Wednesday, February 28, 2018

Chasing the Gilded Tail - the Hechinger Effect Strikes Again!

Hechingers went out of business when the children of the founder decided the profit margin on small appliances was better than on 2 x 4's.   But you can't build a home out of toasters!

I mentioned before The Hechinger Effect.  Hechinger's went out of business when the children of the founder decided the profit margin on small appliances was better than on 2 x 4's.   The problem to this business approach was twofold.  First, as I noted above, you can't build a home out of toasters.  I went to the store near my house in the 1990's for sheetrock and 2x4's and they had neither.  But they had a huge selection of countertop appliances!  Was I interested in a new coffee maker?  I was not.  I left and never went back.   The next year, they were bankrupt and new stores called "Lowes" and "Home Depot" opened up.

The second problem is that high-profit margin items don't stay high margin for long.  Other retailers realize there is money to be made on those items and jump into the fray - selling for a penny or a dollar less.  A price war ensues and the margins drop back down to...  reasonable.   Countertop appliances are incredibly cheap these days as a result.  Yea, this free-market thing actually works, sometimes.   So even assuming Hechinger's could "convert" its lumber clients to small appliance clients, eventually they would be undercut by a competitor, and the vaunted "high margins" would evaporate.

So when a company says, "Let's just stop selling low-margin items and just sell the profitable ones!" you know trouble is ahead.  Because people come to your business for a panoply of products, and that means you make more money on some items, and less on others - and maybe lose money on some.  This is how grocery stores operate all the time.  Can you imagine going to a grocery store and finding the shelves stocked like it was Venezuala?  "Oh, sorry, we only stock the really profitable items anymore!  You want lettuce?  We ain't got it!  How about some bottled water, organic produce, and greeting cards!  We make lots of money on those!

You'd stop shopping and never go back.    But a third problem is, of course, that stores that only cater to high-end clients, selling products at high prices, are going to run out of customers eventually - particularly if everybody decides that only the very wealthy are worthwhile clients to maintain.   There is only so much upper crust to go around - which is why we call them "1%'ers" - they are minority of the population!

Selling only items which are wildly profitable is not a rational business plan.   Eventually, you run out of customers, as they find those items for less elsewhere and are chagrined at your lack of selection.  In this "new economy" they call this the "long tail" - going after tiny market segments.  In this case, however, it is chasing the gilded tail - going after a tiny market segment that has a lot of money to spend.

Two stories in the news illustrate the Hechinger Effect in today's economy.  First, pending home sales are off once again, and real estate agents are blaming "lack of inventory".   It seems than no one wants to sell because prices are so high and people believe they are sitting on a gold mine (hmmmm... I heard that before, but can't put my finger on when or where!).   It also seems that builders are chasing the "luxury" end of the housing market because they make more money on luxury homes than on middle-class homes.   The problem is, of course, there are only so many luxury buyers.   I suspect the "lack of inventory" story is only half of it.   Real Estate Agents report lots of traffic - lots of potential buyers - but not many sellers.  But I suspect a lot of those buyers are just not willing to pay the high prices of today's housing market, and because of that, they aren't buying and few are selling.

Second, GM is reporting "double-digit profits" with its new line of full-sized SUVs and Pickup Trucks, particularly in the GMC line.  A new truck today can cost $70,000 or more, a comparable SUV over $100,000.   GM and Ford and Chrysler are concentrating on this high-margin, high-end of the market, as it makes them a lot of money.  And so far, the plan has worked.   Declining sales are not a concern, as the profit margins are so high that it makes up for lack of market share.  Again, I've heard this all sometime before, but I can't put my finger on where or when.

Oh, right, the market meltdown of exactly ten years ago.   GM went bankrupt, voiding all my GM stock.   The company was geared up to make high-margin SUVs, and when they stopped selling - all at once - they couldn't keep the lights on.   Similarly, home prices were skyrocketing, builders were putting up luxury condos and "mini-mansions" and it reached a point where no one could afford to buy these monstrosities.   And it all happened very suddenly - or so it appeared.  But the signs were all there for anyone to see, months, if not years, in advance.

Who can afford a $70,000 pickup truck?   I know I can't.   I paid $25,000 for my Nissan, and I thought that was pretty outrageous.   The most expensive car I ever owned was the M Roadster, and I paid the princely sum of $29,000 for that, used.   I have never paid over $30,000 for a car, and certainly not $70,000 or $100,000.   Yet a lot of people have these cars - I see them on the road.  The payments must be outrageous!

Of course, with low interest rates, the payments might be somewhat reasonable.  What's that you say?  Interest rates are going up?   Gee, I wonder how that will affect sales of these expensive trucks and houses?   I mean, no one can predict that, right?   After all, we've never been through a similar situation in the past, other than, of course, the exact same situation back in 2007.

Rates go up, monthly costs go up - making these things less affordable.  People are tapped out.  Car loans are already defaulting in record numbers.  People are heavily in debt.  Who is going to buy the $100,000 SUV?   Sure, the rich guy will.   There ain't a lot of them left.    There are, of course, a lot of people who think they can afford these things, but get them on seven-year loans and are "upside-down" through most of the loan period.  They can't afford to trade-in for a new one.

We can't have an economy that makes nothing but luxury goods, high-end houses, and overpriced food, and expensive cars.   There has to be an economy for the rest of us, in order for that expensive economy to work.   Because at the car factory, the country club, the gated community, and fancy restaurant, there are hundreds, thousands, millions of us plebes who put the bolts on the cars, bus the dishes, and mow the lawns.   And we can't afford these high-margin items, no matter how nice it would be for these companies to reap record profits.

Sorry, GM!  Sorry, Homebuilders!   I'd really like to help you out with your dreams of avarice.  I mean, it is a sweet dream - for you.  But it involves me handing over an inordinate amount of money for something I really don't need or want - a "look-at-me" house and a "look-at-me" car, which really aren't worth even the status value when so many people have them.

An affordable house, or an affordable car - they will sell.  And sell they did, back in 2011 or so, when the carmakers and homebuilders realized that you can't run a business catering to a small minority of wealthy shoppers.  That's not a rational business plan.

Hechinger's slogan was "The World's Most Unusual Lumber Yards!" which we used to parody as "The World's Most Cruel and Unusual Lumber Yards!" particularly after they stopped selling lumber.

Let the Trade Wars Begin!

Kentucky Bourbon and Harley-Davidsons may be slapped with a "Chicken Tax" of their own.  This does not bode well!

On a trip to Japan, I was dining with a Japanese Engineer who had just returned from the States.   The Japanese Engineers back then looked forward to visiting America - choosing an American "name" to call themselves  ("I'm Yasumi, but call me Sam'!") and seeing what 米国 was really like.  All that changed when a Japanese exchange student was shot in Texas.   But that was so many shootings ago, wasn't it?

