Sunday, 28 February 2010

Rebalancing

It’s the end of the month and time to assess how we are tracking fiscally into the new year. As we continue to reassess our spending habits and values, we still crave for a more simplified lifestyle. Not so much about spending less time at work, we both love our careers. But we both feel the need to spend more time with our family, our extended family and our friends. We love meals at home, movie night with homemade pizza and popcorn, playing dominos, cards or watching the boys take on marathon nights in the game of Risk, soccer games and story-time with our grandchild. Those times are starting to seem more few and far between.

It is difficult to keep a healthy balance between work and time for family and friends. There is always one more report to write, another meeting to prepare for and another e-mail to answer. We have to consciously make family and friends a priority. We know that balance is important in reducing stress and maintaining our health. How convenient that doing the simple things at home with family and friends is also better on the budget and living within your means.

Wednesday, 24 February 2010

Triathlon

Staying healthy and fit is one of the best things you can do for your bottom line and your waist line. You get to that point where a little voice in your head starts to think that if you don’t get going, you’ll be too far gone to ever be fit again. How to get there? Aim high. Isn’t a triathlon on everyone’s bucket list? Are you in the Midwest? Check out the June 6th Pigman Sprint Triathlon in Palo Iowa. Not in the Midwest? Find a USA Triathlon sanctioned event near your hometown.

Yes, we are recruiting first-time participants, preferably over the age of 50. We like good company and would be thrilled to have some still with us at the finish line. This year, it’s all about finishing and all the endorphins between now and June in prepping for the big event.

Saturday, 20 February 2010

A Phenomenal Alfredo

Yes, Bob did it again. You must try this! Friday night we had Chicken Alfredo for 4 for $12. (Cost of paired wine excluded).

We followed the Alfredo recipe from RecipeZaar with the addition of ½ cup of shredded Asiago cheese. This sauce went over a bed of thin egg noodles from Kalona and was topped with chicken (cubed) browned in olive oil and 1 cloves of garlic. For a wine, we paired it with Mayo 2008 Sauvignon Blanc. If you are a die-hard red fan, then a pinot noir will work very well. Mighty fine dining at a mighty fine value!

Monday, 15 February 2010

Linen Liners

Have you ever received a gift where the wrapping paper is so beautiful, you can’t bear to toss it? I love to upcycle beautiful gift wrapping as linen linings in my dresser drawers. A special treat is to sprinkle them with lavender oil. Even if the paper only stretches for one drawer, I love the mix and match of each drawer having it’s own characteristics. Seeing the lovely paper when I root to the bottom of the drawer reminds of the event's special celebration day. 

Friday, 12 February 2010

Valentine's Day Panic

It is almost Valentine’s Day and with all the other chaos, you have yet to prepare for how you will let your loved ones know how much they mean to you. Short on time or money, the following action plan will save you:

1) Relatives and parents for whom you have not yet mailed a valentine: Take a picture of yourself/family blowing a kiss from your phone; and then send off to their cell phone their ‘Happy Valentine’ picture-card.

2) Write tons of little notes to your kids/husband/wife and hide them everywhere they will pass that day. Example places with sample messages:

a. For your kiddos: coat pockets “Pocket full of love for you”, toothbrush “Your smile lights up the room”, math book “1-2-3, my love for you will always be”, I-pod “Your voice is like music to my heart”, steering wheel of car “Even when you drive me crazy, I still love you”.

b. For your hubby or wife: in their shoe “You are my soul-mate” , bathroom mirror “ lip-stick kisses”, remote control “You turn me on”, light switch “You are the light of life”.  You get the picture - the sillier, the better.

3) Plan a dinner where everyone participates. A favorite of ours is homemade heart-shaped miniature pizzas.
Hope you all have fun-filled day with your loved ones.

Wednesday, 10 February 2010

Snowy Sundays

It’s Sunday afternoon, there's a lot of snow on the ground, it’s cold and we have no energy to do all the things we need to do. Solution: Escape on a mini 4-hour vacation. Last Sunday, we went out with another couple to chase away the winter day and take a time-out from our overwhelming list of 'not-done's.

