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Curious Cat Investing and Economic Carnival #14
Welcome to the Curious Cat Investing and Economics Carnival: find useful recent personal finance, investing and economics blog posts and articles. If you want to have an post considered for the next carnival please submit it to quixperito: money.
- A Retailer’s Perspective on Amazon’s Amazingly Awesome Quarter by Scot Wingo – “This quarter provided more mounting evidence that Amazon is essentially running away with market share in e-commerce. Consequently, we believe retailers urgently need to think of an Amazon Strategy – partner, compete, co-opetition? Amazon is becoming so big and growing so fast, you almost can’t afford not get on this train.”
- Government Debt as Percent of GDP 1998-2010 for OECD countries by John Hunter – There has been a dramatic increase from 2008-2010. The USA is up from 41% of GDP to 61%. Spain is up from 34% to 52% (but given all the concern with Spain this doesn’t seem to indicate the real debt problems they have. Economic data contains quite of bit of noise, unfortunately.
- Cause of Decline in U.S. Financial Position by Barry Ritholtz – “The Pew Center reported in April 2011 the cause of a $12.7 trillion shift in the debt situation, from a 2001 CBO forecast of $2.3 trillion cumulative surplus by 2011 versus the estimated $10.4 trillion public debt in 2011. The major drivers were:
  Revenue declines due to two recessions, separate from the Bush tax cuts of 2001 and 2003: 28%
  Defense spending increases: 15%
  Bush tax cuts of 2001 and 2003: 13%
  Increases in net interest: 11%
  Other non-defense spending: 10%
- How This Blog Earns Full-Time Income from Part-Time Work by David Weliver – “for the most part, I’ve tried to focus on simply writing on topics that are unique, helpful, that answer specific questions. (It’s easy enough to be helpful, I think, but with billions of web pages out there, being unique is a never-ending challenge).”
- How to live off investment income – 1. Set up a cash buffer account between your regular monthly spending, and your income-spewing engines. 2. Work out how much of your annual investment income you will/can spend. The rest of the money you will reinvest…
- A Risky Investment Isn’t a Bad Investment by Kevin McKee – “If you want all the potential for Apple-esque gains, you need to be prepared to accept Enron-esque results. That’s the magic of risk; it goes both ways. Would I hold 100% of my portfolio in company stock? No.”
August 3, 2011
Top USA Markets for Buying Rental Property
Buying investments when prices are low is often a good investment strategy. Sometimes the prices just get lower, so it doesn’t always work. But, most likely the USA housing market will turn around, at some point. Buying real estate before prices start to rise may well be a very profitable investment. And rental property can be a very good investment, even without price appreciation, if the rental income provides a nice cash flow. This is especially true with interest rates so low (so a decent cash flow is very attractive compared to other investments). Of course, real estate investing also has challenges.

The HomeVestors-Local Market Monitor Best Markets to Invest in Rental Property ranking forecasts the expected performance of rental real estate properties, specifically single-family homes maintained as rental properties. The rankings show the extra return, or risk-return premium, that an investor must demand from rental property in a local market. The risk-return premium can be added to the regular capitalization rate to produce a risk-adjusted cap rate at full occupancy for a local market. The ranking is calculated based on three-year forecasts of home prices (reflecting underlying home-price appreciation potential) and gross rents (as a proxy for potential investor cash flow). Of course, this is based on the creators expectation (and therefore hardly to be relied upon – they have no track record to measure against yet) but it is interesting.

The Top 10 markets in the new ranking are:
- Las Vegas, Nevada
- Detroit, Michigan
- Warren, Michigan
- Orlando, Florida
- Bakersfield, California
- Tampa-St. Petersburg, Florida
- Phoenix, Arizona
- Ft. Lauderdale, Florida
- Rochester, New York
- Stockton, California
Obviously their expectations favor cities that have seen drastic price declines. And that makes sense, as long as those cities rental markets are steady and housing prices stabilize.

An interesting piece of data: HomeVestors and Local Market Monitor estimate that approximately 14% of single-family homes in the USA are maintained as rental properties.

I do believe rental property investments in many markets in the USA may well be quite wise. Investing in rental properties is much more difficult than say stocks and has some high costs (if you chose to higher a property manager, for example). Real estate also requires a long term (5+ year commitments) to have reasonable expectations of successful investing results.

Related: Apartment Vacancies Fall to Lowest in 3 Years in the USA (April 2011) – Home Values and Rental Rates – Landlords See Increase in Apartment Rentals (June 2010)
August 1, 2011
Movies About the Financial Crisis

Although we usually write about investing advice, today we’re going to head in a slightly different direction and look at some entertaining films about the financial credit crisis. Hollywood was a bit slow, to get these movies released but now the movies on the crisis are coming quickly. Attempting to recover from the credit crisis is still dominating the economies of Europe and the USA.

