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  • Debt Collection Increasing Given Large Personal Debt Levels

    Personal debt levels in the USA continue to be alarmingly high. Thankfully in the last couple of years things have been moving slightly in the right direction. But the debt levels are still far too high.

    chart of USA Household Debt Relative to Disposable Income and GDP
    via wikipedia

    The chart shows USA household debt in the 60% range of disposable income in the 1980s. It isn’t as if the 1980s in the USA were some low debt era. Personal debt was high then. It rose into the 120% range in the last 10 years and in the last few years dipped to the 110% range.

    Given the large amount of debt falling into collection managing that debt has becoming increasingly important to local banks and credit unions. Companies like, Intelligent Banking Solutions, are helping those institutions deal with collections while building a strong business themselves.

    As consumers we need to use debt sparingly and without our means or be trapped in a personal financial crisis. It is hard enough to get ahead today without creating problems such as paying high interest rate debt or penalties and fees for failing to pay back your obligations as required.

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  • Government Debt Held Within the Country Versus That Held Externally

    A reasonable amount of government debt is not a problem in a strong economy. If countries take on debt wisely and grow their economy paying the interest on that debt isn’t a problem. But as that debt grows as a portion of GDP risks grow.

    Debt borrowed in other currencies is extremely risky, for substantial amounts. When things go bad they snowball. So if your economy suffers, your currency often suffers and then the repayment terms drastically become more difficult (you have to pay back the debt with your lower valued currency). And the economy was already suffering which is why the currency decreased and this makes it worse and they feed on each other and defaults have resulted in small economies over and over from this pattern.

    If a government borrows in their currency they can always pay it back as the government can just print money. They may pay back money not worth very much but they can pay it back. Of course investors see this risk and depending on your economy and history demand high interest to compensate for this risk (of being paid back worthless currency). And so countries are tempted to borrow in another currency where rates are often much lower.

    If you owe debts to other countries you have to pay that money outside the system. So it takes a certain percentage of production (GDP) and pays the benefit of that production to people in other countries. This is what has been going on in the USA for a long time (paying benefits to those holding our debt). Ironically the economic mess created by central banks and too-big-to-fail banks has resulted in a super low interest rate environment which is lousy for lenders and great for debtors (of which the USA and Japanese government are likely the 2 largest in the world).

    The benefits to the USA and Japan government of super low interest rates is huge. It makes tolerating huge debt loads much easier. When interest rates rise it is going to create great problems for their economies if they haven’t grown their economies enough to reduce the debt to GDP levels (the USA is doing much better in this regard than Japan).

    Japan has a much bigger debt problem than the USA in percentage terms. Nearly all their debt is owed to those in Japan so when it is paid it merely redistributes wealth (rather than losing it to those overseas). It is much better to redistribute wealth within your country than lose it to others (you can always change the laws to redistribute it again, if needed, as long as it is within your economy).

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  • The Importance of Long Term Disability Insurance

    Insurance can be annoying as you pay for something you hope not to use. I don’t recall ever getting a payment on life insurance, homeowners insurance, disability insurance or auto insurance. And that I haven’t had a claim is good. On health insurance I have had minor things covered like a physical or dentist and that is it.

    Health insurance is critical in the USA. One insurance that people often don’t think of however is disability insurance. Disability insurance is a very important insurance that too many people don’t consider (many jobs offer it, though not all, and some may take a year before you are covered). Studies show that a 20 year old has a 30% chance of becoming disabled before reaching retirement age. In the USA, the Social Security Administration provides disability benefits for total disabilities.

    In the USA you may be eligible for social security disability payments but it is a small amount (so not sufficient by itself). But if you are living overseas and not paying social security I am not sure if you are covered, even for the limited coverage it provides.

    I am not sure what the situation is for citizens of other countries, maybe they have better safety nets for people (I would imagine Europe does, but many places probably don’t).

    I had been living in Malaysia for several years and am now going nomadic (an increasingly popular choice for a small but determined group of people) and insurance is important for people living overseas and traveling. For nomads or frequent travelers global health insurance is good (though usually it will exclude the USA if you are not a “USA 1%er”(or world .2%)/very-rich as the extremely broken USA health care system is crazy – you can be covered globally excluding the USA for about 1/6 of that same coverage excluding the USA, depending, of course on your coverage). Special care for travelers and nomads should be paid to coverage to return you home if you are very sick or injured.

