Thursday, August 30, 2007

Goldman Sachs Predicts House Prices Down 7% this year, another 7% next

From Calculated Risk's excerpting of a Goldman Sachs research note, we see Goldman Sachs expects house prices to go down 7% this year, and another 7% next year.

They say the reasons are:
Nonconforming mortgage rates are rising and credit is being rationed.
Substantial excess supply remains.
Residential investment as a share of GDP is still high.
Foreclosure rates are increasing.
Note these forecasts use the Case-Schiller index, which more accurately reflects actual price changes, though it's not the one you usually read about in the headlines.

My predication in summer 2005 that prices would be at that same level 5 years later may prove to be bullish!

But as someone who still has lots of real estate, I'm not as as worried about our houses because a major component of our strategy has always been to only buy houses for which rent payments more than clear the mortgage payments. This has two main benefits: assuring we can pay our mortgage without dipping into our own funds each much, and also as a general indicator that the houses aren't dramatically overpriced. It's the people with a $500,000 house that can only get $1,800 per month in rent in that need to worry the most.

As one good survey of housing affordability notes, household incomes is a good measure of affordability, and lots of the country is overpriced by that measure (one big exception- Texas). Household income also plays a large role in the rental market. And while as the saying goes, "markets can say irrational longer than you can stay solvent", it's good to keep that information in mind, because eventually you expect at least some reversion to the mean.

So even if we won't cash out for the capital gains we did in 2005 and 2006, unless rents drop dramatically (unlikely, especially given our market. And in fact we're anticipating healthy rent increases for next year.), we will just take the monthly cashflow, which is still more than worthwhile. But there's a reason that barring our last two purchases (which we consider to be special situations), we've been very inactive recently. The doldrums are not at all over for housing, and may in fact get worse.


Wednesday, August 29, 2007

Attorneys now charging over $1000 an hour

This article notes the trend, but what´s more interesting to me is the psychology of pricing:
Yet, many attorneys are still reluctant to charge $1,000 an hour. "There is a perception issue between $1,050 and $950," says Hugh Ray, a partner at Andrews Kurth LLP in Houston. "At some point, you look bad if you go too high." Mr. Boies says psychology in part has held him back from charging more than $880 per hour, noting, "When I started practicing law in 1966, my billing rate was considerably under $100."
I wonder if there are any good studies on focal points in pricing. I wonder, for instance, how pricing (or package size) responds to currency denominations across the world and over time.

And more personally, guess how much the Orthodontist charges for a new mouthguard, as I found out when mine recently broke? That´s right, $980. Of course I asked if he could drop the price $200 and he said yes, but that´s another story for another day.

Brazilians in the US

According to Dinheiro Magazine, there are 1.2 million Brazilians in the US, 700,000 of them illegally. They are most concentrated in New York, Miami, and Boston.

Anecdotally, I hear a lot about Brazilans in Boston. For example, the mother of the bride at my friend´s wedding, who is from Boston, went on and on about how much she likes her Brazilian housekeepers.

Tuesday, August 28, 2007

Brazil makes it hard to study its wildlife and fauna

from the NYTimes, but maybe Brazil has a historical reason to worry:
Fears of biopiracy, loosely defined as any unauthorized acquisition or transport of genetic material or live flora and fauna, are deep and longstanding in Brazil. Nearly a century ago, for example, the Amazon rubber boom collapsed after Sir Henry Wickham, a British botanist and explorer, spirited rubber seeds out of Brazil and sent them to colonies in Ceylon and Malaya (now Sri Lanka and Malaysia), which quickly dominated the international market.
Living in an urban city in Brazil, I sometimes we're in the midst of of the biologically diverse country in the world.

Cars in Brazil

Do you see the smallest car on the road or one of the larger ones?

Anyone who has been out of the country has probably noticed that the cars are a lot smaller. Virtually everywhere in the world, the cars are smaller than the US (possible exception: Cuba?). The higher gas prices are and the smaller parking spots are, the smaller the cars get.

Rio also has to deal with high taxes on cars, so people buy small cars for that as well. For that reason, companies that have major operations in the country get a disproportionate share of the market. VW for example, has a large proportion of the vehicles on the road.

The Honda Fit is particularly interesting because it is a particularly small car in the US. But here, it looks like one of the bigger ones on the road. My professor drives one, and feels like he's driving a power car.

Then his family bought a Ford Escape and really think it's a badass car. His wife talks about looking over everyone else. Here, we would call it a cute-ute, but then again it's all a matter of perspective. This article talks about how maybe just maybe sub-compacts will take off in the US.

Best Sentence I Read Today

Catching up on a stack of old Economists. Finally fixed my subscription problem:
If America were a stock, it would be a "buy": an undervalued market leaer, in need of new management.
Talking about how the US is the still the #1 power and has a history of correcting itself, and will likely regain world respect eventually.

Monday, August 27, 2007

Countrywide Exposed

The NYTimes once again earns my readership, this time exposing Countrywide Financial for all the fees it charges borrowers and for steering people to loans they don't need or are too expensive:

A few weeks ago, the former sales representative priced a $275,000 loan with a 30-year term and a fixed rate for a borrower putting down 10 percent, with fully documented income, and a credit score of 620. While a F.H.A. loan on the same terms would have carried a 7 percent rate and 0.125 percentage points, Countrywide’s subprime loan for the same borrower carried a rate of 9.875 percent and three additional percentage points.

The monthly payment on the F.H.A. loan would have been $1,829, while Countrywide’s subprime loan generated a $2,387 monthly payment. That amounts to a difference of $558 a month, or $6,696 a year — no small sum for a low-income homeowner.

My business also got more than one loan for Countrywide, and several more loans were serviced by Countrywide. I can proudly say we used Countrywide only to exploit their lax lending standards.

On the negative side, all this subprime mess should have been even more obvious than the turn in the real estate market. I saw firsthand the bs that went in to so many mortgages, and so that so many are having problems should be no surprise at all. And while we sold the vast majority of our properties before the market turned (though we now have about the same number), this should have been an easier prediction.

