Archive for August, 2008

You’ve probably heard the expresssion, “if you can make it in New York, you can make it anywhere…” which implies that if you can become successful in New York city then you’ll have the skill an aptitude to make it anywhere in the world.

As I’ve traveled the world this year I come to a simple conclusion, if you can’t make it in America, you can’t make it anywhere!

There is no place anywhere in the world where it’s so easy to get a home loan, credit card loan or small business loan to start a business.   In most states in the US, filling out a simple piece of paper affords you the right to run almost any kind of business.

Contrast this with the endless bureaucracy  of India’s business forms, processes and taxation or the capital deprived and militant countries of Africa or the oppressive regimes in the middle east hostile toward anything western and you finally begin to truly appreciate the business opportunities in America.

Have a great Labor Day weekend!

Why not?  If US Treasury can own Freddie and Fannie, why not throw FDIC into the mix.  Why don’t we just have the US Treasury buy up Ford & GM while we’re at it?

This is yet another alarming crack in the already stressed dam we call the American financial system.   Don’t say you weren’t warned people!

 (Reuters) – Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.

The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.

The borrowed money would be repaid once the assets of that failed bank are sold.

Bair said such a scenario was unlikely in the “near term.” With a rise in the number of troubled banks, the FDIC’s Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.

In a bid to replenish the $45.2 billion fund, Bair had said on Tuesday that the FDIC will consider a plan in October to raise the premium rates banks pay into the fund, a move that will further squeeze the industry.

The fact that the agency is considering the option again, after the collapse of  just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis, the Journal said.

Did you get that, “just nine banks this year” and FDIC is already borrowing.   Compare that to the S&L crisis where it borrowed money towards the end of the crisis.

A little over a year ago, I wrote this post questioning The Simple Dollar’s math regarding the benefit of a home made burger vs. McDonald’s $0.99 double cheeseburger.    The math was close and depending on what variables you included it was pretty much a wash.

It’s now a year later and inflation has made the cost of beef, cheese, condiments, and other ingredients go up dramatically these past twelve months.   I was amazed to pay $18.00 for three NY strip steaks (uncooked) at Costco this past weekend when I went shopping.   The cost of beef has gone sky high recently and doesn’t appear to let up.

I hope Trent will redo his home made burgers and enlighten us all on the new adjusted cost but I suspect that won’t happen.   If it does happen, it may wait till beef goes on some super sale where the numbers can be distorted to make the scenario fit the argument.   As for me, I can go buy 3500 cheeseburgers if I wanted  because some of my investments have paid off handsomely recently and that’s what I’m all about.

I’ve written about abandoning Ford as my auto manufacturer of choice after years of letting me down with recalls and lack of innovation but now Ford & GM are asking for a $50 billion dollar loan from tax payers to keep their crummy companies up and running.

I have a suggestion for Ford & GM, you don’t need $50 billion, what you need is to hire some strong leadership with strong vision. Since your executives and board of directors can’t seem to learn new tricks then I’d like to give you some freebie suggestions:

1. All your cars need 300,000 mile FULL WARRANTIES. I don’t care how many years it takes to drive 300k miles, whether 1 year or 20 years, your autos (like Toyota’s) should last forever!

2. Innovate! Innovate! Innovate!

a. All your vehicles should come with built in WiFi. Work out a deal with Sprint, AT&T or whoever to get WiFi standard in each car.

b. After you hook up the WiFi, make my car talk to a network somewhere so I can get useful real-time traffic maps and routing to/from my work/home; I want to get home to my family as quickly as possible after work, help me get closer to my family with these features.

c. Install a small printer on every auto. When I drive up to Wal-greens, have the Wifi locator print a coupon for Wal-greens so I can get some chips and soda at a discount. When I drive up to a movie theater, have it print my tickets to the movie. When I stop at a grocery store, have it print out some coupons to save me money. Instead of asking for $50 billion, do something for ME that saves ME money. Try to stop thinking about your pathetic self for five minutes and think about the lives you’re trying to make better in our society.

d. With WiFi on the car, there is no need for those outdated CD/DVD based GPS systems that are out dated as soon as you drive off the lot. With WiFi, have the latest maps downloaded to my car during my morning commute.

e. Speaking of commute, if I can get WiFi in my car, I’ll have access to stock quotes, company news, weather, e-mail, entertainment, integration with my home and a slew of other things. Oh yeah, I can blog in my car while my wife, friend or family member drives the car.

f. Accessories! Accessories! Accessories! Toyota sends me monthly updates on all the accessories I can get for my Toyota vehicles; what an innovative idea. In the 15 years I owned Fords, I never ONCE got an accessories catalog. Once again, your old geezers don’t understand the “coolness” factor.

