Hearts Of The Gods

What are Hilton HHonors points worth in dollars?

2008-04-13T04:08:00.005Z

Because I have taken up travel lately and I have primarily been staying at Hilton brand hotels, I have been collecting quite a few HHonors Points. Enough that I applied for and got the HHonors American Express. I expect in the near future to have enough points for a decent vacation somewhere.

And every time I see the points pile up, I wonder "What are these actually worth in dollars?" Well, I think I have an approximate answer (although it varies from hotel to hotel).

Method

I needed a halfway reliable way to determine the average cost of a room at hotels, as obviously they change from season-to-season, by demand, and the type of booking (AAA, senior, etc). I decided upon using Yahoo Travel, which lists average price paid. From there, I looked up various hotels and found their HHonors point cost and ran a comparison.

Statistics

I sampled 25 hotels, all in different cities. I tried to mostly use the most populous US cities, although I will admit to probably having a Western US bias. Of my sample, 2 were Doubletree brand (because there weren't Hiltons listed in the city) and the rest were Hilton brand.

Here are the max/average/lows:

Points category: 6/4.72/2
Points Cost: 40,000/33,600/20,000
Yahoo Price: $280/$140.68/$68
Yahoo Reviews: 162/30.96/3

Results

Points per dollar

Average: 265
Standard Deviation: 87
Maximum: 515
Minimum: 143

So assuming it's a standard distribution, 95.4% of the hotels are between 439 points per dollar and 91 points per dollar.

Turning this into dollars per point (the inverse):

2 Deviations-: $0.01099
1 Deviation-: $0.00561
Average: $0.00377
1 Deviation+: $0.00284
2 Deviation+: $0.00228

Running with the average, what is the value of the Hilton HHonors American Express cash back? For the purpose of this post, I'm ignoring initial rewards and rewards earned from booking at a Hilton hotel.

"Earn 3 HHonors bonus points for every U.S. dollar (or U.S. dollar equivalent) charged for all other purchases anywhere American Express® Cards are welcome (less returns)."

3 x $0.00377 = 1.13% which isn't terrible.

When you look at special categories (grocery stores, drugstores, gas stations, restaurants, U.S. postal service, and for wireless phone bills) and charges at hilton hotels, you get 5 points or

5 x $0.00377 = 1.885%

Which is half decent,in my opinion.

Obviously these are rather quick and dirty calculations, but I suspect if you figure you're getting somewhere around 1/3 of a penny per dollar, you'll be pretty close.

A look at mortgage defaults in Los Angeles County

2007-08-21T17:25:00.000Z

The credit/mortgage crisis has been all the rage in the news lately. I thought I'd take a quick look at the real meaning behind all the facts and figures. To start with, let's look at the Census Bureau's American Community Survey for Los Angeles County from 2005.

Number of households: 3,184,396
Owner-occupied: 1,562,853 (49.08%)
Renter-occupied: 1,621,543 (50.92%)

So what we're interested in here is the owner-occupied residences. How many of those have mortgages?

Housing units with a mortgage: 1,208,550 (77%)
Housing units without a mortgage: 354,303 (23%)

Obviously the 23% of the people without mortgages can't default. So now let's look at the 77% of the homeowners that DO have mortgages. According to la-foreclosure.net, here are the number of foreclosures in LA county in the past 7 months.

Jan-07: 3,270
Feb-07: 3,532
Mar-07: 3,893
Apr-07: 3,514
May-07: 4,264
Jun-07: 4,243
Jul-07: 5,317

Total: 28,033

That doesn't seem like a huge number for a city the size of Los Angeles, but look at that as a percentage of the number of mortgages - 28,033 / 1,208,550 = 2.32% of all mortgages defaulted in only 7 months.

When you think about it, that's a big deal. Mortgages are LONG term loans. It can take a homeowner 30 years to pay off a house. Annualized, that works out to a 4% default rate. Banks lose money on the houses that default. According to this blog (original article gone from the news website), the average foreclosure costs banks 20-25% of the loan value, or $60,000 nationwide. What would the loss be in California?

The average California borrower took out a $436,749 mortgage during the first half of 2007, according to DataQuick Information Services -- just $19,749 over the conforming loan limit.

Say we take the low end of that figure at 20%. That's a loss of $87,350 per default.

From the same article, the average interest rate for a conforming loan with a good credit score and 20% down was 6.22%. How much will the bank make from these mortgages? According to this article, Washington Mutual is projected to have a net interest margin of 2.51% in the third quarter of 2007. The net interest margin is the difference between what they have to pay depositors for checking/savings/cd/money market accounts and what the rate they can lend the money out.

The credit crunch could very well turn into a vicous cycle. Investors in mortgage backed securities will demand much higher premiums to compensate them for the increased default rate. In turn, banks will demand higher interest rates for new mortgages to keep their net interest margin at acceptable levels. These higher rates push down the affordability of a house. From the above example:

$436,749 mortgage @ 6.22% for 30 years = ($2,680.62) monthly payment

Assuming that's the max you can afford to pay per month, what amount can you borrow if the rate goes up?

7% = $402,918
8% = $365,325
9% = $333,153
10% = $305,459

Obviously, at a certain point this buyer drops out of the market because they are unable to find a house that is affordable. Supply probably drops as well, as people can't sell their homes because the value is lower than what they owe. Distressed sellers, who MUST sell due to financial hardship become more likely to default. This increases the default rate further, and results in even higher rates.

Eventually it all shakes out and we reach an equillibrium point again. I believe this is probably about 3-4 years out. In the meantime, I would expect house values to stay about the same or possibly drop a little bit in real dollars and inflation adjusted, I expect them to drop by somewhere in the 10% range.

GTD: Levenger Pen Pocket Briefcase Review

2007-08-15T17:25:00.000Z

I'm a big fan of David Allen's Getting Things Done (GTD) system. I think he's got a lot of great ideas that can make a difference in your life. Unfortunately, I've been struggling a bit with implementation. My problem is mostly the capture device. I just can't seem to find a tool that doesn't fail me in some annoying way.

I started out with a Hipster PDA (hPDA). It has the advantage of being exceedingly cheap, easy to implement and light weight. For a week or two, I thought it was going to work out for me. Then I realized the fatal flaws: I'm a big guy and my body constantly is pouring off enormous amounts of heat. As a result, I sweat a lot, even in normal room temperature. Unprotected 3x5 cards in my pant pockets get ruined pretty quickly from the mildly damp environment. The cards lose their stiff cardboard quality, then become sort of soggy and unwriteable. The corners get bent. The edges get ruined. It's not as annoying in my shirt pocket, but only about 50% of my shirts have pockets.

I decided I needed something to protect the cards. At first, I tried a cheapy buxton 3x5 holder from Staples for $10. After I cut off the annoying pen loops and removed most the extraneous garbage from the inside, I had something that worked. Sort of. The corners of the 3x5 were covered, and thus I only had a writing surface of about 2x4, which reduces the usefullness greatly. And it was on the wrong side (left) for a right hander.

The next thing I tried was a moleskine. I started with a cahier. It worked alright, but the flismy cover and bendable quality quickly got on my nerves. I switched over to the full pocket notebook. It has a lot of advantages over the other systems; the full leather cover protects the paper, the bookmark, the rubber band to keep it closed. I organized the last chunk of the book into a datebook/calendar by putting one week per page. I put my open projects in the front of the book with an index. I used the middle portion for other data collection: maps to places I needed to go, phone numbers, email addresses, ideas, lists. It works pretty well. But I hesitate to write in it for some reason. I'm afraid to fill it with garbage, after I've invested so heavily in the format. It really is a top quality notebook though. Durable, good quality, easy to use. I still carry it with me, only I leave it in my car or at my desk.

After nearly a year of drooling over the levenger shirt pocket briefcase, I finally decided that it was time to just bite the bullet and order one. $38 is a hefty chunk of change for a glorified piece of leather though, and the shipping from levenger isn't exactly cheap either ($9 for a $38 pocket briefcase by USPS, ouch.) I hesitated. I pawed through the catalog again and again.

Then I did something I don't normally try - I tried eBay. It turns out that Levenger was unloading some outlet merchandise for CHEAP. I got a levenger pen pocket briefcase for only $19.40 shipped! (Normally $68 + shipping) Of course, it is monogrammed with some mistaken initials, but hey, I don't care and it's hardly visible.

Here are my impressions of the item so far:

The Pen: I'm not a huge fan of it. In fact, I took it out and left it on my desk. It's got a strange square shape that takes getting used to, but the real killer is the fact that it's a ballpoint. After being spoiled with years of using Pilot Precise V rolling ball and Pilot Varsity fountain pens, I really can't go back. If it were a gel pen, I might be able to handle it. But not a simple ball point. It doesn't do well on 3x5's at all. I can't imagine paying the extra $30 for this feature, or $32 for the pen by itself. It's just not worth it.

The Pen Holder Pocket: It fits the pen that comes with it just fine, although it seemed to try to slip out. Annoying. It also makes the whole thing sort of rigid and puts a bump on one side of the writing surface if you don't remove the pen. I tried putting a different pen in there. A precise V will fit, but just barely, and then you have to pull it out by the cap. I'm really not too impressed. I think it's far better without the pen at all.

The Briefcase: It really is like a little briefcase. Has three pockets. You can tell by feel alone which one is which. I use the outside pocket with the lip indentation for my context oriented cards (@Home, @Work, etc), the center pocket for blank cards (which I've been carrying about 7 of), and the remaining pocket for used cards that have random thoughts and information on them. The leather is top quality, the stitching is perfect, everything about it is nice. It holds 3x5's very well without covering too much of the writing surface. The whole thing is nice and flexible, and it's hardly noticeable in the pocket.

Overall: It's definitely worth owning. I'd say it's even worth the $38 plus $9 shipping. It takes the hipster PDA to the next level: Better organization, easier access, more protection for the cards from the harsh environment of the pocket.

Numlock: A Key That Shouldn't Exist.

2007-08-13T18:29:00.000Z

There's nothing more irritating than whizzing along, entering data using the 10-key, when your finger brushes by the numlock key and BLAM, all the sudden you're hitting "PgDn" or "End" instead of entering 1 or 3. I don't even know why they still include it on the keyboard; I can't imagine a time when I don't want the 10-key to be numbers.

So here's a recommended keyboard mod for all you numlock haters out there:

Step 1: Get a paperclip.
Step 2: Wedge it underneath the numlock key and pry out the key
Step 3: Throw the numlock key away.

Your keyboard may look like something you pulled out the trash now, but at least you won't have the numlock problem anymore.

The Economics of Extreme Commuting

2007-08-10T15:40:00.000Z

For a number of years, I commuted 30 miles each way, usually spending about 50 minutes doing so. It really took a toll on me, both financially and in draining my energy levels. A while back I moved to a 15 mile/25 minute commute and the difference was astonishing. Apparently, it has been a growing trend for people to commute really extreme distances. In this post, I'm going to take a look at the financial impact of the decision to work really far away from home.

What is the Average Commute?
There has been a lot of media attention in the last few years on the subject. I found an interesting poll conducted by ABC news that not only lists average commute time, but also distance.

Poll: Traffic in the United States
Analysis By GARY LANGER
Feb. 13, 2005

"Life for commuters can be heaven or hell. They report an average one-way commute time of 26 minutes (over an average distance of 16 miles). But the variance is huge: On the best days, the average commute is 19 minutes; on the worst days, 46 minutes. That means traffic, at its worst, can double the average commute time, adding 27 minutes each way."

16 miles / 26 minutes = 36.92 mph

16 miles x 2 = 32 miles roundtrip

32 miles x 50 weeks x 5 days a week = 8,000 miles

If the average American drives 12,000 miles a year, this means 4,000 miles are non-work related.

Average Commute in Los Angeles
According to the US Census, the average commuter in Los Angeles spends
29.0 minutes getting to work. Assuming they are commuting the same distance as in the ABC poll, LA commuters are driving much slower at 33 mph. This is no big surprise if you've ever been to LA.

Extreme Commuting
Here's a story that defines what extreme commuting is in a few short sentences.

Think your commute is tough?
By Debbie Howlett and Paul Overberg, USA TODAY
Posted 11/29/2004 11:17 PM

"3.4 million Americans who endure a daily "extreme commute" of 90 minutes or more each way to work. They're among the fastest-growing segment of commuters, according to a Census study, Journey to Work, released in March. Their commute times are more than triple the national average of 25.5 minutes each way."

How many people are doing this extreme commute? The Census Burea says "Nationally, just 2.0 percent of workers faced extreme commutes to their jobs." But in Los Angeles, that number is much higher at 3.0% (PDF warning). Note that these numbers date back to 2003. With the effects of the housing price boom, I would expect significant growth to those numbers.

Let's take those numbers of 90+ minutes and apply it to the average speed of 33 mph in the Los Angeles area.

33 mph x 1.5 hours = 49.5 miles
49.5 miles x 2 ways x 5 days x 50 weeks = 24,750 miles

Plus an additional 4,000 miles a year for non-work related driving = 28,750 miles.

Cost Per Mile
The absolute cheapest Edmunds.com TCO per mile I could find also belongs to the cheapest car in America - the Chevy Aveo special edition. Over a span of 15,000 miles per year over 5 years in Los Angeles, it supposedly will cost $0.44 per mile. Here's how they came up with their numbers.

Price:

And the breakdown of different costs:

If this is for 15,000 miles per year, we need to modify these costs for our extreme commute of 28,750 miles per year.

Depreciation:

We'll assume that a Chevy Aveo with 143,750 miles will be worth zip. Total depreciation = $10,340 / 143,750 miles = $0.07193 per mile

Financing:

Total cost = $2,173 / 143,750 miles = $0.01512 per mile

Insurance:

Total cost = $9,774 / 143,750 miles = $0.06799 per mile

Taxes & Fees:

Total cost = $1,139 / 143,750 miles = $0.00792 per mile

Fuel:

Year one = $1,456 / 15,000 = 0.0971 per mile x 28,750 = $2,790.67
Year two = $1,500 / 15,000 = 0.1000 per mile x 28,750 = $2,875.00
Year three = $1,545 / 15,000 = 0.1030 per mile x 28,750 = $2,961.25
Year four = $1,591 / 15,000 = 0.1061 per mile x 28,750 = $3,049.42
Year five = $1,639 / 15,000 = 0.1093 per mile x 28,750 = $3,141.42

Five year total = $14,817.75 divided by 143,750 miles = 0.1031 per mile

Maintenance:

Edmunds says $4,462 for 75,000 miles = $0.05949 per mile
We'll assume that scales the same for the huge number of miles.

Repairs:

The Aveo has a 100,000 mile powertrain warranty. If you do minimal repairs, Edmunds says that you on need to spend $774 over 75,000 miles. We'll up that to $2,500 to cover the period after the warranty runs out - but we'll assume major parts like the transmission and engine don't die until the end of the five year period.

$2,500 / 143,750 miles = 0.01739 per mile

Summary:

Depreciation: 0.07193
Financing: 0.01512
Insurance: 0.06799
Taxes & Fees: 0.00792
Fuel: 0.10310
Maintenance: 0.05949
Repairs: 0.01739

Total Cost Per Mile: $0.34294
Cost Per Year: $9,797.80
Required salary using the 4-6-10-25-33 budget: $58,786.77

Normal Commute:
Cost Per Year: $5,280.00
Required salary using the 4-6-10-25-33 budget: $31,680.00

Required bump in salary: 85%

Housing Cost
What would motivate someone to live so far away from work? Why not just move closer? Let's take a look at housing costs in two cities - Los Angeles, with lots of high paying jobs, and Palmdale, with cheap housing. I personally know of at least a few people that make this commute daily.

Average house price in Palmdale, CA (2005): $303,800
Average house price in Los Angeles, CA: $513,800

Difference: $210,000

So using this data, I'm going to plug it into this very good rent vs buy calculator which seems to take almost everything in housing costs into account. Note that I'm not using the rent feature, as that complicates things significantly. I got the following assumptions for these calculations from the Freddie Mac Weekly Prime market for 8/9/07

Rate: 6.59%
Fees/Points: 0.4

The following information came with the calculator, and it looks to me to be a good wild guess at what they will cost.

Loan origination: 1.000%
Other costs: $800
Property tax rate: 1.00%
Home Insurance: 0.50%

I used a down payment of $65,022 based on 20% of the cost of the house in Palmdale plus fees and closing costs. The calculator gives two results. Total, which includes all cash flowing out, and net, which includes the tax benefits of writing off interest/property taxes.

House Payment (total/net)

Palmdale: $1,930 / $1,536
Los Angeles: $3,741 / $3,015

Using the 4-6-10-25-33 budget and the net amounts:

Palmdale: $1536 x 4 = 6,144 a month x 12 = $73,728
Los Angeles: $3015 x 4 = 12,060 a month x 12 = $144,720

So you require a far lower income to live in Palmdale. But then, there are less jobs and less money in Palmdale. So if you live there and commute to Los Angeles, do you end up ahead?

Cost of the commute: $4,517.80 per year / 12 = 376.48 more a month.
Palmdale net: $1536 + 376.48 = $1,912.48 - $3,015 = $1,102.52 ahead per month

That advantage shrinks over time thanks to inflation. But so does the tax benefit of the larger interest payment on the house in Los Angeles.

Will you have enough time for an extreme commute?
If you work 9-5, that's 8 hours a day. Add 29 minutes to each end, and you have a 9 hour work day. Extreme commuting of 90 minutes x 2 adds another two hours to that, for an 11 hour work day. 8 hours of sleep plus another 1/2 hour to get up and get ready/eat = 19.5 hours. That leaves you with 4.5 hours a day to do other things. Not so bad, eh?

Of course, how many Americans really work a 9-5? With a half hour for lunch, that's only 37.5 hours a week. According to the Bureau of Labor Statistics, in 2006 the average full time employed American worked 42.9 hours a week. Almost 10% of the people worked more than 60 hours a week and another 13.7% worked more than 49 hours.

42.9 hours a week = 8.6 hours a day + 0.5 for lunch = 9.1 hours a day
9.1 hours a day + 3 hours commute + 8 hours sleeping + 0.5 hours getting ready = 20.6 hours = 3.4 hours a day to do other things.

Now say you get in a traffic jam and it takes you an extra 1/2 hour each way. Now you only have 2 hours a day of free time. You can see pretty clearly that if you work extra hours or hit heavy traffic or drive more than 90 minutes, your free time can be quickly reduced to ZERO. Then you have to start cutting into other activities like sleeping in order to do other required activities like eating dinner, going to the grocery store, etc.

Conclusion:
I don't think it makes sense to commute much further than a half hour. If you can't afford to live within that distance, then you probably should move elsewhere, rent or find another job. Business Week had a similar conclusion.

"This is what economists call "the commuting paradox." Most people travel long distances with the idea that they'll accept the burden for something better, be it a house, salary, or school. They presume the trade-off is worth the agony. But studies show that commuters are on average much less satisfied with their lives than noncommuters. A commuter who travels one hour, one way, would have to make 40% more than his current salary to be as fully satisfied with his life as a noncommuter, say economists Bruno S. Frey and Alois Stutzer of the University of Zurich's Institute for Empirical Research in Economics. People usually overestimate the value of the things they'll obtain by commuting -- more money, more material goods, more prestige -- and underestimate the benefit of what they are losing: social connections, hobbies, and health. "Commuting is a stress that doesn't pay off," says Stutzer."

The Rule-Of-Thumb Personal Budget: 4-6-10-25-33

2007-08-09T18:32:00.000Z

I always hear numbers thrown out about what you SHOULD be spending on various things. "1/3 of your income on housing." "$10 a day on food." But none of these systems are really comprehensive in guiding you for a budget. Wouldn't it be nice to know how you are doing compared to everyone else? Are you spending too much on your house? Did you buy a car that is more money than you can really handle? How much should you really be spending on clothes?

The US government puts out a lot of statistical reports on all sorts of things. I found one in particular that seems like it should be pretty useful for this purpose:

Consumer Expenditures in 2005
U.S. Department of Labor
U.S. Bureau of Labor Statistics
Report 998
February 2005

It contains all sorts of data. What I was really interested in was the average percentages of expenditures of most consumers.

In 2005, the average consumer unit has 2.5 people. It made $58,712 with 1.3 wage earners ($45,163 per wage earner). It spent $46,409 on a variety of things. The average top 6 as a percentage of expenditures over the four years of data were:

Housing: 32.60%
Transportation: 18.55%
Food: 13.10%
Healthcare: 5.83%
Entertainment: 5.08%
Apparel and services: 4.15%

Which is still a little confusing, since you have to know what percentage your expenditures are of income, and does that include taxes? So to make it even simpler, here are some rules of thumb using your PRETAX income. Everyone should know what they make a year, right? Well, here you go:

Housing: 26% or about ONE QUARTER. This includes utilities, maintenance, mortgage, rent, etc.

Transportation: 15% or about ONE SIXTH. This includes maintenance, the cost of the vehicle, gas, etc.

Food: 10% or about ONE TENTH. This includes eating out and food made at home.

I'm going to skip healthcare, because that varies based on age/location and health.

Entertainment: 4% or ONE TWENTY-FIFTH

Clothes: 3% or ONE THIRTY-THIRD

So there you have it. A very basic rule of thumb for how much you SHOULD be spending if you want to be average.

1/4 on housing
1/6 on transportation
1/10 on food
1/25 on entertainment
1/33 on clothes

Applied Example #1:
Your household income is $50,000 per year. Here's what you should be spending (year/month):

Housing: $12,500 year / $1041 month
Transportation: $8,333 year / $694 month
Food: $5,000 year / $417 month
Entertainment: $2,000 year / $167 month
Clothes: $1515 year / $126 month

An interesting way to look at transportation is to use Edmunds.com True Cost To Own. For my Subaru Impreza, it's $0.52 per mile. $0.58 x 12,000 for a year is $6,960. Using the rule of thumb of 1/6, you reasonably need to make $41,760 to afford that vehicle. At least, on the average definition of "afford" over all consumers.

Applied Example #2
Your household income is $24,000 a year.

Housing: $6,000.00 year / $500.00 month
Transportation: $4,000.00 year / $333.33 month
Food: $2,400.00 year / $200.00 month
Entertainment: $960.00 year / $80.00 month
Clothes: $727.27 year / $60.61 month

How much can you afford per mile for your car? $4000 / 12,000 = 33.3 cents per mile.

How much can you spend a day on food? $200 / 30 = $6.67

Conclusion
Now obviously, these numbers don't add up to 100%. And it doesn't scale well to the high or low end of the income spectrum. But it gives you a general idea of what Joe average is spending, and it's a quick guide to start your own budget.

Is it cheaper to bake your own bread or buy it at the store?

2007-08-09T17:13:00.000Z

For some reason, yesterday I got going on breadmachines. Amazon.com has a pretty nifty Sunbeam 5891 automatic bread maker for $42.24 (with free shipping!) I got to thinking, gee whiz - how much does bread really cost to make? I hardly know ANYONE that makes their own bread anymore.

So I went looking. I found the simplest possible bread recipe using hardly any expensive components like dried milk, butter, etc.

BASIC FORMULA FOR A ONE-POUND LOAF
(Serves 12)

This simple recipe can easily be modified to suit your taste.

1 cup liquid (water, soy milk, or apple juice for example)
1 Tablespoon sweetener
1/2 teaspoon salt
3 cups flour (a combination of any two or more white, oat, rye, or
whole wheat bread flour)
1-1/2 teaspoons active dry yeast

Total Calories Per Serving: 107
Fat: less than 1 gram

I figure it can't get much less complicated than that, right?

Then I went to the store and looked at the price of various components. Note that it MAY be cheaper where you live - I happen to live in an expensive area. These aren't warehouse prices in huge bulk either. Here's what I found:

Sugar: $1.99/5lbs

Bread flour: $1.89/5lbs

Fast acting dry yeast: $9.39/4 ounces

Salt: $1.40 / 4.75 ounces

Converting into the units of the recipe, I found the following:

Sugar: $0.0130 per tablespoon
Bread flour: $0.1972 per cup
Yeast: $0.4081 per teaspoon (OUCH!)
Salt: $0.0512 per teaspoon

The total recipe cost of components is as follows:

Sugar $0.0130
Flour $0.5915
Yeast $0.6122
Salt $0.0256

Subtotal: $1.2423

Then you have the cost of electricity and the wear and tear on the equipment. Since it has a one year warranty, I figure it could be used 365 times. $42.24 / 365 = $0.1157. The machine peaks at 600 watts and it takes three hours to bake. Figuring at $0.10 per kilowatt hours, that's 1.8 kilowatt hours or $0.18.

Total cost: $1.5380
Total calories: 12 x 107 = 1,284
Calories per dollar: 834.83

At the very same store, they had a loaf of "value" bread for $0.89 with 22 slices at 120 calories per 2 slices. 11 x 120 = 1320 calories, or 1483.15 calories per dollar. Much cheaper.

"But wait!" you say. "What if I just used the oven instead?"

Well, I believe an electric oven OR a gas oven would cost more to operate than the bread machine. This site says it costs $0.20 per hour to operate an electric oven and $0.18 per hour to operate a gas oven. Even if the oven lasts 20 years, it costs $350 for a cheap one, or 4.8 cents per day. You would also need a bread pan, and more tools to make the bread since you would have to mix it yourself.

Figure:
- $0.048 per day (cost of oven over 20 years)
- $0.180 per hour (cost to operate gas oven, 1 hour)
- $0.010 per use (cost of a bread pan over a 3 year life)
- $0.040 per use (other tools - bowls, spoons, etc)

Total cost: $0.278

Which may slightly edge out the breadmaker at $0.2957 per use, but ONLY over the very long term. This also ignores the connection fee that might actually make gas more expensive than an electric oven.

So assuming the breadmaker is the most efficient way, how can you reduce the costs further?

1) Make your own yeast. It's easy if you like sourdough bread. Instructions. This would save $0.6122 per loaf.
2) Buy the flour in huge bulk at a warehouse store. I'm sure it's much cheaper than $0.1972 per cup if you buy a 50lb bag at costco. But where do you store it?
3) Buy the salt and sugar in huge bulk. Actually, since it's in a 5 lb bag already, you have a 153 day supply of sugar. The salt is expensive "real salt" which I'm sure you can completely crush if you bought a big bag of generic salt somewhere.

So let's assume the following:

Flour: $0.10 per cup
Sugar: $0.013 per tablespoon
Salt: Free, or darned close to it
Yeast: Free

New total:

Flour: $0.3000
Sugar: $0.0130
Yeast: $0.0000
Salt: $0.0000
Machine: $0.1157
Electricity: $0.1800

Total: $0.6087

Or 2,109 calories per dollar. I suppose, given your willingness to work harder and make more of the components, bread CAN be cheaper than store bought. But just barely. It's pretty damned hard to compete at home with the giant production line and enormous buying power of a large bakery.

Better bread typically runs $2.29 per loaf. The problem here is that in order to make a similar product at home, you need far more components like honey, dried milk, butter, etc - which are very expensive. Unless you want to make a very specialized recipe that you can't buy at the store, it makes more sense to just buy the bakery made bread.

Amazon.com (AMZN) appears to be tremendously overvalued.

2007-08-01T21:44:00.000Z

Today, Amazon closed at $77.31 with a market cap of $31.93B. The mean target price from analysts for one year out is $83.57, an 8% increase. Back on July 25th, it was upgraded by no less than five analysts on the same day after reporting strong 2nd quarter earnigs. The market went WILD: "Amazon shares surged $16.93, or 24 percent, to $86.18 after rising to a 52-week high of $88.80 earlier in the session."

The thing is that Amazon isn't making one hell of a lot of money. Sure, they sell a lot ($2.88 billion in a single quarter!) but their earnings on those sales were only $0.19 per share or $78MM. "Amazon upped its revenue forecast for the full fiscal year to $13.80 billion to $14.30 billion, up from its earlier outlook for $13.4 billion to $14 billion. For the current third quarter, Amazon said it expects revenue from $3 billion to $3.18 billion."

Gross margin was $702MM. Gross margin percentage was 24.32%.
Operating income was $117MM. The operating margin percentage was 4.05%.

Whoopty-do.

Walmart's gross margin percentage last quarter was a very similar 24.42%, but their operating margin was 5.61%. Target did even better with a 34.58% gross margin and a 8.55% operating margin.

Maybe someone can explain to me what happened to the "efficiencies of not having a brick and mortar store". Shouldn't it be cheaper to run a website and have the advantage of locating your operations wherever is most advantageous to the corporation instead of where the population lives? If they're going to play at being an online walmart, shouldn't they be able to compete with them on equal footing?

The forward P/E ratio for 2007 using $1.07 as the consensus earnings is 72.25. What really concerns me is that even with the HUGE five year forward growth estimated by analysts of 23.42% (!), the PEG ratio is an unbelievable 3.085. Using the 2008 estimate of $1.51, the PEG ration is still 2.186.