Book Review: Recruit or Die

I picked up Recruit of Die: How any Business can Beat the Big Guys in the War for Young Talent while back in the US on my recent trip. Despite me not being a recruiter, it offered two appealing reasons to read it - one of the co-authors is one of my favorite bloggers, and it repeatedly mentions my future employer.

The more I read about the labor market, the more it seems like there are two diametrically opposed trends.

•Increasingly scarce talent, and talent that demands more and more
•Increasing offshoring, and offshoring that eats into more and more professions

Workers at the bottom and middle of the scale are worrying about something taking their jobs - whether that thing is a cheaper employee, an outsourcing firm, a computer, or a robot. But workers at the top are enjoying the good times. Globalization is increasing, not decreasing, the opportunities for them.

Lest you think corporations have all the leverage in hiring, this book is written toward all the corporations struggling to hire top undergrads. Clearly it is difficult for lots of them, and as the book notes, the stakes are high, and getting top people can have huge positive effects on a company.

It goes through the gamut of problems that recruiters face getting top students, offering anecdotes, constructive criticism, and advice. Here are some of the best tips for companies:

•Create "rotation" programs, where employees switch areas of the company every few months. People love the idea of doing lots of different things and getting exposure to lots of different aspects of business.
•Focus on what people do after your company. Students don't imagine staying at your company forever, and if people go on to do bigger and better (or just different) things, highlight that.
•The main thing recruiters don't do that would make the biggest difference is not getting to know the prospective employees. You need to do much more than have a booth at the career fair and hand out brochures.
•In promotional materials, focus on why someone would want to work for you, but avoid generic riff-raff.
•Recruiting goes beyond when you hire someone, since they have younger friends and your company will get a reputation at the school. Often the best way to get good new people is to improve things for your existing people.
•Don't mention your retirement benefits! Young people are SO far from thinking about that right now.

This book is full of good points. If I were a recruiter, I would definitely buy a copy now.

While this book ostensibly only benefits recruiters who will be able to get top candidates, it offers some interesting insights to non-recruiters as well:

•Young people are increasingly undecided and want to put off their decisions as long as possible.
•Subtle psychological points have big affects - people want something that is hard to get, and they love when a company is truly interested in them.
•Just based on prestige, the top names have a major recruiting advantage. This winner-take-all game applies to other aspects of society as well.
•Because companies need to devote lots of resources to effectively recruit at a school, it makes sense that they focus on a limited number of schools. This will frustrate you if you go to one of those lesser schools, but there is always applying at-large.

Granted the book is not perfect. It is heavily skewed toward the experience at MIT, where the main author works. Also along those lines, I thought it could have gone into more detail about how to get the top students from lesser ranked schools. If these students are underrecruited, then there are some diamonds in the rough waiting for your company's effort. Also, the rote repetition of the top companies' names - Microsoft, Goldman Sachs, McKinsey, Google was perhaps a bit too frequent, especially in the introduction. They mentioned those companies' names so much yet had not a lot of content about them (with the possible exception of Microsoft).

Still, this book really struck a chord with me as accurate. The tools that the book says to use on recruiting students would mostly have worked on me. I chose my employer for lots of the reasons that the book says young people are choosing employers.

•leads to good options in the future
•flexible and builds skills that apply to a lot of career fields
•frequently varying work

In a way this book only confirms what others have complained about - that my generation expects the world, expects amazing job opportunities, and to be coddled and cared for (the WSJ called it "The Entitlement Epidemic"). This book would seemingly confirm that, but with the caveat that for top undergrads, they can demand that. Employers that want them need to take notice. Recruit or Die tells them how.

Venezuela about to have Currency Problems

Chavez says's it's worth 95 cents, but it's really worth about 45 cents and falling. Chavez wants to replace the Bolivar with the Strong Bolivar, removing three zeros. Unless he dramatically fixes things, he will have created the most obvious joke ever.

Huge Chavez has set the official exchange rate for the Venezuelan Bolivar at 2144 per $1, but as any Econ 101 student knows, that just isn't going to work. The black market rate is now about 4,800 to $1.

Before entering Venezuela, any tourist needs to know to bring in outside currency. So before entering I took out about $400 worth of the Brazilian Real. This is about R$800, since the Real is worth about half as much as the dollar. Still, I got almost B$2000 per R$1. This made each ATM withdrawal after I had used my initial black market purchase so painful. It meant I was paying twice as much as previous purchases.

This WSJ article really lays out the problems that the currency has. Chavez could minimize the damage by admitting defeat, but the longer he pretends that the currency is worth B$2144 per dollar, the worse the pain is going to be.

A fun and profitable arbitrage opportunity for Venezuelan citizens:
Wealthier Venezuelans have discovered they can use credit cards to exploit the difference between official and black-market currency rates. Some have flown to the nearby island of Aruba and bought $5,000 worth of gambling chips, the maximum overseas credit purchase allowed by the Venezuelan government, according to a person who arranges the trips. They cash in the chips for dollars, then, back at home, buy enough bolívars on the black market to pay off the credit-card debt, this person says. They pocket the rest -- around $2,300 at current rates, more than enough to pay for the trip.
And Chavez tries to make it better but just creates more problems:
A Chávez plan to bolster Venezuela's currency by selling dollar-denominated government bonds has largely backfired. The government figured that asking Venezuelans to buy the bonds with bolívars would take the currency out of circulation, boosting its value. Shrewd buyers realized they could get the dollar bonds from the government at the official exchange rate, then resell them on the official Caracas exchange, where the bonds trade at prices much closer to the currency's higher black-market rate.

The government tried to give small investors first dibs on the bonds by saying that orders by private individuals for less than $3,000 would be filled first. Brokerage firms paid maids, doormen and laborers about $50 each to sign over their rights to the bonds, says Pedro Torres, a middleman who is paid by brokerages to find working-class Venezuelans willing to turn over their rights to the bonds. He says he signed up 170 for the last bond sale, earlier this year.
And of course Chavez thinks he's helping the poor, but it's only for an increasingly short duration at the cost of long term pain. Price controls are now negatively affecting poor communities:
The biggest losers may be the poor, many of whom are Mr. Chávez's supporters....Mr. Buitrago says his life is getting more difficult these days. He is among what a local pollster estimates are the 45% of Venezuelans who've had trouble finding milk and chicken this year. He can't afford black-market prices for scarce goods, so he stands in long lines at markets that sell subsidized foods. He deposits his savings in a bank, where it's being eaten away by inflation, saying buying dollars on the black market would be unpatriotic.

