Thursday, April 30, 2009

Best Ivy League Schools By Salary Potential

ivy league schoolsivy league schools

Annual pay for Bachelors graduates without higher degrees. Typical starting graduates have 3 years of experience; mid-career have 15.5 years. See full methodology for more.

While surfing around the internet, I found the above chart which describes which of the Ivy League Schools are the best if you take future potential salary into consideration.  It seems to be that the best school in terms of median salary straight out of college is my alma mater, Princeton.  The median starting salary for a Princeton Graduate is $66,500.  In terms of salary in Mid Career, Princeton is second with a median salary of $131,000.

What I find odd though is this is one of those things that really can't tell you very much about what it is worth to attend an Ivy League school.  While it may sound great to end up with a salary of $130,000, getting into a school like Princeton or any other Ivy League school definitely cannot guarantee you that.  In fact there may in fact not be a causal effect here at all.  You have to remember, that many of the people who attend Ivy League schools got in there because they are smart and motivated.  It is not the university itself that made these people who they are.  So many of these people would have been successful no matter what.

But even more interesting is the methodology.  One of the pre-requisites to be included in this survey is that the individual not have an advanced degree.  Seriously, how big can this data set even be?  I had a lot of friends at Princeton.  I am seriously, and this is no joke, the only one of my friends that does not have an advanced degree.  Everyone has either an MBA, Law Degree, Medical Degree, or some sort of Masters or PHD.  I am unique in that I neither have an advanced degree nor do I plan to get one.

So do I think having a degree from an Ivy League school means a chance at a better future salary?  Only marginally.  Like I said, there are a lot of factors at play here that determine what someone will eventually make.  While the data is probably valid, Princeton graduates do earn a good living, there is very little that would convince me that attending Princeton was the cause of this.

Wednesday, April 29, 2009

I Should Have Been A Banker

Bank of America

Most Economic majors at Princeton become bankers or traders.  It is the closest thing to business or finance that you will find there and it serves as an excellent launching pad to a career on Wall Street.  However, after my junior year I decided to pursue a different path and left Wall Street to my classmates.  Despite my love of finance, as evidenced by this blog, I have never really regretted the decision.

However, when I see headlines like this, I have to wonder if I chose the wrong profession.   Ken Lewis, the CEO and Former Chairman of Bank of America, lost his title of Chairman of the Board.  For those that are not totally familiar with the situation, Bank of America is one of the financial institutions most in trouble.  They have made several very questionable acquisitions such as Countrywide Financial and Merril Lynch.  The results for Bank of America is a stock priced that has dropped about 95%.  Since the CEO is chiefly responsible for the financial success and failure of the firm as measured by its stock price, I would say Ken Lewis has not done such a hot job.

His punishment, he loses the title of Chairman but keeps both his CEO position and his seat on the board.  God, how awful.  What's next?  They dock his pay by $1000?  Yeah, that would really hurt him.  Don't you just love demotions that aren't really demotions?  I wish I had such a high paying job with such job security.  Must be nice.

Tuesday, April 28, 2009

Home Prices Don't Decline as Much

How sad is this as a title?

It is kind of like writing, "Only 40 People Die!" or "Stock Market Only Wipes Out 60% of Retirement Savings".  Perhaps we really have reached a bottom.

Monday, April 27, 2009

Another Reason We Need Less Government

When you serve jury duty, the government normally gives you a nominal stipend.  In the case of Los Angeles County the stipend is $15 a day plus mileage.  You do not get the money the first day you go in and wait to get on a jury.  You are only supposed to get "paid" for any subsequent days after that.  They made this very clear to all of us the first day we showed up.

Those who follow the blog know that I had to go back for jury duty.  I did not get picked to be on the jury, so I got to leave on the second day.  This means I should have received a check for $15 plus mileage.  Today I got a check in the mail for $38, two days of serving plus two days of mileage.  This is just a mistake and one that I am sure is not isolated to myself.  I am certain there are many "glitches" like this in government where we overpay for services rendered.  I am not suggesting that this not happen in the private sector.  I am sure that it does.  But to me, it just came to little surprise that something like this happened.