I believe a more fair price for Amazon is $50. That would put the current forward P/E at 46.72 and the PEG ratio at 1.995. With 2008 earnings, the P/E ratio would be 33.11 and the PEG would be 1.41. Still high, but not into the realm of complete fantasy land.

Prosper.com: Debt to Income (DTI) shenanigans.

2007-08-01T16:52:00.002Z

I've been wondering what would drive a person to Peer-To-Peer (P2P) lending. Why would anyone want to take out a loan from a website like Prosper.com when it seems like every day the huge banks are trying desperately to loan you money in one form or another.

Big Banks Vs. Prosper.com:

The bank I chose for comparison was Bank of America Corporation (BAC) one of the largest banks on earth. I found some data on their loan rates in this Supplemental Second Quarter 2007 Financial Information on page 9, titled "Quarterly Average Balances and Interest Rates - Fully Taxable-equivalent Basis"

Yield

Credit card - domestic: 12.67%

Other consumer: 9.28%

Direct/Indirect consumer: 8.46%

Home equity: 7.57%

Residential mortgage: 5.70%

Now let's look at Prosper.com. They have a nifty chart of loans made in the past 30 days, but I didn't think it was all that helpful as it didn't tell you amounts or give you an idea of weighted rates for comparison to Bank of America. Here it is anyhow, for your amusement.

Instead, I found the following data on their loan performance page for June 30, 2006 - June 30, 2007.

Average annual return
AA: 9.13%
A: 10.07%
B: 10.91%
C: 11.18%
D: 11.65%
E: 8.64%

Then I thought it would be interesting to look at recent activity, so I pulled the data for June 1, 2007 - June 30, 2007 and ran a few numbers.

Loans Originated: $2,571,711
Number of Loans: 327
Average loan: $7,864.56

AA: $764,958 - 82 (Average = 9,328.76) - 29.7%
A: $475,316 - 55 (Average = 8,642.11) - 18.5%
B: $493,534 - 57 (Average = 8,658.49) - 19.2%
C: $465,625 - 62 (Average = 7,510.08) - 18.1%
D: $284,127 - 48 (Average = 5,919.31) - 11.0%
E: $61,100 - 15 (Average = 4,073.33) - 2.4%
HR: $27,051 - 8 (Average = 3,381.38) - 1.1%

Using the above average returns and assuming that 100% of the HR loans will default (0% return), I got a weighted average APR of 10.19%.

Compare this to Bank of America's average rate for a direct consumer loan of 8.46%. That's a premium of 1.73% over Bank of America's average return. What's the deal here? Why would you pay a premium to throw your life story on the internet where anyone can read it? Is it because the borrowers have low quality credit?

Credit Quality: Fico Scores

I wanted to see how credit quality works with FICO scores. The distribution of scores (Source) looks like this:

Prosper.com's credit grades (Source) look like this:

And to be helpful with your analysis, Prosper.com also provides you with this nifty chart of historical defaults by credit grade. Please not something VERY important on this chart - the note that says "for borrowers with debt to income ratios of 20% or less".

Going back to the loan data from June 2007, it appears that most of the loans are being made to high quality credit. 48.2% are going to A or beter, which are people with credit ratings of 720+. That should be a default rate of less than 0.9%, right? WRONG.

Debt To Income (DTI)

Let's look at what Prosper has to say about DTI.

"What is a debt-to-income ratio?

Part of a borrower's credit profile is a debt-to-income ratio. Debt-to-income ratio (or DTI) is a measurement of the borrower's ability to take on additional debt. This number takes into consideration how much debt the borrower had prior to their loan in addition to what their debt will be if the loan they are requesting is made. (Their debt history is part of their credit history, and is reported to Prosper in the initial credit check.) The DTI is calculated by dividing the borrower's annual income (before taxes) into their annual non-housing debt payments. It is expressed as a percentage.

Generally a DTI of 20% is at the upper end of normal when excluding housing debt. Loans with debt-to-income ratios exceeding 20% are more risky—in some cases very risky—and much more difficult when trying to estimate default risk. In fact, whereas Prosper provides general default rate estimates when debt-to-income is 20% or lower, no estimates are provided for debt-to-income ratios greater than 20%.

If the DTI is shown as "N/A" (not available), it may be for one of two reasons. First, it may be that Experian (Prosper's credit reporting partner) has not been able to provide a reliable number for the borrower's monthly debt burder. Second, it may be that the borrower cannot provide documented proof of income, and has stated so in his or her application.

If you are a beginning lender or unsure of how to factor in high-risk borrowers, we recommend that you stick with borrowers who have a DTI of 20% or less."

Looking at current loan listings that are at 100% funding meaning the loan is going to be made for sure, here's what I found for average DTI. (Ignoring loans that didn't list DTI.)

AA: 13 loans, $128,501, weighted average 20.8%
A: 12 loans, $98,560, weighted average 24.8%
B: 14 loans, $105,900, weighted average 19.44%
C: 15 loans, $107,600, weighted average 37.08%

So MOST of these loans are being made to people that are listing their DTI at ABOVE 20%. No wonder the big banks won't give these people money. According to the the US Census, renters spent 29% of their income on housing in 2001. So say 20% is the upper guideline for DTI. 20% DTI + 29% housing = 49%. That leaves 51% for food, transportation, savings, luxury items, insurance, etc. It seems pretty iffy.

Now look at the C grade debt at 37.08% DTI. 37.08% + 29.00% = 66.08%, leaving 33.92% for food, clothing, utilities, etc. At under 20% DTI, the C default rate is 3.30%. What do you think the default rate is above 35%?

But it gets worse - I believe their listed DTI ratios are questionable at best.

Information Quality:

Check out this example. If the link is dead, you can read some excerpts here:

"Purpose of loan:
I want to stop my collection accounts from accruing more interest by making a settlement on the larger one, and paying in full the smaller one. As you see in my listing, my total delinquent amount is about 3600. The larger account is 3300 of that total. I recently received a settlement offer of 1300$ for that account. I used to work in the debt collection industry for Northland Group (about 1 yr) and FRS (Financial Recovery Systems, about 6 months) and I know that summer time is the hardest time for them, so I'm writing a counter offer of $700. I'm sending my correspondence by certified mail, and only accepting an offer if I receive it in writing. If they do not accept my smaller offer I will immediately make another offer slightly higher until I come to an agreement with them. I know they will NEVER offer me in writing the lowest they can accept. That's taking money out of their own pocket. I'm asking for the SMALLEST amount of a loan that I can because I don't like to borrow money anymore, but I know now is the right time to try to get my deal accepted by the collector. That's why I am asking here.

My financial situation:
I have around $500 in savings in a sharebuilder account, as well as some old series E savings bonds which were given to me by my grandparents as a gift, which now are valued at around $350.00. I would not want to cash them in unless I had to, but the sharebuilder account is my emergency fund.

Monthly net income: $ 2000.00

Monthly expenses: $
Housing: $ 900.00
Insurance: $ 60.00
Car expenses: $ 90.00 (gas, oil change, filters, car is owned 100%)
Utilities: $ (included in my rent)
Phone, cable, internet: $ 60.00
Food, entertainment: $ 100.00
Clothing, household expenses $ 40.00
Credit cards and other loans: $ 30.00 (both cards I'm currently using I pay more than double the minimum 5$)
Other expenses: $ 65.00 (cell phone)"

I think something might be askew in the numbers, don't you? Theoretically, he SHOULD have $655 a month of free cash, right? Obviously he doesn't, or he wouldn't be borrowing money to pay off $3600 in defaulted credit cards. For example, I strongly question the food expense of $100. Food stamps are $155 a month for a single individual and that's supposedly hardly adequate. Yet somehow he's able to live on $3.29 a day?

More importantly, he lists a DTI of 2%. Even if he only needs to pay $30 a month towards the two cards - what about the cell phone? Isn't that an open account at $65 a month? What about the phone line? The internet? The cable? Something isn't right here.

Conclusion

While it's a lovely idea to want to help people with their problems AND make money doing it - clearly there is a reason that these people have to go to Prosper.com to get the loans. They are already loaded to the gills with debt and shouldn't get anymore. Further, since you can't possibly predict the actual default risk - since the information is flawed at best, you can't figure out what your required return needs to be.

Hearts Of The Gods Statistics: A 400 Page Novel?

2007-07-31T18:09:00.000Z

This is my 203rd post on Hearts Of the Gods over a span of 593 days. I decided to take a look at what I've done over time. I started by copying and pasting my last 10 posts into Microsoft Word to get a word count. I figured it was a half decent way of getting an average - some of my posts are very wordy and others are short and sweet. The total was 4,923 words, or 492.3 words per post.

So if you figure that 492.3 words per post times 202 posts, then I've written a total of 99,445 words. Or at least POSTED that many. Using a rough estimate, I'd say that 35% of the words I post are direct quotes from other sources.

I wondered - how many words per page are in a standard paperback novel? Google answers had my answer: ~250 words. Of course, it depends on line spacing and density and writing style and content and font and all sorts of other things. But we'll run with 250 words.

99,445 words / 250 = 398 pages. Not bad.

In a previous post I guesstimated that I spent on average a half hour per post. This would mean that I'm producing 16.41 words per minute - or 10.67 if you eliminate the stuff I quote.

Money wise, I'm now averaging $0.1273 per day. That's a big increase over the 6.6 cents per day of 7 months ago. I'm posting about 0.34 times per day. At 1/2 hour per post I'm now pulling down a SWEET $0.75 per hour. Amazing! Of course, that doesn't take into account all the time I've spent messing around with layout, ad setup, looking at statistics, etc. Really it's probably more like $0.25 an hour, but that still ain't bad.

All the "MAKE MONEY BLOGGING!!!" ads make me laugh. Can you make money blogging? Absolutely. Even if you just post about random crap that interests you and don't spend all your time doing self promotion, Google will pick up your posts and bring you some traffic. I get an unbelievable amount considering the random nature of what I write about and the fact that I'm not writing purely about Britney Spears or whatever pop star is currently experiencing a drug fueled meltdown. The thing is - I figure I will have to write 527 pages worth of content before I even get my first check from Google for $100. Not that money is my primary goal - mostly I just love to write and the numbers amuse me.

How many people would sign up if the ads said "Spend 76 minutes writing 5 pages of content, get a dollar in a couple years!!" I guess I still would. But that's because I enjoy writing. Works out to about $0.000759 per word - which seems like a fair market valuation for the content to me.

Famous authors were also paid per word. Charles Dickens is a famous example. I can't find a precise dollar figure on what he was actually paid though. However, I did find an interesting study on his use of superlatives. Smart guy and a great writer.

Electricity: The Failure of the US Government in Iraq

2007-07-31T15:53:00.000Z

In yesterday's news, there were some numbers on current electricity production in Iraq.

"Despite the setbacks with the power plant, Bowen said Iraq's electricity supply still rose to 4,230 megawatts, compared with 3,900 megawatts during the previous quarter and 3,800 before that. But that is still below the prewar level of 4,500 megawatts, he said."

A focus of the problem is the Al-Doura (also spelled Dora) power plant, which produces 320 megawatts primarily for Baghdad.

In a story from July 20th on Boston.com:

"Bechtel National won a $1 billion contract to rehabilitate the electricity sector in Iraq and began work on Doura in August 2003. The two turbines, Unit 5 and Unit 6, were refurbished in June 2005, at a cost of $90.8 million, and Iraq's Ministry of Electricity took control of the plant. Worried that the staff at the plant would be unable to maintain the turbines, US officials spent $81 million more on "coaching, mentoring and on-the-job training" for 239 staff members at the Ministry of Electricity."

In addition:

"More than a year after the Doura Power Station was handed over to Iraq's Ministry of Electricity, neither of the two steam turbines that the United States paid $190 million to repair is operational, according to the report, released Wednesday evening."

So pretty much, we spent $81MM to "train" the Iraqis and within a year the two turbines failed.

$81MM / 239 = $338,912.13 per employee.

Now I don't want to say that Bechtel skimmed money, but frankly I'm a little skeptical considering the cost of attendance at Harvard is only $50,950 per year including room/board/tuition/etc. It seems like we could have flown every one of those employees to the United States, given them a year of extremely intense training at one of our many fine technical colleges, then put them in a year of training in our power plants and wound up MASSIVELY ahead. Even if we only did it with 50 employees, it would be a big start.

Why is electricity so important?

From a simplistic economics perspective, you need four factors for production:

Land

Labor

Enterprise

Capital

So say I want to make widgets in Iraq. Can I get the land? Sure. How about labor? No problem (60% unemployment.) Enterprise - that's me. Capital is where we run into a tid bit of a snag.

Modern factories use a wonderful invention we like to call "ELECTRICITY" to drive the machines. From air compressors to conveyer belts to 10 ton presses, the vast majority require electricity at some point to operate.

When your supply of electricty is tenous at best (3-6 hours a day), how do you apply labor to your capital to produce goods? Do you just tell the workers they won't get any money while the power is out and they stand about the factory floor in the sweltering heat and darkness?

Electricity is the key to the whole Iraqi puzzle. Without it, there will never be serious production of goods in Iraq. Oil alone is not enough. 60% unemployment is like a bad joke and I would venture to say that it's the cause of many of the problems.

Possible Solutions

Electricity production isn't magic. What you need is some form of energy, a power plant, and lines to deliver it to consumers. Iraq has SOME electricity. It's just not produced in a reliable fashion. So what can be done? Here are some steps I'd take immediately.

1) Decrease demand: Dramatically raise the price of electricity. Cut off areas that don't need it immediately. FLOOD Iraq with the new energy efficient light bulbs. 100 million of them would go a long way, and I'm pretty damned sure we could buy and deliver them for less than $3 a piece. Even if 95% were sold off and only 5 million were installed, 5MM bulbs at 20 watts instead of 60 watts = 40 watts x 5MM = 200 megawatts savings or 62.5% of the entire production of the Dora plant.

2) Increase supply: Electricty can be transmitted over long distances (up to 4,000 miles per wiki). If we can't build and maintain a plant inside Iraq, why don't we build one OUTSIDE Iraq? Kuwait City is only 344 miles from Baghdad. Iraq also shares a long border with another of our allies - Saudi Arabia. If the environment is unacceptable - let's just put one across the border. Supposedly a 1,000 megawatt coal plant only costs $1.5 billion. We could build three just outside Iraq for only $4.5 billion and increase total electrical production to 7,230 megawatts - a 71% increase! With big money and heavy political pressure, I imagine we could get these plants built in a matter of 2 years or less.

3) Education Education Education: If there is one HUGE advantage the United States has over the rest of the world, it's having the best universities on the planet. Let's take advantage of that. Let's try rotating 50 engineers from every plant to our universities for a year of training. It'll be good for the Iraqis, it'll be good for our goals in Iraq. Give them each a degree or certificate of some sort. Then rotate them through American power plants for another year. Send the Iraqi managers to business school. Why not? It only costs $150k - that's CHEAP compared to what Bechtel spent on it's failed education attempts. Why are we trying to reinvent the wheel inside a war zone when we have wonderful wheels at home?

Miller Chill review.

2007-07-30T22:54:00.000Z

In a recurring theme, Baraqyal once again fell for marketing and yesterday picked up a case of Miller Chill at Costco yesterday. I believe I paid something in the range of $21 for 24 bottles or about $1 a bottle with tax and CRV.

I'm a fan of Corona - which clearly makes me not much of a beer snob. Frankly, I'll drink just about any beer, be it a cheap American swill or a fancy German import.

Miller Chill isn't all bad. It does sort of taste like Corona with lime. Only the lime flavor is a bit too strong and a bit too artificial. Considering the price and the quality of beer, I can't imagine how it makes more sense to buy this over just picking up a case of Corona and a handfull of limes. But it was fun to give it a shot.

The biggest problem I have with it is the alcohol content. 4.2% for a 12 ounce bottle. Ouch.

The source of the following alcohol percentages is Real Beer.com.

1 shot vodka = 1.5 ounces x 40% = 0.6 ounces
1 Miller Chill = 12 ounces x 4.2% = 0.504 ounces
1 Corona Extra = 12 ounces x 4.6% = 0.552 ounces
1 Guinness Stout = 12 ounces x 7.5% = 0.90 ounces

So in other words, 2 Guinness stouts = 3.5 Miller Chills or 1 Stout = 1.75 Chill. Price wise, I believe the Guinness typically runs $5.99 for four bottles = ~$1.50 per bottle. The Chills were $1 - so the Guinness actually represents a better value alcohol-wise. (Not to mention it tastes one hell of a lot better too.)

I had four Miller Chills yesterday over a 5 hour span (with a meal) and got absolutely no buzz whatsoever. I supposed I'd have to drink 6 or 7 over the same span to get a light buzz on, or condense all four into a 1 hour period.

Monster.com (MNST) cuts 800 jobs - a brief look at their operations.

2007-07-30T21:51:00.000Z

Monster.com today, in connections with their second quarter earnings, announced that they would be cutting 800 people from their workforce.

"July 30 (Bloomberg) -- Monster Worldwide Inc., the world's largest network of online job-hunting sites, said it will cut 800 jobs, or 15 percent of its staff, after reporting that second-quarter profit fell. The shares rose 6 percent.

Net income slid 28 percent to $28.6 million, or 21 cents a share, from $39.6 million, or 30 cents, a year earlier, the New York-based company said today in a statement. Sales rose 20 percent to $331.1 million, missing the $337 million average estimate of 15 analysts."

Now I haven't used Monster in years, but I was under the impression that it had seriously degraded in quality. Apparently, I'm the only one that feels that way as it hasn't lost much in the way of traffic.

I also thought this was a fairly interesting factoid:

"Job cuts in human resources and finance will eliminate duplication in the U.S. and Europe, Iannuzzi said in an interview. The U.S. sales team will also shrink as Iannuzzi tries to boost the percentage of job ads Monster clients place on the Internet themselves. Monster processes only about 15 percent of ads electronically, he said."

What is it, 1978? Why on earth are most of their ads being placed by workers and not directly by the companies themselves?

A few quick numbers:

800 workers / 15% = 5333 workers.

$170MM / 800 = $212,500 per worker.

Following that formula: 5,333 x $212,500 = $1,133,262,500.00

Gee, something's amiss, seeing as how their total operating expense for Q1 2007 was only $270MM x 4 = $1,083MM.

So how can they save that much per worker?

You can read more straight from the horses mouth here. (Not the official 10Q or I would've linked to it below).

According to the June 2007 Media Metrix report, Monster.com was the 22nd most hit US website with 25,825,000 unique users. Close competitor Careerbuilder.com came in 30th with 21,723,000 users. Other close competitors that offer other services that weren't broken out of the rankings include #1 Yahoo with a total of 133,093,000 unique users and #28 CRAIGSLIST.ORG with 22,529,000 unique users.

A few interesting things from their first quarter 2007 10Q:

Careers – North America: $184,017

Careers – International: $106,206

Internet Advertising & Fees: $38,805

Total Revenue: $329,028

Revenue at our Internet Advertising & Fees segment increased 19.6%, a much slower growth rate than throughout the periods in 2006. Several factors contributed to the reduced growth of the Internet Advertising & Fees segment, however the main drivers were slower growth in overall users and reduced lead generation volume. Revenue from lead generation approximates 48% of our revenue base and is generated from many sites across our network. During the first quarter of 2007, we experienced a reduced volume of users to our sites, and were unable to deliver a high volume of quality leads to our advertisers. Display advertising approximates 25% of our revenue base and is the other main source of our revenue. Our websites across our network realized a higher ratio of remnant versus brand advertising during the first quarter of 2007, resulting in excess inventory and a lower cost per impression, contributing to our overall slower growth rates. We continue to believe that online advertising represents a significant growth opportunity for us, as our audience is appealing to both brand and remnant advertisers.

It seems that Monster.com has lost their way and are wandering into the "LOTS OF ADS!!!!" as a solution for growth instead of "Let's make our system better for users"

Another quick analysis:

25.8MM unique users per month
$38.8MM revenue per quarter / 3 = $12.93MM per month

So they are making $0.50 per unique user per month. Not too bad!

Business Idea: Rent Your Wifi Connection

2007-07-27T22:32:00.000Z

My DSL connection is a waste of money most of the time: I pay $19.99 a month plus the cost of the landline from AT&T. Most of the time, it's not being used at all. The maximum hours I have available to use it works out something like this:

Monday-Friday: 6pm-12am = 6 hours x 5 days = 30 hours
Saturday-Sunday: 8am-12am = 16 hours x 2 days = 32 hours

Out of the 62 hours I'm actually home to use it, I probably really only use it something like 10-12 hours a week.

And that's not looking at bandwidth at all. I mostly read news sites. I get around 120K down and 40K up. While I'm actively using it, I probably average 20K down and 5K up. Maybe. Considering it's idle most of the time.

Like most people, I have a wireless router. My laptop tells me that there are usually around 10 other wireless routers in range that are broadcasting SSIDs. There might be 12-15 total. And just like most people, my router is setup as a closed system. Without the WPA key, you don't get to use my DSL at all.

I have a few reasons I won't share my wifi:

Performance: I don't want my connection to be slow.

Fear: I don't want some fool to download Beyonce's newest and get me a nasty letter from the RIAA that I can't defend myself against.

Security: You have to have a key to have a secure connection.

Really though it's pretty stupid for all 15 of us in range to be paying $19.99+ a month for broadband. We could probably all get by just fine with 5 connections. But I'm not about to walk up and down my neighborhood trying to work out some complex network sharing arrangement to save a few bucks a month.

Today I've been looking at Skype Wifi phones. I came to the conclusion that the Netgear SPH101 for $149.99 - $50.00 mail in rebate from Amazon.com is a pretty good deal. For another $29.95 a year, you get unlimited calling inside the US and Canada. Hard to beat that. The downside is that outside of my home and office, it can be tough to find a wifi connection.

If you want to pay, you can get t-mobile hotspot to go for $29.99 a month with a one year contract. Or with a voice plan, $19.99 a month. Course, it mostly only works in Starbucks and Borders. Some deal that is.

What if I wanted to use my skype phone someplace else? It would be nice if there were more wireless connections available. Especially if they weren't that pricey.

I had the idea that it would be pretty nifty to rent out the connections. It would work something like this:

A new company handles the transactions and accounts. Wireless router makers (Cisco? Netgear? Etc?) installs software on their router to connect to the company website and use a company proxy. From the owner end, you set up an account with the company and set a price for wireless access. Users with Wifi devices see a list of available accounts and a price per minute. It can be competitive. Could look something like this:

Joe's Broadband
Signal Strength: 7/10
Last speed test: Yesterday
Upstream: 20K
Downstream: 40k
Cost per minute: $0.005

Jan's Broadband
Signal Strength: 6/10
Last speed test: Today
Upstream: 5K
Downstream: 15k
Cost per minute: $0.001

Mary's Broadband
Signal Strength: 3/10
Last speed test: Today
Upstream: 10K
Downstream: 100K
Cost per minute: $0.10

The company is responsible for the following:

Setup of accounts (collection of money, etc)

Testing line speed to make sure its not being oversold

Proxy to record internet usage to protect the wifi provider

Public key encryption to keep your use private from the provider or anyone who is snooping

In exchange, they take some portion of the money - say 30%.

So say you login to Jan's broadband and use it for 5 hours. 5 x 60 x $0.001 = $0.30. Jan earns 70% of that, or $0.21. Jan has a highspeed connection, so she has 10 available slots (50K upstream, 150K downstream, plus extra for her own use). If all the slots are filled, she can make $0.42 an hour. Say she averages 65% of capacity for 6 hours a day, 30 days a month - she ends up getting paid = .65 x .042 x 6 x 30 = $4.91 for the month. Is it a lot? No. But maybe it brings her DSL expense down dramatically. If she were on the edge of a college or some other busy spot, maybe she ends up actually making a profit by raising her price!

Following in Google's footsteps, the company would only send out a check when the account balance reaches $100. Also, the providers can use their credits to go out and use other people's wifi connection when they need to.

In this manner, I think a real market would be rapidly created for dirt cheap wifi access and micro payments to the providers. With the ability to actually profit from a broadband connection, open wifi would become far more common, and the use of nifty wifi internet devices like the Skype VoIP phones would be far more common.

Chrysler debt sale postponed. Underwriters to carry debt themselves.

2007-07-25T16:22:00.000Z

In a BAD sign for Detroit, the underwriters of the Chrysler/Cerberus deal weren't able to sell the debt to other investors or banks, and are now stuck with it.

Bankers Postpone Chrysler Debt Sale
By SERENA NG and GINA CHON, July 25, 2007

Both Cerberus and Daimler, however, will be helping to lend $2 billion to Chrysler because of weak investor interest in buying its debt, a person familiar with the deal said. The debt underwriters, which include J.P. Morgan, Citigroup, Goldman Sachs, Bear Stearns and Morgan Stanley, will initially lend the auto business $10 billion, but intend to sell some of that to investors at a later date.

This is an unusual occurance. Underwriters aren't usually a big fan of taking on billions of dollars in risk - especially given that this type of debt is the last in line to get paid during a bankruptcy.

Chrysler bond deal changes 'very untraditional'
By Leslie Wines
Jul 25, 2007

The underwriters also will hold some Chrysler debt on their books, an unusual practice. "This is a 'sweetheart deal' for Chrysler," Atkins said. "Usually underwriters sell the debt to investors so they don't have to hold it on their books. But this time they are going to hold onto some of it and try to sell it at a later time. This is a big gamble. This is an underwriter-driven deal, not an investor-driven deal and that is very unusual."

But no one tell the fools in Detroit. They've already started changing signs and planning a big party!

As changing of signage begins, Aug. 1 party is in the works
July 24, 2007
BY TIM HIGGINS
FREE PRESS BUSINESS WRITER

As lawyers from Cerberus Capital Management and DaimlerChrysler AG push to complete their Chrysler deal, officials at the Auburn Hills automaker are beginning to remove "Daimler" from some signs and are making plans for a celebration next week.

Allison Transmission deal in trouble: Is this the death knell for the Chrysler deal?

2007-07-24T16:50:00.001Z

On June 28, 2006, Yahoo reported the sale by General Motors of it's Allison Transmission Unit to two private equity firms - The Carlyle Group and Onex Corporation.

The terms of the sale were:

General Motors gets $5.575B in cash

Carlyle and Onex put up $1.5B in cash (split evenly)

Allison takes out $3.5B in bank loans

$1.1B in "high yield" or "junk" bonds are issued by the company.

The underwriters of the loans - "Citigroup Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co." had planned to sell $3.1 billion of the loans to other banks.

Well, it turns out that other banks don't want any part of it.

"Allison Transmission, a highly profitable unit of General Motors Corp. based in Speedway, Ind., has gotten stuck in a traffic jam in the debt-financing market.Wall Street firms postponed a sale of $3.1 billion in loans that would pay for the leveraged buyout of Allison by private-equity firms, said a person familiar with the matter. While the sale of Allison to Carlyle Group LP and Onex Corp. is highly likely to proceed, the trouble raising debt from investors complicates matters for the company and its bankers."

So now the underwriters are stuck and the junk bond issuance is on hold. I would assume the deal will still close though, since Allison is a very profitable company and it makes sense to me to buy it. Also from the WSJ article:

"The company posted $2.3 billion in revenue last year and posted an operating profit of nearly $350 million, making it one of GM's highest-margin divisions."

By my calculations, that's an Operating Profit Margin of 15.22%.

From their website:

"Having literally invented the category, today the company continues to dominate with an 80% market share of all medium- and heavy-duty commercial fully automatic transmissions produced."

Further:

"This support network provides service and technical support worldwide to the division's 250 OEMs, and the many fleet owners and operators, and end users. Allison Transmission has a workforce of over 4,000 salaried and hourly employees."

I believe it also comes with a big chunk of intellectual property. From the President's Message:

"The employees of Allison Transmission have over 600 patents, making the company one of the most prolific patent organizations within General Motors."

So if a company that has 80% marketshare and 15.22% operating profit margin isn't able to get 1.1 billion in Junk Bonds, how is a company like Chrysler going to get $60+ billion from the debt markets for a buyout from Daimler by Cerberus?

And how are GM/Ford/Chrysler going to fund a VEBA plan to shift the pension plan/health care benefits over to the UAW? This is going to require even MORE debt.

The news of the postponement of the Allison Transmission deal caused a pretty big shift in the derivatives markets.

"The cost of protecting GM's debt for five years with credit default swaps widened by 61 basis points to about 568 basis points a year, or $568,000 for every $10 million of principal protected, according to data from various brokers and dealers."

Unless the appetite for risk increases again in the credit markets AND the unions give some hefty concessions, I believe the Big 3 are in very big trouble.

