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Author Archives: Team Dinks

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Stimulus Visualization Tool

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Visualization tools are great. I love anything that shows data in an interesting way; there’s only so many spreadsheets of data one can look at before you start going cross-eyed (heres to you, Bureau of Labor Statistics). And a hot political topic right now is the stimulus package – or rather, stimulus packages – and CNN.com has a great tool for visualizing the stimulus packages, or what they refer to as The Big Bang.

Their tool splits the total amount of money dispersed by the federal government into three major categories: Stimulus 1, Stimulus 2, and Stealth Stimulus, which they define as the following:

Stimulus 1:

Stimulus 1 is the $787 billion American Recovery and Reinvestment Act, signed into law in February 2009. It contains a combination of grants, loans, direct spending and tax cuts aimed at creating jobs and alleviating the economic stresses caused by the recession.

Stimulus 2:

Stimulus 2 is a group of extensions of programs enacted by stimulus 1 that were about to expire. It also includes other economic stimulus that was not in the ARRA bill.

Stealth Stimulus:

Since the credit crisis erupted in 2008, the government launched several dozen programs aimed at rescuing the financial sector, the housing market and the overall economy. They included only programs that were launched by the Federal Reserve, Treasury Department or Federal Deposit Insurance Corp. since 2008.

Anyway, regardless of your political feelings towards the stimulus and the political and economic ramifications of that legislation, it’s an interesting graphic and it’s a great way to visualize how the money is being spent.

Michael
Twitter: @michael_dink

Groupon

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I might be slow to catch on to this resource, but I think that Groupon is such a great site that I wanted to share with our readers.

The basic jest is that the site offers one “Groupon” per day, and it is available for a limited period of time. I was tipped off to this site when I colleague saw a salon that I like with deals.

Since I’ve signed up, there have mostly been coupons for restaurants, spas services, massages, etc. While many of these coupons tend to be on the more luxury side, it is an excellent way to be able to afford such luxury. Also keep in mind that this can be good for gifts as well.

They also have a referral program where you can refer a friend and get $10. Click through the image, or links on this page and I’ll get credit for referring you. I think it is a great resource and hope you will too!

I splurged this week by getting an hour massage in Georgetown for $40. It will be nice after my travels!

Cheers,

Miel

Tracking Stock Basics

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Hi All,

Financial markets can offer a bewildering array of investments to choose from. For those of you who are interested in hardcore investment management you may have heard of something called a tracking stock. For those of you who have not, here are the basics.

What are tracking stocks?

Essentially, a tracking stock is a special equity offering issued by a company that is based on the operations of a subsidiary of that firm. The tracking stock is not traded on the value of companies earnings, rather its price is impacted by the operations of the specific division. Usually these investments are issued by big conglomerates.

There are some serious disadvantages to tracking stocks.

First, tracking stocks typically have limited or no voting rights. So, you don’t get a say in how the division is run. Instead most management decision rights are retained by the parent corporation. While most small investors don’t have much of a say anyways, the principle matters.

Second, tracking stocks are not backed by corporate assets in the same way that common stocks are. With common stocks you are legally entitled to a cut of the companies assets if things go sour. However, with tracking stocks, the company owns the assets, not you.

Third, tracking stocks can impact management decision making. Corporate management and boards must often operate under material and resource constraints, so sometimes they are forced to trade off the interests of common and tracking shareholders. From the standpoint of being a shareholder its better if your interests are fully aligned with those of management. That is, you don’t want these kinds of management tensions.

Why are tracking stocks issued?

Most of the time tracking stocks are issued when the parent company feels they have a super successful division whose value isn’t well reflected in the overall corporations share price. This can be useful if companies want to merge, form strategic alliances or if they want to create incentive structures for their employees.

