The Capitalist Maven

I remember one of my recurring assignments from my 6th grade science class.  We were supposed to find an article about some sort of scientific endeavor in a magazine, read it, and write a summary.  I tended to gravitate toward articles in Popular Science and its sister publication Popular Mechanics.  In these magazines they tended to have alot of speculative articles about future technology.  Two subjects I remember distinctly:  the electric car and the flying car.  Keep in mind, when I started the 6th grade the year was 1990.  Here it is almost 20 years later and has either of these actually made it into the mainstream, let alone even niche markets?  The answer sadly is a resounding:  No.

I remember after reading the electric car article, the author hinted that development was very close to completion and they should be hitting the market in the next 5 years.  Great, I thought, they should be showing up right around the time I get my driver’s license.  What a great idea for a first car but one that doesn’t even use gas?  I’ll have enough trouble saving up for a car wouldn’t it be great to buy one that didn’t need gas?

I expressed this great idea to my classmates.  I was shocked at the reaction.  “Why would you want an electric car?”, they asked.  “They will be slow, they will look crappy, your electric car will suck.”  I thought it would be a great idea to save gas.  My classmate’s disagreed, “Gas is cheap, $10 to fill up, whatever…”  (Yes you could fill your tank for $10 as recently as 1990…)   With prevailing attitudes like this, it’s no wonder the electric car never made it.  Blame the oil companies all you want but I think it’s clear that the reason we still don’t have an electric car is because we don’t want one.  When I turned 16 I didn’t have to worry about getting a “sucky” electric car, I got a “sucky” gas powered model…

We don’t have an electric car for the same reason that the single bike rack in my 13 story office building never fills up.  People would rather pay top dollar than give up even a tiny bit of convenience.  Unless Americans can go to the gas station and recharge the battery in 5 minutes or less, I don’t think we’ll ever more than a niche market of people to go electric.  How many people besides me, don’t have a car charger for their mobile phone?  Not many.  My phone and probably most others offers something like 100 hours of standby time and 10 hours of talk time on a single charge.  Why would you ever need to charge your phone in the car?  Answer: because you forgot to charge your phone the night before.  Forget to charge your electric car and you can’t drive to work in the morning.

Hybrids happen to be American idiot proof.  However, they offer little efficiency advantages over better performing turbo diesels. They carry around at all times: a gas engine, an electric motor, batteries, fuel and fuel tank, and all associated power control equipment to make sure this all works together, it’s no wonder that hybrid versions of mainstream cars only get about 5 MPG better than their conventional counterparts.  A hybrid is clearly nothing more than a stopgap, that will fade away when the tax incentives end and they are no longer “cool.”

So think about it for yourself, are you willing to do what it takes to go electric?  Until alot more people can say yes, we won’t see an electric car.

Jon Economy

Well with the Memorial Day weekend, the heating season in New England is officially over. Personally I would have declared it over April 1st and turned off the furnace, but I was vetoed by my fiancee whose thermoregulation abilities are not quite as adept as mine.

So now is time to look back over the heating bill for the season. From 10/12/07 - 5/15/08 we used 1138 CCF. That total also includes gas for hot water, cooking, and clothes drying, which I estimate at 12 CCF per month. So 1138 CCF total - 84 CCF non-heating = 1054 CCF heating. We are actually billed in therms (not sure why they can’t just bill in the unit that the meter measures) so multiply by 1.031 to get therms: 1054 x 1.0337 = 1087 therms. During the period the total heating degree days were 5951. Giving a therms per degree day of 1087/5951 = 0.1827.

Considering that this winter was the coldest of the last 3 years that I’ve been tracking I’d say I did alright. The same periods in the ‘05- ‘06 and ‘06-’07 heating seasons were 5799 and 5653 degree days respectively. Don’t blame the leap year because February 29th, 2008 only accounts for 52 degree days… Unfortunately I have not lived in the same place the past 3 heating seasons, so next year when I actually plan to stay put, I’ll get a real basis for comparison. I used weatherunderground.com to obtain my data.

