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November 29, 2005

Gold Hits $500/oz!

Pirates all over the world today broke out in spontaneous song as the price of gold reached US$500 per troy ounce, a level not seen since 1983.

Gold breaking $500/oz

I love gooold!

Treasure chest full of gold

November 27, 2005

Citgo's Gift of Oil

Citgo is planning to distribute heating oil to some low-income Massachusetts residents "at 40 percent below market prices":

Citgo is the Houston, Texas-based subsidiary of Venezuela's state-owned oil company and has about 13,500 independently owned U.S. gas stations.

It is offering Massachusetts more than 12 million gallons of discounted heating oil over the next four months, starting in December. [source]

Venezuela's anti-capitalist president, Hugo Chavez, is doing this as a publicity stunt to score points against the Bush administration.

It pains me to disagree with Captain Capitalism on this — we captains have to stick together! — but Chavez's offer doesn't bother me at all. In fact, I think it's great, and I hope all the other states whose governments are propped up by nationalized mineral extraction industries would follow Venezuela's lead.

First, some people in Massachusetts will have cheaper heating oil. This is obviously good for them. They can heat more and/or spend their extra money on other things.

Second, the Venezuelan government is marginally poorer. It should go without saying that making a communist government poorer is a good thing. It leaves that government with fewer resources to wield against its subjects and hastens its eventual collapse.

What about the Venezuelan people? Aren't they harmed by this, because their government will have less to spend on them? Only if you believe that spending by the Venezuelan government is beneficial to them (rather than harmful to them) in the first place. Besides, it's their responsibility to reign in their President, not mine. Chavez is apparently a popular guy.

When a communist offers you a subsidy, you say "yes". It helps you and hurts him. It's really that simple. (When the subsidy is coming from your own government, instead of someone else's, it's not as cut-and-dry.)

UPDATE 2005-11-28 00:46:01 UTC: Skip Oliva comments on Rep. Delahunt, who negotiated the deal with Chavez.

Car MP3 Player Tips

After owning my new car for almost a month, excitement finally overcame laziness and I decided to create some MP3 CDs so I could enjoy my (small) music collection in my car.

I learned a few things along the way, so heed these tips.

Step one was to curse myself for originally ripping my music collection in Windows Media format instead of MP3. My car has an MP3 player, not a WMA player. I had chosen the "wrong" format originally because Windows Media offered a lossless quality level, and I didn't care about storage space because it was all going on my hard disk.

I started by re-ripping all my Metallica (9 discs) at the highest quality supported by Windows Media Player (320Kbps). I burned the resulting files onto a pair of CD-RWs with Windows Explorer and took them to my car for a test listen.

Bad results. When I loaded the first CD, the car wasn't able to read it at all. After about 30 seconds of trying, it gave up. I switched to the second CD and that one mysteriously worked. I started listening to a few tracks and noticed a lot of pops and digital artifacts. The quality was very poor; there would typically be a noticeable error every 30 seconds or so.

I put the first CD back in, and to my surprise this time it was able to read the disc. But not the whole disc. The first CD held 5 albums, but the car only saw 3 albums. When I listened to a few tracks, I heard problems similar to the other disc.

I tested the discs on a PC, and they were fine. (No surprise, the drive that wrote them should be able to read them.) This told me that my issue was more serious than just a bad recording session, because the correct data actually is on the discs — but the car couldn't read it.

Four potential problems came to mind.

(1) Perhaps the car's MP3 player didn't support the MP3 bitrate I used. I'd have to re-rip the original CDs at a lower quality level. I wasn't excited about this. (2) Perhaps the car's MP3 player was very media-sensitive. Many ordinary CD players have trouble with CD-RW discs but work much better with CD-R discs. I was even less excited about this, because I don't own any CD-R media and would have to buy some. (3) Perhaps media sensitivity was being exacerbated by using a disc that previously had data on it. Both discs had been previously full of data. (4) I wrote the discs with Windows Explorer, but I don't fully trust it.