Anyway, after a few drinks, he went on about Maker's Mark whiskey, which he bought at the duty-free shop.  "It has wax all over the top!" he said in wonderment, "just dripping down!"   At first, I was a little confused by this, and then realized in Japan, such randomness would not be allowed.   A highly trained Geisha would use a feather to sculpt the dripping wax into the shape of a crane or something.   Random dripping?   That is so American - laziness, sloppiness, randomness, Rock and Roll!

Anyway, American products do have a market overseas, and often our American-ness is what sells them.   Sadly, the Japanese have engineered the Japan-like qualities from many of their products, particularly their cars, so they no longer have the flavor of the land of the rising sun.   But American stuff?  It is of unmistakable origin.  Whether it is rock and roll, large tail fins, over-consumption or a random attitude toward quality, you can identify American-made goods a mile away.

A friend of mine actually sells American-made shoes in Japan.  Each one is hand-made and stamped by hand inside with the company name and the shoe size written by hand.  The Japanese buy them up for $250 a pair - because they are hand-made and not "perfect" like everything else in Japan.   They are also comfortable shoes, too.  I have several pairs.

Some American companies rely heavily on exports to survive.  I was surprised, touring the Harley Davidson factory and Airstream factory to hear the tour guide tell us that a substantial portion of production of those American icons was destined for overseas.   A line of trailers build to Chinese and Japanese specs was awaiting shipment on the lot at the Airstream plant.  These are, of course, a luxury item overseas - a status symbol that says you can afford to pay too much for a motorcycle or a trailer.   But they mean big bucks for their American suppliers.

Harley-Davidson, I have written about before, and they are in trouble.  Sales are down and their customer demographic is aging and dying.  Younger people neither want nor can afford $25,000 motorcycles that are driven by guys with nicknames like "Hammer".  The whole mystique of the big, bad biker dude isn't translating to a new generation - at least not yet.   Airstream is riding the RV boom right now and expanding production, according to one recent article.   They are a nice looking trailer, but prone to clearcoat failure, dents, and leaks.  And they cost 2-5 times as much as a traditional "box" trailer as well.   If a recession comes.... well, it will be hard to sell $100,000 trailers to people.

Both Harley-Davidson and Maker's Mark in the news for another reason - our friends overseas are threatening to slap heavy import duties on these luxury goods in retaliation for a Trump proposal to tariff all imported steel and aluminum (even the steel he uses in his high-rise buildings, apparently!).  It is a tit-for-tat trade war, which is how trade wars always work.   Trump is bellicose, and announces he will slap import duties on this and that, but doesn't think that other countries will do the same in retaliation.

And this is exactly what has happened in the past - with various tariffs and taxes be imposed in response to one another, until commerce grinds to a halt.   And while it only takes days, weeks, or months to impose such tariffs, they can take decades to eliminate - if ever.  The "chicken tax" is still in effect, decades after that trade spat erupted into punishing tariffs on chickens and trucks.

It's not going to stop with washing machines, solar panels, or even rubber bands.   And it will get worse over time.   American Farmers are probably our biggest exporters, and they have the most to lose.  Yet farm income is down drastically in recent years, and over half of American farmers are forced to have a second job to make ends meet.   A spate of tariff wars could kill them off, completely.

And bear in mind, it was the collapse of the farm economy that predicated the collapse of Wall Street in 1929 - and the tariff wars ignited by the Smoot-Hawley Tariff act of 1930 that made the worldwide depression carry on for nearly a decade.

This is not going to end well, and at this rate, it will make 2009 look like "good times".

Tuesday, February 27, 2018

Stock Buybacks - Another Sign of the End Times?

Trump's corporate tax cut didn't result in "investment" in America, but rather stock buy-backs that benefit a few wealthy people.  Stock buy-backs are like a snake eating its own tail.

The results are trickling in, and it turns out that the "benefit" of the Corporate tax cut is largely limited to major shareholders of corporate stocks, as well as corporate leaders who are paid in stock options.   Companies are buying-back shares to bolster share price.

I noted before that companies can "pay" shareholders in a number of ways, and one way is in buying back shares of stock - something that before 1980 was considered "manipulation" of share prices.  But the SEC ruled it was legal, and since dividends are taxed at higher rates than capital gains, many companies chose to buy back their own stock shares, rather than issue dividends.

The net result is share prices are higher, which means you have made money (on paper) but until you sell those shares, you have no taxable event.   And when you do sell, the gains are long-term capital gains, often taxed at 15%.   Pretty sweet deal if you are wealthy - and want to stay that way.

But as I noted before, a company buying-back its shares may be headed for trouble. They are not "investing" in their company, but rather taking money out of it - and concentrating more on making money for the CEO than anyone else.   And the effects on share price may be short-lived.

If a company isn't making money, cutting the number of shares isn't solving much of anything.  Moreover, many share buy-backs are in effect doing what every financial adviser says not to do - buying high, selling low - the one-way ticket to bankruptcy court.

When a company even hints it may buy back shares, as Warren Buffet did recently with regard to Berkshire-Hathaway, share prices skyrocket.  Since in most cases, share buy-backs occur when the company is flush with cash, the share prices are at all-time highs.   The cost of the buy-back is thus huge.   The company after buying back its shares, has less cash on hand and arguably is worth less than before.

When the company needs capital to build a new factory or make other improvements, they either have to sell bonds and take on debt - or issue new shares of stock.   And they are often doing this when the share price is in the toilet.   So it is classic Buy high, sell low when it comes to share buybacks and issuing new shares.

The image above is of the Ouroboro - an image used by alchemists of a snake eating its own tail.   In  a way, stock buy-backs are the same idea.  The company will eat more and more of its own tail until there is nothing left but the head - maybe the CEO with his remaining shares.  Or maybe the whole thing vanishes.   And the idea of the stock buy-back is a little like alchemy - which is one reason the SEC outlawed it in the first place.

Of course, many predicted before the corporate tax cut that this is exactly what would happen.  The fantasy that companies would use the money to build new factories was the delusion of a failed businessman who never owned or ran a factory.   If you are manufacturing cars, you don't need a new factory - auto production capacity is already way beyond world demand.   And you aren't about to move small car production from Mexico, China, Korea, or wherever, to the USA, as you would lose money on each car you made - due to the higher labor and overhead costs here.   So there is really not much you can do with this money, except perhaps finally fund that underfunded pension liability for your workers.

HA-HA!  Of course, you don't do that.  The guy at the money switch, making the decisions, is the CEO, the CFO, the COO, and the Board of Directors - all paid in stock options, and all making a lot of money if the share price can spike, even for a few months or so.   So guess what they decide to do?

You have been paying attention after all!

We went through a similar tax holiday - one-time only - in 2005 under the Bush Administration.   Companies then bought back stock, much as they did today, with their repatriated cash.   2005 was good times.  Housing prices were through the roof, and the stock market was going well.   We were winning the war on terror.   Ahhh... Good Times!   And then something happened a year or two later but I can't remember what - can you?

The problem for our economy is that even if companies built these factories with their tax cut dollars, no one would be able to buy the products.   Consumers are over-spent as it is, and cannot take on any new debts.   Overseas customers are not going to take up the slack, due to the strong dollar and reciprocal trade tariffs.  In a way, buying-back your own stock is the most logical thing to do, as you really can't do much else with the money.  "Investing" in America isn't going to make you more profits, so you might as well keep the cash.

