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May You Live in “Interesting” Times

You probably didn’t need a newspaper article to tell you that Americans, individually and collectively, owe more money than ever before. And it’s not because housing costs more, although that is a factor.

The biggest culprit is credit cards. With credit card debt at record highs, and credit card companies doing everything they can to keep it that way, it’s no wonder lenders want bankruptcy reform: if enough cardholders were to file for bankruptcy, it could cause serious banking carnage. And that’s only problem one with this situation.

Credit cards are not evil. Like any tool, they can help or hurt you depending how you use them. In this day and age, credit cards are almost a necessity for adults; just try renting a car, getting a hotel room, or buying airplane tickets without one. College Students are especially vulnerable to the siren call of plastic money, graduating with an estimated $2000-5000 in credit card debt on top of student loans. Nor are students the only people who spend credit they have instead of income they don’t have.

If people living on the edge — or anywhere near it — have already maxed out their credit cards, they have no cushion against the bad things that can happen. They haven’t got savings (if they had, they would have put it towards debts) for emergencies like job loss or illness, let alone for certainties like the day they will no longer be able to work. And what will happen then? Either we will pay charities to take care of it, or we’ll pay taxes so they can receive government assistance. Oh, or they can turn to a life of crime. In any event, it will be expensive for everyone. That’s problem two.

Some experts warn that, with the Fed raising short term interest rates, a rise in credit card rates is almost certainly coming. The same rise in short term interest rates is likely to raise mortgage rates, which means that a home equity line is not the credit problem solver those television commercials would have you believe. Even if you own a house, and have actual equity. The short version is that people are going to feel a credit crunch –more money has to go to Visa and MasterCard on things they bought months ago, leaving less money to spend now — and that means consumer confidence and spending will both be headed down. That will directly effect the economy as a whole. Problem three.

So what can you do about this? Here’s some starter advice on credit. Or here’s a more comprehensive version. Pay off the cards. Keep them paid off. It’s one thing to use a credit card to pay a major expense over the course of six months, preferably interest free. Or to put everything on the card and just write one big check instead of twenty little ones. It’s another thing to spend money you may never have. Oh yeah, and if you have the occasion to tell somebody this advice, do it.

Everything you need to know about a “Federal Sales Tax”

It might be my imagination that every four years or so — liberally mixed with campaign rhetoric — we hear talk about the possibility of a Federal Sales Tax. This time the lead instigator is Speaker of the House Dennis Hastert. It is of course coincidental that his new book has been released during campaign season. Nice trick, getting people to buy a hard-bound campaign ad. But the interesting thing is that the President has been quoted as saying “You know, I’m not exactly sure how big the national sales tax is going to have to be, but it’s the kind of interesting idea that we ought to explore seriously.”

The loudest perennial voice in favor of such a tax is American for Fair Taxation, the “FairTax” people. A long explanation of the pros and cons of such a plan — really pretty well balanced — can be found over at About.com.

Once you look through the information, it becomes clear that we are talking about a tax of 23-30%, depending whether you calculate it before or after the price-tag goes on. No exemptions, no exceptions, send roughly a quarter to every dollar spent to the feds.

The advantages, in a nutshell, are that it is very simple and transparent. Better yet, it encourages savings, because after all you don’t pay tax on money you don’t spend. In even encourages productivity, because there won’t be tax consequences to working overtime — no, I never understood looking at the taxes before deciding whether or not to do my job.

Oh yeah, and the IRS could be dissolved, throwing the entire agency and a legion of accountants and tax attorneys out of jobs. Whether or not that is an advantage or a disadvantage depends on what you do for a living.

The disadvantages are, first and foremost, that it would add roughly a quarter to every single dollar you spend. At least most state sales taxes exempt things like food. This tax would be on everything, from Tiffany jewelry to store-brand macaroni and cheese, from healthcare to housing. Even with the expected deletion of Federal Income Tax — and that is no sure thing — it will feel like a one-time burst of inflation. Furthermore, it is regressive. “Increased incentive to save” only works if there is money left over after all the absolute necessities are paid. People who spend all their income will pay a greater percentage of their earnings in taxes than those who do not. Furthermore, people who are in a position to spend their money outside the United States will do so. Border towns and overseas mail order houses stand to benefit. United States tourism will likely be down, since Americans who can will vacation overseas, and foreign nationals will find other destinations.