That's a lot of things to try, so I did what was easy. I attacked #4, using Roxio Easy CD Creator instead of Windows Explorer. I used the "DataCD" project type instead of "DirectCD" because the latter would have me use Explorer to copy the files, and that's the last thing I wanted to do at this point. Along the way I realized that I could also attack problem #3, because Roxio can do a complete disc erasure (disc → erase → full erase) in addition to the quick erase offered by Explorer. It also gives more control over the recording method, so I selected "disc at once" out of paranoia that my car's MP3 player might be confused by seeing several recording sessions.

It worked! I haven't encountered any problems after a few minutes of listening. My car's MP3 player is happy with the 320Kbps bitrate and it's also happy with CD-RW media. I don't know whether #3 or #4 was the real problem for me, but now that I have a workaround I'm not very interested in the root cause. I know how to create MP3 CDs that will work in my car, so I'm happy.

And now that I've blogged it, I don't have to worry about forgetting the magic formula for success. That's one of the nice things about blogs — even if nobody else reads your drivel, you can post things that are useful references for yourself.

November 22, 2005

Hip Hop Personal Finance

I recently surprised a friend of mine by mentioning I listened to hip hop music. Sure I do! What's not to like? Songs full of rhymes about women and money, glamorizing the have-it-all lifestyle. To make a sweeping generalization, it's music that's proud of enjoying life. Food for the soul. A reminder that success is something to desire, not something to feel guilty for or envious of.

There's an up-and-coming artist going by the stage name Billy Shakes who has followed the money angle of hip hop music to an … interesting place. His real name is Terence Bradford, and he lives an astonishing dual life: Sales manager for Citi Mortgage by day, and personal finance rapper by night.

Your coke illegal every day of the year
My Coke I buy legit, twenty dollars a share
You a gangster? Then go and get your paper
I'm a paper gangster gettin' stock quotes on my pager
Stocks and drugs both the same in my eyes
More buyers than the sellers cause the market to rise
I know you out there really click-clackin' your guns
Fuck with me, I'll have you stick-stackin' mutual funds
Street game'll get you hit nine times like Fifty
I'm banking bucks by the millions nine times fifty
Thousands on a whip don't make you a star
I'm buyin' options in the company that's makin' them cars, nigga

That's a sample from his song "Stocks and Bonds". You can download three tracks from his website, but as far as I can tell he hasn't published a CD yet. These might be demo tracks rather than a finished product. My favorite of the three is "Dollar Cost Average". The other, "Never Can Say Goodbye", doesn't do much for me.

I'll admit, I can't listen to this stuff without breaking out laughing. I know he's trying to do a good thing by using music to educate people about personal finance, but I'm not sure whether it succeeds on either level. But I do plan to buy the CD when it comes out so I can make a full evaluation. Besides, the novelty alone is reason enough to own it. :)

November 21, 2005

One Million Dollars

Once upon a time, when I was in college, I was having a discussion with a group of friends. I've long ago forgotten the overall discussion, but I do remember that during this conversation I had hastily and with no forethought set a personal goal to be a millionaire by the time I was 35 years old.

I started taking this goal more seriously when I realized it could play a role in my personal finance blogging. (I don't have any other handy numerically-oriented goals such as paying off my mortgage — I decided it's better to pay it slowly.) My preliminary numbers showed that the goal would be difficult but not impossible to reach. Perfect! That's exactly the sort of thing that extra focus and planning are needed for.

One million dollars!

Dr. Evil demanding one million dollars

If this article feels like it's stream-of-consciousness, that's because it is. I'm working on my spreadsheet as I write this.

There is some ambiguity in "millionaire by 35", so I've decided to clarify the goal to mean that my net worth should be at least $1 million prior to my 36th birthday, and that I should ignore deferred taxes on savings — that is, I'll use the ordinary value of my 401(k) without subtracting an estimate for the tax I'll eventually owe on it.

The Roth IRA contribution limit will rise from $4000 to $5000 in 2008, the 401(k) contribution limit will rise from $14000 to $15000 in 2006, and both will then begin adjusting for inflation in $500 increments. My employer is not planning to offer the Roth 401(k) in 2006, so I'll pessimistically assume it won't be available to me at all. Assuming 4% inflation, these are my contribution limit predictions:


I'll fully fund my Roth each year in January, and model my 401(k) contributions as equal monthly amounts. Instead of a 401(k) match, my employer contributes to a separate profit-sharing account. Because it's based on company profits, it's difficult to predict, but for simplicity's sake I'll make it a $6000 contribution each February.