Recently I’ve been increasing annoyed by all the people complaining about their oil heat bills. I grew up in a region without the crazy oil heat infrastructure that exists in New England. Where I lived in western Pennsylvania, your choices for heating were gas or electric. I think there may have also been some propane infrastructure in place but it was unusual. It was clear for most people gas was the cheapest alternative, although heat pump electric was highly competitive. Resistive electric heat was a clear loser. So I showed up in New England and experienced my first winter.

It seemed so crazy all these oil trucks driving all over the place, in fact it seemed highly inefficient. Have a bunch of guys drive a bunch of trucks, manually filling a bunch of tanks, many of which were filled even before they were empty. Then there were the advertisements, offering specials on delivery, locking in your price, fixed monthly prices, etc. Oil much like gas is a commodity: its prices are really determined by futures traders in Chicago and New York, not that screwball townie who owns the heating oil delivery company. So all these crazy offers that he gives you are nothing more than creative mixes of futures contracts and marketing, to obscure the fact that all you are really paying him for is moving some oil from his tank to your tank.

Natural gas companies are far more forthcoming with their pricing, they clearly delineate delivery charges from gas charges. While gas is a commodity and its price is determined by the market, delivery charges are not. You pay them for safely delivering a constant gas pressure to your house. It’s somewhat unfortunate that there is only one set of pipes in the ground because it gives gas companies a monopoly. It’s tough to say competition would work either, how could companies differentiate their services? My pipes are better than yours? Unlikely. I’d be curious what Milton Friedman’s opinion on this apparent natural monopoly would be. Nonetheless, I’m still going to guess that gas costs far less to deliver than oil even without competition.

What’s given heating oil an advantage for so long is the low price of oil. If it takes 1000 therms to heat my house for the winter, thats equivalent to 721 gallons of heating oil. Check out the calculator here. With gas, those 1000 therms cost me ~$1800. So my breakeven price vs. oil is $2.49 a gallon delivered. It’s clear that until recently oil had a price advantage. To get an accurate measure of true oil costs I found http://www.codoil.com/. Here you can just put in your zip code and get a spot price for an oil delivery without any fancy futures contracts or marketing gimmicks. A truck will show up at your house and fill you up for the price quoted. Want price stability? Hedge it yourself. Buy UHN, the US heating oil ETF. Say you think you will spend $2000 on heating oil, instead of paying a company for a contract, buy $2000 of UHN. When you need an oil delivery, sell shares to pay for the fill up. If you estimated your usage correctly when you bought the shares, you’ll find that the shares of UHN will exactly pay for all your oil. If the price is up when you buy your heating oil, your shares will be worth more. If the price is down when you buy your heating oil the shares will be worth less. In the end the shares should exactly track the price of your heating oil. Pretty neat huh? No calling around and deciphering marketing gimmicks, just a quick and easy deal provided to you by Wall Street not that monkey in an oil truck.

I’d love to buy a natural gas ETF and do the same thing for my heat, but unfortunately due to state regulations the utility is not allowed to offer market based pricing for gas and we are stuck paying a fully hedged rate that while it results in stable prices, does not always get us the best deal…

Jon Budget, Economy, Investments

Unfortunately for me, Verizon is now a cable company. I fondly remember the good old days of Internet service. You know, when every year the price would go down. It used to be something like $20 a month for 20 hours of internet access. Then they gave you 50 hours. Then it was unlimited. Then the price dropped to $10. Then they offered DSL for $40 a month. Then DSL dropped to $30. Then $20…

Then I moved and couldn’t get DSL any more. Signed up for Comcast Internet for $40 a month. No problems. Then Comcast kept increasing the price of their TV service enough that when I moved again, I took the leap to FIOS. It seemed like a good idea at the time. It was new technology, their prices were better than Comcast, and they didn’t have the bad reputation that Comcast does. I didn’t know just how painful Verizon could be.