All this being said, if there is only one thing you remember about the idea of a Federal Sales Tax it is this: it will require a Constitutional Amendment. The Sixteenth Amendment, the one that allows income tax in the first place, very specifically says “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

It’s not going to happen.

Cheap, Legal Corporate Espionage

Today, allow me to present two sides of one coin. Heads, we have corporations using blogs to find out what people really think about their products. Tails, executives using blogs as a corporate soapbox, an place where three-letter types can speak their minds without being interrupted, and yet in a more personal way than a press release. Both stories are a boon for anybody seeking information.

Let’s say, for example, that you work for an automobile manufacturer. You’ve got a new vehicle you are trying to launch. The first thing you want to do is find out what your competitors are up to. However, if you limit yourself to sources like MotorTrend or the Detroit Newspapers, you are missing the most important data. Car critics can only buy so many cars; in the end you will have to sell cars to living, breathing people. So it isn’t enough to find out what a bunch of paid reviewers think are the strengths and weaknesses of your product. You need to find out what Joe and Jane Average think.

How do you tell that? Well, sites like Edmunds have some consumer reviews. However, most of them are rather short, and tend towards rants or raves. Furthermore, you might be missing important data by relying on your opinion — or Edmund’s opinion — of what your product’s competition really is. Here is where blogs — and judicious Googling — come into play. Wheat and chaff must be carefully separated, but you might just find out really important details about yourself and the competition. You might discover which features really matter, or what petty annoyances they have, or what they think of the price, or that they find your ads so obnoxious they won’t even go see your product, or that they have a completely different idea of what your product is all about. People can be really blunt in their blogs, but you are rarely left wondering what they really think.

You can’t pay for this kind of information. No focus group or survey will ever get you this data. Most people are simply too polite to tell you this stuff if they think you will ever know. Oh, and the article linked above touches ever-so-gently on the idea that letting a prominent blogger preview your product can result in free advertising.

On the other side, you can find out a lot about your competition by paying attention to what they do and say. Sure, read the press releases and any news coverage that might be out there, but nothing tells you what’s going on like reading what the people at the top think. It’s unvarnished, free from outside editing, free from outside spin. You are guaranteed to find out what he wants people to know about his product or company. You might find something insightful. You might find something insightfully stupid — young CEOs are particularly adept at inserting foot into mouth in a way that would benefit the competition if they were paying attention.

For that matter, you might find out what your bosses are thinking if you can get a look at their blogs.

Use both approaches on any company or product, and you will almost certainly know more about it than someone who limits himself to traditional news sources and a stack of traditionally prepared market research reports.

As an aside, why did Greenspan raise interest rates today? Because “We’ve turned the corner. Because with oil at record high prices, and that means almost certain inflation. If you believe any of these things, rates had to go up, and they may need to continue going up. Despite this, my theory is — unproven and with no degree in economics to back it up — that the dirty secret of interest rates is beyond a certain threshold, low rates do not stimulate economic development. This is because despite the low cost of borrowing money, there is also low incentive to lend on the part of financial institutions. I think in the end, this will be the lesson we learn from Japan.

It worked in the cartoon…

This morning, I thought the big news was that the economy added 32,000 jobs in July, over 200,000 fewer than expected, a whopping average of 640 per state. And according to the people who are paid to research these things, more layoffs are coming. Add to this the fact that even the IRS admits Americans are making less money, the fact that record oil prices make inflation likely, and strangely enough you might get the idea that the economy isn’t very good for most Americans.

However, then I was sidetracked by two biometric passport stories. Here in the states, we are moving forward with a system whose failure rate can be as high as 50%. “Across the pond,” British passport applicants are being asked not to smile for their passport pictures, as it interferes with the accuracy of the biometric picture readers.

Pardon me, but a system with a failure rate of half is worse than useless — fingerprint scans have a failure rate of more like 2% (one in 50), and even that is overwhelming when you are doing thousands of scans daily. A system that can be foiled by a smile is likewise, worse than useless. None of us want to be detained over a biometric reader deciding that our passport pictures don’t look enough like us. If a simple smile can throw it off, I can only imagine what sleeping on an airplane seat might do to it. This is over and above a new pair of glasses, a little thinner hair, botox, or any of a dozen other innocent things that might change about your appearance between getting a passport photo and going overseas. The even greater risk is that, because the failure rate is so high, security officials will simply ignore the warnings of the device, allowing even obvious mismatches to pass. It is a waste of both taxpayer’s time and taxpayer’s money.

