Thursday, November 16, 2017

Rocket Jesus

Is the adulation of Elon Musk perhaps a little overstated?  Perhaps.

One aspect of the next tech crash will be Elon Musk and Tesla.  Musk has his share of supporters and detractors.  I am kind of neutral about him, personally.   Technology and investment should not be based on a cult of personality, but rather on the underlying fundamentals.

And coming from the car industry as a kid, I saw firsthand how ruthless a business it can be.   Margins can be razor-thin.  And capital costs can be staggering.  You invest billions of dollars in factories, equipment, and worker training, spend tens of thousands of dollars per car in labor, parts, overhead, and marketing, and sell a car worth $40,000 for a paltry profit of a thousand or two.   You'd be better off buying government bonds, in some cases.  Ask Henry J. Kaiser how simple it is to break into the car business.

Of course, for GM, Ford, and Chrysler, they can make up for this with $10,000 profit on a pickup truck or monster SUV - people pay a lot of money for empty steel boxes.   But even that strategy can backfire, as evidenced by the bankruptcies of GM and Chrysler in 2009.   What about Tesla?  Can they buck the trend of the last 70 years or so and become the independent carmaker who is not left in the dust behind the big-3 and foreign competition?

That is the conundrum.   There is no magic sauce in an electric car - Musk isn't selling something that other carmakers can't and aren't already copying.   Maybe he can sell the model S based on exclusivity and luxury - and indeed, in rich neighborhoods, you see them parked out front of the tony restaurant at the valet stand, next to the Porches, BMWs, and Mercedes.

But the model 3?  A car that looks and is priced like a Toyota Camry?   That is a car that has to compete on its economic merits, not on cache or perceived status.   And it is here that Musk may well fall down.  BMW is the most profitable car company on the planet as they are not just selling cars, but selling status and exclusivity.   Just as a befinned Cadillac in your driveway in 1959 showed everyone you had "made it", a trim 5-series sedan today says the same thing - that you have money to spend and are (allegedly) smart about how you spend it.

Take away that status and exclusivity and the BMW or Mercedes is as pedestrian as a police car or taxicab - indeed, what they are often used for in the rest of the world.  And that is not the only problem for Musk.   If he really attempts to "mass market" an electric car, he will need dealers and service centers to service them.  They just opened a Tesla service center in Jacksonville.  I drove by it the other day on the way to the wholesale club.   Maybe it was the hurricane, but it now says "ESLA" on the front, which is not a good sign.

When I drove by one Tuesday, it said "ESLA"

Mass-marketing cars is a whole different ballgame.  Sure, you can sell "boutique" cars with dealers only in limited areas.   Rich folks don't mind having their Ferrari flat-bedded to the dealer for an oil change - in fact, they get off on that sort of shit.   But for the rest of us?   There is a Chevy dealer in nearly every damn town we drive through.   You'd better be prepared for that kind of infrastructure, if you want to sell hundreds of thousands of cars.  GM, Ford, Chrysler, Toyota, Nissan, et al., already have this infrastructure in place.   When they get in the electric car game, it is game over for Tesla.

Of course, the big problem for Rocket Jesus is money - or the lack thereof.  He isn't making any, but rather has been hemorrhaging cash since the get-go.  Tesla was poised to make money there for a while, but then the model-3 came out, along with the purchase of solar city.   Both could be smart moves, I guess, if they made money for the company.   And in order to make money, you have to sell product.   And they aren't selling many model-3's because they aren't making many of them.  And solar city seems to have gone dark, other than some grandstanding operations in Puerto Rico.

And as I noted before, we have an administration who would rather see cars powered by coal.   It is not going to be a friendly regulatory environment for electric cars or solar panels.  The new tax bill could roll back or eliminate many tax credits and other incentives.   The ITC has found that Chinese companies are "dumping" solar panels on the marketplace, and now it is up to President Trump (I throw up in my mouth a little bit every time I say "President Trump") to decide what tariffs should be applied to solar panels.   If he goes along with the complainant's suggested import duties, many suggest that solar installs, which are already slowing in the United States, will grind to a halt.   The purchase of Solar City will start to look like a bad bet for Tesla.

And questions will be asked - pointed questions - as to why Tesla bought Solar City when Musk and other insiders had investments in Solar City.  The specter of self-dealing will be raised and shareholders might be more than a little miffed.   A shareholder derivative suit may ensue - well, it already has ensued.

But what about Space-X?  Is that making a profit?  Bloomberg claims so, back in 2015.  Others are guessing at the answer - using "scenarios" to calculate potential profits, as Space-X keeps financial information pretty close to the vest.  The folks at Motley Fool can't figure it out, either - guessing at profits based on scant information the company provides.  As a privately held company, they don't have to disclose their finances.

