Sunday, August 28, 2005
A few years ago, before I had watched much of The O’Reilly Factor, I happened to catch one of Bill’s segments on the Federal Reserve and interest rate policy. I was taken aback by how clueless he was on this subject and right away started wondering whether or not he was a total quack.
After watching him for a few years since, I have determined that he is not the complete dolt I had feared. I particularly love his show for the pounding he hands the New York Times and for his ability to embarrass and pressure deserving morons – be they politicians, pundits, or newspapers.
It almost goes without saying that I don’t agree with him on everything. I eschew his segments on Natalie Holloway, Michael Jackson, etc. But there is always a good fifteen minutes worth watching each day.
The thing I fear most is a paralyzing economic crisis here in the United States. I am not predicting one but there is bound to be some economic hiccup in my lifetime. I am afraid that when it happens, the collective economic illiteracy of the populace and politicians will end up compounding the problem. Remember, only WWII pulled us out of the Depression and that was a decade hence.
Bill O’Reilly was railing against OPEC the other day, accusing them of price gouging. He had some ridiculous stat that said the cost of oil production was only a few dollars a barrel and yet it was selling for over $65. Whoever is fact checking his economic stats should be fired. Oil does not cost only a few bucks to take out of the ground and anyone who knows anything about oil knows that OPEC can’t control prices and they haven’t for a long time. Oil is a global commodity and OPEC is not large enough to be the mythical cartel that economic illiterates like to blame.
Bill then trots out this oversimplified equation.
“Oil companies are making record profits…..therefore gasoline buyers are getting ripped off….”
Bill thinks it is safe and “populist” to whine about high gas prices and excoriate “profits”. I have a newsflash for Bill, if companies weren’t allowed to earn “profits”, the price of oil would be multiples higher. In other words, the only reason oil is a cheap $65 per barrel is because of this very “profit” incentive. Furthermore, the only thing that will eventually lead to lower prices is profit seeking oil companies. Fuel efficiency does not work and “alternative” energies are still the stuff of science fiction.
When are people going to understand that “profit seeking” has done more for humanity than almost anything else?
How much money does Bill O’Reilly earn? $30 million a year?
Fox is about to raise everyone’s already record high cable bills. Read it all here.
Isn’t Fox “gouging” its customers? After all, Bill and Rupert are enjoying record earnings.
Bill, when an economic story approaches....run far, far away.
I saw some show (Globe Trekker) on PBS about Hawaii. It couldn’t have been more predictable. The segments highlighted Hawaii as leader in gay marriage and was full of Hawaiians complaining about being part of the United States. One woman flat out said that they don’t consider themselves part of America. How nice to have taxpayer funded television that incessantly bashes the country and system that created it.
So I wasn’t shocked when I heard that the University of Hawaii invited Ward Churchill out to speak. They did this at the height of his controversy and it could only be construed as a “bleep-you” to much of continental America. Even the craziest moonbats don’t defend Fraud Churchill.
So how surprising is it that Hawaii is about to create a “racially exclusive government by and for Native Hawaiians.”?
I say let Hawaii secede. Let the natives there defend themselves from Japan, China, or whoever else feels like putting the squeeze on these spoiled morons.
They should be more gracious or at a minimum, more silent.
Make sure you click on that link and read about the 1993 Apology Resolution.
Hawaii also made the news last week with a push to limit wholesale prices for gasoline. This is so stupid that I won't bother to explain its folly. I will just let it play out and maybe get back to it. Price controls have led to shortages and higher prices almost 100% of the time throughout economic history - but hey, let's just ignore that avalanche of empirical evidence.
Friday, August 26, 2005
What are the odds of finding 21 "fuel efficient" cars in a row in the United States?
Given that SUVs comprise 25% of vehicles.....
The Math: raise .75 to the 21st power....
The Answer: .23%
That is right, less than a quarter of a percent.
Yet that is the pic I just took at a neighboring condo complex.
I sit in my window all day and watch these people. I never see more than one person in a car (i.e. no car pooling). I never see anyone walking or biking. Nor do I ever see anyone get dropped off, drive to the commuter train station, or standing at the neighboring bus stops. My street is overflowing with parked cars and hardly any of them are SUVs.
