alex.moskalyuk

New FDIC insurance limits are ironically likely to negatively impact the stock markets, since a large group of people relying on bank CDs for fixed income (mainly seniors), will now take the money out of the stock market and reinvest it in something more stable (WaMu is still offering 5% yields for 12 month CDs online).

Previously anybody with excess of $100k in savings had to reshuffle the savings among multiple banking institutions, sometimes agreeing to a lower rate, or foregoing banking entirely in favor of bonds and stocks. It was a total pain, and I am surprised the bank industry did not act on its own to bump up insurance limits through private insurance companies. CNN actually points out, that had such insurance ceilings been in place, WaMu might have survived, instead of suffering the death of thousand withdrawals.

It’s not quite clear why other mechanisms weren’t considered as a response to economic emergency, if it’s truly is an emergency. I think more legislators rushed to do something instead of doing something meaningful.

1. Removing the upper limit on 401(k) and other retirement savings accounts would pump up the money into the banking and financial industry. Contributing to the retirement account is one of major ways of avoiding income tax, and it’s mainly relevant for higher income brackets, but it’s the overpaid execs that the TV raves about that might actually pump billions into the market. From a free market perspective having an upper limit on your retirement savings makes as much sense as universal salary for every citizen – the government says they know much money you’re going to need at retirement, and you’re supposed to take their work for it.
2. Cutting income tax across the board would probably achieve a greater psychological effect than selective tax breaks and reshuffling income tax responsibilities among different brackets. Everybody would suddenly have a bit more money, and everybody would spend the money differently, so you wouldn’t have just limited sectors of the economy affected, as it happened with last year’s stimulus checks. In the current economic climate some people would choose to save up, which would pump more money into the financial sector.
3. Letting private investors bid on the failed CDOs is probably something that Treasury is still considering doing. At this discounted rate subprime mortgages start to look interesting again for a riskier investor, but having the Feds promising to buy them outright, without naming any prices, creates a chilling effect on any free market activity that might involve CDOs.

• Woot - the original deal a day site, now featuring a t-shirt and wine subsections.
• Yugster
• BlingDaily
• JustDeals
• ThingFling - make 3 orders with them, and you get free shipping
• 1 Sale a Day
• Item Hut
• Schnoop

Due to Netflix outage this week I was thinking about getting their Vudu appliance for instant on-demand streaming to a TV set. But then, it seems that those appliances are just interim products, till we move to something better, sort of like CD-ROMs.

The better in this case is wireless HDMI. Since Netflix already supports streaming part of their catalogue to your PC, it’s just the matter of time till you can get that stream in high-def, and then plug in a wireless HDMI adapter to stream it directly to the television, bypassing a settop box entirely.

A limited selection of wireless HDMI products on the market is pretty pricey nowadays compared to a box from Vudu sold through Netflix. A set of extenders from Gefen is currently $700. Belkin Flyware HDMI transmitter is also $700. Hopefully the pricing would follow the DVD player timeline close enough.

I am reading Starbucked by Taylor Clark, and the book is quite enjoyable, both as a look inside the coffee industry, and as a business case study of Starbucks. Clark dedicates an entire chapter to fair trade coffee practices, that I wasn’t too familiar with, but as anybody else, assumed it was a Good Thing. Fair trade coffee practices, controlled by a non-profit TransFair USA, pay farmers participating in the program $1.26 a pound for regular coffee, and $1.31 for certified organic. Under the fair trade label it’s resold to you at $12-15 a pound, making the retailer quite a winner in this transaction (originally fair trade was supposed to eliminate the middleman, and thereby lower the final cost of coffee).

When the price of coffee beans can occasionally go under 40c, this seems like a good deal, if you’re a coffee farmer, so what’s the catch?

