Why would a tiny town of 25,829 in the middle of nowhere Wyoming be interesting?
Three words: Powder River Basin, which produces 25% of the nations supply of coal, mostly in the sub-bituminous form. This type of coal is used mostly by coal fired power plants like the Fayette Power Project and the Jefferson Energy Center.
In the year 2000, Coal plants produced 51.7% of the electrical requirements of the United States. Nuclear plants produced 19.8%, natural gas and oil combined produced 18.7%, hydro 7.2%, other (solar, wind, etc) 2.6%.
Given the fact that the prices of natural gas and oil have SPIKED and show no signs of dropping, that new nuclear plants aren't going to be built in the near future, and that there probably aren't many more locations where hydroelectric plants can be built - coal is going to become MUCH more significant to keeping our lights on and our machines running.
Gilette is smack dab in the middle of one of the largest coal reserves on earth. For an idea of the mining taking place there, check out this map of mines in the area. By my count, there are 12 active mines in the immediate area. The source of much of the following data was this website.
Foundation Coal Holdings, Inc owns 2: Belle Ayr Mine and the Eagle Butte Mine shipping a combined 43.6MM tons of coal in 2005 while employing 501 employees.
Arch Coal Inc (Thunder Basin Coal Company) owns the Black Thunder mine, the largest coal mine in the United States. In 2005 it produced 87.59MM tons of coal while employing 948 employees.
Rio Tinto Energy America claims to provide energy that meets 6% of US electrical needs. In the Powder River Basin of Wyoming alone, it operates 3 mines of it's 5 mines, producing a 105MM tons of coal per year. Cordero/Rojo Complex, 37.8MM, 527 employees. Jacobs Ranch, 37.3MM, 546 employees. Antelope, 30.0MM, 337 employees.
Peabody Energy Corp, the worlds largest private coal company, owns the Powder River Coal Company. "Peabody's three Powder River Basin mines operated at peak levels in 2005, shipping a record 125.7 million tons of coal and loading 7,800 trains." Specifically, these are the Caballo (30.5MM tons, 304 employees), the Rawhide (12.43MM tons, 131 employees) and the North Antelope/Rochelle Complex (82.7MM tons, 825 employees). Powder River Coal Company employed 1260 employees in the region in 2005.
Western Fuels Association, a cooperative non-profit owns the Dry Fork mine, which produced 4.09MM tons of coal in 2005 and employed 61 people.
Kiewit Mining Group Inc. (Part of Peter Kiewit Sons’, Inc., an employee owned company) owns the Buckskin Mining Company who's Buckskin mine produced 19.57MM tons with 202 employees in 2005.
Black Hills Corporation owns Wyodak Resources, which operates the Wyodak mine which in 2005 produced 4.7MM tons of coal with 68 employees.
I realize this is a lot of information to throw out. The bottom line is that these twelve mines produced a total of 390.25MM tons of coal in 2005 with 4,450 employees or about 87,700 tons EACH. As of 6/23/06 the spot price per ton for this coal was $12.25. This means that the mines are producing $1.07MM in revenue per employee.
The coal is moved mostly by Union Pacific and Burlington Northern Santa Fe rail systems. According to BNSF's 2005 annual report, they added 1300 new coal cars to their system.
One other thing: The Gillette "region also contains major deposits of uranium" per Wiki. This area may be the primary source of energy for the United States in the next 50-100 years. Like I said, it's a very interesting place indeed.
Why would a tiny town of 25,829 in the middle of nowhere Wyoming be interesting?
That's right. 50 BILLION watts (or 50 gigawatts), a new all time record high to go with our new record high temperatures. This demand threw us into a stage 2 power emergency. Stage 1 is voluntary reduction by some businesses, stage 2 is "voluntary" blackouts by businesses and residences that agreed to it in advance (in exchange for lower rates, I believe), and stage 3 is rolling blackouts.
Today's forcast peak demand according to CaliforniaISO's webpage is 50,538 megawatts somewhere between 3-5 pm today. They have some pretty nifty graphs, worth a look.
To give you an idea of how much power 50,000 megawatts is, a typical nuclear power plant can only generate between 40 and 1000 megawatts. Typical coal plants are in the 1000 megawatt range. Even the enormous hoover dam only produces 2,080 megawatts.
The population of California is ~36,132,147 as of 2005 according to the US Census. This means that the every person in the state of California is using 1,384 watts of power during peak load.
Wiki has a great page on order of magnitude for power. The US, on average consumed 424.3 GW in 2001. So at peak, California by itself is consuming almost 10% of the average power consumption of the United States from 10 years ago.
The rise of the internet brought with it the appearance of a new form of money known as digital gold currency. This electronic currency is not bound by the laws and whims of a single government; instead it is created by a variety of banks that exist outside the restrictions of our laws. It sounds very appealing from a free market point of view.