Sunday, April 26, 2009

Careful What You Delete

Some of you may notice that my site looks a little off.  That is because I made the classic mistake of trying to clean up some stuff and deleting the folder that contained all my Wordpress theme info.   At first, I did not know what to do since I did not think I had the theme backed up anywhere.  Lucky for me, I am bad about cleaning up my desktop and found the original unaltered theme lying around.  Over the years, I have made several modifications to the theme to get it where I wanted it.  I have spent the last several minutes getting it close, but now am too tired to try and completely fix it.

But rather than try and fix up the theme, I am going to use this as an opportunity to pick another theme anyway and revamp the way this site looks.  When life gives you lemons ...

Housing Market is Not "Special"

In many markets, housing is starting to "rebound" off of disastrous sales numbers.  Many so-called experts are saying that this reversal in sales signals a bottom in the housing market and that now is a great time to buy.

I always have to wonder why people think of housing as some sort of special asset class.  Yeah, yeah.  I know you cannot live in a stock and you do not get a tax write off investing in gold.  But I am talking about housing strictly has an asset class.  If you wish to talk about housing as an investment than you have to look at it as a market not unlike the stock market.  The asset has a price.  There is supply and demand and there is an ask and a bid price.

In no market of investments do prices ever go straight down.  This is always true in both the short and medium term.  Just look at the fluctuation of prices in a given hour.  Even when a company announces horrible news, the stock price does not just go straight down to a new low and stay there.  All along the way, there are people who incorrectly place a bid at a price much higher than where the stock price eventually settles.  Just look at GM's stock chart.  They and the government have basically announced that the company is going to go into bankruptcy.  At the very least, all the equity is going to be wiped out.  Yet the stock still trades and there are still rallies.  There have probably been no less than four big rallies in that stock over the last year even though the news continuously gets worse.

This is the first time that housing sales have "rebounded" and trended up.  Yet everyone wants to say that we have wished bottom.  There is no doubt that there are several people who have been anxiously waiting to get into the market.  Heck, I am one of these people. They see prices down 25% or even 40% and they want to jump in.   Some of them will and sales will go up.  But that does not mean we have reached the end of a bear market.  There is plenty more downside here as we work through excess inventory and credit standards continue to rise price people out of the market.

So don't buy the news.  We got plenty more of room on the downside.  If you look at the stock market over the last decade, we are just right back where we started.   And this does not even account for inflation.  Why should housing be any different?  We are still well above pricing levels from a decade ago.  Just in my neighborhood, prices are still almost double what they were a decade ago and this is AFTER a 30% pullback.  What makes anyone think we will not go down even more?

Thursday, April 23, 2009

Credit Card Companies Are Not Evil

I always wonder why people like to portray credit card companies as evil.  Today, Obama came out against credit card companies.   I will admit, I am not your average credit card user.  I have actually only carried a balance on my credit card once, and that was because I had forgotten to pay the bill. So perhaps I am not the best person to comment on credit card company practices.  But the way I see it, people do not have the right to credit.  You do not have the right to borrow money at a low rate.  These companies are providing you something you would not otherwise have and nobody can force you to buy something on credit.

Obama wants to limit the amount that credit card companies can raise rates and make sure that the language in their contracts are clear and easy to understand for the consumers.  I'm all for the latter, as I think people need to interact with each other in clear and transparent ways, but I am again not sure this is going to give us what the President is after.  The law of uintended consequences is bound to take hold here.  If credit card companies can not charge high rates, they will be less likely to lend to people of questionable credit worthiness since they cannot make money on these people.  These are often the people who most need to have some form of credit available to them because it is not available otherwise at any price.

Now, this might end up being a very good thing for our society as a whole.  I think we all need to have a little less debt.  Especially credit that costs as much as credit card companies charge.  But on an individual level, I can see this playing out badly.  People who truly need to use the emergency funds that credit card companies can provide will be unable to.  Where will that leave them?

Wednesday, April 22, 2009

Technology Brings Change and This is Good

I was listening to talk radio on my way home today (yes I know I am an old man) and the hosts were lamenting the rapid decline of local news due to the internet.  You know the story.  People want news, the internet provides it when they want it, this kills off local news as viewership has moved online.

