the news channels, is most attuned to emotional thinking (they all are, but Fox is the worst).

They were pillorying Hillary because her speaking fees were $300,000 per speech.  But what really browned them off was she demanded hummus in her break room.  The food of Middle-Eastern terrorists!  How could she!

What they were pissed about was what seemed like a petulant request - specific foods in the break room.  However, as others have noted, sometimes these requests - like having all brown M&M's is a good way of checking that the person you've contracted with actually was paying attention.   You see the hummus in the break room and you know that the P.A. system was checked out thoroughly, as per your contract.

But the Fox airheads did raise some more pertinent questions (which sadly, got less airtime than the hummus thing) and that is, is it really right for colleges to hire speakers for $300,000 a pop, paid for by the student fee, when students are struggling to pay tuition?   If 1000 people fill that auditorium, they are in effect paying $300 a seat to hear the wit and wisdom of Hillary Clinton (or whoever).

And with public universities, this question is even more valid - should a public university be, in effect, endorsing and supporting one candidate over another (again, these things are usually paid out of the "student fee" and not the university's money).

So why does Hillary charge so much to speak?   Well, like with her husband, people will pay it.   And of course, this ends up being a backdoor way of financing a Presidential campaign.   You can contribute a couple of grand to Hillary's campaign legally.   Or you can pay for a speech and pay her in cash, directly, as much as you'd care to.

Wernher Von Braun was once asked what powered the mighty Saturn V rocket, and he replied, "money".   And the same thing powers political campaigns.   So you can't fault Hillary for going after the money - her GOP counterparts will do the same thing.

However, I am a little saddened by this, as Hillary is making the same mistakes this time around as she did in 2008.  She is going after the big donors and the big money, and ignoring the little people.   Barack Obama became President by tapping millions of small donations online - $10 at a time.   And yes, he sends me pleas for money every day it seems (which may have backfired - no one likes SPAM).

But it looks like the drumbeat of anti-Hillaryism is starting already.  And sadly, Hillary is her own worst enemy in this regard - refusing to listen to voices outside of "Hillaryland" - she resides in an echo chamber instead.   And sure as shitting, she will make some half-assed comment in a speech about "Baby Bonds" or the "Woodstock Museum" - not calibrating how such things sound to people outside of the hall where she is giving the speech.

And that is sad, as the GOP lineup this year looks even sadder than in previous years.  And on the Democratic side, we have Hillary and who else?    Jim Webb?

2014 - Another Shitty Year for Gold.

Was Gold such a good investment?  For most people, no.

The economy continues to improve, and it seems that many people are just now figuring this out.   Despite the drumbeat of bad news from Fox News, unemployment is down, inflation is down, mortgage rates are down, the stock market is up and people are generally doing OK, if not having spectacular financial orgasms every day as we did in 2005.   We know how that worked out.

And that spells doom for gold.   As I noted before, gold is a fear metal and little more than a place to park money if you are afraid that currency will devaluate or otherwise be unstable.

Gold is trading below $1200 these days - about the level it was trading four years ago in July of 2010, just about the time people started panicking and buying gold.  If you bought then, well, your "investment" is doing poorly.   With inflation, you have come out behind.   If you were dumb enough to buy when it hit $1800 an ounce (briefly) then your "investment" dropped by 30%.   Ouch.

But, you say, you bought at $900 an ounce, back in January of 2009, just as the market crashed - cashing in all those nasty stocks that went down in value and putting everything into "stable" gold.  If so, you are really fucked, big time, because those stocks you sold at the nadir are now worth more than double what they were, and your gold meanwhile has only 30%.  You missed out on the bull market by panicking.

What will 2015 bring for gold?  Probably more of the same.  If you view the chart above, you can see that the peak has clearly been reached, and the price has steadily declined.   It may level off around $1200, which it seems to have done in the last year or so.   

But again, the value of gold is entirely based on emotional thinking.   They are pulling it out of the ground for $500 an ounce (cost) and anything above that is just people thinking it is worth more than that.   This is not to say it will go down to $500 an ounce, but I think it could get close.

The scenario I see happening is when it goes below $1000 an ounce, which could happen as the economy continues to improve and people start to realize it is.   Gold bugs will start to see they are "missing out" (actually, already missed out) on the stock market boom, and like the folks who bought mini-mansions in 2007, will sell their gold (before it goes lower!) to buy stocks.  Timing is everything - that and not listening to Glenn Beck, who now admits he is crazy.

When gold hits triple digit prices ($999) it will cause a more psychological reaction, and more people will sell.   I think it could hit $800 an ounce or lower, before leveling out.

The price of gold isn't based on sanity - it is based on insanity.   People bid it up based on perception.

Compare it to the price of oil, for example - another commodity.  Oil actually has uses - and is used.  People don't hoard it.  And right now the price is plummeting, as the supply is increasing and demand is decreasing.  And at $80 a barrel, this spells trouble for people whose production costs are $90 a barrel, such as in the Bakken formation.

As such, you can expect to see more marginal oil fields close down, and thus the supply decrease, and the price go back up.

Gold clearly doesn't have this problem, being based on insanity.   The price could go down to $800 an ounce, and the folks mining it could still be making a profit and thus making more of it.   And since gold is not consumed in any great quantities, the world supply will continue to increase.   Gold doesn't get burned or destroyed.   It may be turned into electronics or jewelry, but jewelry can be melted down and electronics recycled.