The idea is simple. Your fiat money is electronically traded for gold, which is stored on your behalf by a bank. You can spend this gold by sending it to other bank account holders, or by exchanging it again for another fiat currency. As this currency is backed by gold, theoretically you could also exchange it directly for gold, although this is restricted mainly by transaction costs. For example, it would be hideously expensive per ounce to send 1/100th of an ounce securely from London to Los Angeles, but much less expensive per ounce for 10,000 ounces.
You don't need to worry about exchange rates when doing metal-to-metal transactions, since you are just trading by weight. An ounce of gold will forever remain an ounce of gold, even if your country collapses and it's currency becomes valueless. Further, every transaction is permament - there is no worry that the transaction will be stopped by the bank.
There are many downsides to this new age gold standard. Fees are the real killer. E-gold, the oldest of the internet gold banks, charges fees for every transaction ranging from ~5% maxing out at a flat fee of 0.05 grams of gold (~$1 currently) for transactions greater than 5 grams. Further, there is a 1% yearly account maintenance fee. Because E-gold doesn't accept fiat money to fund accounts, you have to use an outside company to trade dollars for e-gold such as Omnipay. You guessed it - this means even more fees, mostly in the form of a bid-spot and spot-ask spread of around 2%.
This is a very inefficient way to transport money. If I wanted to send my friend $1100 using this system, I believe I would have to do the following.
1) Setup an omnipay account.
2) Fund the omnipay account, buying e-gold.
3) Setup an e-gold account.
4) Transfer the e-gold from omnipay to e-gold.
5) Transfer the e-gold from my account to my friends account
Captain Arbyte has a good description of what it takes to get the account going.
My estimate of the fees required:
1) Overseas wire transfer: ~$32 (for Wells Fargo)
2) 2% omnipay fee: $22
3) 0.05 AUG (~$1) E-Gold fee
Total fees to transfer $1100 = $53 = 5%
But wait! My friend still needs to go the other direction to get fiat money he can actually spend in his country.
4) 2% omnipay fee: $21
5) Wire transfer: ~$32
Net: $994 in his account, assuming the transaction was instantaneous and the spot price of gold didn't change in the meantime. The transaction fees are 9.6%! Even if you were transfering sums of money which made the 2 wiretransfer fees and e-gold spend fee irrelevant, the 2 x 2% omnipay would always kill you. The only place where I can see this having potential for transfering payment between countries where a direct exchange is difficult. For example, from the United States to Cuba or Iran. This brings up some lingering issues about legality and money laundering.
So really, e-gold isn't about a currency system. It's about being able to buy gold as a currency hedge "cheap" and "secure". I use the quotes because there are cheaper ways to buy this commodity which also don't depend on the security of offshore bank.
If it's so inefficient, why are there so many spends taking place? As of this writing, there were 56,235 spends in the last 24 hours with an average of ~$62.72 moving between accounts per spend. What sort of economy is fueling this trend?
A little searching revealed a Ukranian webhost, a proxy service, and a web devel company. Pretty much everything you need to set up a fairly anonymous scam site, eh?
As much as the idea appeals to me, I think digital gold currencies are too "on the edge" and FAR too expensive to be used in real life.
Labels: Personal Finance
Today (July 24) marks the 159th anniversary of the Mormon Pioneers entering the Salt Lake Valley and founding the city that produced Baraqyal. Although I have since left the land of Zion, I am still grateful for their hardwork and religious zealotry which made my life possible. Fireworks and jello for all!
The record temperature where I live in Southern California for July 22 was set in 1887 at a very reasonable 98 degrees.
A few minutes ago, Weather Underground reported:
109.9 might seem like nothing if you live in Phoenix or Las Vegas, but it sure seems bad to me. I'm not adapted for this kind of weather - which is why I don't live in Phoenix or Vegas.
I sure am glad Enron is gone. The games the energy traders were playing that screwed up our California power system would have about killed me today. Air Conditioning has made me weak and flacid.
One other note: Turbocharged car + 108 degree weather = teh major suck. Doing a few errands this afternoon, my cars computer said that I was getting 12.5 miles per gallon. And the power just wasn't there, it felt like I was driving a Corolla.
A close friend of mine has been looking for a new job after graduating college. This can be a frusterating process, I remember it not being particularily fun when I was looking, and that was before the day of automated human resources that can reject your resume based soley on lack of keywords.
Some employers advertise heavily on websites like Monster.com and Hot Jobs. Of the two, a quick search certainly makes Hot Jobs look more appealing, as you can narrow the geographic area down more than monster. Instead of "LOS ANGELES, CA" you can narrow it down to the surrounding cities like Pasadena.
