Observations


I completed my first MBA in May and in December I should complete my second MBA and I’ve written about the overall experience here.  What really gets my blood boiling however is the need to have to buy two more books, my last two books for my two classes and the cost…$400.   That’s right, two books are setting me back four hundred dollars!   To put things into perspective, the $400 is 17% of the tuition I paid for the classes!    I could have rented the books on Amazon and saved a ton of money but I opted to buy the books because they look like texts I would like to keep and re-read over the longer term so perhaps the books have more value than others but still the price is ridiculous.

Oddly enough, the higher the level of my education the less time I seem to have to write but I hope to be more active this semester with some final insights into my MBA programs.

 

When generation iPhone 1 and 2 were out, I thought they were a waste of money.   The device just wasn’t powerful enough for what it wanted to be and I figured I’d wait until they got a little more powerful before I bought one.    iPhone 3 was a great improvement and when iPhone 4 rolled out, I knew it was time to buy but AT&T still had a lock on it so I waited until an “unlimited” plan was available (via Sprint) before I bought one and that was the 4S model.

I am still amazed however at some people’s attitudes toward smart phones.  Seriously, a smart phone is a portable computer, it is a video camera, it is a camera, it is a music player, it is a flashlight, a navigation aid, and so many other things that adding the value of one smart phone against a stack of peripherals isn’t even close!

I honestly can’t live without my iPad and iPhone, they are my first go-to devices when I want to do something on the internet.   My laptops and even large iMac are there when I need to do some multi-threaded work like opening multiple documents and spreadsheets at the same time to do some work but that’s only about 20% of the time now.

So no, SmartPhones aren’t a waste of money if you want to live in the modern era and have a lifestyle that warrants the use of such a device.  I gave my kids iPhone to give them a leg up on using the new mobility computing platform so yeah, they’ll be way ahead of your kids.   The only caveat is to make sure you have an unlimited data plan to really maximize the value of your device.   Don’t have the money for one?  Cut the cable TV cord and you’ll be way happier!

The good folks over at cockeyed.com did a summary of the change in cost of fast food from some major chains from 2002 to 2013.  It’s interesting that this hasn’t been reported in major news outlets because I think it’s big news on the rate of inflation.

By now if you ever tune in to see any type of federal reserve hearing, you’ll often hear Ben Bernokio (fed chairman) pat himself on the back for keeping inflation low but just look at these numbers!

Fast Food Inflation

Store Chain Item 2002 2013 Variance Yearly Variance
McDonalds Big Mac 2.39 4.19 75% 6.85%
  Cheeseburger 0.89 1.19 34% 3.06%
  Quarter Pounder 2.29 3.39 48% 4.37%
  Filet of Fish 1.89 3.99 111% 10.10%
  Small French Fries 1.09 1.49 37% 3.34%
  Medium French Fries 1.39 2.29 65% 5.89%
  Large French Fries 1.59 2.49 57% 5.15%
Average         5.54%
           
Taco Bell Crunchy Taco 0.69 0.99 43% 3.95%
  Bean Burrito 0.69 1.19 72% 6.59%
  Burrito Supreme 1.69 2.59 53% 4.84%
  Chicken Quesadilla 1.89 2.89 53% 4.81%
  Mexican Pizza 2.39 3.19 33% 3.04%
Average         4.65%
           
Burger King Chicken Sandwich 2.59 4.29 66% 5.97%
  Double Whopper 2.99 5.79 94% 8.51%
  Whopper Meal 3.39 6.19 83% 7.51%
  Shakes (Small) 0.99 1.99 101% 9.18%
  Shakes (Medium) 1.29 2.49 93% 8.46%
  Shakes (Large) 1.79 2.99 67% 6.09%
Average         7.62%
           
Single 2.25 3.89 73% 6.63%
  Double Burger 3.25 4.69 44% 4.03%
  Triple Burger 4.29 5.89 37% 3.39%
  Baked Potato 0.99 1.29 30% 2.75%
  0.99 1.59 61% 5.51%
  1.19 1.59 34% 3.06%
  1.39 1.89 36% 3.27%
  Chili (Small) 0.99 1.49 51% 4.59%
  Chili (Large) 1.79 2.29 28% 2.54%
Average         3.97%
           
           
All Stores Average         5.44%

On average, the cost of fast food has increased 5.44% year over year since 2002.  How many of you got a 6% raise every year for the last 10 years?   Why?  Because that’s what you would need to earn to keep the same level of fast food purchasing power than you had in 2002.  Minimum wage in 2002 was $5.15 and hour and today it is $7.25 and that’s a 41% change over that time period but only 3.71% per year on average.   Do the math, if fast food prices are averaging at 5.44% per year and you’re on minimum wage at a growth rate of 3.71% you’re falling behind 1.73% every year!