First came the installation, where I signed up online. I was told I would receive an email confirmation within 24 hours. It never came, so I called. I was told that my order didn’t make it into the system, but they would gladly enter it for me. Problem now was the soonest installation date was 2 weeks later. Grrr. So two weeks later, the installer shows up. He really was a good guy, very knowledgeable, and did a wonderful job. The problem was it took a good 6 hours to do the install so I had to take a full day off work. What a pain…

Then comes the first bill, which reflects none of the discounts I was to receive. I was supposed to receive:

1. A $25 Target gift card

2. First month free

3. $10 off for months 2-7

So I called to find out what was up. They said they could not add this promotion after the fact but that they would give me a one time credit for it. I cross my fingers and wait for next months bill. Sure enough they had come through as the next months bill showed a $25 credit, a $39.99 credit, and a $50 credit.

Fast forward 8 months… Month 8 bill shows the charge for internet is now $44.99, not the $39.99 I paid the previous 7 months. So I call to complain.

First CSR: “Price went up.”

Me: “I’d like to cancel my service.”

First CSR: “There is a $99 early termination fee to cancel your service before 12 months.”

Me: “So you could raise the price to $100 a month if you wanted to and I would still have to pay $99 ETF?”

First CSR: “Yep”

Me: “Sounds alot like extortion don’t you think? When my wireless service changes terms they give me 30 days to cancel without penalty ”

First CSR: “Yeah it sounds bad to me too, tell you what, I’ll talk with my supervisor”

10 minutes later

First CSR’s super: “First CSR gave me the scoop, turns out you didn’t have a contract, we can change prices any time we like.”

Me: “So there’s no ETF?”

First CSR’s super: “Yeah you still have to pay the ETF because we gave you a free install. The terms of the free install were that you maintain service for 12 months. So no contract you can cancel anytime, you just have to pay us back for the free install.”

Me: “I think you are going to lose alot of customers with deceptive tactics like this.”

First CSR’s super: “If you think we’re deceptive you are going to love Comcast…” (apparently it’s no big secret that customer service in this industry is non-existant)

Me: “Agreed, that’s why I going to give RCN a try in August when my “no contract” 12 months are up. Have a good day.”

First CSR’s super “Thanks for calling Verizon.”

Angered, I run through all the stuff on my desk trying to find the T&C from when I signed up for FIOS. I find it! I knew I saved all this old crap for a reason. Here’s a word for word copy of the pricing terms (I have 5/2 service):

“First 30 days free with bill credit. Monthly rate of $29.99 (5/2 or 10/2 Mbps) and $39.99 (15/2 or 20/5 Mbps) applies to month 2-7. Monthly rate of $39.99/$49.99 applies to month 8-12. Rate increases after term plan expires”

It states pretty clearly that month 8-12 are $39.99 and the rate will not increase until the “term plan expires.” So I call back.

Me: “I already called today about the price of my internet service being increased and I found that T&C outlining the price.”

Second CSR: “OK what does it say”

Me: I read off the above statement.

Second CSR: “Your bill hasn’t reflected that offer at all.”

Me: “I know, I had to call and they gave me a service credit for it.”

Second CSR: “Well it looks like they already gave you credit for the $5 difference for the months 8-12.”

Me: “I don’t have my bills in front of me but it sounds like if what you say is correct, everything is fine”

Second CSR: “The promotional offers are very confusing”

Me: “Certainly had me confused, thanks for your time”

So then back to check the bills, sure enough he was wrong, I didn’t receive any $20 credit for the months 8-12 increase. At this point I have given up. They have exhausted me. It’s just not worth my time to keep pursuing this for $20 as I’m sure the next step will involve faxing in copies of bills and T&Cs and several phones calls. In the end, they will lose however when my $40 a month is going to RCN and not to them.

Shame on you Verizon.