"College Cost Reduction Act of 2007" will bring some interesting volatility to SLM

2007-07-23T17:57:00.000Z

Last Friday, the US Senate passed the "College Cost Reduction Act of 2007" with a vote of 78-18. You can read the text of the bill, sponsored by Representative Miller of Georgia, here. A variation of the same bill was also passed by the House of Representatives on July 11th witha vote of 273-149.

Speaker Pelosi's blog had this to say about the bill:

The bill will provide the single largest increase in college aid since the GI bill in 1944. The legislation invests about $18 billion dollars over the next five years in reducing college costs, helping millions of students and families. It comes at no new cost to taxpayers, and is funded by cutting excess subsidies paid by the federal government to lenders in the student loan industry.

Basically, this is in response to the student loan scandal. Congress decided to punish the big lenders by taking away subsidies. It appears that some of these subsidies will go towards lowering student loan interest rates, increasing pell grants to $4,900 in 2008 and $5,200 by 2011.

SLM Corporation (SLM) aka Sallie Mae is particularly interesting because they are in the middle of a $25 billion private equity buyout by Friedman Fleischer & Lowe, J.C. Flowers, Bank of America and J.P. Morgan Chase.

Apparently, J.C. Flowers believes this massive reductions in subsidies will reduce the value of Sallie Mae significantly. This article from last Friday's Wall Street Journal said:

The buyout group, an investment group led by private-equity firm J.C. Flowers & Co., has said that the bills "could result in a failure of the conditions to the closing of the merger to be satisfied."

As the bill makes it's way through committee and to the President's desk (where I suppose it could be vetoed), it will be very interesting to watch the ups and downs in SLM stock. I strongly suspect you could make some money betting in either direction as the stock swings wildly up and down based on congressional rhetoric and private equity jockeying for position.

Movie Review: "Maxed Out" documentary

2007-07-23T15:28:00.000Z

Over the weekend, I rented the movie "Maxed Out", which I thought would be a fairly amusing look at the American credit card debt addiction.

Boy, was I wrong.

I knew something was immediately wrong when it started by following along a woman in Las Vegas. She's drives around in her Mercedes, giving a tour of the fancy new developments in Las Vegas. Then she starts talking about her house. "I couldn't afford to build it if they hadn't have given me a loan based on it's value when it was completed." Then the screen goes black and in a nearly unreadable font it says "This is the same accounting technique used at Enron..."

I believe the accounting technique they are referring to at Enron was "mark-to-market" in which Enron booked the entire present value of a contract immediately.

Example: Enron signs a 10 year contract to deliver 1,000,000 MMBtu of natural gas to a factory per year. The contract is booked at $6.45 per MMBtu and they use a 6% discount rate. The total present value of the contract is $49,598,875 - and so instead of booking $6.45MM in revenue per year you book the entire present value now.

This woman had a construction loan for her new house. This is WILDLY different than booking the present value of future revenues. For starters, the bank releases the money in segments. If construction stops, or something goes wrong, the bank stops releasing money and the total value of the loan is much lower than it would be if they had just handed the home owner a big check. Furthermore, it's a pretty safe assumption that the completed house will be similar in value to other houses in the market. And this is a secured loan, which means if the woman fails, the bank can take possession of the house and resell it (at a loss, but a much smaller one than an uncollectible unsecured loan.)

So already I wasn't too impressed. It got much worse from there. It followed the stories of three people that apparently ended up committing suicide over credit card debt, and made it seem like the big bad banks were dealing crack cocaine. It then mixed in some loans made to a boy with mental problems, then went off on a wild tangent about the national debt.

You might enjoy this poorly researched, poorly edited, poorly captioned film if you are uneducated and possibly intoxicated. Or if you're a film critic (same thing?)

Otherwise, save your money. If you're like the people in the film, you probably need it to make the minimum payment or to increase your collection of collectible plates.

Zucca Ristorante, Los Angeles: Extremely Mediocre

2007-07-21T23:59:00.001Z

I recently dined at Zucca Ristorante in downtown Los Angeles, which is part of the Patina Restaurant Group, which also owns the excellent Cafe Pinot by the downtown library. Zucca has four and a half out of five stars on Citysearch. I was expecting it to be fairly good.

From the Dinner Menu (flash warning), I ordered:

Linguini vongole
Linguini pasta tossed with cockle clams, garlic, parsley, white wine and diced tomatoes $17.95

Which was extremely disappointing. It came with five (5) small cockle clams, which were chewy and not particularly good. The pasta was also sort of chewy and cold, and there wasn't very much of it either - perhaps 2/3 of a cup. It wasn't satisfying at all.

Tortelloni di Zucca con burro e salvia
Handmade roasted pumpkin tortelloni, butter, sage and Parmigiano-Reggiano 18.50

Lasagna Bolognese
Thin home made sheet pasta layered with meat ragoût, béchamel and Parmigiano 17.95

The lasagna was half decent. The tortelloni was downright terrible - mainly because it was served luke warm, and some of it was downright cold.

For desert, we ordered tiramisu, which was nothing to write home about, and a chocolate tort - which was like a giant piece of fudge made up to look like a cake. It wasn't very good either.

The worst part about the whole experience, beyond the bad food, was the service. It was awful. Dinner came out in three groups, broken apart by 10 minute spans. The waitress waited for 20 minutes to check up on us. When we complained about the terrible tortelloni (which came out last and should have been hot), the waitress barely apologized and offered a free desert. She then cleared the table, including the barely eaten tortelloni. 10 minutes later, the manager came out and made another half-assed apology then offered a free desert. We didn't get the desert menu until 15 minutes later, almost a half hour after we finished the meal.

We ordered desert and coffee. Desert came out 10 minutes later. About 5 minutes after that, the waitress wandered out with a couple cups of cofee and no creamer. 10 minutes later, another guy showed up with the rest of the coffee - but was short one cup. By this point, we'd almost finished the desert.

The bill arrived, and they had gone ahead and charged us for the inedible tortelloni. I was deeply impressed. There are too many good restaurants in Los Angeles to waste time with bad food and pisspoor service. I certainly wouldn't return to Zucca.

Wilbur L Ross is #346 on the 2007 list of richest Americans.

2007-07-21T22:23:00.001Z

In 2006, he was ranked #746 on the list of the world's richest people. You may remember my post about his prediction of a huge rise in corporate bankruptcies from last November. It appears that his prediction was a little ahead of time, although the recent sell off in the junk bond market might mean that troubled firms that need additional capital may start to run out in early 2008.

You can find Forbes brief bio of Wilbur L Ross here. Wikipedia also has a fairly detailed bio of the man and of his company WL Ross & Co, LLC. You can also see a list of New York Times articles about him here.

Congrats to Tuan (Tommy) Vu on his big World Series of Poker Win!

2007-07-21T21:43:00.000Z

I'm not much of a gambler, and I don't really follow poker. An old post of mine on Tom Vu has been getting some hits lately, and I wondered why.

It turns out that on June 5, 2007, Tom Vu (aka Tuan Vu) placed 2nd at Event 8 (No-Limit Hold'em w/Re-buys $1000 buy in) at the 2007 38th Annual World Series of Poker - winning $364,761. He also place 207th at Event 15 (No-Limit Hold'em) on June 9, 2007 winning $3,408.

By my count, that puts him $365,669 ahead of his buy in. Not bad for a few days work!

Poker is great. Poker is glorious. But how does it compare to real estate investing? I'd say not too well looking at some of his old infomercials on youtube. (Since you can't attend his seminars, the three little words to success are "Don't Give Up!") Check out the babes in this recut clip!

">

I borrowed the "Make Money Now!" pic from this awesome website on ridiculous infomercials. Another gem from the same site:

What a blessed life Tom Vu has lived. You can see his overall poker stats here.

Junk bond market sell off = Bad news for the Big 3

2007-07-20T23:42:00.000Z

The collapse of the subprime mortgage market has spooked the so-called "junk" bond or "high yield" bond market.

10 days ago:

"US HIGH YIELD-US junk bonds sell off, threatening LBO financing. The U.S. junk bond market is being shaken by the subprime market, raising concerns about the viability of a number of proposed high-yield debt sales which are tied to company buyouts."

Yesterday:

"Spreads, which are the extra yield investors get for sinking cash into riskier securities, have widened by their biggest margin since December 2006. On Thursday, the risk premium for junk bonds hovered at about 300 basis points, or 3 percent, over Treasury bonds - up sharply from the 246 basis points, or 2.46 percent, at the end of May. That's because prices move in the opposite direction from yields, and prices have been falling."

Today:

GMAC's bonds fall 3 points amid junk bond selloff

NEW YORK, July 20 (Reuters) - GMAC's long bonds fell three points on Friday as the U.S. junk bond market suffered a broad selloff, according to MarketAxess.

GMAC's 8 percent bonds due in 2031 fell to 93.56 cents on the dollar on Friday, down from 96.56 cents on Thursday, MarketAxess reported. GMAC, the former finance unit of General Motors Corp. (GM.N: Quote, Profile, Research), is now majority-owned by Cerberus Capital Management."

Speaking of Cerberus, a few days ago, I made a post titled "Has Cerberus bit off more than they can chew in the Auto Industry?" in which I talked about the difficulties Cerberus is having raising the required capital to complete the Chrysler deal. In today's Wall Street Journal, there was an article titled "Red-Flag Sale: LBO Debt Deals Face New Snags"

Banks raising nearly $40 billion in buyout-related debt for Chrysler Group and the United Kingdom's Alliance Boots PLC are being forced to sweeten terms for investors and face delays in their sales, in another sign of turbulence in global debt markets.

Chrysler just started contract negotiations with the UAW, and already started by blaming the unions for it's woes.

Also in today's news: 2,000 of 17,000 Delphi Workers are ready to strike.

So to summarize, capital is drying up in the junk bond market. Cerberus is already having a tricky time getting the money they need to buy out Chrysler. The Big 3 have started the negotiations process for a new contract with the UAW, and Chrysler came out swinging. And some of the unions are still prepared to strike, causing a crippling shutdown.

The Big 3 are going to need more capital to fund a potential VEBA plan where they pass the pension and benefit plans over to the Unions. And more importantly, they are going to need the cooperation of the Unions if they hope to survive.

It seems like the winds of change are blowing in the wrong direction for the Big 3 automakers. The Unions aren't in a cooperative mood. The flush capital markets are drying up. By the time negotiations are complete, the VEBA plan could be impossible. And they are running out of cash. I would be particularly nervous if I were a shareholder in Ford, which seems to be the weakest of the three.

*UPDATE*

Two more related stories in the Wall Street Journal.

The Junk Bond Market Hangs the Gone Fishin’ Sign

---

Citi May Be Stuck With Bridge Loans

The best part of blogging.

2007-07-20T22:38:00.001Z

The best part of blogging for me, is the knowledge that whatever company you write about will eventually see your post. It's amazing. Almost as soon as you post it, WHAM, you get a visit from whoever you just wrote about.

I always wonder what they think when they read my posts. They almost never leave feedback (well, except for this adobe employee.) They don't look at the rest of the site. They just visit the post and disappear.

Still, it's nice to know that you have someones attention. Even if the rest of the site gets little traffic.

About William A Ackman and Pershing Square Capital Management LP

2007-07-20T18:03:00.000Z

After my recent post about Pershing Square's moves at Target Corporation, I thought it would be interesting to find out more about William A Ackman.

There are a million and one different sources of information on billionaires like Warren Buffet and Kirk Kerkorian, but there seems to be little consolidated information on the younger generation of powerful investors.

All of this information was gathered using google. If you have better links, corrections, or more detailed information please post a response and I will make changes to this post.

Short bio of William Albert Ackman:

Year of birth: 1966
Current age: 41

Father Lawrence D. Ackman, president Ackman-Ziff Real Estate Group LLC (formerly Ackman Brothers & Singer).

Education: Graduated magna cum laude from Harvard, from which he also received an M.B.A. degree.

Married July 10, 1994 to Karen Ann Herskovitz, landscape architect

Career:

Ackman Brothers & Singer
"Principal with Ackman Brothers & Singer, Inc. where he arranged and structured equity and debt financing for real estate investors and developers."

----

"Ackman-Ziff Real Estate Group is a 74-year old firm, specializing in debt and equity financing, which was started in 1926 by Larry Ackman's father Herman and his brother Burt. After Larry took over the firm in the 1960's, he took on an outside partner, Andy Singer, and changed the company's name to Ackman Brothers & Singer. But although Ackman and Singer have remained together for twenty years, in 1989 Larry decided to make a fresh start. Ackman Brothers & Singer was dissolved, and in 1995 Ackman-Ziff took its place, when Larry asked Simon, then his financial analyst, to become his new partner."

Gotham Partners:

Bio from approximately 1998

----

David P. Berkowitz is a founding principal of Gotham Partners Management Co. and it's affiliates, and has co-managed the partnership since its inception in 1993. Mr. Berkowitz was a technical development specialist with Amoco's engineering plastics division and, subsequently, managed Pixley-Richards, a custom manufacturing and engineering service company in Plymouth, Massachusetts. Mr. Berkowitz holds a Bachelor and Master of Science in Chemical Engineering from the Massachusetts Institute of Technology, and received an MBA from the Harvard Business School, where he was awarded a Baker Scholarship.

----

1/7/03 - Gotham Partners Closing Two Funds

----

2/13/03 - The Hedge-Fund Witch Hunt
Eliot Spitzer's latest investigation is pursuing the wrong guys.

Pershing Square Capital Management LP:
"Founder, president, and managing member of Pershing Square Capital Management, LP."

----

1/12/04 - Gotham Partners' Ackman Back in Hedge Fund Game

----

Plains Resources (PDF Warning)

----

4/27/05 - Buys 9.3% stake in Wendy's

----

1/19/06 - Pershing Square Capital presents Yet another plan for McDonald's

----

Seeking Alpha Article from 3/28/2007.

Number of shares; position's % of overall fund
Barnes & Noble Inc (BKS): 5.5 million shares; 13.4%
Borders Group Inc (BGP): 6.8 million shares; 9.4%
Ceridian Corp (CEN): 15.7 million shares; 27%
McDonald's Corp (MCD): 18.5 million shares; 50.2%

Total Holdings $1.63+ billion

A look at Adjusted Gross Income (AGI) and Taxes Paid in California.

2007-07-19T17:34:00.000Z

The IRS states that Adjusted Gross Income (AGI) is defined as:

"your taxable income from all sources including wages, salaries, tips, taxable interest, ordinary dividends, taxable refunds, credits, or offsets of state and local income taxes, alimony received, business income or loss, capital gains or losses, other gains or losses, taxable IRA distributions, taxable pensions and annuities, rental real estate, royalties, farm income or losses, unemployment compensation, taxable social security benefits, and other income minus specific deductions including educator expenses, the IRA deduction, student loan interest deduction, tuition and fees deduction, Archer MSA deduction, moving expenses, one-half of self-employment tax, self-employed health insurance deduction, self-employed SEP, SIMPLE, and qualified plans, penalty on early withdrawal of savings, and alimony paid by you. Do not deduct your standard or itemized deductions."

In a previous post, I had some Data on this subject dating from 2004.

Los Angeles County:

Median adjusted gross income (AGI) based on personal income tax returns, 2004:
Individual: $28,686
Joint: $52,170

California:

Median adjusted gross income based on personal income tax returns, 2004:
Individual: $33,223
Joint: $61,084

With a little bit of research, I found more recent data from the Franchise Tax Board 2005 Personal Income Tax Stats by Zip code (pdf warning). If you are feeling adventurous, you can produce statistics for Los Angeles County from this list of zip codes (pdf warning).

I'm feeling lazy, so here's some statistics using the state totals at the end of the file.

Returns: 14,607,696
AGI: $849,740,344,000
Tax Liability: $38,747,288,000

Basic Analysis:

Average AGI: $58,171
Average Tax: $2,653
Effective Tax Rate: 4.56%

More in Depth:

I pulled some additional data from the California Department of Finance Financial and Economic Data on the State of California as a whole.

Population in households (1/06): 36,307,217
Households: 12,366,218
Civilian labor force, 2006: 17,901,900
Non-workers: 18,405,317

Population/household (1/06): 2.936
Workers per Household: 1.448
Nonworkers per household: 1.488

Returns per person: 0.402
Returns per household: 1.181
Returns per worker: 0.816

AGI per person: $23,404.17
AGI per household: $68,714.65
AGI per worker: $47,466.49

Tax per person: $1,067.21
Tax per household: $3,133.32
Tax per worker: $2,164.42

Conclusion:

Obviously, this data isn't hugely meaningful by itself. AGI has some pretty oddball adjustments. But it does sort of paint a picture of the financial situation of the average Californian worker and household.

Los Angeles County Demographics and Statistics.

2007-07-19T16:52:00.000Z

I'm always interested in learning more about where I live. The US Census has fairly good information, but sadly even though they update estimates on some data, a lot of it is hopelessly out of date because the census is only conducted every 10 years.

Today I discovered the California Department of Finance Financial and Economic Data. They have much more recent data on all the various California counties. For use in later posts, I'm going to list some of their key data on Los Angeles County here (data accessed on 7/19/07.)

Population:

Population, 7-1-06: 10,292,723
Percent of California: 27.5%

1-1-06
Population in households: 10,066,953
Population/household: 3.123

Schools:

Enrollment, Fall 2006 (public & private schools) Kindergarten-12: 1,833,725
Enrollment, Fall 2005 Colleges: 539,562

UC, Los Angeles: 37,221

California State Universities: 100,181

Community Colleges: 380,987

Independent: 21,173

Employment:

Civilian labor force, 2006: 4,860,600
Civilian employment: 4,631,600
Unemployment: 229,000
Unemployment rate: 4.7%

Nonagricultural wage & salary employment, 2006 (BLS series): 4,092,542
Percent of California: 27.2%

Trade, Transportation and Utilities: 814,083

Professional and Business Services: 594,667

State and Local Government: 536,267

Educational and Health Services: 481,300

Manufacturing: 462,275

Leisure and Hospitality: 387,508

Financial Activities: 248,042

Information: 209,692

Construction: 156,675

Other Services: 145,717

Federal Government: 52,333

Natural Resources and Mining: 3,983

Personal income, 2005 (mil.): $342,231.0
Percent of California: 25.6%
County Rank: 1

Per capita income, 2005: $34,426
Percent of California: 93.2%
County Rank: 19

Avg. earnings per job, 2005: $51,806
Avg. wages per job, 2005: $46,228
Avg. earnings per nonfarm proprietor, 2005: $33,858

Median family income, Census:
1979: $21,135
1989: $39,035
1999: $46,452

Median household income, Census
1979: $17,563
1989: $34,965
1999: $42,189

Median adjusted gross income (AGI) based on personal income tax returns, 2004:
Individual: $28,686
Joint: $52,170

Number of Employers by Firm Size: (1999)

1-4: 124,760

5-9: 38,613

10-19: 26,286

20-49: 20,150

50-99: 7,123

100-249: 4,008

250-499: 1,008

500-999: 352

1000+: 213

Total: 222,513

Housing: (1/1/2006)

Housing stock: 3,364,750
Percent of California: 25.6%

Single family: 1,876,512

Multiple family: 1,431,547

Mobile homes, trailers, etc: 56,691
Vacancy rate (percent): 4.2%
Median Home Price

January 2007: $525,000

January 2006: $490,000

Retail/Consumer Spending:

Total taxable sales / Taxable Retail Sales / % of California
2003: $113,685.4 MM / $79,426.7 MM / 24.7%
2004: $122,533.1 MM / $86,496.7 MM / 24.5%
2005: $130,722.4 MM / $92,271.2 MM / 24.3%

Sales and Use tax rate (includes state, local, and district taxes): 8.250%
* Rate may be higher in some areas of the county.

Obviously, there is a ton more data available. But these in particular are what interest me. If you need more in depth data, check out their data sources.

Motley Fool: Giant Spam Machine

2007-07-17T22:03:00.000Z

I am not a big fan of Motley Fool.com. Their headlines drive me absolutely batty. Check out these "gems":

Knock These Stocks Out of the Park

Read This Before the Market Crashes

3 Ways to Beat the Market

See, you just need to add "!!!!!!!!" to the end of each one and gmail will throw it right into your spam folder.

And the hats? The hats are about enough to make me want to puke blood.

They might have the greatest advice in the world (as far as I can tell, they don't.) But the way they push information and they way they advertise makes me downright angry. Examples:

Punch the monkey, win a free iPod?

Click here to claim your FREE credit report?

Didn't this kind of crap go the way of the Dodo? Or is it 1999 all over again? Let me jump on my 28k modem and log in to my AOL account! I'll hit you up on instant messenger! Oh no, someone sent me up the blue screen of death! Now my Windows 98 won't load right!

The death of traditional media.

2007-07-17T16:46:00.000Z

This morning on my way to work, I listened to an NPR story about the loss of book reviews in newspapers. It was sort of interesting in a technologically inept sort of way. Listen to it here: "Book Reviewers Decry Fewer Newspaper Pages by Martha Woodroof"

If you don't have time for that, here's a quick summary. How do people find books to read? Supposedly, it used to be through book reviews published in newspapers. And now newspaper editors, faced with BIG PROBLEMS such as loss of subscribers and disappearing advertising dollars are consolidating sections that don't generate much revenue for the expense. It turns out that newspapers are a business, who knew?

This is a real problem for "people who buy a lot of books professionally" aka librarians. Now who can they trust to spoon feed them brief book reviews for their purchasing pleasure?

In a related subject, on slashdot.org today, there is a story titled "Blogs Are Eating Tech Media Alive" Again, it's the same story. Advertising dollars are leaving, readers are leaving, and it turns out that tech media like Red Herring and PC Magazine can't cope with the changes.

Instead of lamenting the loss of "REAL JOURNALISM", let's talk a little bit about the economics of journalism. How does dead tree journalism work? Say it's 1980. You want to open a magazine. What do you need?

Market Niche: something that people will buy to learn more. You want something that has as broad of a readership as possible without trying to compete too much with established companies that will eat your lunch.

Content generation: After all, the content is why people are buying your magazine. This means photographers, illustrators, writers, and editors.

Support staff: Just like any other business. Salesmen to sell advertising. Buyers to order supplies. Secretaries to answer the phones. Bean counters to handle the money. Janitors to clean the toilets. Managers to make sure everyone is doing their job and working together.

An Office: A place with a roof where everyone goes to work. This means you need desks, utilities, phones, typewriters (or computers, but after all, this is 1980), office plants, etc.

Customers: Since you probably aren't going to start by selling every magazine directly to the consumer, you need someone to push your magazine. Like a newsstand, a bookstore, or a grocery store.

Advertisers: If you don't have advertising in the publication, you have to charge the full cost of the magazine to the end user. This doesn't work out well if your competition DOES have advertising and can sell the same amount of content for a much cheaper price.

Printers: The most important part of dead tree media. You have to have a way to put all that information together on a piece of paper which you can then distribute. This means money for paper, money for ink, money for the printing machines, money for the logistics - warehousing, trucking, postage, etc.

Almost all of these things share something in common; they require MONEY and lots of it. Photographers have to eat, even if you are just paying them for the photos you use. Paper mills don't give their product away. All of that gets folded into the price of the content.

Now let's contrast that with the economics of "NEW MEDIA" aka blogs. What do you need to run a blog?

Market niche: Or not. You can write about anything you damn well please. Content aggregators and search engines will connect your content with people seeking that content. Today, Britney Spears, tomorrow US Foreign policy. Of course, if you want a large amount of regular readers - you probably want to stick with a single subject.

Content generation: You don't need professional writers to run a blog. Would it help? Sure. But professionals are expensive. Most people just write their own, and the market (such as Digg) decides which posts are worthy of reading.

Support staff: Probably not necessary at all, unless you run some incredible volume site like slashdot.org. Even then you probably don't need a secretary.

An Office: Definitely unnecessary. A "one man" shop that can work from anywhere doesn't need to pay for expensive commercial space.

Customers: Content goes directly to the consumers. Or to robots that steal your content to sell advertising. Either way, no grocery store is ever going to sell a paper copy of my blog.

Advertisers: You can go out and actively sell your ad space if you really want. Or you can just use Google Adsense like everyone else. Since the cost of the above is ZERO - you can even have no advertising at all.

Printers: Blogspace is completely free. Hearts of the Gods is hosted on blogger - which has cost me zip from day one. If you don't like the restrictions of a free service, you can always register your own domain and get hosting. If you pay for 3 years in advance, you can get hosting from Godaddy for $2.80 a month (and there are usually coupons out there to make it even cheaper.) If you look hard, you can find hosting cheaper than that.

So let's really think this through. What does Hearts of the Gods cost me to publish? Nothing but my time. And eventually, I may even be compensated a bit for that. What would it cost me if I wanted to publish a hardcopy version of Hearts of the Gods? Figuring I'm reaching ~40 people a day x 30 days a month x 12 months a year = 14,400 copies. Say I can print them at $0.07 a page with a cheap high volume laser printer and dirt cheap paper and only print one page - that's $1008. Now I have to find a way to distribute them. Stand on a street corner? Drop them from an airplane? Too much trouble!

The reason traditional media is being wiped out is that it costs so damned much to produce. You simply can't compete with a free blog. Supply and demand. There are millions of alternative sources of information that cost zip. And all of them can compete directly with dead tree media for eyeballs. Market forces are unstoppable no matter how much you dislike the new reality.

So what are the librarians to do? How about reading blog reviews by people who read the book? Can't trust a single source? Read three. Or look at the "most popular seller" list on Amazon.com. It can't be that hard.

Adobe apparently employing the Irish to spread misinformation.

2007-07-16T23:07:00.001Z

Yesterday, I made this post about free software for windows in which I recommended Foxit Reader over the craptastic Adobe Reader.

A while later, at around 02:20am east coast time "anonymous" made this reply:

"Regarding the Adobe Reader, It's large, but buggy? C'mon, that's rubbish! Foxit is small and neat but i've had problems with it."

I say "anonymous" in quotes because my statcounter recorded this tidbit of information:

If you can't read that, it says "vpn-dublin-ext.adobe.com"

Why hello there, Dublin-based Adobe employee. You don't think your negative opinion about Foxit reader could be biased do you? The use of the word "rubbish" made me laugh out loud.

I use Foxit reader every single day. I've never had a single problem with it, even opening very large PDF files. Acrobat, on the other hand, takes forever to load, crashes my computer and occasionally prints page after pages of random characters.

Budgeting for a move to China.

2007-07-16T20:39:00.000Z

In the near future, I am planning on moving to China for the purpose of learning Mandarin and experiencing the culture.

Budgeting is a tricky thing. You have to be able to adequately plan for the future and guesstimate costs. Even moving to a new city inside the United States can be very tricky. How do you find a job? How can you find a place to live? Is it the right neighborhood? How do you get all your stuff there?

I plan on going to China to study for about a year. I'll probably move to one of the less expensive schools I discussed here. We'll use Jilin University in Changchun as an example.

Recurring monthly costs:

Food: I figure 45 RMB per day per person should be mostly adequate. This works out to about 1,350 RMB per month.

Housing: From discussing it with people familiar with the area, I believe I could rent a moderate quality apartment for 800 RMB a month.

Utilities: Since it's the frozen north, I figure 400 RMB per month may be enough.

Transportation: I'm guesstimating something like 10 RMB per day for travel within China, or 300 RMB per month.

Other: I figure I'll need another 700 RMB a month for incidentals.

Total recurring expenses: 3,550 RMB per month

One time expenses:

Getting there: A one way airline ticket will probably cost in the neighborhood of $500 x 2 = $1,000. Figure the cost of getting to Changchun from Beijing at another $150 each way. Total cost = $1,300

Student visa: An X visa seems to cost something in the range of $50. I'm a little vague about this, so we'll say $100.

Tuition: Jilin University costs 16,000 RMB for a year of study.

Other: For furniture, bedding, other travel costs, etc - $1,500

Total one time expenses:: $2,900 + 16,00 RMB

Coming home:

I figure I will be able to store what little possesions I need to keep with family in a nearby state. Everything else I will sell or dump. I probably will keep my car, but this means the connected expenses of finding a place to store it and insuring it. So perhaps I will get rid of it as well. With a little help, I figure $5,000 will probably be enough to get started back up when I return to the states (find a job, get an apartment, etc).

Total return expenses:: $5,000

Notice that I didn't convert from RMB to dollars yet? That's because I'm concerned about the possibility that the RMB will keep appreciating against the dollar. We'll run with my projected exchange rate from that post of 6.9 RMB to the dollar.

Recurring expenses: 3,550 x 12 = 42,600 RMB / 6.9 = $6,173.91 USD
One time expenses: $2,900 USD + 16,000 CNY / 6.9 = $2,900 + $2,318.84 = $5,218.84
Returning expenses: $5,000.00 USD

Total cost: $16,392.75

Add a margin of safety for unknowns of 20%, and it'll be just about $20,000.

Is Target undervalued? William Ackman of Pershing Square seems to think so.

