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October 28, 2010

How to Buy A Car (Part 1 in a Series)

One of the reasons we have a crisis of character in this country is because we lack the knowledge and skills to get what we want through proper negotiating techniques.  We take Calculus but not Life 101.  We know how to do our jobs, but not how to buy a car.

People with mentorship responsibilities should pass on the following information, whether it be through classroom instruction, a box lunch seminar, or a simple one-on-one discussion.  It's like saying you care enough about the people in your life to hand them an extra $5,000. 

 

When you go to a car dealership, the first thing a salesman often asks is how much you want your payments to be.  If you tell him, you are screwed from the get-go.

When buying a car, you are, in fact, negotiating three deals, not one.  You are negotiating the deal with the manuafacturer (ie. Ford), the dealership (not owned by Ford), and the finance company (which may or may not be a subsidiary of Ford).  

When negotiating with the manufacturer, it is important to know 1) When they report quarterly earnings 2) How well their stock is doing and 3) Whether they have any public confidence issues they are dealing with.

When negotiating with the dealer it is important to know 1) how strong the local economy is 2) something about their salesman commission structure and 3) How long they have held the car you particularly like.

When negotiating with the finance company it is important to 1) have a decent credit score 2) have the name of an outside source of credit that is available to you and 3) know the Goldilocks rule.



October 26, 2010

What the Rangers Have and the Cowboys Don't

It is not surprising to me that the Rangers are going to the World Series this year while the Cowboys are having their worst season ever.  It simply goes to show what can happen when an organization has the good fortune to be acquired by someone who understands how to create an actualizing experience.

To reacquaint you with the concept (more can be found in my book):

 

People who have experienced it call it the “oceanic” feeling – when the world expands beyond its boundaries and all things become possible. During a peak experience such as this, the people involved experience feelings of ecstasy, awe, and wonderment, as though limitless horizons have just been opened to them. They are filled with a sense that something important -something beyond the boundaries of existence as we know it - has just happened and that they were privileged to be a part of it.

 

If Jerry Jones ever knew how to create an actualizing environment, he forgot it long ago.  Jones has spent incredible amounts of money on individual players and the swankiest stadium known to man.  If you fail him he jettisons you.  He makes it perfectly clear that his goal is to have a winning team so he can make his mortgage payment.  He agonizes over the losses because he translates them to a loss of revenue.  He spends tons of money and wonders why it hasn't yet bought him a team.

Nolan Ryan, on the other hand, "gets it" the way Tom Landry "got it".  And the result is unexpected greatness.

 

 

      

October 13, 2010

Ben Bernanke's Pending Epic Mistake

Most people don't realize that Ben Bernanke's mistakes, when he makes them, are epic in nature.  Although he is credited with doing the heavy lifting during the mortgage crisis, he is also the guy who failed to realize how his interest rate policy of small but rapid increases in early 2007 actually contributed to the collapse in the first place.  And it took him a good long time to take rates down again when mortgages started tanking.

He is on the verge of another colossal mistake of even greater proportions.  

It is the role of the central bank to instill confidence in a nation's currency.  If the Fed tries to play God too much, it runs the risk of inspiring unintended consequences instead.

Over the past 18 months to 2 years, the Fed and the banks have been buying treasuries.  People know it, but because it has been done somewhat on the sly, people don't really understand the magnitude.  The banks and the Fed have purchased the vast majority (greater than 90%) of new issuance.   

Bernanke has now announced that the Fed will continue to purchase treasuries over the coming months, ostensibly under the guise of QE2 (quantitative easing 2).  The theory is that an additional influx of dollars into the system will help spur the recovery.

Perhaps he is just testing the waters to see how the system will react.  But the epic mistake that Bernanke could make if he really does go down this road is to fail to fully account for the fact that the US treasury not only has to place $1.5 trillion of new issuance this year, but also roll 1/4 of the existing debt (our average maturity).  This means that the government has to sell approximately $5 trillion in total treasuries this year.

When holders of a nation's debt begin to lose confidence that the nation can sell its issuance in the open market, they tend not to roll their existing investment and move into other investments.  And nothing signals this condition faster than the Fed printing dollars to monetize additional debt.  You say tomAto, I say toMAto, you call it quantitative easing, I call it monetizing, China calls the whole thing off.

China's investment in treasuries, both is absolute dollars and as a percentage of the total, is large enough to cause concern.  Unlike Japan, whose debt is owned by its own loyal citizens, a significant part of our debt is owned by others who are not always going to be interested in propping us up.  They only do so now because they still need the US to buy the goods they produce.  They are not going to sit idly by and watch us devalue our currency. 

Since the day the Fed announced its intention to engage in QE2 (most assume about $100 billion/month in purchasing for the foreseeable future), commodity prices ex precious metals (which had already been rising) popped an average of 10% in under two weeks.  If Bernanke needed a red flag, he got one.     

It is not the Federal Reserve's job to help the government kick the can of fiscal responsibility down the road.  Like a parent who fails to hold a child to a budget, the consequence of rising food and energy costs without a corresponding increase in wages is stagflation and a greater need for public assistance.**

 

**According to the Bureau of Labor Statistics, food and energy accounts for 60% of the budget of the poorest 20% in America, and 30% of the second poorest 20%.      

  

October 04, 2010

Which is Better for Our Country - the Tea Party or the Billionaire's Pledge

What amazes me about tea party followers is that, by and large, they are not wealthy people.  In fact, many of them are quite poor.  Fortunately or unfortunately (depending on which side of the isle you're on), they don't understand the logistical reality of what they are supporting.  Sound bites like "stop spending our children's inheritance" and "no new taxes" sound great, "you won't be able to start collecting social security benefits until you're 72" or "your medicare benefits are going to have to be significantly scaled back" not so much.

According to Richard Fisher, the head of the Dallas Fed, the net present value of unfunded entitlements is 8-9 times our current deficit, or about $61 trillion.  That's $1.3 million for every family, or 10 times the cost of every war we've fought since the American Revolution.

How can this possibly be funded?

http://www.cnbc.com/id/15840232/?video=1604902615&play=1

In the above video, Robert Kessler and David Walker debate whether we have enough money as a nation to escape our entitlement problems.  Kessler makes the argument that we have $50 trillion in assets that could be redeployed into treasuries while Walker makes the point that even if you did that you'd still have an $11 trillion hole.

What nonsense, Kessler!  To think Americans are willing to sell all the real estate, stocks, and other assets they own to foreigners simply so they can buy treasuries that are not backed by any hard assets whatsoever?  I will tell you now, that the people who own 95% of the assets of this country - the wealthy - have no intention of doing such a thing.  They don't even intend to let the treasury inherit when they die.

Look at Warren Buffett, Bill Gates and all the other billionaires who are taking the billionaire's pledge.  They know that the US debt and future deficits will result in a black hole which no amount of money can fill.  So instead of sitting idly by and watching their hard earned money go down the rat hole, they are leaving their wealth in trust to foundations which will perform many of the same social services the government performs.  The difference?  The foundations are administered far better and far more economically than the government.  And the money is invested to grow so that only the income will be spent, which means the foundations are in a position to do good forever.

Once again, Buffett has found what may be the only workable solution in a sea of unworkable solutions.