Investing Curiouscatblog

Author: John Hunter

  • Banks Hoping they Paid Politicians Enough to Protect Billions in Excessive Fees

    USA consumers pay huge fees on debit cards not found in most other rich countries. Other countries provide debit cards with much cheaper fees than USA banks mandate now given their anti-competitive oligopolistic pricing power. I haven’t seen anyone (that isn’t in the pay of banks) arguing for keeping excessive fees in place. But there are lots of people being paid by the banks (including most likely, “your” representative).

    Banks want a favor — at your expense

    The big banks are pressing Congress for a favor that will cost the average American household $230 a year. The bankers argue that the favor is needed to support small community banks. But since the lion’s share of the favor will be collected by just four banks, it might be cheaper to subsidize community banks with a check direct from the Treasury.

    David Frum, special assistant to President George Bush, is exactly right.

    Banks charge an average of about 1% on debit card transactions. In Australia, where swipe fees are regulated, banks charge half as much — and still earn a profit.
    …
    [banks] are lobbying hard to repeal the cap on debit card fees in advance of the July date when Dodd-Frank goes into effect… Congress is not swayed by arguments. It is swayed by clout — and on this issue, it is the banks who have the clout.
    …
    Based on that experiment, economist Robert Shapiro of Sonecon estimates that about 56% of the value of reduced swipe fees will reach the final consumer. That’s the basis for his calculation of savings of $230 per household. That’s also the basis for his further calculation that reduced swipe fees will translate into a one-time gain of 250,000 new jobs.
    The new Republican House majority appropriately mistrusts government regulation. But if the financial crisis taught us anything, it should have taught that financial regulation is different from other forms of regulation. Invisible charges imposed by a financial cartel is not my idea of a free market.

    The caps were part of the huge bailout taxpayers gave banks and were meant to be a partial watering down of a few of the smaller favors their bought and paid for politicians had given them over the years (as “punishment” for their misdeeds).
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  • The USA Can’t Afford to Pay for the Current Health Care System

    The very frustrating aspect of the broken health care system in the USA is that it has been an enormous problem for decades. It isn’t that we have just discovered we have a fatally poor health care system in the last few years. The broken system has been obvious for decades and keeps getting worse. Thankfully in the last few years more and more of those with clout in the current economic system are standing up to demand improvement.

    Costs need to be removed from the system. Hundreds of billions a years should easily be removable by reducing paperwork and reducing waste in the system. As you say some reduction will also have to come in limiting spending that is being done now for worthwhile and worthless procedures. That should also easily save hundreds of billions a year. However in the decades of allowing this broken system to get worse and worse, it is not at all certain that merely taking $500 billion a year out of the costs will be enough.

    It might well require eliminating even more medical work and reducing the income of those that are taking from the system now. My guess is the most logical places for reducing income come from massively overpriced drugs, overpaid specialists, overpaid executives in insurance companies. I suppose some might think nurses should be paid less, that isn’t my belief, but we will see what happens.

    As sensible management of the system is adopted, over time, increasing the saving from eliminating waste should grow. Unfortunately we have wasted decades and so counting on us acting responsibly and adopting a focus on eliminating waste can’t be expected until we show a good 10-15 years of systemic effort on that front.

    In response to: Paying for health care

    Related: USA Spends Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Health Care in 2009 – articles on improving the health care system in the USA – Broken Health Care System: Self-Employed Insurance – Health Insurers Propose Pricing and Coverage Without Respect to Health

  • Apartment Vacancies Fall to Lowest in 3 Years in the USA

    Apartment Vacancies in U.S. Fall to Lowest in Almost Three Years

    The vacancy rate declined to 6.2 percent from 8 percent a year earlier and 6.6 percent in the fourth quarter of 2010, the New York-based research firm said in a report today. The rate was the lowest since it reached 6.1 percent in the second quarter of 2008.
    …
    Effective rents, or what tenants actually pay, increased in 75 of the 82 markets Reis tracks, to an average $991 a month from $967 a year earlier and $986 in the fourth quarter. Landlords’ asking rents also climbed, to $1,047 from $1,027 a year earlier and $1,043 in the previous quarter, according to the report.
    …
    San Jose, California, had the most growth in effective rents during the past year, with 5.2 percent, followed by suburban Virginia and New York City, according to Reis. Effective rents declined 1.5 percent in Las Vegas during the year and grew the least in Orlando, Florida; and Colorado Springs, Colorado.