Every ounce of gold mined adds to the world pile of gold.  The supply keeps increasing, over time, and so long as the price remains above the mining cost, the supply will grow, and grow, and grow, and grow.

It is hardly a metal of limited supply, or indeed "precious".   Yet, if you talk to a gold-bug, well, they will tell you otherwise....

NOTE:  It is hard to find hard numbers on gold production, at least online.  I find a lot of websites from 2008-2010 that claim that gold production is declining and that gold is getting harder and harder to find and thus will become more valuable.

This site, for example, claims that the historic total worldwide production of gold, for all time, was 165,000 metric tons - and that we are running out!  However, if you scroll down, they do note that about 2500 metric tons are mined annually (and the accompanying chart shows how mining has been on the increase over the last few decades!).  This means the world supply of gold increases by 1.5% annually, which is a pretty good clip.  Even though 12% of this is used for industrial purposes, this still means the world supply increases by  1.32% per year.  I am not sure we are going to "run out" anytime soon.  In fact, the amount of gold in the world just keeps going up and up!

NOTE:  Despite Gold's dismal record over the last few years, some idiots are still predicting it will hit $5000 an ounce "in a few years".   When asked for quantitative data as to why, they get slippery and elusive and have no hard numbers.   Again, it costs $500 an ounce to "make" - and every year, the world has an increased supply (over 1%!).   So overall, we end up with more and more gold, over time. 

Demand is based on fear and fear alone.   Once fear evaporates, the price of gold plummets.

Gold chart corrected for today's dollars.  Note how the "flat" period after 1980 shows an actual decline, because of inflation.
This chart illustrates the price of gold as corrected for today's dollars.  You can see the small bubble circa 1974 when we went off the gold standard.  And you can see the HUGE bubble in 1980 when America was in far worse recession (IMHO) than in 2009.  Notice how sharply the price dropped - and how long it stayed flat.   If you bought at the height in 1980, you are still behind, even today, in adjusted dollars.  What does this say about today's bubble - or the inherent value of gold?
The only ones "winning" in the gold business are those mining it, selling it, and those selling gold-back securities.   A few lucky people who bought at $500 an ounce and sold at $1200 made some dough.   But then again, there are a few lucky people who do better than that in stocks.
I bought AVIS at 74 cents a share and withing a few years it went up 3000% - which makes gold look sick by comparison.   This does not mean stock-picking is a swell idea or that AVIS is now a good investment - or that it will go up another 3000%

The supply of raging true-believers, it seems, has not diminished, however.


High technology appliances can pay back their excess costs in terms of energy savings, over time.  But how long is a realistic amount of time to wait?

Once again, I have been pilloried for actually having an opinion different from someone elses and again, it deals with hydronic heat.   This time around, I am told that while they can't refute any of my cost, efficiency, and repair arguments (as well as the A/C issue) that I simply "don't understand" the advantages of hydronic heating, and of course, if they had time, they'd explain them to me, but they have to walk the dog and thus are too busy to discuss it.

Yes, it sounds a lot like the person who flamed me about co-signing loans - so many legitimate reasons to do this, but time and space do not permit them to elaborate.   But they had plenty of time to call into question the legitimacy of my ancestors.   In other words, they didn't have a cogent argument to make, but had just co-signed a loan, and now want emotional validation.   Just as the fellow with this plumbing nightmare in his basement doesn't want to be told that maybe $10,000 more in his IRA might have been a better "investment".

But emotional thinking is really a bad way to live - and a bad way to balance your checkbook.   If you really want to evaluate things on their merits, you have to crunch the numbers and do the math and see what really makes sense.

And sadly, even a lot of things being sold as "practical" or "energy-saving" are often sold for emotional reasons.   The Toyota Prius, by all accounts is a reliable car and its hybrid drive works well and actually saves energy and will pay back its costs in about seven years.   But that is not why people buy them.   They buy them to make a statement about their commitment to the environment. 

How do I know this?  Well, in America, fuel is cheap - by worldwide standards.  Yet America represents the largest market for the Prius.   In Europe, where fuel prices are astronomical, you rarely see them.  The Europeans love their diesels, instead.   It is a simpler technology that is less costly to buy and gets about the same fuel mileage.    But it doesn't make a statement about the environment, does it?

As I noted in a previous posting, you can buy one of these tiny cars like a Chevy Spark or Aveo or whatever, and get near-Prius-like mileage.   But when you drive one of these tiny cars, it says "I am poor" whereas when you drive a  Prius, you are saying "I care about the environment, so I am better than you!" and people buy cars for emotional reasons all the time.

I was also taken to task over my posting about fancy washing machines.   A reader points out that they save money and water.  I point out that over the 15-year-design life, they don't save enough of either to really make a difference, unless you live in a desert.   But again, people buy fancy washers to show off.   How do I know this?   Because the ordinary top-loader comes in one color - WHITE.   And it lives in a laundry room or basement that isn't shown off to visitors.

But the front loaders come in stainless steel or red (red?  I don't know why, but it is popular!) and the latest thing now is to have a showplace laundry room with the front-load machines, on pedestals, of course (the pedestals often costing more than a top-loading machine!) and cabinets and built-ins and so on.   The status kitchen is so last year.  This year, it is the status laundry room.

My top-loader is in the garage.  I really don't give a shit or not if you are impressed by my laundry machine.

But it begs the question:  What is a good payback period for any of these energy-saving devices?   I have looked at a number of these over the years, and some are obvious upgrades that pay themselves back in a short period of time.   Others are just expensive boondoggles that end up costing you a lot more money, time, and hassle.   Here are some questions to ask yourself before you spend a lot of money on "energy-saving" appliances.