So how "green" is Boston really? Maybe if these misguided environmentalists paid twice as much in gas, they would limit their driving?
If environmentalists were logical - they would insist on FUEL INEFFICIENCY.
These people are so dumb it almost makes my head explode to think of this topic.
Fuel efficiency lowers the short term demand for oil which lowers the short term price of petroleum products. But a lower oil price encourages more people to use it in the long term and stunts the development of "alternate fuel" technologies.
All fuel efficiency does is temporarily soften the demand for oil, but only so much that now someone can afford to drive in China or India.
The few environmentalists with a bit of clue on this clamor for gas taxes to artificially make driving more expensive. Gasoline taxes may be the most regressive tax on the books already, yet these "green" lobbyists are all supported by the purported champions of the "little guy" like Ted Kennedy.
SUVs are environmentalists' best friends, but they are too moronic to realize this.
If that picture isn't definitive proof of a groupthink epidemic here in Boston - I don't know what is.
(And before anyone thinks that a condo complex is not representative of the population, let me preempt that. When I lived in Charlotte, everyone lived in condos and SUVs were all over the place - so much so that sometimes my 2000 Ford Explorer was the smallest car in the lot.)
So darn predictable. After the Nasdaq bubble burst, economically illiterate politicians pushed a bunch of anti-business laws marketed as protecting investors (lowlighted by Sarbanes-Oxley). When real estate tumbles, the Eliot Spitzers will have plenty of ripe targets. Mark my words, they will go after mortgage brokers because they get paid a commission based on how much the homebuyer borrows. Class action lawyers and politically ambitious prosecutors will find an “incriminating” email or two and use it to bilk millions from banks, lenders, or whomever.
It helps to know what a typical broker's rake-off is. According to Wholesale Access Research & Consulting, they charge an average 1.5% for a conventional loan and 1.3% for a jumbo (over $360,000).
For the arithmetically challenged, this means that when you take out a $300,000 mortgage, the broker can expect to pocket around $4,500. Clearly, brokers don’t need to sell many loans to generate a decent income. Selling two such loans a month would yield $108,000 in yearly income.
I can foresee it now:
“My mortgage broker convinced me to borrow an extra $50,000….. the scumbag earned $750 more for himself because of my increased loan….. Now I am losing my house and it is all his fault....”
60 Minutes will chime in:
”....are you burdened by high mortgage payments….well, maybe you were a victim of fraud,…..watch 60 Minutes tonight….”
Real estate bears would be wise to buy the google keywords now such as “mortgage fraud”, “sue my mortgage broker”, etc. before they explode like “Vioxx”.
Before Merck withdrew Vioxx from the market, it cost about $2 to get top placement in google search results. Smelling billions in lawsuit money, class action lawyers bid up the search rights to “Vioxx” to over $40 a click. That means that you could have googled “vioxx” and then clicked on the first provided link and it would have cost some law firm $40 – just for clicking. It would have made great sport for the class action haters – googling and clicking on their links just to cost these rotten lawyers money. (Highlighting again why I own Google stock.)
Back to real estate. Banks outsource much of the mortgage business to third party brokers for the explicit reason of avoiding charges of discrimination and conflicts of interest. That won’t matter, large banks have the most money and the Eliot Spitzers will find a way to extort it from them. It is a sad reality that having a lot of money, whether as a person or as a business, puts a bull’s eye on your back.
Thursday, August 18, 2005
Remember my post on whacky Asheville?
Read this story about a parent’s visit to the University of North Carolina – Asheville.
It is titled “The University of Copulating Asians” and it is about one professor’s crusade against the discrimination of Asian men in porn films. Our tax dollars hard at work once again. (I will not say “no pun intended” because my mind isn’t even there.)
I promised some rapid examples of Boston economic illiteracy so here they are.
Apparently it is illegal in Massachusetts for the electric company to stop service on delinquent customers between November 15th and March 15th. This is a typical anti-business law that hack politicians pass to “protect” the poor and elderly in those bitter winters. First of all, no one up here has electric heat. Everyone up here has either gas or oil. Electric heat is popular in new construction condos in warmer climates. If someone did have to survive a New England winter on electric heat, they surely would become destitute, for it is the most inefficient and therefore expensive way to keep warm. Ask anyone who has had it.