Sunday, August 26, 2007

Venezuela is Taxi-Land

Combine 12 cent gas and high unemployment and what do you get? Taxi-land. Welcome to Venezuela, where gas is much cheaper than water and you can fill your tank for $1. When anyone needs a job, they just buy the oldest vehicle that still runs and place a 50 cent TAXI sticker on the windshield and ya.

Informal taxis are simply everywhere. Old cars, new cars, old trucks, new trucks...well mostly just old cars and trucks. Just for fun I started counting in Ciudad Bolivar and by my highly unscientific count roughly 1 in 6 cars on the road had a TAXI sticker or a sign saying where they were going. The vast majority of them are empty, but when your marginal costs are so low, that's okay.

Wanting to know more, I started riding in a bunch to learn about the system. Seems like the people were roughly evenly distributed amongst the following scenarios:

•People without jobs who became informal taxi owners to try to make ends meet. These are typically the ones with the oldest cars.

•People with jobs, but who are cab drivers in their time off to supplement income. These are typically the ones with average cars (for Venezuela).

•People who just keep the sticker on there as they go about their daily routine, taking any passengers that might need a ride for a bit of extra cash. These are typically the ones with relatively nice cars.

•Professionals. These are either trucks with benches built into the back or cabs with a sign meaning they are organized with another group of riders. They work at it to make this relatively well-paying employment.

A post of taxis that work together as an informal company. Drivers wait their turn and hang out as the cabs in the front of the line gradually find passengers. This allows them to minimize travel costs and exert monopoly pricing. Were it not for my amateur photography, you would see that three of the cars in this frame have TAXI stickers. Hardly any of the taxis have identifying marks, and none of them have meters. Fortunately, prices are so low that it doesn't matter for a visitor.

Labels: , , ,

The top link on the Venezuela Facebook network

Things you learn on Wikipedia

This one has no sources, but assuming it's accurate....

The Energizer Bunny was a ripoff! Duracell actually started the bunnies (pic above). Their bunnies don't have sunglasses and look a bit different, but the similarities are striking. They still use them in countries other than the US, but according to the wikipedia entry, Duracell (part of P&G) didn't renew the patent in the US, and so Energizer saw an opportunity.

Renew your patents!

Saturday, August 25, 2007

Ciudad Boliver

I'm back in Rio after traveling back to the US for a wedding. I'm going through where I went piece by piece.

Passing Over a Mine. They built an entire railroad and landing strip just for the mine.

Another prop plane, this time from Canaima to Ciudad Bolivar, the site where Simon Bolivar organized.
Facebook Readers (which makes most of you....more on that later): this doesn't appear to work within Facebook so open the post and you can see it. Landing is pretty weird, because the pilot cuts the plane engine entirely at least a minute before you land. And he then does a sharp turn at the last second to line up with the runway. You're going fast still but it feels so slow, and you keep thinking you're going to touch down but it doesn't happen for a bit.

mmmm, banana chips. Not only would I eat any chips at this point since they don't have them in Brazil, but these were actually good. They were sweet, but everyone puts salt on them.

If there's one thing they have in most Latin American cities, it's fancy churches.

Plaza Bolivar, featuring a statue of Simon Bolivar and five statues for the five countries he liberated. (wikipedia). Ciudad Bolivar is where he declared Venezuela Venezuela and it was from there he launched the rest of his battles.

Obligatory large Chavez poster.

Friday, August 24, 2007

Angel Falls

Here's my first try uploading a video.

Angel Falls, at 3200 feet, is more than twice as tall as the Empire State Building. No wonder people are willing to go through the chore it is to get there. A propeller ride to Canaima, then a 4 hour boat ride to the camp site, then a hike, all just to get to look up and see Angel Falls. That said, in hindsight the sights on the boatride are just as cool as the falls. You ride through all these beautiful canyons, with countless smaller waterfalls and plateaus and tepuis.

a typical view on the boat ride to Angel Falls

Random note: Angel was the last name of the pilot that discovered it, so it's not named after angels.

Anyway, the Falls are actually a bit underwhelming, but only because you can't tell how tall they are. I mean it certainly doesn't LOOK twice as tall as the Empire State Building. Part of that is that it is surrounded by miles of plateaus nearly as tall and so doesn't stick out. But still, you wouldn't believe it was more than 10 times as tall as the tallest waterfalls in Iguazu Falls from looking at it. The water doesn't even really fall down to the bottom. It just starts to vaporize and somehow makes it to the bottom. This was high season, but in low season when there is less water, the water actually all vaporizes about half way down and so the waterfall never appears to touch the ground.

Personally I liked Iguazu more, but Angel Falls were worth the trip indeed.

Thursday, August 23, 2007

20 tips

Buffett gives two, but might as well give them all.

Southern Venezuela

After Manaus, I headed to Boa Vista, a mere 3 hours from the Venezuela border. I got to a hotel that was next to the spot where taxis wait to take people to Venezuela at 2. I needed to leave at 6, so could have either stayed up or gone to sleep. Problem was I had no alarm clock and my phone was dead, and the only chance of waking up was the security guard sleeping on a hammock in a closet in the lobby actually knocking on my door at 6 (plus if you know me, the chances of that knock waking me up are slim). But I was tired and went to bed, and somehow found myself on a taxi at 6 am. Crossing into Venezuela was a piece of cake despite threats of bureaucracy on their website. You only need the yellow fever vaccination, for the record.

