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January 31, 2006

Net Worth Report - End of 01/06

Since I'll be busy tomorrow night thinking about the State of the Union Address, I decided to roll this up a day early.

I'm going to adopt common practice and begin labeling these reports as the month they end instead of the month they begin. So this is my January report, and my other January report should actually be understood as a December report, etc. Sorry for the confusion, everyone.

The best thing about this month is that I get to stop fretting about the volatility of my employee stock options. Intel stock fell sharply so almost all of my stock options are underwater, now. They won't be influencing my net worth calculation very much for a while.

The second-best thing about this month is that I've increased my credit card arbitrage again. Only by $8,000, but I estimate it will earn me about $360 over the next year (less taxes). That's not as small as it sounds — even after the government takes its third, I still get about $20/mo, and that approximately covers my typical long distance telephone bill.

Net Worth Figures
Category12/0501/06
Total$333,527.97$342,123.69
Short-term$27,908.16$22,807.98
Medium-term$76,720.54$72,039.96
Retirement$118,934.13$135,548.96
Property$109,965.14$111,726.79

There was an unexpected jump in the retirement category because my employer made their profit-sharing contribution (in lieu of 401(k) matching) in late January instead of my expectation of early February. I tweaked my model to account for this. But not all of the jump was unexpected — I'm plowing bonuses into my 401(k) this and next month. However, I'm delaying making a Roth IRA contribution until after I do my taxes.

Recall that I'm defining "Adjusted Net Worth" as net worth excluding the value of autos and unvested stock. The "Estimated Contribution" is how much money I believe I'll need to invest outside of retirement accounts in order to meet the following month's ANW target. (I'm trying to calculate how much "non-automatic" investing I need to do.) A declining EC indicates that I'm ahead of plan, and an increasing EC indicates that I need to save more in order to reach my long-term goal.

Goal-Tracking Figures
Item12/0501/06
Adjusted Net Worth$296,842.49$313,923.77
Next Month's Target$304,567.66$317,419.81
Estimated Contribution$798.74$755.82

The primary reason I beat the ANW target by so much was because I was modeling the profit-sharing contribution to occur in February instead of in January. It was a modeling error, not evidence of an excellent month. Delaying my Roth contribution also caused an adjustment in my model. However, as you can see from the declining EC, I did have a better-than-expected month. (Ignoring the Intel stock crash, which is by design mostly invisible in ANW.)

My credit card balances are 100% backed by time deposits and/or savings accounts earning interest at a higher rate than I'm being charged by the credit card companies. The monthly payment is estimated as 2% of the balance. (Most credit cards are now using a 2% minimum payment, and due to this it is important to have a strong cash flow and/or pay with funds from your credit card arbitrage savings account.)

Credit Card Arbitrage Figures
Balances @ 0% APR$32,457.54
Balances @ 1.9% APR$14,981.05
Total Balances$47,438.59
Monthly Payment$948.77

I'll discuss the online finance classes I'm taking in a separate article; this one is long enough already.

You can keep track of other personal finance bloggers at NetWorthIQ. I've updated my entry there.

January 30, 2006

State of the Union Wish List

President Bush will be delivering the annual State of the Union Address on Tuesday night. Here are some of my expectations.

Things I expect to hear, and will make me happy:

  • Extending the tax cuts
  • Very tough talk against Iran
  • Iraq status report

Things I expect to hear, and will make me a saaaad panda:

  • Credit-taking over anything related to Hurricane Katrina
  • Friendly (or even neutral) overtures to Hamas
  • Humanitarian aid spending

Things I don't expect to hear about, but wish Bush would address:

  • Scolding Congress over earmarks
  • The topic of eminent domain
  • Ethics standards in the wake of the Abramoff scandal
  • The Q4'05 GDP
  • Social Security reform
  • Medicare reform
  • The cost of the Medicare prescription drug benefit

Things I don't expect to hear about, and don't want to:

  • Abortion (except perhaps very briefly)
  • Anything related to NASA missions

January 27, 2006

OmniPay Court Documents

Financial Cryptography has posted several court documents related to OmniPay's recent legal hassles. The Secret Service has seized $726,218.91 from two bank accounts, and from reading the documents it looks like the Estonian bank is a recent development — OmniPay had ordinarily been using domestic banks, which is where the funds were seized.

The legal brouhaha is, as far as I can tell, the government complaining that OmniPay isn't licensed as a money transmitting business. And OmniPay counters that it doesn't meet the statutory definition of a money transmitting business. It's also said that the Treasury's official position is that it does not classify e-gold as a currency.

The legal meat is in the Complaint file and in Attachment 5 of the "Doc3" file. The defense reads vigorously, but I am not a lawyer. OmniPay managed to process my order promptly even in the midst of this litigation, which is a good sign. But I wonder how healthy they can be if they've had three quarters of a million dollars seized.

How can the government get away with being so mean? Paragraph 12 of the defense is heartbreaking:

Although Gold & Silver Reserve, Inc. has been openly and notoriously operating in the United States for nine (9) years, the Department of Treasury has never required Gold & Silver Reserve, Inc. to file reports of any kind on any of its transactions. …

The government let them operate for nine years without taking a non-violent action like, oh, sending them a friendly letter stating "We're concerned about your legality and we'd like you to consider getting licensed. You can talk to our lawyers about it." No! Instead of being helpful and potentially avoiding litigation, they seized three quarters of a million dollars.

Why so mean?? Shocking! Outrageous!

Funding e-gold Through OmniPay

This article will only interest hardcore goldbugs who think e-gold is a really great idea.