We landed at Fireside Winery, located in Marengo, Iowa about 30 minutes from our home. We had great fun browsing through their gift store and sampling their wines. Who knew Iowa could produce such lovely reds? Levi, our host, shared warm brie and bread with everyone in the tasting room.

Our favorites? The Frontenac and Hearthstone, which pared well with the artichoke spinach dip, our meat and cheese plate, the good conversation and wonderful company. The scenery of the snow covered field was peaceful and relaxing. You don’t always need an expensive vacation to escape. There are discoveries to be made in your own backyard. 

Monday, 8 February 2010

Household De-formation

One of the themes we have alluded to repeatedly at Financial Jenga is trends and sustainability. When a trend is not sustainable, reliance upon it can cause massive errors in analysis. The old adage "there's nothing more dangerous than an analyst with a ruler" illustrates the danger of extrapolating such trends. In our very first blog entry we mentioned one unsustainable trend:

We are at the front end of the suffering now. It was easy to see it coming when new houses were adding 2% or more to the existing supply for years and the population was growing at half that rate or less. The Census Bureau confirms that the number of empty houses has never been higher.

The only way that such a wide disparity between housing demand and population could be supported was for the average household size to shrink constantly. This is obviously unsustainable since you eventually reach an average household size below 1.0. Calling that eventuality 'unlikely' is a tremendous understatement. We have contended that consumption has been bloated by credit for years as part of our central UDB (Universal Debt Bubble) thesis. Housing is no exception.

Over-consumption of housing has taken many forms. Square footage per person grew steadily for decades. Increased amenities is another aspect of the same phenomenon. But an absolutely key trend was privacy as a luxury item. For generations, single people have lived with roommates as a means of saving money. The UDB allowed many singles the luxury of privacy by having their own place - whether rented or purchased, thus increasing housing consumption further. In many cases, this could not be justified on a sustainable basis. Credit was the key to the lifestyle of the $40,000 millionaire class.

This has all changed drastically since we started the blog two and a half years ago. Household formation has stalled out and is now considerably LOWER than population growth. Singles are moving back in with family, parents with their adult children or vice versa. Others are going out and getting roommates. And even population growth itself is slowing due to immigration falling. This is even more true if one includes the illegal alien population. All of this is described in analytical piece by consultants IHS - U.S. Household Formation Is Down Sharply. Some particularly salient quotes:
...the number of households increased by 398,000 between March 2008 and March 2009. This was the smallest increase since 1983, and the second-smallest increase in the history of this statistic, which dates back to 1947.

The decline was particularly sharp for those who live alone. The number of women living alone declined by 398,000, while the number of men living alone fell by 112,000.

The recession is behind the slowdown in household formation. Hard times have forced many of those who have lost their jobs, their homes, or both to move in with family or friends. In addition to this, immigration is down. As a result, the number of persons per household, which had been dropping in recent decades, increased in both 2007 and 2008.

The data pretty much speak for themselves. The trend of over-consumption reversing is certainly manifesting itself in housing. These secular trend reversals are occurring in addition to the cyclical factors of inventory and shadow inventory overhangs. The elephant in the room is the future overhang of selling by the Baby Boomers. The big cash-out and trade-down secular trend as the Boomers retire is still mostly ahead of us. That trend ought to be good for retirement homes and other senior communities but will be putting pressure on the housing market at large for at least 15 years and more likely 20 years.

The trend reversal of households consolidating appears to be the new normal. It is simply correcting a period of gross distortion due to the UDB.

Sunday, 7 February 2010

The Non-Comparison

It seems quite popular in these days of crisis for certain commentators to compare struggling individual states within the USA to the troubled Eurozone PIIGS (Portugal, Ireland, Italy, Greece and Spain). ECB President and Apologist in Chief for the Euro Jean-Claude Trichet (and boy isn't that a bunch of Capitalized Words strung together) is a prime example. A couple of weeks ago in a speech about the Greek Financial Crisis his remarks were summarized by Business Week:

He [Trichet] also played down the importance of Greece's economy on the euro region, which he said represents less than 3 percent of the bloc's GDP, especially when compared with the size of a U.S. state such as California.