Jon Budget

It’s now clear that anyone who has been taking the realtor’s snake oil, “It’s a great time to buy”, is horribly disappointed. If you’ve been reading this blog for a while you might remember my post disputing the commercials that the National Association of Realtors have been running. Again it looks like my assessment of the situation is spot on: Gov’t home price index posts largest drop in 17-year history. Many experts are predicting this mess will take another 2 years to work itself out. That doesn’t leave much time in the Realtor’s 10 year timeframe for your house to “double.” Good luck with that.

Jon Economy, Investments

I an effort to promote their environmental friendliness a regional water bottling company, Poland Spring, had a display set up in our office building today.  They we talking about recycling empty water bottles.  Sounds like a good idea right?  Lots of waste is generated by empty water bottles.  But wait a minute, those bottles used to be full right?  Full of nothing more than water (8 pounds per gallon) and shipped all the way to Boston from Maine.

You want to talk about waste?  Let’s talk about the waste that is shipping something that is very heavy and commonly available everywhere.  Unlike other bottlers that bottle somewhat locally to minimize shipping, every bottle of Poland Spring comes all the way from Maine.  The Dasani that is available in Boston is bottled in Ayer, MA, 30 miles away.  Nonetheless it’s still silly to ship it.

Poland Spring makes the claim that all their water is natural spring water from Maine.  Someone concerned about contaminants might see this as a selling point.  But go ahead and visit Maine.  They still have factories.  They still have roads.  They still store gasoline tanks underground.  All the usual suspects are there.  Water is water.  The testing standards for public drinking water are so high that’s it’s really hard to do any better drinking out of a plastic bottle.

Here’s a better idea for recycling your water bottles.  Rinse them out and refill them with tap water,  put the cap back on and they’re good as new.

Jon Economy

This weekend my fiancee and I went to look at tuxedos for our wedding. Some of our friends had told us about how they had gone to Men’s Wearhouse for their tuxedos and received a great deal of around $60 per tux. So this weekend we decided to go looking. We went to a store called MW Tux, which my fiancee assumed was where they went. Sure enough the store was owned by Men’s Wearhouse apparently having been taken over a few months ago. Nowhere was the $60 deal to be found. The lowest price in their catalog was $106.99. The saleswoman showed us some tuxedos and my fiancee picked out one that she liked. We asked about the price: $130 and change. I asked if there is anyway to cut that price down. Then she throws out the pitch that my tux will be free because we have 6 groomsmen. I counter that, I will personally be paying for all the tuxes so I’d like to cut the price down. (Side note: At the $60 price that I expected, I was planning to pay for all the tuxes in place of a groomsman gift.) She then offers the $106.99 tux and states that this is the least expensive they have.

So I went outside and called my friend. He said that they had actually gone a regular Men’s Wearhouse store after hearing about the deal at some kind of bridal event next door at Long’s Jewelers. We went to the same store as our friends and asked for the prices, sure enough they were the same as MW Tux. We asked the salesman about the special our friends had received. He said it must have been a show special but that all the shows were done for the year. Ugh. Since I have 6 groomsmen, the nearly $50 difference in price adds up quite quickly. I decided to head home to research this situation. The salespeople clearly had an informational advantage over me that I needed to resolve.

Here’s what I’ve found. Apparently Men’s Wearhouse, Mr Tux, and After Hours Formal Wear have all gotten together and created a huge national monopoly in the tuxedo market. All of these places are now working for George Zimmer… I also found several mentions of the promo prices from various shows in a quick google search. I also found on the Men’s Wearhouse site itself that there will be a show upcoming in my area. I wanted to just sit tight until the show since our wedding is still 4 months away but the fiancee was less patient. She wanted to go back and negotiate. Even though these places seem to operate like used car lots in terms of salesmanship, I don’t think they have much room for negotiation on price. The promos come down from corporate management. So we went back to MW Tux and they explained that we could go ahead and order today and that if the show price was lower they could cancel the order and reenter a new order. We’ll see how well this works…

It’s clear that even the tuxedo industry is preying off the typical wedding sentiment that price is no object. They seem to be counting on the fact that people will not shop around, that they will not do research. And, since somebody else is paying, that couples will not be price conscious.