Notably, some tracking stocks have been substantial failures. For example, at one point the Walt Disney Corporation was going to spin off its internet division go.com. Go.com turned out to be a dismal failure due to web users preference for search engines rather than top down corporate portholes. Similarly, AT&T and Sprint both issued tracking stocks, neither of which are still trading today.

Should You Buy Them?

The bottom line is: relative to common stocks, tracking equities don’t give you the same legal rights, or the same say in corporate management. They are often issued for corporate purposes and tend not have a lot of longevity. All of these suggest they are not good candidates for a buy and hold strategy. Where you have other options, you should probably consider them.

Thanks,

James

The Minimum Wage

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You know you’ve been there.

While playing around the U.S. Department of Labor website I came across some information on the minimum wage – which as of July 24th, 2009, is $7.25 an hour. But as you may know, each state can set their own minimum wage levels (the higher of the two – federal vs. state – is the wage an employee is entitled to). Although most states amend their laws to match whatever the federal level is, 14 states plus the District of Columbia have a minimum wage that is actually higher than the federal level. The highest is Washington state with a minimum wage of $8.55 an hour. Interestingly enough, Washington does not have a personal income tax (or corporate income taxes for that matter). Another interesting tidbit of information from DoL is that 10 states (Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont and Washington) all have their minimum wage level tied to the Consumer Price Index, which generally increases the minimum wage level. The data is certainly interesting to go through.

For more on this, check the links below.

Minimum Wage Map

Consolidated Data

Historical Data

Michael
Twitter: @michael_dink

Craig Cunningham – Financial Terrorist

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Hey All,

Check out this article from the Dallas Observer. Its a story about a guy named Craig Cunningham. Cunningham deal is that he racked up about $100,000 after making some bad business decisions back in 2007. After some online research he started recording his calls with his creditors. In many cases the threats made by the creditors were illegal. Using the audio taped evidence, Cunningham then started suing them. So far, he’s filed 15 suits and gained over $20,000. The debt collection industry refers to people like Cunningham as “financial terrorists” because he causes them so much trouble.

From the article…

“Debtors, either because they feel morally obligated or because they don’t know their options, get backed into a corner by their creditors and believe they have to repay their debts, he says. Not so with Cunningham. “I don’t have to do anything but stay black and die,” he says, a small, smug smile on his lips“.

Click here for the rest of it. The piece is certainly entertaining even if you disagree with Cunningham’s behavior.

Best,

James

Brett Farve and Delayed Retirement

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In case you didn’t catch it, the Wall Street Journal had a great article that used Brett Farve as a role model for how we should approach retirement (“At What Age Should You Retire?“). Most bosses wouldn’t be as understanding if we changed our mind about retiring as many times as the Minnesota Vikings quarterback, but the point the author was trying to make was that by delaying our retirement, we ultimately put ourselves in the best financial position possible.

Retiring early is a goal for a lot of people. But the point of the article was that most people save far too little for retirement – according to the Employee Benefit Research Institute less than half of workers have saved over $25,000 for retirement – a sentiment echoed by author Jane White. With that being the case, for most people it makes more financial sense for people to work longer and take retirement benefits later, else they run the risk of running out of money, forcing them to either pursue government help or rely on family in their later years. Neither of those options is an ideal situation.

The second point the article made that caught my attention was the sustainability of Social Security benefits. The Social Security is challenged both by political and demographic sustainability issues. I’m 26 years old, and I can honestly say that I don’t expect Social Security to be around by the time I turn 62. If it is, I can’t count on it being enough to get me through retirement, an issue that we touched on earlier.

The WSJ article suggests staying in the work force until the age of 70 (!!!). It’s difficult for me to think about working for the next 44 years. But the take away lesson in all of this is prepare for retirement now. It’s better to go overboard on the savings than to find yourself short decades later when you need the money. In some cases, if you have an IRA, you’ll be able to pass the funds on to your children tax free, so you don’t lose anything by ranking up your savings. Reading that WSJ article has for me reemphasized the importance of retirement savings, and it certainly motivated me to go bump up my 401(k) contributions by a few percentage points.

