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  • Continued Credit Card Company Customer Dis-Service

    As the credit card companies continue to prove they are not interested in providing value to the customer and making a fair profit from the value they provide. Instead they attempt to do whatever they can to get money from customers. I would guess because they can get more from careless customers that don’t block each attempt to take their money than the companies have to pay back or pay in fines.

    J.P. Morgan Chase — What Every Person With A Credit Card Should Know

    I am so angry at Chase Card member services this morning, I could scream. Instead, I will take a breath and just cancel my credit cards. This anger built up is not only against the credit card company but also our government’s bureaucracy. Can we get anything in our country working again? Or is it all about the almighty dollar? Arrgh! I try to remember at what point in our history did making money become more important than operating ethically-I cannot recall.

    Canceling cards from companies that repeatedly treat customers as a source of ill gotten gains is wise. Unfortunately most options seem to be led by the same unethical tactics. Some credit unions seem to actually believe in providing a fair service and treating customers with honesty and integrity (though many just outsource credit card service to a company that has no interest in the mission of the credit union to serve members). During the era of the robber barrons it was accepted that business was amoral. Since then it is understood morality applies in the business world – some people just case less about morality than cash.
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  • Fed Funds Rate Changes Don’t Indicate Mortgage Rate Changes

    The recent drastic reductions again emphasize (once again) that changes in the federal funds rate are not correlated with changes in the 30 year fixed mortgage rate. In the last 4 months the discount rate has been reduced nearly 200 basis points, while 30 year fixed mortgage rates have fallen 18 basis points.

    I have update my article showing the historical comparison of 30 year fixed mortgage rates and the federal funds rate. The chart shows the federal funds rate and the 30 year fixed rate mortgage rate from January 2000 through April 2008 (for more details see the article).

    30 year fixed mortgage rates and the federal funds rate 200-2007

    There is not a significant correlation between moves in federal funds rate and 30 year mortgage rates that can be used for those looking to determine short term (over a few days, weeks or months) moves in the 30 year fixed mortgage rates. For example if 30 year rates are at 6% and the federal reserve drops the federal funds rate 50 basis points that tells you little about what the 30 year rate will do. No matter how often those that should know better repeat the belief that there is such a correlation you can look at the actual data in the graph above to see that it is not the case.

    Related: real estate articles – Affect of Fed Funds Rates Changes on Mortgage Rates – How Not to Convert Equity – more posts on financial literacy
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  • Traveling To Avoid USA Health Care Costs

    More who need major surgery are leaving U.S.

    Americans are going overseas for increasingly complex surgeries. In addition, more patients seem willing to accept that quality of care in some foreign hospitals may be the same or higher as that found on U.S. soil, at a fraction of the cost.
    …

    Medical tourism – surgery cost estimates

    Procedure United States India Thailand Singapore Costa Rica
    Coronary bypass $130,000 $6,650-$9,300 $11,000 $16,500 $24,000
    Spinal fusion 62,000 4,500-8,500 7,000 10,000 25,000
    Angioplasty 57,000 5,000-7,500 13,000 11,200 9,000
    Hip replacement 43,000 5,800-7,100 12,000 9,200 12,000
    Knee replacement 40,000 6,200-8,500 10,000 11,100 11,000

    Source: Medical Tourism Association (2007).

    Related: Traveling for Health Care – International Health Care System Performance – USA Spent $2.1 Trillion on Health Care in 2006 – Broken Health Care System: Self-Employed Insurance – Personal Finance Basics: Health Insurance

  • Clifton Gorge State Nature Preserve in Ohio

    photo of Tree at the Clifton Gorge State Nature Preserve
    The Clifton Gorge State Nature Preserve in Ohio is quite a nice short hike. Photos by John Hunter. If anyone knows what the green beetle is please add a comment.

    I visited the preserve last year. Other sites from the trip include: Rocky Gap State Park, Maryland and Coopers Rock State Forest, West Virginia.