I did quite a bit of information-hunting before I finally funded my e-gold account. There isn't a lot of useful information about the process, so I wanted to share what I've learned.

OmniPay is, on the margin, the least expensive exchange service — they charge 2% over spot. I say "on the margin" because their minimum order size is USD$1000. To make a smaller order you'll have to use some other exchange service and they all charge more than 2% (usually 3%-4%).

OmniPay only accepts funds through bank wire transfer. They don't explicitly say that anywhere on their website; it's left to implication. I learned that there's a very sensible reason for this. The reason is also not on their website — you learn this only after placing an order. While their offices may be in Florida, their bank account is offshore. In Estonia.

In hindsight I should have expected this. No self-respecting gold currency would have a U.S. bank account. It would be farcical. Anyway, to answer what you're thinking, yes I did feel silly when I went to the bank and told them I'd like to wire money to Estonia. But the bank staff was totally professional about it; very cool. In fact, they said the transfer was unusually smooth — I gather that inputting and verifying all the data for an international wire transfer is usually a bit cumbersome.

You should not do a currency conversion. At my bank, the computer displayed a note recommending a currency conversion for that country. Tell them "no". OmniPay's account is dollar-denominated — as it should be, because they're in the business of buying and selling gold, and gold is usually traded in dollars.

This is a roundabout way of telling you that you'll also have to pay a wire transfer fee. Bank of America's fee for an outbound international wire transfer is $45. (Domestic wire transfers are $20.) Interestingly, I couldn't find that information online. E*Trade Bank's fee for all outbound wire transfers, domestic or international, is $25, and you can discover that online.

I did my wire transfer at a Bank of America branch even though it was more expensive, because I wanted to have the personal experience of doing this in a bank. Yes, I get my thrills in strange ways. Besides, the bank staff know me very well and they have a history of being nice to me and making things go smoothly for me.

In my case, it took slightly over two business days (but less than three) to receive my e-gold. I was surprised; that was faster than I expected.

You will pay a spend fee on the e-gold you receive. (This fee is assessed for all transfers into your account.) The maximum fee — which you'll easily reach with any transaction through OmniPay due to the $1000 minimum — is 0.05g or 90¢ at today's gold price. It's tiny; you can basically ignore it. (The spend fee is always very small.)


How does this compare to buying gold bullion directly?

The spreads on gold coins vary with the type of coin, but you'll ordinarily pay around 3-4% above spot. The prices at my local coin shop, AJPM, are very consistently among the best prices anywhere. (And I do keep an eye on these things.) You can usually pay by personal or cashier's check to purchase coins, but unless you're picking them up in person you'll need to pay for shipping, handling, and insurance. For comparison purposes, this is analogous to the wire transfer fee.

Due to the lower spread at OmniPay (2%), and the approximate parity between wire transfer fees and S/H/I, it can be a bit cheaper to buy e-gold instead of bullion coins. … unless you're willing to buy a bunch of Krugerrands. They're very ugly so they have a very small markup. :)

Finally, you need to consider storage fees. The e-gold fee is 1% per year. Compare that against your safe deposit box rental or wherever else you would keep your gold coins.

When you consider all these aspects of the bullion coins vs. e-gold alternative, there is ultimately very little difference. Shades of efficient markets? Shock!

January 25, 2006

Changed Hosting

I dumped my old hosting provider, PagePlanet, in favor of Hosting Matters because I was treated rudely by tech support. This change should have been completely transparent to everyone.

My first clue that something was wrong was intermittent trouble with FTP. This meant that sometimes I was unable to update my blog for several hours and caused me to delay a few articles. I could log in to FTP, but couldn't transfer files. Tech support consistently claimed it was something on my end, despite the fact that I blog from a Red Hat Linux 7.0 system that hasn't had any significant software updates since 2001.

My first report of trouble — in February 2004 — was dismissed when I said that FTP worked fine on a different computer. They ignored the fact that the problem mysteriously disappeared later with no software change (not even a reboot) on my end, and that the trouble was correlated with unusual error messages transmitted by their FTP software. "Customer service that just blows off legitimate and serious complaints is not doing the customer a service."

The problem recurred in August. And again in December. And again in April 2005. This time tech support discovered (shock!) that something was wrong, and I learned this:

We changed the FTP server because the one we were using had a memory leak that was causing slowdowns on the machine. The current FTP software is what we have been using on all 5 of the other web servers.

And shortly thereafter, they added:

Just wanted to let you know that we are going to be changing the hardware on the machine that you were having trouble FTP'ing to yesterday (arbyte.us). The hardware is apparently interacting with the FTP server causing the need for the active/passive setting change (software is the same and works fine on all other servers). If your client changed their active/passive settings, they might need to change them again during the next login.

The active/passive thing was bogus. But after they performed this mysterious hardware change, the FTP problem went away permanently. I was finally happy. (Not to mention vindicated.)

I was happy until January 16th, when I noticed that my blog was down over lunchtime. At this point you need to know that my sister has a web design and hosting business and that I set up my blog as a client of hers, so she's my link to technical support. (She's really good — all the sites she designed look great; this one's ugly because I didn't let her make it pretty.) I sent my sister this note:

What's going on right now at the server? I can't load my blog. It tries a little — it starts loading the page, extreeeemely slowly — but it gives up. Everything else on the internet is working fine.

I need reliability!

That evening I sent her the following sitemeter graph that illustrates the outage. I grabbed the image around 9:00PM, so there's no data after that time:

01/16/06 arbyte.us outage

Usually my traffic is fairly level throughout the workday, so it appears that service degraded gradually over the morning and failed completely over lunchtime. Things were back to normal by 2:00 that afternoon.