Frankly, I think these "analyses" are rather optimistic.   Space travel is staggeringly expensive.  Space-X has been stealing launch business by undercutting industry giants like Boeing.   In other words, they are likely losing money on each launch, just to get their foot in the door - hoping later to bring costs down through re-usability of the components and eventually make a profit.

A nice theory, but it won't work - or work as well as they'd like.   In space travel, every system is mission critical.  We stopped flying to the Moon, even though we had several Saturn-V rockets and Apollo space capsules laying in wait (which were later used for Soyuz and our first ill-fated Space Station, Skylab).   Why?  It was incredibly fucking dangerous and we nearly lost two crews.    People forget that Neil Armstrong took manual control of the LEM at the last minute, and landed the craft with seconds of fuel to spare.   It could have turned out very, very badly if circumstances were different or if he had hesitated a moment longer or his landing skills weren't up to snuff.   And then there was Apollo 13, which illustrated dramatically how one tiny flaw in a wiring harness can cause all sorts of trouble.

So, if you want to re-use a rocket component, that is fine and all - the Space Shuttles did it for decades.  But  you end up inspecting, adjusting, fixing, and replacing every damn millimeter of the thing, in order to insure it is safe.   And as we learned from the Space Shuttle, twice, sometimes that's not even enough.   The end result is, re-usability or not, the costs of going into space are pretty staggering.   And you can only sell launches for below cost for so long.

Now don't get me wrong, I am not anti-Musk or anti-Tesla.   I think the entire concept of electric cars recharged by the sun is a great idea.   And eventually, I think it will happen.   But first to market is often last in the marketplace, and Musk is basically being the sacrificial lamb here - prodding more mainstream manufacturers to move forward into this electric and solar era.   And once Trump and his cronies are out of office, maybe this idea will have legs.   In the next few years, however, it will be tough sledding.  As a personal investment, I don't think Tesla stock is a good buy for the small investor.  If you buy this stock, it is for emotional reasons not logical ones.  Even Musk is embarrassed by the stock price!

I think also that I am not fond of the idea of these "Tech Messiahs" who the press puts forward as the mythical gatekeepers of the future.   We are told that Bill Gates, who once said the Internet was a fad, has some special insight into technology and futurism.   He doesn't.   But if you want to sign a licensing agreement, you might want to run it by him.   The deal he made with IBM was what made him rich.   He is not a "tech guy".

It is sort of like how the press hangs on every word Stephen Hawking (whose personal life is a bit of a train wreck) says about futurism - as if every scientist knows everything about every technology.   Granted, the guy is a genius in the physics business.  Ask him about quantum gravity.   I am less sure he is an expert in "AI" (whatever the hell that is - it seems to be a catch-all phrase these days, like "block chain" - repeat it often enough and you will sound smart).   But the press reports breathlessly that Hawking is warning us about "AI" or global warming or whatever - things outside of his purview.   It is sort of like these Einstein "memes" that are bandied about, where poor old Albert is said to give his views on everything from economics to your sex life.   Most of these are things he never said, but even if he said them, what does a theoretical physicist bring to the table here?

Worse yet are the mere business-people who are hailed as "tech geniuses" such as Zuckerberg, Bezos, or that crazy guy who started Uber.   These are mere merchants in the marketplace, but we are told they are "tech" people and have special insight into everything from robotics, to "AI" (again) to politics, economics, futurism, global warming, or whatever.  And I guess you could argue that Musk, who made his money in PayPal (a mercantile endeavor if there ever was one) is part and parcel of this group - but at least he has earned his chops in the space and electric car business by actually doing things in these areas.

Put not your faith in Rocket Jesus - or any of his modern-day disciples.   Worshiping famous people or rich people is to worship a false God.   This is not to say these are bad people or that they have bad ideas, only that we should not place them so much on a pedestal.

Because unlike Gods, humans have a tendency to fall off.

UPDATE:  Some people like to hero-worship too much, and apparently my blog entry upsets their world view.  Surely these great men of our era are Ayn Rand style gods, right?   A reader writes that he read a book by Bill Gates, and in it, he says he foresaw the importance of the Internet.  Bullshit.  Sorry, but I was there, as were a number of other people.  Microsoft dropped the ball on the Internet, but of course, later on, put Netscape Navigator out of business by making IE part of Windows (just as the put WordPerfect out of business by bundling Word with Windows, originally).

