When Should You Sell Your Car? (When it is Still Running)

 While it is a good idea to hang on to a car for as long as you can, there comes a time when you will eventually have to sell it.   When should this be?

I recently sold my X5 on eBay.   In a way, I didn't really want to sell it.  But I took my reluctance to sell as a good sign.   Just as they say "the best time to look for a job is when you already have one" sometimes it is best to sell and move on while a car is running well, and maybe just a little bit before you are ready.  Why is this?

I loved the X5 and it was well-engineered.  But it was an expensive vehicle, and even doing the repairs myself, the costs were pretty high (and pretty frequent).   Throw in 93 octane gas, prescription motor oil (all 7 quarts of it) and mail-order oil filters, and well, it got old, real fast.  The $300 tires were not any fun, either.

We take a two-month trip North every summer, towing a camper, and after 150,000 miles, my partner was getting worried about getting stuck somewhere when the car broke down. And on every trip, something would break - which is normal on an older car.    It was an ignition coil last time around.  A radiator cooling tank the time before.  The alternator before that.  I was able to fix all of these within a day, but it meant delaying our trip and also caused stress.

And with any car, it is not a matter of IF you are going to sell it, but WHEN.   Hanging onto a car, truck, motorhome or boat for too long is a waste of money.   And not everyone will make it to 300,000 miles - or would want to.

We got back from the last trip, and after replacing the ignition coils, the window regulator, and the door handle (which is #3 for this car), everything was in working order.

So I decided to sell.   Why?  Because everything was in working order.   It is easier to sell a car when it is running, than wait until everything is broken.

Two friends of mine did the opposite.  It is human nature.   Why sell your car, when it is running fine?  Right?

The first one had a boat.   It was in running order, but he had stopped using it.  He said, "Why sell it?  It is a nice boat, and I might use it!  It's not costing me anything!"  (It is, actually, in depreciation, but that's another story - and another posting).   So he kept it two more years on the trailer, turning down an offer for $6000.  He took it out one year and the engine blew up.  The transom had rotted out and the motor was shot.  He gave it away for scrap.  If he has sold it when it was running, he would have gotten $6000 for it.   Once it stopped running, it was worth nothing.

My other friend has an old Mercedes that he paid $60,000 for.  It is worth maybe $6,000 now and he said, "I'm not selling that car for so little!  I paid $60,000 for it!"   But it is 20 years old.  He rarely drove it.   And eventually, the battery went dead, and he stopped driving it.   He tried to start it the other day and the gasoline in the tank is sludge and the fuel injection system clogged.   At this point, you can't give it away.

His widow will probably donate that car to charity for a pitiful tax write-off.

Better to sell when it is working, get a little money for it and have an easy sale, than to wait until it is shot and then try to donate it to charity.

At the other extreme, another friend of mine finally bought a car, after leasing a string of $35,000 pickup trucks.  Yea, they have a new smartphone, too. The car is now two years old, and they have four more years on the loan.   He says to me, "Time to trade it in on a new one".   When I explain that he is likely upside-down on the loan at this point, he says, "well, no big deal.  You'll always have a car payment, your whole life, right?"

I was ready to scream.

But it illustrates that there is a happy medium between "drive it into the ground" and "Let's trade cars every two-three years".   There is a "Sweet spot" of car ownership, between brand new and clapped out, when the cost of ownership is at the lowest point - in terms of the depreciation curve and theWeibull curve.

In general, most modern cars will easily go over 100,000 miles without difficulty or major breakdown.  Most will go to 150,000 miles.   This means 8-10 years of trouble-free driving.  So keeping a car for 8-10 years and 100,000 to 150,000 miles is a good basic target.   Yes, you can go longer and drive a car "into the ground" - but that requires a little more effort on your part.   And it means a car that you really can't take on long trips, as it might break down and leave you stranded in the middle of Oklahoma - and at the mercy of the nearest garage mechanic.

And yes, there is an insane logic to owning a clunker - but you have to be pretty clever and astute to make it work - economically.   For the rest of us, who might not be mechanically inclined, it pays to fish further upstream.  Of course, your old Honda or Toyota might make a good hand-me-down car for your kids.  Older cars are cheaper to insure, and odds are, a kid will trash the car in short order, anyway.   But don't expect your kids to be grateful.  Today, the average middle-class teen expects a brand-new car for their 16th birthday.   And if you don't buy them one, in a few short years, they'll convince Grandma to co-sign a loan so they can have a "reliable car to get to work."  Or maybe weekend Dad will buy them one - out of guilt.

Of course, getting rid of a clunker is problematic.   Once they go bust, all you can do is sell them for parts or scrap - or donate them to charity (which is akin to giving it away).  But at that point, a high-mileage clapped-out clunker isn't worth much.   If you are handy with tools and don't mind driving a piece of crap, the clunker thing could work for you.   But most Americans don't have the time and patience for this, so we won't leave it on the table as a realistic option for most people.

Trading in cars every 2-5 years, on the other hand, makes no economic sense whatsoever.   To begin with, as I noted in my Hidden Costs of Car Buying, you will have to pay sales tax on each one of those cars.  If you trade every five years, instead of every ten, you double your sales tax burden, which on a $25,000 car, can be about $1500 each time.   You also are taking the biggest hit in depreciation, in terms of dollars - whether you buy new or used - as the highest depreciation occurs when the car is the newest (as the value is greater).  Unless you are really rich and can really afford to squander huge sums of cash, this is not a realistic option, either.  And no, you can't "afford" to trade-in or lease new cars every few years, if you are at the same time complaining about being broke all the time or underfunding your 401(k).  Let me put it this way - if you are reading this blog, odds are, you can't afford it.  So we'll leave this option off the table as well.