I'll assume I stay in my current house and that it appreciates at a 4% simple interest rate (compounded monthly) and that I make minimum mortgage payments. I won't include my car in the figures at all. I'll assume investments earn 7%. I'm not going to try to model my earnings from credit card arbitrage because I don't believe the opportunities will persist much longer.

The "easy" part of the calculation is to estimate my home equity and retirement savings. The spreadsheet says that under these assumptions, by my 36th birthday I'll have $237,000 in home equity and $528,000 in retirement savings. So, to reach my $1 million goal, I'll need to hold $235,000 in ordinary (non-retirement) investments.

I'll assume a tax rate of 30% on taxable investments, because they'll be a mixture of capital gains and dividends (15% federal + 9% state = 24%) and interest (25% federal + 9% state = 34%). My spreadsheet tells me the savings I already have won't be sufficient — as expected — so now I need to calculate how much additional money I need to save in order to reach my goal, and determine whether or not I'll have enough income to make it.

<drum roll>…

The spreadsheet tells me that under my assumptions, I will need to save $659.39 each month, even after contributing to retirement savings, in order to reach my goal. I believe I can do that.

The rosy scenario, where I wouldn't need to save any additional money at all, would require my house to appreciate at 6% (instead of 4%) and investments to earn 8% (instead of 7%).

I created the spreadsheet with monthly entries, rather than annual entries, so that it would provide a series of target net worth values I can use to track progress toward my goal.

There are three main difficulties in applying the target net worth values I've just calculated. (1) They assume my house appreciates monthly, but the actual valuation I'll use for my house will only change annually when I get my property tax bill. (2) They omit the value of my car, so I'll need to note the discrepancy when I report each month. (3) Stock options are extremely volatile, so I don't expect it will be possible to track very closely to the goal figures.

The fact that I'm fully funding my Roth in January will not create a noticeable disturbance in my ability to track toward my goal, because January is also the month when my employer pays most of its bonuses. I will be approximately funding the Roth from income, rather than diverting from other savings.

My goal for my December report is $301,588.41, ex-autos. The goal is higher than you might expect from looking at my November report, but that's due to using a mid-month valuation of stock options that had a large appreciation.

November 19, 2005

A Little ACN Mail

Back in April, I wrote about the ACN pyramid scam. Despite becoming my single most-read blog article, I was never harassed by ACN's lawyers. (A pity, that.) But it has generated non-lawyer e-mail, and the following gem recently landed in my inbox — all misspellings in original:

I admire you for taking so much time to look into ACN's system for customer acquisition and business model. However, I don't look up to people who ridicule their friends for the sake of attracting people to thier website. You intentionally went out of your way to prove your friend wrong and to create value for people to view your pointless website?

Yes, hate mail always begins with a compliment.

I cannot fathom how my correspondent read my article as ridiculing my friend, when I only mentioned my friend as background to explain why I went to an ACN meeting in the first place. I didn't even mention their name.

The psychologizing about my motivation is odd, because I openly stated my motivation in the second paragraph: "This would be fun. I enjoy asking tough questions, and I might be able to rescue my friend from the system."

The jab at my website — calling it "pointless" — hurts my widdle feewings.

Maybe you should go work for Fortune magazine or another professional business pubication if your findings prove that ACN is a scam. Or maybe you should join ACN and then file a lawsuit. Do you honestly believe that you know more than the Attorneys General for your state (california right)? If so, maybe you should apply for his position or submit a complaint? Definition of Pyramid Scheme: That should help clear up your understanding of a pyramid.

My correspondent has a problem with reading comprehension, thinking I'm from California. My contact page — where my e-mail address can be found — quotes from the Oregon Constitution.

I certainly do believe that ACN is a pyramid scheme, but this has nothing at all to do with ACN's legality. I'm a libertarian, I dig freedom of contract, and I think pyramid schemes should be totally legal. Certainly they should face legal action if they commit fraud, but I wouldn't support any law aimed specifically against pyramid schemes.

Nevertheless, I don't want my friends involved in pyramid schemes, so I'm speaking out against them.

