Category Archives: Business

Personal finance: “FIRE” doesn’t really mean “retire early”

True:

In truth, “FIRE” should be “FICC” for “financial independence change careers.”

Source: What I learned about the FIRE movement while making a doc about it

I have followed several “FIRE” blogs from people who save aggressively (generally a good thing) and “retire” at 30 or 40. I admire them for practicing frugality (something we have practiced too). I am now retired, albeit, at the age when many people have retired (old dude, ok?)

I too noticed that most FIRE practitioners did not retire, exactly, but often took advantage of their near financial independence to work independently, on their own schedule – instead of the usual corporate rat race. That’s not  bad thing either – in fact, it sounds like a great opportunity for many!

But there are some hidden “gotcha” expenses that may be lurking for FIRE adherents in the near future …

Continue reading Personal finance: “FIRE” doesn’t really mean “retire early”

Business: Dumpster divers put their found items up for sale on Amazon, often as “new”

Dumpster divers say it’s easy to list discarded toys, electronics and books on the retailer’s platform, where just about anyone can set up shop. So we decided to try.

Source: You Might Be Buying Trash on Amazon — Literally

Another trick is to sell products that have a “best if used by date”, after that date has come and gone. They likely purchased these items at fire sale prices from legitimate vendors who do not sell expired products. The Amazon consumer, however, has no way if knowing that they are buying a product (think food or even OTC medication) that has expired.

Continue reading Business: Dumpster divers put their found items up for sale on Amazon, often as “new”

Energy: Should you buy carbon offsets, an EV or solar PV to reduce your environmental impact? It depends.

Some people think they should buy carbon offsets to reduce their environmental impact.

Others think that by switching to an EV, they will reduce their CO2-emissions.

And of course, some think that by installing solar PV panels, they will cut their CO2-emissions.

The reality is far more complicated. In some cases, buying an EV may increase your overall lifetime CO2 emissions especially when your electrical utility produces most or all of its electricity by burning coal and other fossil fuels. Similarly, installing solar PV panels when your utility is already 100% greenhouse free will likely increase your lifetime emissions of CO2. How? Because of the GHGs emitted during the solar PV panel manufacturing and installation and ultimately, not offsetting any GHGs because your utility is already GHG emission free.

Most people are oblivious to product’s lifetime GHG emissions, ignoring that for most products, the greatest production of GHG emissions is during the product’s manufacturing.

Continue reading Energy: Should you buy carbon offsets, an EV or solar PV to reduce your environmental impact? It depends.

Transportation: #Drone delivery of consumer packages is mostly hype but does have some specific good use cases

This euphoria is largely based on assumptions that drones inevitably deliver better customer service at lower costs with a better environmental footprint than conventional delivery by a driver in a parcel van. These claims are little more than flights of fancy that cloud a more realistic assessment of the potential for the use of drones in logistics.

For the technology to work in commercial practice, however, the economics must also work.

Source: Commentary: Drone-Delivery Projects Must Look Beyond the Hype – WSJ

The primary value in drone delivery may be

1. Delivering value dense items that need to be delivered quickly. Medicine is the classic example.

2. Very short hop delivery. The USPS is experimenting with drones that launch from your local postal delivery vehicles to carry small packages up to home door steps, rather than having the postal worker have to take time to walk that distant (and deal with loose dogs!)

3. Delivering items to remote customers, not urban customers. When a delivery truck comes through my neighborhood, they commonly stop and deliver packages to multiple homes. This is pretty efficient. But delivering to remote (e.g. farms, ranches) and rural properties is not as efficient.

The dreams promoted by Google, Amazon and UPS of zillions of drones flying miles out from warehouses to drop off low value packages at consumer homes are not realistic at this time.

Increases in student loan availability lead to increases in tuition and fees

Stated another way, the more money poured in to student loan programs, the higher the tuition charged. Tuition goes up because of student loans rather than the view that student loans go up in response to higher tuition.

Consistent with the model, we find that even when universities price-discriminate, a credit expansion will raise tuition paid byall students and not only by those at the federal loan caps because of pecuniary demand externalities. Such pricing externalities are often conjectured in the context of the effects of expanded subprime borrowing on housing prices leading up to the financial crisis, and our study can be seen as complementary evidence in the student loan market.

From: Lucca, D., Nadauld, T., Shen, K. (2015, 2017). Credit supply and the rise in college tuition: Evidence from the expansion in Federal student aid programs. Staff Report no. 733. Federal Reserve Bank of New York.

As the authors note, this is similar to other areas where a third party supply of money causes prices to rise – such as the effect of cheap mortgages causing home prices to rise.

A similar effect occurs in health care where third party “insurance” benefits are an enabler of higher priced health care services.