1. Fair trade contracts are binding, and requiring the coffee bean farmers to commit to $1.26-$1.31 even if market surges (as it does when there’s a cold summer in Brazil). Ok, this is a bit hypothetical, but coffee markets have been known to swing wildly nevertheless. In 2006 Starbucks (the largest seller of fair trade coffee in the US) has actually paid its non-fair-trade growers an average of $1.42 per pound. Oops.
2. TransFair requires that each coffee farm participating in the program be coop-owned and employ no outside seasonal labor. This rules out private farms, family-owned farms, and corporation-owned farms. A family of coffee bean growers starts out a farm, hires seasonal labor to pick the beans, and wants to sell it as fair trade coffee? TransFair doesn’t let those capitalist pigs get anywhere near the application form.
3. Roasters admit that fair trade coffee is of inferior quality. While the rest of the coffee farms have to compete in lower-priced open market, they frequently do it by quality of their product. When a fair trade farm is guaranteed $1.26-$1.31 a pound, the economic rationales start to take over, and growers always try to cut their costs to enjoy higher profit margins.
4. TransFair requires every participant in the fair trade program - retailer or coffee grower - to sign a release form promising never to criticize the program in public.

Back in 2007 HitWise published the findings that 1% of searchers conduct 13% of searches, and hence these power searchers became the coveted audience among the search startups. Most of them try to get to the 1% through some sort of rewards club. Live Search Club promises prizes in exchange for the searches conducted on Live.com.

Scour now combines Google, Yahoo! and Live results into a single interface, and pays out 1 point for searching, 2 points for rating a search result in a Digg-style manner, and 3 points for commenting on a search result, hinting at some attempt at social search. What do points get you? 25k points equal a $100 gift card, half of that is a $50 gift card, and 6,500 points equal a $25 gift card.

I was always happy to sell my Firefox searchbox to a highest bidder, and used to use Blingo, where I even won some movie tickets occasionally. Lately Blingo dropped Google search results, and substituted them with a combo of paid ads and organic results from Yahoo! and Live (bad idea because of paid links appearing in top 3 results for anything), so Scour looks like the next best thing to come after that. Currently 34,000ish rank on Alexa, but climbing quite fast.

Sign up through my referral, if you’re interested. The results pages seem to be clean, although navigating to the results page is always accompanied by a frame that has the ratings widget.

Both Northwest and United airlines today took time from their busy schedules to send me an e-mail urging to visit StopOilSpeculationNow, and craft a letter to my respective Congressperson, asking The Man to stop, well, oil speculation, and moreover, do it now (or by next weekend, if they’re too busy). The site teaches you what speculation is all about, and an unbiased opinion suggests speculators are buying oil future contracts in large quantities, therefore driving the price of crude oil up.

I am glad the issue is clear-cut, like the Batman movies. On one hand you have the evil guys, represented by oil speculators, on the other ones you have the noble truth-seekers, i.e., large airlines.

I was ready to fire up the typewriter, when the liberal media influenced my fragile mind yet again. None other than CNN Money insists that markets with future contracts actually are less volatile than those without futures (and speculators):

The volatility has been so extreme that the son of one of the original onion growers who lobbied Congress for the trading ban now thinks the onion market would operate more smoothly if a futures contract were in place.

Oops, I guess a lot of companies buy futures to hedge their bets against prices going up, not to encourage price increases. The Economist also takes a look at the commodities and futures markets blame game that’s unveiling, and introduces us to the concepts of supply and demand:

Speculators do play an important role in setting the price of oil and other raw materials. But they do so based on their expectations of future trends in supply and demand, not on whims. If they had somehow managed to push prices to unjustified heights, then demand would contract, leaving unsold pools of oil.

Not sure what’s causing the airline industry to react so viciously against crude oil futures trading. Perhaps we’re due for another price hike on airline tickets, and knowing the effort to stop crude oil futures would fail, airlines are conveniently setting up the scape goats.

Here’s a great example of having wrong motivation factors in place:

1. Issue subprime loans to a variety of people.
2. Announce a government-supported plan to bailout existing debtors only if they have poor credit score.
3. Watch the rest of those guys try to decrease their credit score by missing credit card payments.
4. Have the malaises of real estate markets transfer to credit card market, previously unaffected.

Wonder if the Freakonomics blog will pick it up.