I was headed to Angel Falls, the tallest waterfall in the world. But getting there is a bit of a chore. You have to take propeller planes to Canaima, and then take a four hour boat ride from there. And this is Venezuela so the 9:30 plane that was advertised of course didn't exist. So finally at about noon I headed off. The propeller plane was an adventure. You get in there with only 4 passengers and the pilot, and then you're off. What's cool is that you can actually look down from the windows and take pictures.
Being able to take pictures was great because this was the Gran Sabana, the rolling hills. There were all sorts of interesting geographical features. Winding rivers, forests and plains mingling, several different colors of water bodies, and especially, high plateaus.
Really, the plateaus were gorgeous. This formation is a "tepui," or tabletop mountain. The only place in the world they are found is the Guiana Highlands, especially in Venezuela. Someday I'll run into a geologist and he'll explain to me exactly how this is possible.
As you're turning to land into Canaima, you see Salto Sapo, a waterfall downstream from Angel Falls. At any other place, this would be a big attraction, but not when a 3200 ft tall waterfall is upstream.....

Dressing for my new job

Dressing for success as a consultant.
Something most people do rarely -- dressing for the first day on a new job -- consultants must do all the time. Being successful means figuring out how to fit into an environment they don't fully understand -- knowing that first impressions are hard to change.
And it can vary quite a bit:

When meeting venture capitalists and investment-banker types, who tend to have more aggressive personalities, he says, he wears his "in-your-face" pinstriped suit, which he pairs with a pinstriped shirt and bold patterned ties. More staid corporate types or start-ups will see Mr. Salwen in a "sincere" solid navy or gray Brooks Brothers suit.

The same can't be said for consultants who work in Silicon Valley, where even the Wall Street investment bankers must closet their suits or face ridicule and lack of trust.

Manaus Photos

Already back in Rio. Now that I have my camera chord I'll go back and post pics from the last couple of weeks.

Despite the scam, I enjoyed Manaus and am glad I went. Manaus is a city in the middle of the Amazon, and the most common destination to begin trips either down the river or into the jungle.
It is hard to comprehend the sheer enormity of the Amazon river and forest. Imagine an area most of the size of the continental US of nothing but jungle. That's what we're talking about. The river is also easily the widest in the world at 28 miles. At 4000 miles long, it is only about 150 miles shorter than the Nile, and some even argue over which is actually longer.

The actual city of Manaus benefitted from a rubber boom around the turn of the 19th century. It built the Teatro Amazonas, a fantastic theater that has since been renovated. With the production of synthetic rubber, the boom crashed. The city's economy now runs off of manufacturing, and makes a lot of cars.

Little known fact: the iconic Copacabana wave design actually started in Manaus outside of the theater. It represents the "Meeting of the Waters," the point where the Rio Negro and Rio Solimoes join to become the Amazon river. But they don't join together right away. They travel alongside each other without mixing for 6 miles because of differences in acidity, temperature, and velocity.
No better time to catch up on The Economist.

Eating on the boat at night. There are 10 people around a table with just on candle, which I sat next to. I started noticing a few bugs in my food. Then more, then more. I am no wussy but I had to stop eating because there were no exaggeration 50 to 100 bugs in my food. Here is a pic of a chili that got attacked by bugs. I told everyone else, who had been eating farther from the candle in darkness. One by one they put their plate near the candle and lost their appetite.

Sleeping on hammocks on a boat. Mosquito net of course. There are lots of mosquitos and this region has the lethal kind of malaria.

Monday, August 20, 2007

I miss my country

Back in the US briefly for a wedding. As much as we have problems, the more you are away, the more you appreciate the good parts about the US. Things like a good system of law and predictable government are chief amongst those, but really I find that I miss the small things.

For instance, I pull up in the drive-through and order a meal with a large Dr. Pepper, which they don't have in Brazil. I get it, it's in a huge cup four times as big as any in Brazil, and it has ice all the way to the top. So cold and delicious.

Free refills. Free water. Drinking out of the tap. Wide streets. People not actively trying to run into pedestrians. Mexican food! Bic mechanical pencils. Wal-Mart. Home Depot. Best Buy. Apple. Huge parking lots. Super powerful air conditioning. My family. My friends. Cacti. U of A. Arizona sports teams. Steve Nash. My dentist. My girlfriend.

I'll always have complaints about the US and ways to make it better, as any good American should. But when you've been away and you're only here a few days, man it feels good.

Thursday, August 16, 2007

What I am going to do the next 2 years, part of a series

I hope to be the type at the end of this opinion:

Do you think management consultants can impact and change the strategy of a business? How are management consultants looked at by top business executives?

Management consultants can certainly change the strategy of a business, primarily by making fewer people execute that strategy.

Most of the time, in my experience, the management consultant is hired by an executive who doesn't quite know how to handle something -- often cost cutting or reorganization of a function whose management he doesn't quite believe in. The consultant comes in and is roundly hated by everybody who must sit in meetings they didn't organize for purposes they don't quite trust. In a lot of cases, the consultant leaves, after costing a bunch of money, and everybody goes back to normal. In other cases, they kill people and replace them with... surprise!... themselves.

In rare cases, however, a smart person comes in and helps people figure out how to do something important together. Those people are worth their weight in gold -- and earn it, too.

Freezing Buses in Venezuela

If you were at UA fall 02, you probably heard about the alleged incident where a Sigma Chi pledge was left in a meat locker for an extended period of time. Now I know how that feels.

Not really, but buses in Venezuela are positively arctic.

I read in the guidebook that the buses are cold, so despite the 85 and humid weather outside, I wore jeans and brought a jacket. I was going from Ciudad Bolivar to Caracas, a nine hour trip overnight. The bus started off fine, but gradually kept getting colder. Then when the movie ended at about midnight, I think somebody turned on some switch. It kept getting colder even when I swore that passengers were about to complain.

My jacket was not enough. The pair of jeans i had on was the one with the 1 inch by four rip on one leg. Those four square inches were freezing. I looked around. Everyone had multiple blankets, some even sleeping bags. What is wrong with you people?!

Anyway the only savior I had was one extra shirt in my backpack. But it was the Enjoy Capitalism shirt. Wrong country for the Enjoy Capitalism shirt! But screw it I put it on anyway, so I had two shirts and a jacket. No avail. It was miserable as I tried to sleep amid a bunch of Venezuelans looking like Eskimos.