So when should you unload a car?   Like I said, about 8-10 years and 100,000 to 150,000 miles are pretty good targets.  But here are some other criteria you should consider:

1.  Have you stopped using the car (boat, motorhome, etc.?)   If not, think as to why you are keeping a vehicle you don't ever use - or use rarely.   Many people make the mistake of buying a new car and then saying, "Gee, we'll keep the old one, as it still have some life left in it!"   But the battery goes dead, and the gasoline in the tank turns to sludge - and the cost of owning an extra car, while not readily apparent - starts to drain your finances.   If you have more cars than people in your house, something isn't right.  And I know this, as I used have six (cars, that is) and it was bankrupting me.   Cars are like fresh fruit - use 'em or lose 'em.   Better to have one car and drive it a lot than to have multiple cars and drive them rarely.

2.  What is your use of the car?  If you are commuting to work, and don't mind being late once in a while (if the car breaks down) then you can afford to have an older car and not worry so much about being stuck.   If you have AAA, the car can be towed to your trusty local mechanic (or your garage) for repair.   But if you travel long distances, an older car might not be such a smart choice.   Breakdowns in remote locations mean than you have less choice as to who is to repair your vehicle - if indeed anyone there is capable of repairing it.   For example, driving the X5 in Labrador was an interesting experience - we kept wondering what we would have done if it had broken.   AAA might not work in Canada - and spare parts would have to be flown in or take a week to arrive.

3.  How Old is the Car?  And by this, I mean age in years.   Cars rot, like fresh fruit, even if they have "low mileage" on them.   And lower mileage cars are not worth a lot more than high mileage cars, as a result.  While a garage-kept car might last 15 or 20 years with no difficulty, cars left outdoors after two decades start to look pretty ratty, and many parts start to degrade, just from time and the elements.  Things like oxygen sensors wear out over time, as well as mileage.  Rubber parts rot, fabrics fade and tear.  Very few cars look nice after 15 years.

4. How Many Miles on the Car?  Again, mileage is not necessarily indicative of age.   A lot of highway miles put little wear on a car, whereas city driving can wear out a car fairly quickly.  But again, the odds of you reaching the fabled 300,000 mile club are pretty slim.   Most people who drive a car this far, drive an awful lot every year - 25,000 to 35,000 miles, or about double the national average.   There are few 20-year-old cars that make it to 300,000 miles, but plenty of ten-year-old cars driven by fools who fail to grasp that they are driving their lives away, 30,000 miles a year.

5.  What Condition is the Car?   Is the headliner starting to sag in spots or have some tears?  Are there nagging issues with trim, accessories, and electronics?  Will it be due for tires, brakes, struts, oxygen sensors, fuel filter, spark plugs, or other maintenance and repair items?   As I noted in my Fright Pig article, once a car hits about 100,000 miles or so, it may need a lot of repair and maintenance work.  Cumulatively, these repairs and maintenance items could end up costing thousands of dollars, particularly if the work is done by a mechanic.   Is it worth throwing $5,000 at a car worth maybe $10,000 on a good day?

The point is, as with everything, moderation is the key.   Going to extremes trying to keep a car alive forever can be more expensive than buying a new one.   And yet many self-styled "frugal" people do this - throwing hundreds of dollars a month at a car for repairs, and ending up with a ride that is uncomfortable, unreliable, and worth very little.   A minor fender-bender is often enough to total the car.   Or after throwing thousands of dollars in maintenance and repairs, a "big ticket item" like the engine or transmission blows up, and the cost of repair exceeds the value of the car.

Yet many people do this - throwing more and more money at older cars, convinced that "this time, it will be fixed, for good!"   Usually, these folks are not car people or people with a background in science or Engineering. They assume that "but for" some worn-out part, the car would otherwise be in perfect condition.  They assume that if all the broken parts on an older car can be replaced, it will run like new.  They assume wrongly.

Cars, like computers, houses, buildings, appliances, and even people, have a design life.   They are engineered to run for a designed service life, and then to be scrapped.   Depending on care and the law of probability, some run longer, and some run less, than this designed service life.   And a few are taken out of service and become "collector's items" which are not really cars anymore, but talismans of cars.

So you have to know when to quit - at a reasonable time.   And one way to do this is to set a goal for yourself.  When we bought the BMW X5, it had 50,000 miles on it, and cost $25,900.   I figured if we could get about 100,000 miles out of it, that would bring the depreciation down to less than 25 cents a mile.  Since it sold for $5700 (about $250 over trade-in or private party sale) the actual depreciation was about 20 cents a mile.

We could have easily gotten an additional 50,000 miles out of it, without much maintenance, I think.   The only major component in question was how much longer the clutch would last.   Some owners reported getting over 180,000 miles out of a clutch (and still running).   But most of the major systems were in good repair, and all the maintenance items (oxygen sensors, spark plugs, ignition coils, fuel filter, fluids, etc.) had been changed out.

But two things gave me the impetus to sell.   First, the small repairs on our long trips (which are an annual occurrence) were getting annoying.   When a car breaks down in a strange town, it can be stressful.  Second, the car had some life left in it, and everything was working on it - so it was a good time to dispose of it.   For $5700, it represents a good piece of transportation for the new owner, who can probably put 50,000 miles on it with no difficulty other than putting a new set of tires on it, eventually.

And I am at a point in my life - with no debt and a net worth well over a million dollars - that I truly can afford to buy a car.   The insurance cost is negligible, and the dent to my net worth is less than it fluctuates on a monthly basis.   So maybe it was time to move on from the X5.

The car also had some practicality issues.   While an SUV is supposed to "haul things" you'd be surprised how little you can fit into these vehicles, compared to say, a minivan or pickup truck.  With four passengers aboard, there is barely room in the back for luggage for two.    So we ended up with a "rocket box" on the roof, which was cumbersome and awkward.