My sister contacted tech support on my behalf (accidentally stating Sunday instead of Saturday for the outage; but as you'll see this didn't matter) and got the following Shocking! Outrageous! reply:

I don't know if this will be a routine problem since there is no problem with the server. Nor was there a problem on Sunday beyond possibly a routine reboot in the middle of the night that would have lasted perhaps 90 seconds. The problem most likely is that his level one ISP provider is having problems talking to our level one ISP provider at the peering point. There is absolutely nothing either of us can do about that and it will eventually clear up by itself. The web server he is on has not had a down state of more than that routine 90 seconds or so for untold months now. Nor have we had problems with our local telco or its connectivity.

And if he wants to continue to blame us in a knee-jerk reaction everytime something glitches that neither of us have any control over I would suggest that he host somewhere else since I am in no mood to be accused of shoddy service by someone who obviously has no clue about how the internet works or where its fundemental [sic] problems lie.

By the way, has he ever even stopped to consider that his logging program generating that graph had a glitch in it and could not itself reach our server properly?

I was livid. This is tech support at its most arrogant and customer hostile. This kind of response is totally unacceptable. The message was sent with the following attachment, which tech support believed absolved them of any culpability (my blog was formerly hosted on the indicated machine):

ISP's outage log showing no outage

I wrote back to my sister:

Who's this ill-mannered tech support person? I ask what's more likely: that the downtime was at the web host, or that there were two simultaneous outages affecting BOTH my local area AND sitemeter? I personally couldn't load my website over lunch. And if sitemeter didn't record any hits, that means nobody else could, either. I'd be tremendously surprised if sitemeter is geographically based in Portland, Oregon.

Is this the same tech support person who always said there was no trouble with the FTP service, until the trouble went away when they changed some hardware?

Here's some more grist for tech support. During the outage I *was* able to get an HTTP connection and download a small amount of data. The problem was that it always stopped well before loading the entire page. If his testing program stops shortly after connecting and doesn't try to download anything substantial, I'm completely unsurprised that it didn't notice any downtime. In validation parlance, their testing has a coverage hole.

This is outrageously bad support. Insulting the customer is a definite no-no, and they've convinced me to change hosts. They do not care about making their customers happy. If they don't want my business — fine!

Sitemeter works by logging traffic generated from an image link on the web page. I place it at the very bottom of my pages. That means that sitemeter will only record a hit if the entire page is transmitted. If it begins to transmit but doesn't complete — i.e., exactly the behavior I was experiencing over lunch — it won't record a hit, because the client's web browser never reaches the point in my source file that loads the sitemeter image.

The sitemeter server that I connect to appears to be geographically located in Florida. I'm in Oregon. This rules out the hypothesized trouble at a peering point involving my local ISP.

PagePlanet tech support gave me (1) an obviously wrong explanation and (2) attitude. So they're fired. Tech support needs to be like this if you want my business.

A Short Note

I've been unusually busy lately with non-blog stuff. Don't worry; I think things will be back to normal by the weekend. In the meantime I have a few little things to share.

Intel stock hit a 52-week low after our disappointing 4th-quarter earnings release. Even Cramer doesn't like us anymore. Our net income for the quarter was $2.5 billion on revenues of $10.2 billion, but I guess that's only worth a 15 P/E these days. My stock options are almost worthless today — only two lots are above water, and then not by much. Pfeh. Easy come, easy go. You'll see the damage in about a week when I roll up my net worth and tell you about those classes I've been taking. And speaking of data, NetWorthIQ added a tagging feature so now it's easy to keep track of personal finance bloggers.

A co-worker bought Guitar Hero (PS2) and let a bunch of us play. It's a very fun game, and the emerging consensus is that it's even better than Samba de Amigo (Dreamcast). You've gotta try this.

In an amusing coincidence, I'm going to hire the Scotts company to tidy up my not-so-healthy backyard. They cold called me a few days ago looking for customers. Yep, I just wrote about them two weeks ago. I'm going to buy less than their usual services because I don't care all that much about having a beautiful backyard, but I am looking forward to finally getting rid of all the weeds (clovers everywhere!) and thickening up the thin spots.

I hope to be back to regular blogging in a few days.

January 22, 2006

ING Offering 4.75% APY

A few months ago I recommend E*Trade Bank for their limited-time 4.10% APY money market account. Interest rates continue to rise, and now ING Direct is offering 4.75% APY until tax day.

I just opened an account, got a $25 bonus for being referred, and will transfer all my credit card arbitrage funds to this account. I estimate my net gain until this offer expires (vs. the status quo) is about $100.

It's very easy to open an account, and their legalese is funny. Ask Neo for a referral and you can get the $25 bonus, too. (If you sign up directly through their website, you won't get the bonus.)

January 18, 2006

How I'll Spend a Bonus

Not wanting to be like all those companies who pay bonuses around Christmas, my employer pays bonuses about a month later. This is a cash-heavy time of year for me because in addition to two ordinary bonuses — about two weeks apart — this is also the time of year when the employee stock purchase program buys shares.

To minimize taxes, I always hold my ESPP shares for two years, then sell them to diversify. Selling these shares increases my cash holdings in the short term.

At the beginning of the month I noted that I was already quite cash-heavy. My upcoming bonuses and stock sale will exacerbate the situation. But I have a plan.

The standard advice about what to do with a large chunk of cash doesn't apply to me, because it usually consists of nuggets like "pay off your credit cards" and "contribute to your Roth IRA". All my credit card debt is at 0% or 1.9%, and I'm happy to have this debt because I'm doing credit card arbitrage. I'm already maxing out my Roth and my 401(k), so I can't put the money there. And I don't want to pay down my mortgage because it's only at 5%. Finally, I don't need to buy a new car because I just did that.