Of course, maybe our reader read the revised edition of Bill Gates' book - where he suddenly has a road-to-Damascus experience and decides the Internet is the next big thing.

Tuesday, November 14, 2017

Dinner For Eight

Restaurant meals with more than 4 people can be problematic.

A reader writes, in response to my previous posting, that he dreads going out to large group dinners. And it's something that I wholeheartedly agree with.

Don't get me wrong, I enjoy going out for meal with another couple - maybe as many as six people in a group.  But beyond that, it just becomes cumbersome and difficult.  Of course, it is even better to have dinner at someone's house or have someone over for dinner at your house then to eat out in a restaurant.  Not only is it a lot more intimate and fun, it is a lot less expensive.

But here on retirement island, we have a number of friends who say things like "let's all go out for dinner together!" - wanting to get together a group as many as 8 or 10 or even 12 people to eat at a restaurant.  The problem with this is multi-fold.  First of all, when you come into the restaurant and ask for a table for 10, the waitress is going to give you the evil eye, and for good reason.

Look around any restaurant the next time you go on into one.  There are tables for two - the so-called "two-top" - as well as a number of four-tops and maybe even a six-top.   But there are not very many 8, 10 or 12 seat tables in most restaurants.  Moreover, most restaurants don't really like to see large parties for a number of reasons.  And there was a reason why they usually tack on a mandatory gratuity of 18% or more for parties of 6 or more.

Simply stated, from the restaurant's point of view, as well as that of the server, big tables are a big pain in the ass.   It's very hard to cook a large number of entrees and have them all come out at once - and have them all come out well.  If you're cooking for a party of 2 or 4 or even 6, this isn't too difficult.  But with much larger tables, it's very hard to make each entree come out so it is served at the perfect temperature and perfect doneness for each person in the party.  And oftentimes, one set of entrees comes out at one time, and another set ten minutes later.  As a result, either half the party has to start eating, or face dishes of cold food.

And large tables are often at disruption to the restaurant.  The servers have to scramble to assemble smaller tables into one larger one.  And if the party doesn't show, they've tied up an awful lot of their tables which could have been given to other diners - which is why a lot of restaurants refuse to seat people until the entire party has arrived, particularly large parties.  Not only that, but large parties tend to be loud and boisterous which is often disturbing to the other patrons.

But aside from the difficulties the restaurateur has, dining in large parties is often not very fun for the diner either.  In a large group, you can hope to maybe talk with the person on either side of you or perhaps somebody across the table.  But it is impossible to carry on a conversation with everybody else at the table, particularly in a noisy restaurant.  Thus, instead of being a party of 8, 10, or 12, you're really just a group of two or four tops dining together at adjoining tables.  Why bother?

I've been to some of these nightmares and it is very interesting.  Even though I am dining with people for an hour or two, if they are at the other end of the table I never get a chance to have more than a word or two with them.  It is almost as if we were not dining together at all, in fact we were not.  And if that is the case, then why bother going out to eat together in an unwieldy group?

This is less of a problem went dining at home, as it is quieter and is possible to have conversations across the table or down the table.  But in the noisy restaurant, you have to shout to hear yourself heard, which is probably one reason why large groups are often so loud and noisy.

And there is the issue of the check. As I noted before, waitresses restaurants routinely add on an 18% gratuity for large groups, apparently because some groups don't tip very well.  How to divide up the check becomes problematic.  Some people insist on separate checks, which some waitresses are very adept at handling.  Here in the South, asking for separate checks is quite common, but in other areas of the country, it is not only uncommon, but restaurants will refuse to do it.

When I worked at my first law firm, I used to go out to lunch with a number of other associates, which was a really bad idea career-wise.  We would spend an hour and a half at some Chinese restaurant in Chinatown, and come back to work bloated with food and sleepy.  However we always brought along one of the associates whose name was Bruce, as he could mentally divide a check in his head, accounting for what each person at the table ate, and how much it cost.  He had a genius knack for this, that made it worthwhile to take him along on these outings of 8 to 10 people.

But like I said that was a bad idea from a career perspective.  Partners seeing you come back to the office late from lunch or not very impressed with your work attitude.  And usually the conversation at such luncheons turns to how awful work is and what a rotten place the law firm is - things they're not necessarily good for your psyche.   But I digress.

Worse than these group dinner outings, here on retirement Island we have a number of supper club type organizations which get together on a monthly basis to have group dinners.  These are taking the group dinner nightmare to the next level.  Rather than just a group of 10 or 12 people, they get together with five or six tables of 10 to 12 people each.