Also, you can filter out the staffing firms. Monster is absolutely full of these, as I think their business model is almost completely intended to get this type of advertiser. Don't get me wrong - staffing firms like Apple One and Adecco do place people in jobs and do meet a market need. However, I believe that in many cases, these recruiters are an unnecessary frictional cost that raise the price of hiring employees and don't work in the employees interest.
Finding and hiring the right employees is expensive, but I would suggest that outsourcing this process is stupid for two reasons. One, the recruiter doesn't understand your business or the dynamics of the organization, and two, you aren't really saving money as using these recruiters is very expensive. You might end up paying 50% more to hire the best of a group of people you wouldn't hire otherwise.
From the employees perspective, these recruiters are not working in your interest. They want to spend the least amount of time getting you placed as quickly as possible. The more people they place, the more money they make. They don't really care what you are looking for, and they certainly aren't going to fight too hard to make sure you reach your salary and benefit needs. Long story short, I think employment agencies are a big skip.
Here is my list, intended to speed navigation and give you list of new ideas to try - many of which will never appear on Monster.com or Hotjobs, and that Adecco or Apple One will never fill. If you have anything to add to the list or if one of the links no longer works, please post a comment and I will add/fix it right away.
Local Area Search Sites:
Craigslist Los Angeles Jobs
Craigslist Orange County Jobs
Craigslist Inland Empire Jobs
Los Angeles Times Classifieds
Pasadena Star News Classifieds
Press-Telegram Classifieds (Long Beach)
OC Register Classifieds (Orange County)
Universities and School Districts:
CalState Los Angeles (CSULA)
CalState San Bernardino (CSUSB)
Cal Poly Pomona
CalState Northridge (CSUN)
CalState Long Beach (CSULB)
UC Los Angeles (UCLA)
UC Riverside (UCR)
UC Irvine (UCI)
University of Southern California (USC)
California Institute of Technology (CalTech)
Los Angeles Unified School District
Long Beach Unified School District
City of Los Angeles
City of Long Beach
City of Santa Monica
City of Arcadia
City of Alhambra
City of El Monte
City of Montebello
City of Monterey Park
City of Pasadena
City of San Gabriel
City of South Pasadena
City of West Covina
County of Los Angeles
State of California
Southern California Edison
Bank of America
AT&T (formerly SBC)
Cedars-Sinai Medical Center
Federated Department Stores
A few quick tips: Be sure to have your resume formatted in a clean plain text format. Many of these sites won't accept PDF or Word documents. Keep a list of former employers with addresses, time worked, salary history, contacts, etc handy as well. Spend the time to make each application as perfect as possible - especially when you submit them to a computer as having the right keywords is particularily important. One perfect application is better than a dozen that are poorly completed.
Good luck with your search!
I'm starting to think that the Parkinson's disease claim is just some sort of bizarre coldwar CIA mastubatory throwback.
"In 2005 the CIA said it thought Castro has Parkinson's disease. Castro denies such allegations, while also stating "I don't care if I get Parkinson's. The Pope had Parkinson's, and he spent a bunch of years running all around the world."
Here is a recent (7/20/06) AP photo of him with Hugo Chávez. "Workers" of the world, unite!
M. Night Shyamalan is about ready to launch his next catastrophe: Lady in the Water. The initial previews looked odd to say the least. Opera music following along a maintenance man at an apartment building. He goes home, starts to type, and blam, there's some chick in the swimming pool. End of preview.
For a further understanding of where this is going, read this plot summary:
"A fairy tale about an apartment superintendent (Paul Giamatti) who discovers a nymph-like creature (Bryce Dallas Howard) from another dimension in the apartment's swimming pool. The genesis of the film is a fairy tale he started telling his two youngsters as a bedtime story: the young woman is actually something called a "narf," who is being terrorized by wolf-like creatures with grass instead of fur who seek to prevent her from returning to her own world. She also has unique powers of perception about the apartment tenants, whose own destinies become linked to her own."
I shit you not. Click the link. Read the preview. Wolves with grass fur from another dimension.
I can't imagine why Disney would be concerned. "Shyamalan says that when Jacobson rattled off a list of concerns she had about the movie, including his decision to give himself a meaty role and a scene in which a movie critic is mauled" So concerned, in fact, that they dropped Shyamalan and said "Don't let the door hit you on the ass on the way out!"