Whenever the cost of goods are services are subsidized such that their immediate direct costs are lower than the market clearing price, demand for those goods and services will increase. As demand increases relative to supply, the prices charged increase to a new actual and higher market clearing price.

Student loan programs are a major cause of tuition hikes. Cheap mortgages are a major cause of rising home prices. Health “insurance” is a major cause of higher prices charged in health care.

Consumer finance: Consumers voluntarily take on large debts at Christmas time even though they cannot afford to

Yet, despite being worried about debt, consumers will still spend an average of $1,679 on gifts this year, 75% more than last year, Experian found.

That’s a hefty additional expense considering that last year, Americans racked up more than $1,000 in holiday debt by the end of the season, according to MagnifyMoney’s annual post-holiday debt survey.

Less than half of shoppers, or 42%, said they would pay off that debt in three months or less. More said it would take five months or more to pay it off, MagnifyMoney found.

Source: How to avoid overspending this holiday

When you read that American’s are “financially vulnerable“, they often have themselves to blame for voluntarily making decisions to take on debts for the wrong reasons.

Health care: New rule requires hospitals and insurers to make prices accessible

Imagine if grocery stores had secret pricing that you did not know until you selected which credit card would be used for payment at check out. And the secret prices would vary based on which credit card you used. Your receipt would not list the items you purchased but would show meaningless “FCD-10” codes for each item. Do you think secret grocery prices would lead to higher or lower prices?

Hospitals and insurers contend that disclosing their negotiations would be counterproductive and predict it would have the perverse effect of driving up prices.

Source: New Trump administration rule to make more health care rates public – SFGate

The hospital/insurance cartel argument is in opposition to centuries of economics theory.

Transportation: The 2020 Ford Escape Hybrid works as an EV in town, or gas powered/EV hybrid on the highway

The Escape’s surprise is the new plug-in hybrid, an intriguing model that promises an EV range of at least 30 miles before the four-cylinder engine kicks in to help. In the real world, this means folks with shorter commutes can drive to and from work without ever using a drop of gas.

Source: 2020 Ford Escape Hybrid Review: Why It’s the Best Way to Escape – Motor Trend

This is very innovative and solves the big weakness of current EVs – which is the ability to do long distance car travel without having to make numerous recharging stops. Youtube is filled with videos of EV enthusiasts showing how they have driven cross country “successfully”, where success is not what most people want to do. For EV enthusiasts, the challenge of making it work is the whole point, whereas for the rest of us, getting from point A to point B is the purpose of the drive.

The two main problems for cross country travel, depending on vehicle, are the need to stop every few hours and, if a rapid charger is available, plug in for an hour or more to top off the battery. They try to do this with a stop near a restaurant or coffee shop, if possible, but since rapid charging stations are at limited locations, this may put you at less than desirable cafes within walking distance.

The second main problem for EVs is that for those of us who live in cold winter climates (most of North America, geographically), the range is reduced by 20% to 30% in cold weather. This occurs both due to the effect of cold on the battery chemistry and due to using the battery to power the vehicle’s electrically powered heater.

The hybrid approach used here by Ford overcomes these limitations of EVs – enabling EV operation around town, which is likely half or more of the total vehicle miles driving, but then adding gas-based for longer trips.

Finally, EVs are not “carbon free”. For example, where I live, 56% of our electrical power generation comes from coal-fired power plants. Thus, EVs here are 56% powered by coal. (We are installing solar PV on our house within a few weeks, so there is that option – but power generation is greatly reduced during the winter months.)

 

 

Health policy: “The U.S. can slash health-care costs 75% with 2 fundamental changes”

This makes a lot of sense, thus it will never happen, unfortunately:

Fund the HSA deductible, as Indiana and Whole Foods do, and put real prices on everything.

Source: The U.S. can slash health-care costs 75% with 2 fundamental changes — and without ‘Medicare for All’ – MarketWatch

The Affordable Care Act, according to co-architect Jonathan Gruber, was about coverage. As he put it, in his own words “we paid lip service” to cost controls. In fact, in the unsubsidized individual market, insurance premiums rose by 100 to 200% (that’s two to three times higher prices). This market is probably about 18 million people, plus another 6 million or so who remain uninsured due to the high prices and are not normally counted.

How expensive is the ACA market? For those in their 50s and up, premiums may cost thousands of dollars per month, with $2,000 or more being common. That’s $24,000 per year for a high deductible “insurance” plan – often meaning $30,000 or more out of pocket before receiving benefits. Surprisingly, the subsidy cut off level for 2020 is about $68,000 per year. If you earn this much or more, you are not eligible for any subsidy assistance. You’ll pay $30,000 out of pocket on your $68,000 pre-tax income – and you still need to pay taxes, housing, food and transportation costs.