So, what to replace it with?    The following criteria had to be met:

1.  A Tow rating of at least 5,000 lbs (more than the weight of the trailer).

2.  Room for four adults (our other car is a 2-seater, and owning two 2-seaters is not practical)

3.  Something that can haul fairly large items (again, the roadster doesn't do this well).

4.  Reasonable gas mileage (this conflicts with 1-3).  At least 20 mpg for a truck.

5.  Simple and cheap.  No AWD or 4x4 or fancy gadgets.

6.  Has to fit in the garage.


The new medium sixed SUVs are all based on car chassis (the Taurus, Impala, Camry, etc.) and thus have AWD and FWD options.   The FWD models are usually a lot cheaper.  However, most have very little cargo space and since they are of unibody construction, their tow ratings are limited.   SUVs are also very expensive as well - with most topping $30,000 or more, even in base trim - and even with rebates, etc.   Used ones are not much more of a bargain.

We had been looking at these Nissan Frontier mini pickup trucks (4-door), as they have a decent tow rating (6,500 lbs) for our trailer and are cheap (maybe $25,000 new, a lot less used).   It also fit in our garage, which a larger truck would not do.  We put a Leer cap on it (painted to match), and it holds a lot of gear for camping.

Nissan has been reducing the price and adding features to their mini (more like midsized) trucks for several years now.

Like I said, we had been looking at them for three years.  And each year, Nissan has lowered the base price of the truck, and added more features to the option packages.   What really stopped us from buying one (and I know this sounds stupid) is that they were all either silver or white (neither of which is a color) and when I saw this graphite blue one, at a reasonable price, I decided maybe it was time.  Negotiated the price over the phone, checked all the online sources for a "reasonable" price for such a vehicle, and did the deal in about an hour.   Was it a smart move?   Not necessarily.  You never make out buying a car or truck - they are worth less than you paid for them the moment you buy them.

The only "gadget" it has on it was a backup camera and backup sensors.   And these are pretty practical gadgets to have (I installed one on the X5 as you can't see out the back of that thing, either).   The rest is fairly simple - power locks and windows, remote keyless entry, cruise control.   It does have bluetooth and a decent iPod interface on the stereo.   But other than that, it is pretty basic.

By the way, Hertz has a lot of these for sale for about $21,000 used, which is not a great price, but OK.  Most have 20,000 miles on them and are mid-range loaded SV models.   The only thing about buying a used rental car these days is CarFax, which brands your car with the red letter "R" on it.   I think they need to tweak their prices a bit, but supposedly, they do offer $1000 off.  If you are not concerned about resale value, it might be a good option, as well as looking in the late-model used market.

Sadly, these mini-trucks, like Jeeps, get "modded" a lot, as their primary audience, particularly for the 4x4 models, are young men.   They tend to beat on them and add questionable modifications.   Thus, it is hard to find a late-model used one (I found only two, 200 miles away, in Florida).   The 4x2 models are more "old men's trucks" - the type of ride favored by middle-class retirees.   So it is official, I am now an old man.

It burns 87 octane gas, and the oil and filters are available at Wal-Mart.  The 16" Goodrich tires are sold at the wholesale club for under $100 each.  Sometimes it is good to be one of the plebes.  Esoteric is nice and all, but expensive.

It certainly is no BMW, by a long shot, but it cost less to buy than the BMW did, used, 8 years ago.  And it hauls more cargo than the BMW did.   But, boy do I miss those leather seats!

And I intentionally bought below my income and wealth level.  I could have afforded to buy a more expensive car, but why bother?  Some of my neighbors think it is pretty funny.   But I really don't care what they think.  They have mortgages.  I don't need a car to impress them.

I bought the truck in RWD, as the 4x4 option was a lot more expensive, had worse gas mileage, and a lower tow and cargo rating.  And with age, comes service problems with four-wheel-drive.  We live in Georgia (no snow) and don't go off-road.  I don't need a 4x4 vehicle.  The 4x4 models do "look cool" though, all jacked up, which is why I think they sell a lot of them to young males.

And there are still station wagons out there - Volvos of course, and the Jetta and Passat Wagons, which are practical cars for hauling people and things.  Mercedes has nice ones, too.  But after working on my friend's Mercedes, I am not sure I want one.  They are a nightmare of complexity.

We went with the truck as it has the tow rating and a full-frame.  Not much is made anymore with a full frame.  If we didn't have the trailer, we would have looked at a wagon, I think - probably a VW.   Maybe an older 3-series wagon.   I look at this truck as an intermediate vehicle.  We will put 100,000 miles on it, maybe, and then move on to something else, once we stop RVing.    Again, have a plan, up front, on how long you want to keep a vehicle, and it will help you know when to sell.   So maybe in 2021, the Nissan will go on eBay with 120K on the clock.

But who knows?  Maybe we'll have this one longer.   We'll see.  I am not emotionally attached to it, but I guess that means I am getting older.

Conclusory Statements

What is a Conclusory Statement and why should you be on the lookout for them?

When I was in Law School and called on to recite, in the Socratic Method, I was routinely humiliated for my weak thinking, by the law school professors.   I was not alone, of course.  Most people in their 20's are weak thinkers, and confuse slogans and other people's ideas with real thought. 

And one comment a professor made, was, "That is a conclusory statement, Mr. Bell!"

As I sat down in abject humiliation and to the laughter of my fellow students, I thought, "what the heck is a conclusory statement?"

And when I learned what it was, I realized that much of my "thinking" up until that point, was not thinking at all.   And I realized, as I have noted here before, that Law School was about teaching you how to think like a lawyer, not how to be one - just as Engineering School taught you how to think like an Engineer, not how to design a bridge.