1.  What is the payback period?   If it takes longer than seven years to realize the energy savings, then forgetaboutit.   Chances are, you won't even own your home seven years from now (based on national averages) so "investing" in energy-saving appliances not a very good idea.

2.  Does this add value to your home?   And be realistic here.   Putting in a fancy washer or dryer isn't increasing the value of your home by a dollar.   Although a fancy laundry room may make the home easier to sell, you generally get back pennies on the dollar for home improvements.   Things like replacement windows, however, in addition to saving energy, will add value to a home (but generally not more than their cost).   Don't go overboard here - very few home improvements add value to a home.  Location determines value.

3.  How complex is the device?   I was looking at a solar hot water heating system the other day.  My garage does face the South and it gets sun on the roof most of the day.  And that is where the hot water heater is.   Seemed like a no-brainer to put in a solar hot water heater.   But then I looked at how they work - with circulating pumps, controllers, timers, and drain systems.   It would involve cutting holes in the roof, running a lot of plumbing, and having to maintain a fairly complex system, just to save a few bucks on hot water heating costs.   And since the system cost thousands of dollars, the payback would be a long, long time away. 

Simplicity has its virtues.  I like to go away on vacation, not sit around monitoring my solar panels.  You laugh, we have a friend who refused to come South in the winter and visit, because he was afraid if he left his house in the frozen North, the power would go out and his hydronic heating system would freeze up.   His "solution" of course, was to install a whole house generator (!!!!) which cost thousands and thousands of dollars.   More complexity to handle complexity.   Frankly, if you wanted to own his home today, you'd either have to have been a master Engineer on a cargo ship, or have to have an army of maintenance men on speed dial.   All equipment requires maintenance.  The more you own, the more you have to maintain.

4.  Will it last long enough to reach payback?   This is an honest question to ask yourself.   The U.S. Market has been flooded with cheap LED lights from China.   They are still much more expensive than the old incandescent bulbs or CFL's.   They claim they are a better deal, of course, as they last much longer and use less energy, so over time, you save money.   And LEDs can last 30 years or more.   But, cheap LEDs from China can break right out of the box, or within a year.    There go your savings.    

I installed these in our kitchen, replacing 12 halogen lamps, which heat up the kitchen like a heat lamp.   They make the kitchen a lot cooler and should save energy and pay back their costs.   However, the payback will likely take several years, and if they burn out before then, well, there are no savings.

Most household appliances are designed for a 15-year design life.   The problem is, that is an average number.  Some fail before then.  If a $399 washer fails a the 10 year point, well you just chuck it and get another one (and your total cost is still less than the front-loader).  If the front-loader breaks, which it is likely to do, as it is more complex, it will be costly to repair, and the option of just throwing it out and starting over is more heartbreaking.   But I have seen this, particularly with membrane-switch appliances.  A circuit board or other part breaks, and with the cost of labor, well,  it ain't worth fixing.   So there goes your energy savings, and you end up just spending more rather than saving anything.

The more complex any piece of technology is, the more likely it is to break.  We call this Failure Mode Effects Analysis (FMEA).   The reliability rate of any device is based on the number of components and their failure rates.  You multiply the failure rates (actually their inverse) together to get an overall rate.  Obviously the most reliable device in the world is an Anvil, with one part and an infinitesimal failure rate.  With more complex devices, the failure rates increase - it is a matter of simple Engineering.  See, e.g., MIL-SPEC-217.

So, complexity for complexity's sake is never a good idea.  It is more likely to be less reliable and more costly to repair.  Which leads us to...

5.  Are they expensive to repair?   Condensing gas furnaces are up to 99% efficient.   They achieve this by using a second heat exchanger, that condenses furnaces gases down to a liquid which can then be drained away.   Many require no venting, just a drain.   The problem with these types of furnaces is that they have control boards, induction fans, an extra coil, and other hardware.    The condensed liquids are very corrosive and over time can corrode through the secondary coil.   Is this really worth it for an additional 10% increased efficiency?

Lennox tried this esoteric technology technique with their pulse furnace with mixed success.   The system used a heart-shaped combustion chamber and fed in a carefully controlled mixture of gas and air which was ignited by a spark plug.   It pulsed like a V1 rocket engine and was supposedly very efficient.   But being very unique, it also had its share of troubles.  And finding someone to work on it was problematic.   You had to make sure you found a mechanic who went to pulse furnace school.

And the same is true with hydronic heating.   Finding a tech to work on it is problematic, as it represents only about 2% of the installs nationwide.   The guy who does work on it, has a niche market and charges accordingly.   It's like owning a Jaguar, back in the bad, old days.   Limited production means limited sources for parts and labor - which means single-sourcing, a place you never want to be.

6.  Is this pushing the technological envelope?   As I have noted before, it pays to wait until new technology reaches the Wal-Mart level, in terms of pricing and widespread use.   If it is red-neck proof, chances are, it is also cheap and reliable.   You never want to be the guy pushing the technology curve, as the "bleeding edge" gets awfully expensive.   In addition, it might turn out to be a dead-end, in terms of technology, and thus you are stuck with a system or appliance that is no longer made (such as the pulse furnace) or one that just never took off in the marketplace (like hydronic heating).