Rotten Tomatoes currently gives the film an astounding 11%. Favorite critic quotes from the site: ""Has M. Night Shyamalan lost his damn mind?" Sean Burns, PHILADELPHIA WEEKLY" ""Hollywood cannot pollute the ozone with anything more idiotic, contrived, amateurish or sub-mental than Lady in the Water." -- Rex Reed, NEW YORK OBSERVER" ""Its official now. The Sixth Sense was a fluke. Shyamalan pompously gives himself the role of “The Intellectual Future Christ.” " -- Victoria Alexander, FILMSINREVIEW.COM"
And did I mention that there is no twist? Seriously. This reviewer states "What’s interesting is that the movie is being sold as a horror film. While there are scary elements – the wolf can be frightening – the film is mostly charming (at least when it stops being depressed up front) and often funny. Mostly Lady in the Water is lovely, not spooky."
I can't imagine why anyone would give this jackass $70MM+ dollars to make a film. Time Warner ought to be ashamed. They had the chance to stop the mistake. They didn't have to promote it. They could have taken the film and stuffed it in an archive somewhere to be forgotten forever. They could have sent Shyamalan packing, never to work again. But oh no, they had to pollute the radio/tv/buses/billboards/previews/etc with advertising for this tripe.
In a brilliant move designed to create great synergy with the ever popular bird flu, CBS has decided to place their logo on eggs. I can't imagine how this will backfire, can you?
If the lethal virus doesn't make the viewers sick, such lines as "Crack the Case on CBS", "Scramble to Win on CBS" and "Leave the Yolks to Us" most certainly will.
I am available for "common sense consulting" at very reasonable rates if any advertising executives ever feel that they need it.
MMM (3M), by the way, manufactures N95 respirators in addition to about a bajillion other products. Anyhow, I would imagine their N95 line will do fantastically well during the next few virus scares.
Laurence J. Kotlikoff in his essay titled "Is The United States Bankrupt?" (pdf) proposes an interesting fix for the US tax system which is different than other flat tax schemes that I have heard before: A 33% federal sales tax on all goods and services to replace all other federal taxes - income tax, corporate income tax, FICA, etc. To make this tax more equal for the poor, he proposes an end of year rebate equal to the average spending of people at the poverty line for everyone.
From his essay: "The proposed sales tax has three highly pro-
gressive elements. First, thanks to the rebate, poor households would pay no sales taxes in net terms. Second, the reform would eliminate the highly regressive FICA tax, which is levied only on the first $90,000 of earnings. Third, the sales tax would effectively tax wealth as well as wages, because when the rich spent their wealth and when workers spent their wages, they would both pay sales taxes."
This sales tax effectively eliminates the complex definitions of "income" from the tax code. If you don't need to worry about what is and what is not a gain, then you are free to maximize your own interests when investing. Further, you don't have to find your MAGI to determine what taxes you owe. Although to many, these are not overly complex tasks, to the majority of Americans you might as well be asking them to fly to the moon.
Beyond the massive simplification of the tax code and basically eliminating companies like H&R Block which act like an additional tax on the poor, it encourages saving and investing. The tax rate for capital gains is zero - you only get taxed when you spend the money.
If you are wondering about his conclusions from the provocative title of his article - according to Kotlikoff the US is indeed bankrupt. Very interesting and definitely worth a read. However, be sure to also read the commentary on the article by Anjan Thakor for a more balanced view. Thakor points out that the US is probably not at the point of liquidation (Chapter 7), but more likely is going to be forced to renegotiate it's obligations and debts (Chapter 11).
Recently, I've spent more time than usual eating at the fanciest of eating establishments. You would be a rich man right now if you'd purchased Baraqyal Cholesterol Level futures contracts about a month ago.
Anyhow, I tend to favor sandwiches over the other options. So I've eaten at nearly every local Quizno's and Subway that I can find without effort. Here are my conclusions:
Pros - Oooh, the cheese is melted!
Cons - Slow, long lines, expensive ($10+ for large combo), nutrition information not available leading me to believe that it is just about pure fat and salt. Less available options.
Pros - Cheaper (~$8 for a large combo). Healthier. Faster. More options. Better ingredients.
Cons - The damned cheese isn't melted.
Labels: Consumer Goods
As of the July 14, 2006:
August 06: $76.85
September 06: $78.50
October 06: $79.30
November 06: $79.85
December 06: $79.70
Using my math workup from the other day here is a rough translation into gas prices in Southern California:
August 06: $3.471
September 06: $3.538
October 06: $3.570
November 06: $3.593
December 06: $3.586
Between today and November 1 (110 days) I expect gas prices to rise 3.7%. And this is assuming that things don't escalate further in the Middle East, Nigeria, or Korea. Annualized, that is roughly a 11.5% jump in energy prices. Inflation? What inflation?
Interestingly, if you look at the analyst estimates for the big oil companies like Exxon Mobil or ConocoPhillips, you'll notice that they are predicting revenues to actually fall in 2007. British Petroleum doesn't seem to have this issue. I wonder if the market is predicting a sharp fall in the dollar or perhaps a mild recession in the United States? Obviously I don't understand the issues behind it, but I thought it was awful strange that analysts seem to show American based companies having flat or falling revenue in 2007, while a British company is showing a 10% rise.