One of the supper clubs actually expects members to invite as many as 10 people to a table and pay for their dinner, which is a rather expensive proposition.  I'm sure it started out as an interesting social experiment, but it is sort of kept going with a life of its own.

And unlike a cocktail party, these dinner meetings are not necessarily a means of socialization and mingling.  At a cocktail party you can walk around and talk to different people and introduce yourself and have brief conversations with a number of folks.  At a sit-down dinner party, you can only talk to the person on either side of you, particularly at a circular table of 12.

And rather than mix up people so that each attendee sits next to somebody they haven't met before - something a good hostess knows to do - they instead tend to stay within their particular groupings so that each person at a table already knows everybody else at the table.  As a result, newcomers are often shunted off to the "newcomers table" which is akin to the rickety card table that children are forced to sit at at Thanksgiving.

I recounted in earlier posting how much we are invited to such a party on nearby rich people's island. The hostess made an attempt to mix up the table seating as there were probably 30 people in attendance - far too many for a reasonable dinner party.  Nevertheless, she tried to make it fun and came up with table ornaments and name cards using a beach theme.  She intentionally mixed up the seating arrangements so that each person would be seated next to at least one person they had met before and thus generate conversation and socialization.

Unfortunately a boorish group came in and saw the table settings and swept them all aside and said "we're all going to sit here" and just disrupted the hostesses plan.  This is an astonishing breach of etiquette on their part.  As a result, everybody ended up grouping into the same cliques that they were before the party and no one really interacted with anybody else other than their existing friends.

We ended up sitting in a table in the kitchen with some friends we had come with, and decided quickly to leave.  There was really no point in going to a party where you don't meet anybody other than the people you already know.

Some friends of mine were invited to one of these supper clubs here on the island.  They reported that they when they went there, all of the tables were filled and they didn't have a chance to meet anyone else at the dinner.  Then end up sitting at a half-filled with a number of other newcomers.  The people who had invited them did not even sit with them.

A friend of mine tried to invite us to one of these supper club nightmares but we politely declined. When she asked me why I didn't want to go, I replied "I already lived through high school once, I don't need to go through that again."

I think perhaps that some people believe in the old adage, "the more the merrier," and feel uncomfortable in small groups, as small groups are very intimate and in-your-face.  When you're sitting down group of two three or four people, it is a much more intimate experience than being in a table of 6, 8, 10, or 12.  And many people are uncomfortable with intimacy.

In fact, I guess most people prefer to be superficial.  They want to put on a "face" to society - an image of who they believe themselves to be.  People do not like to discuss the more intimate aspects and details of their lives with others.  And I guess this ties into this obsession people have today with so-called privacy - this idea that they have this private life that is so, so top-secret, while at the same time spilling their guts out on Facebook.

So they prefer the group gathering to the intimate dinner, because it is less threatening to them.  In these group dinners, the conversation is superficial and there's a lot of guffawing and laughing going on, but not a lot of serious or deep conversation, the latter of which makes most people uncomfortable.  Again, the large group in the restaurant tends to be the loudest, and not merely because of their numbers.

Smaller groups are more interesting, I think, because people tend to say more interesting things.  It is hard to be glib and superficial when you are sitting face-to-face with another person in a more quieter environment.  More interesting and profound things get said.

I guess, in a way, this is why some people like to go to noisy and crowded bars - something I never really understood.  When I was younger, I used to go out with my friends to the bars and discos but was never really happy going there.  My friends all wanted to go and they said it was a lot of fun, and I guess I went along with the crowd because everyone said this is what you're supposed to do.

But at the end of the night, I find myself an awful lot poorer having paid for a cover charge and expensive watered-down drinks.  And of course I'd be half deaf with my ears ringing from the loud music and even louder conversation.  People had to nearly scream at each other to be heard over the sound of the music in the crowd.  And of course, back then, they allowed smoking in bars, so basically had to set fire to your clothes when she got home because they stink so badly of cigarettes. Going clubbing - what's not to like?

This is not to say I always had a bad time. I remember we went to see the Squirrel Nut Zippers at Club 9:30 in Washington DC back in the late 1990's, and it was an awful lot of fun with a group of friends.  Back then they have a cigar bar in a martini bar and we had a great seat on the balcony overlooking the stage. Of course, they weren't really a overly loud band and the crowd was pretty laid-back.

We were turned with a different group of friends a few months later to see a Hootie and the Blowfish (remember them?), and the audience was mostly middle-aged drunken white people.  It was not nearly as enjoyable experience as the place was packed shoulder-to-shoulder and the music was deafeningly loud.  The contrast between the two experiences was interesting.