In short, I need to invest this money in an ordinary, non-retirement, non-tax-advantaged way. I decided that I'd like to hold 5% of my "investable" net worth — i.e., excluding my house — in cash. This comes to roughly $11,000, which is satisfyingly close to the "$10,000 emergency fund" guideline I've been following for years. That means I need to invest about $15,000 of cash I already have, plus everything that comes in through bonuses and ESPP sale.

First, I'm reducing the magnitude of my extra cash by diverting half of the bonuses into my 401(k). That money will be contributed toward my retirement portfolio that my financial advisor just helped me rebalance in December. (My Roth IRA is through Edward Jones, and my advisor guides me with my 401(k) even though he doesn't get a commission on that.) I want to invest my cash on my own because I don't want to pay anyone a commission on it.

Today I have less than $50,000 in the form of self-directed, non-retirement, non-employer-related, non-real-estate, non-cash assets. (I should call them "ordinary investments".) I want to make good decisions about the cash I'll be investing soon.

This brings me to my second step — education. One of the benefits of working at a very large company is that there's a lot of self-paced web-based training available. And even though I'm an engineer, there's nothing preventing me from taking a bunch of classes intended for a finance audience. These classes are either free or available for a nominal fee (<$100) that my manager happily agreed to pay. I'll be taking these classes over the next few weekends. This is cheaper, faster, and more convenient than attending "real" classes at a community college. I've already taken one of these classes and thought it was worthwhile, so I'm committed to doing the rest.

My goal is to learn enough over the next few weeks to be a reasonably savvy investor, ready to invest my cash pile in something worthwhile.

Or, if this doesn't work out, maybe I'll build a giant money bin and go swimming in it.

UPDATE 2006-01-22 06:54:50 UTC: Plan "C" is to find a beautiful woman to invest it for me.

January 17, 2006

John Stossel Coming to Portland

Courtesy of the Cascade Policy Institute, John Stossel (of ABC News fame) will be in Portland to deliver a lecture "Freedom and its Enemies" on Saturday Sunday, Feb. 5th.

Here's more information about the event: HTML, PDF.

I know most of my readers aren't in the Portland area, but if you are, consider attending. I'll be there. (You can't miss me — I'll be the really thin guy.)

I hope you had a chance to see his latest special report, "Stupid in America", about the failure of public education. You can read an approximate transcript online, and if you click the video link you can watch a few segments of the program.

January 15, 2006

e-gold and eBay

It would appear that I spoke too soon when I said that eBay "made e-gold practical and desirable." eBay has a new "safe payments policy" that they announced sometime late last year (October, I think) and goes into effect approximately as I'm writing this post.

eBay has decided to specifically prohibit e-gold, along with several other payment methods including Western Union.

I sent them the following e-mail on Friday, referring to their new policy, and I'll post the response when they write me back:

Under "Some Examples" you state that e-gold will not be allowed. Is this a complete and total prohibition, or are there circumstances where it will be allowed? (Such as, as one payment option among several?)

It has strong advantages for sellers: finality of payment, and extremely low fees. (Much lower than PayPal, for example.) It's particularly well-suited for international payments, which are ordinarily riskier than domestic payments.

Could you explain specifically why eBay wants to discourage payments through e-gold?

Please also explain specifically why eBay wants to discourage payments through Western Union. They've been in business for over 150 years; their legitimacy is beyond any doubt.

Finally, isn't PayPal a "non-bank" "instant cash transfer service"? By what reasoning is PayPal acceptable but e-gold and Western Union are unacceptable? What principle distinguishes these?

I'm sure that when (if?) they reply, they will cite user complaints about being defrauded through the various prohibited payment methods. But this is irrelevant, because no payment method is immune to fraud. If someone auctions an expensive computer they don't have and can't deliver, it doesn't matter what payment method you use — you're not going to get the goods!

The real reason they're prohibiting e-gold and other competitors to PayPal is because … they're competitors to PayPal. When eBay bought PayPal, it ceased being merely an auction venue with no interest in what payment methods were used by auction participants. With the purchase of PayPal, they acquired a vested interest in PayPal's revenue stream. Competing payment systems with higher fees than PayPal aren't much of a threat, but those that are less expense than PayPal threaten to take business and revenue away from PayPal.

And e-gold is significantly less expensive than PayPal. I made some charts comparing their fees (e-gold fees, PayPal fees):

First is the e-gold fee schedule. Depending on how much e-gold is being spent, one of five different formulas apply. The maximum fee is 0.05g, which you'll pay whenever you send 5g or more. Yes, the fee to send 10g is the same as the fee for sending 10kg.

This is plotted with logarithmic scales to illustrate both very small and very large payments.

e-gold Fee Schedule

All the rest of the charts will be in dollar terms, assuming a gold price of $500/toz. (It's about $550 as I write this, but it's been above $500 for less than two months.)


Next let's compare the PayPal and e-gold fee schedule. As you can easily see, e-gold is always less expensive than PayPal.

Fee Comparison between e-gold and PayPal

Most people won't make enormous transactions, so let's focus on a "typical" payment size of $100 or less. Also, I'm switching to linear scales so the chart is easier to read.

Fee Comparison between e-gold and PayPal, small transactions

As you can see, the maximum e-gold fee — less than a dollar — is reached for a transfer of approximately $80. PayPal's fees keep growing along with the transfer size.