2007-07-16T16:51:00.000Z

In a filing with the SEC, activist investor William Ackman recently revealed that his hedge fund Pershing Square Capital Management L.P. now owns 81,761,411 shares of Target Corp (TGT). This amount represents 9.6% of the outstanding common stock ("Calculated based on 851,488,525 shares of the common stock, par value $.0833, of Target Corporation outstanding as of May 30, 2007, as reported in Target Corporation's quarterly report on Form 10-Q for the quarterly period ended May 5, 2007.")

In the SEC filing, Pershing Square stated:

"The Issuer is a leading domestic retailer with a differentiated brand,
significant growth opportunities and the strongest operating management in the
retail industry. The Reporting Persons believe that the Issuer's Common Stock is
undervalued and intend to discuss with management ways in which this
undervaluation can be corrected."

A Wall Street Journal article speculated that Ackman may be pursuing the $6.5 billion dollar Target credit card portfolio.

Some retail experts speculated that Mr. Ackman would try to persuade Target to sell its lucrative credit card portfolio, which has $6.5 billion in receivables. Wall Street has long suspected Target seriously would consider a sale when the credit cycle peaked, Charles Grom, retail analyst at JP Morgan & Chase Co. unit JP Morgan Securities, told The Wall Street Journal last week.

Is Target undervalued? As of this afternoon, the share price is $69.17. Google finance says the trailing P/E ratio is 20.71 and the forward P/E ratio is 15.30. I'm not sure how they came up with this forward number exactly because the Wall Street Journal says the analyst consensus mean earnings for this fiscal year ending in January of 2008 is $3.62 with a standard deviation of $0.04 and 22 analysts surveyed. For 2009, it's $4.13 with a standard deviation of $0.06 and 21 analysts surveyed.

By my calculations, the forward P/E ratio should be 19.11 (69.17 / 3.62) Even if you use the analyst numbers for 2008, I only calculate a forward P/E of 16.75 (69.17 / 4.13). So I think Google's numbers might be out of whack.

The S&P 500 currently has a trailing P/E ratio of 19.21. Let's assume that earnings will grow by 10% market wide (definitely a high estimate). So the forward P/E for the market would be 17.46.

So it seems to me that Target is priced about right - possibly slightly undervalued but not by much. The only thing that makes sense at all is to force the sale of the credit card portfolio - which will help Ackman make some money in the short term, but probably will hurt everyone else in the long term.

Review: Harry Potter and the Order of the Phoenix (No Spoilers)

2007-07-16T16:28:00.000Z

Last night, I watched the fifth Harry Potter movie - "Harry Potter and the Order of the Phoenix." Somehow, I missed reading this book completely. I read "Goblet of Fire" and I read "Half Blood Prince" but I totally missed "Order of the Phoenix."

Trailer:

I enjoyed the movie very much. Summary of my views:

Cons:

It dragged a bit.

Parts were a bit scary for kids.

There was a kiss scene that was a tad bit too long.

Pros:

Much more complex and three dimensional characters.

Lots of good creatures, particularily the Centaurs.

Political overtones.

Very awesome Wizard duels that make the whole movie worth seeing.

Apparently it's been quite popular. According to the Wall Street Journal:

"The Warner Bros. fantasy sequel "Harry Potter and the Order of the Phoenix" conjured up a $77.4 million debut to lead the weekend box office, according to studio estimates Sunday. That raised the movie's total domestic gross to $140 million since opening Wednesday. "Order of the Phoenix" also has taken in an additional $190.3 million in 44 other countries where it began rolling out Wednesday."

So if you haven't seen it, and you like the Harry Potter series at all, I'd highly recommend you go check it out.

The cheapest low usage cell phone.

2007-07-15T21:16:00.001Z

Want the benefit of having a cell phone? Don't need a lot of minutes? Want to spend as little as possible? Most of the major providers (T-mobile, Sprint, Verizon, AT&T) have pretty high minimum monthly charges. All of them have free phones. Most involve a 2 year contract.

T-mobile Basic Plus = 300 minutes, unlimited weekend = $29.99/month

Verizon = 450 minutes, unlimited night/weekend = $39.99/month

AT&T = 450 minutes, 5000 night/weekend = $39.99/month

Sprint = 450 minutes, unlimited nights and weekends starting @ 7pm = $39.99/month.

What is the total cost of one of these contracts in today's dollars? We'll say that there is no activation fee, you don't pay for the phone, you keep the phone to the end of the 24 month contract, and each plan has $7 worth of taxes included. We'll estimate inflation at 3.4%.

T-mobile: $29.99 + $7 = $36.99/month x 24 months = $857.53
Verizon: $49.99 + $7 = $46.99/month x 24 months = $1,089.36
AT&T: $49.99 + $7 = $46.99/month x 24 months = $1,089.36
Sprint: $49.99 + $7 = $46.99/month x 24 months = $1,089.36

If you use a lot of minutes, the benefit of having unlimited nights and weekends might work out for you. Or maybe you'll want a bigger plan. But if the you only want to use a few minutes a month or just have it for emergencies - $857.53 is a pretty expensive phone to have ($35.73 a month!) So how can you do it cheaper?

The cheapest way I've found is using one of T-mobile's prepaid phone. Here's what you do:

1) Buy the T-mobile-To-Go Nokia 6030 from Walmart. In my area, sales tax is 8.25% - so your total cost of the phone is $29.87 x 1.0825 = $32.33. This phone comes with $10 worth of airtime.

2) Buy a $100 refill card. This will get you "gold status" which means your airtime won't expire for one year. If you buy this online, there won't be sales tax.

You'll have a phone and a total of 1035 minutes for $132.33 = $0.1278 a minute. Not a great deal, but look at the cost per month: $11.0275

Furthermore, from my understanding, at 364 days you can extend out the remaining minutes by buying a refill card. Say a $10 card. Now you have 1070 minutes for $142.33, but thats 44.58 minutes a month for 24 months = $5.93 per month.

Baraqyal recommended free Windows software.

2007-07-15T20:12:00.000Z

Have a Windows box? Want some better software? Not ready to make the switch to Ubuntu? Don't want to pay for it? Here are a few choices I like quite a bit.

Firefox: The best web browser by far. If you're still stuck in the past using Internet Explorer, I'd recommend you switch over immediately. It's less vunerable to spyware infection, has a built in spell check, prevents some popups, there are lots of plugins for it, and it's not a buggy Microsoft product. (If you were using Ubuntu, this program would already be installed.)

OpenOffice: Is it as good as Microsoft Office? Well, Excel is still the best piece of software ever written, so it's a tough act to beat. But OpenOffice Calc is getting pretty darned close. Good enough that if you're an experienced excel user you can make the switch pretty easily and it will open/export to Excel format. You can also save as HTML or export to PDF. The other programs aren't bad either. Open Office Writer is good enough that I wouldn't hesitate to write a major document - like a PhD thesis. (If you were using Ubuntu, this program would already be installed.)

Foxit Reader: Replaces the free Adobe acrobat, which is slow and buggy. Foxit reader is lightning fast and rarely has a problem opening a document. It's no contest, really. I can't see any reason to install Adobe Acrobat.

CutePDF writer: A free, easy to use PDF writer. Installs as a printer - so you can print PDF documents from any program. Works really well. There are a lot of competitors out there, but I haven't found one that works as well.

GIMP: Replaces Photoshop or similar programs. Takes a little getting used to, but once you learn it, it's one very powerful image manipulation program. And best of all, it's FREE. Be sure to download and install the GTK+ runtime environment before you install the actual program. (If you were using Ubuntu, this program would already be installed.)

iTunes: Some people hate it, I really like it. Easiest way to manage music on your computer and burn them into CDs. Also has a link to the iTunes store if you want to buy music, and goes with the world standard iPod. You can buy a refurb shuffle for as little as $50 or a nano for $99. Sadly, they don't make this for Linux, and is something I really miss when using Ubuntu.

The power of advertising: Baraqyal buys malt liquor.

2007-07-15T19:48:00.000Z

Yesterday at the grocery store, I saw a display of Bartles and Jaymes - a life sized cardboard cutout of good old Bartles and Jaymes. If you don't remember these two, they appeared in a bunch of rather strange ads between 1985 and 1991, ending each ad with "Thank you for your support."

Last night, 16 years after the end of their advertising run, I purchased a four pack of the "margarita" flavor malt liquor. On the side of the bottle, it says "Flavored Beer." This is insulting to both the word beer and the word flavor. It's tastes vaguely like a margarita - and I mean VAGUELY. At 4% liquor per 12 ounces, it sure doesn't do much for you. This is only 0.48 ounces of alcohol - vs a 1.5 ounce shot of 80 proof vodka = 0.60 ounces liquor.

If you're old enough to remember these ads, hopefully you're also old enough to remember how badly these drinks taste. Don't fall for the same foolishness that got me and my $3.00.

Hearts of the Gods makes the Wall Street Journal.

2007-07-15T19:41:00.000Z

My post " Has Cerberus bit off more than they can chew in the Auto Industry?" appeared at the bottom of the page on the online version of the Wall Street Journal Page One article "Chrysler Deal Heralds New Direction for Detroit. Cerberus Takes Gamble On Union Concessions; GM, Ford May Benefit"

To be fair, it was an automated link generated by Sphere.com. But what the hell, it's still exciting.

FAILURE: Cuisinart DCC-2000 Coffee on Demand 12 Cup Coffeemaker.

2007-07-13T21:12:00.000Z

After owning it for a mere 415 days (give or take a few days, I can't remember when I bought it exactly) and reviewing it in this post, today the Cuisinart DCC-2000 Coffee on Demand 12 Cup Coffeemaker failed. Loaded it with coffee and water, turned it on to brew, heard it click and NOTHING.

Now, to be fair, it was under heavy use. I figure it made 1.5 pots of coffee a day, 6 days a week for the ~60 weeks it was in operation. That's 534 pots of coffee. We paid $99.95 for it, minus a 20% off coupon plus sales tax, at Bed Bath and Beyond for a total of $86.56. So each pot of coffee cost $0.16 in equipment.

Supposedly it has a 3 year warranty. But I'm sure it will cost $25 just to mail it back to Cuisinart - and that's if I could find the receipt. So I guess we'll just go with a different one instead. This is pretty disappointing. I definitely would not buy another one. A $30 coffee pot would be just as effective and would probably be cheaper per pot of coffee.

And it was pretty crappy too. The thing dripped constantly. Hard to clean. Hard to add water. The coffee guage was wildly inaccurate. Overall, I guess I'm glad it's gone.

Honda Ruckus: I want one.

2007-07-13T19:35:00.000Z

I can't figure out exactly why, but for some reason I really want to buy a Honda Ruckus - a small liquid cooled four stroke 49cc scooter. If I worked within 3-5 miles from work, I'd probably go out and buy one tomorrow.

It gets 85+ mpg and has a 1.3 gallon tank for a range of ~100 miles. It's motor puts down 4.9 peak horsepower and 3.31 ft/lbs of torque. It weighs 181 lbs. Top speed of 43 mph. Redline of 8850 rpm.

The Ruckus is no speed demon. Weight to power is 36.93 lbs/hp not including the weight of the driver - which compares poorly to every modern car including the brick-like first generation Scion xB which weighed 2395 lbs with 103 hp for a weight to power ratio of 23.25 - about the worst I've seen. My Subaru Impreza Wagon has dramatically more power - at only 17.75 lbs per horsepower. And it's not exactly fast.

Add the weight of a 200lb driver, and it gets even worse.

Ruckus: (181 + 200) / 4.9 = 77.76 lbs / hp.
Scion xB: (2395 + 200) / 103 = 25.19 lbs / hp
Subaru Impreza: (3071 + 200) / 173 = 18.91 lbs / hp

To be fair, I don't know if the Ruckus hp numbers are measured at the crank or at the wheels. The numbers I'm using for the xB and the Impreza are measured at the crank (the Impreza would look much less impresive after drive train loss due to AWD).

On the other hand, the Ruckus is pretty cheap to own and operate. With tax/license/etc, I believe they can be had for about $2500. Full insurance runs somewhere around $120-200 a year. If you figure it'll last 5 years, and you ride it on average 10 miles a day:

Gas: 3,650 miles / 85 mpg = 42.94 gallons x $3.10 gallon = $133.12
Insurance: $200
Depreciation: $2500 / 5 = $500
Maintenance: $100
Registration/other: $50

Total yearly cost: $983.12
Per mile cost: $0.269

Cheap! If you ride more miles, make it last longer, or get insurance cheaper, I'd imagine you could get it down below $0.20 a mile.

Downsides: Any motorized cycle is dangerous. Even with only 5 hp, you can still get run over by a truck or thrown at 40mph. A face full of pavement can really ruin your day. And it's not exactly quick - if you max out at 43mph, you can probably really only average 30mph. So you better have some extra time to commute. And they are terrible in the rain. And finally, you have to have a M2 motorcycle license in California.

But for some reason I still want one. It looks like a lot of fun.

China trying to stop currency arbitrage.

2007-07-13T16:54:00.000Z

An article in the Wall Street Journal by Terrance Poon hints at the difficulties that China is facing maintaining it's artificial undervaluation of the RMB.

"The regulator's statement, the latest on curbing such illegal fund flows in recent months, underscores the difficulties Beijing faces as the local stock market soars and foreign investors speculate on further appreciation of the yuan.

Coming after China's trade surplus widened to $26.91 billion in June and its foreign-exchange reserves rose to $1.333 trillion, the statement also highlights a dilemma for Beijing's foreign-exchange policy: a faster appreciation of the yuan could help curb growth of the trade surplus, but could also fuel the speculative inflows it is trying to stem."

Countries that allow their currency to freely float against other currencies don't have a problem with investors speculating on the value of currency. The Forex market is one of the largest, most developed world markets with millions of participating firms and individual investors trading currency daily.

China, on the other hand, DOES have a problem with speculators. The government is intentionally keeping the RMB 30-40% undervalued to help stimulate exports.

Example:

You want to buy 100,000 alternator cores for your new car. The amount of metal in the core costs $10 on world commodity markets, and it requires 2 man hours of labor and $1 of machine time to produce. Let's say that labor in India costs $0.90 an hour. Total manufacturing cost is $12.80 plus a 10% firm profit = $14.08.

Now let's say one man hour of labor in China costs 6 RMB. So you're looking at 12 RMB to produce the machine. At the undervalued rate of the RMB, labor cost is $0.79 per hour x 2 = $1.59 + $10 + $1 = $12.59 plus a 10% firm profit = $13.85

The price difference for the 100,000 cores is $23,100 US. Obviously, most sane people will chose the Chinese firm. But if the RMB were fairly valued at 30% higher for an exchange rate of 5.82 RMB / Dollar, the cost of each Chinese produced core would be $14.36 and the contract would instead go to India and along with it, 200,000 man hours of labor = 100 full time jobs for a year.

Keen investors realize that the currency is intentionally undervalued to stimulate the economy. If the RMB were openly traded on the Forex markets, investors would sell dollars/euros/etc and buy RMB at frightening speed. Supply would stay the same while demand would shoot through the roof. The government of China would be forced to burn through it's foreign currency reserves to maintain the exchange rate until eventually they run out of currency and can no longer control the price. The investors would then sell the RMB and buy the currency they sold at a 30% profit - which could all happen in as little as a few days of trading.

To prevent this, China has strict controls on the exchange of RMB with other currency. It does not allow speculation, only exchange for the purpose of legitimate trade. The "illegal fund flows" are investors trying to take advantage of the revaluation by converting foreign currency into RMB using Chinese companies to help them move money into the country. This is how it works (ignoring the exchange spread and other fees for simplicity):

1) Investor contacts Chinese firm, makes an arrangement to bring cash into the country.
2) Chinese firm "sells" a product at many times it's actual value. Say a container full of a commodity that would normally sell for $20,000 is sold for $20,000,000.
3) Chinese firm sends an invoice for $20,000,000
4) Investor wire transfers $20,000,000 into the country
5) Chinese bank converts the dollars to RMB (at the current exchange rate of 7.5821) giving 151,642,000 CNY
6) Chinese firm deposits the money to an interest bearing account (say at 2%)

After a certain period of time, say a year, they reverse the transaction. The new exchange rate is 6.7 RMB per dollar (13.17% change)

1) The bank account has grown by 3,032,840 CNY. Total balance is now 154,674,840 CNY
2) Chinese firm "buys" $20,000 of a commodity for 154,674,840 CNY
3) US investor receives $23,085,797
4) Return = $3,085,797
5) ROI = 15.429%

Not too shabby, considering that it's a fairly liquid transaction that could be unwound at any time. Obviously the transaction costs would reduce this return, but on the other hand, the money COULD be invested at a much higher rate of return in which case you get an enhanced profit above and beyond the interest since your also getting the currency appreciation the interest.

Interest - ROI
2% - 15.43%
5% - 18.82% (difference = 3.39%)
10% - 24.48% (difference = 5.66%)

Eventually, given enough of this activity, foreign investors could force the RMB to revalue faster - which would increase returns and increase interest into an avalanche of illegal speculation. At the peak limit of 0.5% per day, the RMB could reach it's true value in only 53 days of trading. This would be absolutely devestating to the Chinese economy as Chinese products jump in price and work flows to major competitors in the Pacific Rim.

What is the average inflation rate in the United States? An examination of historical data.

2007-07-12T16:55:00.000Z

One of the most annoying things in finance is the tendancy to use wildly different numbers for assumptions based on different historical data. It drives me absolutely nuts. I always see calculations where they say the average return of the stock market is between 7%. Or 10%. Or 12.2%. Now wait a damned minute here. It can't be all three at the same time.

Let's look at those examples briefly. Say we invest $10,000 and leave it for 30 years.

7%: $76,122.55
10%: $174,494.02
12.2%: $316,071.77

That's one heck of a difference, isn't it? Now what if we want to adjust that for inflation and find the return of the investment in today's dollars? I see inflation rates used from anywhere from 2% to 4%.

Maximum return range is (12.2% return - 2% inflation) = 10.2% = $552,801.34
Minimum return range is (7% return - 4% inflation) = 3% = $72,817.87

Difference: $479,983.47

What's a half million dollars between friends though, huh? I mean, it only is the difference between eating top ramen and living in a beat down trailer home at retirement and living in your own home and eating well.

Obviously the future is murky at best and historical returns are no indicator of future performance. But we damn well should be able to agree on a few of the numbers. What is the right length of time to look at? How do you adjust the data?

To try to answer this, let's look at an interesting web site called measuring worth.com that does much of the number crunching. I believe much of their data came from the Bureau of Labor Statistics.

1906 - 2006 (100 years): 3.19%
1931 - 2006 ( 75 years): 3.50%
1956 - 2006 ( 50 years): 4.09%
1966 - 2006 ( 40 years): 4.67%
1976 - 2006 ( 30 years): 4.30%
1986 - 2006 ( 20 years): 3.09%
1996 - 2006 ( 10 years): 2.54%
2001 - 2006 ( 5 years): 2.63%
2003 - 2006 ( 3 years): 3.09%

That's one heck of a range, huh? 4.67% to 2.54%. Not particularily useful either. So I pulled some source data (CPI-U All Urban Consumers) and ran some numbers on it.

1914-2006 (93 years):
Data points: 93
Annualized Dec-Dec: 3.2688%
Annualized Avg-Avg: 3.2831%
Average Dec-Dec: 3.40%
STDEV Dec-Dec: 5.14%
Average Avg-Avg: 3.41%
STDEV Avg-Avg: 5.02%

1932-2006 (75 years):
Data points: 75
Annualized Dec-Dec: 3.7099%
Annualized Avg-Avg: 3.6511%
Average Dec-Dec: 3.63%
STDEV Dec-Dec: 3.88%
Average Avg-Avg: 3.57%
STDEV Avg-Avg: 3.77%

1957-2006 (50 years):
Data points: 50
Annualized Dec-Dec: 3.9950%
Annualized Avg-Avg: 4.0190%
Average Dec-Dec: 4.10%
STDEV Dec-Dec: 2.97%
Average Avg-Avg: 4.12%
STDEV Avg-Avg: 2.83%

1982-2006 (25 years):
Data points: 25
Annualized Dec-Dec: 2.9400%
Annualized Avg-Avg: 2.9900%
Average Dec-Dec: 3.10%
STDEV Dec-Dec: 1.13%
Average Avg-Avg: 3.25%
STDEV Avg-Avg: 1.12%

1997-2006 (10 years):
Data points: 10
Annualized Dec-Dec: 2.2500%
Annualized Avg-Avg: 2.3000%
Average Dec-Dec: 2.45%
STDEV Dec-Dec: 0.74%
Average Avg-Avg: 2.55%
STDEV Avg-Avg: 0.67%

Summary:

Over a 93 year span, inflation averages 3.4%.
68.2% (+/- 1 SD) of the data falls within the range of 8.49% to 1.68%
95.4% (+/- 2 SD) of the data falls within the range of 13.57% to -6.76%
2 SD range = 20.3%

Over a 75 year span, inflation averages 3.6%
68.2% (+/- 1 SD) of the data falls within the range of 7.43% to -0.22%
95.4% (+/- 2 SD) of the data falls within the range of 11.25% to -4.05%
2 SD range = 15.3%

Over a 50 year span, inflation averages 4.1%
68.2% (+/- 1 SD) of the data falls within the range of 7.01% to 1.21%
95.4% (+/- 2 SD) of the data falls within the range of 9.91% to -1.69%
2 SD range = 11.6%

Over a 25 year span, inflation averages 3.2%
68.2% (+/- 1 SD) of the data falls within the range of 4.30% to 2.05%
95.4% (+/- 2 SD) of the data falls within the range of 5.43% to 0.92%
2 SD range = 4.51%

Over a 10 year span, inflation averages 2.5%
68.2% (+/- 1 SD) of the data falls within the range of 3.20% to 1.80%
95.4% (+/- 2 SD) of the data falls within the range of 3.91% to 1.09%
2 SD range = 2.82%

Discussion and Conclusion:

The range of inflation appears to be smaller and smaller over time. Whether this is the effect of the Fed doing better at their job, the extreme prosperity of the United States over the period, or just the fact that there is less data is hard to say.

Based on on the data, I don't think 2.5% is a fair number to use. It seems that we've been very lucky lately, but even as recently as 50 years ago we were not so lucky. I also don't think 50 year number of 4.1% is a fair number to use either. It's really too high.

In my estimation, the 93 year 3.4% number is probably the best to use for a long term estimate of inflation. This number includes such events as World War I, the Great Depression, World War II, the post war boom, Korea and Vietnam, the Cold War, the tech boom, 9/11, and a big chunk of Iraq. It's hard to imagine that anything more unstable than those events can occur in the future without resulting in the end of the world.

Has Cerberus bit off more than they can chew in the Auto Industry?

2007-07-12T15:25:00.000Z

In today's Wall Street Journal, there is an article about the challenges Cerberus is facing raising the required capital to complete the buyout of Chrysler from Daimlerchrysler AG (DCX).

"Investors who sat in on Cerberus's presentations as well as bankers familiar with its offering said the market is taking a cautious look at the company's bid to raise $62 billion for the deal. Potential investors are concerned they could lose the bulk of their money if Cerberus's turnaround of Chrysler fails and the auto maker has to seek bankruptcy protection, these people said."

In a related story, they also canned David Thursfield - an ex Ford executive that had been running GDX Automotive - which appears to be in big trouble and may end up filing for bankruptcy. (Goodbye $150 million dollar investment from Cerberus!)

Cerberus also backed out of the deal to buy automotive component maker Delphi.

So it turns out the Auto Industry is full of problems. Who knew?

Even with the advantages of being private, I don't see how Cerberus is going to magically pull off a turnaround at Chrysler. As I see it, they face too many challenges.

Too many dealers. If they can't reduce the dealer network substantially, the self competition will force them to drive prices down.

Increased and intense competition from Japanese manufacturers, particularily Toyota which is pushing it's new full sized Tundra pickup truck in a big way.

Poor product lineup. Jeep in particular has far too many vehicles that nobody wants, although the new 4 door Wrangler has been a huge hit. Examples of too many models include the ridiculous Hummer-ripoff Jeep Commander, the Jeep Compass, the Jeep Liberty, the Grand Cherokee, etc. They should probably cut Jeep back to two, possibly three designs.

If the price of oil shoots up they are poorly positioned to respond to consumer demands for high MPG vehicles. Rather than pushing hybrids and efficient four cylinders, they seem to be pushing their large V8 hemi engine into just about every car in the lineup. They also are pushing their SRT high performance vehicles in a big way. They recently eliminated one of their most popular and best mpg vehicle - the Dodge Neon, replacing it with a sort of crappy "tough" semi-crossover Caliber, which mostly seems to be popular with middle aged women.

Unions. This is the biggy. Toyota is eating the Big 3's lunch because they aren't trying to provide health care and retirement benefits for millions of people. The Unions aren't going to budge much. In 20-30 years, I imagine the Japanese competitive advantage will be eliminated union-wise in the United States. But until that happens I don't see how they are going to significantly reduce the cost of labor.

Private equity parts suppliers. It's going to be hard to build a car cheap and make a lot of profit when all of your suppliers are owned by private equity that would rather shut down a factory and see you fail than sell you a part at a loss. I think the impact of the aggressive managers installed by these companies is yet to be seen. But for sure, they are going to turn a profit, one way or another.

Unless Cerberus has the magic formula to solve all these issues, I can't see Chrysler suddenly becoming a reformed company. If I were the banks, I'd be very skeptical too.

Whole Foods Market Inc (WFMI) CEO John Mackey doesn't understand the internet.

2007-07-11T23:48:00.000Z

In addition to his blogging shenanigans in which he repeatedly smacked the angry hornets nest more commonly known as the Securities Exchange Commission, Whole Foods Market Inc ( WFMI ) CEO John Mackey has apparently been trolling the Yahoo Finance message boards.

"For about eight years until last August, the company confirms, Mr. Mackey posted numerous messages on Yahoo Finance stock forums as Rahodeb. It's an anagram of Deborah, Mr. Mackey's wife's name. Rahodeb cheered Whole Foods' financial results, trumpeted his gains on the stock and bashed Wild Oats. Rahodeb even defended Mr. Mackey's haircut when another user poked fun at a photo in the annual report. "I like Mackey's haircut," Rahodeb said. "I think he looks cute!"

You don't have to be a vegan to understand what an incredibly stupid move this is for a CEO of any publically traded company. It's only a matter of time before he's up on charges and out as CEO. Way to go, Rahodeb!

Bolt Thrower should have checked their history books.

2007-07-11T18:59:00.000Z

Bolt Thrower seems to be a band that seems to be up on history. They make references to all sorts of wars and such. Unforunately, I believe they made a glaring error in the album The IVth Crusade

The lyrics on the last song "Through the Ages (Outro)" very clearly say "The American revolution of 1792 lasted until 1802." I've confirmed it with a couple different of the various lyrics sites on the internet.

Now either I'm missing something, or they have a funny idea of the timeline of the American Revolution. The fighting started the morning of April 19th, 1775 with the battles of Lexington and Concord. The fighting ended (basically) with the signing of the Treaty of Paris on September 3, 1783 (ratified by Congress on January 14, 1784).

The United States and Limeyland weren't exactly friendly between 1792 and 1803 - the next war started only a few years later in 1812. But they certainly weren't still openly fighting the American Revolution.

I am absolutely fascinated by Cash Call.

2007-07-11T17:11:00.000Z

You've probably seen the TV ads for Cash Call starring Gary Coleman of "Whatchu talkin' 'bout Willis?" fame. They have got to be just about the most interesting company currently in the personal loan business.

For starters, their rates are absolutely obscene. I have no idea how they get around usury laws. Here are their current rates as of 7/11/2007 for the state of California.

If you can't read that, here are the worst - starting from the bottom up.

$2,600 loan @ 99.25% interest - 42 payments of $216.55
- Total of payments = $9,095.10, total interest paid = $6,495.10
- Time to recoup original loan amount = 12.01 months

$5,000 loan @ 59.95% interest - 84 payments of $254.03
- Total of payments = $21,338.52, total interest paid = $16,338.52
- Time to recoup original loan amount = 19.78 months

$10,000 loan @ 44.38% interest - 120 payments of $371.60
- Total of payments = $44,592.00, total interest paid = $34,592.00
- Time to recoup original loan amount = 26.91 months

Did I mention there is also a $75 fee for each loan?

With a little bit of research, I found a SFGate article about the origins of Cash Call from September 22, 2004.

"And, Reddam acknowledged, about 20 percent of CashCall customers to date have defaulted on their loans. "We're in a new area and we're learning all the time," he said, adding that he hopes CashCall will be profitable by the end of next year.