Back in March, I made a post about how Ford was undervalued thanks to GM. Boy, was I ever wrong. At the time, it was $7.88 a share. Today it closed at $6.56. If you had bought shares based on my random thoughts, your 4 month return would be -16.75%.
My 3 reasons I thought it was a good buy at the time and what has happened since then.
1) Positive net income in the past: The results from the Q1 of 06: -$0.64 EPS.
2) Projected future positive net income: Earnings estimates for Q2 06: $0.15 EPS, however Q3 is a loss of $0.12 a share, and the overall estimate for FY 06 has dropped from $0.59 to $0.48.
3) High dividend payout: Today Ford cut it's dividend in half from $0.40 a share (~5% @ $7.88) to $0.20 a share (~3% @ 6.56). If you subscribe to any sort of dividend discount model, about the last thing you want to see is a dividend get cut in half.
In the meantime, General Motors SHOT UP from $19.71 on March 1 to close today at $28.32. Although I still think General Motors is on it's way to bankruptcy, if you had bought when I first said that and sold today, your 4 month return would be 43.70%!
The lesson here is that I don't really understand the stock market or the auto business. Before I make any more grand sweeping predictions about value, I'm going to sit down and read 3 years of annual reports for every company involved. I still probably won't understand the market or direction the wind is blowing, but at least I will have properly done more research which hopefully will reduce my irrational negativity.
This morning, crude oil futures for August delivery hit $76.59 a barrel. Demand is high, supplies are dropping, and geopolitical risk is causing great concern on the world markets.
A barrel of oil contains 42 gallons. This is refined into a variety of products - diesel, tar, heating oil, and gasoline to name a few. Different types of crude oil yield different amounts of gasoline. This website states that an average of 19.2 gallons of gasoline come from each barrel of oil once processed. August delivery crude oil at it's peak was $1.82 a gallon. Unleaded gasoline for August delivery hit a high of $2.30 a gallon, a $0.48 a gallon or 26% premium over crude. In California, excise taxes are 18.4 cents a gallon, plus the federal excise tax of 18 cents, plus sales taxes of 8.25%.
Looking at the current cash price instead of august delivery, gasoline is $2.2059. Add taxes, and the current cash minimum price for unleaded gasoline is $2.752. Yesterday, I paid $3.55 a gallon for premium unleaded - which typically has a $0.20 a gallon kick above regular unleaded. If regular gas is $3.35 a gallon, this means that the premium taken to distribute gasoline to consumers is about $0.60 a gallon, or 22%. The current cash price for crude oil is $1.785 a gallon.
A current breakdown of gasoline pricing is as follows:
Crude oil: $1.758 a gallon
Processed to unleaded gasoline: $2.2059 a gallon, $0.4479 or 25.5% increase
Distributed to consumers, before taxes: $2.758, $0.5521 or 25% increase
Government taxes: $0.592 or 21.5% increase
Final price to consumers: $3.35
If this trend is followed and current prices stay level, regular unleaded gasoline in August will be $3.49 a gallon at my local service station.
The current national average price is $2.961 a gallon. In August, I estimate that it will be $3.08 a gallon - beating the inflation adjusted record high of $3.06 a gallon set in March of 1981.
After my last post, out of curiousity I decided to research the fuel efficiency of a container ship. I believe I've gotten a very basic understanding, though I'm sure it varies widely by size and age of ship and that some of my numbers are somewhat off.
Here is a study on the fuel efficiency of a the container ship Arafura, which I believe is the same ship owned by Hanseatic Lloyd. Per their website, it is a 4,250 TEU ship - meaning it can carry 4250 twenty foot containers or 2125 40 foot containers.
The Arufura burns 67.62 tons of fuel per day, and travels at about 18.2 nauts. This means it could travel the ~6,500 nautical mile journey from Shanghai to Long Beach in about 15 days, slightly longer than the 14 day trip I found listed elsewhere. It uses a type of fuel called "380 Bunker", which as of March 3rd, 2006 was selling for 280 EUR or ~$360 USD per ton. The journey from Shanghai to Long Beach would consume 1005 tons of fuel and would cost $360,234 in fuel. Divide this by 2125 containers, and it costs about $170 per container for fuel, assuming a 100% load. Obviously this amount does not include all the other important expenses, like insurance, the fixed cost of the ship/docks, the cost of crew, administration, etc.
From my understanding, the cost to a customer to transport a cargo container from Shanghai to Los Angeles is about $3000. So, fuel makes up about 5.6% of the total cost of transportation. Due to demand, the reverse trip costs about 1/4 as much, $750 - this time fuel is almost 23% of the total expense.