Multiple people swore to me they prefer it like that. They say it helps them fall asleep or something. Or that they enjoy having extreme AC because in other places in their life they don't have enough. Either way, the guide books need an asterisk or something for emphasis.


Got your attention, didn't I?

I've heard various times about such and such city being the plastic surgery capital of the world. LA, Buenos Aires, even Rio. I've never seen any actual statistics, but I am here to tell you that anecdotally I'm pretty sure that as far as fake boobs go, Caracas, Venezuela takes the cake.

I noticed lots of big boobs from the second I arrived at the bus station. At first I thought maybe they were just well endowed, but then when I went to a mall I saw lots of REALLY big boobs. And the girls often sported low enough tops that you could tell they were fake. This continued the entire time I was there. I even talked about it with a local college student while going up the cable car to see the city from the mountain. She estimated that more than half the girls in her social circle have fake ones. It's a very popular high school graduation gift.

Anyway I guess if you think Chavez is going to take your money you have to spend it somewhere.

in Panama City for the day. Exploding development. The western hemisphere's Dubai. More soon, plus more on Venezuela and northwest Brazil.

Tuesday, August 14, 2007

Sad Background on Study Abroad

In Ciudad Bolivar, Venezuela - land of cheap gas and old cars. I will have pictures up when I`m back in the states.

This NYTimes article exposes the sad truth that a lot of universities don`t allow for their students to have the widest range of study abroad choices. Basically, a lot of universities do things to restrict where students can go abroad such as:

1. promote certain programs and not others
2. only accept credit from certain programs
3. simply only allow certain programs

With study abroad such a transformative experience, it`s sad that universities aren`t more conducive to increasing the number that go.

That said, I think the majority of students just party on their study abroad experiences, which is a shame, but that`s a topic for another day.

Sunday, August 12, 2007

You are never too experienced or too smart to get scammed

I`m currently in Canaima, Venezuela. I`m in the middle of a trip home for a friend`s wedding which will take me through northern Brazil, Venezuela, and Panama.

The last few days I was in Manaus and Boa Vista in the north of Brazil. Manaus is the jumping off point for excursions to the Amazon Forest. You can sleep in the jungle, boat down the river, and all kinds of stuff. You can even do crazy month-long excursions where you go deep into the jungle to unexplored areas and meet indigenous tribes (actual ones, not ones that make their living off of tourists).

Anyway I just wanted to do a couple of days, sleep in the jungle one night, go see the encontro das aguas, the part where two rivers come together to form the Amazon and don`t mix right away, traveling side by side for about 10km. Anyway so this usually takes 3 days and 2 nights to do, but I wanted to do it in 2 days and 1 night if possible. This guy made some calls and said yeah it would work out.

Anyway I`ll spare the details (and in hindsight I definitely should have seen trouble looming), but basically the guy that sold it to me and the operator ended up blaming each other and I ended up not only not doing what I was sold, but doing less than even a single day trip because of the logistics. So I paid about $100 more than I should have.

I`m always learning things traveling. Mostly about the places I go to, but also about traveling itself. I think the biggest lesson from Manaus was to buy a tour directly from the operator itself. Or buy with a credit card - I really wish I could call Visa right now and alert them to fraud, but of course I paid cash. Lesson learned.

Good Advice on Emerging Market Shares

It is a pretty good bet that emerging markets will have higher economic growth rates than the US, but that doesn`t necessarily make their stocks a good investment. Here is a clip from Jason Zweig of Money, who wrote the commentary for the latest version of The Intelligent Investor that I read, which was excellent. He ends with a recommendation I certainly agree with.

Second, it doesn't matter how glorious the future turns out to be if you paid too much for your piece of it. Emerging markets stocks sell for an average of more than 16 times their net profits, while U.S. stocks trade at around 17 times earnings.

That gap is seldom so narrow, and when it is, emerging markets usually end up getting hammered. That's because they should be cheaper.

The U.S. government, whatever its faults, doesn't confiscate industries or create inflation so severe that you need a wheelbarrow full of money to pay for a loaf of bread. Russian president Vladimir Putin isn't shy about jailing critical CEOs and busting up their companies. The next stock he seizes may be one your fund owns.

I'm not saying you should bail out. As an enduring part of your portfolio, emerging markets are a great way to hedge against the hazard of keeping all your money at home; when the U.S. zigs, emerging markets tend to zag. If you invest patiently over time, you have little to worry about.

But there's a big difference between owning and buying. Owning an emerging markets fund permanently makes all the sense in the world. Buying one today - plunging in for the first time - does not.

Emerging markets will go on sale soon enough; the time to buy is when the headlines turn bleak and your friends stop bragging about how much money they've made in China.

When that day happens, buy a cheap index fund like Vanguard Emerging Markets Stock (VEIEX (Charts), iShares MSCI Emerging Markets (EEM (Charts) or Vanguard Emerging Markets (VWO (Charts).

Until then, if you want to jump into the developing world, book a vacation to Rio.

Thursday, August 09, 2007

Asshole Americans Ruining My Contacts

I'll keep this brief. Today I was interviewing various people within the Rio de Janeiro Secretary of Transportation Office. The second most important person I talked to gave me good information for a little while. But then for some reason the topic of his last trip to the US came up. He went on and on about how rude the customs agent was to him. He said they treated him like an animal. He also said he had a bad experience on an American Airlines flight when a flight attendant wouldn't address his valid concern and at one point told him "well this is an American Airlines flight, we are in American airspace, and you are not an American."

Anyway I apologized on behalf of my country, but he couldn't seem to get past it. Finally he said, "you know what, I need to get to a meeting right now" before answering my important questions.

Thanks jackasses that ruined his experience!

Labels: ,

Wednesday, August 08, 2007

This is what happens when a parking spot is worth over $100k in some cities

Tuesday, August 07, 2007

What I'll be doing next year

BusinessWeek has series of profiles of business jobs and a typical day. Here is the profile of a guy who just finished his first year as an Associate Consultant at Bain. This is the equivalent position as I will have at my future employer and Bain is in the same group of top 4 management consulting firms, so it should provide a decent comparison.