I find the death of an industry to be a fascniating topic.  I do not actually think we will see the death of local news.  I think it will decline and change form. But there is no doubt that more and more people are giong to go online for their news and that means less and less people will turn to traditional news sources like newspapers and the nightly local news.  The hosts argue that this would cause a decline in the quality of new available to people.

I find arguments like this to be hilarious.  Yes, news delivery will change but I do not expect it to be "worse".  In fact, I would argue it will probably get a lot better.  News will be both more focused and more dispersed.  I think it will be more focused in the large national news stories.  I do not think resources more thinly dispersed across more reporters equate to better coverage.  If you take the same amount of resources, and foucs them on fewer reporters, you could argue it will raise the bar required to report the news and thus only good reporters will actually survive.

On the other end of the spectrum it will be easy for someone small to reach a large audience. So if someone truly stands out and is an excellent source of news, it will be much easier for those people to reach more vast audiences.  We see this time and again as more and more small bloggers become vital sources of news for some people.

Things always change and wishing that technology would not change the "good old days" is just silly.  I am sure people were initially concerned for the horse and buggy maker and the blacksmith with the advent of the car but I think few would argue that all our lives are a lot better off because of this.  The same for mail delivery and e-mail.  I never send snail mail if I can avoid it.  Bad for the postman, pretty good for me.

I do wonder if I will ever get to the point that I am lamenting how technology is improving our lives.  What do you think?  Can you think of any technology change that you wish never happened?

Tuesday, April 21, 2009

Getting Out of Jury Duty


I had to go to Jury Duty today.  I went last week,  but was told to come back today to see if I was going to serve on a jury lasting sixty days.  There was probably about 80 or 90 other jurors there with me.  When the judge asked if anyone had any problems serving on the jury, the floodgates opened.

People came up with all sorts of excuses.  The case revolved around the plaintiffs alleging that they were subject to discrimination by the city of Los Angeles.  The list of excuses that people came up with to get out of this case included:

  • projects at work

  • vacations

  • weddings (their own)

  • being from Canada (but now a US citizen)

  • having hemorrhoids

  • a sick mother

  • having someone saying something racial to them

  • having a friend whose husband was a police officer

When it came my turn I felt a little guilty because this poor judge had to hear so many excuses.  I stuck with the plain and simple truth.  I told the judge I was not time qualified because my employer would not pay for more than ten days of jury service.

He convened with the lawyers on the case and released a dozen jurors, I being one of them.   This was probably less than 30% of the people who came up with some excuse.  I cannot imagine being a judge and having to hear this type of thing every day.

Monday, April 20, 2009

Down Baby Down

The market moved down over 3% today.  Is it wrong of me that I'm hoping it continues on its way down?

I went short the market by buying a leveraged short ETF (DXD).  The thing is, I'm really not all that bearish in the market from here.  I have been saying for months that we are likely to be trading in a range for the next several years.  We have been up over the last six weeks, up almost 30%, and we are likely to come back down.  I'm just trading here and hedging my long positions in case we get a market correction.

I am not sure we will retest the lows from before, we may have put in a bottom, but at the same time I don't think we are anywhere near a bull market.  The movement we are seeing in this market is being created by traders, not investors.  Most of your average Americans have no interest in getting into this market.  I know of several people pulling back on their 401K contributions and people thinking this is just a bad time to invest.  Forget the fact that they are thinking wrongly here, there is just not enough interest by your average american to keep this rally going.

Sunday, April 19, 2009

Moving To California With No Money

California Beach

Moving anywhere with no money can be a pretty daunting tasks.  Moving to a state like California can seem downright impossible if you do not have any money.

One of the more popular ways people come to this site is looking for information on how to move to California if you have no money.  I have actually never blogged about this, I blogged about the advantages California has as a place to live, but I think it is a pretty interesting idea so I decided to actually write a blog post about it.

First let me say I think it is impossible to move anywhere with absolutely zero money.  There are just cost associated with any move so you are going to need some amount of money, even if it is just to pay for the bus ride here. So rather than talk about moving to California with absolutely no money, I am going to talk about what would be the absolute cheapest way to get and live here.