What is a Conclusory Statement?   Simply stated, it is a statement made in an argument that states a conclusion, without any foundation, underlying logic, or reasoning.  For example, someone says, "Hitler was bad" - that is a conclusory statement.  It states a conclusion, without any underlying reasoning or supporting facts.   If they said, "Hitler was bad because he slaughtered millions, enslaved nations, and started the largest war in history" - that is not a conclusory statement, as it provides supporting facts and arguments.

With these supporting facts and arguments, one can understand the reasoning and factual basis for the ultimate conclusion.   And you can research the facts or address the arguments, if you feel the conclusion is wrong.  You can debate a non-conclusory statement.  However, a conclusory statement is not even an argument to begin with.

Now with regard to the examples above, you might say, "Well, everyone knows Hitler was bad" and you might be right about that.   But to a child growing up, who is just learning history, they don't know all of that, and it bears explanation.   And in most instances, the things you are talking about or debating do not have a back-story based on common cultural or historical experiences.

And just because a statement uses the word, "because" does not mean the statement is not conclusory.   As this example illustrates, 

"Here's  an example  of a conclusory statement taken from an exam answer: "Because Adam's intent manifested the malice required for murder, he will be convicted." The problem here is that although the statement may be true, the writer has not told the reader (professor) precisely which of Adam's acts show he had the malice required to prove murder, what degree or variety of intent the law considers sufficient to prove malice, nor what type or variety of malice is required to obtain a murder conviction."

Similarly, statements made in the financial sector, which provide "reasons" but don't tie them to the underlying statement, are conclusory.  For example, "Leasing is a better deal, as it frees up your cash flow!" is a statement often made by salesmen and parroted by their victims.   It provides a "reason" (freeing up cash flow) for the argument (leasing is a better deal) but really fails to explain why freeing up cash flow is helping the consumer (it isn't, really) and how it relates to the overall cost of the transaction (the "deal").  And of course, the reason this isn't delineated, is that freeing up cash flow is a nonsense argument and the overall cost of the transaction (the deal) is higher than buying the car.

Why should you be wary of Conclusory Statements?  Because when someone makes a conclusory statement to you, they are engaging in weak thinking or lying to you, or both.  And in commerce, investing, and other financial subjects, conclusory statements abound.

For example, on the financial channels and online, you hear conclusory statements all the time, usually from self-proclaimed "stock analysts" who say things along the lines of, "Gold will hit $5000 an ounce!"  (which was an actual statement made by so-called experts, at one time - and yes, the price will eventually reach those values, the question is, of course, when).

The "logic" behind these statements is that "Well, I'm an expert at this, so my opinion means something.  Obviously I know about these things, so I don't have to explain why."   And this is an example of creeping credentialism and expertism in this country - where people assume that if someone is "expert" at something, they are right - or if they have a mountain of diplomas, their opinions are sacrosanct.

But experts are just jerks like you and me - and are often wrong.  And in the financial arena, the best example of this is the Shouting Guy - who screams "BUY!" and "SELL!" into the camera, touting one stock or investment after another - without explaining why these are good buys or stocks that should be dumped.   He's the expert, you're an idiot, and you're supposed to do what he says - or at least that is the idea they are selling you.

But, as others have noted, a monkey using a dartboard has a better track record of investment than the Shouting Guy, and his "expertise" is very suspect.  Actually, all "expertise" in the financial arena is pretty suspect.   A financial analyst makes a few good guesses, and he is touted as the Golden Boy - and people throw money at him.   When he flips a coin, it always comes up heads.   But eventually, he flips a tails and people scratch their heads and wonder why he "lost his touch" - when in fact, the law of probability just caught up with him.

The problem with these conclusory statements is that they cannot be analyzed.   When the gold bug says, "Gold will hit $5000 an ounce!" you cannot analyze that statement with any form of research, reasoning, logic, or analysis.   And not surprisingly, the people who make such arguments are usually in the business of selling gold, or some related business.

On the other hand, if I say that I think gold is overpriced because it costs only about $500 an ounce to mine, that people are mining more and more of it every day, and that historically sudden spikes the price of gold (or any other commodity) are usually followed by sudden drops, those are at least arguments and facts that you can research, refute, discuss, argue, or analyze.  You have something to attack, at least.  The conclusory statement, on the other hand, is irrefutable.

And in that regard, in political debates, conclusory statements (usually in the form of political slogans) are far more popular than reasoned analysis.   When you make a statement with reasoned analysis and factual basis, your opponent will attack the reasoning and facts, which to the public makes the original statement seem "weak".   The opponent, on the other hand, who merely makes a conclusory statement, seems stronger as there is no way to argue a conclusion.

Like I said, when someone makes a conclusory statement, they are usually lying to you.

In sales, we hear conclusory statements all the time.  "You'd be hard-pressed to find one of these chairs for less than $1,000" a salesman chirps.   This is a conclusory statement, with no underlying basis in facts or reasoning.  If she said, "You'd be hard-pressed to find one of these chairs for less than $1,000 because they wholesale for $900", that might make some sense.  At least there is logic and reasoning behind it.

Making conclusory statements in commerce is not illegal, and in fact, is protected.  In commercial law, we call such statements "puffery."  They are like ad slogans - not intended to set forth facts, but to give a consumer a warm and fuzzy feeling about a product.   So when the salesman says, "This is a fine car that gets good gas mileage and has plenty of power!" those are conclusory statements and also advertising puffery.  They are not enforceable as contract terms - even in a verbal contract - as they mean nothing.

On the other hand, if the salesman said, "This is a fine car, as consumer surveys place it in the top 5% of all cars sold.   It gets over 30 miles per gallon, and has 300 horsepower!" it is a different matter.  He is providing hard data here, which can be analyzed and refuted - and moreover the subject of a lawsuit, as some manufacturers have found out in the past when cars didn't meet their stated performance criteria.