Monday, February 26, 2018

Should I Stay Or Should I Go?

Leaving home and striking out on your own isn't easy.   It helps to have a plan.

A reader asks if he should leave home, as his parents are demanding and bossy.   This is the kind of question I am loathe to answer on a number of grounds - and why I don't like to give "advice".    For all I know, his Dad will show up on my doorstep with a shotgun and say, "what kind of crazy ideas have you been giving my boy!"

Or the advice goes horribly wrong and I am blamed for the less-than-optimal outcome.   No matter what I say, I am screwed.   Advice is easy to give, but hard to take.  And often, the person seeking advice couches the question in terms that produce a predicted outcome.   In the law business, I saw this all the time - clients coming to me wanting validation for decisions they already made, and thus leaving out critical pieces of data, so I would come to the conclusion they wanted me to reach.  I had to turn away those clients.

But the question - in general - is a valid one.  We all leave home, eventually - well, at least most of us do.   But how you do this is important, as you don't want to "bounce back" to the home and end up being castigated by your parents as a "failure" and browbeat and whatnot.   It pays to have a plan in place - a rational plan - as well as some resources to start out with.

We see a lot of people in the lower classes moving to find work.  They don't have a specific job lined up, they just pack everything into a U-Haul and move, like the Joad family - to somewhere they heard there "were lots of jobs."   A better idea is to line up a specific job ahead of time before moving out.  And if you are moving away (two separate things, really) you should visit the city you are moving to and scope it out first.

As I noted in another posting, the Wall Street Journal (an even more right-wing publication in the post-Murdoch era) took the opportunity to bash San Francisco and laud "family values" of good old Indiana, by using a young woman's ill-advised journey in life.   After high school, she told off family and friends in her home town and set out for the coast, without having any specific plan in place, other than to leave town.   As you can imagine, it did not work out well.  While the bay area has lots of high-paying jobs for college graduates and those with skills, it doesn't pay well to high-school grads and the cost of living was staggering.

Like I said, it helps to have a plan in place.  Just moving somewhere and hoping it all works out isn't really a plan.  And unless you are without any other alternatives at all, it makes no sense.

Many of us "leave home" by going off to college.  It really isn't leaving home, as you come back for holidays and maybe summer vacation - and all your crap is still in your old bedroom.   But that is one function of college - to live independently, albeit in baby-steps, first in a structured dorm environment, then maybe the first apartment, and then hopefully off to live independently.

The problem for many college students today is that jobs aren't there at the end of the pipeline.  So they move back home with Mom and Dad, which is a good temporary solution - temporary.  Again, have a plan in place to move on, eventually.  The worst thing is to sit it Mom and Dad's basement playing video games all day long, smoking pot, and collecting guns.  Too much of that shit going on these days.

My own story is pretty typical.  I "left home" to go to college - General Motors Institute.  It was a five-year program that included working half-time at a GM plant.  It was a bit like joining the military, in that they gave me a lot of responsibility and then let me sink or swim.  Oddly enough, two areas I excelled at, in the ball-bearing plant (besides the metallurgical laboratory) was in the suggestion department (a forerunner of my Patent career) and in plant engineering, writing contracts for construction projects (foreshadowing my law career as well).

Speaking of the military, many friends of mine "left home" by joining the Army, Air Force, Marines, Coast Guard, or Navy.  The smarter ones negotiated skills training in advance and banked as much of their pay as possible (as opposed to buying a clapped-out Camaro on time with the first paycheck and then drinking up the rest - as so many in the military end up doing).  One friend joined the Navy to escape the ghetto of South Philadelphia.  Another joined because his Father worked him like a mule on the family farm.  Both did very well in life.  If you don't get shot or blown up, it can be a good option for many.  Beats smoking pot in the basement.

But as I have noted before, I fucked it all up by smoking pot and flunked out.   Pretty stupid in retrospect, but I was able to recover from this error - and maybe it was for the best.  The plant closed and I probably wouldn't have liked working at GM or as an Engineer - a tough, low-paying job these days, in some areas.

So I moved back home - for a week.   The decision to leave was pretty easy.  My parents hated me and hated each other.  None of us wanted to live with the other.  I found a job and a cheap apartment within a week.  I "left home" but of course, was no more than 20 miles away.  And my parents will still supportive - emotionally (if you can believe that) and financially sometimes - helping pay tuition before Carrier took up the slack.   Within a few years, I had that job at Carrier, and bought a small house not far from the plant - and was taking at least one course a semester in night school at Syracuse University.

I left that situation to move to Washington and the Patent Office.  That was a bit of a leap of faith, but at least there was a job guaranteed at the end of the pipeline.   Not smoking pot made the transition a lot easier - marijuana tends to induce stasis in people and locks them into their current situation (such as Mom's basement) which is why I am not "against" marijuana, but don't suggest smoking it.  This marijuana oil, on the other hand, is a great analgesic - that I am not allergic to - but sadly has no THC content in it (although it smells like bong water).

Leaving is hard.  I get that.  It is hard to make decisions.  And it helps to get advice.  But it is a decision each of us has to make on their own.  And in some cases, people do desperate things to escape desperate situations.   I've met women who "ran off" with the first man they could find, to marry or live with, in order to escape abusive households.  Sadly, most went from one form of abuse to another and ended up divorced in short order.  It illustrates how hard it is to escape, sometimes, from parental entanglements.

In some fundamentalist religious communities, this is particularly a problem.  In one celebrated case, a young women left the "compound" of her parent's home and moved to the big city to find her fortune.  Problem was, she was born at home and home schooled, and her parents never registered her birth (no doubt they had an end-times shelter stocked with can goods!).   Without a birth certificate, she cannot get a job, a license, rent an apartment, collect social security or even food stamps.  She is an alien in her own country.

Sort of puts a lot of parent problems in perspective, no?

Have a plan, save up some money, find a job, find a place to live, in advance.  Don't just leave without some sort of plan, or you'll end up coming back.  And I can tell you from experience, that returning home after leaving was a very, very unpleasant little hell to go through!

Many young women in the past would run off with a man or get married, just to get out of their family home.  Often this did not work out well.

Saturday, February 24, 2018

Adversity Is The Norm

We tend to think good times are normal and that when bad things happen, that is the exception.   This is not really the case - adversity is the norm.

A reader writes that he is in his mid-40's and has a good-paying six-figure job with a financial firm.  While he and his wife are doing well, they have not saved as much as they would have liked to.   And his boss has told him that within a year, he needs to find a new job.  No doubt the firm is finding it a lot cheaper to replace him with two 20-somethings who will work for cheap and the have stars in their eyes about working for such a big, important firm!   Well, I know I did, at that age.

I wrote before how my Dad was forced to retired at age 55 - a decade before he thought he would.  And this happens to a lot of us.   Even though I voluntarily retired this year, the reality was (and is) that my practice has gotten smaller and smaller and I no longer wanted to do the work, and in some ways could no longer do the work.  The stress was literally killing me.

