California Tax Hike

Tonight, at midnight, California will hike its tax rate 1%.  I have already written about how California is too expensive for most and this is only going to exacerbate the situation.

This now puts tax in the county of Los Angeles at 9.25%.  In many places in California, you are now flirting with 10%.  This is on top of one of the worst recessions we have seen in our lifetimes.  This will no doubt have an effect on consumer spending.  While it may seem small to some keep in mind you just eliminated 1% of spending power for all of California.  That is going to have a multiplier effect and ripple through all parts of the country.  It is not like people have money saved and can dip into their savings or savings rate and just absorb the 1% hike.

Further, this is getting into the territory where people are going to start to simply avoid the tax.  I expect more Californians to start buying online at places like Amazon where they can avoid paying California sales tax.  I have no plans to move out of the sunshine anytime soon, but they are making it very hard for me to justify living in California.  All I hear on the radio is how L.A. County is about to layoff thousands of teachers.  At the same time we have one of the worse education systems in the country.  But we are about to dramatically raise taxes.  I wrote it before, but I really want to know, where the heck is California spending all of its money?

Should You Splurge?

This past weekend was my birthday. I turned 31. Being who I am, we did not do too much. I prefer to stay at home which makes it pretty easy to not spend too much money.  We got up in the morning and had homemade waffles.  Shortly after that I got to open up my birthday gift.  My fiancee got me a new tripod, the Manfrotto 190XDB, to go along with my camera.

We decided to go to the local arboretum to spend the day.  It was a beautiful California day.  It was actually to the point where I was sweating part way through.  It must have been in the 80's.  I got several good shots with my camera (no shots with the tripod unfortunately) and was ready to call it a day by 2:00 p.m.  I was dead tired, the sun will do that to you, so i was ready to go home and just plop on the couch.  I watched the NCAA tournament and waited to go to dinner at some mysterious location.

Well the location ended up being the Arroyo Chop House.  It is a high-end steak house, similar to Ruth Chris but probably better.  We had been there once before several years ago but I honestly did not remember too much about it.  This time what stood out was the excellent service they provided.  They knew ahead of time that it was my birthday. So they reserved a spot right next to the fireplace.  They even left a card on the table wishing me a happy birthday.  I thought that was a very nice touch.

I ordered what else, a steak.  She ordered a lobster tail.  The food was excellent, better than you can get at other places like Ruth Chris.  All told, the meal, with two glasses of wine, cost us $150.   Was it worth it?  It is hard to say.  Is it ever OK to spend $150 on one meal?  It is not something we do very often but it is sometimes nice to splurge.  We can afford it easily, so it is not like we have to stretch to make this work.   We probably only eat out like this two or three times a year, my birthday, her birthday, and on our anniversary.

So should we do this? I tend to think it can actually be important to splurge every once in awhile.  You cannot be frugal all the time and it is important to once in awhile enjoy the fruits of your labor.

What do you think? Are extravagances like this justified?

Did Washington Just Grow a Pair?

It was announced late tonight that the United States government is rejecting the restructuring plan submitted by GM and Chrysler.  I will admit the news of this is quite shocking to me as I never expected the government to actually require GM or Chrysler actually come up with a credible and viable plan.

If indeed this is true, and the government rejects these plans, this could actually mean the death of either one or both of these American icons.  The following quote came from an unnamed Senior White House official, "We have unfortunately concluded that neither plan submitted by either company represents viability and therefore does not warrant the substantial additional investments that they requested"

While I am certain something could probably still be worked out, I am a little surprised with the administration taking a hard tone here.  I was honestly expecting the administration to bend over backwards and say any proposal, no matter how lame, was acceptable.  No way I thought they might actually asks them to answer the tough questions or that they might actually consider a scenario that would let GM declare bankruptcy.

If you read the article, things look pretty serious.  Chrysler is being given thirty days to work out a deal with Fiat to buy it out else the government will walk away.  GM is getting slightly more friendly terms and is being given sixty days to restructure.  This has already resulted in GM CEO Rick Wagoner stepping down.

While this one act will not restore my faith that our government can make the hard choices when necessary, it will at least make me think we have taken a step in the right direction.  We as a nation can not continue to just throw tax payer money at every problem.  We have to allow companies to fail because stronger better companies will take their place.  Just look at last week's announcement by Tesla Motors.   They are going to try and bring to production an almost affordable all electric vehicle.  Where the heck is GM, Ford, or Chrysler with similar plans?  Let us let those companies fail and allow new companies like Tesla enter into the competition.  They will be instantly more competitive than any of the Big Three Automakers.

I predict that markets are going to end up opening down on this news, so get out quickly if you can.  If the market falls below 800 on the S&P, the rally that we have experienced over the last two weeks will be dead and you best be looking for cover.

Raising Low Morale in a Bad Environment

One of the things that has been a focus of my work over the last several months is how to combat low morale.  We have gone through two rounds of layoffs and management is obviously concerned with the overall morale of employees.  Low morale serves as the double whammy since you have less people to do the work and low morale employees are less efficient.  So you may end up with the ability to do drastically less work.

However, my team has consistently had average morale.  They are neither thrilled or particularly sad.  They are treating their job as just that, a job.  This is in direct contrast to some of the other teams in the company who consistently voice their displeasure.  So my team, in comparison, has seemingly high morale.  How did I accomplish that?