One complaint is that for management consulting, I think it's much better to consider what a week looks like given the travel. But nonetheless, it's a cool feature.

Things that piss me off: "University Inflation"

Fortune outs a scam artist in Phoenix that acts like he runs a university.

Here's a general rule of thumb for real estate advice - the more expensive it is, the worse it is.

The article is about a "univeristy" in Phoenix that charges students $16,000 for a week long seminar where they are going to be manipulated into thinking they can get rich quick.
the company rented Lamborghinis and Ferraris for six of its sales reps for the night so they could roar up to the hotel just as prospective students were filing into the Hyatt. "We want to generate some excitement," says Yurasek.
Then, as if $16,000 wasn't enough, they are then bombarded with sales pitches for more services - financing, real estate agents, credit repair agencies, remodelers, etc. The company especially makes it's money by organizing everything for its "students." This means telling them where to buy and pushing through the financing and everything. At least you would expect them come up with a mediocre investment, but no:
When Brant heard that Nouveau Riche students had bought 60 condo units in her town - sight unseen - she said, "I'm speechless. The housing market here is tied to the auto industry, and prices are falling faster than you can imagine: 10% last year and another 10% this year. Who knows when it will reach rock bottom? As far as rental properties, it's hard to rent anything here now. Houses and apartments sit empty all over town. People are leaving because there are no jobs here. We're really suffering."
What a tragedy. The people that are at these conferences are making a huge mistake.
These days Piccolo is living large - and proud of it. "Only in America," he says, "can a guy who barely made it through college end up owning a college."
What a douche-bag. Of course, he's not the only one. The NYTimes also outed another seminar scam artist earlier this year

Monday, August 06, 2007

Escada Selaron and Snoopy Doggy

You may recognize this staircase from any number of music videos or tv shows or movies. Probably the most famous two for us would be Snoop Dogg's Beautiful or from CSI. Anyway so it's called Escada Selaron (Selaron's Steps). Selaron is the artist and by chance he was there the day we went there and we had a decent conversation with him. The stairs, which lead from the Lapa district (which now is the top site for bars and live music in Rio) up to Santa Teresa (a town that has preserved it's heritage and even still runs a street car). He has tiles from all over the world, and he's always updating it. If you send him something, he'll put it up there.

Anyway he makes money by selling drawings and such. He said he made a lot of money from all the people that came there to see where they filmed the video for "Snoopy Doggy". Have to love Brazilians adding e's to everything.

He says he has something for every state in the US. Am I crazy or is this a tile from Arcosanti? Someone please tell me I'm right. He'll put up any tile. Does anyone know if this has a secondary meaning?

Yeah can't quite do the Pharrell thing.

More Financial Advice for my friend

The previous questioner follows up. I'll answer one question at a time:
Is there a difference between IRA and Roth IRA?
Yes. The short answer is that you want a Roth IRA, as do most young people. You can read "the long answer" below to understand why, but don't worry about all the contingencies and learning all the details and just sign up for a Roth IRA today.

The long answer is that an IRA and a Roth IRA reduce your taxes in different ways. With a regular IRA, you reduce that year's taxable income by the amount of your contribution, lowering that year's taxes. When you withdraw money from an IRA (starting when you're 59 1/2), you then pay taxes on it like any other investment. One downside is that you would have to pay a penalty if you withdrew the money before you were 59 1/2 unless you were using it buy a house or one of a limited number of other exceptions. This became a pain and made it so that it didn't really help young people as much as people with higher incomes. Hence, the Roth IRA was started.

With a Roth IRA, you don't get a tax deduction now, but when you withdraw it later, you don't pay any taxes. You have to have it in there until you are 59 1/2 to withdraw the funds tax-free, though you can get it sooner if you are buying your first house or for one of the other exceptions. You can also withdraw it at any time and just pay the taxes like you normally would. But if you can keep it in there to grow tax-free, that will make a huge difference over time.

So you either get the deduction now, or you get it later, depending on which of the two you choose. Beginning workers (and even those in college or before if you have ANY type of income) should have a Roth IRA. When you make more money later, you can then open up a traditional IRA alongside your roth.
I currently have a checking account and money market savings account with Bank of America and a brokerage account with TDAmeritrade. I think a 401k account or IRA is the next step. My company matches 50% of my contribution on 401k. I know they are good because they are tax deferred (I think), but is that the only benefit of it?
Congratulations! Your employer offers 401k matching, which is like getting free money. You should sign up for that as soon as possible. A 401k is just like a traditional IRA. So basically it reduces your taxable income. But with the company matching half of your contribution, that's like getting a 1/3 discount on everything. Contribute to the max of their matching!

Also, I'm not one to complain about your specific accounts, but compare money market accounts with BofA with those of your brokerage account with TDAmeritrade. You may find you can get a higher rate with the brokerage account. But look first. Also, to return to the Roth IRA discussion above, ask TDAmeritrade about opening up an IRA with them. Or if you're looking to switch brokers, this would be a good catalyst, because for simplicity's sake you might want to have your regular brokerage account in the same place as the IRA.
As for the ETF's, are there any that you are currently in that have consistent performance with low expenses or any that you are thinking about getting into? I've been checking them out recently and don't really know what to look for. Obviously, it is good to have high return with low expenses, but what's acceptable. Do you buy into ETF's that favor foreign securities, large cap, medium cap, or any other combination?
I personally am trying to be in the vast minority of people who try to beat the market average. Time will tell if I can do it, but the odds are against me. Even so called experts mostly fail. Something like 70% of mutual funds don't beat the market average (mostly because they have higher expenses that an index tracking fund or ETF). The market average refers to the S&P 500, which is loosely speaking the 500 largest US companies (called the S&P because the company Standard & Poor's maintains the list). The best solution is to just go with the average and get a market index fund. A good ETF is ticker symbol SPY, which tracks the S&P 500 and sports a ridiculously low expense ratio of .1%. This means that for every $1000 you invest, you only pay $1 per year. The problem with an ETF like this is that you pay a transaction fee every time you go in and out (for you $10 with TDAmeritrade). So you might benefit from getting in to an index mutual fund, which will have lower transactions costs. The biggest is symbol VFINX, run by Vanguard with a .18% expense ratio. See what TDAmeritrade offers and which funds from other companies it will let you buy.