Sadly, most people cannot distinguish between conclusory statements and logical thinking.   I know I couldn't, when I was in my 20's.   I tended to believe whatever pile of horseshit sounded good to me and sounded like something that would work to my advantage.   And this is why young people tend to be more liberal and tend to believe ideas like, "If we just gave everyone more money, no one would be poor!"

But sadly, many people go through life, never learning to think logically or to question the premise of arguments.  Many oldsters are just as naive as youngsters - listening to right-wing talk radio, which provides them with lots of slogans and conclusory statements - but little data or logic to back them up.

"Illegal immigrants are taking over our country and taking away good-paying jobs!" they cry.   But they can't point to one "good-paying job" that an illegal immigrant has taken away from anyone.  It is just a slogan touted on the radio, and part of an underlying political plan orchestrated years ago. 

People spend their whole lives making financial decisions based on conclusory statements.  "Leasing is a better deal!" they chirp, "I get more car!"   But they fail to do the math on the proposition - and salesmen don't provide this math.   And the simple reason is, if you did, you'd likely never lease a car.   Conclusory statements sell when logic and reasoning won't.

In the last few years, we've heard a lot of conclusory statements made by financial experts, salesmen, and politicians, and maybe even your family members.  Most, if not all of them have been outright lies:

"Better buy now, or be priced out of the Real Estate Market!"

"This payment-optional loan will make your home more affordable!"

"If rates go up, you can always refinance!"

"Housing prices in our area will always go up!

"Leasing a new car every three years frees up your cash-flow and you get more car!"

"These dot-com stocks are the next big thing! This is your chance to get in on the ground floor!"

"This credit card deal is great! You get Frequent Flyer Miles and Cash Back!"

"But Grandma, I need a reliable car to get to work and school!

"I just need $500 to tide me over.  You're lucky and have so much money!  Why not help me out?"

"Vote for me and I'll create jobs!"

"If you raise taxes on rich people, they will lay off employees!"

"Illegal Immigration is costing America too much money and taking away jobs!"

And so on....

Most of these statements are outright lies.   But even if one of them has a nugget of truth to it, you cannot tell - as there no underlying logic or reasoning presented as to why the statement is true.

You can blame these sort of people for making conclusory statements and lying to us.  But we chose to believe these sweet lies.   So who really is at fault?   The liar, or the person who believes the lies?  

When listening to the media, politicians, financial channels, salesmen, and even friends and family, be on the lookout for conclusory statements.   Chances are, when someone makes one, they are lying to you and trying to get at your money.   Such statements should set off an alarm bell in your head - and act like police tape to rope off a raw deal.   If you look at conclusory statements in this manner, you will be forewarned of bad things happening.

If Something Doesn't Make Any Sense to You.....

If something doesn't make any sense to you, maybe that is because it is nonsense.

When I was younger, and someone tried to explain some financial transaction to me that made no sense to me, I figured that maybe I was just dense and didn't "get it."   After all, smarter people than I had investigated these things and must have found them sound.  I was just too young and naive to understand the complexities of finance.

Or so I thought.

As I got older, I started to see a pattern in these things.   People would try to sell me (often literally) on financial concepts that made no sense to me.   Later on, we discovered that they were flawed concepts - and a lot of people would lose their shirts in the process.

It began to dawn on me that perhaps I wasn't such an idiot after all, but rather my "gut instincts" were telling me that a snow job is a snow job.

For example, in 1989, I bought a house in Fairfax County, Virginia.   My boss told me at the time that property values in Fairfax County would always go up!   And everyone was buying and selling houses, which were appreciating, in some instances, by as much as 30% in a year.   I kept scratching my head about this, and thought, "This makes no sense!"

But "smarter" people than me explained, condescendingly, that I was just too dumb to understand.  "But," I said, "if housing prices keep going up this fast, who will be able to afford to buy them?   And if it costs far less to rent than to own, why bother owning?"

"Tut, tut," they replied, "You just don't see the bigger picture!"

Well, turns out, I was right and they were wrong.  The housing market in Fairfax County crashed and crashed hard, in the 1990's, with waves of foreclosures and short sales.  I bought some nice properties at that point - in foreclosure sales.

Twenty years later - nearly to the day - the exact same thing happened again - and the same people were telling me I was "dumb" to get out of the Real Estate market when so many people were "cleaning up".  This time around, I listened to my gut instincts, and not the "experts."  I made a million dollars, literally.

In retrospect, we all saw what happened.   Financial instruments that, on their face, made no sense, were being bought and sold, with no one bothering to ask whether they were sound or not.  Small investors were buying and flipping houses, and prices were climbing into the stratosphere.

This second time around, I was not so intimidated by the "experts" and sold out before the crash.  I began to realize that "experts" are just jerks like you and me.   And I realized this after taking the stand and testifying as an "expert witness" in a couple of cases.   Being "expert" in this country doesn't take a whole heck of a lot.  And experts are wrong - a lot of the time.

So I stopped listening to experts and listened to my gut instincts instead.   And when I was told some story that made no sense, I stopped thinking that maybe I was dumb and "didn't get it" but rather than people were trying to sell me horseshit.

And horseshit sales are booming.

Young people are still told these wild stories - and young people still believe them and not their own instincts.   Many a young person has tried to extoll the virtues of leasing to me, or explain why spending $100 a month on a smart phone is a "good deal".   Deep down, they know they are lying to themselves and these deals make no sense.  But they bought into "cash-flow" arguments or "opportunity cost" arguments that were peddled by retailers, and believed them, even if they made no sense.

The other day, I read this stupid story online about Bitcoin.   The tag line was "Man buys $100,000 Tesla with Bitcoins!" which sounds so trendy and cool, as it ties the trendy Tesla to the trendy Bitcoin.   But the reality is that this fellow cashed in his Bitcoins and then bought the Tesla with dollars. But that is not a very interesting story, is it?