Here are charts expressing the fee as a percentage of the amount transferred. The first uses log scales and covers all transfers up to $1 million. The second uses linear scales and ends at $100.

Fee Comparison between e-gold and PayPal

Fee Comparison between e-gold and PayPal, small transactions


Notice that over almost the entire range of "typical" transactions, the e-gold transfer fee is 1%, while PayPal's is over 3%. Most auction transactions will be within this range. This is e-gold's advantage over PayPal. This is what eBay is afraid of. And that's why they've moved to prohibit e-gold.


UPDATE 2006-01-15 06:36:28 UTC: I received the following response from eBay. It restates the policy but doesn't answer any of my "why" questions that were seeking a justification for the policy. In that respect my prediction was wrong — I thought they would try to justify the policy but by using irrelevant reasons. No, they didn't even try:

Please note that our Safe Payments Policy states that sellers may not request payment through online payment methods not specifically permitted in this policy. Safety and convenience are at the core of eBay's policies toward payments. As noted in the 'Some Examples' section, e-gold payments would not be permitted under this policy.

Please understand that this policy is designed to promote safe online shopping, and to encourage online payment methods that are safe, easy to use, reliable, and offer high levels of protection for users.

I realize that you feel e-gold payments and Western Union are payment methods in which you believe offer safe payment, however, under our policy, you would not be permitted to use these payment types.

For more information on our Safe Payments Policy, you may wish to visit the following URL:

http://pages.ebay.com/help/policies/safe-payments-policy.html

I can understand that this situation has been frustrating from your perspective and that you do not fully agree with our stance on this policy. As eBay is essentially a community, we do look to the members of said community to provide feedback as to how we can evolve our services and procedures to better facilitate a safe and secure trading environment. That said, if you would like to see a change that you feel will better our site, please submit your feelings at the following URL:

http://pages.ebay.com/help/newtoebay/suggest.html

We value your membership in our community and your feedback is important. Although you may not see an immediate change as a result of your email, the appropriate personnel will be made aware of your position on this issue.

I'd like to thank you for consulting with us about our policies. We understand there are a lot of policies members may simply be unaware of, and we encourage members to contact us seeking clarification if they have any questions at all.

Thank you for being part of the eBay community.

I followed the second link and sent the following note in as a suggestion (not as a question):

I recently submitted a question to your customer support about a new policy. (There were some identifying codes in my message; it's not clear which you might need: <redacted>)

The response I got basically restated the policy. That't not what I was hoping for. I wanted to understand the reason for adopting that policy. I understand the policy! What I don't understand is *why* it's your policy. I think my original message was clear about this.

My suggestion is to please do a better job of answering questions.

I also submitted this question for eBay's next Town Hall (1/26):

Why is eBay prohibiting many PayPal competitors through its new "safe payments policy"? PayPal is very expensive and you're prohibiting cheaper alternatives. It looks like you're playing favorites, and as a venue you shouldn't be doing that.

Do any of my readers work for eBay? Could you e-mail me and tell me if I'm correct about the motivation for the policy? I'll keep it sub rosa.

January 12, 2006

Privacy and Advertising

<ring ring> "Hello." "Hi, this is Annoying Voice with AmeriLoanCashoutEquity Mortgage. We have a great new program to help homeowners in your area lower their mortgage payments. Blah blah, blahblah blah…"

Oh, yeah. You know the drill.

They've gotten less customer-friendly, lately. A little more than half of these types of calls are now placed by people who aren't even authorized to talk about interest rates. The only thing they can do is collect your information and tell you when a real loan officer can call back. When I try to explain to them that my mortgage is only at 5% and that I know interest rates are higher now, they don't care. They'll keep trying to get information.

It used to be the case — and blessedly sometimes still is — that when I said I was only paying 5% they'd say that's a really good rate and thank me for my time. Because they knew they couldn't do better.

I know I could end these calls by adding myself to the national do-not-call list. But I don't want to do that. I'm one of those maladapted souls that likes advertising. I don't want to spend my time hunting for goods and services. I'd rather sit back and be marketed to. I want to hear about how Gadget X will improve my life.

But I want targeted marketing. I'd be perfectly happy if certain knowledge about me was widely known — such as the fact that my mortgage is at 5% and I don't need to lower my payments or to get cash out. If all these loan companies knew that, they wouldn't bother calling me, because they'd know it would be a waste of their time and money.

Of course, it wastes my time too. Today I told one of these loan people that I get about ten calls a week from companies who want to refinance my mortgage, and that none of them can do better than 5%, so they're just wasting my time. Especially so when the first caller isn't authorized to talk about interest rates. They're stubbornly unwilling to believe me when I tell them I know their loan officer won't be able to beat 5%.

I got rid of that one, and another one called less than thirty minutes later. Different company, same script. So here I go, throwing privacy out the window. Marketing folk, take notes.

Things to know so you'll stop wasting time:

  • My mortgage is 15yr fixed at 5%. I don't need lower payments or cash out.
  • I already have satellite television. Stop trying to sell it to me.
  • I am male. I don't need breast enhancing supplements.
  • I am young. I don't need erectile disfunction medications.
  • I am thin. I don't need diet pills.
  • I am single. Nobody in my house needs a make-up catalog or spa coupons.

Things to know so you'll be more likely to get my money:

  • I want your business to be open during hours when I'm not at work.
  • I want the functions of a satellite receiver, DVR, DVD player, radio receiver, and television receiver to be integrated into a single device that I can use like a PC.
  • I want a smarter house. For example, if I'm running the bathroom fan and the furnace comes on, the bathroom register should automatically close so I don't blow hot air directly outside.
  • I'd pay big money for a machine or robot that could fold laundry.