I would put the bulk of your investing in one form of S&P 500 tracking or another. You could also include another ETF or mutual fund for international stocks if you want. We're too young for bonds.
I know 401k's are good because they are tax deferred, but is that the only benefit of it?
Maybe I haven't demonstrated how much of a difference tax deferred can make.... (don't look at the numbers, just look at how much of a difference it makes over time).

Sunday, August 05, 2007

Great Post About Economics

Greg Mankiw, one of my favorite bloggers, gets a letter from a doctor in which the doctor makes some great observations of economists and includes some great responses from an economist that doctor knows.

My favorite part:
"Third, the set of advocates who are economists is quite small (I don't know if this reflects treatment or selection). In general, economists are more likely to make up their minds about whether a particular policy works based on theory or data. They may have priors, but not the the sort of "do-gooder"priors that advocates have. One of the reasons that economists are so aggressive with the non-economists is that we want to expose all the priors immediately. In my view, a lot of non-economics social science is straight advocacy. There is an important role for advocacy. It may influence policy more than science. But the nature of advocacy is to simplify and ignore nuance and confounding. But our (economists) beef with advocacy isn't its lack of nuance. We just get really upset when advocacy masquerades as science."
I believe that this gets at the heart of the #1 misconception of economists. Economists do not have some underlying political agenda (a generalization, so there are exceptions, as with anything). Instead, economists are obsessed with data. I especially get upset when people think economists are strictly about maximizing profit. Efficiency, now you've got my ear (and I'll go off on how underrated it is at a later time).

But do read the entire letter, it's interesting.

Rat Race on Steroids

This article is blowing up on the NY Times right now. It's about how people with up to $10 million Silicon Valley still don't feel rich and aren't satisfied.

“Everyone around here looks at the people above them,” said Gary Kremen, the 43-year-old founder of, a popular online dating service. “It’s just like Wall Street, where there are all these financial guys worth $7 million wondering what’s so special about them when there are all these guys worth in the hundreds of millions of dollars.”

Mr. Kremen estimated his net worth at $10 million. That puts him firmly in the top half of 1 percent among Americans, according to wealth data from the Federal Reserve, but barely in the top echelons in affluent towns like Palo Alto, Menlo Park and Atherton. So he logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up.

“You’re nobody here at $10 million,” Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here.

This shouldn't be surprising at all. This is the outcome of the sad reality that one of the main reasons people want a lot of money is to distinguish themselves from others. In other words, it's not that they want to live a good life, it's that they want to live a better life than everyone else.

In that sense this article is just an extension of previous happiness research. The economist Robert Frank stated it simply.
To the extent money influences measured happiness levels, then, it is relative, not absolute, income that seems to matter.
These people will money in Silicon Valley it seems to me have a couple good options. They can move to a cheaper part of the country and live like a king, or they can stop trying to be better than everyone else. Alas, I'm willing to be there's something hard-wired into human brains to make this unlikely on a large scale.

Saturday, August 04, 2007

Minnesota bridge collapse should be a warning sign and a wakeup call for aging infrastructure

While the Minnesota bridge collapse is sad and unfortunate, those who know about the aging infrastructure in the US are wagging their fingers and saying "I told you so."

Here is a solid, data-intensive story (like they should all be) at the WSJ.
While bridge failures remain rare, one-third of some 40,000 highway fatalities every year result from substandard road conditions, according to the American Society of Civil Engineers. The group also warns that one-third of major roads are in poor or mediocre condition. Congestion delays in the 85 largest metropolitan areas cost the average traveler 47 hours in 2003, up from 16 hours in 1982, according to the Texas Transportation Institute.
One of the main reasons things have gotten like this is that we're talking about no small chunk of change:
How much could an upgrade cost? The American Society of Civil Engineers puts the total price tag for improvements to the nation's roads, bridges, dams, water systems and airports at $1.6 trillion. Repairing deficient bridges alone would cost $188 billion over 20 years.
But finding money for transportation projects has grown more difficult, in part because the federal gas tax, which pays for improvements, hasn't risen since 1993. Also, highway construction costs have risen 50% since 1999. The federal Highway Trust Fund is projected to run a deficit of nearly $4 billion in 2009.
But it has wide-ranging effects on the entire country.
How does aging infrastructure hurt the economy? Highways remain the most important shipping lanes in the country. In 2005, highways carried three-quarters of all freight by weight and 92% by value. While the Interstate Highway System comprises just 1% of public road miles, it carries 41% of the country's large-truck freight traffic. Growing congestion threatens to drive up logistics costs for businesses. Poor road conditions cost motorists some $54 billion in repairs every year, about $275 per motorist.

The problem is world-wide, as noted in this in depth piece by Strategy + Business, the magazine of Booz Allen Hamilton, one of the big 4 management consulting firms. They put the total pricetag at $40 trillion, 85% of the entire world's GDP (or 60% if you adjust for PPP).

I hold that article in high regard because I read it and said, "GE would be a good stock to buy now," and it went up 15% (after recent pullbacks) in a couple months. (disclaimer: on the same logic, I also bought MWA, Mueller Water Products, which has been just as bad so far as GE has been good)

So people recognize the problem, but as with everything else, nobody wants to face the costs. But it would be a prudent decision for all of us.
Hours before Wednesday's bridge collapse, Sen. Christopher Dodd (D., Conn.) and Sen. Chuck Hagel (R., Neb.) introduced legislation calling for a new trust to fund infrastructure upgrades.
Maybe now the senators will have the political backing to make something happen. It's unfortunate that it often takes a tragedy, but regardless, let's route for them.

Friday, August 03, 2007

Getting Started with Finances

An old friend asks:
Now that I'm thinking about it, what is a good investment vehicle right now? The stock market is unpredictable (at least to me), and I haven't been working full time long enough to qualify for 401k. I don't think bonds are the way to go because of the low return. I've heard mixed things on mutual funds and real estate is financially out of my league right now. What is a good option?
Here's the short answer:

•Set up a Roth IRA
•Set up your "infrastructure," meaning get a good savings, checking, and brokerage account.
•Work on your budget to make sure you have a plan to spend as little and save as much as possible.
•Invest in index funds, preferably a low-expense ETF, at regular intervals.