    Disability insurance is something thing digital nomads should pay attention to. But it is normally ignored. And it is a bit tricky as insurance companies are generally extremely slow to catch up to what the world is doing and disability insurance seems to be stuck in the old notions about how tied people were to one country (as are other things – demanding physical addresses even if they know you are nomadic…, basing rules on silly ideas about where you happen to be at some point in time with customer hostile breaking of internet services that have been paid for etc.).

    Related: Personal Finance Basics: Long Term Disability Insurance – The Growing Market for International Travel for Medical Care – Long Term Care Insurance: Financially Wise but Current Options are Less Than Ideal

  • 11 Stocks for 10 Years – November 2014 Update

    The 11 stocks for 10 years portfolio continues to do very well. It consists of stocks I would be comfortable putting away for 10 years. I look for companies with a history of large positive cash flow, that seemed likely to continue that trend.

    In fact it is doing so well I am a bit worried about the valuation of some of the stocks. Or, in the case of Apple, I was heavily weighted in it and it has risen so much that, combining those two factors, it is now 20% of the portfolio. That seems excessive, so while I still like Apple – at these prices, I will sell a bit of that position.

    Since April of 2005 the portfolio Marketocracy calculated annualized rate or return is 8.75% (the S&P 500 annualized return for the period is 8.55%). Marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund. Without that fee the return beats the S&P 500 annual return by about 220 basis points annually (10.75% to 7.55%). I also often have a bit held in cash, 5% now, for example which lowers the return.

    Since the last update I have added to the Abbvie position (part of the former Abbot which was split into two companies in 2013) and sold off Tesco. I will sell TDF from the fund (I include it in the table below, since I haven’t sold it all yet, I am waiting to get a bit better price).

    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 556% 8% 8%
    Google – GOOG * 18% 15%
    Apple – AAPL 131% 20% 16%
    Danaher – DHR 126% 9% 9%
    Templeton Dragon Fund – TDF 120% 2% 0%
    PetroChina – PTR 88% 4% 4%
    Intel – INTC 78% 8% 8%
    Toyota – TM 65% 8% 12%
    Abbvie – ABBV 43% 5% 7%
    Cisco – CSCO 31% 4% 4%
    Templeton Emerging Market Fund – EMF 29%*** 5% 7%
    Pfizer – PFE 25% 5% 5%
    Cash – 4% 5%

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

    Related: 12 Stocks for 10 Years, Jan 2014 Update – 12 Stocks for 10 Years – 12 Stocks for 10 Years: January 2012 Update – October 2012 Update – 12 Stocks for 10 Years, Oct 2010 Update

    I make some adjustments to the stock holdings over time (selling of buying a bit of the stocks depending on large price movements – this rebalances and also lets me sell a bit if I think things are getting highly priced. So I have sold some Amazon and Google as they have increased greatly. These purchases and sales are fairly small (resulting in a annual turnover rate under 2%).

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  • The Aim of Modern Day Political Parties is To Scare Donors Into Giving Cash

    Monsters Inc received power from children’s screams. So the company hired monsters to go scare children to get more screams and create more power.

    The current political parties in the USA (Republicans and Democrats) seek to scare their donors into providing cash “donations.” It is even worse, in many ways, than if those parties sold favors to get things done. At least then there would be an incentive for the parties to deliver successful prizes to those paying for influence.

    But the parties have become like Monsters Inc. They only seek to increase suffering in order to get what they want (in the case of the Republican and Democrats, cash, and in the case of Monsters Inc, screams).

    The damage to the economy from decades of two political parties seeking to increase fear so they can get more cash while neither cares about the damage they do is enormous. We really need to throw out those that have been destroying the country for their own petty interests.

    Throwing out the parties that have proven they don’t care about the country won’t result in people that agree on tactics but at least we should elect people that seek to aid the country and refuse to destroy the country in order to hope in doing so they can hurt the other political party more than they are hurt. As long as we keep electing the type of people that don’t care about the damage they do we are going to keep paying a high price.

