Book Review: Don't Buy Stuff You Cannot Afford

Remember a few weeks ago when El Presidente was on the boob tube - helping it live up to its name - asking us to turn out our pockets on behalf of Wall Street?

Quoth George W. Antony:

"Friends, Amercans [sic], Countrymen: Lend me 700 billion dollars."

Straightaway, and in a fit of anger, did I write a 700 word novella on all things financial/greedy/corrupt/political, etc.

However, I did not fully give way to my Mr. Hyde.

Years of working in an office setting (not to mention being married) have taught me that when writing writing in anger, it is always wisest to NOT press SEND, but to come back the next day and thank yourself for not sending the angry message.

Coming back three weeks later, I have edited the lengthy post to the following summary:

I should have studied something else in college.

In conclusion, I will also include the video finale from the doomed therapy session / blog post. It's a clip about a fantastic new book I heard about:

Don't Buy Stuff You Cannot Afford

 

I should have been an editor.

Fare Thee Well, Frosted Circus Animal Cookie

Let's review this last week:

1. The stock market has lost about 20% of its value over the past seven days. (A "crash" is defined as losing 20% or more in a single day or over a few days.)

2. The bail out bill has been signed.

3. The government is actually contemplating investing in banks (which is frankly better than buying their bad assets).

10/3/08 - 10/9/08

With all the doom and gloom, the man on the street still isn't sure how this will affect him. Don't worry. It will. Give it some time. (Please excuse my un-gender neutral pronouns.)

Wait a second. After further developments, perhaps the hurting starts now:

4. Mother's Cookies, the makers of the Frosted Circus Animal Crackers (just to name one flavor), is bankrupt.

The reason? I'm sure poor money management had a bit to do with it. But a large part of it was the increased cost of raw materials combined with the "credit freeze" / collapse of the "Commercial Paper Market."

Many, many LARGE companies rely on the Commercial Paper Market to fund their day to day operations.

As a typical company doesn't have the same amount of money coming IN to it everyday, it will not have enough to cover its expenses. So Company XYZ takes out, say, a 3 day loan for $1,000,000 (because it knows in 3 days it will have a big check coming in), which it will pay back for $1,010,000.

Who is lending this money? The big banks.

Problem is, however, that the big banks aren't lending because

a . They are scared silly. Many banks have already lost money lending in the paper market, making everyone else run for cover.

b. They are busy shoring up their capital - so as not to fail. (A common malady these days.)

c. It doesn't help that there are silent bank runs going on right now (depositors taking their money out). That makes it even harder for the bank to save money.

How unusual is this? Very - it's really never happened before. The Commercial Paper Market used to be considered the most liquid market ever. That's why the government has started to lend directly to businesses as a de facto Commercial Paper Market.

The current problem is that nobody is lending to nobody (yes, double negatives aren't no good).

If this continues, business - like Mother's Cookies - will start dying from the inability to borrow. Expenses grow higher and higher. Next stop: Bankruptcy.

This is how it affects the man on the street.

And now we have no more Frosted Circus Animal Crackers.

Or Taffy Sandwich Cookies

Or Iced Oatmeal Cookies

Or Archway Iced Molasses Cookies (also made by Mother's)

Or Archway Fruit Filled Apple Oatmeal Cookies

Have I missed any other important flavors?

Stimulus Checks are Coming!

Chances are you may have your stimulus check already. While I don't want to get into the finer points of this type of political pandering - especially considering most economists think it will do nothing toward "stimulating" the economy - it is nice to note, coincidentally, that this week were released some sober figures by our very generous government.

Not all governmental reports are created equal, and this one was certainly swept under the rug. According to Uncle Sam, Americans have just posted their worst first quarter personal savings figures since the GREAT DEPRESSION. The average family's savings rate is now at .2% of disposable income (after taxes).

Here's a lovely graph I am borrowing from the Wall Street Journal. (I'll give it back at an as yet undetermined time.)

That means that of every $1,000 of disposable income, Americans are saving $2. And while this may seem dire, many other figures actually point to a negative savings rate - or spending more than we make.

The amazing thing is the implied message from Bush, Congress, et al, is that we should run out and spend our "free" money. The last thing they want, politically, is for us to save it. So here is my very rare request for civil disobedience: save it. Or better yet, pay off debt - credit cards are always first.

Remember my inflammatory post on food prices? I read an article the other day on food as an investment. That is to say, you could get a better "return" on your money by stockpiling food now than you would with that money in a normal checking or savings account accruing up to 3% interest annually. With food prices expected to jump upwards of 10%, which is the better deal? Yes, this is apples and oranges, but the point remains said - especially when viewed as food storage.

So, with food and gas prices soaring and personal incomes stagnant, what are you doing to trim costs? (Note that I'm not even referring to saving money as these higher prices mean that other expenses must be reduced without cutting into savings or incurring debt.)

For us, entertainment is the first to go, followed by eating out. We haven't done an in-depth analysis of April's budget yet, so we'll see what needs to go next.

$1.25 a Pound!

$1.25 per pound, in the grand scheme of things, doesn't sound like much of a problem - especially when remembering that recent forwarded email which compared the prices of life's wonderful liquids on a per gallon basis (Chanel No. 5 is $26,500 per gallon). That is to say, apples at $1.25 a pound out of season is a great deal. Of course, I am not pontificating about apples (though I had an amazing Fuji the other day). Today's discussion is on rice - it's in fairly high demand these days. I should know; I just bought this 50 lb bag. Perhaps I shouldn't have. First some background.

I recently starting following commodities - that sounds more austere than it should. I'm really only following two or three of them: corn, wheat and rice. I was once planning on moving to Iowa where I though it would be great to spout off those prices during an interview with the local hiring manager. Now, I really only sound smart to my Bishop/farmer/agricultural lobbyist/neighbor. Here is a brief recap on everything you've always wanted to know about those three commodity prices (but were afraid to ask): they're increasing. I even have a graph or two:


The second graph doesn't do justice to corn prices. The price of corn is up over 70% in the past year and has more than doubled in the past two years. My favorite culprit: ethanol. Ethanol production is on course to account for some 30% of the U.S. corn crop by 2010. The International Monetary Fund estimates that corn ethanol production in the U.S. fueled at least half the rise in world corn demand in each of the past three years.

What we have here is a perfect storm: increased global demand, unaccomodating global weather, bad energy policy (read: ethanol), short sellers and very small stockpiles. Next thing you know, Haitians are storming the presidential palace out of hunger (the president had to leave the country); countries are hoarding supplies and this (courtesy Yahoo news):

"The two biggest U.S. warehouse retail chains are limiting how much rice customers can buy because of what Costco and Sam's Club called on Wednesday "recent supply and demand trends."

So, to make a long story even longer - I forward the above article to Diahan, knowing exactly what she would say: buy, Buy, BUY! So we did. We contributed to the panic - in effect, fulfilling the self-fulfilling prophecy. And while we love Costco and wouldn't mind telling our grandkids that we were a part of the great Costco rice rush of 08, we went to a really nice little Asian market on Redwood and north of here. Maybe you know the kind. The kind that reminds you why we eat only a small percentage of the world's "edible" food. Yet, they sell the most amazing Jasmine rice! Once you've had Jasmine rice, you can't go back - unless there is a global food crisis and Thailand stops exporting rice (as they are threatening to do right now - India already has).

Two hours after forwarding the now infamous article, I am buying rice in a wonderful 3rd world section of West Valley City for twice as much as it was 10 months ago: $40 a 50 lb bag!

Sure, there are still likely several thousand pieces of rice per $1.25 a pound, but now we think twice about throwing the Jasmine rice at weddings.