3. Fuel efficiency should be priority 1. Were you guys asleep during the oil crunch? Do you think oil will be here forever? Oh wait, you’re too lazy to think about energy innovation which is why Toyota and Honda are eating your lunch and dinner.

4. Stop pretending to be environmentalists. You produce gas guzzling vehicles that burn carbon monoxide into the atmosphere and have done so for the last 100 years, don’t act like you’re saving the world – it’s fake and phony.

5. Get a Clue.

Having dealt with many retailers for a while, I know American Express has traditionally charged higher fees to merchants for processing transactions but I’ve been recently encountering more and more shops dumping American Express.   The biggest chain that I’ve seen doing this is Subway.   I’m guessing it’s the independent franchises that are dumping the card to preserve cash flow and reduce fee exposure as food and labor costs continue to increase.

I’m wondering if this is why American Express had poor results this past quarter vs. simply being a “tapped” out consumer.   I’ve encountered problems with AMEX at discount outlet stores, fast food chains, and independent shops simply not taking Amex anymore.

Food for thought.

August was a fairly good month as I raked in ~$3500 with about 8 trades or as I like to think of it,  8 clicks of the mouse across a couple of electronic accounts.  It’s really not that hard to make money once you have some good working capital.    There are many ways to rake in cash out there but the allure of a brokerage account has been that it can be done in minutes with a click of  a mouse.


The best part of the cash flow, however, is that it gets reinvested back into the “system” to earn more cash and hopefully, with time will grow enough to become a primary source of income to live on.    Unfortunately, it is becoming very time consuming to keep up with my blogs and I may soon have to make a choice about the future of continuing on with them.

Oddly enough, deep inside, I’ve always known that the time would come when I would have to choose between focusing on simply making money vs. making money+ blogging about it.    It does get fairly lonely at the “top” and there aren’t too many capitalist bloggers out there sharing knowledge.    It is impractical to get people like Warren Buffet or Donald Trump to blog daily about their activities and while I’m nowhere near their financial league,  it is easy to see why they don’t blog; their time is simply better spent earning the money and enjoying the fruits of their labor.

It seems that my blogroll is dwindling and I haven’t really found any capitalist pf bloggers to add to my site blog roll.   I’m getting ready to drop Trisha’s site as it looks like she’s done blogging.   Do you know of someone that meets this criteria:

  • An individual dedicated to earning income and blogging about it from a personal finance perspective.
  • An individual with net income in excess of $100,000 or capital in excess of $500,000.
  • An individual with a clear, focused, investing strategy that can be replicated with careful study.
  • An individual that can think beyond the patronizing and blatantly obvious “spend less than you earn” rhetoric you’ll likely read 1,000 times a day from other pf blogs.

I’d love to find real estate investors, bond traders, currency traders, and other “lazy” money making investors.  If you know of some one that meets the criteria, by all means let me know!

It seems every few months someone will post a comment on this post from a while ago coming to the defense of Dave Ramsey.   I guess what I’m really interested in writing about today is to ask what the end game of the Dave Ramey philosophy will lead us to at the end of the day?

Since I’ve never purchased any books and never listened to the radio show I’m going to try to answer that questions from the bits and pieces I’ve gathered from snippets from PF Blogger posts and other news sources.

If I’m not mistaken, Dave Ramsey hates credit in all forms: credit cards, mortgages, student loans, etc.   Dave feels you should pay cash for everything and no other forms of payment except perhaps debit cards and checks.

So if every American followed this advice, what would be at the end of the rainbow?

If we all stopped using credit cards then I guess several hundred thousand people would immediately lose their jobs.  In trying to figure out who loses their job, I whipped out one of my credit cards to take a good look at it.

The first thing I notice about my credit card is that it is made of plastic.   Clearly, there must be some manufacturing plant some where that makes these little cards; I wonder how many people would lose their job if they didn’t need these cards any more.

The next thing I notice is that there are numbers printed on my card.  I’m guessing those numbers are used to track transactions.   Hmmm… accountants, computers and analysts must be involved in handling all that.  I wonder how many people will lose their jobs now.

As I flip the card over I can’t help but notice a toll free number to call.   Hmmm.  Someone must answer the phone so that means there is a call center somewhere where customer service reps are employed.    Speaking of phones, I’m guessing the phone company is employing people keeping the phone systems up and running.  I wonder how many engineers are associated with the call centers banks run?

There’s some nice artwork on my credit card which means that a graphic artist was hired to design the card.   Goodbye graphic artists, you are no longer needed.