I also want to address one other issue.  Are you sure you want to move here?  I have left and come back to California three different times so I am well aware of the advantages of living here.  If you are planning on moving here with no money, it seems you are pretty desperate to move here and are probably running away from something not running to California.  While I love living here, I have lived in many other places and would say that most places are livable.   It is a much better idea to continue to live in your current area, save some money, and move to California when you have some means than to try and move here with nothing.  Moving to California will not be some sort of magical cure that fixes all of life's problems.  In fact, moving here with no money will cause you a lot of problems that will probably be worse than almost anything you are now facing.  It may not seem like it, but being broke in an expensive place to live is no fun either.

If you are still set on moving to California, keep reading. Be prepared to leave everything behind. I do mean everything.  If you really have no money to move to California, you do not have the money to haul your stuff over here either.  Not having stuff means you can save on moving cost and you can have a smaller place.  It also means you can sell all your stuff and raise some money to actually get here.  Put all your stuff on sale on Craigslist.  If you own the computer you are reading this on, you should put it up for sale.  If you own an iPod, you should put it up for sale.  You might not get a great deal for your stuff but it will put money in your pocket and that is the most important thing right now.

So now you have nothing to burden you down and you (hopefully) have at least a few bucks in your pocket.  The very first thing you have to worry about is not getting here but where you are going to live when you get here.  This is your biggest problem.  You have to have somewhere to live.  It is not OK to come here and go live on the street.  If at all possible, you want to find a temporary place to live that will not cost you anything.  Why?  Because to get a place to live you have to have a job.  But to get a job, you often have to have a place to live.  It is a vicious catch-22.  Find or make a friend here that you can crash on their couch for a while.  Find a long lost relative who might be willing to put you up for at least a month.  Whatever it takes, you need to find a place where you can live for very very little money.  This likely has to be with someone you know because no landlord is going to take you in with no job.  Your only other alternative is to find a place where you can live week to week.  There are many motels that you can do this at, but it is not going to be a pleasant, or even cheap option.  If you can find somewhere you can live rent free, your life is going to be MUCH MUCH easier.  Rent is by far the biggest expense that you cannot avoid.  Eliminating this as an expense means you can go much longer on a lot less money.

An alternative is to scour the classifieds for work that will provide housing.  This is often the case with nanny type positions.  While looking after kids might not be your ideal job, it is better than living in the street.  If you are desperate enough to move here without money than even the thought of looking after someone else's kids should not scare you.

The next order of business is to get a job.  If you have no money and no job options, it does not matter what type of job you get.  Even if you are going to have to take minimum wage, do it.  You need to have cash flow.  You are in no position to hold out for just the right job.  You have no money and are probably bumming off of people so swallow your pride and take what you can get.  If the job pays minimum wage than it will not be a big deal to leave the job once you line up something else.  But under no circumstances should you continue without a job.  Even a minimum wage job at 30 hours a week will put about $200 in your pocket.  That's nothing to sneeze at when you have nothing.

Spend on nothing but the necessities.  There are only so many things you actually need.  You need to have a roof over your head but you should have taken care of that by now.  You need to have food.  That is pretty much it.  Anything else, you need to cut out from your life.  Contrary to popular belief, you do not need a car.  I know people in California who get by just fine, albeit inconveniently, on public transportation.  Cars are expensive to maintain.  You need to do repairs, pay for gas, pay for registration, and pay for insurance.  This is not an option if you have no money.  If you have a car, you should have already sold it by now to raise money.  You do not need to have cable TV.  You do not need to have a cell phone (you do need somewhere that you can be reached if you are looking for a job).  You do not need internet access.  Almost anything you think you need can either be cut or obtained some other way (use the internet at the local library). If something is not actually helping you to survive you do not need it.

After you have secured a job, you need to find a better job.  You need to spend every waking hour doing something toward this goal.  You should be searching job sites, fixing your resume, or obtaining skills or knowledge that will help you find a job.  Searching for a job is a full time job.  If you are not spending 40 hours a week doing it, you are not trying hard enough.  This plus your day job means you are just working 80 hours a week.  That is no big deal.  Just do it.

While this plan may sound unpleasant or even frightening it can be done.   My strong advice is to still not do it.  If you can hold out, not move, and save money you should be doing that.