Companies like to push technology, hoping to be the first to market (but often that means, last in the marketplace) or to "leapfrog" the competition.   Chevy thought its high-tectate silica engine block for the Vega would be so advanced, it would negate all the disadvantages it had when trying to compete with the Japanese.   It didn't work of course, and they found themselves even further behind.   It turns out, what  the market wanted was just conventional technology that was well made, not some techno-solution that didn't work and was poorly put together.

Technology can't solve every problem, and often it ends up making things worse.

7.  Does my use pattern make sense for this technology?  One reason I don't own a Prius or a Nissan Leaf is that I only drive about 5,000 miles a year.   To recoup the excess costs of these types of vehicles, I would have to drive 15,000 miles a year for at least seven years or more.  For me, it makes more sense to keep my 1999 M Roadster, which only has 50,000 miles on it, and all I do is change the oil once a year.

And this applies to just about everything.  The front-end loader washer savings are based on "family use" for a family of four.   A single person or a childless couple might wash a lot fewer clothes, and thus the payback may take many, many more years (if ever) to achieve.

Similarly, putting LED light bulbs in your attic or closet lamps may make less sense than putting them in your living room (other than the convenience factor of less burnouts).   Lights that are used a LOT will pay back with an LED much sooner than lights that are rarely used.

Even things like hydronic heating or condensing furnaces are affected by use.   Our vacation home in NY had hydronic heating.  We lived there in the spring,summer, and fall, and very rarely used it.  We used our split-system heat pumps for spot heating on cold mornings.   In fact, the hydronic system was just annoying as it made the house hot, trying to make hot water.   I ended up putting in an electric hot water heater, so we could just shut the system down in the summer.

And the winter, well, except on very cold days, it rarely ran, as we didn't use the house in the winter.  We set the thermostat at its lowest setting, and also had a gas fireplace as a backup heating system.   When the system blew out its pipe in the living room ceiling, we had to shut it down for the rest of the winter.   Turns out that the gas fireplace and a few space heaters were more than enough to keep the house from freezing over while we were gone (and the gas fireplace didn't need electricity to run, and in retrospect, was all we needed to prevent winter freezovers).

But frankly, I would have preferred a gas furnace.  Much more reliable, and I could have just drained the water pipes in the house and let it go cold and really saved energy as opposed to keeping the house warm so the hydronic system wouldn't freeze over.

Now, if you live in polar regions where the heat is on all the time, maybe hydronic makes more sense.  Maybe.  Why do you live in a polar region, though?  Most Americans live in more temperate climates (and the climate is becoming more temperate every year) - so their needs are different.  Even in cold places like Central New York, you need A/C in the summer these days - and it is a lot cheaper to install with a forced-air system.  A lot...cheaper.   Like $10,000 cheaper.

8.  Is the manufacturer fudging the numbers?   Act shocked.   Yes, companies will present their own products in the most favorable light.   And this often means making baseline assumptions that are just ludicrous, ignoring entire categories of expenses, or comparing apples to oranges.  It is like the cone filter people, who claim "up to 20% more horsepower" - the key words being "up to."

For example, the makers of NEVs claim they "save money" compared to operating a car.  But as I noted in another posting, they skew the numbers considerably in order to make this comparison work.  They make wild assumptions about comparative resale values, maintenance costs, and mostly, the miles driven.   A typical car is driven 12,000 miles a year, while an NEV is driven about 1200.  As I concluded, it is far cheaper to just drive your regular car another 1200 miles a year, than to buy an NEV.   You aren't "saving" anything - not even the environment.

But, they are selling NEVs so of course, their numbers add up to "great savings!"   And the same is usually true for other high-cost "energy saving" appliances which may or may not save you real money down the road.

9.  Are there ancillary benefits and are they worth it?   The guy trying to argue with me about front-loading washing machines claims they cause "less wear to your clothes" - which sounds like something the manufacturer said in its brochure.   We had top-loaders for 60 years or more - are your clothes "worn out" as a result?  Some of these ancillary benefits seem pretty specious.

Hydronic heat people say they get "warm floors" and that the heat "feels better".  The first is not really true - the floors are not "warm" just not ice cold.  And whether heat feels better one way or another is really a subjective thing.   Is this worth the cost delta?  That is the real question.   $10,000 in the bank gives me a really warm feeling that hydronic heat cannot provide.

Other things are easier to quantify.   Replacement windows are quieter and easier to open and close than old worn-out wood windows - and they look better as well.   But is it necessary to spend $500 a window on Pella, or would $150 vinyl windows work just as well?

Ancillary benefits are a factor to consider, and in most cases are the real benefit the user wants - with the energy savings being the ancillary argument.  We all lie to ourselves when we want candy, let's face it.

10.  Are you really just doing this for STATUS?  That is the real kicker.   People think of status in terms of cars and yachts.  But as we have discovered here, status takes all forms.   And the status "high end" house is a big deal these days - with fancy appliances, HVAC system ("it's zoned!" the owner chirps).  Granite countertops, professional-grade (so-called) kitchen appliances - the works.  People claim they install these "for the resale" but the real deal is, they want to impress their friends with their apparent wealth.

And for a lot of folks anti-status is the new status.  "I consume less, because I care about the planet and you don't, you energy-wasting monster!" - that is a common message today.   So often, the homeowner, when giving the house tour (and I have been subjected to more than one) points out the "energy saving" appliances they have, as if to justify this orgy of self-indulgence (all paid for with credit).   They are not just treating themselves to a five-bedroom four-bath house (which every childless couple needs) but are saving energy  in the process!.