So I just googled “mass electric stop service november” to verify the exact dates between which the utility companies can't turn off service and I got this truly rich link to Attorney General Tom Reilly. Look at his website advice via this hypothetical question:
Utilities and Phone Service
Q: I’m 65, live by myself, and can’t keep up with my electricity bill. I have electric heat and I’m worried that they will shut off my service. What can I do?
A: In Massachusetts the utility company cannot terminate your service if everyone in the household is over 65. There is also a winter moratorium in place every year from November 15 to March 15. During those months, gas and electric companies cannot shut off your service if you are unable to pay. You may also be eligible for home heating assistance, to help pay your bills. The Attorney General has published a guide to keeping warm this winter with information on this question and referrals for assistance. To request a copy of the brochure, please contact the Office at 617-727-2200, Ext. 5354.
If somebody couldn’t pay their electric bill, my first piece of advice would be to cancel that internet service they are using to browse O’Reilly’s website.
Again, virtually no one has electric heat in New England, but this politician is so concerned with his image as the protector of the weak that he has website advice for this exaggerated, if not imaginary demographic.
What is the cost of this symbolic, political, and rhetorical policy?
Well Mass Electric says that 10% of their revenue goes uncollected. That is a very high number and I am sure much of it is related to this stupid policy.
But hey, let everyone in Massachusetts keep voting for these vanguards of the “little guy”, even if it raises every household’s electric bill. I’ll bet there were one or two deaths umpteen years ago that prompted this measure.
Moving on with some more Massachusetts economic illiteracy.
I had some random young lady crash a barbeque at my place. At one point in the evening I heard her say, “……well, he is a capitalist…” in the most pejorative way possible. Of course I had to call her on it and she melted into a silence that more aptly befitted her level of ignorance.
She is a 7 year Phd student at a local state university. What if there were no “capitalists” creating the profits, jobs and incomes whose taxes subsidize her economic welfare, more euphemistically codenamed “academia”?
I have no issue with higher education and those that choose that path. I just hate loud-mouthed idiots who are clueless as to what creates the lifestyles they enjoy. And I especially don’t like them pontificating in my own house.
Everyone with a clue knows that recycling doesn’t save money. It may save landfill space and reduce consumption of virgin basic materials, but it costs money to do this. I don’t want to burst any of the green people’s bubbles, but sometimes it is unavoidable.
To the many of the simpleton environmentalists, it makes so much sense as to border on the dogmatic. Instead of throwing out the paper and glass, we reuse it. How could it not save money? Well, when throwing it out is cheaper than the costs of recycling.
Here in Newton, Massachusetts I got this flyer on the town’s recycling program.
(click to enlarge)
First of all, talk about economic illiteracy, at the bottom, the flyer touts how:
”EACH TON OF PAPER RECYCLED SAVES THE CITY APPROXIMATELY $152 IN REVENUE AND AVOIDED COSTS”
Saves the town “revenue”? Do they have a clue what “revenue” is? Shouldn’t they be maximizing revenue instead of “saving” it?
Now who knows how they calculate the $152 number. Basically you would have to find out their landfill cost for regular waste tonnage and compare it to the tonnage cost of recycled paper. But I took this number on its face, called up and found out that last year they recycled 8097 tons of paper. Multiplying by the $152 yields about $1.2 million dollars in “savings” for last year.
They actually have 3 types of garbage trucks that traverse the entire town – one for basic trash, one for paper, and one for bottles and glass. So now they need 3 times the number of trucks and workers, much more insurance, and other costs (healthcare, management, etc.) Also, they have to drive these trucks for 3 times the mileage. And guess what, I did some research and found out that garbage trucks don’t get more than 5-6 miles per gallon. Is all this factored into this $152 per ton saving? I would bet considerable money that it isn’t.
Here is a query:
Are there more miles driven each year by Hummer owners or by recycling garbage trucks that get only half of the Hummer’s fuel efficiency?
So is recycling causing “Global Warming”?
Even with that dubious $152 number, I sincerely doubt that $1.2 million covers the total added costs of basically double (or triple) the pick-up work.
