Monday, May 30, 2011

Inflation!

   Inflation has been on my mind as of late. Some guys like to think about sports, others about hooking up with hot chicks. Me, I like thinking about personal finances and how macro economic trends will effect my family's household. Currently, my concern is inflation. My wife and I are thinking about buying a rental property or new home in a year or so. Part of the reason for this is because we both see inflation coming in a big way and want to assume as much debt as possible before interest rates rise. This is because as interest rates rise, our purchasing power on borrowed money becomes increasingly more limited. Additionally, and more importantly, as interest rates and inflation increase, your real wages and income decline. However, if we assume a bunch of debt at low rates, we save money in the long run compared to higher interest rate loans, and the effect of inflation makes it "cheaper" in essence to repay any debt. For example, if we borrow ten dollars to buy a house, but the real value of the dollar drops by 50% because of inflation, then we really would only be paying $5 dollars to pay off the debt.
  I personally believe that our federal government has this in mind as our national deficit has skyrocketed in recent years. To repay all of our national debt, taxes would need to be raised and benefits (such as social security and medicare) would have to be drastically cut to even balance the current budget before we could even think about having a yearly surplus to begin paying back our debts. The second option is defaulting on our loans which would be a financial catastrophe that would wipe out trillions of dollars of wealth over night. The third option, is  to keep borrowing as much as we can and continue printing the dollars as fast as we can. Eventually, the value of the dollar drops and you start paying back debt for a fraction of the current price.
   We can kind of see this already in place as the President has said in numerous speeches that he wants manufacturing in the United States to compete with foreign markets. The way to do this is to manage the value of your currency to make it cheaper for other countries to purchase goods from us than produce it at home or from a competitor. So as our debt has skyrocketed and the dollar has dropped, the manufacturing sector has begun to pick back up again. While there are many other factors, this is the general gist.
   With QE2 (second round of quantitative easing the Federal Reserve has employed by buying US treasuries to keep interest rates low and to allow for more lending between families and banks to encourage spending and stimulate the economy) coming to an end in June and the unpopular thought of QE3 still a possibility, I see inflation being out of control no matter what the government does. If you stop with QE2, interest rates rise as the depressed rates are surrendered with the lack of Fed purchasing. As it becomes more expensive to borrow money, companies will pass this cost along to consumers by charging more on goods they sell, and families will be hit with higher interest rates to borrow money to buy a house or car or loans for education. If QE3 happens, other nationalities start losing faith in the US to control their spending and begin to worry about possible credit worthiness as the national debt continues to soar. With this comes an increase in interest rates (ironically, exactly what QE3 would be trying to avoid) as other buyers of US debt will demand higher interest rates to justify taking on our "riskier" debt. Buyers of our debt will want more "reward" for the risk they assume.
    As rates rise and inflation kicks in, the value of the dollar drops and goods you buy, from gas to bread to coffee or clothes all begin to rise. End result, inflation. And when it starts it starts to spin out of control as the government begins to try and counter with short sighted market manipulating moves. Inflation!!!! Its coming. So look to invest in land on borrowed money. Buy commodity stocks, gold and silver. And buy an extra tub of coffee when you go to the grocery store before it becomes too expensive. Even if all these fears of inflation pass, you sure as hell will be glad you did when society collapses from an impending zombie attack.

Sincerely,

Coco

Friday, May 27, 2011

Is being cheap so bad?

So I have a big nose like my father. This is often a pretty big (no pun intended) give-away that I am Jewish. Another common stereotype (this blog does not promote stereotypes of any kind...unless they are comical, such as the one I'm about to write about), is that Jewish folk are miserly. In my case, this is dead on. I don't think of it as a genes thing, more of an upbringing rich in the lessons of cheapness. My dad used to clip coupons out of multiple newspapers. Same coupon, same magazine. It would be the one coupon that would not only save him money, but make him money. "Toothpaste" (probably Aquafresh, or some shit you would not normally think about putting in your mouth), at Vons. It started out on sale for $0.99, down from $1.25. The coupon would be for $0.75 off. But at Vons, you could double it. So $1.50 off $0.99 he would walk out with shit in his mouth and $0.51 in his pocket. But the coupon was limit one per customer. But he had clipped fifteen coupons. This meant that for the next couple of days, after school was out, my sister and I would have to accompany him and each buy a thing of toothpaste. The worst was when we had to make multiple trips in a day. Not only was it a waste of an afternoon, but the look of disgust and pity from the guy working the cash register was a little bit humiliating. Regardless, by the time we were done, we had enough toothpaste to last the next two years and a whopping $7.65 in our pockets. We left the dignity in the parking lot, but walked out with our heads held high.
I don't pay retail for much of anything anymore. If I can't find it onsale, have a coupon, or sweet talk my way out of paying the bill, I usually don't buy it. Cheap indeed, but it has managed a lifestyle for my wife and I that is quite a bit higher than we would be capable of. For example, if we can find a discount on Restaurant.com, Groupon or Livingsocial we won't eat there. We have rewards points on Amex, Priority Club (Holiday Inn Express), and Southwest. Rarely will you catch us staying somewhere where we can't use the points or earn the points at a faster clip. Our movie tickets are purchased at Costco for a $5 discount and I prepare my own taxes by hand every year so I don't have to spend the money for a tax consultant or even buying TurboTax. Hell, the secondary reason for starting this blog is to generate ad revenue. Sure, some of the things may be a "waste of time", but if you get off on saving money as I do, not only is it time well spent, but you're a walking hard on.
The reason for this post however is to distinguish and note the difference from being cheap, frugal and miserly and that of being a thief. Actually, looking deeper at the first three words, they really are all different. I buy expensive stuff, but its at a discount so that's not really cheap, frugal sounds about right, but I'm also generous with my friends and family, so miserly doesn't sound so right. So lets say the difference between frugality and theft.
When I was first out of college, I had taken a job with a big named accounting firm. They didn't pay much but it was a good experience. I lived in a big city though and it was expensive. I lived close to campus even though i had graduated, with two of my fraternity brothers who were dirt poor as well. We shared a 750 sq. ft. apartment, two bedrooms (I had my own small hole and they shared a room). My portion of the bill was $900 a month (compared to the $550 I paid for my only place a year later living in Texas). Regardless, life was expensive, we didn't make much and we liked to drink, so that wiped out (pun to follow) a good portion of our budget.
Anyways, I had a client that had a nice office building out of the city and me and a coworker I was friends with had to work late most nights when all of the client's staff had left to go home already. So each night before leaving, I would head to the restroom, take a leak and then take a fresh roll of toilet paper home with me. Three guys living together, this probably saved about $3 a week. That's a shot at happy hour.
Ladies and Gentelmen, that straight up is theft. Taking soap and shampoo from a hotel room is getting your money's worth. Getting money back on toothpaste with a coupon is good value. Stealing corporate supplies (also bathroom necessities) is just plain wrong. Looking back, I'm a little ashamed, but also realized it was something we needed often, it was a "victimless crime" for the most part and it was three-ply, so it was an indulgence in a difficult point in my life.
I was at dinner tonight with my wife an some family friends and we got to talking about rest room habits, frequency of usage, and eventually, wiping etiquette. I'm a big proponent of checking one's progress after each wipe. Our friend said he was more of a three wipe status update type of guy. But then he said the most interesting thing I've heard in a long time. He's actually, on numerous occassions, been able to do the deed without even needing to wipe once. Even with a safety pat, it was confirmed that indeed this was the case. To think I've gone all this time without even attempting this superhuman ability. Dropping a duece with no need for the TP. You tell me who the cheap one is now.

Sincerely,

Coco