I had heard about Bitcoins as some kind of online currency, but never really gave it much thought.    After all, if you want to shop online, everyone already takes credit cards or PayPal or whatever.   Why screw around with something else?

But the more I looked into Bitcoins, the more I felt I was being fed one of those "you're-too-dumb-to-understand-it" kind of deals.

How do you get Bitcoins?  What is the currency based on?    Well you can buy a Bitcoin, at current exchange rates - which vary wildly and have gone up dramatically over time.  Or you can "mine" them - which is what the currency is based on.

Mining?  How?  

Well, basically, they give away the bitcoins to people who can program their computers to solve algorithms - puzzles, if you will.   Solving these puzzles benefits nobody and creates no wealth.   We are not talking about decrypting documents or decoding DNA.   No, the bitcoin miners merely solve arbitrary puzzles and are awarded this imaginary currency as a result.  Over time, the puzzles get harder, and eventually, they will cease entirely when 21 million bitcoins are "minted".    So the currency has a fixed size, in terms of big "M" or the money supply.  This means that if an economy were based on bitcoins, it would have a hard time growing, as the currency would become more and more valuable over time.

It almost sounds like a practical joke being played on us by an Econ major.  Or the Mother of all pyramid schemes.   Think about it.  Each "puzzle" that these computers solve is harder than the last.  As a result, today, to "mine" a bitcoin, you need banks of computers solving these problems - the power needed to run them is staggering.   But the first guy who started it, mined the first Bitcoin in a few minutes, if that.  The first 100 in an hour.   The first million in a day.   He's sitting on a pile of dough and you ain't.   Sounds like a pyramid scheme to me!   And I suspect it will collapse when the last Bitcoin is "mined".

Well, who set up this deal?   That's where it gets really weird.  No one really knows.  The founder of bitcoin won't disclose his real name, and the enforcement and management of bitcoin depends on a distributed network of public keys and encryption.

In theory the system is secure, but there have been some thefts reported.   The "money" resides in your hard drive, unless you print out the code numbers representing your wealth.  As reported recently, one unlucky chap lost a fortune when he threw out his hard drive and lost a thousand bitcoins, reportedly worth a million bucks or so.  Back then, they were worth pennies apiece, so he didn't think much of throwing the hard drive away...

Which brings up an interesting point.   Bitcoins, like any currency, can be lost, stolen, or mutilated.  So, over time, the number of Bitcoins in circulation will decrease, since the maximum number is limited to 21 million.   If you take this to its logical conclusion, eventually, we will run out of Bitcoins.

The currency is not stable.  It has gone from 32 cents to 32 dollars, just in 2011 and then back down to two dollars.  It soared to nearly $1100 dollars and then back down to $600.  Some claim that this extreme volatility is irrelevant - as the bitcoin is just an exchange medium, and not a currency that one holds.  Yet the limited number of bitcoins encourages hoarding of the coins.   And if it is just an exchange medium, then it really isn't a currency, is it?

But taking all that aside, what is the real value of this money?   It is a perception-based currency,  and when people perceive it to be valuable then it has a value.   And today, people are perceiving it to be valuable, just as people perceive gold to be valuable.   And some would argue - again with the "you're-too-dumb-to-understand" argument, that all currencies are based on perception of value.

And while there is a nugget of truth to this, it reminds me of these relativists who argue that all truth and perception is relative, based on the person observing - and that "reality" is a myth.   But while that sounds find in the lecture hall on campus, in the real world (and there is one) it falls flat.   You may think you can fly if you jump off the Empire State Building - but mean old reality will tell you otherwise, in about 30 seconds.

And, oddly enough, the same has happened to Bitcoin, in fact, last week.   The value of bitcoins dropped by nearly half.  Far from being a stable currency, bitcoin has turned out to be, well, something else entirely.  It is hard to understand why someone would put "full faith and credit" in a currency based on the ability to solve meaningless and unproductive puzzles by computer.  No real work is being done - just make-work.   Nothing is being created.  No wealth is being created.   It is just a lot of people deciding that this arbitrary currency has value.

Now, you could say the same about the dollar - and indeed, all currencies, even gold (especially gold) are based on consumer perception of their value.  A currency is little more than a placeholder of wealth - an means of measuring the relative values of disparate items.  And in that regard, as I noted, money is the greatest invention of mankind.

But what makes the U.S. Dollar different from Bitcoin is that we know who controls the dollar and how.  It's value is not only determined by consumer perception, but by our interest rates, the amount in circulation, and the monetary policy of the Fed.   You may agree and disagree with the actions of the Fed, but the bottom line is, we know who is running the show, and they are answerable to the President, Congress, and by extension to the American people.

Yes, the dollar could also crash, but I am not so sure it will.  The economy is growing, inflation is down, and interest rates are low.   The rest of the world still cherishes U.S. Dollars and while China may hold a ton of our debt, we are paying them very little in interest for these loans (and despite what tea-baggers say, China cannot "call" this loan.  If you own a T-bill, you know how powerless you are as a creditor to the USA).

So, no, I don't buy the arguments that bitcoins are just like dollars and based on perception alone.  And no, it  is not because I'm too dumb to get it, but because the argument is bullshit.  And I'm old enough to detect bullshit when I see it.

Maybe down the road bitcoin will succeed.  I doubt it though.  For any "virtual currency" to succeed, it would have to be more widely used than bitcoin.  Only 1000 retailers worldwide accept it, only only a pitiful 10,000 online.  This is not enough to sustain a real currency for real trading.

It would also have to be controlled or monitored by some government agency or body of governments (like the Euro).   It would have to be backed by more than the ability to solve puzzles on your computer.   And we'd have to know who is actually running the show, too.

