Wednesday, October 30, 2019

The Drone Wars

Why are some of us just working drones, while others are fabulously rich?

Two incidents in my life recently got me to thinking. First, a reader writes that they read a Cheapism listical that mocked being frugal, which made them question their own frugality.  Then, they found my blog posting which pointed out how the Cheapism article was just sensational click-bait designed to make people feel good about their over-consumption (and appease advertisers, of course), which reinforced their own internal compass.

As I noted in that blog posting, I have been approached not once, but twice by "reality television" recruiters who wanted to do a show about frugal people - and how they annoy their families with their frugality.  They want to make being frugal sound like something stupid.  Nothing scares the 1%'ers more than if people stopped spending money on wasteful things.  If you stop borrowing money, how are they to live?

The media - nearly all of it, including (and especially) the internet - is funded by advertising.  We have no one but ourselves to blame here, as none of us wants to pay for anything, and we tolerate ads as the price for free content. The problem with this model isn't just that we have to sit through annoying ads - which we all claim do not influence our purchasing decisions, of course - but that the media content itself is skewed to favor the advertisers.

A television show, movie, or even a blog entry will include product placement as a form of subliminal advertising. But worse than that, content providers - including the "news" and "investigative journalists" will never present stories that show their advertisers in a bad light, or even suggest or imply that something other than rampant consumerism is normal.  On the contrary, as the Cheapism article shows, and as these "reality television" shows teach, being frugal is for idiots and morons and crazy people.  After all, everyone eats in a restaurant, several times a week - right?  And you should order your own entree - and appetizer as well!   Anything less is being stupid, dummy!

Wealth, according to the media, is like weight loss - something you buy with a swipe of a credit card.  And they sell this, all the time.   Buy the right weight loss shake, exercise bike, or join the latest trendy exercise class - often some old-time exercise (stationary bicycle) repackaged and given a trendy name ("spin training!").   Of course, you can't buy weight-loss, it takes real effort, and most of us fail at it miserably.   But when you've spent $500 on cake-shakes, Jenny Craig, a gym membership, and a treadmill that serves as a laundry rack, you get doubly-depressed.  Why not wash away your cares with a 1,000-calorie Starbucks "coffee" drink?  Get the scone while you're at it.  Stop by the SUV dealer on your way home, too!   Depressed people make excellent consumers!

Last night I met a nice couple at our favorite local restaurant (the fried shrimp is to die for).  She made the comment that she spend a working life at a company from nine to five, and was ready to retire.  It irked her that there were all these managers who seemed to do nothing but walk around with a cup of coffee and talk about their golf game - sort of like a scene from Office Space.   Why are some of us working drones, and others rake in the big bucks for apparently doing nothing?

I realized these two incidents are related.  Most of us are drones, and it is, whether we like to admit it or not, a lifestyle choice. We trade-in our dreams for a new SUV or a fast-casual restaurant meal every day.  We get our investment advice from a guy who shouts at the television screen and exhorts us to "Buy!" and "Sell!" and we listen to him as if becoming rich - like losing weight - was something you could purchase, like a weight-loss plan.  We forget the shouting guy is a former stock broker - whose track record of investment advice is routinely trounced by monkeys and dart boards.

But most people don't see this. They watch hours of television a day - 4.6 hours on average. And while many are "cutting the cord" on cable television and switching over to the Internet, the Internet is now being whored more than ever before.  This year alone, it seems that Google has changed its algorithms, every so slightly, such that your "search results" are mostly advertisements.

And the advertisements - in every form of media - is for consumption.  Worse yet, the programs and content itself are often cheerleading the consumption lifestyle.  As I noted before, there are ads a-plenty for shitty deals out there - payday loans, title pawn loans, buy-here-pay-here used cars, auto leasing, home equity loans, and so on and so forth - but none for fiscal responsibility. The media even glamorizes seriously self-destructive behavior, such as drug and alcohol abuse. Entire television series are given over to drug dealers and drug users, glamorizing or at least normalizing the worst forms of drug abuse.  Hey, all those rock stars did coke, right?  A little crack ain't gonna hurt me!

I call these normative cues in this blog.  Maybe I read that term somewhere, or maybe I invented it. Either way it is a very simple thing - subtle social cues that tell you, often subliminally, that something is "normal" and you should not be alarmed about participating in it.  Portion sizes in restaurants are a simple example.  Many of these fast-food, fast-casual, and casual sit-down restaurant chains present entrees which are well over 1,000 calories, some of them close to 2,000 calories or an entire day's worth of caloric input.  The menu  is structured to make it seem acceptable to order an "appetizer" (because you need something to stimulate your appetite, right?) and of course, have a sugary soft drink, a few beers, and a plate of chips or basket of bread. You assume this is all "normal" as everyone else in the restaurant is eating this way and the way the menu is structured, it reassures you that this is what is expected of you.   And people wonder why we have an obesity epidemic.

I recounted before how the media portrays the lives of us "ordinary folks" (the drones) in fantastic ways.   Mary Tyler Moore, on her television station salary, is going to buy a brand-new convertible - right?  Or better yet, almost every television show (such as Glee!) features the protagonists buying a fancy car in one episode and after realizing they could not afford it, take it back to the dealer for a refund, because you know, that could happen. Ordinary clerks and workers are shown living in fabulous houses or apartments that are well out of the reach of ordinary clerks and workers.  When we lived near Washington DC, we always got a hoot out of spy thrillers which showed some low-level government employee living in a townhouse in Georgetown - a townhouse that even Obama couldn't afford!   When shooting the movie, they have to take out all the upscale furniture the real owner of the property has, to make it seem plausible that a GS-9 could live there.

If they are not depicting us as engaging in over-consumption, they depict us doing kooky things, like painting our house, car, and face in team colors or refusing to mow our lawns.   The message is clear:  the only thing you can do, as a drone, is to waste your time, energy, and money.  Go kooky or go home.

Of course, if you watch all of this, and believe it as an accurate representation of life in the United States, you will become profoundly depressed. Why isn't my life as fabulous as the people on television or the big screen?  Well, it can be, if you fake it on Facebook.  Just take 1,000 selfies the next time you are on vacation, until you get the perfect one that makes you look glamorous, so you can impress your friends.  It is kind of sick, actually - the status-seeking we all crave.

And when we fall victim to this status-seeking, we end up selling our lives for some trinkets and baubles, and we end up as perpetual drones or serfs.  Now, this is not to say that if you scrimp here and there, you will become the next billionaire.  Far from it.  People come to me seeking the "secret" to wealth, and there is no such secret.  There is a secret to living a comfortable middle-class lifestyle, but it is an open secret - spend less than you earn.

What causes people no end of grief is they compare their lives to that of others (coveting thy neighbor's SUV).  We see our neighbors with fancy cars, and $200 haircuts, and all sorts of bling, having what seems to be a good time.  They go on fabulous trips and cruises!  How do they do it?  They always have new cars, and a jet ski to boot!  But of course, we have no idea what their actual financial situation is - it may all be teetering on a pile of debt.  Or maybe they make a whole lot more money than you.  If you use your neighbor's and friend's lifestyles as normative cues as well, you might find yourself deeply in debt as well.

And most Americans are.  It is sad to say, but 70% of Americans carry a balance on their credit cards - the dumbest and most expensive consumer debt there is, outside of payday loans and rent-to-own bling rims.  As I have noted time and time again, it can take a decade for this sort of behavior to bankrupt you - maybe more.  You can forestall the inevitable by taking out a home equity loan or debt consolidation loan - and then running up more credit card debt doing the same stupid things.  Hey, everyone in the office "goes out for lunch" - you don't want to be the Dorky Debby by brown-bagging it, do you?