Last weekend my wife and I spent a weekend in Las Vegas, with the cost of the hotel partially offset by having to visit a time share presentation. Anybody who has hit a certain income level has probably received a call from a timeshare company at least once, offering a free vacation, free hotel stay, or some other nice-sounding perk in exchange for visiting a “no-strings-attached” presentation. There’s nothing wrong with signing up for those perks, as long as you know what to expect, and what to do during one of those presentations. Here’s some random tips that I gathered after attending a few of those.

What are timeshares?

Whenever a real estate developer builds one of those nice towers in a highly touristy place like Orlando, Las Vegas, San Diego, etc., they would like to sell those condo units to interested parties. However, unless you happen to live in a highly touristy place, your interest in purchasing one is probably quite minimal. Spending vacation there, however, is another story. Hence the timeshare company breaks up a single condo ownership into roughly 50 weeks. Buying a timeshare entitles the owner to one week at the aforementioned property, with 1-2 weeks of the year left for various maintenance work, like replacing the carpet, or installing a new dishwasher.

Ok, I get it, so you buy a week?

The weeks sold can be of different variety, and sell for different prices. It’s a no-brainer that being in Las Vegas for New Year’s or at Lake Tahoe in the midst of the ski season beats Las Vegas in July, or vacationing in Florida during hurricane season. Not all weeks are created equal, and companies selling timeshares know that. They apply different pricing to their weeks, marking them as peak, high and low season. Naturally you pay less for a low season week than what you pay for a peak week.

Some trickier ones (like Westgate) tell you that they’re selling a floating week - the week you can use whenever, as long as you call the company in advance. The trick here is that the concept of peak weeks still exists, and you’ll be charged extra for it.

Some get even trickier, and sell you points. Points are assigned to your account, as you’re making your regular timeshare payments, and they generally seem lavish, as you’re told that you’ll be given 500,000 points each year, which you can then use to reserve the weeks and properties you’re interested in. Naturally, peak weeks cost more points, and generally the only way to get more points is either to skip the vacation this year, and let those points accumulate, or pay up to get more points.

Wait, did you say you could reserve other properties?

As going to the same spot will eventually get tiresome, timeshare companies are doing two things to add variety to your future vacations.

Number one: you can generally work out a deal to stay at a property belonging to the same company, if someone else wants to exchange. This might or might not cost extra, and usually involves calling the company, and letting them know which one of their other properties you’d prefer to visit. During the presentation the sales rep will make it seem as easy as it can be, but note that generally everybody wants to take their vacation during the peak seasons, nobody wants to go on vacation during a dead season. So when you call up the company and tell them you’d like to exchange your Orlando time share for a week in company’s San Diego property, people who own that timeshare in San Diego get a higher priority than you.

Number two: there are brokers on the market, like RCI or Interval, which work out deals for timeshares belonging to different companies. They charge for their services, as they’re not affiliated with the resort developers, but they do allow traveling internationally, since their directories generally include thousands of participating resorts.

What you will be told at a timeshare presentation

1. The general script of any timeshare presentation I’ve been to starts with the sales rep asking the couple to list their favorite vacation spots. You’re told that this will be used for research on where to build next vacation spots, and those destinations will reappear in the conversation, as the sales guy as making a pitch on exchange programs (see above). If you feel like disrupting that part of the presentation, tell them your vacation destinations for the near future include Nepal, Greenland, and Iraq.
2. You will be asked about the vacations you took. From here the script diverges two ways. One - the easiest - is if you haven’t taken any vacation, obviously money is the problem, and the timeshare company is here to help. Second - you list the vacations or trips you took over the past 12 months - involves tedious calculation of how much you spent for it.
3. This is where it gets interesting - you will generally be asked to quote the entire price of vacation. In future comparisons these numbers will be used to compare with timeshare costs, and how much money you could’ve potentially saved, but you’re rarely asked to break down the price of airfare, hotel, and attractions. Most vacations are bought as packages, so rarely you have a clue as to what the exact cost of the component was. Usually you and the sales rep begrudgingly agree that you probably spend $180-200 for that hotel room.
4. If you spend two 6-night weeks on a vacation every year, that means $2,400 of your budget goes towards paying for a hotel (12 nights at $200 each). So far so good. So what’s that going to be over the next 25 years? Well, you say, looks like $60,000 to me. And are the prices of hotels going to decrease or increase, asks the rep. You’re no fool, you know inflation theory, and you’re pretty sure it’s only going to increase. Is it fair to say that the prices of hotel rooms will be double of what they are now in 25 years? Year, pretty reasonable. Boom! Your sales rep multiplies everything by 2, and you’re obviously going to spend $120,000 on just hotel stay in the next 25 years. I will let you figure out what’s wrong with multiplying the whole sum by 2.
5. At this point you’re probably indignant at hotel companies and yourself. Well, it turns out, your sales rep informs you, that you never get that money back. You’re just giving the money away without getting back anything, but a bag of receipts. You’re renting your vacation, spending $120,000 on it in the course of the next 25 years, and receiving 0% return on investment on that money.
6. Introducing the concept of vacation ownership. Each timeshare company claims to have invented this, and according to sales rep, it’s only due to the goodness of their heart, helping doofuses like you and me save that $120,000 over the next 25 years, and also get something back in return. For something like $150 a month, you can be a proud owner of your vacation.
7. At this point it totally makes sense. Why throw your money away to evil hotel companies, when you can be an owner of your own week, be able to own it forever, and gift it to your children, if you choose to (this concept of gifting or willing comes up often).