Thursday, April 16, 2009

Don't Judge a Book

If you haven't watched Susan Boyle sing in the British show Britain's got Talent, go watch it.  I think my favorite part of the whole video is the look on Simon's face as he realizes what an amazing talent is coming out of this most surprising of packages.   I love being shocked at things, and this video is truly shocking.

Just goes to show you, not everything is as it seems on the surface.  Just look at this market.  Market will probably run up tomorrow.  It looks like a strong market.  Just don't be fooled.

Tuesday, April 14, 2009

I Had to Open My Big Mouth

No more than 30 minutes after I wrote my last post and penned this,

Part of me hopes to just get called for a jury.  Might be more interesting than just sitting and waiting here with nothing to do.

I get called for a jury panel that might have to sit for a trial lasting sixty days.  I will not know until next Tuesday if I actually have to go and sit for this.  I doubt it, since I filled in my form incorrectly and said my employer would pay for jury duty indefinitely (they don't).  Oh well.  Just goes to show me that I have to shut up sometimes.

Thoughts From the Jury Assembly Room

I am sitting in a jury assembly right now waiting to see if I get put on a jury panel.  Although I dreaded coming in for jury duty, it really is not all that bad.

The worse part of it by far is the sitting and the waiting.  I had to be here at 7:45 a.m. (which is early for me) and since that time I have had to sit here and basically do nothing.  But it could easily be worse.  Lucky for me, they have Wi-Fi access in the jury room.  So I've been able to pull out my laptop and get a little surfing done.  I'm even able to do a little bit of blogging.

Of course, one can only surf so much before one gets bored out of his mind.  So while this is OK for now, I could not imagine having to do this for several days in a row.  Lucky for me, the Los Angeles County Court system has a one day, one trial policy.  That is, if you do not get called for a jury on your first day, you are done with your jury service.  Similarly, as soon as you serve for one trial, you are done with your service.  This is a big improvement over the previous system where people have told me they had to come in for two weeks in a row and just sit and do nothing.  That would suck.

The one thing that this experience is making me realize is that I am glad I have my job.  There are lots of job which are as interesting as sitting in a jury assembly room.  You do nothing all day but watch the paint dry or wait for someone to ask you a question.

Sitting and doing nothing is fine for someone like me to do for a day.  It actually can be a nice little break.  But if I had to do this day in and day out, it would drive me crazy.  Few people love their job.  I am not one of them. But I at least find it interesting and challenging on a regular basis.  There are days and even weeks which fly by and seem like almost no time has passed.  I cannot imagine that happening if every day my job was to sit and wait.

I still have at least two hours to go.  Part of me hopes to just get called for a jury.  Might be more interesting than just sitting and waiting here with nothing to do.

Monday, April 13, 2009

Took Some Profits

In a market like we have had over the last few months, it is important to take profits when you can.  We have had several head fakes.  While I think the recent market run up is encouraging, I by no means think that we are out of the woods.  I am certain that we will be back down in just a matter of weeks.  We could easily get to the 900 level on the S&P before that, but I do not think we are in the midst of a bull market rally which the last few weeks would suggest.

So I sold off a small part of my financial position in UYG.  UYG is the double long ETF for financials.  That is, it tracks a basket of financial stocks like Goldman Sachs, Citigroup, Wells Fargo, etc.  I bought the position I sold off at around $2.40 a few weeks ago.  The stock had gone as low as $1.37 a week after I had bought it so it did not look like a great investment.  I held on, because I knew the market would rebound at some point, and it has.  The stock closed today at $3.82.  I sold it at $3.62.  That is a 50% gain in a little over four weeks.  If you consider I held it at its low, that is actually a 160% increase in that very short time.

Even though the ETF closed higher than when I sold it, I feel I did the right thing.  Sure, it may go up from here, but in this environment, you just cannot ignore a runup like this.   The good thing about having a strategy like I do is that I bought enough on the way down that I still have a very sizable position if the market continues to run up from here.  So I may lose in the gains I could have had on those shares but I will still profit handsomly if the ETF continues to skyrocket.

I advise you do the same.  If you have any trading position, something you do not plan to hold for the long term, take your profits while you can.  If the market corrects down as strong as it has rallied up, you will be kicking yourself for not taking profits sooner.