    More photos: Mount Saint Helens National Volcanic Monument – Capital Crescent Trail (Washington DC) – travel photo directory – Grand Teton National Park

    photo of a green beetle

  • Berkshire Hathaway Annual Meeting 2008

    Every year at the Berkshire Hathaway Warren Buffett and Charlie Munger provide great insights on investing and the economy. Here are some thought from today – Buffett to investors: Think small

    “We would be very happy if we earned 10%, pre-tax” on the additions to Berkshire’s equity portfolio, said Buffett. “Anyone that expects us to come close to replicating the past should sell their stock; it isn’t going to happen. We’ll get decent results over time, but not indecent results.” Added Munger: “You can take what Warren said to the bank. We are very happy at making money at a rate in the future that’s much less than the past… and I suggest that you adopt the same attitude.”
    …
    “Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies
    …
    Asked what’s in store for the economy, Buffett said he doesn’t have a clue and doesn’t care. “I haven’t the faintest idea,” he said. “We never talk about it, it never comes up in our board meetings or other discussions. We’re not in that business [of economic forecasting], we don’t know how to be in that business. If we knew where the economy was going, we’d do nothing but play the S&P futures market.”
    …
    In terms of the [chief] investment officer, the board has four names, any one or all of whom would be good at my job. They all are happy where they are now [working outside of Berkshire], but any would be here tomorrow if I died tonight, they all are reasonably young, and compensation would not be a big factor…. There will be no gap after my death in terms of having someone manage the money.

    Related: Live From Omaha 2007 – Buffett’s 2008 Letter to Shareholders – 2005 annual meeting with Buffett and Munger – Why Investing is Safer Overseas
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  • Some Movement on Regulating Credit Cards Companies

    Regulators zero in on credit card reform

    On Thursday, the Office of Thrift Supervision, responsible for overseeing the nation’s savings and loans, endorsed a seven-point plan to tackle “unfair” and “deceptive” practices by companies that issue credit cards.

    The plan would allow consumers more time to pay their monthly bill. It would prevent companies from applying interest-rate increases retroactively to pre-existing balances. And it would ban “double cycle billing,” a practice that computes finance charges based on previous billing cycles.
    …
    U.S. consumers were saddled with $850 billion in credit card debt as of the end of last year, according to the Consumer Federation of America.
    …
    “It’s a good first step in addressing a number of abusive practices,” said Travis Plunkett, legislative director at the consumer federation. “However, it will still be necessary for Congress to step in because the proposal only deals with a few of the problems that have been identified.”

    At the same time, legislators could have quite a fight on their hands. Previous efforts trying to reform the industry have largely failed, while recent legislative proposals have found little support among GOP lawmakers.

    The credit card companies pay politicians a great deal of money. That is the reason sensible regulation has failed. Now those fighting for sensible regulation have to have such an obvious case that even those taking huge amounts of money from the credit card companies can’t stymie sensible rules. Remember to follow our credit card tips to avoid the pitfalls that catch so many – that don’t read our blog 🙂

    Related: Legislation to Address the Worst Credit Card Fee Abuse, Maybe – Sneaky Fees – Incredibly Bad Customer Service from Discover Card – Hidden Credit Card Fees

  • Food Price Inflation is Quite High

    At work people have been talking about the increasing prices of food and the price increases sure are noticeable to me. With the exception of gas, I have not heard discussion of inflation outside of a classroom, maybe ever, I can’t recall hearing it anyway. Egg prices are up 35 percent, with milk and bread not far behind

    Since March 2007, according to the Bureau of Labor Statistics, the price of eggs has jumped 35 percent. A gallon of milk is up 23 percent. A loaf of white bread has climbed 16 percent. And a pound of ground chuck is up 8 percent.
    …
    The crunch for American shoppers pales compared with the challenges faced by those in the developing world. Americans spend just 9.9 percent of household income on food, according to the Agriculture Department. Compare that with poor countries such as Ethiopia and Bangladesh, where it’s not uncommon for families to spend 70 percent.

    Consumer Price Index Summary – March 2008:

    The index for energy, which rose 17.4 percent in 2007, advanced at a 8.6 percent SAAR in the first quarter of 2008. Petroleum-based energy costs increased at a 5.6 percent annual rate and charges for energy services rose at a 12.8 percent annual rate. The food index rose at a 5.3 percent SAAR in the first quarter of 2008, following a 4.9 percent increase in all of 2007. The index for grocery store food prices increased at a 5.9 percent annual rate

    Related: what is inflation risk? – Manufacturing Productivity – What Do Unemployment Stats Mean?