    Occasionally (and much more than occasionally at the state level, it is harder to make excuses about failing to deliver on what people paid for at the state and local level) they do give in and give those paying them lots of cash what those that paid thought they bought. But most of the time they try to avoid doing so as that slows down the flow of money.

    Related: USA Congress Further Aids Those Giving Them Cash and Risks Economic Calamity Again – Adding More Bailouts for Politicians and Bankers is Not the Correct Strategy – Anti-Market Policies from Our Talking Heads and Politicians – We Need to be More Capitalist and Less Cronyist

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  • Kiva Loans to Entrepreneurs in Columbia, India and Kenya

    I have been giving loans through Kiva for many years now. I enjoy the opportunity to help out entrepreneurs around the world. And the web site is well done to give you a psychological boost – photos of the entrepreneurs, stories on what they will do, etc..

    I often have difficulty finding real entrepreneurs (many of the loans are for things like education, fixing up their house, buying motorcycle/car, etc. that may well be very important but are not really related to entrepreneurship in most cases). That is fine, in this session I had 3 loans to entrepreneurs and 2 loans for solar energy solutions for people’s homes. Improved energy, cooking or water access are some things I am happy to lend to that are not entrepreneur related. Though usually the water loans are – to an entrepreneur that will sell clean water to a neighborhood and sometimes the solar energy ones are, though not in this case.

    photo of Kelly a Columbia Kelly in Medellin, Columbia is starting a shoe business.

    The write-ups on Kiva are often fairly well done; targeting those interested in making loans. Kelly’s:

    Kelly, 26, is very clear about what she wants in life and is determined to finish her studies in order to move froward and have a good life.

    She works as a saleswoman in different shoe stores in the municipality of Medellin.

    She wants to start her own business making and selling shoes of all styles. She wants to start this activity because she has the desire to generate the resources she needs to support herself and her education, in addition to helping with expenses at home.

    She is a young, very disciplined entrepreneur. She is requesting a loan to buy a wide range of materials such as leather, soles, adhesives, and fabrics. With these elements, she can start this business and improve her quality of life.

    I often screen the data on delinquencies and defaults for the partner bank in making loan decisions. It isn’t because I am worried about losing my loan (I just re-lend what I get paid back). But if I lend to organizations that are having more failures I increase their supply of money to make loans which don’t seem to be working out for borrowers as well as another lender). I want my money going to help people, not get people into a mess.

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  • The 20 Most Valuable Companies in the World

    The 10 publicly traded companies with the largest market capitalizations.

    Company Country Market Capitalization
    1 Apple USA $626 billion
    2 Exxon Mobil USA $405 billion
    3 Microsoft USA $383 billion
    4 Google USA $379 billion
    5 Berkshire Hathaway USA $337 billion
    6 Johnson & Johnson USA $295 billion
    7 Wells Fargo USA $270 billion
    8 GE USA $260 billion
    9 Wal-Mart USA $246 billion
    10 Alibaba China $246 billion

    Alibaba makes the top ten, just weeks after becoming a publicly traded company. The next ten most valuable companies:

    Company Country Market Capitalization
    11 China Mobile China $240 billion*
    12 Hoffmann-La Roche Switzerland $236 billion
    13 Procter & Gamble USA $234 billion
    14 Petro China China $228 billion
    15 ICBC (bank) China $228 billion**
    16 Royal Dutch Shell Netherlands $227 billion
    17 Novartis Switzerland $224 billion
    18 Nestle Switzerland $224 billion***
    19 JPMorgan Chase USA $224 billion
    20 Chevron USA $210 billion

    Petro China reached to top spot in 2010. I think NTT (Japan) also made the top spot (in 1999); NTT’s current market cap is $66 billion.

    Market capitalization shown are of the close of business today, as shown on Yahoo Finance.

    According to this March 2014 report the USA is home to 47 of the top 100 companies by market capitalization. From 2009 to 2014 that total has ranged from 37 to 47.