Is that a good start?

January 11, 2006

Smoking: Control vs. Freedom of Association

Here are two stories about smoking bans. The first is about New Jersey's ban on indoor smoking in most public places (but not private homes), and the second is about the Scotts company threatening to fire employees who smoke (even at home).

The contrast is interesting. New Jersey's law was advocated on the grounds of public health. The Scotts company's policy was motivated on the grounds of reducing health care costs. As quick as you can say, "New Jersey cares about people, but Scotts only cares about profits," I'll say that you've picked the wrong villain.

You'll counter: But Scotts is trying to control its employees even when they're not at the job! New Jersey is at least allowing people the freedom to smoke in the privacy of their own homes! If we care about freedom, and in this case the freedom to smoke (however distasteful we may personally find the activity), shouldn't we condemn Scotts as worse because its ban is farther-reaching? No, we shouldn't.

Scotts is a business, a private entity. It has an entirely different purpose than the State of New Jersey, a government entity. Governments exist for the purpose of protecting individual rights. Businesses exist for the purpose of earning a profit.

One of the most basic human rights is that of association, the freedom to interact with or to avoid any other person. Interaction is rightly permitted only by the consent of both individuals. Because association is a right, a person's decisions do not need to be defended. They must not be subject to legal scrutiny, which would turn a right into a mere permission.

It is government's job to protect this right. For example, governments should defend a bigot's right to discriminate against unliked people. (Yes, much of "civil rights" is utterly backward and designed to abrogate rather than protect the right of association.)

New Jersey's law prevents the voluntary association between smokers and establishments that allow smoking. Establishments may not allow smoking; patrons may not smoke. The law is sweeping — it applies regardless of consent. A business and a patron who would be mutually happy with smoking are forbidden to pursue that mutually advantageous and completely voluntary situation.

The Scotts company's policy prevents no voluntary associations. The situation is quite unlike the government's. The business declares it doesn't want employees who smoke. Exactly as a bigot should be free to avoid unliked people, a business should be free to avoid unwanted employees. They don't even have to have a reason. Employment is a voluntary arrangement, and both employer and employee should have the broadest latitude in determining their requirements. If the employee wants to keep working but the employer no longer wants to employ them, the arrangement is no longer mutually desired. To impose the arrangement upon the unwilling party would violate their right of association.

Scotts has the right to set its requirements for employment. (And they have to be careful not to lose employees to competing businesses by making their requirements too onerous.)

New Jersey has no proper authority to ban smoking. Scotts has.


As an aside, I must note that Scotts created this policy largely as a result of rising health care costs. Other employers have addressed the same issue by making smokers pay more for their health coverage, or by giving bonuses to nonsmokers. This hints at the correct solution: removing the tax incentives that encourages businesses to provide health coverage in lieu of additional cash wages. In particular, the deductibility of the employer's costs of this coverage, and the FICA taxes that would be due if the health benefit were paid out as cash. Individuals, not businesses, should be the purchasers of health insurance.

January 10, 2006

Good Reads

Time for another link-o-rama.

Coyote Blog writes about the defeat of school choice in Florida. I continue to believe that eliminating public schools is the best way to improve the quality of education. Unrelatedly, he also hopes that Democrats will push privacy as an issue in the next elections.

Jeffrey Tucker wrote a great article about showerhead regulations, and a company that's innovating around the regulation to satisfy customer desires — and being attacked for it.

You might say that water needs to be conserved. Yes, and so does every other scarce good. The peaceful way to do this is through the price system. But because of municipal water systems have created artificial shortages, other means become necessary. One regulation piles on top of another, and the next thing you know, you have shower commissars telling you what you can or cannot do in the most private spaces.

Has central planning ever been more ridiculous, intrusive, and self-defeating?

Finally, I'm finally getting around to blogrolling Marginal Revolution because I can't resist their comments anymore. In a post about marriage (that defines a "modal wife") we get everything from this:

I think Tyler's model is dynamic enough to take into account income and intellect; it merely assumes that there exists a set of women who meet the criteria

f(w-sub-1, w-sub-2, …, w-sub-n) > W

and that the search costs for finding a member of that set may be high enough that it is better to satisfice at a level X beneath W, because (NPV(W)-NPV(X)) < (NPV of cost of finding W - NPV cost of finding X). Nothing stops income or intelligence from being in that function.

to this:

I am married to one of my modal wives. She is very happy about my application of revealed preference; I married her when other (she claims, modal) wives were available. Perhaps we should call such winners of close contests "supermodals."

and this (notice the excitement!):

I believe the mathematical answer is to estimate how many prospective spouses you will meet in your life, and then choose the first one better than the first 37% of them. I wonder if anyone has actually done this!

and this:

PD proposes a hypothetical spouse who has traits that stochastically dominate all other candidates. Perhaps it's possible that the wealthiest woman in the world is also the most beautiful and intellectually and emotionally (and geographically!) compatible (and add: the best lover, cook, baker, co-parent, financial planner, editor, critic, housekeeper...) for some lucky man, but for the overwhelming majority of us, the best we can hope for is someone who is Pareto-optimal in her qualities, is northeast of a particular n-dimensional utility curve, and feels the same way about us.

to this:

Modelling of modal marriages must include opportunity costs of search vs. opportunity costs of marriage. Divorce must be accounted for, and that factor is missing in the cursory analysis. Lastly, the existence of multiple modal partners is a multioptima solution problem. Hence, a new economic model of polygamy may be drawn. Ph.D. proposals, anyone?

and the somewhat depressing:

Voltaire: I've probably jumped on you unfairly. Your original quote: "Sorry, you 130-IQ people, you are just not that special". If you are literally refering to the 125-135 set, then yes, they are not as special as they think. (They are smart enough to notice the ignorance all around, but 2-sigma still has a lot of nearbys.) Out past 140, however, it can get quite lonely, and there are a whole set of adjustments that have to be made in order to function quasi-normally. I do believe that the higher the IQ, the stronger divisions become, so the 3-sigma set is fighting not only absolutely sparseness of availability, but also the relative narrowness of its own acceptance criteria. I don't doubt that the really rich have a similar problem. Fortunately in my case, I'm not so high that I couldn't find science-hangers-on. My wife remarked at a company event how like the other wives she was. It sparked an amusing look-around episode.