This isn't Reddam's first brush with consumer financing. He also founded the mortgage firm DiTech (the one with the really annoying TV ads), which was purchased in 1999 by General Motors Acceptance Corp. Reddam, 49, resigned from DiTech in 2000. He said the idea for CashCall came from his experience providing second mortgages at DiTech. He became aware that even relatively prosperous people can easily, and frequently, live beyond their means. "People tend to spend as fast as they make money," Reddam said. "Whatever they make, they spend. There's a live-for-today mentality. "It's quite shocking, really.""

A 20 percent default rate isn't really surprising, considering the interest rate and the foolishness of the people who fall for these types of loans. I'd live in a cardboard box and eat garbarge before I'd sign up for a loan at 99.25% interest. It would be very interesting to find out what their current default rate is - but I can't find much in the way of information.

Now what sets CashCall apart from other banks is their collection tactics. I believe they start by looking for ideal customers - have a job, have a checking account, not too smart with money. Then they run a credit check to see how much risk the customer has - late payments, outstanding debt, etc. Based on that information, they make a small loan.

Then they immediately start with strong arm collection tactics. Read some of the hilarity over at rip off report.com. As long as you keep the checking account open, they can just take the money right out of it. It's rather brilliant, really. No waiting for people to make payments. When you don't pay, they go right for the throat - threats, intimidation, lawsuits, garnishing wages, calling your friends, etc. And best of all - they DON'T NEGOTIATE. Default on a credit card - they'll let it go for 80% of the balance, sometimes much less. But default on CashCall, and they won't play ball at all.

Whatever they are doing, it's working. They are making bundles of cash. Their ads are constantly on TV. They sponsor all sorts of events in SoCal. Here's to you, Gary Coleman. Back from the dead AND you got a free $10,000. Awesome.

Review: Sony Walkman Noise Cancelling MP3 Player ( NW-S703F )

2007-07-11T16:20:00.000Z

On June 4th 2007, I bought a a 1 gig Sony Walkman Noise Cancelling MP3 Player model ( NW-S703F ) from Woot.com for $44.99 shipped. I was looking at buying a iPod shuffle. I love my iPod, but sometimes I want something cheaper that I'm not afraid to lose or have stolen. Also, I wanted something smaller to carry in the pocket.

When I ran across the Sony for this price, I figured - how can I lose? It's really a competitor to the iPod Nano. It's got a built in screen, a long battery life, an fm tuner, and best of all - noise cancelling headphones. And for $45 when MSRP is $169.99?

First, the good.

It's pretty small. The built in screen is pretty neat. The noise cancelling headphones have surprisingly good sound quality. The headphones also come with an extender so you can shorten the length if you want. It's really easy to turn off - you just hit stop and it shuts off. Ready to start it again? Hit play and it starts right back up. The battery charges REALLY quickly and seems to last a long time.

Now, the BAD.

The software SUCKS. It's really, really, really terrible. And you have to install the bullshit Sony DRM software - which knowing Sony is probably a rootkit that opens your machine to hackers. You can't just drop the MP3s into a folder and have it work and there doesn't appear to be any other way to get the music on to the thing. Also, it takes FOREVER to load songs. Very slow.

The controls are complicated as heck. I still haven't figured out how to change the level of noise cancellation or get the FM tuner to work. It's covered in buttons and the screen has tiny symbols which aren't exactly meaningful.

It's purple. This one isn't Sony's fault, and I should have realized it. I thought it was more blue from the picture on Woot. Oh well.

Overall, it's ok for the $45 I paid for it. It's CERTAINLY not worth more than $100 though. I'd still like to know how to get to the FM tuner. Maybe someday I'll figure it out. If the software weren't so terrible, it would be a pretty good buy. I don't know what the hell is wrong with Sony and their obsession with DRM.

Project 555: Baraqyal posts up a storm.

2007-07-10T21:15:00.000Z

I'm not a very good blogger. Some months I post a bunch, other months not at all. So far in 2007, for four months I didn't post a thing. Over all time, I average 9.05 posts per month (but with a standard deviation of 14.38!)

Well, today that is all going to change. My goal for the next year (by 11:59pm on July 9, 2008) is to post 555 times.

I guess I was inspired by a certain Subaru Impreza rally car.

Anyhow, carrying the three fives further, I also plan on getting 555 unique visitors per week withing 5 months. My current max (averaged over a month) is 322 unique new visitors in a week - a poor performance. Furthermore, I plan on making an average of $5.55 a month in ad revenue over the time span.

So in summary:

555 posts

555 unique visitors

5.55 revenue

Burn Rate in Iraq: $10 Billion a Month

2007-07-10T19:02:00.000Z

In the news today is a new report from CRS to congress. It states:

"The $12 billion a month "burn rate" includes $10 billion for Iraq and almost $2 billion for Afghanistan, plus other minor costs. That's higher than Pentagon estimates earlier this year of $10 billion a month for both operations. Two years ago, the average monthly cost was about $8 billion."

Back in December of 2006, I tried to calculate the cost of the "troop surge". In that post, I wrote:

"When you consider that the population of Iraq is only 26,074,906 people, by adding 40,000 soldiers, we will be spending an additional $1,066 per person to provide them with security for a year or $5,116 total. GDP per capita is only $1,800. So we will be spending roughly 3 times as much as the entire Iraqi GDP to provide security, which clearly isn't very secure."

The troop surge seems to have been a bit of a dud, looking at these numbers from globalsecurity.org.

2006 November: 152,000

2006 December: 140,000

2007 January: 132,000

2007 February: 137,000

2007 March: 142,000

2007 April: 150,000

2007 May: 155,000

2007 June: 162,000

It looks like we've really only managed to increase boots on the ground by 10,000 men. Not very impressive. But somehow, we've managed to REALLY increase the spending. In my previous post, I cited a Wall Street Journal article from March 8, 2006. It states:

"WASHINGTON -- As the U.S. enters its fourth year in Iraq this month, the annual cost of military operations is growing -- even as the Pentagon assumes the number of troops there will shrink. Monthly expenditures are running at $5.9 billion; the U.S. commitment in Afghanistan adds roughly another $1 billion. Taken together, annual spending for the two wars will reach $117.6 billion for the fiscal year ending Sept. 30 -- 18% above funding for the prior 12 months."

So a year ago, the Iraqi burn rate was $5.9 billion per month. Now it is $10 billion per month.

Let's look at some updated numbers on Iraq from the handy CIA world factbook.

Area: total: 437,072 sq km
Population: 27,499,638 (July 2007 est.)
GDP (purchasing power parity): $87.9 billion (2006 est.)
GDP (official exchange rate): $40.66 billion (2006 est.)
GDP - real growth rate: 2.4% (2006 est.)
GDP - per capita (PPP): $2,900 (2006 est.)
Inflation rate (consumer prices): 64.8% (2006 est.)
Budget: revenues: $33.4 billion
expenditures: $41 billion (2006 est.)

Now let's run a few numbers.

We're spending $10 billion a month or $120 billion a year on 27.5 million people. That works out to $4,363.64 per person - which is pretty far off from my earlier flawed estimate of $5,116 per person. But hey - I was using a lower population number and trying to figure it out as proportionate to the number of troops on the ground.

The real GDP of Iraq is roughly 1/3 of what we are spending. Per capita, Iraqi's are only making ~$1500 USD per person - although this apparently has the buying power of $2900 using PPP.

It's interesting to look at the revenues and expenditures of the government. The entire GDP is only $40.66 billion, but they are SPENDING $41 billion. Some of this money is obviously coming from the United States.

One other interesting feature is the land area of 437K square kilometers. We currently have 1 soldier for every 2.7 square kilometers of area of the country. There are approximately 63 Iraqis in each of these square kilometers. We're spending $22,879 per square kilometer on the war effort.

You would think that by spending such an enormous amount of money that we'd somehow be able to keep inflation in check. Nope - it's running at almost 65%. Meaning that if you have $100 worth of Dinars in the morning, by the next day it's only worth $99.86. And it keeps compounding like this 365 days a year.

Given the amount of money spent, the time given, and the effort expended by the most powerful military on earth by far, I have come to the conclusion that we can not turn Iraq into a functioning country. The people simply don't want it to happen, or they'd be damned nearly rebuilt by now. The currrent low level civil war probably needs to be allowed to run it's course until the Iraqis are tired of fighting and are ready to settle down in peace.

Cable TV/Satellite TV: The High Cost of Entertainment

2007-07-10T17:37:00.000Z

I always wonder how Americans can make such incredible amounts of money, yet actually spend more than they make. Recently, the US savings rate was -0.5%, meaning that people spent more money than they made. While obviously some of this is attributable to the housing boom, some of it is caused directly by complete waste.

Recently I was shocked to discover that a number of people I know are paying more than $100 a month for cable TV - even up to $150 a month. That's $5 a day just for the service. Now I suppose that doesn't seem like a lot of money if you're making $100,000+ a year. But it certainly adds up, especially considering there are so many more enjoyable healthier hobbies with a cost of $0 per month.

Let's look at the long term financial impact of spending your cash on fancy TVs and expensive cable service.

Assumptions:

You buy a new TV/soundsystem every five years. It costs $3,000 adjusted for inflation.

The money you spend would otherwise be invested in the market on a monthly basis

The return of the market is 12.2%

Inflation is 3%, prices increase once a year.

There are no costs or taxes on investing (for simplification)

10 year timespan:

Amount Spent on the TVs: $10,509.57 (3 purchases @ $3,000 each growing w/inflation at 3%)

Amount Spent on the Service: $20,634.98 (120 months @ $150 each month growing every 12 months by inflation at 3%).

Amount of investment gain lost: $25,979.83 (at 12.2%)

Total cost of service: $57,124.39

Present value of the total cost: $42,124.90

Number of days: 3,650

Total daily cost: $11.54

20 year timespan:

Amount Spent on the TVs: $20,601.81 (5 purchases @ $3,000 each growing w/inflation at 3%)

Amount Spent on the Service: $48,274.74 (240 months @ $150 each month growing every 12 months by inflation at 3%)

Amount of investment gain lost: $175,784.64 (at 12.2%)

Total cost of service: $ 244,661.19

Present value of the total cost: $133,045.37

Number of days: 7,300

Total daily cost: $18.22

30 year timespan:

Amount Spent on the TVs: $34,164.93 (7 purchases @ $3,000 each growing w/inflation at 3%)

Amount Spent on the Service: $84,338.36 (360 months @ $150 each month growing every 12 months by inflation at 3%)

Amount of investment gain lost: $739,161.24 (at 12.2%)

Total cost of service: $857,664.53

Present value of the total cost: $343,929.54

Number of days: 10,950

Total daily cost: $31.41

As you can see, if you take into account the gain you would have had if you had invested the money instead of wasting it on television, you can see that over the long term it's a TREMENDOUSLY expensive hobby.

You can apply the same logic to just about any long term recurring expense. Cell phone contracts, gym memberships, magazine subscriptions, etc. Obviously, there's more to life than saving and investing - but you can't have a negative savings rate forever!

Undervalued RMB? Are Chinese products going to be more expensive?

2007-07-09T22:15:00.000Z

Back in 2005, China decided to stop pegging the RMB to the dollar.

"After China abruptly allowed its currency, the yuan, to appreciate by a modest 2 percent on July 21, the trading price between US dollars and yuan can be fluctuated within 0.3 percent in inter-bank foreign exchange market, and the trading price between non-US dollars and yuan can be fluctuated within 1.5 percent."

This rate of change of only 0.3% apparently didn't result in a fast enough change to satisfy US law makers who are screaming for a revaluation of the RMB.

"China will widen the floating band of yuan against US dollar for daily spot trading on the interbank market from 0.3 percent to 0.5 percent as of May 21, the People's Bank of China, or the central bank, announced on Friday."

As you can see from this Yahoo Finance chart, the RMB has gone from trading 8.3 RMB to the dollar to 7.6 RMB to the dollar - a 9.2% change starting with the July 21, 2005 appreciation.

According to some sources, the RMB is still undervalued.

"Thus, to make the before mentioned equilibrium of underlying current account
balance and the net capital flows to be achieved a 15 to 30 percent appreciation of the Chinese RMB would be needed."

If 30% is the right number, then you should be able to buy something like 5.85 RMB with a US dollar. Considering that the float was limited to 0.3% per day between July 21, 2005 and May 21, 2007, and removing the initial 2% adjustment, the RMB has appreciated by 7.2% over 669 days. If we remove 1/4 of those days for holidays/weekends/etc, then it has changed 7.2% over 502 days.

Theoretically, the RMB could have appreciated as much as 350% over that timespan.

(1+.003)^502-1 = 3.50

Yet it only changed by 7.2%. Why is that?

Over the next year, saying there are 200 trading days and a peak of 0.5% appreciation per day, we could see a 171% price appreciation against the dollar.

If the RMB is truly undervalued, this is a case of artificial interference by the Chinese government with the exchange rate. They are propping up the dollar and keeping the RMB low.

Why would they do that?

"U.S. footwear and apparel firms imported over $30 billion worth of footwear and apparel from China. U.S. imports from China account for over 85 percent of all shoes and over 25 percent of clothes sold in the United States."

In 2006, the United States imported $287.7 billion dollars worth of goods from China. What do you think will happen if it suddenly costs 30% more to buy all those goods?

China can't keep propping up the currency forever. Eventually, their demand to purchase US treasuries will exceed the amount available. I think we're seeing signs of this already with their $3 billion dollar investment in Blackstone.

I predict we're going see another 10% appreciation this year, give or take 3%. Thus, by July 9, 2008, I predict the exchange rate will be 6.9 RMB to the dollar.

Studying in China: A few schools I'm considering

2007-07-09T05:26:00.000Z

I just wanted to put together my research so far into Chinese Universities. Hopefully it will be helpful to someone else. If you're really looking into it, I'd suggest you start at chinese-forums.com, which is where I've gotten much of my research.

Hainan:

The city of Haikou in Hainan province has two Universities. Hainan University, which costs 13,200 RMB for a year of study and Hainan Normal University, which costs $1400.

Pros:

Tropical climate, similar to Hawaii

Small population relative to other Chinese cities (830,192)

Cheap housing - apartments can apparently be found for as little as 300 RMB a month

Cons:

The people mostly speak Hainanese instead of Mandarin

Food is more expensive than other small Chinese cities

The Universities are supposedly not that great.

Liaoning:

The city of Dalian in the province of Liaoning has two Univeristies to look at: Dalian University and Lioning Normal University (which apparently has a partnership with Missouri State).

Pros:

Midsized city, population of 6.2 million

Supposedly much lower polution than typical for Chinese cities

Major port city near the Ocean, climate is similar to Beijing

Few foreigners

Schools are supposedly higher quality

Not too far from Beijing

Cons:

Crowded city life

Housing is more expensive than other small cities

Lack of bicycles(? I find this hard to believe, but there you have it.)

Jilin

The city of Changchun in province of Jilin has one major university worth looking at: Jiling University, which costs 16,000 RMB per year.

Pros:

Largest university in China with over 80,000 students

Midsized city, "metropolitan area has a population of 6.83 million and a population of 2.78 million in its city proper." (wiki)

National University

Not too expensive housing - as low as 500-800 RMB a month for a moderate apartment.

Cons:

COLD. Down to -20C in the winter.

Mandarin has a slight accent deviation from standard.

Pollution

Beijing

The city of Beijing is the capital of China. It has many universities, a large foreign population, and is comparable to any major world city. A couple universities I'm looking at are Beijing Normal University (22,400 RMB for a year) and Beijing Language and Culture University (which costs 23,200 RMB for a year).

Pros:

Site of the 2008 Summer Olympics

Lots of things to see and do beyond school

Large population of foreign nationals

Many universities to attend

Moderate climate

Cons:

One of the most expensive cities on earth - relative to income of the population. A moderate apartment will run at least 1700 RMB a month, and more likely 2000-2500 RMB per month. Food is also expensive.

Population: Metropolitan of 7.5 million, Municipality 14.9 million. Crowded!

Pollution

Crime - lots of professional thieves and scam artists

Long Term Goal: Learn Mandarin.

2007-07-02T21:27:00.000Z

For a long time now, I've wanted to learn to speak another language. I've always thought that you really had to speak two languages to be considered educated, and that the US education system doesn't emphasize it enough. In school, I made a feeble attempt at French, but it never really held my interest.

I've decided to learn Mandarin Chinese as it would be a very useful language for me. According to Wiki, it is the most spoken language on Earth with 1,051 million speakers. English is second with 980 million speakers, and Hindi is third with 948 million.

Researching the language on the web, I found some interesting statistics on Chinese-Forums.com. I'm afraid I've lost the link to the original post, so my apologies to the author.

"For Single characters:
1400 will cover over 95%
2000 will cover 98%
2451 will cover 99%
3477 will cover 99.79%

Now if you want to know about words then
4500 words covers 88.7% to 90.7%
8000 words covers 95.1%"

I would very much like to spend a year in China studying Mandarin, perhaps as soon as next fall. I figure that if I study hard and learn 4 characters and 12 compounds/words a day, I might be able to have a serviceable level of Mandarin within a year or so. At least to the point that I can hold simple conversations. Perhaps even good enough to pass the HSK test at level 3 (or better!).

Although the thought of learning an entirely new character set is frightening, and the tones are nearly impossible for me to pronounce without really concentrating, I think it should be doable if I really try.

San Antonio and the Riverwalk; a brief review.

2007-04-05T17:13:00.000Z

I recently returned from a trip to San Antonio. I ate at many good restaurants, and just wanted to share my experience.

When we initially arrived in San Antonio, the weather wasn't so great. It was hot, humid, and there was a light mist rain. Not very pleasant. The city didn't look very good as we arrived, and the streets were confusing. The next day it rained very hard. But by the weekend, it was sunny, the humidity cleared up, and it was a downright beautiful 80 degrees.

I stayed at the Sheraton Gunther Hotel on Houston street. The rooms were large and clean, the staff was friendly and helpful. The valet was pretty quick. Best of all, it was a short walk to the Riverwalk.

The first restaurant we went to in San Antonio was La Fogata, a mexican place that was a short drive from downtown. We were with a large party, but the staff there made it a very fun experience. Lots of margaritas, a mariachi band, and decent food. The setting was neat too. I'd highly recommend this place. I had "Un Poquito" which was some sort of chicken dish. The flan was also excellent.

The next afternoon, we went to Boudros on the Riverwalk. Had fresh guacamole (which they made at the table), crab cakes which were wonderful, the best margarita of the whole trip, and chicken enchiladas. The place is a little cramped and dark, but the food is great. However, this was the first real encounter that we had with the on average VERY BAD service in San Antonio. We paid the bill, and were ready to leave. The waiter came up and said "Excuse me, I forgot to charge you for the crab cakes." Ok. We gave him a different credit card to put the additional charges on. He went and charged the whole bill PLUS the crab cakes PLUS something we didn't even order on this card. Umm, ok. We explained we didn't want to do that. Then he left, and messed around for a while. He kept bringing us bills with different amounts. To be honest, I'm not sure we didn't end up paying twice or even three times. The manager ended up apologizing, but it was bad enough that I probably wouldn't go back. It felt like we were being scammed.

For dinner that night, we went to Pesca on the Riverwalk. I had the seared ahi tuna, which was mediocre. The margarita that went with it was also pretty mediocre. The service was downright pisspoor. My girlfriend had the blackened swordfish, which was downright excellent. It came with some sort of side dish made out of crab, corn and sweet potatos which was VERY unusual. It ended up running us about $50 a person, and they tacked on a 19% gratuity because of the size of our party. I doubt I'd return to this restaurant again. They did have quite the wine list, with some wines in the $550 a bottle range (OUCH), and an extensive tequilla selection.

The next afternoon, we went to the Iron Cactus at the Aztec on the Riverwalk. It appears to be a large chain. The service was AWFUL. Twenty minutes for us to even order drinks, 20 minutes to get the drinks, and the waitress didn't even bring all of them at the same time. The food was mediocre. I had chicken fajitas, my girlfriend had the yucatan fish tacos. Neither were very good. The margaritas were ok, but not great. Supposedly we ordered a peach margarita that sounded interesting. When we got it, they said it was mango. It tasted like nothing, and was not all that great. Big disappointment.

That night, we attended an event at Pearl Stables which used to be the Pearl brewing company. (Now owned by Pabst, beer produced by Miller.) It was lovely. The place was very nice, the food was good, the service was ok. The only questionable part about it was the location and the required security - as we got into the car, a uniformed police officer escorted us to the car. It was a good thing too, as a drunk homeless man wandered past right and yelled a little right as we got there. Anyhow, it was a really neat place for an event, and the security made me feel fairly safe.

The last day of our trip, we went to the champagne sunday brunch at Las Canarias on the Riverwalk. It was fantastic. The environment was very nice, the food was great, I'd really recommend it. Overall, the best restaurant on the whole trip.

Another great thing about San Antonio is the airport. It's a VERY short drive (about 15 minutes) from downtown. Getting through security was a breeze. The people were all very friendly, even the TSA workers - a first for me.

Overall, I'd give San Antonio a A-. The city is fun, but the weather can be bad, and the service at the restaurants is terrible. Otherwise, it's a fun place to visit.

Human energy consumption: How dim is your lightbulb?

2007-03-18T19:16:00.000Z

Ever looked at your electricity bill and wondered "gee, how many kilowatt hours does my body use?" Wonder no longer. Here's how to figure it out.

An adult body needs, on average, 12 kilocalories per pound to maintain it's weight. If you want to add a pound of fat, you need an extra 3600 kilocalories. My "ideal weight" for my height according to most charts I've looked at is 195 pounds. So, my body needs 12 x 195 lbs = 2,340 kilocalories to maintain it's weight. Now lets convert that to watts.

2,340 kilocalories per day / 24 hours = 97.5 kilocalories per hour / 3600 seconds per hour = 0.0271 kilocalories per second x 4,184 joules / kilocalorie = 113.32 joules/second or 113.32 watts. So I'm roughly equal to the power consumption of a slightly bright light bulb (100 watts is a little above average).

If I draw 113.32 watts for an entire hour, that's .113 kilowatt hours. Over a 24 hour span, that's 2.712 kilowatt hours per day. Over an entire year, that's 989.88 kilowatt hours. At an average price of say, $0.11 per kilowatt hour for electricity - that means my body would consume $108.89 of electricity per year if I could somehow plug myself into the wall.

Interestingly, the brain is on average 2% of the body's mass but consumes 20% of the body's energy. In my case, my brain should weigh 3.9 lbs and uses 197.97 kilowatts of energy per year.

The actual power output of the human body is MUCH lower than the amount of energy it consumes. A human being can put out something like 100 watts of power on average (say, by driving a stationary bicycle) over a long span of time. Lets look at the maximum efficiency of a human.

150 lbs = 87 watts = 2.1 kilowatt hours per day energy consumed
100 watts per hour x 10 hours a day = 1 kilowatt hour

1.0 / 2.1 = 47.6% efficient

A horse is supposedly about 8 times more powerful than a human. That's why 1 horsepower is equal to 745.7 watts. Consider how incredibly powerful your car is: my car has 173 horsepower at peak at the crank. To the wheels, on average, it probably puts down something like 65 horsepower or 48,740 watts of power. In other words, I would have to work 487 seconds (8 minutes) to equal the power output of 1 second on average from my car.

A brief analysis of Public Accounting

2007-03-01T20:27:00.000Z

For some reason, I got interested in the relative size of public accounting firms and decided to do a little research. I found Public Accounting Report's - Top 100 For 2006 here (PDF warning, ~600k!) from August of 2006.

Using the data from page 2, I ran a few numbers on the top 25 firms ranked by revenue. I knew that it was big, but I never realized the incredible magnitude difference between the Big 4 Accounting Firms and everyone else in the market.

Average Revenue:
Big 4: $6,167MM
Next 10: $473MM
Bottom 11: $109MM

Average number of partners:
Big 4: 2,079
Next 10: 253
Bottom 11: 61

Average number of professionals:
Big 4: 18,245
Next 10: 1,809
Bottom 11: 482

Average number of offices:
Big 4: 96
Next 10: 38
Bottom 11: 10

Average professionals per office:
Big 4: 189
Next 10: 52
Bottom 11: 62

Average SEC Clients:
Big 4: 1,596
Next 10: 111
Bottom 11: 27

In fact, if you combined the 5th through the 25th ranked firm, you still wouldn't equal one of the average Big 4 firms. Instead, you just have a lot more partners/professionals/offices producing lower revenue.

Revenue: $5,930MM vs $6,167MM for the Big 4 average
Partners: 3,204 vs 2,079 for the Big 4 average
Professionals: 23,390 vs 18,245 for the Big 4 average
Offices: 491 vs 96 for the Big 4 average
SEC Clients: 1,407 vs 1,596 for the Big 4 average

As you can see, there are some incredible economies of scale for the Big 4 firms. It appears that much of it is related to the number of SEC clients. The Big 4 have a combined total of 6,383 vs only 1,407 for the next 21 biggest CPA firms.

Compared to the average for "The Next 10" the Big 4 has:

13 times as much revenue
8 times as many partners
10 times as many professionals
2.5 times as many offices
14 times as many SEC clients

Of additional interest was the total number of CPA's in the United States. The AICPA claims to have 330,000 members and states that 3 out of every 4 CPAs are members. This means there are somewhere around 440,000 CPAs in the United States.

If you add together the number of Partners with the number of Professionals (assuming that they are almost entirely CPAs) of the Big 4, you get 81,297. So, roughly 18.5% of all CPAs are employed by the Big 4. Another 26,594 are employed by the next 21 firms ranked by revenue or about 6%. The total for the Top 25 is 107,891 employees. The AICPA states that 133,379 of it's members are employed in public accounting. Using the same 3/4 ratio of members/actual, this means there are a total of 177,839 CPAs total in public accounting. Of this number, 61% work for the top 25 firms and 45% work for the Big 4 alone.

First post in 3 months; Return on time invested going way up!

2007-03-01T17:05:00.000Z

So I've been a bit on the busy side the last 3 months. I work full time and am going to grad school part time (3 classes/quarter). I haven't had a lot of time to write. The good news is that this has massively increased my return per hour from my blogging.

My benchmark for revenue has been a factory worker in Ghana, which a long time ago I analyzed. "Considering that a factory worker in Ghana is making 23.6 cents per hour." In my previous post about this subject I wrote that I was making a rate of "$100 / 334 hours = 29.9 cents per hour!"

Well, hold on to your hats. By not posting at all, and by totally ignoring my blog, I have managed to do pretty well for myself. At the current rate, I calculate that it will take 214 hours to reach my $100 goal = 46.7 cents per hour! The goal should be achieved sometime in December of 2008.

If I were to do this full time at that rate, 46.7 cents per hour x 2000 hours per year = $933.26 per year, or $2.56 per day. Again, quoting from my last post: "2.7 billion people were living on less than $2 a day, and 1.1 billion people were living on under $1 a day." and "World population exceeded 6.1 billion individuals in 2001".

So this revenue would just about put me in the top 55% of world income levels. From a blog. Pretty sweet, eh? Isn't America great? Of course, I'm ignoring Purchasing Power Parity (PPP) but hey - don't rain on my parade.

Sony BMG Gets Away With Murder.

2006-12-21T17:29:00.000Z

Sony BMG just settled with the states of California and Texas over their fantastic XCP and Mediamax rootkit that they shipped on 2.1 million CDs.

Back in December of 2005, I offered to take the job of Senior Vice President of Common Sense after this debaucle first came to light. Later on that same month, I posted about their "patch" that introduced even more problems to victims computers.

You would think installing invasive software without permission on millions of your customers computers that allows just about anyone root access to the victims most sensitive data would be a criminal act. Any normal person would go to jail forever and ever for doing this sort of thing. But not Sony. Oh no. Their punishment isn't even a slap on the wrist.

"Under the terms of the separate settlements, each state will receive $750,000 in civil penalties and costs. In addition, Sony BMG agreed to reimburse consumers whose computers were damaged while trying to uninstall the XCP software. Customers in both states can file a claim with Sony BMG to receive refunds of up to $175. State officials estimate some 450,000 compact discs carrying the XCP software were sold in California, while about 130,000 were sold in Texas."

So the maximum liability for these two settlements, assuming EVERY consumer can come up with a $175 receipt proving they had to pay to have this malicious software removed would be:

California: $750,000 + ($175 x 450,000) = $79.5MM
Texas: $750,000 + ($175 x 130,000) = $23.5MM
Total of two states: $103MM (max)

In reality, I think we'll only see a few hundred people actually take advantage of the settlement, since the majority of people that know about it are computer geeks - and those geeks wouldn't pay to have the product removed and will thus have no receipts to get reimbursed with.

So pretty much, Sony BMG got away with only paying a few million dollars for damaging millions of machines with the most VILE form of software imaginable. Pennies per CD. This is a complete travesty of justice and I firmly believe that someone should have gone to jail.

Want to know more? Read the slashdot responses.

Disclosure: I Am Not Getting Paid Per Post.