A number of news outlets and blogger have echoed these sentiments so it behooves us to examine the validity of the comparison. On the pure surface level, Trichet is correct: California had a GSP of $1,850 billion in 2008, whereas Greece's GDP was less than one fifth as large at $343 billion. So we can conclude that he in not lying outright but what of the implied statement that California's financial problems are more important to the US than Greece's are to the Eurozone and EU? For this analysis we will leave aside the issue of the rest of the PIIGS.

For perspective, let's start with raw numbers. The debt of the Greek government hit 300 billion Euros two months ago making headlines around the financial world. At current exchange rates, this is over $400 billion and is surely higher today. The total general fund debt of California is LESS THAN $85 billion as of January 1, 2010. So in absolute terms, the Greek Problem is nearly FIVE TIMES LARGER than California's. In terms proportional to the size of the respective economies, the disparity becomes even more striking.


Implications of Federalism
With a little thought, the reason for this disparity should be obvious. California's state government brings in tax revenue of just under 5.0% of GSP and plans to spend 5.5% of GSP in the FY 2010 budget. Greece taxed 32.2% of GDP and spent 43.0% of GDP in 2009 as estimated by the CIA World Factbook. The state government of California is not the top-level sovereign even within its own borders. Federal taxation and spending within California far exceeds the comparable activities driven by Sacramento. In terms of government impact on the economy, the key is at the Federal level, not the state. So in addition to California's government problems being a much smaller deal overall, the consequences of failure would also be less for the population than would be the case in Greece. We can safely conclude that Trichet's statement, while true at first blush was highly misleading in its implications. There is simply no comparison between the gravity of the current crisis in Greece and the looming one in California.

Having dealt with that nonsense, let's talk about the rest of the PIIGS. These are all similar, top-level sovereign situations. It would appear that Portual is next, with Spain not far behind from the trading activity in CDS and the rising risk premiums being demanded. Italy is not nearly as badly off and it may be unfair to lump them in with the rest of this group; the market appears to be taking note of that as well. And then, there is Ireland.


Celtic Hedge Fund
Ireland is in for a tough time. Their total external debt was 1,637 billion Euros (roughly $2.23 trillion) as of September 30, 2009 with an economy of $177 billion per the CIA. Irish banks alone account for 41% of the debt. Another way to express this is that their banks owe foreigners over 500% of the nation's annual GDP. Many financial institutions are counted in the "Other" category which is nearly as large in terms of foreign obligations. The largest components would be insurance companies and pension funds. In all, Ireland's financial sector probably owes nearly 1,000% of GDP to overseas entities. This is a time bomb comparable in design to Iceland but with many times the explosive power. This is another nation being run like a hedge fund but Ireland currently owes more than 30x as much as Iceland going into their meltdown.

None of this is to suggest that the US doesn't have truly huge problems. But let's not be distracted by specious comparisons involving the states. In the US, the fate of sovereign credit will be determined almost entirely by the actions of the Federal government and the market's reaction to them. In the Eurozone, that same process will be resolved in the national capitals and possibly also in Berlin. Barring a decision by Germany to bail out other members, individual European nations can and will choose austerity or default themselves.

Tuesday, 2 February 2010

Ties that Bind Us

Our office moved into a new location. With cutbacks this year, there was no budget for art. Our solution was to create our own artwork. To start, most everyone contributed at least one old necktie from their household.

This past Sunday, volunteers pulled together and created the tapestry for our reception area, titled ‘Ties that Bind Us’. The backing, stuffing and neckties were all repurposed from previously discarded items. Our work of art is a great example of “Upcycling”, where you repurpose discarded items to give them a new life. Turning trash into useful items goes a long way in saving you money and the environment.

Not only do we have a lovely work of art; the pride, joy and teaming together to create the work of art is priceless. Wearing the remaining portion of the clipped neckties will add to the fun during our open house next month. :)