Actual price quote, HealthCare.gov, 64 year old married couple living in Laramie, WY – this is the cheapest Silver plan.

How did this absurdity happen? Jonathan Gruber made numerous errors in crafting the ACA. One of which is that the subsidy cut off level is determined as a factor of the regional poverty income level. It has nothing to do with actual insurance prices. Gruber never envisioned insurance premiums rising so high, so rapidly. Thus we have absurd cut off levels having no relationship to actual prices of insurance!

Part of the reason prices rose so rapidly is because 35 state run high risk insurance pools were shut down and all of their high cost/high risk patients were moved into the ACA individual market. Prior to 2017, some of these high costs were shared with most insured people in the country. But beginning in 2017, these risk sharing measures were ended and the individual market had to share these costs exclusively, turning the individual market into a de facto high risk/high cost insurance pool.

For those that are subsidized, the Federal taxpayer picks up the extra charge. In fact, through various quirks, many subsidized consumers pay less than they did in 2014, and some even pay ZERO premiums – receiving insurance for free.

Meanwhile, those in the unsubsidized market have seen a doubling or tripling of their costs to the point they have been forced to drop out of the market. Much political ventings drones on about the Individual Mandate but that is irrelevant. The ACA itself exempts people from the mandate if the least cost Bronze plan exceeds about 8% of your household income. This turns out to be true for most families in their 40s and up and most married couples in their 50s and up.

The primary point of the ACA was to provide insurance access to the non-group market. Contrary to poplar misconception, the HIPAA of 1996 provided pre-existing condition exclusion protections to all those with employer sponsored insurance. Medicare, Medicaid and VA coverage already provided protection. Nearly everyone had pre-existing condition protections – except for the small non-group or individual market (actually about 24 states enacted their own forms of protection). The ACA provided those protections but at the expense of pricing millions out of access – which is a big miss for an Act whose title begins with “Affordable”. (Technically it was Patient Protection and Affordable Care Act but still…)

Finance: Consumers taking on negative equity to buy new cars

While working out the gym this week, I heard several ads on the local radio station urging consumers to take on more debt. One was for an airline promoting that you can now get a loan to pay for your vacation trip – this is not a wise idea.

This was followed by an ad for a local car dealer encouraging you to trade in your car, even if you owe more on a car loan than the car is worth. In the hyper rapid voice over at the end of the ad they mention this means taking on negative equity. In other words, going further into debt!

You take out a loan to buy a car for $25,000. Three years later the car is worth $15,000 but you still owe $20,000 on the car. You trade it in to buy a newer $30,000 car and roll over the $15,000 value of the used car to pay off $15,000 of the $20,000 remaining. Since you come up $5,000 short on the old car loan, you roll this over to the new car loan. Congratulations, you now owe $35,000 on your $30,000 car. That’s called negative equity.

When I heard the ad, I could not believe consumers could be this naive.

Borrowers are responsible for paying their remaining debt even after they get rid of the vehicle tied to it. When subsequently buying another car, they can roll this old debt into a new loan. The lender that originates the new loan typically pays off the old lender, and the consumer then owes the balance from both cars to the new lender. The transactions are often encouraged by dealerships, which now make more money on arranging financing than on selling cars.

More: A $45,000 loan for a $27,000 Ride: More Borrowers are Going Underwater on Car Loans

The lead anecdote in this story replaced his car 4 times in two years, each time taking out a larger loan (saying he had to do this due such things as a divorce, mechanical problems, and then wanting a larger vehicle). The article says 1/3d of those trading in a car took on negative equity loans.

As a general rule, its better to borrow money for items that deliver long term value. For example, home prices appreciate over time because multiple industries have persuaded government for police that make this happen. Taking out a loan for a high level education and degree may make sense for jobs that generate future high incomes, particularly professional degrees in health care, engineering, business and potentially law. It does not make sense to take out a loan so that you get a minimum wage job without benefits at Great Clips.

How can you buy “stuff” if you do not take out a loan? You work hard, avoid spending like crazy including buying less than you can afford at the time, and save your money.

Wealth = Assets – Debt

Many people prefer to look wealthy and do so by spending and borrowing, under the misconception that

Wealth = Assets + Debt

During The Great Recession, the local paper ran a story about the business of automotive repossessions (when debts were not paid). All of those interviewed had similar stories – the typical auto repossession was at a large, new house, with two newer SUVs, a $35,000 boat and an RV (trailer or mobile home) – all paid for using debt. These people all looked wealthy to the outside world but only because they confused the definition of wealth.