So expect to be laid off when you are 55 - it is the new norm.   Your "experience" and "wisdom" don't count for much in our new economy, when being current and up-to-date is more important.   And while "early out" at 55 was the norm for the last few decades (this has been going on for a long while), I suspect our reader's experience in his mid-40's is maybe the new norm, as the cost of health care and wages for even a 40-something (particularly with children) ratchet up, and younger people, although less experienced, may have a more current skill set and will work for cheap.

But in a way, even this "new norm" is nothing new.   I mentioned before how we moved several times as a family, as my Dad took new jobs with new companies.   Sometimes, he quit in a fit of pique, as his Irish temper got the better of him.   Other times, he was forced out - perhaps as an incompetent, I don't know.   All I do know is, that "Jetson, You're Fired!" was something that we grew up with in the media and our family.

And each time this happened to my Dad (and by my count, he was fired or quit or changed jobs at least four times when I was a kid, and maybe four more times before I was born) he dusted himself off, looked around, and found something else to do.   And indeed, this is what happens to all of us when we lose a job.

Even in my own practice, I had to "reinvent" myself several times.   I started off as a solo practitioner.  I expanded and tried to "go big" which ended up making me less money.   I went back to a solo practice, flirted briefly with a big firm (back when they were throwing money at Patent Attorneys) and then decided that a solo practice was maybe not such a bad thing after all - from a low-cost home office, instead of a firm with a secretary and office building.  And who knows?  Maybe I'll end up as an Uber driver (Lyft, please) escorting the Little Old Ladies (LOL's) around the island to their doctor's appointments and hair dresser.   We all reinvent ourselves.

The problem for all of us, as human beings, is that we tend to view the good-paying job as the "norm" and not the exception.   We lull ourselves into a sense of complacency about our jobs.  We get a job, hold it for a few months and then expect it to last forever.   The typical young worker, once they are three weeks on the job, takes that first pay stub to the car dealer and signs himself up for seven years of car payments, even though he is still in his probational working period and can be fired at will.

We expect the job to last forever, and are like deer in the headlights when it goes away.   And you see this all the time, in the "news" whenever they close the finger-cutting factory or the dirt mine.  "I didn't see it comin'!" Cletus says, "And I have sixteen babies and fifty more trailer payments to make!"

They paint the company as being "cruel" for going bankrupt - as if going out of business was some sort of "treat" for the company and that laying people off gave upper management orgasms.   But the reality is, losing money is losing money, and factories, mines, and offices have to close if they are no longer cost-effective.   And short of closing, often people have to be let go, if the company is losing money or could make more money by hiring someone else.

You could rail against the "unfairness" of it all, and petition the government - as British coal miners did - for relief.  But even such relief is temporary at best.   Eventually, the rest of the country gets tired of propping up antiqued technologies, particularly when you are sitting on a pile of cleaner, cheaper energy.  For the UK it was North Sea oil.  For the United States, it is cheap fracking Natural Gas.   Trump has proposed to "hobble" the gas industry to prop up coal.   But even if he can do this, eventually, a reckoning will come.   You can't hold back the tide.

In Europe, they passed laws that prevented companies from closing factories, unless the unions and local governments gave permission, first.  Opel, in Germany, was hemorrhaging cash and GM wanted to close down plants.  And as you might imagine, the union said "no" and the local governments said "no" as well.   So they sold the whole thing, lock, stock, and barrel, to Peugeot and got the hell out of Europe (being redundant here - any economy that is run by the unions is already hell).

The logic behind these laws is that the company owes an obligation to the workers, the community, and even their customers.   But if the customers stop buying, or stop paying enough for the product to make a profit for the company, where is the reciprocal obligations from the community, the workers, and the customers?  It is a one-way street, which is why, when the next recession comes, it will strike Europe harder than the US.

But I digress.

The point is, adversity is the norm in life.  The "norm" for the vast majority of human beings on this planet is a daily struggle to make enough money to feed their families, put a roof over their heads, and have a modicum of comfort in their lives.   Normal is not ease and leisure - that is an aberration.

Why do I say this?   Because that is the norm for all species on this planet.   We breed and expand until we fill every environmental niche, and we keep doing this until it is painful to exist - until we are competing for resources and barely able to survive.  That is normal for most species, including humans.

We built a porch on the front of our house and put a bird feeder in the ancient magnolia tree that towers over us.    A few birds showed up, and we liked sitting there watching them, so we added a few more feeders, a suet cage, and a birdbath - the latter of which was immensely popular.  Do you know how hard it is to get fresh, clean drinking water in the wild?  Ask someone living in sub-Saharan Africa - they'll tell you.

Pretty soon, more and more birds came - and they all decided this was a neat place to live, build a nest and lay eggs.  A few weeks after, Mom and Dad Cardinal are strutting with their juvenile cardinal families - showing them how to hunt and peck for fallen seed, and how to land on the feeder.

But of course, others have shown up as well.  Squirrels scour the ground for spilled seed.  Raccoons and possums show up at night for anything the squirrels missed (or to dig for what they buried).   We created a vacuum, so to speak, and air rushes in to fill it.

But pretty soon, the squirrels, too, have bred, and there are dozens of them around the tree.   And pretty soon, they are not content to merely scavenge seeds thrown out by the noisy titmouse or the sloppy wren.  They start attacking the feeders - lounging on them and sucking them dry of seeds.  Or they nibble through the guy wires to bring them crashing to the ground.   They gnaw through the screen and invade our house.

For a few short months, it was nirvana for birds and mammals alike.   Seed for everyone, in a safe environment where there were no Cooper's Hawks swooping down (they, too, eventually show up, and take their toll, particularly on the doves).  But population pressures - from breeding as well as "migrants" immigrating from neighboring trees - equalize things until the halcyon days of the feeder are behind us, and now it is a virtual war zone.

A new normal has been established - and in fact, it was the same as the old normal, before we humans intervened.

And perhaps that is why I am very content in life - but always expect it to go bad in a real hurry.   I was fortunate to be born in a time and place of relative prosperity, something that is an anomaly in the history of mankind, or indeed, the world.   If you look at our history, and pre-history, you'll see an endless struggle of wars, famine, pestilence, and suffering.   This is how the universe is programmed to work.

Sure, we can try to fight against this tide - that was the entire point of this thing called "civilization" (well, that, and banding together to fight off invaders, thank you very much Mr. Viking!).   But you can't merely pass a law saying that everything should be prosperous, as many Trump supporters would like to do (they posit that the previous generation had it "lucky" and that we can pass laws to reclaim this luck - by throwing out immigrants and erecting trade barriers - but we know how that will pan out, right?  About as well as Welsh coal miners did).

The good news is this:  When one opportunity disappears, there is always some other opportunity.  Maybe it isn't as lucrative as the old one, but it will be there.   The secret is to not waste time pining about lost opportunity, but rather concentrate on the new one.   And it is also important to realize that our struggles define us, and that a live without adversity is really not a life at all.