2006-12-21T16:46:00.000Z

I know this might come as a shock, seeing as how the market for posts calling amtrak a federal jobs program or analysis of the cost of sending 40,000 soldiers to Iraq just must be enormous. And considering that I am an out and out capitalist, you'd think I'd jump at the opportunity to get paid $4.00 to drone on and on about a satellite navigation and GPS forum.

I only found out about this missed opportunity from this AP story about the company. I LOVE the involvement of the Federal Trade Commission.

Federal Trade Commission said in a Dec. 7 staff opinion that failure to disclose could, in some cases, violate consumer-protection laws on deception.

Deception on the internet? OMG! That's never happened before has it? How could my computer lie to me???

I think this attempt to "protect the consumer" is LAUGHABLE. Why does the government always have to pander to the stupidest consumer?

"It ain't say nuthin' about not stickin' my head in it. Someone shoulda warned me!"

Escapades in Genealogy: Thoughts on Making an Impression on History.

2006-12-20T18:18:00.000Z

A few nights ago, I watched a documentary on PBS on the rescue of the Willie and Martin Handcart Companies in 1856. Some of my family were mormon pioneers, and so I was somewhat interested.

After the show, I decided to see if I had any relatives that were in the ill-fated companies. An uncle of mine had mentioned once that we had "handcart pioneers" in our past. It turns out he was entirely wrong. Our common mormon ancestors arrived in Salt Lake in 1850, 1852, and 1864 - completely missing the handcarts from 1855-1860. They travelled mostly by wagon.

Anyhow, it was interesting in that I never realized just how Mormon my family really was. For example, my great great great grandma was born in Nauvoo, IL - and my great great great great grandpa helped build the temple there. By the time I was born, I guess my chunk of the family had fallen mostly away from the church.

What was most interesting of all was the fact that nearly all of my ancestors had RIDICULOUS NUMBERS of kids. My great great grandpa, for example, had 13 total children over his lifetime - and had 10 of those after the age of 41. Pretty incredible. Math wise, if every generation had that many children - think how big the family would be by the time it reached my generation.

Great great grandpa is 4 generations back. So:

4 back. Great great grandpa has 13 kids. Next generation = 13
3 back. Great grandpa and kin have 13 kids. Next generation = 169
2 back. Grandpa and kin have 13 kids. Next generation = 2,197
1 back. Father and kin have 13 kids. My generation = 28,561

So in just 4 generations, you can have almost 30,000 people that call you "common ancestor." That's in a perfect world of course, where no one ever dies or goes sterile. So I guess you don't just have to do something great to be historically meaningful - you can also go by the "have a ton of babies" route.

Amtrak: A federal jobs program?

2006-12-19T20:21:00.000Z

Yesterday, Amtrak pulled a switcheroo with it's senior management. The idea, of course, being that the new management will be able to somehow miraculously resurrect the rail lines and turn it into a profit machine. According to the article:

Amtrak has $3.6 billion in debt and is heavily dependent on government subsidies. Its operating loss for 2005 topped $550 million.

I've always been a big fan of trains. I don't know why. Perhaps from riding the Heber Creeper too much as a kid? Anyhow, I've been really wondering - why is it that Amtrak is perpeptually a financial failure? I'm going to try digging into their consolidated financial statements to see if I can find the answer.

Let's start with the income statement on page 4 of the 2005 statements.

2005 Revenues: $1.886 B
2005 Expenses: $2.940 B

You can see right away that there is a big problem. What are the major items in their expenses?

Salaries, wages and benefits: $1.477 B (50.24%)
Depreciation: $0.557 B (18.95%)
Fuel, power, utilities: $0.227 B (7.72%)
Everything else: $0.679 B (23.10%)

Let's start by looking at Fuel. Supposedly, Amtrak is more fuel efficient than other forms of travel.

The U.S. Department of Energy (DOE) has reported that Amtrak - on an energy consumed per passenger-mile basis - is 18 percent more energy efficient than commercial airlines. According to DOE's Transportation Energy Data Book, Amtrak energy intensity was 2,935 British Thermal Units (BTUs) per passenger-mile and commercial airlines were 3,587. Commuter rail was 2,751 and automobiles were 3,549 BTUs. The DOE figures are from calendar year 2003, the latest available.

In addition, Amtrak uses less refined diesel fuel instead of more expensive jet fuel. Assuming those facts are true, fuel isn't the problem.

I'm going to generalize about depreciation, because I think it's pretty safe to assume that a train is cheaper to own and maintain than most other forms of travel. Except for internal wear and tear, the cars last nearly forever. Some railroads are still operating cars from the turn of the century. The power units might be more expensive, but when you consider that you need fewer complex engines to move the same amount of weight, it seems like maintenance would be cheaper than a bus and easily more than a jet liner. I may at some point go into more depth on this subject in another post, but for now let's assume that it is cheaper to operate trains.

Next, lets look at employement. I found an interesting analysis of the employment during 2004 which comes to the conclusion that Amtrak is a pork barrel federal jobs program, mostly for the North East Corridor (NEC).

"Collective NEC state Amtrak expenditures (for all trains that serve these states, including regional and long distance trains) - $281,140,685. Collective NEC state Amtrak employees (for all trains and services that serve these states, including regional and long distance trains, and the company headquarters in Washington, D.C.) - 13,452. Collective NEC state Amtrak employee payroll (for all trains and services that serve these states, including regional and long distance trains, and the company headquarters in Washington, D.C.) - $626,356,482. When you add the expenditures and payroll figures together, Amtrak poured raw cash of $907,497,167 into these eight states and the District of Columbia for Fiscal Year 2004.

Amtrak ticket revenue for FY 2004 was $1,256,424,267 (with an average ticket price of $50.15, a very low figure). Of the revenue, 53% was generated in the NEC. Yet, Amtrak spent $907,497,167 in the NEC states, or 72% of its ticket revenue, a very negative return on investment.

The point I think he's missing in his analysis is that Amtrak executives are trying to expand the NEC because it's one place where the trains have an operational advantage over other forms of travel. In the NEC, the population is tightly packed in close proximity. If you only need to go 100 miles, it hardly makes sense to fly. Driving is problematic because of traffic. Trains MIGHT be the way to go.

But I think he is dead on with naming Amtrak for what it is: a federal jobs program. In a normal company, you would NEVER see salaries exceed revenues for an extended period of time because 1) Management would layoff as many people as possible, and 2) The company would eventually go bankrupt if they didn't. I hope that someday, Amtrak is allowed to fail and that new, commerically viable train companies take it's place.

Who says SoCal doesn't have seasons?

2006-12-19T17:07:00.000Z

I live just outside Los Angeles. On July 22, 2006 (150 days ago) I was whining because it was 109.9 degrees outside.

This morning, it is 58 degrees inside my office with the heat on full blast. When I got in my car this morning, the back window was covered in frost and the temperature was 38 degrees. Supposedly it got down to 34 last night.

That's a temperature variance of 75.9 degrees. Seems pretty seasonal to me. I guess I've just grown weak and soft from years of California living.

2006 Subaru Impreza Fuel Surge Problem.

2006-12-15T16:53:00.000Z

A few months back, I purchased a 2006 Subaru Impreza 2.5i. I wanted something that was cheaper, more reliable and better built than my previous Audi. Up until this morning, I hadn't had a single problem with it.

I've still been trying to figure out how many miles I can get per tank of gas. I've been averaging about 24 mpg, which isn't fantastic - but isn't terrible either. AWD is a drag on the powertrain, but it's worth it.

This morning, I was running somewhat behind and didn't want to be late to work. The problem was that the fuel light had come on in my car the previous night on the way home. I sat down and looked in the manual. Supposedly, the Impreza has a 15.9 gallon tank and the low fuel light comes on when there is around 2.3 gallons left. So, milage wise, 15.9 - 2.3 = 13.6 gallons x 24 mpg = 326 miles for the low fuel light. This seems to be about right. The most I have ever put in my car before this was 14.6 gallons.

The light came on last night with about 8 miles left on my drive home. It's a 15 mile drive to work. I figured that 2.3 gallons x 24 mpg = 55.2 mile range. 55.2 - 8 = 47 more miles to go. My 15 mile drive to work should be easily within that range, right?

About 10 miles into the drive on the freeway, the car seemed to stumble. It's an eerie feeling. You press the gas and the car just stutters, and the speed drops. Then it shakes a bit and picks back up. It did this a few times and I decided "Uh oh, I'm almost out of gas." So I jumped over a few lanes, got off the freeway and pulled right into a gas station. It was dumb luck that I found the gas station - I'd never exited there before.

The car only took 14.9 gallons. I should have had 1 gallon left, or at least another 20 miles to drive. A little research on the internet shows that this problem is not uncommon with Subarus. I guess it has something to do with the shape of the gas tank and isn't fixable. The solution is fairly weak. "Keep your car filed up with gas."

Hearts Of The Gods switched over to the new version of blogger.

2006-12-14T19:01:00.000Z

You may have read my post about the beta version of blogger from last August. It's a huge improvement, and now you can edit the raw code for the layout.

Over the next week or so, I'm going to start slowly converting the template of Hearts Of The Gods over to the beta version. I'm particularily excited about some of these new features, like the ability to use if-thens and the addition of template tags. You can also apparently post from google spreadsheets - which will be awesome! Hopefully I can also improve the readability of the site. If you have any feedback, I'd like to hear it.

The Cost of Sending 40,000 More Soldiers to Iraq.

2006-12-13T16:38:00.000Z

After a lot of thinking, and the recommendation of a bipartisan panel, President Bush has apparently just about decided to put another 40,000 soldiers into Iraq. Whether you agree or disagree with this move, you realize this will be a frightenly expensive proposition.

According to this (somewhat dated) article from the Wall Street Journal:

Monthly expenditures are running at $5.9 billion; the U.S. commitment in Afghanistan adds roughly another $1 billion. Taken together, annual spending for the two wars will reach $117.6 billion for the fiscal year ending Sept. 30 -- 18% above funding for the prior 12 months.

According to globalsecurity.org, we currently have 152,000 troops deployed in Iraq. Using an obviously simple analysis:

$117.6B - $12B (Afghanistan) = $105.6B

$105.6B / 152,000 = $694,736.84 per soldier per year.

40,000 soldiers x $694,736.84 = $27.8B more money spent on the war.

$27.8B / 300MM Americans = $92.63 per year for every man woman and child in the US.

It seems like an awful lot more money to spend on such an unpopular war, especially given the fact that it might not even work out. When you consider that the population of Iraq is only 26,074,906 people, by adding 40,000 soldiers, we will be spending an additional $1,066 per person to provide them with security for a year or $5,116 total. GDP per capita is only $1,800. So we will be spending roughly 3 times as much as the entire Iraqi GDP to provide security, which clearly isn't very secure.

I'm going to go out on a limb here and say that this is completely unacceptable.

Heifer International: One Very Impressive Nonprofit.

2006-12-12T19:10:00.000Z

Last night, I watched a documentary by Bob Gilner on PBS about Heifer International. To say the least, I was very impressed by the organization. The idea behind Heifer is that they go to the very poorest places on earth, partner with locals, and give them the ability to feed themselves.

Their methods are downright brilliant. Instead of just giving temporary aid to improve the immediate situation of an area, they shoot for the real long term survival of the population. They find partners who are willing to work hard, give them training on how to produce food through livestock, get them to agree to some basic terms, then provide them with the animals they need. The partners agree to "pass on the gift" which means that at some point, the partners will give some portion of the offspring to new partners in the same area.

This approach makes a lot of sense to me. Instead of just giving away goods UN-humanitarian-relief-style, they are very carefully giving away capital and training with the understanding that it will eventually spread to the entire surrounding community. The impact of the training is permament - even without the capital, the farmers learn new methods of farming that are easier and more effective (and also have the side benefit of having less environmental impact.) The capital is in a form that is hard for corrupt governments to steal. How many corrupt dictators will go to the far reaches of a country to steal a few goats from a dirt poor farmer?

Looking at Heifer's financial info, it appears that they are about a $100MM organization. Around 25% of the money is used by fundraising/administration the remaining 75% goes directly to programs. It seems reasonably efficient to me. Most of their donations are directly from individuals. They've been around since 1944, so it looks like they are here to stay.

Heifer International has an impressive donation page where for as little as $10 you can choose an animal (or a share of one) to give.

Anyhow, I was really moved by the documentary. One part showed a "pass the gift" ceremony in Albania. The people were living in abject poverty. The documentary followed an old man to his home which was a simple stone hut. He slept on a pile of rags on the floor and there were a few chickens crawling all over his bed. The goat he received in the ceremony clearly would make a real difference in his life; he planned on selling it's offspring for a little money and consuming the milk it produced. The original small gift of a few goats and training had spread throughout the entire community and improved many lives.

Microsoft going private? PIMCO's Ray Kennedy predicting a $50 Billion dollar LBO in 2007.

2006-12-06T18:31:00.000Z

In an article today on CNN.com, PIMCO's Ray Kennedy was quoted as having said:

"It's just going to get bigger and bigger," Kennedy said. "We will test a mega-deal. You have to accept a $50 billion deal likely will occur."

If I understand his meaning correctly, he's saying that at some point in 2007, there will be a megadeal leveraged buyout that will result in a $50 Billion dollar bond offering.

The article gives this example:

"Freescale Semiconductor (Charts) sold $5.95 billion of debt last month, the biggest for a buyout since 1989, to help finance its $17.6 billion takeover by a Blackstone Group-led consortium."

So roughly 34% was financed through the issuance of debt. Another example from the article is the issuance of $6.1 Billion in debt in the leveraged buyout of RJR Nabisco in 1989, which from other sources appears to have been a $25 Billion dollar deal = 24.4% debt funded.

There have been rumors floating around about stagnation at Microsoft and poor management. A few have even mentioned the possibility of a private equity buyout, including this article from August 18th in Financial Times titled "Private equity folk could do wonders with Microsoft" Daniel Pimrack of Thompson Financial argued that this was a virtual impossibility at the time.

Say this mega deal is funded 35% through debt. $50 B / 0.35 = 142.85 Billion dollar deal. Playing with Yahoo's Stock Screener, you can see that there aren't too many companies with that kind of market cap. By my count, there are currently 25 - and IBM is the smallest. Obviously a deal of this magnitude will require a huge consortium of investors or one REALLY big company that has enormous cash flows to support that kind of debt.

A buyout of Microsoft makes a lot of sense. Microsoft is LOADED with fat, but not in the unionized, contract laden way that the auto makers are. Instead, it's mostly in the form of highly educated, very employable workers which can be easily cut down. I believe a good manager could change the strategy from "Growth" to "Cash Cow" in less than a year. Elminate all the products that are unprofitable, cut down the workforce, focus on Microsofts core products, and wham: everlasting cash machine. Well, at least a five year cash machine. Long enough that private equity buyers could generate enormous profits.

If anyone knows about this potential megabuyout, it's Ray Kennedy. Pimco is no joke:

"PIMCO, one of the largest specialty fixed income managers in the world, with more than $641 billion in assets under management and more than 800 employees in offices in Newport Beach, New York, Singapore, Tokyo, London, Sydney, Munich, Toronto and Hong Kong."

I just wish I knew which firm it's going to be. Microsoft sounds like a possibility, but I've been wrong many times.

XM Satellite Radio Holdings and Sirius Satellite Radio: How big is the market, really?

2006-12-05T16:47:00.000Z

Today, Sirius Satellite Radio (SIRI) fell sharply after cutting their "subscriber forecast" on weak holiday sales. It got me thinking, how big is the market for satellite radio, really?

Sirius Analysis

Sirius said it expects to add between 2.6 million to 2.8 million new subscribers in 2006, to a total of between 5.9 million to 6.1 million by the end of 2006. Previously, the company expected to end the year with a higher total of 6.3 million subscribers.

As of the quarter ended September 30, 2006, they had the following revenues:

Subscriber revenue, including effects of mail-in rebates: $155,337
Advertising revenue, net of agency fees: $7,130
Equipment revenue: $3,579
Other revenue: $1,067

Total: $167,113

Two things stand out from this 10-Q.

"As of September 30, 2006, we had 5,119,308 subscribers."
"a monthly subscription fee of $12.95."

At the end of the previous quarter:

"As of June 30, 2006, we had 4,678,207 subscribers."

Let's say that the average number of subscribers they had over the period was 4,898,758. 4.9MM subscribers x $12.95 a month x 3 months = $190.36MM in revenues. But somehow, they only managed $155.3MM in revenues from all these subscribers. So what's the deal here? A significant number of subscribers are either getting the service for free or at a discount. By my calculations, they are only getting around $10.57 per subscriber.

For the quarter ending March 31, 2007, analysts are projecting revenues of $218.11M. Please note these numbers haven't been revised for lower projected growth yet. Assuming similar ratios, here's the breakdown:

Subscriber revenue: $202.74
Advertising revenue: $9.31
Equipment revenue: $4.67
Other revenue: $1.39

Monthly revenue: $202.74 / 3 = 67.58 / $10.57 = 6.39MM users average.
Beginning subscribers: 6,000,000
Estimated ending subscribers: 6,780,000

For the year of 2007, using the same ratios:

Subscriber revenue: 1,208.39
Advertising revenue: 55.47
Equipment revenue: 27.84
Other revenue: 8.30

Monthly revenue: $1208.4 / 12 = 100.7 / $10.57 = 9.53MM users average
Beginning subscribers: 6,000,000
Estimated ending subscribers: 13,060,000

Obviously it's possible that they could also increase their revenue per subscriber or other revenues, but we'll assume they are still in the growth phase right now.

XM Analysis

Now let's do a similar analysis of XM Satellite Radio Holdings (XMSR).

"the addition of more than 868,000 gross and 286,000 net new subscribers to end the period with over 7.1 million total subscribers"

"Our basic monthly subscription fee is $12.95"

10-Q for quarter ending Sept 30, 2006:

Subscription: $214.82
Activation: $4.21
Merchandise: $3.16
Net ad sales: $8.79
Other: $9.46
Total: $240.44

Monthly revenue: $214.82 / 3 = $71.61MM / 7.1MM subscribers = $10.09 per subscriber

To get to December, let's do a projection for the 4th quarter using analyst estimates of $247.18MM revenues.

Subscription: 220.84
Activation: 4.33
Merchandise: 3.25
Net ad sales: 9.03
Other: 9.73

monthly subscription revenue: $220.84 / 3 = $73.61MM / 10.08 = 7.3MM subscribers average
Beginning: 7.1MM
Estimated ending: 7.5MM

One more time, using XM Projected revenues for 2007: $1.24B

Again, using the same ratios to project the entire year:

Subscription: 1,107.84
Activation: 21.73
Merchandise: 16.32
Net ad sales: 45.31
Other: 48.81
Total: 1,240.00

Monthly subscription revenue = $1107.84 / 12 = $92.32MM / $10.08 = 9.16MM subscribers
Beginning subscribers: 7.5MM
Ending subscribers: 10.82MM

Current Size of the Market

So here is the total estimated subscribers of the two Satellite radio services:

3Q 2006: 12.22MM
4Q 2006: 13.50MM
4Q 2007: 23.88MM

At this point, I'm getting a little iffy about the projected growth. Supposedly, there will be 23.88MM subscribers by the end of next year. Assuming it's only 1 subscription per household and there are 2.6 people per household, that represents 62MM people or over 20% of the United States' population of 300MM. How many more people REALLY are willing to pay $155 a year for radio?

Projected Growth

Analysts project XM's five year earnings growth at 25% and Sirius' at 22.3%. Now obviously they will eventually tone down advertising expense and reach a break even point of some sort. But let's say these numbers requires 7% annual subscriber growth for the next 5 years. What percentage of the population will be covered by satellite radio assuming 2% population growth?

2007 20.29%
2008 21.28%
2009 22.33%
2010 23.42%
2011 24.57%

I am, to say the least, VERY skeptical that it will ever reach that level of adoption. I think it is much more likely that we will see a big growth in alternate radio technologies like wireless internet connections with streaming internet radio stations instead.

Financial Issues

In the meantime, the satellite radio companies are BLEEDING money. Take a look at the current ratio for the two as of the last quarter:

Sirius
CA: 534,976
CL: 641,405
Current Ratio: 0.83

XM
CA: 560,618
CL: 676,099
Current Ratio: 0.83

Both are already basically already insolvent. Without massive earnings growth, they are obviously in big trouble.

Conclusion

I could be completely wrong, but I very much doubt that satellite radio will ever reach the levels of adoption that are guesstimated by the analysts. It seems like alternative, cheaper technologies will overtake the services well before they reach the levels of subscription they need - basically every man, woman, and child in America. More than likely, one or both of these services will be bankrupt in the next 3-4 years. They are already appear to be close to it now.

Hedge Fund and Mutual Fund Suvivor Bias: Rewriting History One Dead Fund at a Time.

2006-12-04T17:38:00.000Z

Survivorship Bias is:

"the tendency for failed companies to be excluded from performance studies due to the fact that they no longer exist. It often causes the results of studies to skew higher because only companies which were successful enough to survive until the end of the period are included."

An example of it comes from this Wall Street Journal article posted on NYU Professor Damodaran's web site:

"Consider 1986: A decade ago, Lipper reported that 568 diversified U.S. stock funds had delivered an average 1986 return of 13.39%. Today, Lipper, which supplied the data for this section, puts the average 1986 return at 14.65%. Why the improvement? The new number is based on the performance of only the 434 funds from the 1986 group that are still in business today."

In the June 2006 edition of the Journal of Financial Planning, a short blurb notes that Morningstar's data may include suvivorship bias of up to 1.6% between 1996 and 2004:

"A study by the Zero Alpha Group and ZAG member Savant Capital Management claims that because Morningstar doesn't eliminate "survivorship bias" in its mutual Rind data it is "systematically and significantly" overstating the performance of actively managed mutual funds.

Morningstar concedes that it doesn't include defunct funds in its performance rankingneither do other major fund data providers-but it argues that not only is it no big deal, the elimination of survivorship bias creates its own problems.

Savant and ZAG (composed of nine independent investment advisory firms, all proponents of indexing) studied Morningstar data from 1995 to 2004 of actively managed funds relative to their related indexes. The survivorship bias, claims the study, inflated managed fund returns relative to their index, on average, by 1.6 percent a year."

Playing with Morningstar's Fund Screener, after having checked "No load funds" I got the following results (with S&P results in parenthesis):

YTD: 10.87 (11.89)
1 Year: 11.12 (10.44)
3 Year: 10.11 (9.28)
5 Year: 7.74 (4.16)
10 Year: 6.78 (6.35)

Please note this isn't the entire database, there were only 200 results. As you can see, if you deduct 1.6% from the 10 year results of 6.78%, the Mutal funds only returned 5.18% - well below the return of the S&P 500 6.35%.

Apparently, there is a similar issue with Hedge Fund returns, although available data is much less reliable as hedge funds are very conscientious about the information they disclose.

The bottom line is "BE CAREFUL" when looking at historical results and aggregate averages of funds. They are probably skewed.

Revised: Kerkorians TOTAL return on General Motors Co. = 3.93%

2006-12-01T18:38:00.000Z

The news this morning was that Kirk Kerkorian, billionaire activist investor and owner of Tracinda Corp has sold his remaining stake in General Motors Co. (GM). A few days ago in this post, I figured that Kerkorian's average rate of annual return on the GM stock was 4.26% - but that was BEFORE he sold off a whole lot more stock.

From today's Wall Street Journal [$$]:

"The person familiar with the matter said Tracinda sold 28 million GM shares at $29.25 a share. The shares were sold to Bank of America, a key lender to Mr. Kerkorian. A sale of 28 million shares crossed market-data services yesterday afternoon, but it wasn't clear during trading that the seller was Tracinda.

Earlier yesterday, Tracinda said in an SEC filing that it had agreed to sell 14 million shares for $28.75 a share in a private transaction. Tracinda last week sold another 14 million shares in a private deal for $33 a share. Before the sales, it had held a 9.9% stake."

So we have three chunks:

1) 14 million shares @ $33.00 = $462.00MM
2) 14 million shares @ $28.75 = $402.50MM
3) 28 million shares @ $29.25 = $819.00MM

Combined, we have:

56 million shares sold for $1,683.50 = $30.0625

From the same article:

"Mr. Kerkorian's GM sales come at a point when the 89-year-old investor is ahead on his investment in the auto maker by less than $100 million, when dividends and gains from his recent stock sale are factored in. The gain represents a modest return on his $1.6 billion investment in the company, falling well short of the multibillion-dollar profits he has reaped in the auto industry in the past."

In my previous analysis, I did not factor in dividends because I did not know the precise amount of stock purchased by Kerkorian and on which dates. To guesstimate his total dividend receipts, lets say he averaged an 8.5% stake in GM between the end of May 2005 and today. This number I'm guesstimating based on the graph labelled "STUCK IN NEUTRAL" from an article in the Wall Street Journal on 11/24/06.

Yahoo Finance tells me there were the following dividends during that period: (There was another on May 17, 2005, but we'll assume he didn't hold it then.)

15-Nov-06 $ 0.25 Dividend
09-Aug-06 $ 0.25 Dividend
10-May-06 $ 0.25 Dividend
14-Feb-06 $ 0.25 Dividend
08-Nov-05 $ 0.50 Dividend
10-Aug-05 $ 0.50 Dividend

Total of $2 a share.

If GM has 565.61M shares outstanding, and Kerkorian possed an average of 8.5%, that means he had an average of 48 million shares x $2 a share = $96MM dollars. If his total gain was $100 Million including the dividends, he only made something like $4MM from share price appreciation.

$4MM / 56MM shares = $0.07 a share over a time span of 548 days (1.5 years)

This means his real average purchase price was more like $29.99 - not the $31 a share reported by Nat Worden at TheStreet.com on 10/12/06.

$29.99 x 56MM shares = $1,679.44MM initial investment
Return = $100MM
Return on investment = 5.95%
Annualized ROI = 3.93%

Obviously without exact dates and amounts, this is still just a guesstimate, but it shows just how badly things went for Kerkorian during this timespan. He could have easily beat a return of 3.93% with a multitude of less risky investments. I do admire his ability to take a swing at such a risk. He is obviously a wickedly smart guy. It's a shame things didn't work out for him, as his plans for GM may have been a smart move - now we'll never know.

Hearts of the Gods: Ghana factory workers, watch out!

2006-12-01T16:21:00.000Z

November was a record month for the low traffic standards of a free blog who's purpose is to entertain me. Last month saw 1,129 new visitiors, or 37.6 per day. This beats my previous record by a whopping 13% and is a 658% increase over my worst full month since starting.

I posted 31 times last month, or on average 1.03 times per day for the month. Since my first post on 12/7/06 I've posted 160 times, or 0.45 times per day - this is an increase from my average post count Back in July, when I was averaging a meager 0.28 times per day.

Mo' Money:

Continuing with my July formula for pay per hour and trying to beat the hourly wage of a factory worker from Ghana, I currently have 160 posts at 1/2 hour each = 80 hours. I need to reach $100 to get paid by Google. I am currently making 6.6 cents per day, and now only am only 3.1 years away from getting a check. At 0.45 posts per day, I will have an additional 509 posts by that time, for a total of 669. At 1/2 hour each, I will have 334 hours invested.

$100 / 334 hours = 29.9 cents per hour!

Quoting from my July post "Considering that a factory worker in Ghana is making 23.6 cents per hour" - I have finally outpaced the hourly wages of a worker in one of the poorest countries on Earth! If I were working 2000 hours a year at this rate, I would make a yearly wage of $598 - or $1.64 a day.

"In 2001 (it is difficult to conduct poverty headcounts on a regular basis because of the immensity of the undertaking), 2.7 billion people were living on less than $2 a day, and 1.1 billion people were living on under $1 a day."

"World population exceeded 6.1 billion individuals in 2001"

My career of blogging is really taking off. In purely monetary terms, I'm already ahead of 1.1 Billion people and right there with the bottom 44% of total world population! Of course, you also have to look at spending power for the money - in the poorest countries, you can probably have a roof over your head and hot meals for less than a $2 a day. In Los Angeles, you'd probably starve to death.

Financial impact of General Motors Corp's sale of GMAC.

2006-11-30T20:13:00.000Z

Today, General Motors Corps (GM) $14 Billion over 3 year deal to sell 51% of GMAC to Cerebus Capital Management finally closed. I've been wondering, what is the potential financial impact of this decision?

I found the 2005 General Motors Acceptance Corporation 10-K on the SEC's Edgar online. If you go to page 70 and look at the Consolidated Statement of Income, you see a net income of the following: (in Millions)

2005: $2,394
2004: $2,913
2003: $2,793

For comparison, General Motor's net income (which includes these amounts) for the same three year period:

2005: (10,567)
2004: 2,804
2003: 3,859

If you subtract 51% of the income provided from GMAC from these results, you get:

2005: (11,788)
2004: 1,318
2003: 2,434

In 2003, GMAC provided 72% of the net income to GM as a whole. In 2004, it provided more than 100%. In 2005, it reduced already HUGE losses by $2.4 Billion.