That brings up an interesting point - the Cheapism listical, as I noted, was clearly aimed at women, who today are prime targets for many of these poor normative cues.  It is a lot easier to sell a woman an expensive hair styling, fancy clothes (which go out-of-style weekly) and the lumbering SUV.   Yes, men can be shoppers, too, but thanks to dual-incomes and increased equality in the workplace, women are now the new target audience for marketers - not just young men, aged 15-35.  You've come a long way, baby!  Now you can be marketed to, just like the men!

I can't tell you how many women I have met - educated, high-earning, otherwise rational women - who have pledged allegiance to a closet full of shoes.  They act like it is a badge of honor to buy a pair of shoes and wear them only once, and to have a closet full of racks of such shoes.  "You men just don't understand! (tee-hee)" they say, setting back women's liberation by yet another century. But again, it is a normative cue that the television and movies promote - that having a walk-in closet with racks of clothes and shelf after shelf of shoes is something that is desirable, and in fact, de rigueur.

Maybe if you are some Hollywood star or editor of Vogue, such things are affordable.  But for the rest of us, a good set of practical shoes is probably a better investment.  After all, us drones have to be on our feet all day, right?

It is OK to be a drone, and in fact, you probably don't have a choice in this matter.  The people who are fabulously successful in life either come from inherited money (a surprisingly small percentage) or have some special talent, inner drive, or very good luck - or a combination of all three.  What they don't do is spend all day watching television and facebooking and feeling sorry for themselves and borrowing money to buy things to make them feel better.  As I noted in another posting, there has been many a young Engineer in Silicon Valley who said "no thanks" to joining a startup company, because they had to make payments on their Acura.  In some instances, this is a blessing, as most of these startups go belly-up.  But in other cases, well, you could have been fabulously wealthy.

It is OK to be a drone, but don't bitch about how "the other guy" is making so much more money than you are.  If you traded your life for a series of loan payments, then that was a life choice.  I could have made a lot more money in life, if I had learned to live with less "stuff" and borrowed less money for wants.   A friend of mine started a bank, and offered me founding shares in the company.   I could only scrape together $10,000 by borrowing on my life insurance.   The stock doubled in value within a year and I paid back that loan.  It doubled again, and I sold half of it.  And again.  And again.  And Again.   If only I had less debt and more cash, I could have made, well, a million bucks.  When opportunity comes knocking, you have to answer the door - and have some money to invest.

But that was a choice I made, and I have to live with it.  The evil 1%'ers didn't "take away" my money, I gave it to them - in the form of interest payments on loans, credit cards, refinancing, lines of credit, car loans, and so on and so forth.  Every time you borrow a dollar, you make yourself ten cents poorer - sometimes far more.   Borrowing money, as I noted before, is anti-wealth, and yet the poor look upon a loan as a form of salvation.   The lady in the payday loan ad holds a fan of $20 bills as if it were a million bucks, and as if it were a gift and not something she has to pay back.

OK, we get it, Bob.  But how do you avoid this trap?  Well, as I noted to our reader, you have to ignore these normative cues provided by the media, your friends, neighbors, and your employers (and even your government) and use your internal compass.  This is not easy to do and requires a strong constitution.   But the people who are successful in this world are not the cows following the herd.  As I noted time and time again, while it may be safer in the center of the herd, the grass is all trampled down and pooped upon.  At the trailing edge of the herd, even worse.   But if you have the courage to go with your convictions - rational convictions, not ludicrous fantasies or the results of mental illness - you might find the grass fresh and nourishing.   Of course, there is risk there, but not as much as you might think.   In the center of the herd, there is certainty - the certainty of a dreary life punctuated by the captured-bolt gun at the slaughterhouse.

It takes guts to go against the norms of society.   And most of us don't have those kind of guts, hence we are drones.  Voting for socialism isn't going to change that one iota.  Taking action in your own life, will.

Tuesday, October 29, 2019

Should You Buy A Flipped House? (Revisited)

Should you buy a flipped house?  It depends...

House flipping is all the rage, at least on television.  For some reason, people like to watch home improvement shows, often rather than improving their own homes.  And people love to watch the property twins remodel a house - among a plethora of others as well.   It seems every channel, even ESPN, has a house-flipping show these days.

What is a flipped house?  Well, in my definition, it is a distressed or outdated property that was bought for below market value, and then remodeled to bring it up to modern tastes and standards, and then re-sold within a short period of time.

Ideally, if you are a house-flipper, you want to unload the house within a year or so.   You may have a high-interest loan with the bank, and every day it sits on the market, you are making less money and making more interest payments to the bank.   It is not a risk-free enterprise, no matter how easy the television makes it look.   Markets can go down, and costs can escalate.  You may overpay for the home and overestimate what it will sell for.  You could lose your shirt - or maybe make a few thousand or tens of thousands of dollars.   And despite what the television shows, it is a lot of work - not just picking out tile and countertop colors.

And the best way to make money by flipping a house is to do some work yourself - if you have the skills.   If you went to work for someone as a painter, for example, they might pay you $15 an hour, and you'd have to pay income tax and social security tax on that.   If you hired a painter, they might charge $30 an hour - or more, which while that is deductible, is an expense you have to pay.  If you paint a room yourself, your labor is essentially free, and the money you make (or save by not paying a painter) is taxable as a capital gain - which you might not even have to pay, if you roll over the equity in the house to a new investment property in a Starker deferred exchange.

House flipping is not for everyone - it is a risk-taking venture, and you have to be prepared to do some work yourself, or have a list of inexpensive contractors you can trust and use to do much of the work.   It also pays to incorporate as a business, so you can have access to wholesale pricing on materials and supplies.

House flipping, in theory, is an example of wealth creation.  You are taking a raw material (a house) and adding materials and labor to produce a product (remodeled house) that is worth more than the sum of the parts.   In theory, at least, that is how it should work.  In reality, it is hard to do.  As I noted in should you remodel or move? the problem with remodeling is that in terms of cost per square foot, it is costlier in many instances than building anew.  Remodeling a bathroom, for example, can be more time-consuming than simply building a new one in new construction.   In a new house, you don't have to work with existing plumbing, electrical, sheetrock, etc. - and you don't have to worry about hidden nightmares presenting themselves and increasing your costs.

But as a home buyer, should you buy a flipped house?  Yes and no.  There are some issues you should be aware of.
1. Corners may be cut:   In order to eke out a profit, the flipper will hire the cheapest labor (often illegal aliens picked up at the local 7-11, or at least that was the way it was done, back in the day).  The flipper hires contractors he knows work fast and cheap, and they may do a job that looks good but down the road may cause problems. 
2.  Lots of Cosmetics:  Selling a house is a matter of curb appeal and wow factor.  If you throw some shrubs on the lawn (often literally, as I noted before) and toss some grass seed around (realtor grass, they call it), put in granite countertops and stainless steel appliances, the buyers will swoon over your house and make an offer over asking.   But things like a new furnace, replacement windows, or a new roof, might be neglected. 
3.  Overpaying:  The house that sold for $250,000 a year ago at an estate sale, is now listed for $400,00 after $80,000 of renovations have been done.   Is this a good deal for you?   Arguably it would be better for you to buy the $250,000 house, and over time, do these repairs and upgrades.  If you can so some of the work yourself, so much the better.   But then again, see my comment about remodeling.
What brought this up is that we are in phase II (out of III) of our flooring and painting project.  The person we bought the house from had it in the rental pool for decades, and it was pretty worn out.  They did a lot of upgrades, and a lot of cosmetic "wow factor" improvements as well - such as raising the ceilings in the dining/living room and the master suite (which they created from two bedrooms).   And while they did put in new appliances (except the refrigerator, which we had to buy) and a new roof and A/C unit, 13 years later, these things are starting to wear out.