    Rents have been slowly recovering the last year, after the economic shocks of the credit crisis. People, moved back into parents house and more people started sharing apartments and houses in the last few years as people where thrown out of jobs due to the after effects of the financial actions by large financial institutions. Slowly the economy has been recovering and jobs have been slowly growing and as a result the rental market has been strengthening .

    Also the decline in construction the last few years has decreased the normal addition to supply. At the same time the population has continued growing. Some areas of the country seem to still have a large overcapacity in housing but areas that are adding jobs (such as Northern Virginia and New York City) are seeing increasing rents.

    I have 2 properties for rent in Arlington, Virginia.

    Related: Landlords See Increase in Apartment Rentals (July 2010) – USA Housing Inventory Puts Pressure on Prices (Sep 2010) – Apartment Rents Rise, Slightly, for First Time in 5 Quarters (Apr 2010) – It’s Now a Renter’s Market (Apr 2009) – Housing Rents Falling in the USA (Feb 2009)

  • Executives Again Treating Corporate Treasuries as Their Money

    A huge problem with current practices at American companies is that senior executives believe they personally are due what the company earns. The repeated ethical lapses perpetrated by the senior executives and supported by their well paid board continues to undermine the economy of the country.

    Two events last week illustrate the level of disconnection with reality the current crop of ethically challenged senior executives.

    First, we have the senior executives at the too big to fail financial institutions that did fail and were bailed out by taxpayers. We all know the economic calamity caused by these executives, throwing millions of people out of work, adding huge burdens to already overburdened future taxpayers with the huge spending governments engaged in, in order to successfully avoid what would have been a depression. Fewer people realize the government has been systemically transferring money to these large, too big to fail financial institution from millions of savers with policies directly providing billions in profits to all the large financial institutions that had failed.

    So what did the senior executives that failed as spectacularly as anyone has ever failed economically in history do last week? They paid themselves tens of millions of dollars, paid for by all those who have received artificially lowered rates (through action by the Federal Reserve in order to save the economy and reward their member banks) on their savings which provided billions in profit to the failed large financial institutions. Just like 5 years ago, as they were doing their best to take such detrimental actions that would cause a depression (but for the government saving us from that outcome) they again use the excuse that they are just doing what all their colleagues are doing.

    The lack of honor of these men is amazing. And the lack of honor of those who continue to treat these people as anything but pariahs is amazing. That we continue to pursue policies that enable and enrich too big to fail financial companies on the backs of those that save and in so doing provide billions in profits for the executives to treat as their personal bank accounts is sad.

    The compatriots of those senior executives at Transocean showed the same disregard for honor, accuracy and truth. First, who is Transocean?

    A presidential commission concluded that the explosion [in the Gulf of Mexico last year] had been caused by cost-cutting and directly blamed Transocean, BP and Halliburton for the disaster.

    So with what was one of the worst (if not the worst) economic safety failures ever and 11 deaths in the explosion, this is what Transocean senior executives say, in their SEC filings:

    “Notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record as measured by our total recordable incident rate and total potential severity rate,” the report says.

    “As measured by these standards, we recorded the best year in safety performance in our company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere,” it adds.

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  • USA Adds 216,00 Jobs in March and the Unemployment Rate Stands at 8.8%

    Nonfarm payroll employment increased by 216,000 in March, and the unemployment rate stands at 8.8%, the U.S. Bureau of Labor Statistics reported today. Revisions for January and February were very small (adding 5,000 jobs to the January totals and 2,000 to February). Since a recent low in February 2010, total payroll employment has grown by 1.5 million.

    This is more good news though the economy needs to add jobs more quickly to make a significant dent in the jobs lost since the misdeeds of large financial institutions precipitated the credit crisis and threw so many people out of work.

    Job gains occurred in professional and business services, health care, leisure and hospitality, and mining. Employment in manufacturing continued to trend up.

    Household Survey Data

    The number of unemployed persons (13.5 million) and the unemployment rate (8.8%) changed little in March. Since November 2010, the jobless rate has declined 100 basis points. Among the major worker groups, the unemployment rates are, for adult men, 8.6%; adult women, 7.7%; and for teenagers 24.5%.