Maybe this is another aspect of the madness of crowds.  That group-think is really not thinking at all, but merely cheerleading for each other.  And that can be fun perhaps once in a while.  But I think overall I prefer more contemplative and intimate experiences.

Monday, November 13, 2017

Just 'Cuz You Want It, Doesn't Mean You Can Have It!

Losing weight is like saving money - it is hard to do and requires a lot of self-control.

Mark and I are trying to lose weight again.   Over time, weight creeps up, just like credit card debt or monthly spending.   I have noted before that saving money and losing weight are very similar endeavors.  And they are both hard and most Americans fail at both.

And when we fail, we lash out at others or externalize our problems.  "I'm not fat, I just look that way next to those super-thin supermodels!  Fat-shame me?  Thin-shame them!   Full-sized girls are beautiful!"   And there is a nugget of truth in that - supermodels tend to look like emaciated boys, and that certainly isn't a desirable look or a healthy one.

Or we argue that it is our "hormones" or being "big-boned" or genetically disposed to fatness.  And there is a nugget of truth in that as well.  You can look back in your high school yearbook and see photos of friends who were thin then, but fat now.  And when you look at their old photos, you can tell they were destined for fatness.   For some reason or another, some people have no trouble staying slim, while for others, it is a struggle.

Or we externalize.  "It is all the bad stuff they put in the food!  High Fructose Corn Syrup!  Hormones in the meat!  Too much starch!"   And there is a nugget of truth in that as well.   But when you get right down to it, well, it is your choice to shove awful food in your mouth, as well as your choice how much to consume.

Finances are no different.   We fail to save and we fail to budget, and want to blame the Republicans, the Democrats, the "people on welfare" (code word for blacks), the evil 1%'ers, or whatever.  But none of these people "took our money away" if we never had any to begin with.   And just like weight gain, we didn't squander all our dough on one thing, but frittered it away on little things.  Bags of chips, or Cable TV.

Blaming others or externalizing isn't going to help you lose weight or save money.  It just isn't.   Even if all your Republican/ Democratic/ Libertarian/ Conservative/ Socialist/ Communist/ Fill-In-The-Blank theories were enacted into law tomorrow, you'd still be in the same economic position as before.  Maybe you'd get some tiny tax cut or your "guaranteed minimum income" - but neither would affect your financial situation that much.   You can't live on either.

So what is the answer?  Well, in part it is self-discipline, which is staggeringly hard.  It is all-too-easy to "treat" yourself to things, whether it is a handful of pretzels as you walk by the kitchen, or an impulse purchase at the shopping mall.  Just 'cuz you want it doesn't mean you can have it

And we kid ourselves that it is just a "little" snack or a "little" expense so it doesn't make too much of a difference.  But it is these little things that add up - which is why grandiose government or economic schemes rarely affect the vast majority of people.  We go into debt a penny at a time, on hundreds if not thousands of "little things" - not some jumbo single purchase.  At least in most cases.

Similarly, the stereotype of the fat person "gorging" themselves on mounds of food is just that - a stereotype and a wrong one.   All you need is an extra 100 calories a day, which translates to 3000 calories a month or a pound of fat, 12 pounds a year, and 120 pounds after a decade.   No one becomes fat overnight - or bankrupt.

Self-discipline is indeed the hardest thing there is to do, and the reason is quite simple:  Our brains are programmed to accumulate things.   In the wild, we want to find food - and indeed, for the majority of human beings alive today, getting sufficient caloric intake is a daily struggle (and you complain about too much! Shame!).   In the wild, we also want to accumulate things - flint tools, a bow-and-arrow, a warm fur, clothing, firewood, whatever.   In survivalist mode, we are not penalized for having too much, but will die if we have too little.  The caveman who was on a diet, died and did not live to reproduce (not that such a thing would even occur to a caveman!).

So our brains are programmed to eat and accumulate.  You are going against millions of years of biological programming when you say, "I want to eat less and consume less!"   It isn't easy to do!

One way that helps the logical brain overcome this emotional underling, is to have a goal in mind and chart that goal.   If you want to lose weight, weigh yourself every day and chart it on a piece of paper or on your computer or whatever.  Every single day- no exceptions!  No "I'm late for work!" and no "I'm on vacation!" or whatever other lame excuses we give ourselves.  Charting your caloric intake is also essential.  You can't control that which you can't measure as one reader reminds me.

Similarly, in financial matters, it pays to have a budget, to check your bank balances and investments daily.  I calculate my net worth on a daily basis - thanks to the plethora of net-worth calculation programs offered by investment houses and banks.  Press a button and voila! - your net worth down to the penny.    And this can tell you where you are coming from and where you are headed.  And it gives you an idea of what you can afford.