Old Mr. Hitler wrote a book called "My Struggle" (Mein Kampf) which is somewhat ironic, in that he really didn't struggle too much in life.   Rather than work hard to get where he wanted to be, he used the time-worn tactic of blaming his woes (and that of a nation) on government, policies, and of course a scapegoat - the Jews.   It was the antithesis of "struggle" really - and what we are seeing today with a lot of these 20-something "alt-right" kids living in their parent's basement and asking Mom to watch their cat while they go kill someone at a hate rally.   Yea, that actually happened.  Last year.

This new generation of Nazzies is using the same playbook.   All of their troubles are not because they are undereducated, lazy, using drugs, playing video games all day long, spending every last penny they have on guns, and acting creepy (which turns off the opposite sex, as well as employers).  No, no!  There are larger things at stake here!   Government policies that must be overthrown!  Transgender Lesbian Mexican Illegals are taking all our jobs and taking over the washrooms!   How can I get a job, Mom, when all these sorts of burning issues are at stake here!

But once again, I digress.

But maybe not.  There is a thread connecting all of this.   You have to look out for yourself in life, and by this, I don't mean going down to the car dealer and signing loan papers or taking out a vacation loan to go to Disney.   We tend, in this country, to think that borrowing as much money as possible is a "normal" thing to do.   Indeed, the vast majority of Americans are hopelessly in debt, particularly credit card debt, and a huge chunk of those are over 30-days late on their payments.

Shit happens, as they say.  And it is not only a predictable quantum event, but an inevitable one.   And maybe living here on retirement island for a decade is one reason I was able to turn my life around.  Every day, I read an obituary in the paper, or hear about a friend who has fallen ill, or is in hospice care.   That's how this game works - this game called life.   You are born, you live a few years, you make a few bucks, you get old, you get sick, and you die.   And you have no choice in this matter.  Adversity is the norm, and death is the ultimate adversity.

Now, to some, that sounds depressing, so they'd rather not think about it.  But it is reality, and reality is value-neutral.  It just is what it is.   How you perceive reality is the key.

As for our intrepid reader, I think he is going to do OK, as he has the right attitude about the whole thing.   But like most of us, he wonders where all that good money he made went.   And that was sort of the point of this blog - as a middle-class person with a "good-paying job" I wondered where all my money went as well.   And as I have realized over the years, not to any one thing, but a panoply of small things.  I got into the habit of not checking prices, or going to restaurants I really couldn't afford, or signed up for subscription services that leaked out my net worth, a dollar at a time.  I got into the habit of assuming that my "good-paying job" would be around for a long time.

Friday, February 23, 2018

Luck, Skill, Smarts, or Hard Work?

"I find the harder I work, the more my luck improves" -- Thomas Jefferson

"Luck Favors the Prepared, Darling!" -- Edna Mode

These two quotes are illustrative, although the first is attributed to a man who owned (and slept with) slaves, so a lot of the "hard work" was not on his part.  The second is attributed to a fictional character.

A reader writes, am I just plain lucky to be where I am in life?   Well of course I am.   I never said otherwise.  However, luck can be quickly squandered - as I did for much of my life.   You can have the greatest opportunities in life and screw them up through depression, drug use, low-self-esteem, poor life choices, and so forth.

But when it comes to luck, what sort of luck am I talking about?

1.  Where you were born:   Being born in the United States of America was the first piece of luck I had.   The same would be true for most Western Countries, and some non-Western countries as well.  If you are born in a country where people are well-fed, the drinking water isn't deadly, and there is some modicum of health care, you are doing better than 50% of the planet.  Immigrants from the other half of the world come here and thrive, because they know a good thing when they see it.  Native-born Americans whine and complain about how awful things are, but they don't realize the most basic things in their lives - such as a sufficient calorie intake for the day - are rare luxuries for most of the planet.

2.  When you were born:  Being born in China today isn't such a bad deal.  Being born in China in 1950 would suck.  The country was poor and isolated, and Mao's policies lead to mass-starvation, not to mention the "cultural revolution".   Timing is everything.   I missed out on all the fun of the great depression, World War II, Korea, and Vietnam.  Too young for the draft, too old for Desert Storm. While I came of age during a pretty major recession, I was in my prime working years during some of the biggest boom times of the late 20th Century.

3.  Cultural Values:  My parents valued education and I was raised in a house full of books.  As a child, my brother and I would amuse ourselves reading the encyclopedia.  We were expected to do well in school and go to college.  It was not even a question.   This, more than anything, was the greatest legacy my parents left me.   Because it is what made me who I am.

4.  Wealth:   I list this one last, as it is important, but less important than the first three.   You can be born into a wealthy family and still end up broke - or depressed, or suicidal, or just plain stupid.   And I've seen it all. Both of my parents were one or two generations removed from poverty.  My Father's Dad was a ne'er-do-well alcoholic who squandered every penny he made.   My Dad had to crawl his way up the socioeconomic ladder, one rung at a time.   My Mother's Dad worked his way through law school - because his Father committed suicide at age 30.   So while my parents were comfortably "middle class" they were hardly wealthy or from wealthy families.

So yes, luck factors into it.   But it is less a matter of being in the "lucky sperm club" as my reader puts it, than being born in the right place, time, and having the right cultural values.   Having enough money to get by helps, too.  But often lack of money is also a motivator.

I had the privilege of working for two excellent attorneys who were senior partners in their respective firms.  Both came from poverty and worked their way to the top. When my Dad lost his job in Rochester, we lived briefly in Old Greenwich, Connecticut, while he took a contract job in New York.  It was the second time my parents lived in that tony Connecticut suburb, as an upwardly-mobile middle-class executive family.

My boss at the time, who was not much older than I am, lived above the Italian grocery store that his parents ran.  They were hardly poor, but they were not the upper-middle-class suburbanites that populated that small town.   He came from poverty, and I ended up working for him.  No doubt, my Mother bought salami from his Dad.  He thought the irony was hilarious.

Later on, we moved to upscale Lake Forest, Illinois.  And while I was going to school there - and my brother to the tony Lake Forest Academy - my next boss was growing up on the South Side of Chicago.   He got beat up every day on his way to technical high school.  His Father ran a television repair shop - not exactly poor, but not wealthy by any means, either.   Again, the contrast in our lives is telling.  He ended up my boss, while it is likely my Mom had her TV repaired by his Dad.  Again, he relished the irony.

And I find this a pattern in America - which is one reason being born here is a big lucky break.  People born into poverty or at least lower-middle-class are often the most motivated to strike it rich, though education and hard work.  And in the case of both of my bosses, their families valued education and hard work - driving it into their children's heads that they had to get ahead on their own or else.

Others, well, maybe less so.  In many subcultures in America - urban and rural - seeking an education is seen as elitist or worse.   You are literally punished for doing well in school.   And the end result is, well, about what you'd expect.  Generation after generation of poverty - a lack of "luck" because of poor cultural norms above all else.