So why doesn’t it make sense?

The financials presented sound pretty good, right? Generally if you look at the pure numbers, they come to around $60-70 a night, generally pretty competitive rates when you line up the hotels in the same area. Well, the secret is that there are two kind of fees - your timeshare payments and maintenance fees.

The payments go towards collateral and interest (if you chose to finance), the maintenance fees go towards hiring people to maintain the resort (duh!) While your monthly payments are set in stone (a contract, that is), maintenance fees fluctuate from year to year, or so you’re told. Well, unless you’ve witnessed a strike of maintenance workers asking for lower wages, there’s only one way they can fluctuate - up. Those fees are applicable even if you decided to skip vacation for a year, either due to time constraints, or desire to accummulate points. Also, maintenance fees never go away. Even if you’re completely paid up on your timeshare payments, the maintenance fees still have to be paid. If you gift the paid-off timeshare to anybody, they will be stuck with maintenance payments set by the resort.

Another highly objectionable technique used by timeshare companies is points inflation. As the years pass by, and you keep paying stable payments and rising maintenance fees, you will find out that either you get fewer points for your money (few companies do this, as this is pretty obvious attempt) or things cost more and more points, requiring you to buy up some extra ones each year. Combine the payments + maintenance fees + any points fees or any peak/high week fees, and you’re most likely looking at $150-200 a night, the exact price quoted to you by the sales rep, only in reference to the evil hotel industry.

So does it ever make sense to buy a timeshare?

Generally the high dreams of getting any return on investment never materialize, as deteriorating properties require higher maintenance fees each year, and there are always more people selling timeshares than buying them. However, does it make any sense to get one?

1. It seems to be a reasonably good deal for large families, or families taking vacations together. Since most of the timeshares can accommodate two families, in price comparisons you’re looking for 2 hotel rooms or hotel suites, which generally cost much more. But even then, your costs may very.
2. It seems to make sense if you have any recurring travel. Every year I go to a conference in Las Vegas that always happens to be during the same week. But even then a timeshare would not make sense for me - the week is in August, when hotel rooms are cheap, and the conference might move to another location, which would imply getting a different hotel that year.
3. If you happen to have a week in a property that someone else wants to buy out, you might make some money. But even then the investment return will most likely be obliterated by various fees attached by timeshare resorts.

When you think that getting (or not getting) one might make sense for you, make sure to check eBay Timeshares, Sell My TimeShare Now, or places that rent timeshares just to get sense of the going market rate. From reading the forums, it looks like the biggest mistake one can make (outside of buying a timeshare) is buying it retail as a result of a high-pressure presentation, that has a special rate going on that’s going to expire today (isn’t that convenient).