When I was younger, I let lenders make this decision for me.  Can I buy a new car?  I'll ask the bank how much I can borrow!  If they say yes, then it must be affordable, right?  Wrong.  Today, I consult my own finances and think, "Can I really afford to spend 1/10th of my net worth on a motorhome or a boat?"   While I could physically do so, the idea of taking 1/10th of one's wealth and spending it on something that will be worth nothing in a decade seems, well, obscene.

We all want a lot of things in life.   A restaurant entree or a new cell phone.   Or we convince ourselves (or are convinced by the television) that we desperately want these things.  Maybe I am getting older, but a bloated new SUV or a buggy new $1000 cell phone don't seem as desirable to me today as maybe they would have to a younger me, a decade or two ago.   They just seem less interesting.   And I guess this makes it easier to save.

Food, on the other hand, still has its allure.   And temptation is hard to resist!

Sunday, November 12, 2017

Debt and Fraud

What causes markets to crash in a cyclical fashion?

Growing up during the baby boom of the 1960s, there were two historical events that were beaten into my head by my parents, who were part of the "greatest generational ever" (and most modest).

The first, of course, was World War II.  We had just beaten the Nazis only a decade or two ago and learned a hard lesson that fascism and other easy solutions to complex problems are always the wrong answer.  Not only that, but Nazism and other forms of fascism are the ultimate horror.  Sadly, it seems this lesson is lost on many in the younger generation, for whom World War II is about as distant to them as World War I or the Civil War is to me.  But I digress.

The other historical event that my parents constantly reminded me of was, The Great Depression, which they had to live through, although they did not personally suffer too badly as a result of it.  However, they vividly remembered how conditions were very difficult for others.  For my father, it was the struggle of his parents to get by during the Depression, particularly his father, who was an alcoholic and was thrown out of the Buick dealer run by his brothers.  My grandfather ended up rejoining the Army (which he had been in during World War I) as it was one of the few jobs available to him.  He ended up being a "retread" - serving in both World War I and World War II.

My mother's family was a little better off.  My grandfather on her side was the mayor of Larchmont, New York and was a successful attorney in New York City, representing what would eventually become Citicorp.  Mother recalls vividly, the homeless man coming to the back door of the house asking for a sandwich or some other foodstuff in return for some menial labor.  Of course, back then we didn't call them homeless, but rather bums or hobos.

Both my parents also realized what caused the Great Depression.  During the Roaring Twenties, the stock market took off like a rocket and everybody was making money in stocks, or so it seemed.  One famous investor once remarked that he got out of the stock market when the grocery clerk packing his groceries was talking about the stocks he was invested in.  That investor realized that when such unsophisticated people started investing, the market was overheated and bound to fail.

At the time there were few regulations regarding the issuance of stocks, and the market could be easily controlled or manipulated.  Part of the recovery plan in the 1930's, under Roosevelt, was to institute new laws and regulations to govern the market and also regulate how banks operate in it.  My Grandfather, being the chair of the Banking Committee of the New York State Bar Association, spent some time flying down to Washington in Ford trimotors from Idlewild Airfield to discuss these new banking regulations with the Roosevelt administration.

Given the depth and breath of the Great Depression, these regulations remained in effect for many years.  Very few people were willing to propose loosening these regulations as the horrors of the Great Depression were too much to bear.  But just as the younger people today don't really understand Hitler and World War II, today many people, particularly on the Right, think these regulations should be abolished - and in many cases have been abolished.

It is a familiar cycle. A Republican administration decides that regulations in the market are ubnecessary and either loosens these restrictions or abolishes them entirely.  The market takes off like a rocket, and stocks and other commodities become way overvalued. People go heavily into debt, including governments.  Fraudsters and other marginal operators appear on the edges pitching shady stocks and investment deals. Eventually the entire thing collapses and we go back to where we started, instituting regulations in the financial market in an effort to recover our economy.

We saw this in 2008. Over the eight years of Bush administration, regulations in the market had been loosened repeatedly.  In addition, the government was on a spending spree not only for two foreign wars, but also because the formerly fiscally responsible Republicans decided to abandon all pretense of that responsibility and cut taxes without cutting spending.  In addition, all sorts of fraud and chicanery started to appear around the edges. I wrote before about mortgage fraud which many people ignorantly think was something done by Bank of America.  Rather, organized criminals were buying and selling houses and mortgaging them and ripping off the banks in the process.