The roof was clearly a 15-year shingle job, as it is showing signs of wear, and perhaps a tiny leak.   The A/C unit was installed haphazardly, using existing refrigerant lines running underground often underwater when it rained.   It was not the most expensive A/C unit available, of course.   The windows - single pane wood windows - were merely sanded and painted.   We ended up replacing them with vinyl replacement windows, which reduced the amount of noise and dust, as well as saving considerably on our electric bill.   Replacement windows aren't glamorous, but nevertheless, more important than glitzy things.

I am also re-doing the bathroom toilet closet walls (again).   I replaced the toilet flange, which was installed improperly and cracked.  The sheetrocking on the walls was horrific - lots of seams and a corner gobbed with caulk, which wasn't that noticeable until we repainted the toilet closet with a semi-gloss paint, which showed every defect.   All of the trim had been painted flat white, which we think now was intended as a primer.  It attracted dirt like velcro.   After 13 years, of course, you generally have to repaint a house, but the paint job the flippers did, was, well, quick.

The toilet closet exhaust fan was installed poorly - venting to the attic, not outside, which I will have to fix.  Insulation is missing from the ceiling in the closet, which means it is always warm in the toilet closet in the summer.   I removed the bathroom exhaust fan and was chagrined to see that they installed the housing and then sprayed the ceiling with knock-down, not bothering to mask the housing.  As a result, the entire interior of the fan was filled with plaster.  Fortunately, it washed out, so I can at least re-use the exhaust fan.  By the way, you should take the cover off these and vacuum them once a year or so - they get filled with dust bunnies - gross!

The exhaust fan was tacked to a rafter with two screws, crooked, and the hole they cut was too large, meaning the fan was sucking in air from the attic as well as the bathroom.   It also meant that if you looked closely, you could see through into the attic on the far side of the fan (I didn't notice this for several years).   So I had to reinforce the hole and insert strips of sheetrock and knockdown the ceiling to match - now the hole is a square 9.75" x 9.75" instead of a crooked 12" x 11".   I will cut a hole in the soffit and install a vent to the outside, next.

Stupid stuff, to be sure, and it only took a few hours of plastering and sanding and working to fix it.  Now I have to repaint the room as well.   But this is the kind of stuff that might cause your house to fail a home inspection, so it pays to fix these things - you never know when you want to sell your house.

The flooring in the house was redone with engineered hardwood, which I wrote about before.  Not expensive engineered hardwood, either, and after 13 years, it is showing its age, with scratches, dents, and water stains where the dog's dish used to be (I weep softly as I walk by).  I have some extra pieces, and I can repair parts of it.  But engineered hardwood in a kitchen is never a good idea - use tile.

Speaking of tile, that is the new trendy thing these days.  And houses shouldn't be trendy - they cost too much to be style statements.  When we bought the house, 13 years ago, engineered hardwood floors and oatmeal walls were a thing.  Corian countertops were already going out of style, and white appliances were, well, dated.  Today, it is plank tile that looks like wood, gray walls, and granite countertops - and stainless appliances.   So these trendy makeovers are nice and all, but bear in mind that the hot look of today is yesterday's news in a hurry.  The gray paint we are putting up today is probably already dated.   Should have gone with purple - that's the next big thing!  (Just kidding).

While the main part of the house was engineered hardwood, they skimped in the bedrooms with carpet so cheap it looked like a wrinkled terrycloth bathrobe, or perhaps some sort of carpet padding. Replacing it with newer carpet would have been a cheap upgrade, but we got a deal on an entire pallet of engineered hardwood flooring, and it does look nice when finished.  In a humid, mildew-prone environment with lots of allergens, carpet is just a bad idea.   No wonder tile is so popular in the South - particularly in Florida.  Survives a flood, too!

I noted before, when we re-did the laundry room, that the pipes in these houses go through the slab - and after 50 years, they are likely to leak or burst.  So far, we have not had to replace them yet.  But when I re-did the laundry room, I made provision for access to the attic to run new pipes there.  It will involve some sheetrock work in some rooms, when the time comes.   Again, something structural and functional and fundamental, but no "wow" factor in new plumbing, is there?   There is a fancy, useless bathtub, of course, that we have used only once.   It is a laundry hamper and dust collector.  We may remove it and install a roll-in handicapped shower instead - something that older people can actually use.

Speaking of laundry room, well, I already covered that nightmare.  A lot of sketchy plumbing and downright unsafe electrical work, covered over with paneling.  It looked great, and now it is great - but only after months of backbreaking work.   And the ceiling in the garage - what kind of paint did they spray on there?  I ended up re-sheetrocking the ceiling, entirely.

And the sewer line seems to be working well - for the time being, at least.  Regular roto-rooting (and putting dollar tree Drano down the drain occasionally - it kills tree roots, supposedly) seems to keep it all flowing.

And the electric panel - I didn't realize the Federal-Pacific panels were such fire hazards.  Again, something that would spike a home inspection, if we hadn't fixed it.  But $1000 later, we have a nice Square-D box, with lots of extra spaces for additional breakers for future use.  Of course, I had to replace the service drop as well - unexpectedly.

The list goes on and on.  There are structural things that will need to be replaced that the house-flipper didn't address because such items don't add to the wow factor or resale value.  The driveway, for example, was cracked and now is even more cracked.  That will be an issue, now, as a potential buyer might balk at it.  And those "brand new" appliances that were installed before we bought the house?  Well, that was 13 years ago, and already we've replaced the disposal, the ice maker, and the washer and dryer.

Are we unhappy with the house?  No, not at all.  We knew going in that a lot of the improvements were superficial in nature, and that as with any home, repairs and maintenance were a regular thing.  In fact, you can schedule this stuff, like clockwork, about ever 15 years or so - roofs, HVAC units, hot water heaters, appliances, flooring, paint jobs, etc.  Houses are not like anvils!  They require constant work to keep them from going back to nature.

Should you buy a flipped house?  That depends on a lot of factors, including the house itself, and the price, above all else.  In a heated market, you might end up bidding against other people - and the chance to consider the house carefully might not be in the cards.  But in a normal market, a home inspection is a good idea, if you are not familiar with how houses are put together.  Pay attention to the structural things and basic systems.  Fancy appliances and trendy treatments are fine and all, but they don't cost much and can be installed in a day. Things like foundations, roofs, plumbing, electrical systems, and the like, are often more costly and difficult to repair - and affect your bottom line a lot more than paint color.

Say you are looking at two comparable houses.  The first one is being sold by an owner/occupier who has maintained it for many years.  It has a new or newer roof, plumbing, electrical, replacement windows, HVAC, and a new concrete driveway.  But the appliances are white and the countertops are Formica and the wall colors are not to your liking.  The second house - a flipped house - has new countertops and appliances, and a fresh coat of paint, and is painted in trendy colors.  But the second house has older plumbing, electrical, roof, a cracked driveway and a leaky foundation.   Which is the better value?   It all depends on price, of course, but in general, the "flipped" house probably commands a higher price, as it has better curb appeal (those throw-away plants that will be dead in a year) and wow factor.   Some people pay extra for this.

You can replace the appliances in the first house (and you will have to, down the road, anyway).  Granite countertops - if that's your thing - are not as expensive as  you might imagine.  Paint can be done in a weekend - by yourself, or a painter.  These are superficial things, easy to change, inexpensive to fix.

Like I said, it depends on a number of factors - price being the biggest one.  And some flipped houses may have many of these structural items replaced, particularly if it was an entire gut-and-remodel job.  Others, well, less so.   Here on our island, two flipped houses were sold recently.  Both were redone and looked like showplaces, with all the trendy colors and appliances and countertops and bathroom vanities and tile flooring.  Walls were removed to give that modern "open" look.   But within a few months of sale, the new owners of each house had a dumpster in their driveways.   The first house needed replacement windows and a new guest bath.  The second a new roof and windows.  The new owners, far from getting a "turn key" solution, bought a fixer-upper, instead.

You can dress up a pig, but it's still a pig!