Gold has been performing quite well as the markets worry about the aftermath of the credit crisis and the large amount government debt in many rich countries. Movies can provide some distraction from the worries about whether we should avoid risks in of the the stock market at the moment, if it’s a good idea to invest in gold via bullionvault.com or whether BRIC countries might really be where the action is. Movies certainly will have their version of action.

A popular movie about the financial crisis is ‘Inside Job’ (clip above). Directed by Charles Ferguson, who’d previously made the highly acclaimed ‘No End In Sight’ about the Iraq war, and given a voiceover by Matt Damon, the film won the Oscar for documentaries in 2011. It gained positive reviews all over the world for it’s simple explanations of a very complex topic.

Meanwhile on the other side of the Atlantic ocean, British director David Sington made ‘The Flaw’. This flaw in question refers to the admission by Alan Greenspan (former Federal Reserve Chairman) that his model of how the world works did not match up to the weird and wonderful nature of reality. Greenspan admitted that had mistakenly put too much faith in the self-correcting power of free markets. The film has not been as widely reviewed as Inside Job, but The Economist said that while it is unbalanced, it is worth a watch.

Wherever there is an obvious political point to be made, there is sure to be Oliver Stone not far behind yelling it out. ‘Wall Street: Money Never Sleeps’ stars young Shia LaBeouf as a Wall Street trader learning from the master: Gordon Gecko. The film even has a few cameos from figures from the financial world and is generally thought of as a good beginners guide to the crisis.

Finally, two films currently in production that look at the crisis. Firstly, Paul Giamatti will be starring in the fictionalization of Andrew Sorkin’s best selling investigation into the crisis, Too Big To Fail. George Clooney is also reportedly getting in on the act with ‘700 Billion Man’, centred on Neel Kashkari, a one time Goldman Sachs executive who helped build the gigantic Troubled Asset Relief Program, aka the financial bailout.

We can’t guarantee these films will be balanced, but they should be interesting. Enjoy.

July 29, 2011

12 Stocks for 10 Years: July 2011 Update

The 12 stock for 10 years portfolio consists of stocks I would be comfortable putting into an IRA for 10 years. The main criteria is for companies with a history of large positive cash flow, that seemed likely to continue that trend. I continue to be very satisfied with the portfolio and don’t see any reason for changes.

The current Marketocracy* calculated annualized rate or return (which excludes Tesco) is 7.2% (the S&P 500 annualized return for the period is 4.7%). Marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that (it is not like this portfolio takes much management), the return beats the S&P 500 annual return by about 4.5% annually (it would be a bit less with Tesco, but still close to 4%, I would think).

The current stocks, in order of return:

Stock	Current Return	% of sleep well portfolio now	% of the portfolio if I were buying today
Amazon – AMZN	410%	11%	7%
Google – GOOG	184%	16%	14%
PetroChina – PTR	125%	8%	6%
Templeton Dragon Fund – TDF	100%	9%	9%
Templeton Emerging Market Fund – EMF	74%	6%	6%
Danaher – DHR	47%	9%	10%
Apple – AAPL	40%	6%	7%
Toyota – TM	14%	10%	11%
Intel – INTC	6%	5%	6%
Tesco – TSCDY	-3%**	0%*	10%
Cisco – CSCO	-15%	4%	5%
Pfizer – PFE	-17%	5%	7%

The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.

July 25, 2011

Google up 13% on Great Earnings Announcement

Google is up over 13% in after hours trading on the great earnings announced last night.

We had a great quarter, with revenue up 32% year on year for a record breaking over $9 billion of revenue,’ said Larry Page, CEO of Google. “I’m super excited about the amazing response to Google+ which lets you share just like in real life.”

That is the start of the earnings release. You can sure tell Larry Page is interested in Google+ success.

More significantly, Google web site revenue up 39% increase over second quarter 2010 revenues of $4.50 billion. Google Network Revenues (Google’s partner sites, through AdSense programs), $2.48 billion, which was 28% of total revenues, in the second quarter of 2011 (up 20% from 2010 – good, but, Google up 39% on their own sites is amazing).

GAAP earnings per share increased 35% compared to 2010. Margins did decrease, but not a huge amount: and less than many feared (Google continues to invest large amounts in future prospects).

GAAP operating income in the second quarter of 2011 was $2.88 billion, or 32% of revenues. This compares to GAAP operating income of $2.37 billion, or 35% of revenues, in the second quarter of 2010.

Those are great results anytime. When you remember that money in saving accounts get less than 1% now that type of growth is even more impressive. And when you consider how large Google is now it is even more impressive. Apple is achieving similarly impressive growth as a huge company – but it is very rare.