Think hard about it - and think about how many people you've shown off your front-load washer to (I'll admit, I've done it) and fancy HVAC system (BTDT!)   Just own up to your own weaknesses - its a lot easier and cheaper in the long run.

* * *

Saving energy is a fine and wonderful thing.   But it is funny, we owned two houses at the same time.  One was an "Energy Star" home that was built by a utility company executive - and won an award from the utility company for energy-saving features, including the ill-fated hydronic heating system.   Our other house is a 1970's tract home with single-pane windows (which we will replace in 2015)  little insulation, and a cheap "contractor grade" heat pump.   Are their energy bills that much different?

Not really.   The cost of electricity and propane for the Energy Star home was pretty much the same as the cost of electricity for our Energy Waster home.  Throw in the repair costs, and well, the Energy Waster comes out ahead.   There were no huge savings in going to esoteric technology.  The main difference in energy usage had more to do with the fact the Energy Star home had better windows and insulation - both of which are low-tech solutions, cost little to install and cost nothing to maintain.   The actual choice of heating plant really was secondary.

(Note: The contractor-grade heat pump is now ten years old.  It appears to be on track to easily make it to 15 years, without significant maintenance.   The hydronic system blew its guts out at year 12).

Similarly, other "high end" energy-saving appliances may or may not save you tons of money, depending on how you use them, how long you plan on having them, and so on.

My rule of thumb is that if the payback is longer then seven years, forgetaboutit.   It ain't worth the extra cost, hassle, reliability, and potential repair costs.  And even seven years is a stretch.   With the staggeringly high cost of labor - particularly repair labor - in this country, it isn't worth saving a few pennies if you risk reliability.

Keep It Simple, Stupid - the more complex you make your life, the more difficult it becomes.

NOTE:  The photo above is of the new "boiler" we installed in our hydronic system.  Yes, it is a Dunkirk Boiler, but set to run below boiling point.  You never want the water to actually boil in a hydronic system, it will cause nightmares.   Yes, those are all new circulating pumps, replaced twice and $300 apiece (not including labor).  When the boiler rusted out after 12 years, we had a choice to replace it with a $6000 condensing boiler (actually a giant hot water heater) or getting the identical boiler (NOS), which I got wholesale from a friend for $1200 and I installed it myself.   If I had hired a contractor, this would have been far more expensive.  As  former HVAC tech, I could make the repairs myself.  Most folks can't. The payback for the condensing boiler would have been over a decade.  The choice was pretty simple to make.

Friday, November 28, 2014

Cheap and Simple Way to Save On Your Heating Bills

Cold?  Put on a sweater, wear some socks and shoes.

In the olden days, people wore layers and layers of clothes.  Why was this?  It was freaking cold, that's why.   Your typical house was heated with fireplaces, which sucked most of the warm air up the chimney, created a draft, and forced cold air through every crevice in what were largely un-insulated houses.

When you went to bed, you wore elaborate bedclothes, including a hat or cap, and stockings.  And then you put sheets, blankets, and comforters (and a counterpane) on top of all that.   That is how our ancestors stayed warm.

Today, people seem to make a fetish about overheating their houses.   We've been through four energy crises, and yet I see people running around in little more their underwear, with the house thermostat set at 80.   Children, it seems, are never fully dressed anymore, and always in danger of catching pneumonia.

Many folks, particularly up North, put in elaborate heating plants - such as radiant hydronic heat, which I have written about before.   Others spend well over $10,000 on an outdoor wood furnace, a 1 ton pickup truck and a humungous chainsaw.  They spend every weekend of the year cutting wood and then in the winter, they heat their houses like Swedish saunas.  And I know this because I have been in their homes.   Everyone I know who even has a wood stove, cranks up the heat to a billion degrees in the Winter as some sort of weird status thing.

You could do that, but it is staggeringly expensive.   You can spend a ton of money on equipment or heating bills, or you could just stop dressing like a small child - wearing shorts and a t-shirt in the dead of winter.

Our house is on a slab, and people complain that the floors on a slab house can be cold.  And indeed they are, if you are dumb enough to run around in your bare feet in the winter.   Radiant Hydronic Heat people claim that their systems give them "warm floors" (been there, it ain't like a toaster or nothing) and thus a better heating experience, whatever that means.   Myself, I never noticed the difference, and frankly, it was just easier to wear shoes and socks than to spend double on heating plant.

Yes, there are some things you can do to conserve energy and insulating your home is one of them, installing replacement windows is another.  Going to super-high efficiency appliances, however, might be less useful.   A furnace that is 90% efficient is often more than adequate - going to 99% just means spending double the money - without any foreseeable payback.

But the easiest thing you can do is just turn down the thermostat - to 65 degrees or even less.   The more you wear, the less you will notice it.

Heating and Cooling bills can be very high - if you decide you need to wear fur coats in the summer and run around naked in the winter.   Believe it or not, a lot of people do just that - keeping their homes the temperature of a meat locker in the middle of July, and baking like an oven in the winter.   They complain that their HVAC bills are too high - and then go looking for technological solutions to the problem.  "If only I had a fancier furnace!" they say, "I could live like a King!"

Or, just take the advice of our ancestors, and dress appropriately.  I find that to be a lot cheaper.

Thursday, November 27, 2014

Your Inheritance

This blog posting isn't what you think it is going to be about.