Since it is a complicated scam, people don't understand how it works.  The economy is the same way.   It is complicated, so people don't understand it.  And they cry out for simple solutions to complicated problems.   "Lower taxes on the rich!" they cry, "and it will trickle down to us!"   Others want other simple solutions.  "Give everybody basic guaranteed income!" they say, "And we'll never have to work again!"   Both answers are simple and pay and wrong, simply because they address an incredibly complicated financial system and posit that adjusting one factor will change everything. Simple answers to complicated problems are usually the wrong answers.

And by the way, that's one reason why conspiracy theories are always wrong.  They are simple, pat answers to a complex world.  But I digress.

Getting back to 2008.  Eventually the economy came crashing down and a new president was elected.  The Obama administration instituted new financial regulations to clean up the marketplace. In addition a new Consumer Protection Bureau was established to prevent people from borrowing money on onerous  terms - or at least that was the idea.

And the economy recovered.  Unfortunately, one of Obama's big ideas was to create something calles a "Regulation A" which allowed people to offer stocks in small companies with few regulations and no oversight.  This was part of something called the JOBS Act which was designed to kick start businesses.  Nearly a decade later we're discovering that very few if any of the companies offering stock under Regulation A have succeeded, and in fact most have just been abject failures squandering all of their investors money.   And more than a few were con-jobs from the beginning, designed to enrich the founders and steal from the shareholders.

But in spite of this, the market has recovered and the economy, although slower than some would like, has had a steady march of progress since the crash of early 2009.   And once again we have a Republican President in power, who promises to eliminate unnecessary regulations and free up the market so it can take off like a rocket again.  Taxes will be slashed and the debt will increase as a result.  Republicans are even up front about how much debt they plan on adding - about 1.5 trillion to the 20 trillion we already have.  So we are seeing the market loosen up in terms of regulations and we are seeing an increase in debt load by the government.  We are also seeing an increase in personal debt load by American citizens.  This is starting to look like an awfully familiar formula.

As I noted in an earlier posting, many brick-and-mortar companies are going bankrupt or are struggling because of this debt.  The press likes to report that it is Amazon that is putting everyone out of business when in fact Amazon is only a small factor in this equation.  And it is not hard to see why they report this - people click on stories about Amazon, as it is interesting and fits their preconceived narrative.   Stories about retail debt are boring and hard to follow.   Personally, I find myself ordering less and less from Amazon, as their prices are "meh" and their checkout system is confusing as hell, with its "Prime" offers and convoluted "free shipping" offers ("free shipping for orders over $25 - provided we fulfill the order!").

Most of these companies were taking private by equity investors and then loaded up with debt.  These companies, which could have survived without the horrendous debt loads, are finding it impossible to service this debt, and as interest rates increase and these debts become due, it may be harder and harder for many of these companies to survive.

And apparently I'm not the only one to notice this.  This recent article on Bloomberg confirms my theory that most of these retail chains that are facing difficulties are loaded up with massive amounts of debt, and maybe set to fail as these debts become due and interest rates rise.  It's not just Amazon - in fact Amazon maybe a minor factor in all of this.

The other side of the coin is fraud.  We are starting to see around the edges more and more chicanery in terms of people offering stocks that are basically fraudulent vehicles from the get-go.  A number of these "Regulation A" offerings - in fact most of them - appear to be real losers from the get-go if in fact they were not designed to do so.  And even so-called "legitimate" companies have an aspect of fraud to them.

Some new "dot com" company which is all the rage in the marketplace and the darling of the financial prognosticator has a P/E ratio in the hundreds if in fact it is earning any money at all.  Some of these companies are so wildly overvalued that they may never earn back the stock price for the shareholders in their lifetimes.  They will, however make a lot of money for the founders and insiders who run these companies. The distinction between a fraudulent company and legitimate one is very hard to determine these days.

Is Twitter or Groupon or even Facebook a legitimate company offering a profitable service, or merely a vehicle for early investors and founders to make millions, if not billions, off the backs of small investors?  It could play either way.

Having grown up hearing stories about the Great Depression, and having lived through two or more major recessions in my lifetime, this seems to me to be a very predictable pattern. The market is exuberant and everyone is crowing how the Dow is at all-time highs. They said the same thing in 1929, 1989, and 2008.  And then it all came tumbling down.

Of course predicting the timing of this is what is most difficult.  When the stock market finally crashed in 1929, it was long after many people had predicted a crash was coming.  It seems that these type of ebullient markets coast on their own upward, just as a roller coaster car will coast up a hill further than you think it will.  We saw the same thing in 1989 when the real estate market crashed - and people thought for sure that it would have crashed years earlier.  The same is true with 2008.  I got out of the real estate market in 2005, sure that it was going to crash in 2006 at the latest. I t turns out I was off by a couple of years.