Obviously, the cost of fuel is not the major factor in transportation, but it still has an impact. A website on the subject from a few years ago showed the cost of 380 Bunker to be $133.50 - meaning the cost of fuel per ton has almost tripled in a few years.
Jim Jubak over at MSN Money has an interesting article on the failure of central banks to understand globalization. The Bank for International Settlements has been arguing that globalization has been keeping prices low by replacing higher priced domestic goods with lower priced foreign goods. Central Banks, who's main job is controlling the money supply, have not been properly factoring this globalization effect into their calculations and have as a result flooded the market with money.
A simple definition of inflation from wiki states that inflation is "is a fall in the market value or purchasing power of money." Economics 101: Supply increase, no change in demand = lower prices. The central banks mistakenly "print" too much money, the value of all the money as an aggregate stays the same, so each unit is worth less.
The effect of globalization has been dramatic. A pair of jeans that used to cost $30 when produced in the United States now costs $15 because it is made in China. A great example from my own life of this is the Chevy Aveo, a product of GM factories in South Korea that I rented a few weekends ago. A similarly featured domestically produced car, the Chevy Cobalt, costs at least $1,200 more and is thus more expensive to rent. The central banks haven't taken this effect seriously - to them, it makes no difference where the item is produced as long as the consumer can buy it. This ignores the "global economy" almost completely.
Imagine you are a central banker. You want low inflation and a red hot economy. You do this by opening and closing the spigots of money. Open them up, and more buying takes place, heating up the economy. Close them down and higher credit risks can't get money and thus can't buy - cooling the economy. One of the indicators you watch is the cost of living for Joe Blow, the average guy.
Year 1: $10,000
Year 2: $10,200
Wow, only 2% inflation! That's about right. Open the spigots! Let's get that economy moving!
Year 3: $10,404
Year 4: $10,612
Still only 2%. Open the spigots further! Jobs for everyone!
You don't really care that a breakdown of Joe's spending looks like this:
Year 1: Food, $2000. Housing, $2000. Goods, $4000. Medical care, $2000.
Year 2: Food, $2040. Housing, $2300. Goods, $3660. Medical care, $2200.
Year 3: Food, $2081. Housing, $2645. Goods, $3258. Medical care, $2420.
Year 4: Food, $2122. Housing, $3042. Goods, $2786. Medical care, $2662.
Food is rising at 2%, thanks partially to globalization. Housing is rising at 15% due to a housing bubble - money is cheap and everywhere, anyone can get a huge mortgage (sound familiar?). Medical care is rising at 10%. The price of goods is actually falling; the new TV you bought is 12% cheaper than the one before.
Now lets say something catastrophic happens. Like a sudden jump in the price of oil. Consumer goods stop falling in price and instead rise rapidly at a 15% pace (It takes a lot of oil to push a cargo ship across the pacific afterall.) Food is also affected, rising at 6% thanks to higher costs moving it to consumers and in other oil based farm needs such as pesticide.
Year 5: 11,880 - a 12% jump.
Breakdown: Food, $2250. Housing, $3498. Goods, $3204. Medical care, $2928.
Oh my god, what happened!!! Turn off the spigots! Retract the money supply! Raise interest rates!!!
The result is that spending drops and economy slows. People lose their jobs, companies close their doors. Consumers make that car last an extra three years instead of getting a new one. But even worse, the massive oversupply of money doesn't retract quickly enough and high inflation bodyslams the already reeling economy. Stagflation - a stagnant economy combined with insidious inflation.
This reliance on foreign goods is also a reliance on cheap oil. For many of our imported goods, the cost of shipping is more significant than anything else. If the cost of shipping a container from China to the US triples, outsourcing manufacturing of some goods might stop making sense. Yet, we won't have the capability anymore to produce those goods ourselves. Supply will drop, but not nearly as quickly as demand, and prices will JUMP.
Oil drives the global economy. Virtually everything we consume uses oil at some point in production and delivery. And the demand for oil is growing enormously thanks to China and India. I believe that oil is becoming highly price inelastic. Until we discover an alternate source of energy, like a diabetic and insulin, we simply don't have a choice but to pay whatever it costs for oil.
Outsourcing is a serious negative for our economy. It has increased our dependence on oil a great deal because the jobs aren't here and the factories are 10,000 miles away. It looks like our central banks have made some big mistakes and now our entire lifestyle is vunerable. If the oil supply is disrupted, the US and world economy will be hit very hard until supply and demand are able to return to a point of balance.
Labels: Personal Finance
Last night, I watched a fascinating interview with Warren Buffet on the Charlie Rose Show - the first part of a three part series.