We like to think we are all unique individuals and have our own ideas which we formulate on our own.    Our parents are an "influence" we think, but not who we are.   We might be wrong about that.   Where you live, what you believe in, you politics, your spending habits and your personal behavior are mostly influenced by where we came from - who our parents are.   There is hope, however.   While statistically these things seem determinative, they are not absolute.   You do have free will - you just have to have the will to engage it.


According to one study, most Americans live within 25 miles of their Mothers.   This is not an unusual statistic, as most people are exposed initially to the place they are born or raised in, and thus tend to stay in the same place.

The survey has interesting sub-statistics as well - college educated people are far more likely to live further away, and the survey authors believe this is because the children at college are exposed to new places and new ideas.   If they went to Cornell, however, odds are they never moved more than 25 miles away from Ithaca.

It should also be noted that professional jobs often require that you relocate.  If you are an Engineer, you have to go where the jobs are - and likely they aren't in your small town.   So that is one reason more why the college-educated live further away.   Unskilled workers are more likely to find work near their hometown.

Perhaps it was not in the survey, but I suggest that folks who lead a more peripatetic existence also tend to move further away.   Once you have been to a number of towns in your life, you tend to be tied down to one of them less.   I've lived in four towns as a child (before age 18) and thus have tended to wander more.  My older siblings, having lived in more places and stayed in each one a shorter time, wandered even further.

I have friends who have lived in or near the same small town their parents lived in, for the last 40 years.  Their parents are now dead, but they never move away.   There are no jobs, the weather is atrocious, the local educational and cultural levels are in the toilet, and the taxes are pretty steep.   There is really no reason for them to stay, but stay they do.   Recently they retired, and they are thinking of moving somewhere for retirement.   They can't figure out where to go.   They have an almost agoraphobic fear of the unknown.  And it is kind of sad, as they have spent their whole lives in this sad little town, and they finally have a chance to be free.  The cage door is open and the lock is smashed, and yet they cower in the corner and whimper, helplessly.


There are some excellent statistics on this subject in the study, "Counting Flocks and Lost Sheep: Trends in Religious Preference SinceWorld War II" By Tom W. Smith, Univerity of Chicago.

Survey respondents were specifically asked if they were raised in a particular religion and whether they had ever switched to another denomination or preferred no religion at all.  Overall, 35.7% of those who were raised with a particular religion had at some point switched to another religion or no religion.

Stated another way, about 2/3rds stay with the religion in which they were raised.

Here is one table from that report listing the "retention rate" if you will, of children's religion (once they have grown) compared to their parents: 
A. Major Religions

   Protestant                 90.4%           
   Catholic                   82.3            
   Jewish                     86.6 
   Other                      70.5          
   None                       45.4         

B. Major Protestant Denominations

   Southern Baptist           71.8      
   United Methodist           63.0    
   Lutheran                   80.0    
   Presbyterian               56.7
   Episcopalian               71.6
   Interdenominational        47.1
   Disciples of Christ        63.9
   Mormon                     90.8
   Fundamentalist             73.7
   Moderate                   57.0
   Liberal                    46.4

C. Fundamentalism/Liberalism

   Fundamentalist             80.3 
   Moderate                   81.9  
   Liberal                    71.6 

Note that the more conservative your parent's religion is, the more likely you are to remain with it.  I don't think this has a lot to do with the religion itself or its validity - only that religions that are more conservative tend to have more indoctrination.   Unitarians can skip church now and then.  Fundamentalists and Catholics do it less - when young.   And more strict religions are more likely to have religious schools, to make sure the indoctrination takes.

Funny, but we like to think our religious beliefs are something that is uniquely ours - or something we discovered on our own.  However, statistically, it is just the bullshit they fed you as a child, which you swallowed, hook, line and sinker - and don't ever question.


This is a tricky one, as it can flip either way.   Many folks whose parents are die-hard Democrats are themselves die-hard Democrats.  And many who come from agitated Republican families end up agitated themselves.   Your deeply held political beliefs may be little more than an echo chamber.

But there is an inverse effect sometimes.   Sons and daughters of conservative Republicans often turned into Hippies in the 1960's - as a means of rebelling against their parents.   In the 1980s, we saw young people turn conservative - often with the same reason, which was to alarm their liberal parents.

I think the key is not political views but intensities.  If you come from a family with strong political views, you will have strong political views as well.   If you come from a family where no one talked politics all the time, well, odds are, you don't give a shit, either way.

The same could be said for other beliefs, such as racism.  Children of racists end up racist - or at least have less trouble telling ethnic jokes or making racial slurs.   Children do pick up on subtle cues, though.  If you don't consider yourself racist, but raise your kids in an all-white suburb and attend a "restricted" Country Club, well, they will have the same closet racist attitudes as you do.


My parents were spendthifts.  They did not keep track of money, but spent it unwisely.   My Dad had a wallet full of credit cards and thought that the more credit cards you had, the wealthier you were.  He liked to play big-shot by picking up the tab - making a big show out of pulling out his fat wallet and then musing over which of a dozen credit cards he should use.   Funny thing, he told me his Dad like to "pick up the tab" and be a big-shot, too.

They bought cheap cars and never took care of them.  My Dad thought oil changes were a scam that the local gas station was trying to pull on him.   When I left home, I had similar habits.   My parents never sat down and showed me how to balance a checkbook, or anything like that.   I got some vague advice about "save your money" and that was about it.

Chances are, your spending habits are probably largely influenced by your parents.   If your parents were thrifty, chances are you are too.   And if your parents were in debt up to their eyeballs, chances are you think that is normal as well.

The good news is, behaviors can be changed.