Sunday, April 12, 2009

Know Me, Know My Stocks

I decided to post a page that includes all my current holdings in my retail account.  You will notice that most of these I have covered at one time or another in my blog post.  I thought I would consolidate it on one page and keep it up to date so that people could get a sense of what I own and why.

People say all sorts of things.  But if you really want to know what a man is thinking than you want to follow where he puts his money.   I read blogs all the time where people say they have great ideas but they don't actually do anything that they write about.  That is not the case with this blog.  I put my money, my actual money, behind what I write.  So if you ever want to know if I actually did what I said I was going to do, just check out the page to see if I updated my holdings.  You can now hold me accountable to practice what I preach.

Saturday, April 11, 2009

When Crisis Breeds Opportunity

I find today's Dilbert to be particularly relevant to something I've been wanting to write about.   Life is wavy.  There are going to be ups and downs.  The hope for most is that the up times are bigger and lasts longer than the down times.  I have found that the people who are generally the happiest in life are those who do not let their mood deviate too far from their average levels.  That is, people who do not get too happy when times are too good or too sad when times are bad.

I am someone who is really happy with his life.  A lot of this has to do with the fact that I never let the bad times dictate my outlook on life.  In fact, I make sure to look for the hidden opportunities.  I did so recently when my company had its last round of layoffs.  While times may have seemed bleak because it was our second round of layoffs in about six months, it was a great opportunity for me personally to rally the team together and demonstrate how execution was more important now than ever.  Similar things happened to me two jobs ago when I was able to translate the layoff of my entire division into a me acquiring new responsibilities and opportunities to growth.  This lead to my eventual promotion to development manager and the created the launching point for my career growth.

I view the same thing with the current economic crisis.  While I am not using it to try and attract women (I already took care of that one), I am using my relative financial strength to take once in a lifetime opportunities.  While I remain bearish on the overall market,  I do think people need to be looking for pockets of strength that still exists.  There are always bright sides to any crisis, and this one is no different.

Just look at this rally we are experiencing right now.  I do not think it will last but if you got in at the right time, you would have seen a 25% rise in your portfolio in the matter of a few weeks.  In normal markets, gains like this could take years.  It is impossible to time the market perfectly, but even if you only got part of these gains, you would be set for the year.  I have one position that has doubled during this rally.  Do you realize how crazy it is to get a double in a few weeks?

So whatever your personal situation is, find a way to take advantage when others are panicking.  You will find that the times that make the biggest difference in your life will be when you keep a level head when others do not.

Thursday, April 9, 2009

Is The Market Turning?

There are only a few market commentators I enjoy reading and even fewer who I actually pay attention to when they make recommendations.  One of those people is Jim Jubak over at MSN Money.  Today, he wrote an article asking if the market was indeed turning.  After a run like today, with the market up over 3%, it would seem crazy to suggest otherwise.

But like me, Jim thinks that the recent runup is just a mirage.  His logic is sound, probably because it is the same as mine :)  Healthy markets do not behave like this.  You are not supposed to get 25% runs in the market in only three weeks.  The problem, as Jim points out, is that everyone is trying to find the bottom.

The economic news coming out is bad.  And if you believe, like I do, that we are going to have a long painful recovery, one where economic activity is depressed for a long period of time, then you want to be sure to find the bottom of the market.  Like the end of the 70's, we might see a stock market that stays sideways for four, five, or even six years.  This is a frightening prospect for many people so they want to be sure to take their gains while they can.

Given how easy it is to play momentum now as opposed to previous bear markets than runs are going to be exaggerated.  Everyday investors have access to things like ETF's, short ETF's, double short ETF's, etc.  These all allow an investor like me to make big bets in the direction of the market.  As a clear example, I own many shares of UYG.  The stock has more than doubled in just a few weeks.  Those are some crazy moves.

So sit back, and do not rush into the market.  The market has gotten way ahead of itself.  I decided this afternoon to go short the market (By using a double short ETF).  The market went up from there, meaning this position lost some money, but I feel completely comfortable with what I did.