This is the real life equivalent of Elmer Fudd asking what is obviously Bugs Bunny in a pair of sunglasses “Have you seen a little gray rabbit about your size, with long ears like yours, and a little cotton tail like yours?”

News Flash: the Rules Apply to You

I get really tired of people who think that rules are for other people. It’s alright for them to turn right on red without stopping or signaling. It’s ok for them to have a full cart in the supermarket express line. Their dogs don’t need leashes. They don’t understand how the homeowner’s association can tell them to mow the lawn, or what kind of shingles they can put on the roof, or that they can’t put disabled vehicles in the yard. Ironically, these people are usually the loudest to scream when somebody else does something discourteous in traffic, or takes too long to write a check at the cash register. They are outraged if someone leaves dog doo in their yard. They will howl about property values should a neighbor choose an “endearing” purple and lavender paint scheme.

These discourteous souls I can dismiss with a deep breath. The thing that really peeves me is when business owners pull such stunts. Some choose to break the law, willfully or through ignorance: “I didn’t know I needed a license to run a mutual fund”; “I won’t rent my property to an unmarried couple because of my religion”; “The ventilation system the city requires is too expensive”. Others simply whine about the law, demanding an exception for themselves alone: “I need a bigger sign than the law allows”; “I hire so many people in this town I deserve a tax break”. Some businesses even do both, breaking the law while lobbying for special treatment.

Make no mistake. If you run a business, it is your duty to read, understand, and follow all the laws that apply to your business. Failure to do so can result in personal injury, lawsuits, fines, getting arrested, or being put out of business. I have no sympathy for a business that chooses to ignore zoning rules, signage regulations, safety requirements, licensing issues, or any special rules that may apply to specific types of businesses. I frankly have less sympathy for businesses who “didn’t know” about these things.

Many people will protest that some laws are unreasonable if not just plain dumb. Whenever I see a “dumb” law I remind myself that somebody thought it was important enough to make law. Someone had to write it out; some legislators or city council members had to vote on it; somebody had to sign it. Any person or business owner who feels that a law is genuinely unreasonable is hereby encouraged to lobby for its repeal. This is different than trying to get exempted from the law, because repealing bad law benefits everyone.

If you don’t want to follow the law, nobody is forcing you to run a business.

Five Year Plan and a Side Order of Toys

I think by now everybody who is not hypnotized by Donald Rumsfeld knows that things are not perfect in Iraq. At this writing there are 914 dead American soldiers. Since a battle between Al-Sadr’s militia and the United States Marines is underway, this number could rise any minute. Religiously motivated attacks occurred over the weekend. Democracy is still a lofty goal. There is still infrastructure in desperate need of repair, and the money that was to have made this happen was poorly allocated. The best thing to happen to the whole nation in the last week is normalization of relations with Kuwait. Retired General Tommy Franks, a smart military man who has seen events in Iraq first hand says we need a 5 year plan for putting that nation back together. We broke it; we should fix it. There is little point debating whether we should have been there in the first place. Good thing the United States has those permanent bases that Rumsfeld said weren’t being planned, because it seems we will need them.

As if all this wasn’t bad enough, my friend Plunge is having a problem getting toys and medical supplies to little kids in Iraq. There has been a disagreement with a shipping company involving $30,000 and 3 shipping containers that have made it as far as Kuwait. Since the shipping company failed to do what they said they would, Operation Give wants it’s money back. This will help them send more toys to kids who have absolutely nothing. Read about what happened. And remember, the only thing the kids did was get born in the wrong country. If you are in a position to do anything to help — call the shipper, send donations, offer prayers and happy thoughts — I am sure they will be appreciated.

Do I at least keep the right to party?

The Bill of Rights is a wonderful thing. It gives me the right to say what I like, and it gives you the right to say you disagree. It gives Ann Coulter the right to write what she wishes, and USA Today the right to say they won’t print it. And Americans have a fine heritage of disagreeing in word and deed. The history of protest in America goes back at least to the Boston Tea Party — which of course predates the Bill of Rights. Perhaps this incident is why the First Amendment specifically protects the right to assemble “peaceably.”