    The number of long-term unemployed (those jobless for 27 weeks or more) was 6.1 million in March; their share of the unemployed increased from 43.9 to 45.5% over the month. In November of 2010 they accounted for 41.9% of the unemployed. In March of 2010 there were 6.5 million, which was 44.1% of all unemployed.

    In March, the civilian labor force participation rate held at 64.2%, which was down from 64.9% in March of 2010, and 65.8% in April of 2009.

    Related: Another 663,000 Jobs Lost in March, 2009 – Global manufacturing employment data 1979-2007 – Unemployment Rate Increased to 8.9% (May 2009) – USA Added 162,000 Jobs in March, 2010

    Establishment Survey Data
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  • Top Countries For Renewable Energy Capacity

    I believe it is wise from an environmental and economic viewpoint to invest in renewable energy projects. I believe the costs of fossil fuel based energy will continue to increase. Renewable energy is continuing to improve and when considering the negative externalities caused by oil, gas and coal and the continuing improvement in wind, solar and geothermal generation investment in renewable energy are going to payoff well for countries.

    Top countries for installed renewable energy capacity
    Rank Country Capacity (GigaWatts)
    1 China 103.4
    2 USA 58.0
    3 Germany 48.9
    4 Spain 27.8
    5 Japan 26.0
    6 India 18.7
    7 Italy 16.7
    8 Brazil 13.8
    9 France 9.6

    The largest increases in renewable energy capacity by country from 2005 to 2010 are: China (up 106%), South Korea (up 88%), Turkey (up 85%), Germany (up 67%), Italy and Japan (up 45%). All the data is from the Pew Clean Engery Program report: Who’s Winning the Clean Energy Race? (pdf).

    In 2010, [China] accounted for almost 50 percent of global clean energy superpower. The nation’s all manufacturing of solar modules and wind ascendance has been steady and steep. In turbines. China’s installation of less than 1 GW of 2005, China attracted less than $3 billion worth of private investments in clean energy. In 2009, solar energy capacity demonstrates that most of its production is for export markets. In contrast, 17 GW of wind energy was installed in China in 2010 helping the nation move quickly toward its 2020 target for installing 150 GW of wind. In fact, China accounted for 47 percent of all wind energy investments globally, with $45 billion tallied. Similarly, China led the world in asset financing, with $47.3 billion in private investments directed toward installation of clean energy generating capacity.
    …
    India is poised to take a leadership role in the solar sector, with a target of deploying 20 GW by 2020. In 2010, the country set about getting its National Solar Mission in place by permitting 0.5 GW worth of large solar thermal capacity and a modest 150 MW worth of photovoltaic (PV) solar.

    My guess is that the stimulus packages in several countries contributed greatly to the increases (notably Germany and Italy targeted green investments – as did China to some extent, in Wind Energy). Spain took a hit as debt levels caused the government to cut spending. I would imagine this is likely to happen in Italy (and was expected to happen in Germany – the extent of decreases is less certain after the earthquake in Japan).

    Related: Chart of oil consumption by country from 1990-2009 – Wind Power Capacity Up 170% Worldwide from 2005-2009 – Japan to Add Personal Solar Subsidies (2008) – Chart of Top Nuclear Power Generating Countries from 1985 to 2009 – Wind Power has the Potential to Produce 20% of Electricity Supply by 2030

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  • Earning More Money

    Earning more is an important and simple idea that is ignored far to often. Simple, doesn’t mean, easy, just easy to understand. This is something people should definitely consider in their personal financial planning.

    There is a important caveat to remember, people earning a lot of money often have large financial problems and go bankrupt. Earning more if you borrow more than you earn and rely on ever increasing earnings can make you even more venerable than those earning less. A significant factor is how likely you are to replace your current earning if you need to find a new job.

    There is also another concern to watch for – don’t become a slave to your desire to earn more. The reason to earn more is to improve your life long situation. If you sacrifice what you enjoy too much it becomes a bad trade off. Short term sacrifices may well be wise. But many people find themselves in decades long sacrifices to try and get ahead. This isn’t a good plan.

    Making money online can be enjoyable and rewarding. However, it isn’t easy. I am putting more effort into this area and will be doing a great deal more in the next year. We will see how successful I am.