Jon Budget

It seems I’ve been reading many articles lately where the author contends that CPI(consumer price index) is not a accurate benchmark for inflation. They claim that because gas and food have been increasing in price so dramatically, that the CPI is not a true reflection of reality. In my usual “everything you heard is wrong” style, I’m going to argue that this is yet another attempt at media manipulation of the economy and inflation is just fine.

The first step in looking at this problem is to analyze my personal budget. First let’s look at the largest expense, housing. My rent has stayed steady for the past 3 years. Although I can’t see the landlords actually reducing our rent, it’s clear the rental market in my area is weak. I make it a habit to monitor the Craigslist rental market to see how things are doing. Sure enough I am seeing some of the same listings I saw last year come back up as leases expire. Most of them are for the same price, I’ve found a few that seem to be slightly lower however… At first glance this doesn’t make much sense. The housing market is crashing, people aren’t buying, so they must need somewhere to live right? In fact, I’ve seen alot of what appears to be townhouses and condos that the owner is now renting out due to them not selling. So a flood of properties coming into the rental market along with the declining Massachusetts population makes for little to no rent inflation. It also raises another good point, property values are falling in general which is a deflationary effect.

I just got my car insurance bill for June 08 - June 09. Again, no change whatsoever over the same period last year. My mobile telephone bill is the same as it’s been for 6 years. My cable/internet bill has stayed constant though only because I changed providers. My expenses for fun stuff, like computer and video games also seem to be relatively constant.

Now for the things that did seem to show inflation, which can be summed up quite easily: food, fuel, and travel. In reality my grocery bill really hasn’t gone up at all, in fact while it’s difficult to compare exactly due to a being highly irregular month to month, I would say it’s actually gone down. The grocery store sales have been good and I’ve gotten even better at finding the deals. Where I have seen some food inflation is at restaurants. The entrees at Olive Garden have seemed to creep up a dollar or 2 over the past 5 or so years. I remember when the Grand Slam at Denny’s was $1.99 (it’s $5.99 now).

Yes prices at the pump have been increasing. I’ve hedged against this with investments in energy ETFs. I’ve also started riding my bike to work on nice weather days. Overall I’d say the run-up in gas prices has treated me well as I’ve made alot of money on these funds and riding a bike to work has various physical and mental health benefits. The natural gas heating bill was high this year but that was just because it was freaking cold (global warming my a*%) not because natural gas was more expensive. For the 06-07 heating season it was $1.24 per therm vs. $1.19 for 07-08. It actually went down $0.05 per therm (explain that you crazy inflation freaks). The increasing price of fuel has also shown up in airline ticket prices. While alot of the price increase is due to capacity to reduction, I’m willing to accept that even without the capacity reduction prices would be up. For example, there really haven’t been many capacity cuts to MCO yet prices are up a good 10% over last year.

In looking at the overall picture, the things that have shown the big inflation are a relatively small part of my budget. They also happen to be prices that are highly visible. Sending off that constant rent check every month doesn’t have much visibility. Car insurance is only revisited once a year. The monthly phone/internet/cable bills are unchanging and unexciting. Yet shopping for food and gas is something that is done every week. It’s fresh in our memory, we notice when the prices go up. Yet all those big unchanging expenses in the background go completely unnoticed so we assume inflation is high. Don’t buy the hype, dig into your own personal budget and see if your inflation is as bad as they claim. Just because one or two highly visible but relatively low expenses are getting higher doesn’t mean your overall expenses are.

Jon Budget, Economy

I’ve been hearing alot lately about how food prices are supposedly skyrocketing, yet I have yet to actually experience any increases in prices. Perhaps its because sale prices have not gone up or coupons have been better. For whatever reason I have not noticed any grocery bill inflation.