Monday, October 28, 2019

20,000 Fans Who Boo'ed Trump at World Series Banned For Life by MLB

Major League Baseball says the ban from big league stadiums is indefinite.

HOUSTON (AP) — The twenty thousand fans who boo'ed President Trump and chanted "Lock Him Up!" during Game 5 of the World Series have been banned from major league ballparks for life.
Major League Baseball sent the fans a letter shortly after their escapade Sunday night.
The fans were identified using facial recognition software, scanning images from television and social media. The fans boo'ed President Trump when his image appeared on the Jumbotron when he was introduced to the crowd before the third inning at Nationals Park.
The fans were sitting throughout the stadium, and after booing the President, started a chant of "lock him up!"  Their stunt was seen live on Fox by a camera shooting from center field.
President Trump sat down, but it’s unclear whether he saw or heard the crowd.
MLB says the ban from big league stadiums is indefinite.
(c) fun with cut-and-paste.  And yes, this is a parody.  Duh!

Fake Bicycles

A bicycle with a motor is a motorcycle.

We were on our walk today, to the airport and back, about three miles.  We're trying.  We like to go on walks and ride our bikes, and on retirement island there are a lot of places to walk and ride, as I have noted before in my videos.

A couple came by us on bikes, and I nearly broke out laughing.  You see, they were on these new electric bikes, which are an interesting idea, and as they went by us, they were pedaling furiously.  But as soon as they got around the corner, they stopped pedaling and just rode along, hand on the throttle.

I thought it was funny because they had to pretend like they weren't just riding a motorcycle, but actually pedaling - not "cheating" per se.  But as soon as they got out of sight (so they thought) they went back to just motoring.  And that is the problem with the electric bike, as I see it - human nature being what it is, the promises made to pedal all the time and only use the electric feature "just in case" go by the wayside pretty quickly.

Are these electric bikes - and scooters - a good or bad thing?   Well, that depends, I guess.   For elderly people who gave up on riding bikes because their muscle mass has deteriorated, perhaps the electric bike is a way they can get out and get a little exercise - sort an electric "assist" for the handicapped.   And from what I understand, some electric bikes actually work this way, with the "throttle" being keyed to how hard you pedal.  You want to go faster, you pedal harder, you want to slow down, you pedal less - and a power "assist" is proportionally applied.

Others, well, they are just electric motorcycles or electric mopeds, and you twist a throttle and off you go.  The question is, are these motor vehicles or not?

When I was a kid in regulation-heavy New York, I wanted a moped.  You could drive one on a learner's permit, so it was attractive for a young person.  In most States, mopeds could go 25-30 miles an hour, but for some reason, New York State limited them to some oddball speed, like 17 miles an hour.  And of course, they had to be registered and licensed!   It was beaten into our heads, in that State, that using the roads was a privilege not a right and that a car instantly turned into an immobile mass of metal the moment the registration or inspection sticker expired.   It wasn't until I moved to other States later in life did I realize this was a lot of hooey.

But still, in most States, a motorized vehicle is a motor vehicle, and usually requires some sort of registration and licensing.   In our little County, there is much controversy as the County has decided to enforce laws requiring that all golf carts be registered.  So far, this doesn't appear to affect our little island, which is a State Park, as the County cops don't have jurisdiction here.   If the law is enforced here, you will see a lot of golf carts for sale, as the cost of insurance and registration (including the annual $200 "electric vehicle fee") will make owning a golf cart even less cost-effective.

Not having to register, inspect, or insure a motor vehicle is a game-changer.   And this is how many silicon valley "tech" companies operate - by basically ignoring laws, such as licenses for taxis, or charters for banks.   By the time governments catch on to this fact, the company has grown to Amazonian proportions, and can afford to stare them down - or at least that is the hope, anyway.

But getting back to electric bikes and scooters, the invention of the Lithium-Ion battery has had some interesting effects on our society.   You may recall when the "Segway" scooter (and it was a scooter) was invented, the hoopla surrounding it included the comment that "cities would be redesigned" for this startling new invention.  Well, it turned out to be overblown hype - the scooter was too expensive for most people to own (about the cost of a good used car) but other people took the idea, and discarding the novel but pointless self-balancing feature, put those same Lithium-Ion batteries into conventional scooters and bicycles, and making them in China, sold them for cheap.

And they were right about one thing - cities would have to be redesigned to accommodate electric scooters and bicycles, as they don't fit into the traffic flow on busy streets or pedestrian sidewalks.   Bicycling itself amounts to bloody murder, if you try to ride in the car-clogged roadways in the cities - or even in the country.   In America, we are trying to put in bike lanes and accommodate bicycles and other non-traditional forms of traffic.   Meanwhile, in China, which a decade or two ago was clogged with bicyclists, some mayors are proposing banning bicycles from the streets to accommodate the flood of cars that the Chinese have flocked to.  Turns out, people like cars - sad to say - and will gravitate towards them once they are available.   Scooters and bikes - electric or otherwise - are local, fair weather friends.

Bike rental has taken off in China, of course, but more as an investment Ponzi scheme than a means of transportation.   Cities are clogged with bicycles that are rented once and then discarded.   How long this "business model" can be sustained is anyone's guess.    In America, these schemes have also proliferated, only to be upstaged by electric scooter rentals.   In visiting many cities, we thought about renting bikes, but the systems are often set up only for frequent users, not occasional visitors, and the idea of having to download an app, pay an initiation fee or annual user fee (in some instances), kind of turned us off.   Besides, we brought our own bikes with us - in the camper.

Now, traditionally, a motorized scooter or bicycle would be illegal to ride in the road, much less on the sidewalk, much less without a helmet (in most jurisdictions).  But, again, in a classic case of Silicon Valley chutzpah (break the law and let 'em come after us!) they flooded the market with these things and law enforcement simply didn't care, other than to show up at the scene of a bloody Lime scooter accident and wash the blood and brains off the sidewalk.

Again, back in the day, if I rode an electric or gas-powered scooter through my hometown, I would have been pulled over by the cops, and given a ticket for driving an unlicensed motor vehicle on the highway, and my scooter would have ended up in the trunk of the police cruiser - confiscated.  Today, not only do the Police turn a blind eye to these blatant violation of motor vehicle laws (and the widespread abandonment of these scooters, and the blocking of  sidewalks with them) but actually set up sting operations to catch "criminals" who have sabotaged or rounded up and discarded said scooters.  They should have given that guy a medal, instead.  (In France, they cut to the chase and just toss these annoyances in the river.   Vive La France!)

It is a classic example of "go big or go home" in Silicon Valley.  You start up a company doing something arguably illegal (unlicensed cabs, home delivery services using people with no commercial insurance on their cars, illegal scooters and bikes, and so forth) and if you grow fast enough, they can't stop you - because you are everywhere all at once, and the public, at least some of them, like the services you are providing.   If "Bird" and "Lime" tried to start out small and grow organically, they would have been stomped out of existence by some local city council.  By appearing overnight, everywhere, they seem like an unstoppable trend.

The problem, of course, with electric bikes and scooters, is that they are motor vehicles.   And motor vehicles can be unsafe - more unsafe than even bicycles.   When you start riding electric scooters, in and out of traffic, without a helmet, bad things will happen.   One carelessly opened car door is all it takes - ask any urban cyclist how that works out.    The problem with a motorized vehicle is the speed - most of these electric bikes and scooters don't go much faster than a conventional pedaled bike, at the present time. The top speed of these things, however, seems to be closer to that of a well-conditioned rider than that of the average recreational pedaler.  So in addition to the safety concerns of bicyclists, you have the additional problems of speed and lack of helmets.   Throw in city streets and sidewalk pedestrians, and you have a perfect storm.