Personally, I don’t eat fast food too often but I am always shocked by the cost when I place an order, it is usually never less than $8 or $9 for a single meal!   You may be saying the same thing…”What do I care about fast food” but the real problem is that it applies to everything else!  IF basic food staples are going up this much, how much do you think everything else is going up as well?

Many have chosen to not eat out anymore because the cost has gone up and they can’t afford it however the real problem is fractional reserve lending, a federal reserve and US Treasury policy of printing endless money.   You won’t see this reported on government statistics because there are so many useless hedonic changes in the numbers that they don’t mean anything any more!

So we’re getting ready to do our health insurance enrollment for the next year and my employer is pushing hard on a new health savings account and I’ll be honest…it’s a no-brainer to sign up at least for the first year.

So how does a health savings account work?   It’s essentially a “401k” for your health and there are so many levels of irony here that I don’t know where to begin but I think it does spell the end of health insurance as we know it just like 401k’s spelled the end of pensions as we knew them back when corporations offered them.    Corporations are adept at finding new ways to provide less so why should health insurance be any different?

Back in the day…many companies offered pension plans which was part of a “three-legged stool” whereby an employee would get a retirement pension supplemented by social security/medicaid and savings.   As corporations didn’t want to offer or could not afford pensions, they gave employees the old switcharoo by offering 401k plans as they transitioned pensions out.  To sweeten the deal the corporations offered incentives such as employer match of 6% or more.     Fast forward a few decades later and pensions are a thing of the past….it takes a generation or two to forget they were ever offered to begin with in the biz world.

So now, my employer is offering health savings account with some sweet incentives such as:

1. Your monthly premiums will be cut in half!  Yes, whatever your health insurance costs are today, imagine slashing them in half.

2. The employer will put in a few thousand dollars in money into your account (first year only!) to cover your deductible.

3.  Free preventive care visits (no copay).

4. It’s tax deductible!

So what’s the catch?  Does the above sound too good to be true?   Well there are a few catches.   First, the plan has a high deductible meaning that before the insurance plan pays out a single dime, you must incur the first $3,000 in medical expenses.    This means that if you take regular prescriptions then that’s all on you up to the first three thousand.     Of course, if your employer is going to put in a few thousand into the plan then your first year is free right?  This is the no-brainer part!

After the first year though, the employer isn’t offering a pool of money so the first 3k will be entirely on the employee the second year.   Sound familiar?  It’s the pension to 401k trick!

To be fair, the employees can still choose the old plans which include PPO and HMO at increased costs which doesn’t make them very appealing.  I can’t really complain and I’m taking advantage of the money and the tax deduction to lower my MAGI at the end of next tax year.

So my kids and my co-workers have been ordering stuff from Amazon like crazy.    I slowed down my Amazon shopping ever since they started collecting sales tax in my state but then a funny thing happened.   I asked my kids and co-workers what they were ordering and it was a bunch of cheap stuff from China and Korea.   It seems that a new business model is forming – direct from china to consumer.   It used to be you’d have a ton of middlemen involved in transactions for the same toy, gizmo, gadget, whatever coming in from China but now it’s direct from manufacturer to consumer.

People at work are into dashcams and the kids are into all sorts of iPhone/iPad accessories that they’re getting for pennies on the dollar.   My daughter ordered a 10 pack of styluses for about $1.10.   The downside is that you have to wait a few weeks to a month to get your merchandise but if it saves you 90% off they’re willing to wait.

I got myself into the mix and ordered an iPhone case + wallet combo.  The photo of the merchandise I ordered showed a wallet with room for money, credit cards and an iPhone with many positive reviews from shoppers and at $5.00 what is there to lose?  I think it’s coming direct from South Korea and I won’t get it for a few weeks but I’m in no hurry to get it anyway.  The best part is that there is no sales tax.   Seriously, why bother setting up ANY shop in any U.S. state when you can just have your distribution center in China and ship by sea?