Google ended the last quarter with over $39 billion in cash. I do think they should pay a dividend (I worry they will feel pressure to spend the cash they have and due to the large amount of cah make some foolish decisions). I continue to own Google stock. And it is the largest holding in my 12 stocks for 10 years portfolio.

Related: Google’s Earnings Grow 17%, but Investors Unhappy (last quarter) – Google Posts Good Earning But Not Good Enough for Many – Great Google Earnings (March 2007)

July 15, 2011
Curious Cat Investing and Economics Carnival #13
Photo of house in Norway, 1977 by Bill Hunter.

The Curious Cat Investing and Economics Carnival has been published infrequently over the last few years. My plan is to start publishing it much more frequently starting now.
- Personal Finance Basics: Long Term Disability Insurance by John Hunter – “people are much less aware of the importance of long term disability insurance. The census bureau estimates that you have a 20% chance you will be disabled in your lifetime.”
- Fed’s Low Interest Rates Crack Retirees’ Nest Eggs by Mark Whitehouse – “A long spell of low interest rates has created a windfall worth billions to banks, mortgage borrowers and others it was designed to benefit. But for many people who were counting on their nest eggs, those same low rates can spell trouble.”
- How to profit from the coming Greek default by Matthew Lynn – “Sell the U.S. banks but buy the dollar. If everyone knows Greece will have to default, what’s keeping them from pulling the plug? That’s easy. The Germans and the French won’t want to ‘re-profile’ all that Greek debt until they know their banks have largely sold both the debt and the credit-default swaps associated with it to someone else.”
- Buy Cheap Bonds with Safe Spread by Bill Gross – “Investors shouldn’t give their money away, and at the moment, the duration component of a bond portfolio comes close to doing just that – not because a bear market is just around the corner come July 1, but because it doesn’t yield enough relative to inflation.”
- How to retire with no savings – “Once you hit age 50, your chances of being jobless start to rise rapidly. You don’t get to choose when you retire. The job market or your ailing body will decide for you. Most retired Americans are getting by on incomes that you’d probably consider appropriate for the Third World. And even if they wanted to work until they died, they can’t.”
- Words of wisdom from Warren Buffett’s legendary sidekick – “You have to be a lifelong learner to appreciate this stuff. We think of it as a moral duty. Increasing rationality and improving as much as you can no matter your age or experience is a moral duty. Too many people graduate from Wharton today and think they know how to do everything. It’s a considerable mistake.
July 14, 2011
Truly Free Credit Report

You should review your credit reports annually (at least) to correct any errors. Also doing so can be a tool to help you spot identity theft.

The real free credit report site (for those in the USA), annualcreditreport.com, is provided by government regulation (so those that don’t believe in regulation would maybe rather use one of the sites advertising “free” credit reports). But I suggest using the government provided reports and I would suggest spreading the requests out during the year (you get 3 a year, 1 from each of the nationwide consumer credit reporting companies).

The site also has a large frequently asked question section including:

How do I request a “fraud alert” be placed on my file?
You have the right to ask that nationwide consumer credit reporting companies place “fraud alerts” in your file to let potential creditors and others know that you may be a victim of identity theft. A fraud alert can make it more difficult for someone to get credit in your name because it tells creditors to follow certain procedures to protect you. It also may delay your ability to obtain credit. You may place a fraud alert in your file by calling just one of the three nationwide consumer credit reporting companies. As soon as that agency processes your fraud alert, it will notify the other two, which then also must place fraud alerts in your file.

Where can I find out more about credit reports, my rights as a consumer, the Fair Credit Reporting Act and the FACT Act?
Please visit www.ftc.gov/credit

Related: Credit Card Tips – Personal Finance Basics: Avoid Debt – Save Some of Each Raise – Personal Finance Basics: Long Term Disability Insurance

June 26, 2011
Can We Expect the Health Care System in the USA to Become Less Damaging to the Economy?

We have had over 20 years of health care costs going up more than inflation – every year. That is an amazing (and horrifyingly bad) record. We need very strong evidence to conclude we can even just reduce the increase in damage done year after year by the broken health care system.

Getting to the point where we actually start reducing the increased damage done each year is a big leap from where we are (reducing the acceleration of damage [reducing from hugely above inflation to largely above inflation is better than not doing that but hardly a good sign – it is still worse than the year before, just the increase in badness is less than the increase in badness from the previous year).

Health care is so bad I often see people try to look at data and see that the rate of getting worse is declining and seeing that as a positive sign. Things are still getting worse. And they are already extremely bad. I really can’t see arguing for things getting worse more slowly as being something we should be happy with. Even just making tiny improvements (given how bad we have let things get over the decades is not good enough). We need to actually reduce spending on health care. Certainly, the absolutely least we can expect is increasing less than inflation (that is an extremely low expectation – though one the health care system has failed at for decades). We shouldn’t accept such horrible performance.