In my lifetime, protest has not always been peaceable. In fact, sometimes protest becomes very much like civil unrest. It is my personal opinion that many protests-turned-violent have a great deal to do with police “preacting” to problems: because protest is expected, police show in force; protesters feel oppressed, cops feel threatened; a small incident occurs somewhere and is met with overreaction; tear gas, beat-downs, and property destruction ensues. Scenes like this are undoubtedly the inspiration for segregated protest areas, sometimes called “demonstration areas” or “free speech zones.” This last euphemism disturbs me, as the First Amendment makes it clear that our entire nation is a free speech zone. Nevertheless, such zones have become all the rage in crowd control, and the issue of mind control must be left to the reader.

This week’s Democratic Convention in Boston has been marred by the existence of a free speech zone that is little more than a cage for protesters. This travesty, not the first of it’s kind, will likely be emulated at the Republican convention next month. There will be clear controls on where dissenting opinions may be voiced en masse. You have the right to say what you want, and you have the right to peaceably assemble, but apparently you don’t have the right to do both at once.

My fellow Americans, protest as we know it is dead.

Your views cannot be heard from inside a cage, whether that cage is in back of the convention center or in the county jail. Do not think that your views are so exalted that, like Nelson Mandela, Amnesty International will take up your cause. There is no point in getting thrown into the pokey for protesting in the wrong spot. There is no point in making a police office want to use tear gas or something worse on you. There are better ways of being heard.

Luckily, America has another fine tradition of dissent, policital prose. For examples, browse this list of documents. You can write down your thoughts. You can send a letter to the editor of any newspaper you like. You can sell bumper stickers and t-shirts with your message on them. You can send a mass mailer. You can ask to put up a poster at the local grocery store. You can rent space on a billboard. You can blog. Heck, you can send your opinion as spam and more people will hear it than if you were in a cage.

Remember, the Bill of Rights was written by people who overthrew the government.

$1.6 Billion

Today, Google announced some important figures regarding their upcoming IPO. They will be offering a total of 24.6 million shares, 14.1 million from the company and 10.5 million from current stockholders, for something between $108 and $135 per share in a Dutch Auction Process that is intended to maximize money the company gets should the stock price rise substantially during the IPO process. These shares represent 9% of the outstanding shares — meaning insiders and the company itself will still control over 90% of the shares. The company expects to pocket $1.66 Billion and have a $36 Billion market capitalization, making it an instant large cap stock, bigger than Dow component McDonalds. Nevertheless, this is not the biggest IPO ever. And at least now we have some income and revenue figures for the company: revenue of $1.4 Billion for the first half of the 2004 ($560 Million for first half of 2003); income of $143 Million for those 6 months ($58 million last year). That works out to 54 cents per share. If we say, for the sake of argument, that they might have earned a dollar per share over the last year (just short of 2 times 54), that still makes a rather rich triple digit multiple. Ticker symbol will be GOOG (4 letters because it’s listing on the NASDAQ).

You know what’s missing from this impressive mass of information? We still don’t know what Google needs with an IPO! Google is able to give us SEC documents with single sentences 594 words long, but all they are willing to say about where the money is going is it’s for “for general corporate purposes.”

If the proposed offering price is not sufficient to discourage you from calling your broker and learning more about how Dutch Auctions work, let me offer some more information. Despite Google’s publicly stated goal of making this an IPO that average people can participate in, the odds of you getting any of those shares at the initial distribution is low. Chances are you will not be able to buy any shares until they are available in the open market, and that means you won’t be paying $108 or $135 per share, but whatever the market says — it might be less, it will probably be more. The next important thing to remember is that the purpose of the Dutch Auction process is to insure that any insane bid-up process benefits the company, not some speculative institutional investor. In short, the company doesn’t want to make investors wealthy, they want to make the company wealthy. And finally, you need to be aware of something called a lock-up period. About 6 months after the IPO, not only will insiders be free to dump massive amounts of stock for incredible profit, it will become possible for short-selling to occur. Both these things have the potential to bring down the stock price.

Issues with the stock offering itself aside, you also need to know about some looming legal issues. There’s a big age discrimination suit filed against the company, with millions of dollars in real damages. And based on information revealed so far, this case isn’t going away cheaply.

But if you have $13,500 — what 100 shares of GOOG at the IPO price is likely to cost — burning a hole in your pocket, why not consider 150 shares of IBM, which will also pay you a $0.72 per share quarterly dividend. You could buy 145 shares of United Technologies, and get $1.40 per share each quarter. That money would also buy 465 shares of Microsoft, which announced a $3 per share special dividend last week. Or 425 shares of Apple, which doesn’t get you a dividend, but is in an up-trend (disclaimer, I own shares). Or if you’d prefer something more diversified, there’s iShares, sort of like mutual funds that trade like stocks (disclaimer, I own shares in one of them).