Do these things have uses?   Yea, like I said, they could be useful for the elderly or handicapped to participate in society, even with infirmity.   But for the rest of us, I am not so sure.   Yea, it is fun to drive your golf cart on the road - but it isn't a lot of exercise.  And it is dangerous as hell - since most top out at 20 mph, you are always an impediment to traffic.  And if you get into a wreck with a car, it is no contest as to who is going to win.  Electric bikes and scooters have the same problem, amplified by a factor of 10.   I suppose one could argue that an e-bike or scooter can at least ride on the shoulder and avoid cars that way.   But on bike paths and sidewalks, it seems these forms of transportation become hazards to pedestrians and fellow cyclists as well.

What motivates people to buy an e-bike is fascinating to me.   From what I can see, the people buying e-bikes are the ones who need to ride the most - out-of-shape people who need exercise, not yet another electronic assist in life.   Today, however, people are conditioned to ride, rather than walk or pedal - from an early age.   Kids are given little electric cars as soon as they are able to walk - perhaps before.   The message is clear - walking and pedaling is for chumps.  Why exert effort, when a machine can do it for you?  But what do we do when the machine stops?   We'll be helpless as kittens by then.   The oil embargo of 1973 was sort of a precurser of how vulnerable we are, and how reliant we are on technology.   But that was just cars.   Now we're talking about walking here.

And again, promises to pedal and just use the electric for emergencies quickly fade by the wayside pretty quickly, mostly because these electric bikes are heavy as hell, and like a moped, nearly impossible to pedal without the power on.  So people quickly devolve into informal motorcycle riders, and pledges to exercise fall by the wayside, like so many home treadmills and diet plans.

Will I ever get an electric bike?   Again, I think it is a great idea for the elderly and infirm, as a means of getting out and participating.  Of course, the elderly and infirm can't afford to fall off or get into a wreck, as their bones become brittle.   But maybe, down the road, in a decade or two, I'll be twisting the throttle instead of pushing the pedals.

But not just yet.

P.S. - these electric bikes aren't cheap, either.  We bought our latest "cruiser" bikes at Walmart.  My 29" monster bike was $129 and Mark's "Margaritaville Special" was $89 with 10% off that!  From what I am seeing online, the electric bikes are more expensive, by at least a factor of ten, sometimes twenty!   For the cost of some of these e-bikes, you could buy a decent used Corolla.

Sunday, October 27, 2019

Flight Shaming? Get Real!

A jet airliner might not get very good gas mileage but it holds more people than a Toyota Prius.

The wacky left his been at it again, this time claiming that traveling by airplane is somehow destroying the environment. One of my professors at General Motors Institute told us that, back then, traveling in a Boeing 707 had the equivalent fuel efficiency to riding in the back seat of a 1959 Cadillac Eldorado.   Come to think of it, we had a lot of left-leaning professors at GMI.  I guess it is an academic thing, those who can't do, agitate.

Of course that's assuming there's four people sitting in the Cadillac Eldorado, which back in the day at best got 20 miles per gallon on the highway.  If you figure that out on a per-seat basis that works out to about 80 miles per gallon for each individual.  I guess airplanes weren't so bad, even back then.  And since then, engine efficiency has improved greatly.

In terms of per-seat fuel mileage, some airlines are better than others.  But beating a solo Prius isn't hard to do!

Today, airplanes have a per seat fuel-efficiency ranging from 50 to 90 miles per gallon, depending on the aircraft, how many seats it's configured for, and how full it is (and which website you reference, and how old the article is).  Now, granted if you and four of your friends decide to drive from New York to Florida in a Toyota Prius and average 45 miles per gallon, you'll beat the airplane in terms of per seat fuel efficiency.  It would probably be about as comfortable, too.

On the other hand, if you're traveling alone on that same route to attend a business conference, you'd be doing the environment a bigger favor by traveling by air.  Plus you'd save an awful lot of time.

This illustrates why car pooling increases efficiency more than going to a fuel-efficient car.  Maybe a commercial van doesn't get better mileage than your Prius, but in terms of per-seat efficiency, it blows it out of the water.  A 20-mpg Ford van with 10 people aboard is getting 200 mpg per seat.  Beat that, Toyota!

Of course, there are some routes where travel by air is not a matter of choice.  Crossing the ocean by Prius would be very difficult.  And even in an ocean liner, I'm not sure of the cost per gallon per seat would be competitive with an airliner.   According to some sources the per seat miles per gallon of an ocean liner would average about 19 mpg. So, sailing by boat isn't the answer. Plus, it would take days instead of hours.

Airlines come in number two, behind trains, in terms of fuel efficiency.  Click to enlarge.

But what about mass transit?  What about travel by train?  Well a train is slightly more efficient than airplane, but not by much.  It's not like you're saving 50% in fuel by going by rail.  In fact, take a close look at that chart - off all the transportation options, airlines come in second, in terms of efficiency.  And again, the time factor comes into play, as it can take you days to travel cross-country by train, whereas you can do it in a few hours by airplane.  And as of yet we don't have trains running in underwater tunnels from New York to Paris.

So what does this all mean? To me it means that another silly argument is being made which is obfuscating the reality of our situation.  People are picking at arbitrary things as examples of "excessive carbon emissions" when in fact there is a lot of better low-hanging fruit we could go after.  It is like going after soda straws in the United States and ignoring the vast amounts of plastic waste dumped in the ocean by Asia and India - which comprises the majority of the world's plastic pollution problem.  Again, it is a sign of our greatness that we care about these things - and a sign of weakness of the people in China and third world countries who just throw their shit in the ocean or on the ground.  That being said, we should not take things to ridiculous extremes and engage in guilt politics.

The people making these arguments are not doing the math, and I doubt they would understand the math even if they tried to do it. No doubt these are the same folks who are arguing that airplanes are spraying us all with "chemtrails." It's a sort of pseudoscience and para-science that is destroying our country.   It is part of a disinformation campaign, aimed at members of our cargo-cult society, who have no idea how basic technology works - but have an opinion, anyway.

Of course going forward, the problem for the airlines is that while automobiles can be converted to electric power and arguably powered by carbon-free sources such as solar, wind, nuclear, or hydroelectric, airplanes don't have this luxury.  Granted, there have been a few electric airplanes built and tested, but most of these are lightweight one- or two-seater models that have very limited range.  And even if they can be made to circumnavigate the world, they do so at very, very slow speeds.  It doesn't look like any time in the near future there will be an electric jetliner flying from coast to coast on lithium-ion batteries.

Thus, in terms of carbon footprint, the automobile and the train have the potential to reduce their carbon footprint to zero, while the airliner will be stuck with its current carbon footprint, more or less, as increased efficiencies of the jet turbine and high bypass fan reach the law of diminishing returns.

All that being said, I'm not sure the age of jet travel is going to be extinct anytime soon.  I don't think we're going to go back to flying by dirigible, either - no matter how much you wish it to be so!  Besides, Zeppelins are fuel hogs, too!

Thursday, October 24, 2019

Food and Beverage Budget, Ten Years Later...

Logging every purchase on Quickbooks* creates a database I can spelunk....

Lately, someone has been clicking on my nearly ten-year-old posting "Food and Beverage Budget" which at the time, had two paltry years of data to draw from.  In 2009 and 2010, I was spending about $1000 a month, in total, on restaurants, groceries, and liquor.  Since then, I have accumulated nearly ten years of data.  What conclusions can I draw from it?

Well, the data is very uneven, and part of this is sometimes things get classified incorrectly.  A trip to WalMart is logged as "groceries" even though half the stuff in the cart may be liquor, or may be auto parts.  Do you really have the time and energy to properly log all this stuff?   I will try to go through the entries and find things that were mis-classified and try to update this posting.  I noticed, for example, that my "Wegman's" and "Winn-Dixie" entries were classified as "Meals" which lead to under-reporting in 2010-2012.  I have since corrected that.  It also appears that during a trip to Canada in 2011, we must have paid cash for a lot of things, as there appear to be no expenses from that time period.   There are other years where we traveled a lot, and as you might expect, the grocery bill goes down, but the restaurant meals bill goes up, such as the month or so we spent cleaning out the condo in Virginia.