I've neglected that blog for far too long. Too much funny stuff to ignore.

January 09, 2006

Trying e-gold

I've been mulling over the idea of opening an e-gold account for several years. I finally went ahead and did it. As a dyed-in-the-wool goldbug, you may be wondering what took me so long.

First, what is it? It's an electronic currency, 100% backed by physical gold, safely stored and audited. (It's theoretically redeemable in physical gold, but practically only in 400toz bars worth about $200,000.) Austrian economics is well-known for advocating a return to the gold standard and for explaining the problems in fractional reserve banking (buy a book or read it in PDF). A 100%-reserve gold currency is exactly what I'm looking for.

So, ahem, what took me so long? The trouble with using gold as currency is that few people are doing it. It is, in a very practical sense, like using a foreign currency. Most individuals and businesses don't use it. However, its popularity has grown a lot since it was introduced in 1996. Yes, it's been around for a long time — this is not some fly-by-night operation.

The thing that finally made e-gold practical and desirable is eBay. Gold enjoyed a long history as currency, and online auctions are giving it a new breath of life.

UPDATE 2006-01-15 00:25:25 UTC: eBay has moved to prohibit e-gold, and I talk about this situation here.

Sellers are eager to be paid in e-gold because transactions are final. Once you've been paid, you've been paid — period. Payments can only be made if sufficient funds are available, and they cannot be reversed. The seller's financial risk is eliminated. Gold is also an excellent international currency, letting people avoid fees associated with currency exchange (provided they spend the funds again as gold, instead of converting it to a government currency).

What's the catch? Why isn't everyone doing this? And — ahem — what took me so long?

There are fees. You'll be charged 1% of your balance annually (e.g. 1 gram if you have 100 grams) to maintain your account, and there are also small transaction fees (paid by the recipient) that vary according to the size of a transaction. In my estimation, these fees are very reasonable. If you had $1000 worth of e-gold, the maintenance fee is $10/yr. The fee for spending $100 is about 85¢ at the current dollar price of gold. (The fee for spending $1 is about 5¢.)

It was never the e-gold fees that bothered me. What bothered me was the fact that conversions to or from government currencies were expensive. There are many companies offering this service, but the cheapest is OmniPay (which is actually affiliated with e-gold). Their bid-to-ask spread is 4%, centered at the spot price of gold. So if you're trying to buy e-gold with dollars, you'll pay 2% over spot, and if you're trying to sell e-gold to get dollars, you'll get 2% less than spot.

That always sounded like a hefty exchange fee, until I recently thought about increasing my investment in physical gold. (Asset allocation and all that.) I was surprised to see that although my local coin shop has a narrower bid-to-ask spread, it's centered significantly higher than the spot price of gold. Gold coins are currently trading at a several-percent premium over spot gold. Right now it's actually cheaper to buy e-gold than to buy gold coins!

So, that's what I'm going to do. It's also nice that in e-gold form, I have the option of spending my gold in small amounts. You can't easily make small transactions with gold coins.

Why did I use the future tense — "that's what I'm going to do"? Because OmniPay verifies your postal address by sending you something in the mail. So I'll have to wait for the postman.

I frankly don't expect to be making a lot of e-gold transactions. But I plan to use it whenever possible — instead of alternatives like PayPal or credit cards even if they have no fees — simply to encourage the use of gold as money. Gold money is something I strongly believe in, and I'll be happy to use gold as money and not only as a hedge against the dollar.


If reading this has interested you in e-gold, go ahead and create an account. It's completely free to create an account — there are never any fees unless you have a nonzero balance or make transactions.

If you think you might use e-gold in small quantities, be aware that OmniPay has a minimum order size of $1000. If you don't want to buy that much e-gold, you'll have to go to one of the other market makers that have higher percentage fees but allow smaller orders.

(Full disclosure: e-gold has an incentive program, so if you open an account through one of my links (except that one!), I'll get 10% of the spend fees associated with your transactions. Thinking about all those half-cents makes my eyes twinkle.)

Roth 401(k) Rules

The "final" regulations regarding Roth 401(k) contributions were released in late December. I finally got around to reading them and there are no surprises.

The Roth 401(k) is an excellent retirement investment vehicle. Unfortunately, my employer isn't offering it immediately (citing FUD about unexpectedly running afoul of the rules) and I don't expect them to add it mid-year.

I hope that after seeing how other companies implement it this year, they'll stop being afraid of it. I'm disappointed in not being able to contribute to a Roth 401(k) during 2006, but optimistic about my chances for 2007.

January 06, 2006

Gas and Tacos

While I was on vacation, I visited what must be one of the worst-managed gas stations in the country. Immediately, things didn't look good. The machine at the pump would accept cash or debit cards (no credit cards, but that's not a big deal) but if you wanted to pay with cash — and I did — the machine would force you to pre-pay.