If you prefer to put your money in the karmic bank, there are lots of ways to spend $13,500 towards the good of others. Around your community there are probably charities that could use some money. Look around you.

Enough Pie for Everyone

The 9-11 Commission has released their report. Here’s information on how to get your own copy and come to your own conclusions.

So how did 9-11 happen? From what I have read, the Commission feels there is plenty of blame for everyone. It isn’t all Bush’s fault; it isn’t all Clinton’s fault; it isn’t all Ashcroft’s or American Airlines’s or the guy manning the metal detector that morning or anybody else’s fault that 9-11 happened. It’s everyone’s fault. Like a thousand fictional tragedies, little mistakes happened, snowballing, allowing if not causing big mistakes. Here’s CNN, the BBC, Reuters twice, Bloomberg (one of my favorite news sources, even before Mr. Bloomberg became Mayor), MSNBC, even MTV is reporting on this.

Yeah, it’s the Modern Day Warren Commission.

The more important question is how we can say “never again” and mean it. The official stance of “More Homeland Security” and “One Information Czar to Rule Them All” seems weak. After all, the DHS was mired in bureaucracy from its very inception. From the standpoint of Joe Average, they have said little more than Look Out and have emergency supplies of canned food and plastic sheeting. Don’t get me wrong, having emergency food is a good idea for any disaster, from terrorism to storms to unemployment. But I think everyone was hoping for more.

As for a Cabinet Level Spook Supervisor, I remind everyone that the biggest reason the CIA has never been under the same auspices as the FBI for a reason. Officials at the time didn’t think it was a good idea for one man to control that much intelligence information. Heck, the CIA was created because of the “intelligence failures” leading up to Pearl Harbor. We already have one cabinet level agency set up because of 9-11, the DHS. How many bureaucrats does it take to make us feel safe?

It’s just as well that pretty much nothing will happen with these recommendations until after the elections.

In the meantime, lets remember that the ticket-holding men of middle eastern decent may be less of a risk than some nut being able to steal a baggage tractor and drive it onto a runway at a big, hub airport. I bet they didn’t re-screen any luggage that might have been aboard, either.

Shocking Stock Action!

Or, How Not To Pick Stocks

Imagine a world where police don’t have to kill bad guys. More importantly, imagine a world where police never kill an innocent person. No, instead of shooting a gun, police would shoot an immobilizing blast of electricity, allowing the police several minutes to secure a potentially dangerous individual and figure out what to do next almost at leisure. Taser International would like you to imagine this world. In fact, they’d like you to live in it. Oh, and they would like you to buy their stock.

Before you call your broker, there’s a lot of things you should know. First of all, the stock has been highly volatile, having traded in the last year as low as $2.02 and as high as $64.15. Just today, they lost $5 per share after a negative article in the New York Times regarding the safety of their products and today’s earnings announcements. Taser executives have spent much of the day telling any media outlet that would listen that their products are safe and their balance sheet is fine.

The safety of the product is the subject of intense debate. Taser says they have research showing the device is safe. Critics call this research flawed and anecdotal. In any event, The Sharper Image has decided not to sell the consumer grade Taser product on the basis of the NYT story.

As for the balance sheet, it may seem odd to say that the profits were too good. When a product can cost upwards of $800, there is a limited market for it. No company, no matter how well it is managed and how good its products are, can triple their revenues and multiply their actual profits by 13 every year. That’s just not possible. For the matter of simplicity, we are assuming the figures they released are actually true — after Enron and Worldcom, that needs to be said. As The Motley Fool points out, the stock is up 1600% in the last year — also a clearly unsustainable trend — and a competitor may come along sooner or later. Assuming everyone who needs one doesn’t already have one by then.

Finally, I’d like to address the fact that upper management spends a lot of time with the media, “aggressively defending” the company and it’s stock. I don’t like seeing this situation. After all, if the CEO is out there refuting news stories, appearing on television, blaming short-sellers, and threatening people who say bad things about the company, who exactly is getting the work done? My attitude is “don’t tell me, show me.” Get some bigger, unquestionably independent research that shows the product is safe and effective. Make the analysts and short-sellers rethink their positions by delivering good, solid, sustainable growth every quarter.

A world where police never accidentally kill anyone is too good to be true. Never buy a stock based solely on company hype.