This show captured my interest in exactly how Mr. Buffet made such a dramatic rise to wealth. Wiki has a pretty good history of his money. Using the Minneapolis Fed's CPI calculator, I decided to adjust it into 2006 dollars. Be forewarned this is not altogether accurate, but it is somewhat interesting.
1944 - 14 years old. Buffet invests $13,807 in 40 acres of farmland.
1945 - 15 years old. Buffet makes $1969 monthly ($23,600 yearly) delivering papers.
1947 - 17 years old. Buffet invests $227 in a used pinball machine. Within months, they have 3 more which they later sell for $10,897 to a war veteran. By this point, he has earned over $45,403 delivering newspapers.
1949 - 19 years old. Buffet's personal savings reach $83,382.
1952 - 22 years old. Buffet marries, rents an apartment for $497 a month.
1954 - 24 years old. Benjamin Graham offers Buffet salary of $90,335 a year.
1956 - 26 years old. Buffet's personal savings grow to $1,053,903. That's right. Inflation adjusted, Buffet was a millionaire at the age of 26. His first partnership is started, with a total investment of $790,428.
1957 - 27 years old. Buffet buys his house for $227,002. Note: Housing is probably out of whack, inflation-wise. Even adjusted for inflation, I believe that house prices have been rising around 6% annually for the last 20-30 years. Some of this is caused by the current real estate bubble. Still, it shows the cash outlay - a millionaire in his 20's that buys a moderate house.
1962 - 32 years old. Buffet partnership investment of $790,428 now worth $48.72MM
1965 - 35 years old. Buffet invests $25.7MM dollars in Disney, buying 5% of the company.
1966 - 36 years old. Buffet's net worth reaches $42.8MM.
1967 - 37 years old. Buffet's net worth reaches $60.6MM.
1969 - 39 years old. Buffet's net worth reaches $137.9MM.
1971 - 41 years old. Buffet purchases vacation home in Laguna Beach for $750,000. Again, I believe this is out of whack. I'm not sure you could purchase a tin shack in Laguna Beach today for $750,000.
1979 - 49 years old. Buffet's net worth reaches $390.5MM, but Buffet lives soley on his salary of $139,462 a year.
1983 - 53 years old. Buffet's net worth reaches $1.26 billion, placing him on the Fortune list of the worlds 400 wealthiest individuals.
1986 - 56 years old. Berkshire stock prices reach $5542 (for comparison, as of the writing of this post BRK-A is selling for $90,900.)
1989 - 59 years old. Buffet's net worth reaches $6.2 Billion.
2006 - 76 years old. Buffet annouces that he is giving away 80% of his personal fortune of $44 billion dollars.
As you can see, Buffet obviously is one of the most intelligent investors of all time, growing his personal fortune at an incredible rate. But what I found most interesting was the wages he was able to earn as a young teen. How many 15 year olds can today make $24k a year delivering papers? How many are able to save $84,000 on their own by the age of 19? I can understand getting paid $90k at the age of 24. That seems reasonable for a brilliant young financial mind.
It seems that the climate has changed quite a bit on many of the other factors that helped contribute to his success - especially cost of housing and cost of education. However, given his incredible brilliance, I have no doubt that Buffet could repeat his success again today.
Over a 14 hour timespan, North Korea launched 7 missiles, including one theoretically capable of hitting the United States. This long range missile is of particular concern, as it would really put a damper on the day to have a 18 kiloton fission bomb explode 2000 feet over downtown Los Angeles. Fortunately, this missile failed around 40 seconds after launch.
So what in the hell is going on here? Has Kim Jong Il lost his mind?
I've been thinking this over, and the only conclusion I can come to is that North Korea is still seriously planning on winning the war that ended in a ceasefire on July 27, 1953 - when Kim Jong was only 12 years old. Now an old man, he's worked virtually his entire life to win this fight. Within 100 miles of each side of the Korean DMZ are roughly 1 million heavily armed soldiers, ready to start the war back up at any time.
In the past, North Korea hasn't been eager to run across the southern border, as it would have to tangle with the United States. In return, South Korea hasn't been willing to run across the northern border either, as there are reportedly enough fixed artillery tubes pointed at Seoul to very nearly wipe the city of 23 million people out entirely. Seoul has the unforunate posistion of being only 30 miles from the DMZ.
For 53 years, it's been a stalemate - almost in the tradition of mutually assured destruction. North Korea has come up with a clever way of getting around this problem by developing it's missile and nuclear capabilities. If it can neutralize the United States with the fear of nuclear tipped ICBMs, it can run across the southern border and take over the great wealth of South Korea and win the war once and for all.
Analysts believe that North Korea is 5 to 7 years away from the capability to place warheads on their missiles. I suppose the theory is that the bombs are not currently compact or light enough to be carried a long distance. Kim Jong Il is only 65 years old - he still could have another 15-20 years ahead of him.