 Sex, Drugs, and Rock & Roll, as they say.   If your parents like to party, odds are, you will too.   My Grandmother was a "flapper" during the roaring 20's - wearing a cloche hat and rouging her knees and attending those "blind pigs" or speakeasies in New York City - no doubt dancing the Charleston and doing God-knows-what.  Hard to believe the little old lady schoolteacher I knew was a party animal.

And my parents were not much different.  They liked to booze and brawl.   And they both had extramarital affairs.  My siblings all liked to do drugs and drink - and introduced me to both at age 13.  We take these normative cues from our family, and think this is how we are to behave.

* * * 

So what does this mean?   That we should all just give up and lie down and die, because no matter what you do, you'll just end up a statistic - and slowly turn into your Mother or Father (or some weird hybrid of the two?).

Hell no!   Statistics tell us what masses of people have done but they don't predetermine what you can and may do.    The folks at Freakonomics continually fail to grasp this simple dichotomy.   Statistics are always backwards-looking and tell us where we (as a people) have been (provided those statistics are not from the Bureau of Specious Statistics).   However their very existence influences our behavior and we do have free will as to what we want to do.   You are not preordained to do anything.

Where these statistics and studies can be useful to you is in examining your own beliefs and behavioral systems and then asking yourself, "Am I doing this just because my parents did?"

Do you really have a deep abiding faith in Islam or Mormonism, or is it just something you picked up along the way, and you don't want to voice any doubts or concerns, lest you piss off your family?  Examine your religion carefully and ask yourself if it is really what you believe, or just what you were brought up with.

These are, of course, scary questions.  And that is one reason why I am not impressed with faith anymore.   People don't adopt belief systems because of the superiority of a particular belief system, or because of their deep faith in those beliefs.   By and large, they simply adopt the belief system they were exposed to as a child.  Period, paragraph, end of story.

Do you live where you live because you chose that place?   Do you really love Flint Michigan, or have you just been living there since you were a child and cannot imagine anywhere else?  We all do that - tend to think of "home" as better than anything anywhere.   But there are other places which are nice - plenty of them.   And if you are living in the same small town you grew up in - and there are no jobs, taxes are high, and the weather sucks, well think about moving somewhere nicer.

Similarly we like to think of our politics as some deeply-held beliefs that reflect who we are as a person.   But for many people, they are just a regurgitation of what their parents said - or the exact opposite, if they are trying to annoy their parents.

And maybe some of our behaviors are literally inherited genetically - propensity to OCD or chemical addiction, for example, might be a genetically inherited behavior.   But others may be less so, and more due to your exposure to these behaviors than anything.  

And it goes without saying that the less you expose yourself to their behaviors, the more different your behavior will become over time.   Your beliefs and behaviors will become divergent just as an inertial navigation system diverges from course over time, if constant course corrections are not given.

But people can change - and decide what they want to do with their lives.   Some never do - convinced that they need to obey their parents, well into their 40's and 50's.  It is only when Mom and Dad die, do they realize they have their own lives to lead  - and then feel cheated that so much of their live was squandered trying to appease the whims of others.

Wednesday, November 26, 2014

Ain't selling out for a bag of potato chips, sorry.

In the mail today:

Introducing an Exclusive Blogger Opportunity!

Greetings from Save-A-Lot,

We are looking for some great bloggers (like yourself) to join our VIP blogger program > Save-A-Lot Insiders!

As an insider, you will have access to exclusive content, special offers, and rewards. We also do monthly prompts, where we ask to partner with you on a fun blog post. If you are interested in receiving information for these prompts, please fill out this form with your info.

We are currently giving away a sample of J.Higgs Bacon & Cheddar Potato Chips to the first few that sign up. We just ask that you share a tweet & / or photo of what you think of this new flavor. Bonus points for suggesting a dip recipe that pairs perfectly with the chips ;)

We look forward to hopefully working with you in the future!

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Pssst! Have I got an IPO for you, sucker!

It seems America's appetite for IPOs is insatiable, even given their uneven track record.

Uber is making a lot of news lately.   We are told that "Wall Street" has "valued" the company at $18 Billion, making is larger than companies like Hertz and Mattel (you know, the kind that actually sell things and make profits).   A competitor, Lyft, is also getting a lot of hype.   Both are slated to offer IPOs in the near future.

You gotta love Americans - their appetite for IPOs is insatiable.   And it is weird, because if you look at most of these IPOs, they generally don't work out well for investors.   I pointed out before that the whole point of a modern IPO is to sell of a fraction of the company (5-10%), create a marketable security for the company, and then allow insiders to cash out of their "shares" that they obtained early on in exchange for lending money (angel investors) or sweat equity (start-up employees).   They make millions, you might make a couple of bucks - or lose it all.

Facebook has finally turned around, in terms of share price, and those who bought at the IPO price finally have some positive equity.  Sadly, Facebook remains the exception to the rule.  Others, like Groupon, Zipcar, and Zynga, have tanked and left investors with less than half their "investment".   In case you didn't get the memo, you can't keep investing in things that go down in value and expect to get ahead.  For every Facebook that does OK (but not spectacularly) you get dragged down by a Groupon.   Investing in IPOs is highly risky and I would not advise it - even if once in a while some of these stocks don't just fail outright.