Once we actually can start making things better year after year (not just reducing the acceleration of badness) we likely have decades before we can reduce the enormous drain the USA health care system puts on all of us living here to a level that is just average for rich countries.

There are pockets of good things being done in health care but so so so much more is needed.

Further, at mid-year in 2011, our costs per employee are tracking about even with 2010 numbers. That raises the possibility of a 2012 with no premium increases for employees. It will be the 6th time in nine years with no premium increase.
Some other positive results in 2010:

• Emergency room visits were 71 per 1000 lives, or 38% of average. Serigraph people use the ER room only in a real emergency.
• Inpatient surgeries were 51 vs. 80 average per 1000.
• Radiology scans totaled 775 vs. 1300.
• Claims related to poor lifestyle choices were only 3% of our total claims, versus 7.7% for our peers.

These strikingly positive numbers are a testimonial to the engagement of the Serigraph workforce in reforming how care is delivered in this country. They are helping to mange this complex issue.

Reforms such as a consumer-driven plan, on-site primary care, finding the best centers of value and transparency on prices and quality are making a difference, a huge difference.
We still have a lot of innovation to do. For instance, we decided recently to go after depression, the second most costly chronic disease in the work place. Few companies, if any, have an enlightened managerial effort on that front.

Great work by Serigraph.

Related: The USA Can’t Afford to Pay for the Current Health Care System – Resources to improve health care system performance – articles on improving health care

June 15, 2011
House for Rent in Arlington, Virginia

I am renting my house in Arlington, Virginia. If you are interested here is a great house with a large yard in a wonderful, quiet neighborhood near the Washington DC metro, great restaurants, parks, shopping and more. See more pictures of the house and floorplans.

Related: backyard wildlife – Apartment Vacancies Fall to Lowest in 3 Years in the USA – Apartment Rents Rise, Slightly, for First Time in 5 Quarters (April 2010)
(more…)

June 13, 2011
Extremely Poor Broadband for the USA

The USA has extremely poor broadband service (compared to other rich countries). It is slow and expensive. Those that support economic policies more in line with the USA than other nations have a great deal of explaining to do about why the options are so bad. It is similar to the broken health care system.

Those that support politicians leading to this state for broadband say they support “free markets.” In actuality, they support anti-competitive practices by extremely large companies (oligopolistic behavior). Free market theory (the original form) requires that no individual company can dictate to the market. You have free competition – no barrier to entry, no restraint on entry, customers can buy where they want… But the politicians we elect instead support policies and practices that restrain free trade and prohibit good solutions in order to benefit those that pay the politicians well. And then we vote for those politicians.

Those wanting the anti-competitive markets have won in our political system. The main thing I wish was clearer was that we stop pretending these people have some capitalist leaning. They are anti-capitalist. If they want to support the policies they do I wish they would be required by the voters to at least be honest. Unfortunately the voters elect them with their dis-honest representations. If the politicians were honest they would have a more difficult time being elected (because voters want to pretend they like capitalism even while voting for politicians that just seek to give special benefits to those that pay the politicians. And then the politicians claim to support markets, and business and consumers when really they just favor making anti-market legislation and regulation to favor their contributors. As long as we vote for people that claim to support capitalism but undermine it at every step to help their friends we do deserve to suffer. I just wish we could convince enough of our fellow citizens that flashy propaganda and repeating lies over and over isn’t the same as facts and truth.

1Gbps fiber for $70—in America? Yup.

Where I live in Chicago, Comcast’s 105Mbps service goes for a whopping $199.95 (“premium installation” and cable modem not included). Which is why it was so refreshing to see the scrappy California ISP Sonic.net this week roll out its new 1Gbps, fiber-to-the-home service… for $69.99 a month.

Given the anti-competitive policies in the USA, if they have much success they will probably just be bought (or maybe as others suggest fought in other anti-competitive ways, but buyouts are normally easiest for actually strong competitor) to allow anti-competitive pricing and service to continue. The only real hope is someone with actual power sees it in their interest to fight against the entrenched interests. Google is the best hope I think. It isn’t that Google has nearly as much political power as those interests but they are smart and have the advantage of just having to expose the anti-competitive behavior and apply pressure.

The narrative the politicians and voters say they support is capitalism. But the reality is just those with the gold make the rules. But when this is made obvious and continually pressed by someone with power, clout, intelligence and political savvy it makes politicians and regulators hesitant to continue business as usual. Normally they just delay for a few months and then continue the corrupt practices. Google, plus others, plus lots of individual interest can fight that off – but it takes perseverance.

Related: USA Broadband is Slow. Really Slow. – Plugging America’s Broadband Gap – Eliminate Your Phone Bill – Net Neutrality: This is serious

June 11, 2011