In response, the United States has developed a National Missile Defense to try and aleviate the threat from North Korea and other "rogue states". Basically, we're going to use a series of ultra high tech missiles to try to shoot incoming ICBMs out of the sky. The problem with this asinine idea isn't that the technology doesn't work - although today it's still a real hit and miss. The problem is that we are severly limited in how far we can go with it.
In 10 years, North Korea could have 100 missiles capable of hitting the west coast of the United States. Say 25 of those were atomic tipped, and the other 75 were decoys. If they were all launched at the same time, and we didn't know which ones were real, could we shoot them all down? If so, wouldn't the ability to shoot down 100 incoming ICBMs really change the balance of power with certain other countries that have large collections of atomic weaponry and a semi-hostile intent?
We have a very sticky situation here. If we do nothing, North Korea will finish it's missiles and have us by the balls. If we keep running with the National Missile Defense idea, we run the risk of either not having enough interceptors to shoot down all the missiles OR having so many interceptors that we eliminate MAD and throw off the balance of power with other nuclear countries. We're not the only vunerable country, either. Japan is probably in much more significant danger than we are, as they are only 350 miles away from North Korea.
What is the solution? Diplomacy? 53 years of diplomacy haven't even gotten a peace accord, much less disarming both sides. North Korea has somehow managed to develop a culture where winning the war is more important than feeding it's starving masses. I honestly don't think that they will negotiate in good faith - but will instead use negotiations to buy time and finish their weapons.
Obviously, war isn't a very good option either. No one wants to see millions die, and the world economy would take a serious beating if South Korea were destroyed by war. However, as much as I don't want to see a terrible nuclear war in the Korean pennisula, it sounds a hell of a lot better than having the bombs rain down on my own city.
I think our real, best hope is that Kim Jong will die of a medical condition, and his son Kim Jong-chul, a big fan of Eric Clapton and possibly with better exposure to the western world, will be more reasonable.
This past weekend, on a whim, I rented a Chevy Aveo LS 5 door hatchback from Enterprise. They had a weekend special going; for just $12.49 a day, I got to experience the full glory of a rebadged Daewoo. Let me tell you, it was a surprising experience.
As some of you know, my daily driver is a newer german car, in the "entry level luxury" category. My car handles well, it brakes well, it has lots of bells and whistles and it's very comfortable to drive. You would think that driving a very base level cheapest-car-in-America would be a big shock to my system, like being thrown into a half frozen lake psychologically. But the truth is that the Chevy Aveo is a damned capable car.
I picked the car up on Friday night. The next morning, I went for a bit of a drive. When I got home 16 hours later, I had driven 920 miles. Sunday I hopped back in the car and drove it through Santa Monica and Malibu, then through the canyons around Mulholland.
A quick review:
The materials of the interior of this car are like a bad joke. Pull on the door handle too hard, and it feels like the whole door bends. The dashboard looks like plastic that came from those injection mold machines at the zoo. The steering wheel is acceptable. The interior space is more than acceptable - in fact, the driver has more room than in my german car. It's somewhat akin to driving a minivan - lots of headroom. I imagine the backseat is poor, but what lonely commuter really uses the backseat on a regular basis?
The handling is downright excellent. It turns sharply, there is hardly any body lean unless you really push it. I pushed the car's suspension right up to the edge, and came away alive. The 103hp 1.6 liter 16 valve motor is acceptable. Even with an automatic slushbox, it had enough power to comfortably cruise at 90mph on the freeway. And, I got a very nice 35 miles per gallon on mostly freeway driving. On regular gas no less (a real luxury to those of us who are stuck using premium.) Perhaps not the safest car on the road, it does have frontal impact airbags and is most likely more safe than most mid 90's econoboxes.
Where the Aveo REALLY shines is in the Special Value Package, which is $9890. If you can get past the lack of air conditioning, it's probably the best bang for the buck available on the market today. At the time of writing, Chevy is offering a 72 month 0% financing on the Aveo. With 10% down, your payment would work out to around $135 a month.
Most reviews state that you would be better off going with a slightly older used car. In the case of the more plush LS and LT which can go up in price to over $13k, I think that's true. But in the case of the Special Value Package, it simply cannot be beat. For starters, it has a 60,000 mile powertrain warranty, and it's a brand spanking new car. In addition it's hard to compete with the incredible financing offered by Chevy. With interest rates on the rise, it may cost you 8-10% APR on a car loan on an older Civic. This lowers the price range even more - perhaps down to a $6000 or $7000 car. I honestly think that you would be better off in every way getting the Aveo over a 96 Civic DX.
Not having A/C might be tough to handle in some parts of the country, but if you live in the cooler areas, go take a look at the Aveo. It's a real winner.
Labels: Consumer Goods