Again, the point of the modern IPO is to allow insiders to cash out.   In the olden days, the purpose of an IPO was to raise capital to build factories.   The money raised by a modern IPO is often trivial - and indeed, the company leaves a lot of "money on the table" as the IPO price is often set low, so that it will "bump" on the first day of trading.  It is a pretty asinine way to go about raising money to run a company.   But again, that isn't the point, is it?

Most of these modern IPO companies don't need more capital.   Internet companies need money for operating expenses and they get this from private investors.   The investors pour cash into an Internet startup, and get stock in exchange.   When the IPO drops, the stock soars in value because idiots like you and me have been reading stories in the paper about the company for months in advance (stories that don't just appear by accident, either) and these investors then cash out and quadruple their money overnight.

You on the other hand, usually get stuck, once the stock value drops back down.

So are companies like Uber and Lyft good investments?   I will say No, and tell you why:

First of all, it is ridiculous to think that a company that is just an "app" for a smart phone is worth more than Hertz car rental.  There is not a lot of overhead for these car-sharing companies, as they don't own cars or hire drivers or even have any real infrastructure, other than some office buildings and server farms.  There is no "there" there, no matter what some Wall Street insider says.

Second, there are no barriers to entry.  The company like this has no real intellectual property to speak of.   The business model can be readily copied by others, so the "barrier to entry" in this business is very low.   You can't charge monopoly prices for the service, and if the business becomes profitable, well, others will jump right into it and then dilute the profitability of it.   It is then a business of margins, with the winner being the one who can grab marketshare and keep costs down.   It is a commodity business.  No huge profits to be had here.

Third, the company is losing moneyYou can tell this from the media reports, but also from the fact that they keep having to ask Wall Street investors for more and more cash.   These "investments" are not for infrastructure, but to cover operating costs.   It is like Twitter and its junk bonds - borrowing money to keep the place going, hoping that someday a way of making money from the business model can be found (or that the stock price can be propped up long enough for the founders to cash out).

Fourth, the company has huge liabilities.   Uber has been in the news a lot lately - and this is not by accident.   I haven't seen a drumbeat of news stories like this since the last big IPOs came out last year.   Of course, a lot of the publicity about Uber has been negative - linking the company to sexism, prostitution, and other forms of misconduct.  But like in Hollywood, on Wall Street, there is no such thing as bad publicity.   Even my blog posting here will probably persuade some boob to buy Uber.  

What is disturbing is that the company appears to be operating out of a disused frat house - by the former frat members.   Rather than keep their eyes on the ball (the business model) they spend more time tweeting obnoxious remarks and making salacious blog entries.   Allegations have surfaced that the company is lax in "hiring" its drivers, many of whom have criminal or sex offender backgrounds, and claims of sexual assault have been made.  If an Uber car gets in a wreck, who is on the hook for damages?   This leaves the company open to a lot of open-ended liability.

This leads to the fifth problem - which is coupled to the liability issue - and that is the regulation problem.  Uber is basically running "black cars" - what used to be called gypsy cabs - in many major cities.  Nothing wrong with that, of course, except that it is patently illegal in most cities.   Cabs are regulated and licensed in most cities, and funny thing, they did this precisely because of the troubles that Uber is having - people with criminal backgrounds ending up as drivers.  Cars could be unsafe and uninspected.  Insurance might not be adequate.  And if cab competition is unregulated, price wars can result, which results in shabbier cab service for everyone.

Far from being some "new Internet concept!" what Uber is going through is what the American taxi business went through in the early 1920's.   And taxi regulations were enacted to protect consumers from abuses of the taxi industry.   Uber claims it is somehow exempt from these regulations.   I am not sure how that argument will fly.   A few court decisions could put the company into bankruptcy, and very quickly.

And if you doubt this, consider the sad fate of Aereo, who went from Internet Startup Darling to Bankrupt, overnight, when the Supreme Court told them that no, you can't run a cable company without paying for the content.   Seems like a simple concept, in retrospect.   And hey, guess what?  You can't run a taxi company without a license - no matter how you try to say that it ain't a taxi company.

But the sixth and best reason not to invest in this nonsense is the fact that it is being hyped and that right there tells you (or should tell you) that another rotten deal is a-comin' down the pipeline, aimed squarely at your wallet.

We are told that this "app" is going to change the world forever - change how we ride in cars - and put taxi companies out of business.  I seem to recall the same things being said about ZipCar and the Segway Scooter (don't call it a scooter!).  You know how those worked out.

I mean, by this point in your life, even if you didn't live through Dot.Com Meltdown Part I (Circa 1995) that the bullshit IPOs of the last few years should have educated you enough to spot these turkeys from a million miles away.  Right?  Or are you still a raging true believer?


Yea, some of these IPO stocks (well, one of them, at least) went up in value - eventually.  Facebook, after face-planting, has finally dug itself out of a ditch.  But in the first year the stock was available, well, you could have bought it at the IPO price.  Those who paid nearly double during the first day, well, they got screwed.   And with a P/E ratio of over 70, you have to hope they find some loose change under the cushions of the couch in the break room or something - and pretty soon.  The company is wildly over-valued (but not as wildly as Linked-In - what every happened to that, anyway?).

So, sorry, no, I don't think Uber is the next big anything, particularly since it appears to be run by a bunch of douchebags - the kind that just want to cash out on an IPO ASAP.   Maybe this "business model" has a future, but then again, just as ZipCar was absorbed by Avis (you know, the "old school" company that doesn't get the Internet) perhaps traditional taxi companies will co-opt the concept of ride sharing as well -with their own fleet of cars (which they already have) and their own "app" - which takes 10 minutes to write.