But even taking the inherent inaccuracies into account, what does ten years of data tell us?   Turns out, not much has changed.

Groceries:  For ten years, we spent a total of $61,549.49, which works out to an average of $512 a month in grocery expenses.   This is not too far off the numbers in my original posting.  It seems like a lot of money, and it is - about $125 a week.  But as you have no doubt noticed these days, it is hard to go to the grocery store without the total exceeding a hundred bucks, just for a few things - regardless of whether you are indulging in Trader Joe's Candy AisleIt also seems that in recent years, this bill has been edging up.   It was over $10,000 last year, which would mean about $800 a month (!!).  We need to cut back here, and have, somewhat, this year.

Meals:  The restaurant meals bill is smaller - thankfully.   Over ten years, it came to $34,435.04 or about $285 a month.  This also has been going up as of late, particularly in years where we travel.   It was over $7000 last year, when we went to Alaska (and Canada), where everything is expensive.  This year, less so, as we loaded the camper with groceries and didn't eat out as much while traveling, unless it was someplace really, really good.   Sorry, no "fast-casual" chain crap for us, thank you.

Liquor: Liquor is a bugaboo and some of these charges may be mixed with meals and groceries.  $31,801.23 over a decade (Be a Mormon, and SAVE!) or about $265 a month - about equal to our restaurant bill.  Again, the high was last year when we went to Alaska - liquor is expensive there, and very expensive in Canada as well.  We've given up on buying "brand" name liquor, particularly with regard to Vodka, which is just an industrial solvent, anyway.  And since we don't live in the finger lakes region of New York, we are not buying $20 bottles of local wines - or if we do, we buy just one bottle. not a case.

What is interesting is that these numbers are pretty much in line with what I came up with back in 2009.  So it seems our budget isn't creeping up too much, but then again, I can see where this needs to be controlled.  We already use a shopping list when shopping (we divide it in half, which saves a lot of time in the store, as we can fan out and each get half the items on the list) and avoid impulse-purchases and end-cap things, if we can.  We still shop on price, and buy store brands instead of name brands.  But prices have gone up, since I started this blog.  Generic Triscuit crackers at Wal-mart are harder to find, and are no longer $1.28, but over $2.  Of course, eggs are actually cheaper, today, but that is perhaps a one-time anomaly.  And apparently, despite the threats of a bacon shortage and pig flu decimating the swine population, America is awash in a sea of cheap bacon.  But even at "low" inflation rates of 2% or so, prices creep up over a decade.

And inflation is the one thing that worries me - it is low now, but can this last forever?   Poor fiscal policy can wipe out my 401(k) nest egg pretty quickly, and no one is hiring 60-year-old Patent Attorneys (even if I wanted to work again) and certainly not providing health care coverage.   I got a phone call yesterday from a 72-year-old attorney who is retiring and wanted to know if I would take over his practice.  He used to have a lot of corporate clients, but his practice - like mine - wound down and he ended up with a collection of small companies and solo inventors, and he thought he would "keep his hand in" by prosecuting a few cases here and there.  I think he would have been better off throwing in the towel a decade earlier, frankly, and it made me glad I made the decision I did - no point in working through your retirement years!

But retirement isn't all fun and games.   In addition to worrying about your health full-time, you have to worry about your financial health as well.   Some fun!

*NOTE:  I use a ten-year-old version of Quickbooks that is "paid for".  I offer no opinion or endorsement of their newer products which may be good as well.  I don't know.  And there are other products out there, including shareware products, so look around.   But logging all your purchases and bills and spending is essential to controlling your finances.  As a reader noted, "You cannot control that which you do not measure."   Imagine the thermostat on your house with no numbers on it, or no means of sensing temperature.   It simply wouldn't work, much as my finances didn't, before I started logging everything.

Which Is It?

Two news articles appear on the same day, each saying the opposite thing.  Which one is right?

I nearly fell out of my chair laughing this morning when I saw two news articles, almost next to each other on MSN Money.  The first claims that housing construction has "tumbled" from a 12 year high, implying that the housing market is imploding.  The second article proclaims that home builders haven't been this optimistic since 2018, implying that the housing market is going up.

What is going on here?

Well, chances are both articles are right, and wrong.  The first article is measuring the number of housing starts, which is an indication of the overall health of the Housing Industry.  Overall housing starts dropped by 9.4%, but single-family home construction continues to increase. This is sort of mixed news, and might reflect the fact that multi-unit dwellings have been overbuilt in recent years.  As I noted before, in Florida there was a mini boom in apartment construction in the last five years, with new apartment buildings going up right and left.  Perhaps this trend has cooled off.

And homebuilders perhaps have every right to be confident because interest rates are at all-time lows, which means that people can pay more for homes and will pay more for homes which means more profit for homebuilders.  Of course, home builders were very confident right before the market crash of 2008 as well.  They only build the homes, they don't have to pick up the pieces when it all comes apart.  The title of the article is a little misleading, too.  Homebuilders haven't been this confident since 2018 - which was less than a year ago.  In other words, their confidence level is about unchanged over the last year.  Not as good a clickbait title, is it?

While there were some smaller builders who were negatively affected by the market crash in 2007, many of the larger home builders survived that downturn.  Most of their employees are not full-time, but rather hired as contractors. They act only as a general contractor and when times are slack, they can easily lay off people and cut their overhead costs significantly and wait out the downturn, sitting quietly, counting their stacks of money.

So long as they're not sitting on an inventory of unsold homes, they don't have any debt issues to worry about.  So no wonder they feel confident.

For homeowners, the same might not be true. While we are in an era of record-low mortgage interest rates, this doesn't necessarily mean that housing is a good bargain at the present time.  It might be a good time to refinance if you have a mortgage that's 5% or higher, provided they don't ladle on too many junk fees and you aren't taking out cash or increasing the length of your loan.  If you can resist the urge to use your house to pay off credit cards or buy a new car, and your new loan has a term equal to or shorter than the existing loan, you can lower your monthly payment and thus save money - or even pay off the loan sooner.

But if you're buying a house, you could find yourself in a bit of a pickle if interest rates start to climb back up. And quite frankly with the rates they are today, I can see no place for them to go except up.  Well, that is unless we end up like the people in Norway with negative interest mortgages.

Let's say for example you buy a $250,000 house with one of these mortgages at 3.5%. Your monthly payment for principal interest is $1,122.61.    Now say mortgage interest rates go up to 4.5% in the next five years - the monthly payment for a new buyer would be $1,266.71.   OK, no big deal, you say, that's only like another $144 a month - who couldn't afford that?   Right?   Well, it doesn't quite work that way.

Say you want to sell that house, and rates have gone up to 4.5%.  The same $1,122.61 per month only buys $221,500 worth of house.   The buyer of your home can only afford to pay less for the same monthly payment.

Whoa.  What just happened here?  A change of interest rates by 1% and a difference of only about $140 a month in payments ends up changing the amount you can finance by over 10%!

And that is the problem with the 30-year mortgage, or any long-term commitment.  You can sell someone a fancy pickup truck if you finance it over seven years - or a motorhome over 20 - by arguing that it is just "a few more dollars a month" when the overall amount is much higher.  As I have noted time and time again in this blog, one way to really analyze a financial deal is by analyzing the overall costs - how it affects your net worth.   Looking at only monthly payment is short-sighted.

The meltdown in Florida in 2008 was a perfect storm (if you'll pardon the pun) of rising insurance rates due to 1-2-3 hurricanes, as well as increasing tax rates (re-assessments don't appear for a year or so after you buy - and they are steep!) and re-setting of interest rates on funny money mortgages.   Suddenly, a condo or house that was "affordable" in terms of monthly payments, is unaffordable.  And as the market melted down, the funny money went away, leaving a very small pool of buyers with cash - and the rest is history.