Michael
Twitter: @michael_dink

Dating and Money

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It’s been awhile since I’ve dated. I met my wife-to-be while I was a senior in college, and we were married three years after I graduated. And even while I was dating in college, the rules and expectations were much different than they are post-graduation. While in college, everyone was presumed to be a “poor college student” and as such, you had to find creative ways to go on dates on the cheap. My post graduate single friends, however, have come to realize that such presumptions are not present once you’ve graduated and have a job. And they’re finding out that dating can be quite expensive.

I recently had a conversation with a friend who had been dating a girl for a reasonable period of time, and he found himself stressing out over the amount of money he was spending every week on their dates. It wasn’t uncommon for him to drop a couple hundred dollars in a week with her, on everything from trips to the bar, dinner out, activities, etc… Small expenses added up quickly, and he became worried that some of his long term savings goals would be compromised by his spending of all that money every week.

Another friend of mine used to tell me about the unspoken pressure he felt to wine and dine his girlfriend. He took her out to expensive dinners and expensive nights out, as well as even a vacation or two. While neither of my friends had/have what anyone would consider a high-maintenance girlfriend, and they were never coerced into doing those things, they both created a pressure within themselves to go out and spend that money to entertain their girlfriend. Not doing so, in their minds, was equivalent to being a stick in the mud, or a penny-pincher; a reputation neither of them wanted to risk acquiring.

In that sense, it’s easier when you’re married. My wife and I share our finances, so we both always know how we’re doing and what we can afford. Our long-term financial goals are also aligned, making it easier for us to eschew a trip or an expensive dinner if it’s unreasonable to do so and pursue our financial goals at the same time. That a much more complication decision to come to when you’re just dating, however. Most couples don’t share financial information or long-term goals, creating a barrier that’s difficult to overcome when making those types of choices. That in turn creates the stress that my first friend was referring to.

In the end, I’m afraid I wasn’t much help when giving advice. I just told my friend to communicate his concerns to his girlfriend. He doesn’t have to provide any details if he isn’t comfortable doing so, but his girlfriend is a very smart, very understanding person and I’m sure they can work something out. Dating on a budget will probably feel a bit restrictive, but it will eliminate his anxiety, and perhaps some creative dating will spice up their relationship.

Readers, what are your feelings on this topic? Have you found yourself in this situation, and how did you resolve it?

Michael
Twitter: @michael_dink

Credit Card Companies Seek More Information

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The Wall Street Journal had an interesting article a while back about the methods used by credit card companies to gain more information about your financial situation when determining whether you are credit-worthy or not (“Look Who’s Peeking at Your Paycheck“).

The Credit Card Act of 2009 set forth policies that allow credit rating agencies to estimate your income based on information found in your credit report. That data can be checked against self-reported income to provide credit evaluators with the necessary information to fill in the gaps when deciding whether to extend credit to a potential customer, increase an existing customer’s credit limit or who should be sent those pre-approved credit offers – currently the most widespread use of such techniques.

I may be misreading the article, but I got the impression that the author finds this to be a bad thing. I do not. Whether the public realizes this or not, data mining is quietly becoming the business technique of choice for those companies looking to improve the efficiency of their business. The income estimates provided by credit rating companies are usually just a range, or a value with an associated error. Those estimates are based on information already present in your credit report, as well as the information provided in other people’s credit reports. Data Mining is closely related to my Computer Science specialization, and from the case studies I’ve seen and academic papers I’ve read, the predicted values researchers come up with are shockingly close to their real-life values. If using utilizing that data allows creditors to lend money more responsibility, what’s the harm? There’s no privacy breach; the data is already there, it’s just being accessed in a different way.

Readers, what are your thoughts on this topic? Is this a good thing, or a potentially bad thing? What are some of the consequences down the road of using these income models?

Michael
Twitter: @michael_dink

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