Value of GMAC

I'm going to try doing a quick valuation of GMAC. My apologies for using net income instead of cash flows. GMAC's operations are quite complex, so I'm going to stick with that for now.

Assumptions:
- GMAC currently produces $2,500 in net income
- Net income growth will be 5%
- Beta is 0.8 (GM's is 1.88, but obviously this will change)
- Risk free is 4.88%
- Risk premium is 7.39% (VTI 3 year return = 12.27%)
- Required return = 10.78%

If this modest growth continues for 15 years, the Present Value would be $25,647.82.

Price paid by Cerberus

"GM will get the $14 billion over the next three years, including the purchase price of $7.4 billion, a GMAC distribution of $2.7 billion and loan repayments worth about $4 billion."

If I understand it right, Cerberus Capital is paying $7,400MM for an asset worth 51% of $25,647MM ($13,080MM) - with the rest coming out of GMAC.

Conclusion

Obviously this is a much more complex transaction than my simple analysis would imply, and my assumptions are not up to par. I can see why GMAC would want to be seperate from GM's terrible credit rating, and I can see that GM is absolutely desperate for the cash the sale will bring in. But it sure seems like a STUPID move to me. When you have an business with a profitable section and an unprofitable section, you sell off the part that is unprofitable. It's common sense. GM is giving up control of a part of it's business that actually makes money. Sure, they'll still own 49%, but now they won't have the "synergy" of controlling their own finance company. Ford's approach of mortgaging out the factories and retaining Ford Motor Credit makes an awful lot more sense to me - you don't slaughter the goose that lays golden eggs.

Vanguard Total Stock Market ETF (VTI) seems ideal for small, long term investors.

2006-11-30T17:29:00.000Z

It's difficult being a little guy in the stock market. You can't afford your own research department, real brokers don't want to talk to you because your portfolio is too small, and if you try to diversify by buying single stocks your return will get crushed by transaction costs.

Exchange traded funds are an interesting way to get instant diversification, much like a mutual fund only with lower expense ratios, typically less active turnover resulting in better tax consequences, and typically less limitations like "minimum initial investment."

As ETF's go, VTI is interesting because it basically represents the return of the entire US stock market and has a very low expense ratio. It's current holdings include 3,713 different stocks. Pretty tough to beat that level of diversification with your own individual stock portfolio, huh?

If you are a believer in efficient markets, or you've researched the subject at all, you'll know that in the long term, VERY FEW fund managers manage to beat the market return. Obviously there are a few exceptions, such as Warren Buffet, but for the most part every mutual fund fails to beat the market over the long term.

Active Mutual Funds vs. VTI

According to this article on Fool.com, the average actively managed mutual fund has a 1.5% expense ratio. In comparison, VTI has an expense ratio of 0.07%.

As an example, say you are 30 years away from retirement and currently have $0 saved. You are going to invest $4000 a year until you retire. You can either invest in VTI or an actively traded mutual fund. The market over that time will return 12.2%. VTI has an expense ratio of 0.07% while the mutual fund has an expense ratio of 1.5%. It costs $7 a year to buy into VTI (scottrade), but nothing to buy into the mutual fund. Both funds return the same amount. Which is the better choice?

VTI

Total Invested: $124,000
Ending Account Balance: $1,126,018
Gain on Investment: $1,002,018
Total Expenses: $702
Total Transaction Costs: $217 + $7 to sell = $224
Total Investing Expense: $926
Investing Expense as Percentage of Gain: 0.092%

Mutual Fund

Total Invested: $124,000
Ending Account Balance: $979,597
Gain on Investment: $855,597
Total Expenses: $14,694
Total Transaction Costs: $0
Total Investing Expense: $14,694
Investing Expense as Percentage of Gain: 1.72%

And this doesn't even take into account the tax differences from the active trading of the mutual fund versus the passive trading of the ETF. When a mutual fund manager buys and sells stocks in the short term, they can pass through from the mutual fund in the form of short term gains - which are taxed as ordinary income. Unless you can offset these gains somehow with losses, it can prove to be VERY expensive. Currently, long term gains are taxed at 15% (5% for lower tax brackets). Short term gains are taxed at your normal tax bracket rate - say 25%. Even if, through short term buying and selling, the fund manager is able to outperform the market, the tax consequences may result in your return on investment being lower.

Conclusion

Everyone is different. They want to save different amounts, have different appetites for risk, want to retire living different lifestyles, etc. I don't recommend any one strategy. If you can, the best advice is to consult a professional and do your homework. However, I can say that most likely given the research I have seen, a mutual fund will not outperform the market and VTI is one of the cheapest ways to match market returns and be diversified.

Billionaire Wilbur L. Ross makes bizzare corporate bankruptcy prediction for 2007. Private Equity firms to blame?

2006-11-29T18:21:00.000Z

From this Reuters Article.

"Ross, dubbed the 'King of Bankruptcy' by Fortune magazine in 1998, said at a conference in London on Wednesday that defaults would rise to about 7 percent of all companies by the end of next year -- one of the most bearish predictions in the industry -- from about 1 percent now."

More information from an article in US News and World Report:

"A shakeout is coming, experts say. It is just a question of when. Many banks, law firms, hedge funds, and private-equity groups are already bolstering the ranks of their distressed-debt units and are gathering bankruptcy specialists for just such an occasion. Private-equity player Wilbur Ross, known for his astute nose in picking up distressed companies on the cheap, says it won't be long. Too much money is being paid to take on too much risk with too much debt, Ross warns, adding that bets by some highly leveraged buyout firms that they will be able to cheaply refinance their deals in a few years have "been building in a time bomb." In this scenario, higher default rates aren't just likely, he concludes; "they are quite inevitable.""

From what I can tell, Ross is saying that the debt markets are in big trouble because of the rise of Private Equity firms and their extensive use of leveraged buyouts to the point where the companies can't support the debt burden. A great example of this is the recent Hertz Global Holdings, Inc. (HTZ) IPO flop in which a few private equity firms dumped Hertz on the open market after increasing it's already heavy debt load in order to pay themselves a quick cash dividend.

If Ross's prediction is correct, the corporate debt markets are in for a real hammering in the next few years. It might be time to start looking carefully at the loan portfolios of major banks.

Things are looking up for Ford Motor Co.

2006-11-29T17:03:00.000Z

As a major part of it's "Way Forward" plan, Ford Motor Co. (F) had a goal of buying out 25,000-30,000 of it's 83,000 union workers. As of a few days ago, the rumor going around was that only 15,000 were going to take the offer - a stunning blow to management's plan for a turn around.

This morning it was announced that Ford had managed to buy out 38,000 of the union workers. Although the workers will be unemployed in the short term, from the sound of it these buy out offers will be good for the economy in the long term.

"The eight packages offered to employees ranged from $35,000 to $140,000 depending on their years of service, age and how close they are to retirement. One four-year package offered up to $15,000 per year for college tuition, plus half of the workers' salaries and health benefits. Another offer paid 70 percent of employees' salaries and tuition for two years."

And it appears that it will accelerate the cost cuting measures by Ford. Quoting from an article in this morning's Wall Street Journal [$$]

"Bear Stearns analyst Peter Nesvold said that his initial read of the attrition program is that Ford will increase its 2008 cost-cut target by roughly 6.7%, or $335 million. "While we were pleasantly surprised with the results, at this time we do not interpret them as materially greater than expected," Mr. Nesvold said in a note to investors."

In addition, Ford stated that it expects cash burn to be $17 Billion in 2007-2009. In the past, Ford has stated that it expects to be returned to profitability by 2009. The $18 Billion that Ford recently borrowed against it's assets will keep the company in a strong cash position so it can meet it's current obligations until the expected return to profitability.

Although there are still plenty of tough times ahead for Ford, it sounds like management is finally making progress on it's turnaround plan. The next big step would be for them to stop building so many cars with questionable design/build quality/reliability and start designing products that can actually compete with their Japanese competitors.

California Minimum Wage Increasing to $7.50 an Hour on January 1, 2007.

2006-11-27T20:01:00.000Z

The minimum wage (pdf) in California is set to become one of the highest in the nation starting on January 1, 2007. It will be raised again on January 1, 2008 to $8.00 an hour. If you look at the history of the California minimum wage starting with the increase on February 8, 1943, you can see that wages have gone from $0.45 an hour to $7.50 an hour over a nearly 64 year period - increasing 16 and 2/3'rds times. Annualized, this is an increase of 4.5%.

In 1943, working 40 hours a week for 52 weeks a year at minimum wage would produce an income of $936. Using the Bureau of Labor Statistics CPI inflation calculator, this amount had the equivalent buying power of $10,918.20 in 2006 dollars. Working the same number of hours after January 1, 2007 - the worker will have $15,600 worth of income. This is nearly a 43% increase over inflation, or 0.56% per year.

Interestingly, this will also impact exempt workers, who are paid salary. California law requires that these exempt managerial, professional, and administrative workers be paid at least twice minimum wage. From a good article on the subject on a law firm's web site:

"Thus, these exempt employees will have to make at least $2,600 per month (which amounts to $31,200 per year) starting January 1, 2007, and $2,773 per month ($33,280 per year) starting January 1, 2008."

Best Marketing Ever: Amazon (AMZN) Denial of Service's Itself.

2006-11-25T17:37:00.000Z

Browsing the web on Thanksgiving day, I noticed the Amazon "Customer Vote" deal was about to happen at 11am PST. An Xbox 360 Core System for only $100, wow, what a deal right? I figured, what the hell, I'll try to buy one and dump it on ebay or craigslist. Make a quick $100. For 15 mintes, I sat there trying to refresh the page. I tried the home page. I tried ANY Amazon page.

Effectively, Amazon caused a "Denial Of Service" attack on it's own website. So many people tried repeatedly to load the same page that Amazon's server resources, which are significant, couldn't handle it and stopped sending out pages. This didn't only effect the Xbox promotion. It brought down the whole website for 10-15 minutes.

This might not seem like a big deal until you start to think about it. Analysts estimate that Amazon will have $3.77B in revenue in the fourth quarter. Guesstimating that 50% of that business occurs between 11/15/06 and 12/23/06 (the last shipping day before Christmas), that means in 38 days Amazon does 1.88B - or $49.5MM a day. Now, figuring that most shopping occurs between 5am PST (8am EST) and 9pm PST (12pm EST) when most people are awake, that's 16 hours of shopping time or $3.1MM per hour. If the site was down for 15 minutes (1/4 hour), then Amazon lost $0.78MM worth of sales. And that doesn't take into account the fact that they are continuing this promotion every week until Christmas. I bet there are some worried people in their engineering department right about now.

If you figure those 1000 Xboxes cost $200 each, Amazon already lost $100 per unit on them or $100,000. Add the loss in other sales from the website failure of $775,000 for a total of $875,000. Each Xbox cost Amazon $875 a piece. BRILLIANT!

Kerkorian's rate of return on General Motors (GM): 4.26%

2006-11-22T23:08:00.000Z

According to this article from 10/12/06 by Nat Worden at TheStreet.com, Kirk Kerkorian's Tracinda Corp. purchased most of it's 9.9% stake in General Motors (GM) in May of 2005 for $31 a share. We'll assume this was 5/31/05.

Today is the 11/22/06, 540 days later. Kerkorian sold 14 million shares of GM to a private party for $33 a share - a total of $462MM. If he paid $31 a share for that big chunk, it cost him $434MM. That's a total return of 6.45% over a period of just about 1.5 years. Annualized, this works out to 4.26% - a VERY poor return considering this doesn't include transaction costs (like placing an employee on the board or buying the shares). Kerkorian could have easily done better by buying US Treasury bonds.

This brings up the point - what is Kerkorian doing? Is he planning on exiting General Motors altogether? With fewer shares, he has less voting power, and is thus less able to fight it out with management. Yet, he still currently has a significant stake in General Motors of over 42 million shares.

The news of the sale hit GM shares hard, ending the day down 4.66% at $31.09. Just a few days ago on 11/17/06 it closed at $35.37. A 14% slide in only 3 trading days is pretty severe, but I'm of the opinion that the worst is still to come.

The average US family should have an extra $7,039 a year to invest.

2006-11-22T17:48:00.000Z

The US government has some really fantastic data sources freely available to the public. I recently discovered the Bureau of Labor Statistics Consumer Expenditure Survey, which is absolutely chock full of information on the financial lives and spending habits of the average American. A great summary of this data is contained in "100 YEARS OF U.S. CONSUMER SPENDING" by Michael L. Dolfman and Denis M. McSweeney. Particularily interesting is the last portion of the report, from 2002-2003 (pdf).

From this report, in 2002-2003, the average American family had 2.5 members. It's after tax income was $47,787, and it's expenditures were $40,748. In order, these expenditures were as follows:

Housing: $13,359 (32.8%)
Transportation: $7,770 (19.1%)
Food: $5,357 (13.1%)
Personal insurance and pensions: $3,978 (9.8%)
Healthcare: $2,384 (5.9%)
Entertainment: $2,069 (5.1%)
Apparel: $1,694 (4.2%)
All others (lumped): $4,137 (10.15%)

The others category includes such thing as tobacco, reading and education, alcohol, personal insurance, etc. Read the report for more detail.

Present Value of Potential Savings

I found the present value of potential retirement savings using the following assumptions:

- Inflation rate of 3%
- Savings of $7,039 per year, increasing at the rate of inflation.
- Savings compound at 8% (low, considering the stock market average return has been 12.2% over the long run, but I'm being conservative.)
- Savings being at 21 (2003) ending at 65 (2046)

By the age of 65, the family will have $3,644,023 saved. The present value of this amount is $983,480.

Retirement

In 2043 dollars, the family will have $3,644,023 saved and expenses of $145,247. Assuming expenses increase at 15% annually to cover increased health care costs, how long will their savings last? Until mid 2079, when they are 79.5 years old. Life expectancy in the US is around 77.6 years, so they should have plenty of money to last through their retirement.

Conclusion

According to the Consumer Expenditure Survey, the average family should be able to save 14.7% of their after tax income. If this amount were placed in a tax free retirement account every year, it should be more than adequate to cover the cost of retirement.

Unfortunately, the US savings rate is currently -0.5%, mostly I believe due to massive overconsumption (for example - in giant houses).

Tom Vu says his system is different than other experts.

2006-11-20T21:38:00.000Z

Tuan "Tommy" Vu, famous for his incredibly awesome infomercials for a real estate system is still alive and kicking - as a poker player. In 2005, he placed 22nd in the World Series of Poker, earning $304,680 in one fell swoop.

I assume he's doing research for his next round of informercials - this time on an unbeatable poker system. I can hardly wait!

"You a loser! Get out of my way! I make it somehow!"

A short linux user's review of OS X.

2006-11-20T18:49:00.000Z

I've always been sort of a computer geek, and have used a whole variety of different operating systems for work, school, and just general entertainment. I've used pretty much the whole microsoft family (dos, windows 3.1/95/98/me/2000/XP/2003), a smackload of different unix-es (openbsd, freebsd, solaris, linux, etc), some oddball oses (beos, QNX, Nextstep), and the OLD Mac OS (think Mac Classic and older) but up until recently, I had never tried OS X.

I started with Linux back in the days of 486's. I ran slackware on my blazing fast 486 DX/2 50mhz. I spent hours and hours trying to get XFree configured (and succeeded!) I toyed around with it on and off for years, trying all sorts of different flavors. I was stuck on Mandrake for a while, then for a year or so, I went back to XP. For the last couple years, I've been using Ubuntu on my home machine exclusively. Compared to the old days, this distro is almost unbelievably easy. On my machine, everything just worked from the live CD. No configuring necessary. Automatic updates, Openoffice, Firefox, a variety of video players, and even some video games - it's a pretty tough act to beat.

Last week, I bought a Mac iBook. Honestly, I really intended to install Yellow Dog linux or maybe Xubuntu for Mac on it. But then I started playing around with OS X, in this case version 10.3 which came installed on my iBook. Here are some brief thoughts:

The GUI took only a few seconds to figure out. Still working on learning the key combinations. It's basically very similar to the old Mac OS interface, almost anyone can learn it. Everything has a very clean and crisp look and feel.

The wireless connections are unbelievably easy. I was able to get onto my school's network with virtually no effort. In stark contrast, the instructions on connecting for Windows XP from the school IT department are 14 steps long.

The terminal made me feel right at home. The file structure is different, but otherwise it feels very unix-ey.

The built in applications were nice, especially the preview app that opens PDF files. I'm not a huge fan of the Safari browswer - it had a lot of popups and crashed a few different times on me. Solution: Install Opera 9.02 for Mac.

Samba seems to work about 200% better than on my Linux box, which is very hit and miss. I was able to easily connect to a XP machine on my home network.

Microsoft Office 2004 is pretty damned slick. I picked up the student edition, and I like it very much. Very different from 2003 (which can be used in Linux via Codeweavers CrossOver Linux) and is in many ways better. Again, I haven't learned all the quick key combinations, and some are very different - but the learning curve isn't too steep.

Quicktime sucks. Seeing a message pop up about quicktime pro evertyime I want to use it is just downright sickening. It's slow, it's awkward, the interface is poor. I really dislike it. Windows Media Player is very superior to this garbage. I will probably end up installing the very excellent VLC media player for Mac.

Overall, OS X is pretty sweet. It's easier to use than Ubuntu, and has more commercial apps. However, it also lacks a lot of features and noncommercial apps. Given the choice between OS X and Windows, the choice is obvious. Given the choice between OS X and Ubuntu, I'd probably still have to choose Ubuntu for the higher cool factor.

General Motors (GM) will have negative shareholders equity as of 12/31/06 thanks to FAS 158.

2006-11-16T20:40:00.000Z

In the Q3 2006 Earnings Call on October 25, 2006 (9:30 am ET) General Motors CFO Fritz Henderson stated that due to a change in accounting rules for pensions, they "expect that reduction in shareholders' equity to be between $18 billion and $25 billion, and that is on a tax affected or after-tax basis" on the 12/31/06 balance sheet.

This change in accounting rules, FAS 158 (pdf), requires that underfunded pension plans to be posted to the balance sheet - a big change from only having to record it in the comment section. For a more in depth explanation, read this article from the New York State Society of CPAs titled "New Pension Accounting Rules: Defusing The Retirement Time Bomb". Basically, it boils down to the fact that both GM and Ford have made some BIG promises to employees, and have failed to sock away enough money to cover those obligations. In the past, this was ok because it wasn't directly on the financial statements and didn't impact all sorts of ratios. Starting at the end of the year, it will appear as a liability on the balance sheet.

What this really means:

If you're not an accountant, this all might be mumbo-jumbo to you. Let's break it down with a simple example.

Assets = Liabilities + Owners Equity

Say you have a house that's worth $400,000 with a mortgage of $150,000. What portion of that house is owned by you? $250,000 right? Plug that into the accounting equation:

$400,000 (Asset) = $250,000 (Liability) + $150,000 (Owner's Equity)

As you make money from your job, you plan to slowly pay down that liability until (hopefully) one day you won the entire house outright with no mortgage. Unfortunately, instead you have a medical problem and can't work for a few years. Instead of having to sell your house and move out, you refinance and pull out $100,000 of that "owner's equity" to pay the bills.

$400,000 (Asset) = $350,000 (Liability) + $50,000 (Owner's Equity)

What if instead of $100,000, you wanted to pull out $300,000? Would the bank loan you the money? Probably not, right? In fact, they'd probably tell you to go fly a kite since your house would only secure 72% of the debt.

$400,000 (Asset) = $550,000 (Liability) + ($150,000) (Owner's Equity)

The case of General Motors:

Now, say you are General Motors, and you have $470.5B of plants, inventory, equipment, etc (assets). You also currently have a LOT of loans - $458.9B.

Assets = Liabilities + Owners Equity
$470.5B = $458.9B + Owners Equity
Owners Equity = $11.6B

It turns out that they promised a lot more to employees than they actually saved up, to the tune of $18B-$25B. In the previous years, their balance sheet looked like this:

$470.5B (Assets) = $458.9B* (Liability) + $11.6 (Owner's Equity)

*Unreadable note that effectively says "we owe an awful lot more than that but fortunately we don't have to include all of our debt in this statement!"

FAS 158 rolls along and says "Woah there. This isn't the way to do it. How will the shareholders know that you owe all that money?" So now, it will instead look like this:

$470.5B (Assets) = $476.9B (Liability) + ($6.1B) (Owner's Equity)

Why does this matter?

So now you're thinking "This is just an equation, not real life. It doesn't really matter. Even good ol' Fritz said so during the earnings call." The CFO's words exactly:

"The practical impact of adopting FAS 158 are, to some degree, limited. No impact on pension expense. The statement didn't change how you determine pension expense. No impact on cash flow, no impact on benefit plans. Doesn't result in event of default under any debt covenant that GM has and doesn't have any direct impact on our ability to pay dividends under Delaware law. Under Delaware law, dividends must be paid out of surplus, which is defined as fair market value of the Company's assets, reduced by the fair market value of the liabilities and capital measured by the par value of outstanding stock. The accounting change will impact our book value under U.S. GAAP, but not necessarily the fair market value of GM's assets and liabilities"

The reality here is that GM has effectively "borrowed" more than it has assets to pay. Liabilities exceed assets, technically the company is insolvent. However, because of the length of the time to repayment on the debts and the amount of cash GM can generate through operations, it doesn't mean that the company will be suddenly declare bankruptcy.

What it DOES mean is that GM will have a hell of a time borrowing more money. Even if it is able to get loans, they are going to be at one heck of a premium to cover the risk of loaning money to company that may possibly be unable to pay them back. So both GM and Ford have moved to borrow what they can now:

DETROIT -(Dow Jones)- General Motors Corp. (GM) on Monday said it plans to execute a $1.5 billion senior secured loan with a seven-year term by the end of the year, an effort to take advantage of asset-backed fund-raising opportunities that may not be available to the company in 2007.

They want to max out the amount of cash they have now, because they are about to go through a period where they won't be able to easily get more until they dig themselves out of the negative shareholder's equity hole. In addition to the loans, they are also selling off assets to generate cash - the GMAC sale should result in $10B in cash for them.

But here's the catch: Restructuring is EXPENSIVE. And there are new debts on the horizon (Delphi Bankruptcy). If the market slows down further and GM can't sell as many cars or makes less profit on each one, they could be in for a sudden and deadly cash crunch. Between 2003 and 2005, GM burned through $10 billion in cash. In Q3 06, "the company showed negative cash flow of $5.1 billion, double the amount from a year ago, as it poured cash into restructuring initiatives and paid for a large U.S. sales incentive campaign, among other items."

Conclusion

Although the company is clearly more secure than it was a year ago, the risk of default is still hanging like a noose around the neck of the company. A further slow down in the economy could result in even stronger competition in auto sales, whittling away further from already razor thin margins. GM will be more vunerable than ever before by it's inability to easily borrow more money to cover short term liquidity issues.

Who is John Galt? Who cares! His internet gift store is badass.

2006-11-16T19:53:00.000Z

Found this shirt in my daily surfings.

Deeply tempted to buy one. Check them out on John Galt Gifts.com.

Grad school blues: It's all uphill from here.

2006-11-16T17:38:00.000Z

Whenever someone finds out that I am in gradschool, the first thing that always pops out of their mouth is "When do you graduate?"

I generally answer with complete honesty. "I have no idea."

This seems to perplex most people and really, it makes sense. How can you not know when you can graduate? You need a certain number of classes to graduate, and you can take so many per quarter. It's a simple formula. Number of classes / classes taken per quarter = estimated time to graduation. Well, I've made a number of mistakes in my graduate student career, the biggest of which was wasting my time with my current school, which shall remain unnamed.

I initially applied to a big name private school with a high ranked program. My test scores were good enough, my GPA was good enough. The problem, according to the Department head, was that I didn't have the right undergraduate major. "But your program specifically states that you don't have to have an undergrad degree in the field!" I argued. It was true; all the information from the school stated in writing that you didn't need to have an undergrad degree in the same subject. They even had an intensive summer session designed to bring non-undergrad-majors up to speed. "Well, I'm sorry, but the information is wrong. I recommend that you go to blankity blank public university for a year, then reapply."

So I applied to the public university. No big deal. I got accepted. I started taking the prereq classes. The funny thing was that when I started, I didn't realize how many "hidden" prereqs there really were. The school listed a certain number of classes that needed to be completed - but most of those classes had underlying prereq classes that ALSO needed to be completed. And did I mention that they had to be completed in order and couldn't be taken concurrently? It wound up being 5 quarters of school, which wound up taking me nearly 2 years to complete.

Now that I had "the required prereqs" I had a problem. Do I keep going to Ye Olde Public University (TM) or do I reapply to the expensive lying liar private school? Thinking about costs, benefits - I stuck with the public U. I applied to their grad program. I got in.

Then I was notified that I hadn't applied to the college. What? I'm in the university, I'm in the program, but somehow I missed the fact that I had to do another application for the specific college. I applied to the college. Another quarter down the drain.

Now that I really AM in the program, registering for the classes has been an absolute BITCH. Apparently, they had a problem with people not in the program taking the classes. You would think their fancy computerized registration system would prevent this - but I guess no one knows how to run it properly. Instead, we have to call the department and ask them to specifically give us permission for the classes we want to register for. It's like some kind of beauracratic nightmare. It takes days for them to process and in the meantime - other people who lucked out on the registration dates have already filled the classes you want.

Now I have a real problem. There is a class that is in the "required core" that everyone has to take. It is offered once a year, and there is only one class offered. It's amazing when you think about it. 70-ish people in the program, all of them need to take the class to graduate, and they only have 30 spots. While I was waiting for permission to register, the class filled. I am shit out of luck. I will still try to get in. I will beg/bribe/cry like a baby. But the odds are that now, instead of being able to graduate this upcoming spring quarter - I have to wait a full year for the class to roll around again.

Math:
2 years (pre reqs) + 1 year (program) + 1 year (waiting for class) = 4 years.

In this span of time, I could've completed Law School part time. Or been most the way through a PhD. I could've joined the Military and completed a commitment. On the plus side, I needed no student loans for this school - an impossibility with those other programs. On the down side, my degree won't be worth nearly as much as a law degree or a PhD. At this point, I have so much time invested that I really have no choice but to continue.

Future generations, hear me now:

1) Get a degree that matters in undergrad.
2) Don't try to change majors in Grad school, unless it's to a universal subject like a Law Degree.
3) College advisors lie.

If you think Google (GOOG) is overvalued, take a look at Yahoo (YHOO)

2006-11-15T21:59:00.000Z

Google (GOOG) came within $0.15 of $500 per share today, but ended up closing at 491.93. Per Yahoo Finance, Google's trailing P/E is a breathtaking 62.47. However, when you look at analysts projected growth of earnings from $10.29 a share in 2006 to $13.68 a share in 2007, it's price starts to make sense - forward P/E is "only" 35.96. Revenue will grow from 7.24B to 10.66B - over 47%. P/E numbers like that make sense when coupled with consistent growth; earnings outgrow the price as growth tapers off and the P/E falls into line with the market.

Yahoo (YHOO) is also growing, but not as fast. It closed today at $27.15. Revenue this year is estimated at 4.55B, next year 5.47B - a growth rate of only 20%. Trailing P/E is only 34.41, but forward P/E is 45.25 - higher than Google! In 2006, Google revenues will be 1.6 times Yahoo's. In 2007, it will be 1.95.

In other words:

1) Google is bigger
2) Google makes more money
3) Google is growing faster
4) Google shares are cheaper for 2007 earnings

I don't believe Yahoo has any strategies in the pipeline to drastically increase it's growth. Instead, Google is pretty much eating Yahoo's lunch. If Google's high price is unjustified, Yahoo's high price is a bad joke.

A drastic reduction in coffee intake.

2006-11-15T17:16:00.000Z

I've been averaging 2-3 mugs of coffee per day at work for the last few years. I say "mugs" because I have been using a giant coffee mug that holds something like 12 ounces of coffee. Clearly I have a mighty caffiene addiction. This is in addition to typically drinking a caffienated soda at lunch. So how much caffiene am I consuming on average?

A typical 7 fluid ounce (ca. 207 mL) cup of coffee contains 80-140 milligrams of caffeine, depending on the method of preparation"

We'll go with the midpoint between the two - 110 mg per 7 ounces = 15.7 mg / ounce. If I drink 3 mugs @ 15.7 mg/ounce, I have consumed 565 mg of caffiene. Let's say I have fast food for lunch from there. We'll say I have a 32 ounce mountain dew and refill it once. 12 ounces of Mountain Dew contains 55 mg of caffience or 4.58 mg/ounce. 32 x 2 = 64 ounces x 4.58 mg = 293 mg of caffiene.