The same could happen again, perhaps on a smaller scale, if interest rates go up.  You have to hope that the potential buyer has more money to spend on your house and that wages have gone up in the interim.  If not, then it will be much harder to sell your house because most people buy their houses based on monthly payment (what they can afford from their paycheck) not an overall cost (which isn't realized until you sell later on).

So, is buying a house right now a good idea or a bad idea?

Again, that depends.   Right now, interest rates are at an all-time low and don't seem like they can go any lower.  Then again, I said that last year.  Growing up in the era of 6% mortgages and coming of age in the era of 14% mortgages (and I have had rates as high as 11-5/8%, personally, and many in the 8-11% range over the years) it doesn't seem real that you can get a mortgage for under 5% these days, much less 4%.

I think you have to look at a number of factors:
1.  Does it cost less to rent than to buy?   If so, why buy?   Why pay extra for the privilege of paying for repairs, mowing lawns, and unclogging toilets?   When it costs more to buy than rent, usually it is a sign of an overheated market. 
2.  Do you plan on staying?   Given that real estate agents want a 6% commission (something that is changing) and the local governments want recording fees, banks want points and closing fees, and so on and so forth, it can cost thousands of dollars in transaction costs when you buy and then later on, sell, your house.  If you are only staying in one place for a few years, whatever little in appreciation you make on the house will be wiped out by these transaction costs.  The old real estate rule-of-thumb is still true:  If you are not staying for at least five years, maybe it isn't such a hot idea. 
3.  Are you in a bubble market?   This is harder to realize, as when you are in the bubble, it is harder to see out than for others to see in.  In Northern Virginia in the late 1980's, we saw price increases in the double-digits for several years in a row.  In South Florida in the 2000's, we saw the same thing.   Double-digit price increases generally are not sustainable forever - particularly increases on the order of 20-30% that we saw (and are seeing or were seeing recently) in some markets. You can't increase the price of houses at a rate faster than the rate of increase of wages, or the rate of inflation.  Eventually something has to give - the system either corrects itself or blows up, or both.
4.  Can you afford it?  Many people complain that housing costs take up too much of their income, and many banks who loan them the money, oddly agree.  If your debt servicing exceeds 30% of your income, they consider that financial stress. That is not a hard number to achieve these days, in many markets.  It may be tempting to "jump in" to a hot market "before you are priced out!" as agents like to say, but the people who are hurt the hardest are the ones who bought just before the bubble burst, and a year later are struggling to make payments on a house worth less than the balance on the loan.
The problem, as I see it, is that the current administration wants to push off any recession until after the 2020 election.  They are doing this by "juicing" the economy - by lowering interest rates and lowering taxes, and through deficit spending, three things which act as stimulus to the economy.  Oddly enough, these are the sort of things Democrats are often criticized for as well.  But in 2009, the economy needed stimulus, and the GOP tried to tamp it down to embarrass Obama - resulting in eight years of low but steady growth.

Of course, some would argue that the economy could grow indefinitely, but that sort of talk is just nonsense - but expect people to start believing it, perhaps by early 2020, when the market continues to go up, in spite of the warning signs.  And the idea of infinite growth will be another one of those warning signs.

Eventually, interest rates will recover to historical levels, at which point, the overpriced house in a bubble market - financed at low interest rates - may go down in value.   If you are staying there and can afford the monthly payments, fine.  But if you are in a situation where you have to sell - for example, losing your job at that "tech that is not tech" company when people realize that renting out office space or delivering pizzas is not all that profitable - nor it is technology - you may be in a bit of a pickle.

I made a lot of money in real estate - over a million dollars.  I have a lot of friends who lost, in some cases, just as much.   When things sound too-good-to-be-true, I get very, very nervous.

Tuesday, October 22, 2019

Unreliable Narrator

Depending on unreliable people can cause heartache in your life.  Depend on yourself, first.

First, a footnote.  A reader writes, in response to an earlier posting, that you should "keep your house"" rather than downsize in retirement, as if you go into a nursing home, "Medicaid can't take that house away from you!"  Technically, that might be correct, as Medicaid never takes anyone's house away from them, they can only deny coverage based on your assets.   It is also important to note that they can't take the downsized house away from you, either.  And if your house is worth more than $500,000, they can't "take it away from you" but they can deny coverage until you sell it and move into something cheaper.  So if you live, say, in a wealthy suburb of New Jersey, you may have to downsize anyway, just to qualify for medicaid - or deed the house to your kids.

And what are you saving the house for, anyway?   Yes, your spouse can live in it, but if you are single and in a nursing home, what is the point of having a house?   Once you die (or the last spouse dies) they can come after your estate for the cost of nursing home care.  If your goal is to leave money to your kids - in the form of a house - then you are better off to deed it to them long before you enter nursing care (there are time limits on this - you can't deed it to them the day before you enter the home).   I covered all this before, by the way.

No, instead of keeping a creaky old house on the premise you are leaving it to your kids, I think, personally, I would rather have a few hundred grand to spend on travel, entertainment, and fun, rather than watch a four-bedroom house on a 1/4 acre of lawn decay around me, so that some ungrateful heir can sell it later on.  But of course, the government, trying to be "helpful" can make this harder to do.

In Florida, we have the "homestead law" which in the past, sort of locked elderly people into their homes.  It froze your assessment at the level you were at when you bought the home, and if you moved, your assessment got "bumped up" to the value of the new home you moved to.  They changed the law, allowing you to move your homestead exemption to a new home, but the unintended consequence of this law is that anyone moving to Florida "from away" is socked with the highest taxes possible, while the old-timers and locals are paying very little.

In Georgia we have an even weirder thing. We have a homestead exemption, too (currently the subject of a class-action suit, as the tax assessor was locking people in at the rate a year after they moved in, which was a much higher number).  But at age 65, you no longer have to pay school tax, which means my taxes would go from $2700 a year to $700 a year or thereabouts, which is an incentive to stay in the existing house, rather than rent or move to a condo which I rented out part-time (and thus would not qualify for the exemption).

You can see how government intervention in the marketplace can produce unintended results.  But like with tax deductions, my philosophy is the same:  Do what you want to do in life, rather than chase deductions.  The IRS tax code is not investment advice!  Some people argue that "debt is good!" because you can deduct the interest.   But on the other hand, if you are living off a 401(k) plan, no debt is better, because you can lower your taxable income to the point where you pay little, if any taxes, if you have no staggering mortgage payment to make in retirement.   Not only that, you worry less about running out of money in retirement or losing your house to foreclosure.

Which brings us to today's topic:  Trust.   I wrote before about trust issues (sort of as a pun) but as I have indicated in various blog postings, I was raised in a family of untrustworthy people.  My father regularly lost his job as he would piss off some superior (and actually get into arguments with his boss and scream at them) which made our lives somewhat peripatetic.  We moved a lot, although by the time I came of age, my parents finally settled down a bit - living in New York for 18 years - the longest they ever lived in one place, before my Dad lost his final job at age 55. Dad was a rageaholic, and you never knew what would set him off.  You couldn't trust him - he would run off at the first sign of trouble, to his mistress, where he spent a considerable amount of my college fund.

And my Mother, well, I've covered that before - a bi-polar, manic-depressive, suicidal, alcoholic, closeted lesbian with a penchant for knife play when drunk - and also prone to fugue states of rage.  Some fun.   And my brother, who abused me in a number of ways, the least of which was stealing my paper route money.   In our family, everyone looked for a scapegoat, and we all took our turns in the hot seat, but as I became more successful, they decided to rename the chair in my honor, permanently.