What's wrong with pre-paying? I didn't know how much gas I wanted to buy! I wanted to fill the tank without regard to exactly how much that would cost. The gas station's plan was "customers will overpay, then visit the convenience shop to get change. And maybe they'll buy something else, too." Oh, no, we won't. My plan was "I'll just put $20 in. I know that won't fill the tank, but it will be over three-quarters full and that's good enough."

You see how their plan backfired. I was willing, even expecting, to spend more than $20. Their policy reduced their revenue. Actually, they're lucky they got any revenue from me at all — it gets worse.

The payment machine was badly labeled. You're supposed to enter the pump number, but the only prominent number in view is the payment machine's number, which isn't the same as the pump's number. Fine, I figured that out, but I'll bet a lot of people end up activating the wrong pump.

The next problem was that the machine wouldn't take my cash. I was trying to feed it a crisp new $20, a perfect specimen of the note, and it wouldn't take it. It's not that it was rejecting the bill after scanning it — it wouldn't grab the bill at all! The money-grabbing mechanism was broken. (Surely that's the most important part of the machine, isn't it?)

After failing to get the machine to work, I went in to the convenience shop to tell them it wouldn't take my money. But I couldn't do that right away because the cashier was on the telephone — talking to his mom. I had to stand there, waiting, for about 30 seconds for him to get off the phone.

"I'm trying to buy $20 of gas, but I can't get that machine to take my money," I explained. He nodded and quickly said, "it does that to everybody." He took my money and activated the pump. This was much worse than merely a broken machine. It was clear that (1) it's been broken for a long time without being fixed, and (2) nobody had the initiative to put a sign on it. It's apparently very important to this gas station that its customers become frustrated and annoyed before entering the convenience store, and that they should be thinking about the idiocy of the employees when they leave.

I did not immediately suggest putting a sign on the machine. I just wanted to buy some gas. I thought I'd come back inside and tell them to make a sign after I pumped the gas. But pumping gas turned out to be an ordeal, too, and completely soured my inclination to help them.

I thought the pumping was going well, until I reached about $19.00 and the pump slowed down. Just as I thought I was almost done, they reset my expectation. How annoying. I guess they're worried about accidentally giving someone an extra penny or two of gasoline due to pumping too quickly.

Extremely worried. Because it slowed down again at about $19.75. And this time it got ridiculously slow — the rate was approximately one penny of gasoline every three seconds. Yes, this made me wait an additional minute.

The gas station was not busy. I imagined how awful this would be if there were long lines — until I realized that there would never be long lines at such a customer-hostile gas station.

At work, we use the phrase "out of tacos" to describe a thing that's totally unsuited for its purpose. It's derived from Loren's experience trying to buy some tacos for lunch at a local Taco Bell. They were out of taco shells. This begs the question of why the store was open at all — "taco" is in the name and on the sign, it's the main reason people go there. But they were out of tacos, guaranteeing disappointment.

I was able to buy gas at this gas station, so it doesn't qualify as being out of tacos. But it was close. Maybe I got the very last one.

January 01, 2006

Net Worth Report - 01/06

As foreshadowed in my December net worth report, I've decided to make some methodology adjustments to better track toward my long-term goal.

I'll continue to report my net worth in the manner I've been doing all along, including the highly volatile stock options and without any attempt at accrual to smooth the data.

In addition to that, I'll be reporting three figures:

  1. The current month's Adjusted Net Worth (ANW), which is my net worth excluding the value of autos and unvested stock (whether grants or options).
  2. The next month's target ANW.
  3. The estimated amount I'll need to add to non-retirement savings in order to reach the next month's target ANW.

These new figures will help guide me toward my long-term goal. I've modified my goal spreadsheet to compound the value of my house annually instead of monthly. This is less smooth, but allows me to use real (not estimated) ANW targets. The exclusion of unvested stock will remove the major source of volatility in my figures. (My original goal calculations already excluded autos, so that's not a change.)

More subtly, these modifications mean that I've actually changed my goal. The goal is now for my adjusted net worth, not my true net worth, to be at least $1,000,000 before I turn 36.

CategoryNet Worth 12/05Net Worth 1/06
Total$340,182.58$333,527.97
Short-term$27,354.75$27,908.16
Medium-term$86,589.04$76,720.54
Retirement$116,541.29$118,934.13
Property$109,697.50$109,965.14
  • 01/06 Adjusted Net Worth: $296,842.49
  • 02/06 ANW target to reach: $304,567.66
  • Estimated non-retirement contribution: $798.74

The big news this month — invisible in the figures above — is that I've increased my credit card arbitrage again. Discover was kind (foolish?) enough to send me another set of balance transfer checks, which I'm using (again) to make some free money. This time I don't have a 0% credit card to transfer the balance to, so it may stay at 1.9% for a while. I earn enough interest that this transaction will be basically a wash after taxes. I'm doing it on the hope that sometime before the 1.9% period ends, I'll have an opportunity to do another no-fee 0% balance transfer. If it turns out that all this arbitrage has damaged my credit score so badly that I won't qualify for that sort of offer, I won't be heartbroken. I know I won't lose money on this, so I'm merely hoping for an upside surprise.

I have $38,000 in credit card debt right now. I'm so excited. :) :) I also have another arbitrage idea I'm keeping in my back pocket until interest rates rise a bit more — it's not profitable yet, but it could be soon.

What are my plans for the next few months? To adjust my allocation away from short-term holdings. Being highly liquid was useful during the period I was ramping up my credit card arbitrage, and will be useful again in nearly a year when those opportunities might end, but I don't need all this liquidity in the interim.

Tiny Island