    The range (during 2009 to 2014) of top 100 companies by country: China and Hong Kong (8 to 11), UK (8 to 11), Germany (2 to 6), France (4 to 7), Japan (2 to 6), Switzerland (3 to 5).

    Related: Stock Market Capitalization by Country from 1990 to 2010 – Global Stock Market Capitalization from 2000 to 2012 – Investing in Stocks That Have Raised Dividends Consistently – The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects (2011)

    A few other companies of interest:
    Facebook, USA, current market cap is $210 billion.
    Pfizer, USA, $184 billion.
    Toyota, Japan, $182 billion.
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  • International Migrants: Economics and Banking

    In 2013, international migrants sent $413 billion home to families and friends — three times more than the total of global foreign aid (about $135 billion). This money, known as remittances, makes a significant difference in the lives of those receiving it and plays a major role in the economies of many countries.

    India received $72 billion and Egypt $18 billion in 2013.

    I liked an interesting point he made. These remittences often include business advice to those relatives in the home country.

    This is a great talk if you are interested in economics and global development. It is very important to understand the issues we face in helping billions living in poverty. As he says regulation of small remittences must be reduced. Policies forced by countries like the USA have damaged poor people’s lives worldwide with extremely onerous regulation.

    Web site of the speaker: Dilip Ratha

    Related: International Development Fair: The Human Factor – Creating a World Without Poverty – Supporting Virtual Workers – Solar Power Market Solutions For Hundreds of Millions Without Electricity

  • Debate Should be Encouraged – Calling Judgement “Extremely Paternalistic” is Normally Unwise

    My response to a comment by John Green on Reddit

    I really really like your work and webcasts (example included below).

    It seems to me extremely paternalistic for people in rich countries to claim to know what is best for people in poor countries

    This seems to me to make it really difficult on people trying to use judgement. Calling people’s actions “extremely paternalistic” if they are not definitely so, I think impedes debate. And I think debate should be encouraged.

    When making Kiva loans I do steer away from loans with rates above 40% (I also prefer loans that are geared toward a capital investment that will increase earning power going forward though this is hard – lots of loans are essentially for inventory that will be sold at a profit so a fine use of loans but not as powerful [in my opinion] and new capital investments – say a new tool, solar power that will be resold to users…).

    Just like people anywhere, people taking Kiva loans are capable of getting themselves into trouble. Choosing to allocate my lender toward certain loans does not mean I am being paternalistic.

    I am not being paternalistic if I chose not to invest in the stock of some company that vastly overpays executives and uses high leverage to do very well (in good times).

    I do like the idea of direct cash to people in need. I give cash that way (and in fact did it a long time ago, 20 years, for several years – before any of this new hipster cachet :-). And I still do like it.

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  • The Time to Payback the Investment in a College Education in the USA Today is Nearly as Low as Ever – Surprisingly

    While people question the value of a college degree a recent study by the New York Federal Reserve shows a degree is close to as valuable today as it has ever been. The costs to get that value have risen but even with the increased cost students earn on average a 15% annual rate of return on their investment.

    Of course, not every student will earn that, some will earn more and some less.

    The Value of a College Degree

    We estimate that the value of a college degree fell from about $120,000 in the early 1970s to about $80,000 in the early 1980s, before more than tripling to nearly $300,000 by the late 1990s, where it has remained, more or less, ever since. Despite drifting down somewhat in the aftermath of the Great Recession, the value of a bachelor’s degree has remained near its all-time high.
    …
    The time required to recoup the costs of a bachelor’s degree has fallen substantially over time, from more than twenty years in the late 1970s and early 1980s to about ten years in 2013. So despite the challenges facing today’s college graduates, the value of a college degree has remained near its all-time high, while the time required to recoup the costs of the degree has remained near its all-time low.

    graph showing averthe years to recoup the cost of college decline from 30 to 10 from 1970 to 2010

    So a college education is a great investment for most people. This can create a problem however, when people then assume that all they need to do is go to college and they will do well no matter what. The same thing happens in other markets. Real estate has proven to be a great investment. that doesn’t mean every real estate investment is good. It doesn’t mean you can ignore the costs and risks of a particular investment. The same goes for stocks.

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