ACN distributors dont recieve any commision or bonus until customers are acquired. Customers is the key word, not distributors. Our government is a pyramid. Your job is a pyramid. Does the owner the company you work for pay you based on your production? Or based on if you show up to work, do the bare minimum, and stare at the clock all day until you go home? Network marketers get paid for production. So try not to bag on the industry until you can make a living on your own.

This is a bizarre argument. Just because an organization is hierarchical doesn't mean it's a pyramid scheme. Ironically, this confusion was brought to me by a person who had just looked up "pyramid scheme" in the dictionary. The mind boggles.

And, I must wonder, in what sense can being an ACN representative be considered "making a living on your own"? Bonuses and commissions, instead of wage, salary, rent, or profit. So what? What's the difference in on-your-own-ness? And why is it important?

Obligatory Ghostbusters quote (Ray Stantz): "I've worked in the private sector. They expect results."

How much have you contributed to society in general or to chairities up to this point in your life? That could be an obvious indicator of the results your reality is giving you.

I do good by doing well, thankyouverymuch. Yay capitalism.

But since you asked, my favorite charity is The Alliance for the Separation of School and State, and I've given them $500 this year.

November 15, 2005

See, I'm Not Crazy

Since I started doing a lot of personal finance blogging a few months ago, I discovered the personal finance arm of the blogosphere and saw that a lot of people were talking concretely about their situation and goals, including taking the step of posting their net worth and discussing how their efforts were helping it grow.

I was surprised to see a roundup of a dozen personal finance bloggers all doing this. But it's a much bigger phenomenon than I expected — there are hundreds of people doing it. It appears that relatively few people in that database are bloggers, but it's still eye-opening how much information people are willing to divulge.

I added myself to the database, but I'm only entering net results, rather than separately listing assets and liabilities in each category.

Naturally, there's a blog for the database itself.

I realize I'm tardy in posting the promised article about my own financial goals, but I haven't had very much time for blogging over the past several weeks. (I'm sure you've noticed, and you're simply too kind to point that out to me.)

Buy My Car!

As you know, I bought a new car. I don't need to keep my old one as a spare, and it's costing me about $50/mo to insure, so I'm selling it.

If you're somewhere near the Portland metro area and would be interested in a good cheap car, look at my eBay listing.

November 14, 2005

Rockin' With Rachmaninoff

I decided to start taking music seriously about two years ago, and I've been learning a few things at a leisurely (nay, glacial) pace. I only took regular piano lessons for a few weeks, and I've been on my own after my instructor decided not to teach piano anymore.

Last month, I noted that I was trying to learn part of Prelude in C# Minor. This is one of the three pieces that attracted me to piano playing in the first place, so I've had the will to learn it even though it's way way outside the difficulty range I should be tinkering with.

Today I finished learning the last third of it. Clarification: I finished learning the last third so I can play the last third; I've never attempted to learn the first two-thirds and don't plan to in the near future. The last third is what I've wanted to play. And now I can!

It needs some polish, but I'm happy with it already. I'll get around to doing a MIDI recording of it sometime in the next few weeks, and if you're lucky I'll render it to an MP3 and post it on the blog.

Of course, I'll do free live performances for beautiful women. 'Tis the gentlemanly thing to do.

Spineless Corporations

Shocking! Outrageous!

Several oil industry executives testified before the Senate last week, and demonstrated what's wrong with corporations today. The trouble is that they're totally spineless and without any sense of moral outrage. Fortunately, that's a void I can fill.

Consider the testimony of Lee Raymond, CEO of ExxonMobil. Keep in mind the context — Congress had been openly talking about the possibility of imposing a windfall profits tax in order to seize the recent record profits of American oil companies. Mr. Raymond's testimony made three main points:

  1. The industry is very large and there are no quick fixes.
  2. The industry's profits are volatile, but its investments in infrastructure are not.
  3. The hurricanes proved that markets work.

His testimony was clear and persuasive and well-documented (see the appendices), but something was conspicuously absent. It isn't proper to merely talk about facts and figures in a situation like this. Certainly facts and figures are important and I'm glad Mr. Raymond discussed them, but I believe he had the responsibility, as head of ExxonMobil, to represent the interests of the corporation's shareholders. He did not do this.