Wednesday, April 8, 2009

Save Money By Having Options

Today, I had a very clear example about why it is so important to have options in life.  At work, we are looking for every way to cut costs.  In hard economic times, smart companies look for ways to save money.  For many technology companies, the best way to do that is to cut staff.  Having already done that, and wanting to prevent any further cuts, the technology team at my company is trying to find every cost savings we can reasonably manage.

So we looked at the big ticket expenditures and are finding ways to save money.  Some of the most obvious things to cut are software licenses.  These can get quite expensive depending on the software and its functionality.  We had one piece of software which we spent $180,000/year. It was the industry leader in it space, but in reality it was not worth the expense.  The key thing it provided was data and that data was available through other providers for much less (on the order of $1000/year).  Now the data from this other provider was not as detailed or rich, but it suited our purposes just fine so we decided we could easily write our own little server to house the data and nearly completely erase the expense.

The server only took one developer a few weeks to write and we were just a few weeks away from launching this new solution.  We called to cancel the contract with the $180K provider and they quickly responded back with a much sweeter deal; we could continue to use their solution for $1000k/month.   That is almost a 95% reduction in price.  This will save the company almost $168,000, or about the salaries of two software developers.  All this because we had a credible threat to abandon their service.  We decided to stick with this provider for now; the change would have required some more work and a little bit of risks, and the cost savings it would have provided are now not as great.  In tough economic times, this company made the rational decision that it was better to get something from us rather than nothing.

While we are happy with the deal, you have to think, why the heck were we paying so much for so long!

Note:  I was going to link to a post that I had written about why having options is the key to a happy and successful life.  I had written it shortly after I quit my last job and was reflecting on how having the option to quit enabled me to have a better option, my current job.  Somehow I never actually posted that article.  That one will have to come next.

Monday, April 6, 2009

Has California Housing Hit Bottom Yet?

California Housing

A friend of mine pointed me to this article suggesting that California real estate may have reached a bottom and is in the middle of a recovery.  The article sites busy real estate agent, dwindling housing supplies and the return of the investor.  So do I think we are close to a housing bottom?

In a word, no.   The article does not argue that housing prices are not still falling.  In fact, it clearly says that housing prices are still declining.  So what is going on here?  There is a simple explanation of this.  No asset goes straight down.  When prices decline, rational buyers who were sitting on the sideline will move in.  There are lots of people in the world that have no patience.  We are a society full of people who need to have what they want immediately. Just like we had a stock rally in December, and then a precipitous drop in February and March, housing will in all likelihood have a rebound before it goes lower.  Nothing ever rises or falls in a straight line.

But this rebound, if you can call it a rebound, does not mean we are near a bottom.  We will spend years, and I'm not exaggerating, at a very low level for housing.  Keep in mind, if you threw out the 70's and the early part of this decade, housing prices have barely beat inflation in the last 100 years.  So even if there is a "rebound" around the corner, we are, at best, going to be at a very low price level for a very long time.  I make much more than the average person.  When you combine my fiancĂ©e’s income, which is also above average, I get pretty close to being in the top few percent of wage earning families in America.  However, 3x or 4x of that would still only by me an average house in my neighborhood.  How absurd is that?  A household that makes about three or four times what an average household makes can only afford the average house?  We still have a ways to go.

I want to buy a house.  I am the perfect buyer that everyone is waiting to come into this market, and I am staying out.  I have a friend in San Francisco who is exactly like me.  Wants to buy, has the money, but has the patience to wait it out.   These are the people who need to come into the market.  That will require at least another 20% down from here, and more likely another 30%.  So no, California has not reached a bottom.

Sunday, April 5, 2009

The Logic of Life - A Book Review

The Logic of LifeI recently read The Logic of Life: The Rational Economics of an Irrational World by Tim Harford. I generally really like these type of books, books that try to bring economic theory to the masses. Similar books like Freakonomics do a really good job of trying to explain simple economic principles and apply them in very interesting ways.