And I am not sure why people would bother with Bitcoins.   Granted, transaction fees for moving currency overseas are a pain in the ass, as I have noted before.   The banks, it seems, want a piece of every dollar you move from country to country, in wire transfer fees, credit card fees, or whatever.   Bitcoin promises to eliminate or reduce that - but you still have to find someone to convert Bitcoins to and from local currencies, and that is going to involve fees, as well as currency conversion rates.   Leaving money in bitcoin form runs the risk of sudden devaluation - as happened the other day when the value of bitcoins dropped in half.

In other words, I am not sure Bitcoins really have much of a use - or are a "cure" for anything in our existing system.   They may incur less banking fees, but they have far greater risks in valuation and liquidity.   And no, I'm not dumb for "not getting it" - it simply doesn't make any sense.   And certainly, the average citizen of any country will have little use for Bitcoins in their daily lives.

But the point is, never feel like an idiot when someone tries to explain some concept to you that sounds like a come-on.   In fact, if you feel "dumb" because you don't understand a lease agreement, or reverse interest-rate default swaps, or buying gold as an investment, you should take this as a warning sign that you are being fed a wagon-load of horseshit, and you are about to get ripped off.

Clever people always want to make you feel dumb - so they can take advantage of you.   When you feel this happening, treat it as an alarm going off - police tape roping off a bad deal - and just walk toward the door.

In the long run, you will be better off.    And no, you won't miss out on a "good deal".   There are plenty of other good deals out there, that are easy to understand for the simple reason that they make sense.

The Beatification of Nelson Mandela

Nelson Mandela died the other day.  The media and politicians are falling all over themselves to declare him a saint.   But was he really?   And what did he accomplish?

As I noted in an earlier posting, it is all too easy to get caught up in other people's causes, without understanding them thoroughly.     And for the most part, being a "Cause-ista" is never a very profitable use of your own personal time and energy.

And the problem is, since you don't have the time and energy to thoroughly investigate causes, charities, and other "issues" it is entirely possible you will be mislead and misdirected.   You may end up supporting scoundrels or giving money to con-men.

For example, in America, many young people like to follow the Dali Lama - imbuing him with this saintliness that is undeserved.  The reality of the Dali Lama is that he and his brother were both on the CIA payroll. He is fabulously wealthy, with homes all over the globe. He is homophobic and NOT a vegetarian, by the way. And if put in charge of Tibet, he would rule it like the Taliban. The Dali Lamas were the Shahs of Tibet, not saintly monks. 

But that doesn't sell bumper stickers.

Mother Teresa - surely SHE is 100% pure as the driven snow, right?  Well, some criticize her. While she has done a lot to help the poor and people dying on the streets in India, her work doesn't extend to PREVENTION of the underlying causes of this poverty and death. Things like birth control and social justice are not on her radar screen. So, if you are dying in the streets, she will make you a nice bed, but won't do much to prevent your 10 children from suffering a similar fate.   And the people she associated with and obtained money from were, well, not always the nicest folks.


Nelson Mandela is in a similar vein. There is a lot of gooey happy-talk going on in the States right now. But in the back of my mind, I keep thinking, "Gee, wasn't he imprisoned for KILLING people?"  And indeed, he was deemed a terrorist (and the ANC a terrorist organization) until fairly recently.

As the author of this interesting article points out, once in power, Mandela and the ANC did not really do much different than their white supremacist predecessors. South Africa is still a count6ry troubled with poverty and violence.

South Africa really hasn't changed much since the days of apartheid.   The black ghettos are still black ghettos, and people are assaulted and raped regularly.   There is still a high disparity between the haves and have-nots.   The ruling class has merely changed color.  Crime is still rampant.   And race discrimination still exists - but with a new twist.   For many government jobs, whites need no longer apply.

That's right.   Decades of discrimination have been replaced by...... discrimination.

I guess if Mandela has any chance at sainthood it is in that he changed later in life, and renounced violence. I guess that's something.

But I can't help but think that someone who lost a loved one to an ANC bombing must find today's love-fest somewhat disturbing.

Even more disturbing is how the historical record is being sanitized.   As with the Dali Lama and Mother Teresa, critique is not even allowed.  Once sainthood is established for a popular figure, any criticism is viewed as obscene.

On the Mandela Wikipedia page, the only mention of bombings are against "government targets" and power stations where no people are present:

"Operating through a cell structure, the MK agreed to acts of sabotage to exert maximum pressure on the government with minimum casualties, bombing military installations, power plants, telephone lines and transport links at night, when civilians were not present. Mandela himself stated that they chose sabotage not only because it was the least harmful action, but also "because it did not involve loss of life [and] it offered the best hope for reconciliation among the races afterward." He noted that "strict instructions were given to members of MK that we would countenance no loss of life", but should these tactics fail, MK would resort to "guerrilla warfare and terrorism"."

Problem is, the ANC did resort to terrorism, bombing a bank, a grocery store, and attempting to bomb a railway station - among other targets.   Innocent people - women and children - had their limbs blown off, or were blown into chunks of hamburger.  And Mandela approved and authorized these actions at the time.

Of course, maybe this is just the nature of revolutions.   After all, George Washington crossed the Delaware river on Christmas day, caught the Hessians by surprise, and basically slaughtered them.   Today, we celebrate this as an act of patriotism - because we won.   If it had gone the other way, well, we'd call George Washington a terrorist - along the lines of Guy Fawkes.

Winners write history, they say.   And maybe that is why we have beatified Nelson Mandela.

Why Scammers Aren't Funny

Scammers are getting more and more sophisticated with their cons.   Most are pretty obvious, if you are astute.   But being "on your toes" is no answer to dealing with scammers.

Scams abound these days.  I guess they always have, even back when I was a kid.   But they were easier to spot then, and the Internet has extended their reach to and from the four corners of the globe.

Not a day goes by that I don't get at least one scammer phone call.  My SPAM box fills and empties itself regularly, with scams.   I flag one or two messages as SPAM or scams in my regular inbox, nearly every day.