    Related: Earn more money. It matters more than everything else combined. – 10 Jobs That Provide a Great Return on Investment – Earn More Money to buy luxuries (don’t go into debt) – High Expectations
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  • Buffett Cautions Against Buying Long Term USD Bonds

    This is another article supporting my belief that long term bonds are not investments I want to take on now. The risks of inflation and low yields seem like a very bad combination.

    Buffett Says Avoid Long-Term Bonds Tied to Eroding Dollar, quoting Warren Buffett:

    “I would recommend against buying long-term fixed-dollar investments”
    …
    “I would much rather own businesses,” he said. “It’s very easy to take away the value of fixed-dollar investments.”

    By “take away” he mean the government can undertake policies to “inflate” their way out of a budget mess. By undertaking policies that create inflation (drastically increasing the money supply, borrowing huge amounts of money, running huge trade deficits…) the country can devalue the currency, the US dollar in this case, and thus reduce the effective cost of the payments they have to make on long term bonds (because they pay back the loans with devalued, inflated, dollars). I believe he is right and long term USD bonds are a very risky (inflation risk) investing option today. Of course I have felt the same way for the last 5 years. I own very little in the way of bonds – I do own a bit of TIPS (Treasury Inflation-Protected Securities), in my 401(k) – but stopped allocating money to that class in the last year.

    Related: Bill Gross Warns Bond Investors (March 2010) – Bond Yields Stay Very Low, Treasury Yields Drop Even More – Who Will Buy All the USA’s Debt?

  • Consumer and Real Estate Loan Delinquency Rates 2000-2010

    The chart shows the total percent of delinquent loans by commercial banks in the USA.

    chart showing consumer and real estate loan delinquency rates from 2000 to 2010

    The second half of 2010 saw real estate, agricultural, credit card and other loan delinquencies decrease. The rates are still quite high but at least are moving in the right direction. Residential real estate delinquencies decreased 138 basis points in the second half of 2010, to 9.94%, which brought them to just below the rate at the end of 2009. In the second half of 2010, commercial real estate delinquencies decreased 77 basis points to 7.97% (which was also exactly 77 basis points less than at the end of 2009. Agricultural loan delinquencies decreased 76 basis points, to 2.55% (down 53 basis points from the end of 2009). Consumer loan delinquencies decreased, with credit card delinquencies down 90 basis points to 4.17% and other consumer loan delinquencies down 27 basis points to 3.1%. The credit card delinquency rate decreased a very impressive 219 basis points in 210.

    Related: Real Estate and Consumer Loan Delinquency Rates 2000 through June 2010 – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Bond Rates Remain Low, Little Change in Late 2009 – posts with charts showing economic data
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  • Retirement: Roth IRA Earnings and Contribution Limits

    For 2010 and 2011, the most that an individual can contribute to a traditional IRA or Roth IRA generally is the smaller of: $5,000 ($6,000 if the individual is age 50 or older), or the individual’s taxable compensation for the year. You have until your taxes are due (April 15th, 2011) to add to your IRA for 2010.

    This is the most that can be contributed regardless of whether the contributions are to one or more traditional or Roth IRAs or whether all or part of the contributions are nondeductible. However, other factors may limit or eliminate the ability to contribute to an IRA as follows:

    • An individual who is age 70½ or older cannot make regular contributions to a traditional IRA (just to make things complicated you can add to a Roth IRA) for the year.

      • Contributions to a Roth IRA are limited based on income. The limits are based on modified adjusted gross income (which is before deductions are taken). The Roth IRA earnings limits for 2010 are:

    • Single filers: Up to $105,000; from $105,000 – $120,000 (a partial contribution is allowed)
    • Joint filers: Up to $167,000; from $167,000 – $177,000 (a partial contribution)

    For 2011 the earning limits increase to

    • Single filers: Up to $105,000; from $107,000 – $122,000 (a partial contribution is allowed)
    • Joint filers: Up to $167,000; from $169,000 – $179,000 (a partial contribution)

    More details from the IRS website and earning limits details.

    The income limits do not cap what you can add using a 401(k). So if you were planning on adding to a Roth IRA but cannot due to the income limits you may want to look into increasing your 401(k) contributions.

    Related: Add to Your Roth IRA – Add to Your 401(k) and IRA – 401(k)s are a Great Way to Save for Retirement