The book particularly caught my interest because I really would like to believe that people actually make rational choices.  Now that does not mean that I think people make good choices or even sane ones.   This is not what rationality is about.  Rationality, as defined by economist, is about how people respond to incentives.  If you make something more expensive, a rational person will consume less of it.  Make it cheaper, and a rational person will consume more of it.  As they try to decide what to do, they take into account other things in their life, not just this one choice, and they weigh the cost and benefit of this choice amongst the other choices they have.  Now notice there is no value judgment in this definition.  And that is important.  Also note that the cost of something can be more than just monetary; costs can include time, danger, pleasure, etc.  People can rationally make a choice that you and I think is totally crazy because they value something very differently than you or I would.  Having this view on life would allow us to make decisions and policies that would essentially "fix" many problems rather than throwing our hands up by simply creating the right incentives.

The book starts out strong.  It first starts out with an explanation of sex.  With such a start, who would not be instantly pulled in? It explores why oral sex is rising in popularity among teenagers when compared to previous generations (teenagers act rationally to the threat of life threatening diseases like HIV).  The book continues to explore such interesting topics like, "Is Divorce Underrated", "Why Your Boss is Overpaid" and "Is Racism Rational?".  The best parts of the book site either studies that economist  have used to try and add credibility to certain theories or how economic theory can lead to certain surprising conclusions.  Here are some of the better ideas.

  •  The theory of comparative advantage means that men are not typically the breadwinners because they are better at it than women.  They might just be that much worse at helping around the house and being parents.  This might mean that women are actually better at everything but our society just adapted to the fact that women were comparatively so much better at raising the family.

  •   Divorce is a good thing. Studies have show people who are divorced are happier one year after they are divorced than when they were married.  He argues that an increase in divorces might be caused by women having more options than they have had in the past both family and career wise.  Few would argue that this is a bad thing.  This actually could have caused a feedback loop and has made husbands behave better less their partner file for divorce.  Data bears this out as domestic violence has fallen substantially over the last several decades.

  • Tournament theory suggests your boss needs to be overpaid not because she does a good job but because the only way to encourage those under her to perform is to provide a very strong incentive.  At the top, performance is harder to translate into fair compensation and incentives are often misaligned.  This leads to the conclusion that it does not matter what the CEO at a company does.  He could do nothing and it might still be a good idea to pay him the high salary!

  • Ghettos can be caused by perfectly rational people behaving in a way that is not at all racist if people have even the smallest preference to be around people similar to themselves.

  • An interesting experiment took place which demonstrates how random things can lead to big difference in the amount of education any group decides to get and even to what looks on the surface to be racism.  It demonstrated a vicious cycle where one group did not get education because they could not get hired and that group was not hired because they did not get an education.  All of this when all groups started on a perfectly level playing field but through random chance made choices that effected the group later on.

  • Are system of special interest in government is perfectly rational even if it produces results that is bad for all of us.  It is the exploitation of the many by the few but makes sense since a few citizens with a lot to gain will fight much harder than a huge group with very little to lose.

Overall the book is good and worth reading if you have an interest in economics and how little, seemingly inconsequential details can have far reaching effects.  It starts to fade a little bit at the end as the author starts to dive more into theory and less into studies that produce interesting results.  It becomes a lot more speculative at the end rather than concrete, but I believe this was the author's intent.  The book ends kind of disappointingly and kind of abruptly, but overall worth a read if you enjoy economics.

Thursday, April 2, 2009

Time to Buy?

Bottom of Stocks


I should just leave it at that.  The market has had a fantastic up spike in the last few week.  The market hit its lows in mid March and then rallied strong after that.  Does that mean you should buy?  Should you get in before it is too late?   I should just remind people that a similar market rally happened at the end of December through the beginning of the year and we quickly came back down to a new fresh low.

The jobs number tomorrow is not going to be pretty but I do not necessarily think that it will drive the market lower.  I think that the market is in the middle of a bear market rally.  I think it will run up, and could even get to 900, in just a matter of a few days.  But I really think there are some real problems we are not quite through yet and it is tough to believe that we will suddenly past 1000 anytime soon.

I did buy a smal position in a Chinese ETF (FXI) but I did not start throwing my cash into the market.  I will wait to buy on the market dips.  I think we may be consolidating around a bottom, so I do not think we will blow past the March lows, but I have no desire to go chase the stocks into this rally.

Take your time and have patience.  Sell any stocks you have some solid profits in (you should have been buying as the market went down) and sit and wait for the market to retreat.