Visiting websites provides other opportunities to be scammed - daily.   You have to be very careful as to what you download or visit, as you could end up loaded by a trojan or scammed out of money.

When you go on websites that criticize scammers, you inevitably run into the comment, from some snarky young lad that, "Hey, these are obvious scams, just walk away!  If you are dumb enough to fall for them, you deserve what you get!".

And while there is a nugget of truth to that, the problem with "look out for yourself, bud!" as a means of protection is that it is hardly foolproof, even if you are astute.   It is also an anti-civilization message - the idea that people can just run roughshod over the rights of others and we, as a society can do nothing about it, is a flawed idea.   When we surrender control of our society to criminals, we give up on society.

Today, I was sucked partially in to two scams, and they bear mention.  What were the scams I got drawn into?

First was a "survey" site.   I ordered some Yakima parts for my truck, and went to ORS Racks Direct, which is a legitimate site, at least initially.  The fellow there on the chat page was really helpful in telling me which part numbers I needed.  I ordered the parts and used PayPal to pay.

Now, as you know, TRUST is a big part of ordering online.   You violate the trust of your customers, and you lose business - or lose your business.   People won't order from you if every order results in a stolen credit or debit card.   I will never order from ECS tuning, for example, since they let my debit card data get stolen by one of their employees.   The hassle just isn't worth it.

But anyway, I was happy with ORS Racks Direct, so when the order was complete, it asked me to take an online survey, and it seemed like a good idea.  

Bad idea.   It was a Bizrate survey.  And online surveys, in general are a bad idea.

The survey implied I would be entered into a contest to win $100 or something.   I didn't care about that, but wanted to give good feedback.  At the end of the survey (which kept asking for personal information, like my e-mail address) it offered me a $100 "bonus" which turned out to be negative option magazine subscription offers.

I quickly closed the survey window.   Free isn't, and the gag they use for these subscriptions (which are "free" but require a $2 handling fee, so they aren't) is that you have to call or e-mail before the end of a six month trial period, or you are automatically charged the full subscription price on your credit card.  It really doesn't matter whether you cancel or not.  In many cases, these "affiliate companies" claim never to have received cancellation.

Survey sites are a bad idea - no one cares a rat's ass about your opinion.   They are just come-ons for some other gag.   Maybe there is one legitimate survey site out there.  I doubt it.   And it ain't worth the hassle to find out.   Lesson Learned:  Never, ever, ever take an online survey.   Your opinion doesn't count - but the surveyors would like to count your money.

Second was a "Wrong Number" or Mis-dial" gag.   I got an offer from Comcast Xfinity for cable modem and telephone service.  I figured it was worthwhile to shop my plan, as my Uverse contract had expired and I was now paying nearly twice as much as the "introductory rate" on Uverse.

So I called the number on the card, which was a mass-mailing piece they sent out.   Problem was, I called the wrong number.  I dialed 1-888 instead of 1-855.   A recording answered and said I had won a free Wal-Mart card.   I figured this was some promotional come-on, and it sent me to a telemarketer in India.

She asked several questions, of increasing detail.  I figured they needed my name and address if I wanted to establish service.   But she kept going on and on about free coupons and a $100 gift card, and I became more and more suspicious.   Nowhere did she mention internet service.  Finally, the gag was set - she wanted a credit card number to pay for "shipping and handling".

I realized I had a wrong number - or the Cable TV people were worse slimeballs than I thought!  I quickly hung up.

What is interesting is that it appears to me that these scammers intentionally obtained a 1-888 phone number that had the last seven digits of Comcast - and relied upon people misdialing the number to snare victims.   I wonder how many other popular phone numbers are mimicked this way as well.   In a way, it is like the websites that are one letter off from Facebook or whatever, that re-direct you to a survey site or some other odious deal.

I called back the correct number and got the Cable Company (only slightly less sleazy, of course) and found out that the savings in going to Cable modem were not all that great.

Lesson learned?  Well, I guess be more careful in dialing numbers, for starters.   And second, the first time someone mentions the word "free," just hang up the phone.

What annoyed me about both these gags is that, initially, I got sucked into them.   I did not get ultimately suckered (as far as I know - unwanted magazine subscriptions have yet to arrive!) but I didn't immediately spot them as phoney.   I must be losing my touch, with old age.

It is like the call from "John" (who calls as often as six times a day) telling me that, "ah, um, I have a package here for you, shipping's paid for and all...."   The first time he robo-called me, I actually talked to him, as I thought he was a real person.  I felt like a fool - and a chump.

And recently, I fell victim to an attempted download of the Babylon virus, when I was directed by Google to a look-alike site for Mozilla. Ad Blocker Plus put and end to those helpful "offers" from Evil Google, but for how long?

I guess I am getting older, but in the past, I didn't dodge these bullets so closely.   The snipers at SCAM-dot-com are getting closer and closer to hitting their target.  Pretty soon, they'll nail me.

And guess what?  I'm getting older.   It happens - to all of us.   So how is this going to play out when I'm 70 and even slower on the uptake and the scammers are even slicker and harder to detect?

Being scammed is a predictable event, in that case.  It is not a matter of "it won't happen to me" but when it will happen to me.

The scammers are getting better and better at scamming.   The fake websites are looking more and more real.

And this is why I think this attitude that we should tolerate scammers on the premise that "anyone dumb enough to get scammed deserves what they get!" is a bad attitude.  Why?  Because we are all potential victims, down the road.   And a society that doesn't protect the weak and helpless from powerful predators is not a society at all.

We need to shut down these obnoxious robo-calls that have plagued the country in the last few years.  We need to shut down scam websites and online surveys and other garbage that is of no value whatsoever.   We need to put an end to payday loans and title pawn loans that bankrupt individuals.

We need to fight back.   Sadly, this doesn't look like it will happen anytime soon.