So it seems to me that all Amazon has to do is establish a legal entity in China and start selling the same stuff direct to US consumers.  I’m sure its not as simple as that but seems easy way to avoid the whole sales tax issue.

I have had a long standing theory about the stock market for quite some time:  baby boomers would suck the market dry to survive over the next 20 years.   Ironically, we seem to be on the same path that Japan was 30 years ago and Japan hasn’t really recovered in that period of time.   Is the U.S. going to be the same way?

Every day, 10,000 baby boomers hits retirement age which means they go on government health care, stop contributing to their 401k’s and start pulling money out.  If you want to know how bad seniors will have it Japan has a preview here.  I think the major depletion of the market has largely been masked by the Federal Reserve’s QE-Infinity where the government keeps printing money and this won’t end well for either seniors who live on fixed incomes or the general population which will end up paying $10/gallon of gas in a few years.

Interestingly, as I peruse financial blogs, there isn’t much to read.  Gone are the days of young, hungry and enthusiastic finance bloggers wanting to make money or share some interesting financial advise.   Personally, I had expected the economy to improve quite a bit by now but I can tell it’s still a struggle for many people out there.  I know a few families that live in nice homes but supposedly don’t eat red meat because it’s too expensive.   Until someone mentioned this to me, I had never paid attention to the price of meat and when I did, it did occur to me that it has gotten a bit expensive.    Various cuts of beef now go for $8 to $12 per pound while my favorite kobe beef steaks have remained steady at $30/lb.

I’m taking a gamble on the market this year and betting on some improvement but to lock in some gains, I have largely sold covered calls all the way through 2014 to at least lock in a 12% return for the year on some accounts.

Over the holidays I had the pleasure of doing some personal travel and one of our stops was San Francisco.   We did a bit of site seeing and we did take in the vineyard country and I can sadly say that despite finding some really great wines, I did not bring any back.  Why?   Well because you can’t carry on any liquid more than 3 oz.  I guess the TSA is too stupid to differentiate wine from explosives but that doesn’t matter anyway.  We also found some great honey but didn’t buy any to bring back for family, friends, or ourselves because of the airline restrictions.   I know we could have checked the items in luggage but that’s a whole other sad story about items being mishandled, broken, or stolen in the process which is why I rarely check bags except for long term duration flights.

It doesn’t stop there though, we found some great hand crafted knives that my son would have loved to have since he’s a scout but we passed on that too because we figured the TSA would confiscate this “dangerous” weapon.   Why not order online?  Well that’s what we generally do but some states restrict wine sales across state lines but the real problem for us is having to have someone home to sign for the wine when it gets there which is a difficult thing to do with my constant travel and my wife’s other daily activities.   Lately, thefts of deliveries has been up in the area as well and I would rather not have those items stolen so if something isn’t confiscated by some government bureaucrat, it’s getting stolen by some petty thief and then we expect to grow this economy?

On the flip side, I went to an electronics store to buy some old rabbit ears antennae since I’m dropping my cable subscription this week and found some interesting ones that didn’t look like rabbit ears at all.   The electronics retail price was $49.99 and I used Amazon’s price check app on my iPhone 4s and saw it on Amazon.com for half the price and pay no sales tax to boot!  So I clicked and ordered it online and will get it in a couple of days at my door and saved $25.00 in the process.    I am convinced that retail is dying a slow painful death and most of it will be gone soon which is probably why Sears and Kmart are shuttering stores, the retail model doesn’t make any sense anymore.    We went this weekend to Bed, Bath & Beyond to buy an outdoor table cover for some patio furniture and the sales clerk told us to look online as they didn’t carry  that in the store.  WTF?   What’s the point of going to the shop at all if it’s all online?

With 80 million boomers heading for smaller homes, wheelchairs, and lower consumption of goods, how will this economy survive?

It seems like an eternity since I started my MBA program and I’ve just completed another semester, at this rate I should be done in 2013 but I can already tell you that having completed about 70% of the program I clearly understand why the global economic crisis arose despite having more Ph.D’s, MBA’s and undergrads in the world today than ever in the history of humanity.

Problem #1 – Normal Distribution fantasyland – Academic professors preach normal distribution theory as the solution to all problems.   There hasn’t been a financial class that I haven’t taken where normal distribution formulas are used to guesstimate what will happen next which is completely absurd when it comes to financial instruments because those numeric valuations are based on human thinking activity, prejudices and greed not innate characteristics such as height, weight, hair color, etc.