  • Bond Yields 2005-2008

    graph of 10 year bond rates

    From January 2005 to July 2007 the Federal Funds Rate was steadily increased. The rate was held for a year. Since then the rate has been decreasing (dramatically, recently). As you can see from the chart, 10 year bond yields have been much less variable. The chart also shows 10 year corporate bond yields increasing in February and March when the federal funds rate fell well over 100 basis points.

    Treasury bond yields are down but a huge part of the reason is a “flight to quality,” where investors are reluctant to hold other bonds (so they buy treasuries when they sell those bonds). Therefore other bond yields (and mortgage rates) are not decreasing. I guessed last month that the data “may well decrease some for both 10 year bonds once the March data is posted” which wasn’t the case. But I was right in “expect[ing] the spread between treasuries be larger than it was in January.”

    Data from the federal reserve – corporate Aaa – corporate Baa – ten year treasury – fed funds

    Related: 30 Year Fixed Mortgage Rates versus the Fed Funds Rate – After Tax Return on Municipal Bonds

  • Housing Prices Post Record Declines

    Housing prices posted large declines over the last year. One important thing to keep in mind when looking at the recent results is how rare significant declines in housing prices have been. In general housing prices decline very little (less than 10% drops and normally less than 5%). Normally the turnover just decreases dramatically as people refuse to sell at lower prices and just stay in their house until prices recover. Housing Prices Post Record Declines:

    The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That’s the biggest fall since the index began tracking prices in 2000.

    Of those 20 metro areas, 17 posted their largest year-over-year declines ever. Ten of the 20 cities posted double-digit dips. The 10-city Case/Shiller index is down 13.6% year-over-year, the biggest drop since its launch in 1987
    …
    Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they’ve fallen 20.8%. Of the 20 cities Case/Shiller tracks, only Charlotte, N.C. showed higher prices, up 1.5% over the 12-month period.

    Other metro areas recorded only modest price declines, including Portland, Ore., down 2.0%, Seattle, off 2.7% and Dallas, 4.1%. In the nation’s largest city, New York, metro area prices dropped a modest 6.6%.

    Related: Home Price Declines Exceeding 10% Seen for 20% of Housing Markets (Sep 2007) – How Not to Convert Equity – Housing Inventory Glut (Aug 2007) – Mortgage Defaults: Latest Woe for Housing (Feb 2007)

  • Capitalism in China

    Horatio Alger Multiplied by 1.3 Billion

    Mr. Feng, the chief executive of Aigo, a large Chinese consumer electronics company, is a classic Chinese entrepreneur: starting with $31 in his pocket, he has built a business whose products are a staple of urban China, including digital cameras, MP3 players and a new iPhone-like all-in-one device. Before telling me his Horatio Alger story, though, he had something he wanted me to understand.

    “My mother and father went through the Cultural Revolution,” Mr. Feng said. “They had no chance.” He continued: “When I was in grammar school, the Cultural Revolution ended. When I graduated from university in 1992, that was the year of real reform. Deng Xiaoping encouraged students to go into business and become entrepreneurs. Before then, if you wanted to be an entrepreneur, you would sink like a stone. But after that, anyone could be an entrepreneur.”
    …
    But look at what else happened: motivated by the prospect of wealth, people started companies. And as those companies succeeded, millions of new jobs were created.

    I have written about the importance of capitalism to improve life for people around the globe. I have also discussed how many don’t understand what capitalism is (the general idea that capitalism is largely about those with the gold making the rules, which it is not).

    Capitalism fundamentally is about allowing market to determine how to allocate resources (and government protecting that function along with others such as providing security, regulating externalities…). There are serious problems with in the USA in this regard – with enormous political favors granted those giving politicians enormous payments and oligopolies restricting the market from working properly. The government fails to properly regulate oligopolies, as dictated by capitalism – to prevent the markets to be dictated to by organizations pursuing their own interests, again due to large payments to politicians by those favored by preventing capitalism from working (either that or just a co-incidence that those making big payments just happen to give to politicians legislating [and overseeing regulators] against capitalism).

    Just to state the obvious, Chinese government policy and practices also conflicts with capitalism frequently.

    Related: Estate Tax Repeal – What is Wrong with Copyright Taking Public Good for Private Special Interests – Bill Gates: Capitalism on the 21st Century – The Future is Engineering – Making a Difference – Diplomacy and Science Research