My approach has been two pronged.  Transparency and consistency.  I apply these in two ways.

• I am very open and honest about where the business is and what the management team is doing to turn the ship around.  I over communicate with my team and make sure they have direct line of site to where the business is even if they do not "need" the knowledge


• I am very clear about what my expectations are for the people who work for me.  Not only am I clear about it, I set the bar high

I really think it is as simple as that. So long as you have intelligent people (if you do not this is a different problem) they know what is going on in the economy. They know that there are problems that are probably out of the control of the company and can respect that you had to do layoffs SO LONG AS YOU ARE UPFRONT AND HONEST ABOUT THE PROBLEMS. It is when people feel they are being lied to or deceived where they start getting antsy. The problem is compounded if you are not clear about what your expectations are and what it means to be successful because people start to worry about the value they add and thus if they are they next one to get the boot.

These simple things have made a world of difference in my team.  I believe they feel better than the other groups because they know where the business is and know they how they fit into the big picture.  Seems simple but it is so effective.

Wade in Slowly ...

and at your own risk.  The market had a monster move just two days ago, and did its normal 2% correction the following day.  It was pretty predictable after such a huge move.  But the question is, what next?

I actually think we probably go up from here in the short term.  If you can get in and out quick, that might be something you look at doing. But if you are like me, and do not sit in front of a trading window all day, then you have to think long and hard about putting any cash into the game.   What is my big concern?  I have not figured out how to play the Fed's one trillion dollar gamble.

Here are the undeniable realities.  We will have inflation in the next few years.  The value of the dollar will definitely drop in relation to other currencies, particularly the Chinese Yuan.  But the question is when will it happen.  If you have a long term horizon, your move is simple.  You need to short US treasuries and take an inflation play like gold.   The problem is determining where these are going to be in the short term and if you can stay in these plays long enough for them to play out.

I think Gold trades in this $900 range for some time.  I do think it will probably break out above $1000 and stay there over the next year or two.  Same can be said for the treasuries.  But it presents an even bigger problem.  Short term, I think treasury prices could actually go up.  But there is no way that investors are going to continue to stay there when yields are this low.  So do you get in now?  Can you wait two years for this to play itself out?

I need to spend some time thinking what the other side effects of this move will be.  This is a non-trivial shift in money.  There are going to be winners and losers and the trick is to be on the winning side of it.  The bad news for the rest of us?  Taxpayers will MOST DEFINITELY be the first loser if this plan goes south.

Nothing Stops the American Consumer

I thought we are in the middle of a recession?

I went to Fry's this past weekend.  I'm looking for some accessories for a new laptop I just bought (more on that in a later post).  On the way to Fry's, I stopped at a mall that was nearby and could barely even get into the parking lot it was so busy.   Later, when I finally made it to Fry's, the parking lot was almost unmanageable.  I parked at the very far corner of the lot.  Inside was almost as bad.  They have a line that snakes around at Fry's, and it actually overflowed it.  Lucky for me I ended up not buying anything because I would have gone insane waiting in that line.

It just goes to show you, people will keep buying no matter what the heck is going on around them.  I had some hope that America would learn its lesson and end its spendthrift ways.  Maybe it was too much to ask for.

What is the Right Amount of Sympathy

What is the right amount of sympathy to give to people who are down and out because of this economy?  Over the last several weeks, there have been numerous stories in the various outlets about people losing their job and now having to scrape by to make things work.  Most of the stories go a little bit something like this.

John Doe used to live the good life.  He used to make $150,000 a year selling mortgages to people.  He would take trips to Hawaii every few months, bought a big house, drove a BMW, and never worried about what something cost or if he should be saving money.  He was honest but he got caught up in corporate greed and was forced to make loans to people who could not afford it.  When all of those loans dried up, so did his job.  That was 8 months ago and he has not been able to find work since.   His house is now in foreclosure and his wife has left him along with their 5 year old son. 

How sorry should I feel for these people?  The capitalist in me of course says I should not care at all.  People should always be thinking about the future and be prudent with their money.  In almost all cases, you could point to these people living extravagant lifestyles and not saving enough money for the eventual rainy day.  A day which came sooner than they expected.  Then again, it always does.  I look at my own situation and I can only say to myself, "What are these people thinking.".  I too make a good salary.  I have better reason to believe it will continue to go on than most others do since my success is not sudden and is not nearly as tied to a booming irrational sector like so many other people's careers have been over the last few years.  But I save, and I save like crazy.  People who follow this blog know that I tightly control both my discretionary and my non-discretionary spending.  In a worse case scenario, I could probably survive several years of unemployment.  I would have to make sacrifices of course, but I do not believe I would experience quite the same life crisis these people have.

But of course there is the part of me that does not want to take the "I told you so" and "Holier than thou" attitude that so many others have.  While I think many of these people caused many of their own issues, I do not wish to dance around and make light of their situation.  These are of course real people with real suffering.  They are not blameless in their plight but that also does not mean they are not worthy of a little sympathy.  I emphasize "little" because some of these people just really do not seem to get it.  My favorite (although I cannot seem to find the article now) was one man who was living large in the Los Angeles area on $70,000 a year.  Seriously folks, that is not a lot of money.  The article talked about how he spent all of his money on trips and a nice house, all of which is gone now.  But if you think you have the right to live a lavish lifestyle when you only make $70,000 in Southern California, how is anyone supposed to feel bad about that?