This is a major problem for the environmentalist movement. They are so fanatical that they constantly throw out half-baked bricolage theories and explanations which erode their overall credibility. If they want people to recycle, they should articulate valid reasons for doing so, not the myths of cost savings (or “revenue savings”).
This reminds me of a site I found on “The Wage Gap” by the National Women’s Law Center. They undermine a noble cause by including this Commi-speak at the end:
If working women earned the same as men (those who work the same number of hours; have the same education, age, and union status; and live in the same region of the country), their annual family incomes would rise by $4,000 and poverty rates would be cut in half.
What profundity – if people were paid more money, poverty would lessen.
Actually it wouldn’t because the poverty industry would just alter the definition of poor.
Wednesday, August 17, 2005
The first signs of real estate dipping appear to be in San Diego. Eighteen months ago, there were 2,916 homes for sale in the county. Today there are 13,204 homes for sale.
My new landlord admitted to me that he overpaid for the building (pictured above). I was somewhat surprised to hear this from a recent buyer, but pleased nonetheless. Nobody wants to have a moron for a landlord.
He told me that he did a 1031 Exchange, which is the buying of one property from the selling proceeds of another within a period of 45 days (I think this is the number), all to avoid paying capital gains on the sale. Let’s clear one thing up, you can’t really avoid paying capital gains tax – all you can do is defer it. Right now long term capital gains are 15%. There is no guarantee that they will stay that low. In fact, in 2013, they are already scheduled to rise above 20%.
The scary thing is, in the last 4 days, I have heard 4 separate people tell me about 1031s. No one wants to sell their appreciated real estate and cash out. Again this is redolent of the 2000 stock market where seemingly nobody sold at the top.
I maintain that my landlord would have been better off taking his capital gains – assuming they were long term (over 1 year). After paying the 15%, he could have put the remaining 85% in some fixed income securities. Even if he went for the boring 10-year Treasury Note, he could get just over 4.1 % after commissions.
In a previous blog, I showed that the landlord will earn at best a 3.7% yield on his investment. So compare that yield to 85% of the 4.1% 10-year note which is 3.49%. So this whole tax deferment is for a gigantic .21%. Furthermore, the landlord could easily improve on his fixed income yield by putting part of his wad into high yield (junk) bonds – which currently are paying around 6%.
I just don’t see what is so bad about realizing capital gains, taking some time off from landlord duties, and waiting a couple of years for a better reentry point in the market.
This brings up a few points about renting that I haven’t seen addressed anywhere.
It seems to me that most landlords don’t have large mortgages, if any at all. Most seem to have owned the properties for some time and so much, if not all, of the rent they collect (net of operating expenses) flows into their pockets as income.
So in terms of renting apartments, these un-mortgaged landlords essentially have very low costs structures. This helps explain why rents haven’t risen in the last 5 years.
Another thing that I keep hearing it that now is a good time to invest in apartment buildings. The theory being that at today’s prices, soon first time buyers will be unable to afford homes and will be forced to rent. First of all, I have been hearing this for 5 years straight – all the while starter homes have gotten more and more expensive.
Apartment building sales prices have risen, in fact to astronomical levels. By this I am using the metric of “price to rent roll”. Today buildings are trading around 20 times annual rent. (Remember my building, the landlord paid $1,000,000 and that is roughly 20 times the $48,000 in gross annual rent he will collect this year.)
Historically, rental buildings have traded at 10 times annual rent and even lower than that. Only a small amount of this multiple expansion can be explained by lower interest rates. At some point, the gap between rents and sale prices will have to narrow. Most real estate perma-bulls think rising rents will do the trick but I fear this is just more wishful thinking on their part. As I addressed above, I think many landlords have little to no mortgages and will only be forced to raise rents to the extent that all landlord costs rise, e.g. rising property taxes. Anyway, here is a good article that defies the conventional thinking of “rents have to rise”.
Tuesday, August 02, 2005
Like almost everything else, the root cause of clutter can be explained by a confluence of trends. First, it seems to be a question of age as older people constitute the majority of clutterers. Categorically, they grew up in a time of relative scarcity. The historical cheapness of today’s commodities, clothing, energy, food, etc. hasn’t quite sunk in with this demographic.