Keep in mind that I’m just discussing ONE thing on Dave’s hit list: credit cards.   You can find a long list of people involved with houses, schools & universities, autos, retail shops and anything else “debt” related.

So after the vast majority of Americans lose their job what exactly are people suppose to do to earn a living?  What is the Dave Ramsey End Game?

My kids go to a private school and have been since they’ve been since the beginning. Over the years, the tuition has gone up fairly dramatically but that isn’t the real issue. It is understandable for tuition to go up as the cost of certain things increase such as staff salaries and operational costs but what is not so understandable is increasing tuition to cover these things AND shifting some of the consumables and operational burden of school functions to the customer.

As our kids prepare to go back to school, I looked over the list of required items. Most of the items were your typical stock of items you’d expect a kid to have: pencils, pens, paper, notebooks, erasers, etc. What I thought odd were consumable products such as hand sanitizer, rolls of paper towels, box of tissue, and other items I didn’t think fell under the “educational” supply umbrella. I was surprised I didn’t see toilet tissue on the list since every other consumable product was on the list.

The school is also considering adding a “energy” fee to the tuition. Huh? If that fee didn’t exist before the last few years my kids were going to the school how is this there now? When I spoke to some of the administration people about this they stated that parents didn’t want to pay for any more tuition increases. I looked at them bewildered and asked them what they thought a new energy fee was other than an alternative form of tuition fee increase?

I didn’t get much of a response because there is no response. I often wonder how naive and gullible people are out there not to question these fees but I guess that’s why airlines and other businesses get away with it. I did find out one interesting thing however, this year we have many more students coming in from some of the other more expensive private schools in the area into ours. Evidently, some parents can’t afford the tuition increases in fees at the more “prestigious” private schools so now they’re attending our less “prestigious” one and finding out it isn’t so bad after all. Go figure.

There seem to be too many people that are stuck on ROI and not enough people that understand the fundamental importance of cash flow with regards to investment(s). Wikipedia does a good job at pointing something subtle yet critical about cash flow:

  • to evaluate the state or performance of a business or project.
  • to determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.
  • to generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value.
  • to examine income or growth of a business when it is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to ‘validate’ the net income generated by accrual accounting.

Too many investors that advocate index funds eliminate the entire aspect of cash flow in their investment strategy. Let’s take a look at an example.

Rich is an investor with $20,000 to invest and he wants to focus on cash flow. Suzie is an investor with $20,000 and she wants to focus on dollar cost averaging and ROI. Both Rich and Suzie decide to invest in the same investment vehicle, an ETF in Home Builders (XHB). Both have been watching the housing market and both think it’s close to the bottom to buy in.

On April 10, 2008, Rich buys 400 shares of XHB at $19.80 and decides to focus on cash flow generation so he immediately sells calls on the stock he just bought that expire 9 days out. He sells 4 contracts for $0.70 per share to earn $270.00 in cash flow. Nine days later, those contracts Rich sells expire worthless so on April 21, he sees an opportunity to sell 4 more (for May) contracts for $1.23 per share and earns $484 in additional cash flow. In May those same contracts expire worthless. Rich likes the cash his investment is generating so on May 27th, he buys 400 more shares of XHB at $19.80 because the price has dropped. He sells 4 contracts on these new 400 shares for $0.75 per share to earn an additional $280 in cash flow. Those contracts expire worthless. Finally on August 11th, Rich sells 8 contracts four for $1.1 and four for $1.5 to rake in $432 and $592 respectively. Total cash flow earned: $270+$484+$280+$432+$592 = $2058. Total money originally invested $17,017. ROI = 12 pct (cash flow) / 24 pct (adjusted)

Suzie wants to dollar cost average so she buys 200 shares of XHB at $19.80 on April 10th. Each month she’ll buy 200 more shares regardless of the cost. May 9th rolls around (a month later) and Suzie buys 200 more shares of XHB at $21.24. Thirty days later, Suzie buys 200 shares of XHB on June 10th for $18.86 and thirty days later on July 10th, she buys 200 more shares of XHB at $15.27. Suzie has now bought 800 shares of XHB for an average cost of $18.79. Total money invested $15,034. ROI? As of yesterday, XHB closed at $18.93 so her cash flow is $0.14 and ROI = 0.74%

So during this period, who is better off? The person focusing on cash flow and ROI or the person focusing on DCA and ROI?

Dividend investors know the power of cash flow and that’s why you’ll encounter some PF Bloggers that strictly focus on dividend investment and re-investment. Real Estate investors know the power of rental income & cash flow as do bond traders and bond investors.

If you want to learn more about selling contracts on index funds, click on over to to learn more.