Category Archives: Economic Growth

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.

 

80% of VC money goes to just 3 states

A whopping 80 percent of all venture capital investment goes to just three states. That has to change. – Recode

VCs discriminate against women: Just 2.19% of total VC money went to female-founded startups in 2016.

VCs discrimate against anyone over age 30 and especially over age 40

Meanwhile, Facebook spies on everyone and uses that data to propagandize us with messaging designed to control our minds.

The tech industry is looking pretty damned awful right now.

High tech lobbyist thinks US tech needs more government subsidies

“Other nations have responded with smart, well-funded innovation policies like better R&D tax incentives, more government funding for research, more funding for technology commercialization initiatives.”

Source: The U.S. Drops Out of the Top 10 in Innovation Ranking – Bloomberg

Basically, the bastions of free market capitalism want taxpayer funded subsidies like everyone else.

What if Blockchain is not that useful?

There are downsides to blockchain technologies and processes (blockchain algorithms power Bitcoin and other cryptocurrencies):

Each purported use case  —  from payments to legal documents, from escrow to voting systems — amounts to a set of contortions to add a distributed, encrypted, anonymous ledger where none was needed. What if there isn’t actually any use for a distributed ledger at all? What if, 10 years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?

Source: Ten years in, nobody has come up with a use for blockchain

I suspect there are good uses for blockchain, however, the point is well taken. In the 1980s, I worked at a company that built a spreadsheet product that was so simplified that people who did not know algebra could use it. This seemed like a great break through. What was the problem? People who did not know basic algebra concepts did not have problems in life requiring a spreadsheet!

In other words, the technology was great but completely missed the target audience.

The linked article identifies many disconnects between proposed blockchain use cases – and the real world. A very interesting read.

 

Union angry at Amazon’s new self service mini grocery store pilot test

The largest union representing grocery-store workers has come out strongly against Amazon.com’s launch of a store sans cashiers, a sign of how a recent generation of futuristic technology comes with a dose of angst for big parts of the workforce.

Source: Grocery-workers union lashes out against new Amazon store | The Seattle Times

When workers cost $20/hour ($15 minimum wage + $4 to $5 for benefits), while technology costs are falling, numerous businesses are moving from variable cost labor to fixed cost automation.

The feature photo I attached to this post is a photo of a self order kiosk I took inside a McDonald’s in St. George, Utah. Starbucks has a mobile app that let’s customers place their own order ahead of time. Another coffee shop I visit has, at times, flipped their order entry app (its just an iPod on a stand) around and let customers place their own orders and pay with a credit card, when they are short staffed.

The market (meaning the public) will determine if this is what people want or not.

 

5G Mobile networks built to support #IoT capacity, drive huge economic growth

Now the 5G, or fifth generation, wireless revolution is near, promising data speeds 50 to 100 times faster than 4G LTE networks. Sure it’ll improve smartphones, but that’s not the point. Analysts say 5G’s biggest impact will be to drive the proliferation of the Internet of Things — billions of connected devices.

The business case for 5G is all about IoT, an evolution, or maybe revolution, that will take the internet era into new territories.

Source: Why The Race To Wireless 5G? The Internet Of Things | Stock News & Stock Market Analysis – IBD

From a business perspective, #IoT applications will drive demand for 5G high capacity data networks, which in turn, drives demand for more antenna sites (smaller cells), fiber optic networking to link more, smaller cells, new RF chip devices (article mentions Qorvo, which is funny, since I am sitting in a building next to Qorvo as I write this:) ), more revenue to cellular service providers, and more data centers.

In this context, #IoT may drive a cycle of enormous investments and economic growth.

Retailers using automation to reduce labor costs

Source: Retailers looking to save on labor costs turn to automation

$15 per hour minimum wage, $4 to 5$ hour in benefits adds up while the costs of automation fall dramatically. The former is a variable cost while automation is mostly a one time fixed cost. Labor intensive service businesses have advanced beyond experiments with automation and are now rolling out various solutions. The “featured image” attached to this article is a pair of self order kiosks in a McDonald’s in St George, Utah (photo by me). Starbucks offers a mobile app that let’s patrons order products in advance for pickup when the customer enters the store. If widely adopted, this could reduce the labor needed to take orders. To the extent these steps free up labor that may then be applied to higher value services, this will be good for all. But in some situations, this may simply free up labor – reducing the number of jobs. Plus, some of the people whose jobs become automated may lack the ability to learn new higher-value skills.

Industrial automation will lead to autonomous/no workers factories

“You will see completely lights out factories for manufacturing,” said Rowan Trollope, senior vice president and general manager of Cisco Systems’ IoT and Collaboration Technology Group. “You’re going to see manufacturing technologies that are even easier to automate … that are really going to transform manufacturing.”

Source: 8 Internet Of Things And UC Technologies You’ll See In 10 Years – Page: 1 | CRN

This is also somewhat true for the service industry. A combination of automation and self service will reduce labor requirements. Long ago, the ATM machine did indeed reduce the need for bank tellers. Service service check outs at stores (grocery, hardware, department stores) has reduced staff needs. Some restaurants are using apps for self order/data entry by customers, and others are using a combination of self order kiosks and customer self service (Think of filling your own soft drink cup at a fast food restaurant.)

Minimum wage laws, the new requirement in some locales to pre-schedule workers two weeks in advance, and the expense of health insurance will cause a rush to replacing labor with automation. These changes were going to happen eventually but new costs associated with labor will accelerate this change.

To the extent this frees up labor to purse other, higher valued added functions, this can be a net positive with improved economic efficiency. However many will not be in a position to migrate upwards to provide higher value – this will cause disruption and hardship that will lead to government legislation that requires economic inefficiency.

A good example of the latter is Oregon’s law that prohibits individuals from pumping their own gas into their own car. Oregon is the only state in the U.S. that outlaws self service fueling of your own vehicle. This is a “make work” law – and consumers pay for it in the form of higher prices and longer waits for service and refueiling. Yet that is how government responds to this sort of problem. Next: A ban on using apps to self order at restaurants? Who knows.

Why on-the-job training has mostly vanished

Is On-the-Job Training Still Worth It for Companies? – Businessweek.

The relationship between employers and employees is such that jobs are rarely long lasting anymore. As a result, employers do not wish to invest in worker training for fear they will not see a return on investment. Another fear, not mentioned in the article, is that training workers with new skills often implies they should earn more money – which employers prefer not to pay. And when the employer does not pay for those additional skills, the employee leaves for elsewhere.

An issue in my field is employers seeking applicants with a long list of degrees and certifications, paid for by the employee. But employers are not paying much more for the employee’s own investment – the result is employers are expecting more but paying less for that value. Which is another way of saying that pay is going down, even if the $ value looks greater.