Another good place to do some reading is tug2 - forums for timeshare owners, run by people who actually bought timeshares, not companies that sell them. There’s apparently also a huge market to get rid of timeshares, and Timeshare Relief is the primary buyer for those. Most of people unloading timeshares are willing ti give them away for any price, just to get rid of high maintenance fees and property taxes, and hence you can frequently get a bargain if you’re looking for a secondary market timeshare. Vacation Rentals by Owner site will give you a good idea of what the vacation spots rent for in the markets you’re looking at - would suck to get a timeshare costing you $2,000 for the week, when larger vacation houses rent for half the price at the same location.

I always wanted to learn more about the bond market. While the stocks are pretty straightforward, bonds always have this air of mystique around them. Yields, treasury rates, bid and ask spread, ability to avoid taxation - it seems like there’s a special little market of its own. The Naked Guide to Bonds by Michael V. Brandes provides a pretty good and straightforward explanation of how the bond market operates.

US bond market lacks the degree of transparency that US stock market has, and since there’s no New York Bond Exchange, there are certain peculiarities a bond investor should consider. Some of the bond offerings are hard to sell, as they’re generally targeted towards the buy-and-hold crowd that wants fixed income, not opportunities for trading. Nevertheless, the bonds are traded, with prices determined by interest rates and market demand. Since most of the institutions in the market operate with the budget of $1 million and above, there’s actually a separate submarket for anyone trading in the lots of fewer than 1,000 bonds (pretty much all of them are priced at $1,000 to make at least one factor comparable). Effectively you might have two separate markets with two different prices quotes for the bond - a market for institutional (above one mil) and small investor (below one mil) trading. Bad news is that smaller investors get penalized, as prices for buying and selling bonds favor large institutions.

One of the reasons you might be looking into the bond market is tax-free municipal bonds, which are exempt from federal income taxes, and exempt from the state income taxes, if the bonds you buy belong to the same state you’re in. Municipal bonds, typically with lower yields than corporate or agency bonds, typically include the buyer’s income tax bracket in calculating the total rate. The bad news is, as mentioned above, most of the municipal bonds are issued for the period of 20 years, and if you need to sell them before the deadline arrives, you might be stuck with an offer, on which you’re losing the money, since the market is not that saturated. It’s also important not to make a mistake of getting municipal bonds for an IRA account - you’re giving up high yields for no income taxes, but since IRA income is already not taxed, tax-free municipal bonds generally do not belong in retirement accounts.

The book is easy reading. Not light, but definitely straightforward if you’re paying attention to what has been described in the previous chapters. The author then discusses some strategies that might be applicable to the reader, and talks about the common pitfalls, such as chasing the yield, or having no sense of direction in the bond market. Among online resources worth checking out, InvestingInBonds is perhaps the most well-known official resource. Yahoo! Finance also runs a bonds center with basic market data and some tutorials on bond trading. Bloomberg bonds center offers some news feeds for the market. MunicipalBonds is also a great site for researching one particular subset of the bond market, providing both research and news on new offerings.

It’s a rare event nowadays, but nevertheless FDIC shut down an Internet-only bank NetBank, with ING Direct assuming the deposits. The online bank has been a good source for some sweet deals on online deposits, and charged no fees for incoming wire transfers - a rare deal nowadays (but the one that’s still supported by EverBank).

What’s amusing is that the bank has not even had that much exposure to subprime market, it was just a mess as far as execution and business model were concerned. There’s a post-mortem by Wall Street Journal:

But its Achilles’ heel was sloppy underwriting of loans, according to federal regulators. The Office of Thrift Supervision said weak underwriting standards, failed business strategies and a lack of proper controls forced NetBank to suffer significant losses - including more than $200 million for 2006.

Their customer service wasn’t that great either, but I guess that’s expectable when the management is trying to cut losses. Same article also points out how infrequent bank failures have become:

Of 8,600 banks insured by the FDIC, only one other has failed this year - Metropolitan Savings Bank of Pittsburgh. NetBank is the biggest failure since the June 1993 failure of Western FSB, Marina del Rey, Calif., which held $3.8 billion in assets.

I like how FDIC is managing the transition - NetBank site is down for right now, but will be back on Sunday evening in its original shape, although managed by ING Direct. There’s no migration process, no calls to the customer support to verify your identity - the site will just come back as it is, allowing old usernames and passwords.