So, yes, I have "trust issues" - and you should, too.   In a way, it was instructive for me to learn, at an early age, that human beings were frail creatures, selfish and arbitrary, vain and prone to status-seeking. The most trustworthy of person in your life will stab you in the back, if the situation warranted it - you'd be surprised what your relatives will do if a few dollars are on the table when someone dies.   You'd be surprised what people will do just for a slice of pizza, if they were starving.  Learning this aspect of human nature was a good thing, not bad.

And it made me appreciate good people in the world all the more - and help me understand the rest. People are people, and we are all prone to weakness. And that regard, it is instructive also to examine our own motives and own up to them - we all seek status, for example, and are vain and blind to the needs of others.  It is just a human thing - but it helps if you realize when you are doing it, and can pull back from the abyss now and again - and forgive yourself when you don't.

Where this is leading to is, trust is a shaky thing, and when you plan your life based on the assumption that you can trust others - your family, your employer, your government, your church, your God - you may find yourself a little disappointed.   As the Book of Job illustrates, God can be a real dickhead at times, and you can still love God, just as you can still love a parent who is abusive to you.  But that doesn't mean you shouldn't make alternative plans, rather than just giving up entirely and putting your fate in the hands of others and stop making an effort on your own part.

In the news today, a sad story about a nurse who put her trust in her employer, the church, and the government (no word about God).   She worked 30 years in a hospital in upstate New York, and when the hospital went bust, they voided her pension plan, leaving her with nothing.  Yes, you read that right, nothing. Turns out that any "religious affiliated" institution doesn't have to buy pension insurance and pay premiums through the Pension Benefits Guarantee Corporation, which would have at least paid 40 cents on the dollar.

(Note:  If you Google this story, you'll realize this issue has been going on for more than two years now, but for some reason, the Washington Post decided it was "news" just today.  I wonder why?)

Let's only hope that the church didn't duck out on Social Security as well (which some employers do - apparently some teachers don't pay into Social Security on the premise that they are already covered by generous government pensions).  Some lawyers are suing the church, which used the "religious exemption" to avoid paying pension insurance premiums, but is now claiming they were merely "affiliated" with the hospital, and thus are not on the hook for these pensions.  Even if the lawyers win (and they will likely win a lot for themselves) the pensioners will likely get less than they are entitled to.   It is a shitty situation.

But it illustrates why you can't trust people or institutions anymore - or I should say, ever.  After all, this isn't the first time the Catholic Church (or indeed any church) has let us down.  Yes, the younger generation likes to point to nostalgic television shows as an example of an earlier era where people were "luckier" than they are today - and got cushy jobs right out of college, generous paychecks, inexpensive houses, big gas-guzzling cars, and comfortable and guaranteed pension plans.

Sadly, that was just nostalgic television.  Much of what they are talking about is a two-decade postwar period of prosperity that even itself, had incidents of recession (such as 1958-1961). Yes, people who worked for GM or IBM or Proctor & Gamble or any one of America's mega-corporations had nice benefits, provided they were white, male, and never rocked the boat (as my father did) and remained loyal "company men" (and again, only men).   Many of these folks are still alive today, and yes, many of them are finding their pension promises are being voided, one after the other.

Retirement is a modern, post-war thing, and it has only been around a short time.  Before the war, you retired, you got a gold watch (if that) and that was it.  You had to hope you had your house paid for after 45 years in the factory - and that you would live that long.  You went home to cough your lungs out and hoped your kids got jobs in the factory and would support you until you died, which was probably five years later. Jobs were not an assured thing back then, indeed unemployment in the 1930's was well into the double-digits for years at a time. The whole idea that previous generations "had it easy" is somewhat overstated.  Oh, yea, that whole world war thing, too - twice.

Lifetime employment was a brief, post-war phenomenon, if it even existed then.  Back in the day, an Engineer could expect to work for a half-dozen companies before he retired, as each company hired, and then let go, engineering talent as projects were undertaken and then completed. That is one reason why the 401(k) plan was created - most Engineers never worked for a company long enough to be "vested" in a pension, and as we found out later on, those pension promises were unreliable.

But the glories of Corporate Socialism of the 1950's and 1960's started unwinding in the 1970's as the oil-based economy unwound under the pressure of rising oil prices.  I was lucky to attend General Motors Institute, before the company shed divisions, lost market share, and sold off the college. In the era of stagflation and foreign competition, GM couldn't afford that sort of nonsense anymore - no one can. The bills came due for all these promised pension and health care benefits, as well as generous wages, and no matter how many creaky, crappy cars you sold, it wasn't enough to pay everyone.  So Chrysler went bankrupt, twice and GM, too, finally threw in the towel in 2009.  And it ain't over yet for GM, either, as I noted before.

So what does this all mean for personal finances?   Well, you can't rely on any one thing these days, so you should rely on a plurality of things.  In the article cited above, it was reported that "people lost their houses" because of these lost pension benefits.  But that was likely due to the fact they were retiring with a mortgage, and couldn't make the payments.  It is temping to "take out cash" from your home during your working years, but later on in life, you might need that cash for yourself.

Now, I get the argument from some readers that saving money is for chumps. You save money, and then you die and your kids or next-of-kin get it.  You could have enjoyed that new Acura instead!  So why not spend it all now?  This is, of course, the argument made by someone who already bought their Acura, and wants a post-hoc justification for their poor financial choices.

Early on in this blog, when I had comments enabled, some wanna-be "gangsta" tried to argue that spending all your money on bling rims was a good idea, as in the ghetto, you might not live past age 30 anyway, so you might as well enjoy life.  Yet another argued that if you blew all your money in middle-age on stupid things, at least when you get older, you can relish the "memories" of all those good times.

I am not sure how to parse these arguments, other than to say, "bullshit!"  When you borrow money at age 30 for a motorcycle, a hobby car, a motorhome, or a boat, you are literally spending the money of the person that is you, tomorrow - Uncle Tomorrow.  And when you get old, not only will you have the cherished "memories" of these things, but the bills to pay for them as well.  And just because you paid off that boat loan, doesn't mean you don't still owe on it, if it means you never paid off your mortgage.   Debt is debt, and your car, boat, or house doesn't borrow money, you do.

Plus, the idea that when you get old, you are so infirm you can't do anything anymore other than reminisce about the good old days, is flawed - visit any retirement community and you'll see plenty of people enjoying life, and hobby cars, boats, motorcycles, or cruises or whatnot - which they can afford to pay cash for because they didn't squander their money on "I want it all NOW!" at age 35.

And that is one reason why I have always paid cash for things like that - or learned to live without or live with less. Maybe I squandered money on cars and boats and things, but at least I don't owe money as a result.

But getting back to trust, it pays to have multiple sources of income in retirement, because you can't count on a single one.   Even Social Security is suspect, as Republicans are always harping on how it is in peril (after they lower the withholding taxes that support it - and yes, Obama did this, too) and how it should just be abolished entirely or "privitized" so their Wall Street friends can have a "taste."  They always make this argument to young people who are paying in, but never to old people who are taking out. Funny how that works, eh? 

Pensions are fine and all, but as we have seen, can be shrunken in half - or down to nothing - in short order. Even government pensions are in crisis, as evidenced by the State of California's CALPERS plan. And of course, investments can go sour, particularly if you invest in just one thing - like a trendy stock, IPO, gold, bitcoin, or even just one type of investment (stocks, bonds, real estate, whatever). Spread out your investments (avoiding the trendy things) and if one goes bad, well, your ship isn't sunk. And it goes without saying the safest investment is debt that is paid off.

This is not to say you will live a carefree life in retirement, only that if one thing goes South - one investment turns out to be not trustworthy - you are not completely out of luck.   It is hard to feel sorry for people who put all their money into Enron, for example, without having a plan B in place.  The CEO that company exhorted his employees to put all their 401(k) money into company stock - even though at the time he knew the sharks were circling.    Turns out, he was not a trustworthy guy.

Hey, most people aren't - at one time or another.