Right now there are some great deals on groceries that are available nationally that I’d like to point out.

1. Silk Soy Milk - $2.25 printable coupon - You can print 2 from every computer you have and regular price on this at my local grocery store is $2.99, so I get a half gallon for $0.74.

2. Post Honey Bunches of Oats - $2 printable coupon - Again 2 per computer, and it’s actually gone on sale for $1.88 here in New England making it free.

3. Yoplait Yogurt - Save $0.55 on 6 - My store doubles coupons and has them on sale for $0.50 each so it comes out to $1.90 for 6 yogurts.

4. Arm and Hammer Laundry Detergent - $1 printable coupon - My store has these on sale for $1.99, so its $0.99.

Individually these deals might not seem like alot but if you print out 2 of each and use them all, you are saving $12.70, that’s not bad for a few minutes to print them out.

Jon Deals

If you check out my recent posts, you’ll know I’ve been saying “there is no recession” for a long time. For example on March 4, I posted an observation about mall parking lots being full. I noticed the overflowing mall parking lot again on March 24. On April 2, I posted in response to the stock market realizing the possibility that there was no recession. Then on April 30th I posted in response to the Q1 GDP numbers indicating for a fact that we were not in a recession as of March 31st.

For weeks I’ve felt like the only person on earth who didn’t believe the recession hype. Now at least one writer agrees with me: Ben Stein. Check out his article from Yahoo! Finance that was posted today.

“Reports of Recession Greatly Exaggerated

This is as true of giant national events as it is of neighborhood ones. I’ve been involved in many of these big events, from Watergate to the Drexel/Michael Milken junk bond scandal. The media simply never gets it right. They give an impression, highly colored by the inexperience, bias, and laziness of the reporter. Most of all, in national events, the reporting is based upon the reporter’s urgent need to magnify his or her own importance. This is only human, but it’s good to recognize it.

I’ve been thinking about this a lot because in the last few weeks, we’ve seen a barrage of data buried in the back pages of major newspapers telling us that the “recession” everyone said was a certainty, the “recession” that the reporters assured us would be about as bad as the Great Depression, is simply not happening.

The bond markets have rallied staggeringly. The stock markets had one of their best months ever in April. The rate of defaults on corporate bonds remains extremely low. And index securities that track mortgage defaults are saying that the fear of a colossal national mortgage default epidemic was ill-founded.”

In the coming weeks I’m sure we’ll see more writers and reporters coming on board the “no recession” train. Those sticking to their doom and gloom predictions will lose creditability. For those of you keen to stock market investments, you would be well advised to get on now as the markets have much more room for recovery. I know my money is going to the stock market!

Jon Economy

Today another good headline on Yahoo! Finance: March trade deficit drops by bigger-than-expected amount. It’s politically popular right now to complain about how we are sending all our money overseas, particularly to China. It’s been my contention that a free market determines the best place to send its money and any imbalances will correct on their own, we don’t need government to tell us how to spend our money.

“The politically sensitive deficit with China dropped by 12.4 percent to $16.1 billion, the smallest level in two years, as U.S. exports to China climbed to the second highest level on record, led by sales of medical testing equipment and computer chips. At the same time, imports of Chinese products dropped sharply, reflecting lower demand for cloths, textiles and toys.”

Sure enough we are sending less money to China, without a single government policy to force the matter. In my previous post on the balance of trade I calculated that the trade deficit as a percentage of GDP in 2007 was 5.14%. Using the annualized numbers for 2008 from the Q1 GDP report we have:

58.2 billion x 12 monhts = 698.4 billion annualized trade deficit

698.4 billion trade deficit / 14,185.2 billion GDP = 4.92%

This shows continuing improvement over the 5.14% number I calculated for 2007, all in the face of record high prices for oil imports.  So don’t believe what you hear on TV, the United States economy is doing just fine.

Jon Economy