Want to annoy an older relative? Then after a meal, go throw the leftovers straight in the trash, leave the lights on in unoccupied rooms, throw old clothes away instead of donating them to the Salvation Army or whatnot, dump the bacon grease, and my sure-fire way to make your older cluttering cheap relative go apoplectic – OPEN THE WINDOWS IN THEIR CAR WHILE THEY HAVE THE AIR CONDITIONING ON.
Furthermore, clutterers cling to junk because they think everything has value. That old lamp, clothes from the 1970s, old bicycles that they and their grandchildren will never use, every single greeting card that they ever received, etc. Ever see old rusty cars adorning the lawn in some rural area? It hit me the other day when I was looking at my neighbor’s three rusted cars in his back yard – this is nothing but the rural expression of clutter. They bought that car years ago, spend hard-earned money, were going to fix it up, and then were keeping it for parts. Before you know it, it’s been twenty years!!!!
That rusty car illustrates the thought processes that lead to clutter. As I read today in a newspaper, cluttering is all about indecision. Chronic clutterers always can find a reason to keep something, sentimental value, misjudged economic value, or just the pathology of not being able to admit that something they paid “good” money for, no matter how long ago, is now simply worthless junk.
The clutter issue is so apparent to younger people and yet their older relatives are not only helpless to address it, many are outright oblivious of their problem. Don Aslett, cluttering guru and author of forty books on the subject, claims that clutter is so mentally distressing that it actually breaks up marriages.
Younger people have probably moved residences recently whereas the older set may have been in the same house for decades. Moving encourages purging or at a minimum some incidental thoughts on “why the (bleep) I still have X, Y, and Z”. If the movers who just packed my boxes down in Charlotte last week had to do the same at my parents house….. I am sure most of them would refuse, demand double-time pay, or quit on the spot. Most of these decades-in-one-house clutterers just haven’t the faintest idea of how much stuff they actually have.
Aslett also scoffs at those storage bins, sold at the likes of Target and Walmart. He sees them as enabling clutter more than addressing the problem. I found that very funny because I just bought a couple and I had all sorts of problems doing so because there were several people in that aisle to the point that I couldn’t get my shopping cart near the products. Next time I hit Target, I may revisit that aisle and start whispering to the customers, “Don’t store it – Throw it away….”, “You have a cluttering problem…”, “Your (bleep) is WORTHLESS….”, and “Storage is just a very expensive way to throw stuff out!!!!!!!!!”
Yesterday my 92 year old grandfather made himself and my grandmother breakfast. I happened to stop by and noticed that neither of them had eaten their sausage. I picked up a link to sample it and promptly spit it out. It was terrible and I asked what kind of sausage is this? My grandfather said it is “Johnsons or something…..It is good…” I said, “No it isn’t, it is terrible….if it is so good, why didn’t you eat it?….”. I pick up the sausage box and I discovered the problem – it was some veggie type of sausage (and no brand that anyone would have heard of). “Why did you buy this?”, I demanded. He then told me that he bought it at a yard sale for 25 cents. I said, “Grandpa, let me tell you something, ….even at 25 cents, you got ripped off….” But he didn’t want to hear it. The fact that nobody could stomach a mouthful, including him, could not trump his strident belief that he doesn’t get ripped off or even make bad purchasing decisions (not even of the level of 25 cents). He then kept pointing to the $2.69 price tag still on the box as definitive proof.
This Seinfeld-ian anecdote (think of the arguing Costanzas) does have a point. I am worn out from trying to help de-clutter my relatives lives. Now I just stealthily throw stuff out. When my mother was out today, I simply put some 5-years-ago-expired peach jam and 20 year old tumeric spice (you know when McCormick used the metallic cans) in the trash, of course hidden well beneath the surface. A few years ago when my wife and I were trying to de-clutter a relative, we made a pile of stuff to throw out. But whenever we turned around, we noticed the offending clutterer kept sneaking up to the pile and repossessing the junk!!!!
So while I wore myself out trying to get my parents to throw junk out these past few days, they dismissed all of my rational pleas for disposal. But eventually I came up with one argument for which they had no retort, “Why do you care if we throw all of this (bleep) out…….you know that you will rapidly replace it with other (bleep).”
And who the heck buys frozen food at a yard sale?