As a guesstimate, I have been consuming on average 0.7 grams (700 mg) of caffiene a day, a minimum of 300 mg, and a maximum of a gram and a half. A lethal dose for the average person of my size and weight is around 17 grams.

The more I drink, the more tolerance I build up and the more I have to drink to keep away the sideeffects. Typical junky behavior. And obviously it's not good for me. It turns your teeth yellow, for a start. And it can give you ulcers. So I've decided to cut back. A whole lot. For the last two days, I've been drinking only a single cup of coffee, in the tiny 6 ounce styrofoam cups provided by my employer. For all of you out there that think "You can't be addicted to caffiene" I'd just like to say "Fuck you." I already have the start of a nasty headache and I am ornery as hell. I wanted to go cold turkey, but clearly that's not going to happen.

Etymology of business and the word busyness: "lively but meaningless"

2006-11-14T23:42:00.000Z

The online etymology dictionary states that the origins of the word "business" are:

O.E. bisignisse (Northumbrian) "care, anxiety," from bisig "careful, anxious, busy, occupied" (see busy) + -ness. Sense of "work, occupation" is first recorded 1387. Sense of "trade, commercial engagements" is first attested 1727. Modern two-syllable pronunciation is 17c. Business card first attested 1840.

(Side note: I had no idea what Northumbrian meant, so here is the wiki)

I used the word busyness in my previous post. I thought I had made it up, but dictionary.com said I didn't. Their definition:

"1. the quality or condition of being busy.
2. lively but meaningless activity."

Bearing in mind the two words are effectively the same, I thought the second was a particularily amusing definition. Almost all of us work, have worked, or will work in a business, and to think of it as "lively but meaningless activity" seems to peg American corporate life almost exactly.

Baraqyal: Joining the hippy elite.

2006-11-14T19:48:00.000Z

In September, I purchased a Subaru. Today, I bought an old Apple iBook. Sure, it's not the most "up to date" machine I could've bought, but it did meet my size and battery life requirements.

In the past, I had always argued that "Hardly anyone actually needs a laptop." My reasoning went that people buy them for the "cool factor" and most never move from beyond their desk. I vowed never to participate in that wasteful behavior.

So it turns out that I am a pretty busy guy. Much of that busyness recently revolves around writing huge volumes of papers that I doubt anyone will ever read. I got to thinking, gee, it would be nice if I could do this writing stuff more during my free time when I am away from my desk at home. Like when I am studying at the university's library, waiting for class to begin, or when I am at lunch. Maybe I really do need something portable. Also, I'm going to look pretty hip with my new fangled apple logo thingy. Everyone will be like "Damn, he's got tech and stuff." Then they'll see my Subaru wagon and say "Is he from Seattle? I so wish I could be like him!" All I need to do now is buy an apple logo for my car to fully communicate my full blown hippy statusing to all that are within range.

Casinos: Cash flows of operating a single slot machine.

2006-11-13T20:38:00.000Z

I've been thinking about slot machines lately. They seem to be popping up virtually everywhere, from dog tracks to local tribal land. It seems like anyone who can legally have one buys ten. How is this such a successful business that it is regulated like it is some kind of drug?

Just for fun, I'm going to guesstimate some numbers and try to figure out how this works. We'll say the average machine costs $1000. This might be a bit high, but that's the best I could find from my web research.

I'll make the following assumptions:
- 30 seconds per spin
- $0.50 average wager per spin
- Machine is active 1% of the time
- Machine has a service life of 5 years
- Hit frequency of 97%
- Payout percentage 93%

I'm going to run with a high payout frequency, cause I can imagine it taking a shorter period of time for the machine to reach it's payout percentage (which many states regulate). For example, Nevada law limits payout percentage between 80% and under 100%. I went with 93%, as it seems reasonable to me.

By my calculations, this machine would have 10,519 spins per year, and about $5260 wagered. These numbers are probably very low compared to reality, but we'll go with them anyhow.

If $5260 is wagered, then the profit is 7% of that or $368.20. Keeping it simple, here are the overall cash flows:

0: ($1000.00)
1: $368.20
2: $368.20
3: $368.20
4: $368.20
5: $368.20

IRR: 24.52%

Hearts of the Gods stats: Not exactly setting the world on fire.

2006-11-10T23:42:00.000Z

My first post here was 12/7/05, and my statistics started rolling on 12/15/06 so these are from 331 days of stats.

Page Views Per Day:
Mean: 25.13
Standard Deviation: 33.18
Min: 1
Max: 275

Unique Visitors
Mean: 16.21
Standard Deviation: 16.89
Min: 1
Max: 126

First Time Visitors
Mean: 13.69
Standard Deviation: 14.92
Min: 0
Max: 110

Returning Vistiors
Mean: 2.52
Standard Deviation: 3.08
Min: 0
Max: 26

The majority of the visitors are searching for specific search terms. Hardly any visit the first page, most visit the specific pages only. Probably 75% of the visitors go to the same 4 or 5 posts, and the rest of the 139 total are lost in the wasteland of the internet.

Like I said, not exactly setting the world on fire. But it is pretty impressive considering the number of people I can reach with a completely free media. There's even a possibility that this could eventually pay. My last calculation put my first check from Google as 8.2 years away. It appears now (4 months later) that I am only 5.5 years away. That's what I call progress!

5.5 years / 8.2 years = 0.67. Divide my 13.2 cents per hour of posting by .67, and I am now making 20.75 cents per hour. With a little luck, I will eclipse that factory worker in Ghana eventually.

Hugo Chavez using the US as a scapegoat for Venezuela's financial woes.

2006-11-10T17:14:00.000Z

"If sentencing is to be done," said Chavez earlier this week, "the first one to be given the most severe sentence this planet has to offer should be the president of the United States, if we're talking about genocidal presidents," the Miami Herald reported Thursday.

In a TOTALLY unrelated story:

"Nov. 10 (Bloomberg) -- Venezuelan President Hugo Chavez said the nation's banks are ``more solid'' than ever, in response to speculation that some lenders were facing cash shortages."

Basically, Venezuela instituted a series of "reforms" to trap money in the economy, basically by preventing banks from investing the money outside the country.

"The $25.8 billion of government debt held by 36 of Venezuela's largest financial institutions accounted for 46 percent of their investments at the end of June, up from 34 percent at the start of 2003, Fitch said. The banks held 5.2 times their equity in government debt at that time, the most in 10 years, up from 2.3 times in 2003.

Banks in Venezuela face limited investment options because currency restrictions imposed by Chavez in 2003 trap the cash that rising government spending pumps into the economy. Left to buy bonds, banks are more reliant on the government and on the oil revenue fueling Chavez's spending plans. Venezuela is the world's fifth-largest supplier of crude."

One of the major problems facing Venezuela is massive inflation. Take a look at the exchange rate of the Venezeulan Bolivar (VEB) with the US dollar (USD) (source)

2001: 723.7
2002: 1,161
2003: 1,607
2004: 1,891.3
2005: 2,089.8
Today: 2,147.3

Over a 5 year span, the Bolivar has dropped in value by almost 1/3 against the dollar. That works out to an average rate of inflation over the period of 24.3%.

Here's what REALLY doesn't make sense. Venezuela has unimaginable oil wealth. They have proven reserves of 75.6 Billion barrels - at the current spot price of $61.17, this is 4.6 Trillion Dollars worth of oil. Venezuela exports 2.1MM barrels of oil per day, equal to $128.5MM at current prices, or $46.87 Billion per year. At current rates, their proven reserve will last for 67 years.

You would think that the government would not be having problems with money. The entire population is only 25.7MM people, yet there is 12.2% unemployment and 47% of the population is below the poverty line. Well, the government spends more than it takes in: 39.63B in revenues, 41.27B in expenditures. They have a public debt of $36.2 Billion.

If inflation is 24.3% (16% for consumer prices per the CIA), this means banks need to lend money out somewhere in the 18%-26.3% range. Since it appears that there aren't many takers at this outrageous interest rate - the banks have been investing the money in government bonds at 4.61% for a 90 day government bond. The 36 banks in the Bloomberg story have 4.96 Billion in equity, which I suppose means they have something like $62 Billion in total capital.

It appears that the government has been partially funding itself by forcing banks to invest in government debt, then expanding the currency supply to make that debt worthless. 4.61% yield - 16% inflation = -11.39%.

The reports of cash shortages are symptomatic of some of the banks having a duration of debt that is much shorter than the duration of their loans and bond holdings. This means they will be unable to come up with the cash for payments that become due. Another possibility is that they have already burned through their equity and are now zombie financial institutions - deadly to an economy.

Hugo's policies are clearly hurting his economy directly. Inflation is out of control, the government is spending more than it takes in, and monetary policies are preventing banks from moving money out of the country. Instead of fixing these problems, he's decided to put the finger of blame on his countries biggest customer for oil - the United States.

Drudge Report must make very decent profits from advertising.

2006-11-09T19:35:00.000Z

Drudgereport.com is one of the most popular news aggregators on the internet. Based on the figures he states, I guesstimated his revenues:

"VISITS TO DRUDGE 11/09/06

023,788,151 IN PAST 24 HOURS
405,369,952 IN PAST 31 DAYS
3,562,389,712 IN PAST YEAR"

Further, he had a record traffic day on November 7 (election day) of "25.1 million page views, reaching more than 2.3 million unique visitors" Based on his numbers, he is averaging 9.7MM page views per day with around 894,000 unique visitiors.

I only know a little about Google adwords, and very little about high volume sites (Hearts of the Gods is VERY low volume in comparison). We'll use, from my research, is a very conservative number if he were using google adwords - eCPM of $0.30. I've heard of eCPM's as high as $60, but those are for very targeted sites. I'd imagine his is probably even lower than $0.30, but who knows?

9.7MM / 1000 x $0.30 = $2,927.99 a day average.
$2,927.99 a day x 365 days = $1,068,716 a year.

I'd imagine the server costs are relatively cheap, too. Today, his "default.htm" was around 33k. If each page view takes 300k of bandwidth, he is using about 2,800 gigs of bandwidth per month. With a little research, it appears that this wouldn't be that expensive - even if he were paying the extremely high amount of $5 per gigabyte, it would only cost ~$167,541/year. As far as I know, drudgereport has no staff.

Net income: $1,068,716 - 167,541 = $901,175 a year for putting up links to news stories everyday. Not too shabby, huh?

Giant American houses: another symptom of overconsumption.

2006-11-09T16:52:00.000Z

In the United States, the median size of newly built single-family residence is about 2,200 square feet (pdf). This works out to about 204 square meters. According to the 2000 census, there were 2.59 persons per household. So this means that the average American in a new home is using 78.76 square meters of living space per capita.

Comparsion to Asia:

China: 73.2 square meters, 2.93 persons per household, 24.97 per capita.

Japan: 97.6 square meters, 2.66 persons per household, 36.7 per capita.

South Korea: 81 square meters (pdf), 3.1 persons per household, 26.13 per capita.

Comparison to Europe (source, 2002, pdf warning)

Germany: 86.7 square meters, 2.1 persons per household, 41.3 per capita

France: 88 square meters, 2.4 persons per household, 36.7 per capita

Italy: 90.3 square meters, 2.6 persons per household, 34.7 per capita

United Kingdom: 85 square meters, 2.4 persons per household, 35.4 per capita

Spain: 85.3 square meters, 3.1 persons per household, 27.5 per capita

Averages:

US: 204 square meters, 2.6 persons per household, 78.5 per capita.
Asia: 83.9 square meters, 2.9 persons per household, 29.3 per capita.
Europe: 87.1 square meters, 2.5 persons per household, 35.1 per capita.

Converting back to square feet for readability:

US: 2200 square feet, 2.6 persons per household, 846 per capita.
Asia: 903 square feet, 2.9 persons per household, 311 per capita.
Europe: 937 square feet, 2.5 persons per household, 375 per capita.

In other words, new houses in the United States are 2.6 times as big as houses in Asia and 2.2 times as big as those in Europe.

In 2005, the median price of a new home sold in the United States including the land was $240,900 (pdf). A May 2006 study by the Federal Reserve Board of land value as a percentage of home value in major cities found that land averaged 51% of the cost of a home. This means the construction portion of the average home cost $118,041 while the land cost $122,859. Per square foot, this means the sales value of a home per square foot excluding land worked out to something like $53.66 - which is a bit off of the standard $100-200 PSF I have heard in the past. I'm going to run with it, though.

Analysis of waste in home building:

I can't assume that the cost of constructing a home scales exactly per square foot -this is obviously not true since a smaller home is more expensive to construct per square foot because some items like a roof, electrical, plumming, etc don't change in cost much when you have a smaller house. We'll adjust it by 50%, just for safety's sake from $53.66 psf to $80.49 psf.

If Europe can live in 375 square feet per capita, so can America. We have slightly more people per household (2.6 vs 2.5) so we would need slightly larger houses. 2.6 times 375 square feet = 975 square feet (or 90.6 square meters).

975 square feet x $80.49 per square foot = $78,477. Add back in the cost of land at $122,859, and your total home price SHOULD BE $201,336 - a difference of $39,564.

Cash flows of the wasted money.

Per Bankrate.com, the average 30 year fixed mortgage is currently at 5.8%. We'll assume the buyers put down 20% and paid the closing costs in full.

Payment:
2200 sq foot house: $1130.79
975 sq foot house: $945.08
Difference: $185.71/month for 30 years.

If this difference were invested in the market at 10% return with 3% inflation, the present value of this difference is $153,625!!!

Conclusion:

American preference for MUCH larger homes than world average is resulting in a tremendous waste of wealth. The direct costs of a larger home (mortgage payments, missed opportunity to invest cash flows) are hurting their ability to retire. In addition, the indirect costs, such as higher property taxes and MUCH higher energy costs are further eroding cash flows that could otherwise be invested.

By fully utilizing available working hours, the average worker can retire much earlier.

2006-11-08T20:01:00.000Z

From the data in my last post, the average worker is WASTING 57 hours of productive time per week.

What would happen if they picked up a job that paid only $4 an hour for this wasted time?

$4 x 57 = $228 more a week.

US worker: $1003 / 102 = $9.83/hour
California: $1100 / 102 = $10.78/hour
Los Angeles: $1092 / 102 = $10.71/hour

$228 a week = $11,856 a year.

So let's look at the effects of this cash flow of $11,856 a year on an average worker. After taxes, let's say this works out to $8,300. Let's imagine that they invest the entire amount in the market with a 10% annual return, and that inflation averages 3% and that the cash flow grows at the rate of inflation. Look at the PV of savings from this cash flow alone, when the worker starts at age 21.

Age 30: $112,661
Age 40: $327,168
Age 50: $736,363
Age 60: $1,518,092
Age 65: $2,145,212

If you STOPPED the extra work at the age of 30, and just let the $112,661 compound, you'd still end up with an extra $1,090,260 (in today's dollars) at the age of 65. In other words, 9 years of full utilization of available hours translates into being a millionaire at the age of 65 in today's dollars.

Instead of becoming an investment supergenius, playing finance games, the VERY BEST thing to do is maximize your income and minimize your wasted hours when you are young. Work 3 jobs, spend nothing, save every penny you can. Let the investment grow on it's own. You'll end up far better off in the long run.

Applying the formula to the Average Worker.

2006-11-08T19:24:00.000Z

In my previous post, I developed a very rudimentary method of looking at adjusting wages for wasted hours which could otherwise be used to produce income.

I found an interesting article at the Bureau of Labor Statistics website on average weekly wages from the first quarter of 2005.

US Average: $775/week
California: $872/week
Los Angeles County: $864/week.

For how many hours of work? The International Labour Organization maintains a database called LABORSTA, which I found referenced from the US Bureau of Labor Statistics (and I am inclined to believe it is a good source of data).

According to their data, the average worker in the United States worked 43.6 hours in 2005. Please note: I don't know what methods they used to come up with this number exactly, and how they factored in vacation time, holidays, etc. If you have a better source of data, please post it in a comment. This doesn't include time spent commuting, or being at work on lunch, so I will add another 1.4 hours and make it an even 45 hours.

We'll still run with the 102 available hours. Hours consumed by "raising children" and the like are a personal choice to reduce income and come with opportunity cost, so I won't factor them into the equation.

Unadjusted
US worker: $775 / 45 = $17.22/hour
California: $872 / 45 = $19.38/hour
Los Angeles: $864 / 45 = $19.20/hour

Adjusted
US worker: $775 / 102 = $7.60 x (45 / 102) = $3.35/hour
California: $872 / 102 = $8.55 x (45 / 102) = $3.77/hour
Los Angeles: $864 / 102 = $8.47 x (45 / 102) = $3.74/hour

168 hours in a week: How can I measure my own economic productivity?

2006-11-08T17:17:00.000Z

I've been trying to come up with a method to effectively measure my own economic productivity. My idea here is to find a way to figure out if I am optimizing my waking hours to maximize the number of dollars I can make per hour so I can compare different job options. My first attempt looks something like this:

1) Determine the maximum number of available hours.

There are 168 hours in a week. I want to start by determining the absolute minimum hours I need to consume to "get by" on a long term basis. I need to sleep 7 hours a day (49 hours a week). I figure I need another 7 hours a week for food, 10 hours a week for general "getting ready" type stuff such as shopping, showering, laundry, etc. So that leaves a maximum of 102 hours a week that I am available to produce income.

2) Hours consumed by current employment.

I work 8am to 5 pm, 5 days a week. It takes approximately 1 hour for round trip commute time each day. That's a total of 50 hours a week.

3) Hours consumed by other activities.

I'm currently in grad school. This consumes about 12 hours a week for class time, 12 hours a week of outside the class time, and 1.5 of additional driving time. That's 25.5 hours a week.

4) Available hours:

Of my 102 hours a week I am available to produce income, I am currently only utilizing 50/102 = 49%. I am spending another 25% of my time on a non-income producing activity, and the balance of 26.5 hours (25.9%) I am just wasting.

Options to produce more income

There are pretty much two things I can do to make more money: work more hours, or make more money per hour. But how can I effectively compare options? I've looked at other jobs that pay more, but I would also end up working a lot more. The ideal job would be one that pays infinite money with no hours worked. Since I am constrained by reality, the ideal job is one that pays a large amount per hour. And since I have nothing better to do until retirement, the ideal job consumes 100% of my available hours while paying that large amount per hour.

A forumula to adjust income for wasted hours

Let's imagine two scenarios:
A) $2000 week with 102 hours consumed by work = $19.60/hour
B) $1500 week with 50 hours consumed by work = $30/hour

Per hour of work, A is making $19.61 while B is making $30. Yet, that doesn't explain the whole story since B is wasting 52 hours a week of potential income producing time. If B used 100% of the time, they would make $3060 a week.

Adjusted:
A) $2000 / 102 = $19.60 x (102/102) = $19.60
B) $1500 / 102 = $30.00 x (50/102) = $14.71

See the difference? B adjusts her income, and ends up realizing that she isn't making as much as she could be.

Let's try another example.
C) $320 week with 40 hours worked = $8/hour
D) $400 week with 20 hours worked = $20/hour

Adjusted:
C) $320 / 102 = $3.14 x (40/102) = $1.23/hour
D) $400 / 102 = $3.92 x (20/102) = $0.77/hour

D is obviously making far more money per hour than C, but is WASTING 82 hours a week of potentially productive time. If both C and D worked 102 hours a week, here's how the adjusted formula would come out.

C) 102 hours x $8 = $816 / 102 = $8 x (102/102) = $8
D) 102 hours x $20 = $2040 / 102 = $20 x (102/102) = $20

The point I am trying to make here is that a job that pays more per hour is only better when you can also work the same OR more hours. The ideal is using ALL of your productive time producing income, and not ending up wasting any of it.

The part time job example

E) $1000/week with 50 hours consumed = $20/hour
Adj E) $1000 / 102 = $9.80 x (50/102) = $4.80/hour

Add McDonalds job, 20 hours paid per week @ $6 an hour, 4 additional hours consumed from commuting/etc. $120/week for 24 hours.

E) $1120/week with 74 hours consumed = $15.14
Adj E) $1120 / 102 = $10.98 x (74/102) = $7.97/hour

Conclusion

The purpose of this formula is to quantify, in purely monetary terms, the income produced from time spent working AND the value of not wasting extra hours. So many people want to retire early, but instead of spending more time producing additional income - they spend time playing with their investments. Others are satisfied with their yearly salary, but never pause to consider the number of hours they need to work to produce this salary and other available options.

I'd appreciate it if you'd leave comments and suggestions to improve this formula.

Election Day: hoping for deadlock.

2006-11-07T23:32:00.000Z

I'm not a Democrat, but I sure do hope they win the House tonight. It would also be nice if they lost the Senate. I'd like to see maximum Federal government deadlock. As far as I'm concerned, the less the government is able to "get done", the better it will be for our economy as a whole. Even the things that sound nice like tax cuts really only are nice when coupled evenly with spending cuts - something which neither party seems to be really capable of doing.

Instead, I'd like to see Congress burn off all their energy fighting it out with each other and the President, Monica Blewensky-style. Maybe they can investigate the face shooting Cheney, I'm sure that'd be good for a few laughs.

In more important news, Britney decided to ditch K-Fed, her worthless Vanilla Ice like husband. I don't know his music, I've never heard much about him, but I know from the media that I'm supposed to hate him - so by god I do. Here's looking forward to a few years of absolute chaos in the Federal government and an eventual appearance by teh Britster in Playboy.

Powder River Basin Coal Jobs

2006-11-06T20:39:00.000Z

I've had a fair amount of interest in my Gillete Wyoming post, but mainly from people looking for work in the coal mines.

Just to help you out, I thought I'd try and put together direct links to the employment or human resources pages of the various coal companies. Good jobs are hard to come by, and I'd like to see my readers do well.

Foundation Coal Holdings (Belle Ayr)
Arch Coal (Black Thunder)
Rio Tinto (Cordero/Rojo, Jacobs Ranch, Antelope)
Peabody Energy (Caballo, Rawhide, North Antelope/Rochelle Complex)
Western Fuels Association (Dry Fork)
Kiewitt (Buckskin)
Black Hills Corporation (Wyodak)

Please bear in mind that I am not a coal miner, so I don't know what it takes to get hired, or if these are even the best places to look. You may want to start with the United Mine Workers of America.

Good luck with the job search!

A cooling economy? Thoughts on the automobile sector and a review of negative thinking.

2006-11-06T19:28:00.000Z

For a while now, I've been convinced of two things:

1) The economy is destined for a slow down.
2) The big 3 automakers are going to get hit, particularily General Motors (GM)

In December of 2005, I wrote that a recession was on it's way. I also wrote about the possibility of a bankruptcy at GM, which the doom and gloom crowd thought could cause a collapse in the derivatives market. In May, I wrote about the financial shenanigans at GM that caused them to misstate income.

I became convinced that Ford (F) was undervalued because of the problems at GM. Four months later, I decided I had been totally wrong as conditions at Ford deteriorated and it's stock price suffered. My initial "buy" idea was at a price of $7.88. In July, it fell to $6.56. Today, it is back up to $8.64. 6 months ago, it looked like GM was in more trouble than Ford. Today, it looks like just the opposite.

Obviously, I have been the victim of short term thinking and have fallen for the "bear case". US unemployment recently hit a 5 year low at 4.4%. Inflation may or may NOT be in check. The housing market has cooled considerably, yet the effects have not seriously impacted the US economy (yet). Oil prices, particularily the end user price of gasoline, have dropped.

From looking at the most recent 8-K filed by General Motors ("OCTOBER 2006 GM SALES") it sure looks like the better results are partially being driven by an increase in sales of light trucks and SUVs.

"Silverado, up 107 percent; Tahoe, up 104 percent; and Suburban, up 83 percent."
"triple-digit increases for the entire Escalade lineup"
"a 338 percent increase for 9-7X."

For the month of October, light trucks sales were up 38.5% over a weak 2005. Car sales were up 2.5%. It also now appears that the Delphi Bankruptcy obligations are about to be settled in the neighborhood of a predicted $6B - which has already been recorded.

Joseph B. White wrote in an article titled "A Comeback for SUVs? Not Really" in the November 6, 2006 edition of the Wall Street Journal "Nothing makes a monthly or quarterly result look better than having suffered a debacle the previous year. Add a generous helping of new models and pump up the cash back and discount financing offers, and a mediocre month can masquerade as a good result. In reality, it looks like the car business is in for some rough sledding going forward" (I can't link as it requires a subscription).

I still must be a sucker for the bear case, since I currently believe the following:

1) Gas isn't going to get cheaper unless there is a major drop in consumption.
2) Trucks and SUVs are on the decline due mostly to consumer preference.
3) The Big 3 still rely on SUV sales.
4) Interest rates aren't going lower in the near future. They may very well increase.

I still think the economy as a whole is in a pickle. So much potential for inflation, so much government issuance of new debt, and the possibility of the Euro replacing the Dollar with the central banks really concerns me.

Ford is definitely in big trouble, but I think they will come out of this mess stronger in the long run - due to cutbacks, restructuring, and retaining it's finance company. General Motors, on the other hand, seems to be making a lot of insipid changes. They aren't cutting back production much. They sold their finance company. They may be working to restructure some of their long term problems, but it sure seems to me that they aren't making the moves that need to be made.

I still the negative thinking problem. And I still think there will be a readjustment. So in another year, I will recap again, and show what an idiot I was once more. For entertainment purposes, here are a few predictions:

Dow - Now: 12,109.71, Nov 2007: 10,292
Nasdaq - Now: 2,369.49, Nov 2007: 1,900
S&P 500 - Now: 1,380.67, Nov 2007: 1,100
Ford - Now: 8.64, Nov 2007: 6.50
GM - Now: 34.61, Nov 2007: 20.00

Dodge Nitro = Jeep Liberty = Jeep Cherokee

2006-11-06T18:27:00.000Z

Daimler Chrysler (DCX) in it's infinite wisdom, has decided to further push the very slightly updated Jeep Cherokee again in new sheet metal with the new Dodge Nitro.

Basically, it appears to be a downmarket Jeep Liberty. Base prices are lower, starting at $19,225 vs. $21,365. This is deceptive though, as Jeep has been offering some crazy financing options to try and boost lagging sales.

You may have seen the TV ads for this small truck where the owner of Nitro gives an ailing car owner a jump - and ends up blowing the car into the sky. This is to demonstrate the supposedly AWESOME POWER of it's 3.7L V6. Honestly, I think this is a candidate for biggest bullshit ad of the year.

Per Edmunds, the Dodge Nitro weighs in a nearly 4000 lbs (3932 for a manual SXT to be exact). It has 210 hp and 235 ft/lbs of torque. This works out to 18.72 lbs/hp.

Lets compare it to a 2000 Jeep Cherokee. Curb weight of 3145 lbs, 190 hp, 225 ft/lbs of torque. This works out to 16.55 lbs/hp.

Sure the Nitro is bigger. Sure, it can tow more. But where it really counts to most people - acceleration - it's a real dog. Truck trend estimates that it's 0-60 is 9.6 seconds and it's quarter mile is 16.9 seconds. Hardly what I would call powerful.

Let's look at a superior competitor for comparison - the 2007 Nissan Xterra. Base X style manual starts at $20,050, and you can get discounts from there. It weighs in at a hefty 4150 lbs, but it's 4.0 liter V6 produces an impressive 261 hp and 281 ft/lbs. This works out to 15.9 lbs/hp. For the same price, you get Japanese reliability, a bigger truck, MUCH more power, and you can tow more. Even the gas mileage is comparable - 17/22 for the Xterra, 18/22 for the Liberty (and most likely, the Nitro).

I am a big fan of the Cherokee. But unless Daimler Chrysler can start knocking out engines with more power and less weight, I don't see how they will ever revive the winner of a truck that they used to have. No one wants a slow truck, no matter how much bigger or "tougher" looking it is than the previous generation.

The new beta version of blogger has some big improvements.

2006-08-17T15:25:00.000Z

Here is a post in blogger buzz about it.

I've been playing with the beta version a bit. Imported most of the John Hoaxford University website over to Hoaxford @ Blogspot. The tags are a nice feature (which has been available for some time on most other blog sites. The design feature is pretty sweet.

The downsides are that it no longer allows you to edit the raw HTML of your template (although they claim it is coming) and that FTP site design is gone. This second feature, which allows you to do content on your own domain, sure would have been nice to keep around, what with the fancy site designer and all. You could have a nearly complete web design and content platform that is free. Alas, google decided to make "dynamic" pages instead, and thus eliminated the FTP feature. I don't understand why they can't just generate static content pages for the tags instead - as far as I can tell, that's the only thing that is dynamic about it.

I suppose the constant updating of static pages was getting to be a real drain on their servers. Still, it's a hell of a nice system, and I'd like to be able to use it for generating my own websites, domain and all.

Gillette Wyoming interests me very much.

2006-07-26T19:59:00.000Z

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.