And I wonder if my reader is trying to argue (or troll me) that I am just "lucky in life" and thus he can discount whatever it is I have to say.   After all, if becoming successful is just a matter of luck, then why bother trying?  Pass the bong, please.

But getting back to "lucky sperm" there is a flip-side to your inherited DNA.   Again, I tend to think genealogy is bunk, and that your life is determined, to a large extent, by what you do and how you decide to think.  But your immediate DNA from your parents does make a difference in your life.  And as I noted, my Mother's family had a history of mental illness and suicide.  My Father's family a history of substance abuse.

My Mother was bi-polar and an alcoholic - who would get drunk, get into fugue states and start attacking people with kitchen knives.   Some fun.   My Dad liked to drink as well, and as a result, he and Mom got into a lot of loud and violent arguments when I was growing up (and before and after as well!).   Sadly, this DNA seems to have been passed on to some of my family members, who struggle with mental illness.  And I am sure it affects me as well.

As I noted before, I squandered most of my teenage years and 20's through drug and alcohol use, as well as depression and feeling sorry for myself.   It was a lost decade - nearly a decade-and-a-half.   Is this part of my "lucky sperm" as well?   What it does illustrate is that you can have all the luck in the world and throw it away in a fit of pique.   My older siblings, being born in the 1950's and raised in the 1960's, (that timing thing, again) fell for that whole "materialism is evil, man!" bullshit, which was probably promulgated by the 1960's equivalent of the Russian troll farms of today.

As a result, they sort of squandered their legacy by being underachievers - again a lost decade, or two, or maybe three.   You can have all the "lucky sperm" in the world and it doesn't make much difference if you don't take advantage of it.   And again, as I noted before, growing up in fairly wealthy communities (where my parents desperately tried to fit in, but being strivers were never really accepted) I saw the children of the rich descend into the hell of drug abuse, alcoholism, depression, mental illness, and suicide.

I think perhaps my reader is under some misapprehension that my blog is aimed at the poor - giving out hints on how to strike it rich by saving bottle caps.  Or maybe one of these "extreme retirement" gigs that promises you can retire at age 30 on $7,000 a year.  It is neither.  And I never said it was either of those things.

Rather, as I have noted before, I am just trying to figure out how I got to where I am today.   When I started this blog - whose ten-year anniversary will be this year - I was pretty clueless with money.   I had managed to pull myself out of the nosedive I was in when I was in my 20's by giving up pot (and even beer, for nearly a decade!) and going back to school, finishing my Engineering degree, working my way through law school, and starting my own law practice.   I took my greatest asset - my parents' valuation of education - and put it to work.   14 years of night school later, it paid off.

I was doing well - making a six-figure income - and spending it as fast as I made it.   I had all the toys and accessories of a "wealthy person" in the United States, but also a lot of debt.  And I could sense that the day would come - and come soon - that I would be forced to retire early, much as my Dad was, at age 55, when he was forced out of his job.

So I started examining my life and my financial habits.  And at first, I started chipping away at the edges - saving a buck here, two bucks there.   Finally, I slew the scared cows - the collection of cars, boats, and other depreciating assets that I would "never sell" as well as the vacation home.  Once I got rid of "stuff" I realized I actually had some wealth.   Not only that, I didn't have to work so hard - or maybe not at all.

There is a pattern here - luck followed by squandering of luck.   I was very fortunate to make money in my law practice - and in real estate (where the bulk of my wealth came from) - but almost managed to squander all of it by spending it on stupid things.  Well, they weren't all stupid, but maybe we just spent too much.  In retrospect, some of the best things we had were the ones we spent the least on - another painful lesson I have learned.

I never expected an inheritance - and learned early on never to rely on one.   I was shocked when my Dad died a year ago, that he hadn't spent all of the money my Grandfather had left to my Mother.  It wasn't a lot of dough - not enough to retire on - but it was a welcome addition to the money I had already saved for retirement.  I presumed my Dad would have already spent this, as he had to retire early, and as a result, his need for money in retirement was greater.   Although I had already made my retirement plans at this point, it certainly made things a little easier, adding another 5% to our portfolio.

Similarly, when Mark's parents died, he did get a small inheritance.  But this was not so much a "legacy" of wealth handed down from generation to generation, but rather the amount of money they had for retirement but had not yet spent.   The idea of "money batons" is somewhat flawed, at least for the middle-class.  If a "money baton" is to have any value, it should be handed to you at the beginning of the race, not when you are very near the end yourself.  What the middle-class is inheriting isn't legacy wealth, but what their parents' had left-over when they died.  For my Dad, this was a 1938 Buick, that need a ring-job.   He always seemed a little bitter about that.

Today, many in the middle-class are finding their parents are leaving them with insolvent estates - not only not having anything "left over" but being heavily in debt as well!

Luck is a big factor in life - but not the only factor.   Hard work, native intelligence, cultural values, education, opportunities (and the ability to perceive them and act on them) are also important. I would argue that no one factor is really indicative of success.  If you use a lack of luck as an excuse not to try, your destiny is preordained.   If you squander the luck that you have - as I did and many in the middle-class still do today - the outcome is also predictable.

The most successful people in the world today are not successful because of good luck, but often in spite of bad luck.  And in that manner, good luck can be a bit of a curse - in that is discourages people from trying.   Not because the children of the wealthy are lazy and indolent, only because they often are making a rational decision-matrix choice.

If you stand to inherit enough money to never work again - as some friends of mine have - you can either double-down that bet by investing it and trying to leverage it to make more money - as two of the Koch brothers did.  It is risky, as you could lose it all.   Or, you could be like the other two Koch brothers and simply spend a quiet life spending that money and being a "philanthropist" of some sort - which is the safe bet.  Most choose the safe bet.  I know my wealthy friends all did.  And it makes sense, logically.

For those of us in the middle-class, however, that decision matrix doesn't apply.  We don't stand to inherit enough to live on, and thus have to build up our own estates - this is not optional.  In a 401(k) world, you have to spend less and save more, if you want to get ahead.    Luck or no luck, that is pretty much how it works.

What Caused the Great Depression? (Rubber-Band Man)

Could rubber bands trigger another depression?  Not by themselves, no.  But they are a sign.

Another day in the Trump administration, and another anti-dumping complaint filed at the International Trade Commission.  I wrote before about the ITC and why it is important - more important than who is "in" and who is "out" in Trump's inner circle this week.  While the Times and the Post keep you up-to-date on that oh-so-important White House gossip, real policies are being made behind-the-scenes - real policies that will affect you more than who Trump threw a lamp at yesterday.

And they really aren't behind-the-scenes, either.  It is just that the news today wants to report on juicy gossip because we all click on it, and that sells ad space.   Well, maybe we used to click on it.  Myself, I find the stories boring and repetitive.   "This week, the Russia investigation has new bombshell revelations that won't amount to much, and [fill-in-the-blank] trusted Trump adviser is on the outs!  He may resign by the end of the week!  Stay tuned!"   But nothing ever comes of this, at least not so far.   Meanwhile, down at 4th and D streets, a panel of Administrative Law Judges just increased the price of washing machines by 50% and nobody in the press notices.  I'm glad I bought mine, two weeks ago, needless to say.