He should have reminded Congress that the corporation and its shareholders have the right to profit. For-profit corporations are created for the specific purpose of earning money for their owners. It is morally reprehensible for Congress to threaten — and make no mistake, these hearings were a direct threat — to take away the profits the oil industry has earned.

Congress has never offered any justification for its desire to expropriate these profits. The oil industry had large profits due to the supply disruption caused by the hurricanes? So what? How exactly is that supposed to justify a windfall profits tax?

As has been pointed out in many other places, the oil industry doesn't have particularly large profit margins compared to other industries, and the oil industry isn't the only industry to become more profitable due to the hurricanes. Yet the oil industry is being singled out, without justification, and brought before Congress to be scolded on national television.

This is an outrage, and the oil executives should have been visibly outraged. They wasted their opportunity to make a strong moral defense of their profits. They wasted their opportunity to put Congress in its place. They wasted their opportunity to begin to overturn the century of irrational disrespect and hatred of their industry, going back at least to the forced breakup of Standard Oil.

I'm very disappointed. More righteous indignation and less apologetic sniveling, please.

Hank Rearden, where are you?

November 10, 2005

Lee Raymond on Gasoline Prices

It's not a good time to be a conspiracy theorist. Bill O'Reilly and other conspiracy-mongers, take note.

Lee Raymond, Chairman and CEO of ExxonMobil, was interviewed on CNBC's program "Closing Bell" on 11/08/05. This was the day before the Congressional hearings on oil and gasoline prices, and oil company profits.

This excerpt is a straight-from-the-horse's-mouth refutation of the O'Reilly's ludicrous notion that there's a person somewhere who sets the retail price of gasoline. (Emphasis added:)

Maria Bartiromo:
Why do you think people get so angry when they see a company like yours making $10 billion in a three month period? Why do you think Americans get so upset?
Lee Raymond:
Well, that's a hard question to answer, of course. The fact is that it's profits that make the economy run and make the companies run. What a lot of Americans don't understand is 75% of our profits don't even come from this country, they come from overseas. And they don't understand the size of the industry and the size of our company. I think most people have the view, unfortunately, that we make an enormous amount of money per gallon of gasoline when we sell it, and what they don't realize is the profits come from the enormous volume we sell, not from the profit per gallon.
How do you feel when you drive by an ExxonMobil station and you see $3.50/gallon gasoline?
Well in all likelihood that's not one of our company-operated retail stores. That's probably a dealer if the price is that high, and dealers have the right to set the price wherever they want to. In the broader sense, I'm not really very enthusiastic about it. As you know, you and I have talked about this for the last couple of years several times, and that is the biggest component of gasoline prices of course crude oil. And I've held the view for now two years that there's more than enough crude oil in the world and that the fundamentals of supply and demand really don't support the crude oil price. It's other issues, largely geopolitical, that support that kind of price. And so in that extent, I'm not real comfortable with those kinds of prices. On the other hand, to have sufficient prices so that companies like ours can be profitable and continue to invest is absolutely critical to managing the energy business longer-range.

If you're inclined to believe the word of a man who's professionally obligated to know this stuff, and his account is consistent with economically-informed expectations of retail gasoline prices under conditions of reduced supply, and if we've just observed such conditions in the real world, you should be satisfied.

If you're a conspiracy theorist or have an irrational hatred of oil companies, you won't be satisfied. But nothing will satisfy you anyway. You would only be satisfied by being proven correct, but that's simply not possible when you're wrong.

November 08, 2005

Tax Reform Note

If you're interested in reading the report from the tax reform panel, released last week, you can download it here. This report will be used as the basis for the Treasury Department to create the "real" proposals.

I'll have more to say about it later…

November 05, 2005

Great Rates at E*Trade

E*Trade Bank has a great promotional rate on a money market account right now — 4.10% APY for three months, plus $50. That's the highest money market account I can find right now, even higher than Emigrant Direct's 4.00% APY. However, the E*Trade rate is only a promotional rate and will decrease substantially in three months.

The $50 is a nice bonus, and demonstrates that banks are still giving away money even though interest rates are rising. I just took advantage of this offer by moving my emergency fund from my local bank's money market account where it was only earning 1.5% APY.

You can take advantage of E*Trade's promotional offer via this link. E*Trade also has CD rates among the best available anywhere, and I've been using them for all my credit card arbitrage time deposits.