Problem #2 – Head in the sand  attitude – Academic professors are under constant pressure to make a name for themselves and their university by coming up with some new theory that will transform the world so the obvious net result is the head in the sand problem where academic theory is justified and rationalized despite the clear and apparent failure of such theory (see problem #1 for example).   I took an international finance class whereby the professor insisted that stock charting, technical analysis, fundamental analysis, etc really worked.   I argued helplessly for the entire semester and ended the argument with a simple question:  if these systems work well for making money then why aren’t you a wealthy billionaire baron?  (Discussion ended).

Note: I’ve read a few articles where well known egghead Ph.D’s were brought in to devise these bundled crap mortgages and if you haven’t guessed by now, normal distribution was used as a basis to guesstimate the default rate.  Hmm…it ended up being completely wrong, how did that happen? (for answer see Problem #2).

Problem #3 – If everyone else is doing it, it must be right.  My biggest criticism and complaint of my MBA program is that it isn’t unique.   I checked around and the curriculum is pretty much the same as most other universities and I think this is a huge failing.   We need to get to a point where more “niche” education is taking place around specialization around certain fields of study but there is wide reluctance to do so and I’m assuming because it’s probably viewed as too risky.  I would love for each university to develop “ecosystems” around specialized learning just how Apple built their iTunes model for music, video and entertainment then simply build on it.   Here are three areas universities should build niche’s around:  energy, health care, technology.

I am personally debating hard whether the investment in time and money has been worth it.   On the one hand, the MBA program has validate much of what I already knew and the confirmation will be the piece of paper I get at the end of the program with “Degree” stamped on it.   On the other hand, I spent a great deal of time doing pointless research largely so professors can find the next big thing (I have no doubt some professors skim off of their students) research and ideas and made too many sacrifices along the way.

 

I’m now about 5 or 7 classes away from finishing either one or two MBA programs at my university.  It’s been a long road and the days just fly by but I get to learn something new every day from my peers.   I recently learned through a discussion in a marketing class that many students are or have cancelled their cable TV subscriptions and switched to things like NetFlix, Hulu, Amazon Streaming, iTunes or other services.

I guess this is why cable operators are now scrambling trying to offer al-la-carte TV channels after decades of fighting it.

Cable operators are privately working on a plan to force programmers to unbundle their networks and allow customers to subscribe to channels on an individual basis.

As consumers,

  • We used to buy whole albums and now with iTunes we simply buy the songs we like.
  • We used to have to take whatever bad food airlines served but now they offer a-la-carte menu items.
  • We used to be stuck with book publishing cartels and retail book outlets but we can now download books al-la-carte.

The days of mass subsidization seem to be coming to an end.   I never liked the idea of paying to subsidize hundreds of channels I never watched (20+ cartoon/Disney channels, 40+ ESPN/sports channels, Opra Network).   Seriously, how much TV do cable operators think we can watch and subsidize?   At some point, something had to give and here we are, that day has come.    The next evolution will certainly be around health insurance with a whopping average charge of $15,000 per year for health insurance, it isn’t sustainable by businesses nor consumers.

The 2010’s will be known as the al-la-carte generation and hopefully it will engulf education, health care, and government institutions because they are no longer sustainable in their present forms.

 

So I recently purchased a new 27″ iMac fully loaded for a nice chunk of change and I looked back on my blog to figure out how long I had waited.   It turns out I had initially intended to buy it in 2008 but held off then in 2009, I got sacked because of the financial crisis and it’s now been two years and a month since that time and I’ve finally restarted to make large purchases.

To be fair, financial confidence actually happened sooner with a nice vacation to the east coast this summer but it’s interesting that financially prudent people really don’t dive into big expenditures until cash reserves and emergency reserves are fully replenished before taking a plunge back into the consumerist lifestyle.    Things are very different for me though because I’ve paid down almost all debt including mortgage and now have excessive cash reserves so it’s seemed appropriate to spend some cash.

This year I’ve taken two nice vacations, purchased an iPad and iMac and just purchased another iPad as a gift for someone special ;).   So where does that leave us now?   If we do hit another recession or dip deeper into more malaise then there possibly can’t be any economic boom until at least late 2013 or even 2014.  In the meantime, cash keeps tumbling in on my investment activity so I’ll keep chugging along.

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