The long answer:

He's on to something with the 401k thing. The first thing most people think of is "how do I make the highest percentage return?" when the basics of how your accounts are set up and your budgeting is much more important.

So no 401k, but then set up a Roth IRA. The way it works is even if you make ANY money, you can put up to $4,000 (this year) into an account. Then when you retire, you pay no capital gains taxes (which are 15%). Over the 40 years or so between now and when you will pull it out, the no taxes part makes a huge difference. IRA's and 401k's (especially when your company matches it) are basically just free tax breaks that you're leaving on the table if you don't use.

So that, and set up your "infrastructure." By that I mean have your accounts organized effectively. Maybe you have a high-interest saving account, a checking account, and if you're interested in investing, a brokerage account. Make sure to get the best of breed of each. My personal preference is for simplicity. I use Chase and Fidelity out of habit, but if I were starting today, I might use just a Schwab One Brokerage Account. I hated Schwab when I had it five years ago, but they've changed and this checking and brokerage account is excellent. It even pays 4.25% interest on money in the checking account, more than most other banks. If you had that you wouldn't really need a savings account. (I don't get any money for saying that, don't own the stock, and don't even know anyone that works there, in case you were wondering).

After that, work on your budget. Save as much as you can, make good spending decisions, take on as little debt as possible. Avoid credit cards, though you can use them if you pay off the balance each month and use them just to avoid lugging cash around.

You can try to learn a ton about investments if you want, but for the vast majority of people, they should just put it in an equity index fund (some of the new ETFs have insanely low expenses) at regular intervals and not worry day-to-day! That last part is important, because one of the main rules of investing is that your stomach is more likely to defeat you than your head.

You're right, bonds are too low of a percentage return for our generation. Real estate is not a good idea for you right now, mostly because the economics make it so that in most parts of the country it currently makes more sense to rent than to buy.

Hope that helps. If anyone's curious, I can explain any of these areas more or talk about other personal finance issues. Just email me or message me on Facebook.

Blast from last summer's Asia trip's past

Anyone who's been to China, especially Beijing, can attest to this article in the Wall Street Journal, "Bargaining in Beijing is a Full-Contact Sport."
Shopping at these places is a full-contact sport, with vendors screaming "good price for you" and sometimes actually grabbing passersby and yanking them into their stalls. Sometimes they seemed on the verge of throwing punches, other times a young lady flirted heavily, stroking Andrew's forearm and batting her eyelashes.

Also, the range of the negotiations would surprise anyone. The price they first quote you can be many times what you end up paying. For instance, the first price on a Polo shirt can be $100, but you can fairly easily get them for $4.

You'd also be surprised at the quality. I have real Polos and fake Polos, and you'd have a hard time telling them apart.

Also on the topic of traveling to Asia, this article talks about what a bargain it is.
But when he met up with a friend in Thailand, she didn't want to rough it at his $5 a night hostel. Compromising was not a stretch. They stayed in a mutually tolerable hostel, for $10 a night.
(this also reminds me to transfer photos between computers! I didn't blog last summer, but I have lots of good pictures.)

Travel to Asia!

Think about online banking

Online banking can be a good option for anyone Internet-friendly. You get higher rates, lower fees, and the downsides are disappearing. Yet most people don't switch because they can't imagine not having a branch. But I ask, what have you done in the last year in a branch that you couldn't do online? And their customer service is better via email!

The article proposed one reason - inertia:
Once you're a customer of an old-fashioned bank, there's a likelihood you'll stay with it for a while (direct deposit and automatic-payment plans only strengthen the bond). The sheer hassle of switching accounts to a new institution is enough of a barrier that most people stick with what they've got.

Thursday, August 02, 2007

Class Cancelled Due to Massive Police Raid

Only in Rio (Portuguese).

And it was supposed to be my first class after the month-long winter break.

Should I get my Texas real estate license?

This is either a rhetorical question or if you want to chime in you're more than welcome.

Here is the basic logic behind why I would want to get my Texas real estate license:

a) I'm moving to Texas and am likely to buy one or more rental properties with Eric or maybe a house for me and Vanessa. While we could very easily find an agent that would refund 1.5% or 2% of their 3% commission, this is always a bit of a headache and it's still not 3%.

b) I would get a Smartkey, the thing that gets you into an houses on MLS. Then I could check out houses without even calling a real estate agent.

c) as I've said before, it's ridiculously easy to get a license. You just take 150 hours of classes online, and then take an easy test. Given my previous knowledge, I'm guessing the online course will be somewhat like the California Online Driving School (just keep hitting skip).

d) it only costs about $700 to take the class and get the license. That is more than made up for with the first transaction.

e) not only will it benefits me/us, but I can help out friends as well. I will have no problem refunding all or nearly all of the 3% of my commission for a friend that would do the same in my shoes.

Anyway some downsides:

a) after the first year you have to do another 30 (or 60? I can't remember) hours of training, and given my employer even that may not be available.

b) distraction from work?

c) would I be better off studying for a grad school admissions test? Reading up on accounting?

Anyway not sure what I'll decide.

Wednesday, August 01, 2007

Panamerican Closing Ceremonies

The closing ceremonies were a lot cooler than I expected. This is at the end when they had a rotating group of popular Brazilian music groups of varying styles. The athletes are all on the field, and they had fireworks coming out from all around the stadium. You can't really capture how cool it looked with a camera- we were actually IN the fireworks since they were coming out from all around.

The torch. Again, this doesn't quite do it justice. There's a huge waterfall built in the stadium that leads to the pool below it, where the sun heats the water and makes a cool steam effect. The flame reflects off a series of waving aluminum panels and looks surprisingly like the sun.

The next PAN games will be in Guadalajara in 2011. They had a cool introduction to them and passed the flag and all to the Mexican delegation. Who knows how much money Carlos Slim will throw into that.