I should have moved my emergency fund to a higher-yielding account a long time ago, but I've been both lazy and concerned about how quickly I could access those funds if and when I needed them. From my experience with the CDs at E*Trade, I knew it would be very fast and easy (all online, no checks) to transfer the money back into my regular checking account if necessary.

A $10,000 emergency fund moving from 1.5% to 4.1% for three months, plus the $50 bonus, is a net improvement of $115 over that period. I didn't even have to search for this offer, E*Trade Bank advertised it by e-mail. $115 for a few minutes of typing and clicking? It's almost too easy.

I spent more time writing this blog post than it took to research and make the transaction.

November 02, 2005

Net Worth Report - 11/05

Here's this month's net worth report. It's difficult to make useful comparisons to last month because I made large transactions like buying a new car and paying property taxes. The month's financial excitement is that I more than doubled my credit card arbitrage.

My property tax bill included a substantial change in the estimated market value of my home, and I'm including this in my property category. This single update accounts for almost all of the change since last month — the government thinks my house appreciated almost $15,000 over the past year. I disagree, but they didn't ask for my opinion.

I'm valuing my automobiles at the figure indicated by the Kelley Blue Book private party valuation. (They don't support 2006 vehicles yet, so I've entered my new car as if it's a 2005, which underestimates it.)

UPDATE 2005-11-06 22:37:50 UTC: Whoops, looks like I've already had an accounting error. I added a new entry to my spreadsheet for one of my new 0% credit cards, but it didn't get added to the formula that computed my net worth. The individual categories were correct already, and now the sum is correct also.

Here are my figures, as of 11/1/2005:

CategoryNet Worth 10/05Net Worth 11/05

The short-term category halved because I paid cash for my new car. I compared my options and estimated I'd come out $150 ahead over three years by taking the cash incentives over the financing incentives.

The decrease in the medium-term category is primarily caused by continuing erosion in my stock options.

The large increase in the property category is caused by both the new car and the new home valuation from my property tax bill.

My credit card arbitrage situation is $24,732.63 in balances at 0%, offset by $26,342.01 in time deposits. This will earn me over $1,000 (before taxes) in free money over the course of the next year.

I haven't put very much time into an assessment of my old college goal to be a millionaire by age 35, but my preliminary figures suggest that it will be very difficult yet still possible. I also realized that I need to precisely define success — does "by age 35" mean prior to my 35th birthday or prior to my 36th?

November 01, 2005

Luck and the Rule of "T"s

Many years ago, my father told me one of those pearls of wisdom that seem silly at the time, but that events in your life teach you to appreciate. Today was one of those days, for me.

I'm a very lucky person. (I know, I know — just play along, it's worth it.) For example, my airline flights are almost never late. But it's more than just having on-time flights. Even when things go wrong, they tend to go right. A few months ago I was on a plane that had mechanical trouble before leaving the ground. We went back to the gate, and a different flight got canceled so the passengers on my flight could steal their aircraft.

Today I have a new example of amazing luck. This morning, shortly after arriving at work, I broke my glasses. They simply broke in my hand as I was taking them off. They weren't crushed or subject to unusual forces or anything, they just broke for no clear reason. That might sound unlucky, but for the important fact that I had previously scheduled an optometrist visit for tonight. My glasses broke at the best possible time — what luck!

They evaluated the damage and said they couldn't fix the frames. Luckily for me, they had one set of frames on the premises that would hold my existing lenses, so they could transfer them immediately. And they did. Incredible luck, yes? I broke my glasses and got them replaced in less than twelve hours without any stress or urgency. It was all so easy.

So how do I explain all the trouble I've had buying a car? That's not lucky at all. Which brings me to my father's pearl of wisdom, which he called the Rule of "T"s: If it's got tits or tires, it'll give you trouble. My car gave me trouble because it has tires. Women give me trouble because they have tits.

The surprise for me was realizing that the inverse of the Rule of "T"s is true. Nothing except women and cars give me trouble! I'm unreasonably lucky in every other field, all of the time.

I don't know whether this means I'm destined to be killed in a traffic accident by a woman. But it does seem like the most appropriate way to go.

Tiny Island