What caused the great depression?   And are the same forces at work today?   Disturbingly, I think so.  As others have noted, there was no one "cause" of the great depression, but a "perfect storm" of falling farm income, an over-inflated stock market, and a tariff war that clamped down on world trade.

Long-term underlying causes sent the nation into a downward spiral of despair. First, American firms earned record profits during the 1920s and reinvested much of these funds into expansion. By 1929, companies had expanded to the bubble point. Workers could no longer continue to fuel further expansion, so a slowdown was inevitable. While corporate profits, skyrocketed, wages increased incrementally, which widened the distribution of wealth.
The richest one percent of Americans owned over a third of all American assets. Such wealth concentrated in the hands of a few limits economic growth. The wealthy tended to save money that might have been put back into the economy if it were spread among the middle and lower classes. Middle class Americans had already stretched their debt capacities by purchasing automobiles and household appliances on installment plans
There were fundamental structural weaknesses in the American economic system. Banks operated without guarantees to their customers, creating a climate of panic when times got tough. Few regulations were placed on banks and they lent money to those who speculated recklessly in stocks. Agricultural prices had already been low during the 1920s, leaving farmers unable to spark any sort of recovery. When the Depression spread across the Atlantic, Europeans bought fewer American products, worsening the slide.
When President Hoover was inaugurated, the American economy was a house of cards. Unable to provide the proper relief from hard times, his popularity decreased as more and more Americans lost their jobs. His minimalist approach to government intervention made little impact . The economy shrank with each successive year of his Presidency. As middle class Americans stood in the same soup lines previously graced only by the nation's poorest, the entire social fabric of America was forever altered.
It was a boom time for the STOCKHOLDERSTOCK PRICES soared to record levels. Millionaires were made overnight. Sound like the stock market of the 1990s? Try the New York Stock Exchange on the eve of the GREAT CRASH in 1929.
Although the 1920s were marked by growth in stock values, the last four years saw an explosion in the market. In 1925, the total value of the NEW YORK STOCK EXCHANGE was $27 billion. By September 1929, that figure skyrocketed to $87 billion. This means that the average stockholder more than tripled the value of the stock portfolio he or she was lucky enough to possess. 
In his LADIES' HOME JOURNAL article, "Everyone Ought to Be Rich," wealthy financier JOHN J. RASKOB advised Americans to invest just $15 dollars a month in the market. After twenty years, he claimed, the venture would be worth $80,000. Stock fever was sweeping the nation, or at least those that had the means to invest.
Fueling the rapid expansion was the risky practice of buying stock on margin. A MARGIN PURCHASE allows an investor to borrow money, typically as much as 75% of the purchase price, to buy a greater amount of stock. Stockbrokers and even banks funded the reckless SPECULATOR. Borrowers were often willing to pay 20% interest rates on loans, being dead certain that the risk would be worth the rewards. The lender was so certain that the market would rise that such transactions became commonplace, despite warnings by the Federal Reserve Board against the practice. Clearly, there had to be a limit to how high the market could reach.

Stop me if any of this sounds familiar.   Today we have ordinary people speculating in the market, using margin trading.  Ordinary people are "banking" on unregulated Bitcoin and then wondering where their money went when an unregulated "exchange" loses it to hackers.   Agricultural prices and farm profits are at a 12-year-low.  The evil 1%'ers control 1/3 of the money in the economy, so that the low-paid working class can't afford to buy the products their companies are making - but are borrowing more and more money to do so - and defaulting in record numbers.  And after years of record growth, the stock market suddenly explodes - and contracts - the same instability pattern we saw right before "black Friday" in 1929.  The parallels are frightening.

The article is missing a couple of points, however, and one of them is the Smoot-Hawley tariff act of 1930.  And many economists think this was the final nail in the coffin that sealed the deal and lead to the great depression - and extended its effects.

Republicans were always, since Lincoln's time, for "God, Country, and the Tariff!" which meant they favored Northeastern business interests.   In recent years, however, the GOP has moved away from tariffs, correctly figuring out that they don't encourage trade and industry, but stifle it.   A country cannot "go it alone" in a "we first" environment.  You have to trade, so that people buy your products while you buy theirs.   But a new President has different ideas.

Today, the Smoot-Hawley tariff act is still around, but in a new form.  We still have the 20% "chicken tax" from the 1960's, that slaps a tariff on imported small trucks in retaliation for a European chicken tariff.  This illustrates how hard it is to get rid of tariffs, once they are implemented.   We also have the International Trade Commission, which will instigate a "section 201" proceeding as well as anti-dumping complaints.   A company can allege that its industry is harmed by imports and/or that importers are "dumping" products for below cost to harm their industry.   If the panel of Judges at the ITC agrees, an import duty may be assessed to even the playing field.  If the President signs off on this, duties can be imposed, which in turn, raises prices for everyone.

President Obama did this with Chinese-made tires.  Unfortunately, when these sort of tariffs are enacted, they don't result in the US industry gaining market share or making more profits.  Instead, everyone raises prices across the board.   If a Chinese-made tire now costs $200 instead of $100, then the Goodyear people can raise the price of their comparable tire to $200 and make more money.   Going after market share might seem like the logical thing to do - by keeping your price at, say, $150.  But in terms of overall profit, you are better off selling fewer tires for a higher profit margin.  And since the consumer no longer has a lower-cost alternative, they have to pay more.

Today, we are seeing this last piece in the depression-puzzle falling into place.  Today, it is something as apparently trivial as rubber bands.   But this sort of complaint illustrates how easy it is for domestic industries to enact protectionist tariffs, particularly with a new administration who is unabashedly "America First!"    And so far, American industry feels emboldened - trade complaints at the ITC are up 81% since Trump took office.

Maybe rubber bands aren't the end of the world.   But you add in washing machines, and solar panels (the latter basically killing off the solar business in the US by making panels so expensive they no longer make economic sense) you start to see where this is going.  Higher prices will lead to inflation.  American workers - even with raises in a low-unemployment era, won't be able to afford goods.  And reciprocal trade tariffs will make US-goods and crops unaffordable overseas.  The 1% will see their investments falter, as the companies that they own and invest in, won't have customers for their goods.

But I suspect, like Joseph Kennedy in 1928, they are already pulling out of the overheated market - letting the small investor with their dreams of avarice, take the fall.

Will history repeat itself?   I guess we'll find out.

Thursday, February 22, 2018

Vacation Loans? A Sure Sign Your Finances Are In Trouble!

Borrowing money is never a good thing.  Borrowing for frivolous things is even worse.

I wrote before about borrowing money and why it is never the "answer" to anything and should be approached with trepidation - and only for the serious things in life.   I touched on vacation loans in that article, but realized I never expounded upon it.  Borrowing money for a vacation is akin to borrowing money for a restaurant meal.   But people do both.  And people end up in credit trouble as a result.

Driving through Orlando, Florida, I wondered what the cost of a "Disney Vacation" for a family of four would be.  And I imagine, with airfare, car rental, hotel rooms, park admission, meals and souvenirs, it could easily run $10,000 or more, particularly if you stay "on property."   It is an expensive way to have fun, to be sure.

But even lesser vacations can be expensive.  A simple cruise that costs "only" $199 can run $2000 as I noted before.  A "$799 cruise" can run $7000 when you add in all the extras and costs.  Vacationing isn't cheap - at least the way the vacation industry wants you to do it.  There are cheaper ways to have fun.   But to some folks, unless the money meter is running (and an internal combustion engine is running somewhere) it ain't fun.  I feel sorry for them.

Borrowing money for a vacation is particularly idiotic.   You spend $1 on a vacation and pay back $1.25 with interest.  Why not just save up the money for vacation?  Oh, right, utter lack of financial discipline.  The same emotional thinking that decides you "need" an expensive vacation or are entitled to one, or worse yet, you need to take one to have bragging rights with your neighbors.  Oh, yes, that.  Old status rears its ugly head once again.

But long after the memories have faded, and you've pooped and peed out all that vacation food and drink, the vacation loan payments keep coming.    At least with a car loan, you have something in your driveway to show for it - even if it is depreciating faster than the loan balance.   But a vacation loan?  It is like buying a Big Mac on a credit card, spending a year paying on the balance, then refinancing it over 30 years with a home equity loan.

Any by the way, paying for a vacation on a credit card and then taking a year to pay it off, is no better than the vacation loan - in fact, it is the same thing.

Americans complain the are taken advantage of, and that the "evil 1%'ers" took away all their money.  But the reality is, they give away all their money to the 1% in terms of buying stuff and spending on stuff they don't really need and then paying interest on these purchases, often doubling the price.

This is not to say you shouldn't take a Disney Vacation.   No, please go ahead.  You see, I am a shareholder, so if you run up ten grand in debt to see the "magic kingdom" then I make a few bucks in the deal.   And since I own stock in the bank, I make a few bucks on the interest you pay.

You see how this works, now?  Please send me more of your money!

Now, I have been to "Did-ney" myself, a couple of times (which is about enough, really - it doesn't change much, and people who form Disney "gangs" or clubs or have annual memberships are not very bright people - or they enjoy repetition).  It was fun, but we didn't borrow money to do it.  Similarly, we've been on a couple of cruises, and they were OK, but we didn't borrow money to do it.   These things are costly enough, without adding to the cost by borrowing.

Can't afford to go?   Borrowing the money doesn't make it "affordable" but only even more unaffordable.   Either find a cheaper way to go, find a cheaper vacation, or realize that your finances are in no shape to be "treating yourself" to anything.

A vacation need not be expensive.  Maybe it isn't the orgasmic experience of Disney, but we enjoy camping in our RV, which we paid $8750 for, more than ten years ago.  Camping out along the Blue Ridge Parkway and hiking is a lot of fun - and doesn't cost much.   Certainly not enough to require a loan.

I dunno.  Borrowing money to go on vacation just seems so wrong.  And it is a shame so many Credit Unions promote this sort of thing.   But I guess they have to make money, too.  And the easiest way to make money is from other people's lack of financial acumen.

Driving for Uber - A Real Job or Just Selling Your Car to Uber A Little Bit At A Time?

If you drive for Uber, are you really making money or just selling them your car a piece at a time?

In an earlier posting about pizza delivery, I opined that it really wasn't that great a job.  Desperate people take these kinds of jobs and hope to make some extra cash, as I once did.  If you wreck your car, you may find that the damage isn't covered under your collision insurance - which is written for non-commercial use, only.  Want a commercial policy?  That would cost you a ton of money.

When I worked for Domino's, and asked them about this, the manager's response was, "Well, don't tell your insurance agent!" which was less than helpful.  And as I recounted, a young friend of mine wrecked his brand-new Jetta, and the insurance company refused to pay out the claim.   Only 36 more payments to go, on a car that was in the junkyard.

But what about Uber?  Surely, that has to be a good deal, right?  Maybe.  Maybe not.  I opined in an earlier posting that Uber was basically a shitty job - driving a taxi - made shittier by Uber.  Getting hard numbers about how much money you'll make is hard to do.  This Uber site talks about a lot of things - including how they provide liability and "contingent" collision and comprehensive insurance.   But in terms of specific dollar amounts earned, it is very vague.  It just says "click here to sign up!"

This Time/Money site is also less than helpful, but provides dollar amounts, from surveys, in terms of dollars per month, and dollars per hour, but not dollars per mile.  The latter is more important in determining whether you are actually making money at this gig.   Cars cost money to own and run, and people have a naive notion that the cost of gas is the only cost in running a car.  As I noted in another blog posting, it can cost $8,000 a year to run a $25,000 car - something that a lot of people simply don't see coming.  You can figure on about 50 cents to a buck-per-mile to drive your car, according to the AAA.  And if you are being paid $15 to drive someone 15 miles, you really aren't making much money in the deal.

The Time/Money article does provide this interesting insight:
Campbell recently conducted his own study, which polled 1,150 drivers from both Uber and Lyft. He found that the average Uber driver made $15.68 per hour before factoring in expenses like gas, maintenance, and depreciation. (Lyft drivers in the survey made $17.50 per hour before expenses, and reported much higher satisfaction than Uber drivers.) The study also revealed an interesting breakdown that showed hourly earnings on Uber and Lyft deteriorating by age.
Let's assume an average of $15 an hour for an Uber driver, and for every hour "on duty" he is driving 50% of the time.   The average car drives about 30 mph between combined city and highway traffic (at least according to the trip computer on my old BMW).   In city traffic, the average might be only 15-20 mph.   So if you figure for every hour worked, you are driving half the time, an average of 20 miles an hour, or about 10 miles.   That means you'll spend anywhere from $5 to $10 just on car operating costs.   Your "wage" for driving would be anywhere from $5 to $10 an hour - or about what you'd make at Wal-Mart.

Now granted, you might make more on "surge" pricing, and if you drive more, you might make more.  But the more you drive, the higher your car costs are - at least the variable costs.   And the problem with driving the car more is that the more miles you put on it, the more it costs you in terms of depreciation.

Worse yet, Uber promotes leasing deals so you can lease a car and drive it for Uber.  Problem is, most leases have mileage limits, and taxicabs (which is what you are) can put hundreds of thousands of miles on the odometer within a few years.   You might end up paying more than you are making, driving that additional mile.

Again, it is difficult to figure out exactly what the numbers are - the Uber site is specifically vague in that regard.   Needless to say, no one is getting rich driving for Uber - or Lyft for that matter.   It is a job you take when all other options are not available, or you need that second job to make some extra cash.  And by "extra cash" it seems to be about $300 to $350 a month - hardly enough to cover a car payment!

Whether it is worth it or not is something you might be thinking about the first night some drunken patron barfs all over the back seat of your car...