If this current situation fits this predictable pattern, we can expect to see more ebullience in the marketplace at least for another 12 to 18 months. Short-term profits for many companies will continue to climb as tax rates are cut and regulations loosened.  Of course, stock prices will continue to climb even if there are no increase in profits, as people will simply believe that there will be in the future.  And in fact, that seems to be what is going on right now - many investors are speculating that under Trump, businesses will take off down the road and they are thus "buying ahead" of the market.

That to me, is not a good sign.

Friday, November 10, 2017

Wither The Luxury Car, Part II

 When I bought this pickup in 1995, it was "fully loaded" with power locks, windows, and cruise control, as well as the optional air conditioning!  Today, this level of "luxury" in a pickup truck would be deemed laughable.   Even a stripped pickup truck has more options today!

Several years ago I wrote a blog entry about luxury cars.  Since then, it is getting harder and harder these days to distinguish what is a luxury car from an ordinary car, compared to how things were in the past.

When I grew up in the 1960s, a car with power windows or power door locks was a very rare and unusual thing.  It was something that only rich people had.  Air conditioning was not a common option, even in the South.  Most of the cars that my parents and my parents' friends owned, had basic AM radios, drum brakes, cloth or vinyl interiors, and manual crank windows.  Actually, cloth interiors were a fancy upscale option from vinyl!

My parents' first car with air conditioning, a 1965 Dodge 880 wagon.  They would not buy another car with A/C until 1980.  Today, A/C is standard on nearly every car sold in the US.

It was a big deal in 1965 when my parents bought a Dodge 880 wagon with fake wood on the side and air conditioning, an unheard-of option in chilly Chicago at the time.  They wanted to take the family on a trip to the Southwest and felt that air conditioning was necessary.  Unfortunately air conditioning back then only cooled the front of the car and we kids baked in the back seat particularly in the way-back seat.

It was no doubt the most expensive car my father had bought up until that time, and indeed probably the most expensive car he bought for more than a decade after.  But even with highfalutin' air conditioning, it still had manual crank windows, manual locks, and vinyl seats.  It was a pretty basic car by today's standards - actually what today would be considered "entry-level."

Back then the big package of power options was power steering and power brakes and an automatic transmission.   If you had a car with these three features it was considered pretty slick.

Some of the first cars I owned didn't even have those options. I had a 1973 Pontiac Ventura which had manual brakes, manual steering, and a 3-speed on the column manual transmission.  Parallel parking that car was quite a workout!   When you stepped on the brakes nothing happened until you stepped on them very hard.  Your physical force was needed in order to stop the car.  It was a very visceral thing.

Today, people freak out when their car stalls and the power steering and brakes peter out.  The car will still steer and brake, of course, but you have to really use some effort - the effort we used to use "back in the day" to steer and brake our cars.   Many people simply "give up" and crash their cars when the engine stalls, convinced the steering and brakes have "gone out" entirely!

So-called luxury cars like Cadillacs, Lincolns, or maybe an Imperial had things like power windows and locks, cruise control, and air conditioning. They also had a lot of gim-cracks and doo-dads to try to make them appear fancier than they were. Cadillac had a little round thermometer mounted on the outside rearview mirror so you could tell what the outside temperature was. Of course it was such a small thermometer that it was marked off in increments of 5 degrees - which really didn't tell you too much.

They had other doo-dads like "Twilight Sentinel" which in early cars in the 50's was his giant pod on the dashboard - it was a huge and expensive option and all did was dim your headlights when somebody was coming in the opposite direction or turn your headlights on at dusk.

Of course today, even cheap economy cars have automatic headlights.

Even foreign cars back then were pretty basic.  Of course things like Volkswagens and Toyotas came with manual transmissions and manual windows.  Automatic transmissions were usually considered unreliable in those cars - and were usually foreign versions of GM or Borg-Warner slushboxes.  While some Mercedes back then came to this country with power windows and locks and cruise control, even BMWs were offered with paltry 4-speed manual transmissions, manual windows, no power locks, and not even available air conditioning. For many foreign cars of the time, air conditioning - if it was available at all - was a dealer installed option and often didn't work very well.

I noted another posting from years ago that the foreign carmakers either had to move up or move out. And that's why Mercedes, BMW,  and Jaguar started pushing luxury instead of their price point. Suddenly the only European cars you could get in America were fully loaded ones, compared to the stripped-down options offered in their home countries.  Volvo at that time went from offering basic six cylinder, four door, tank-like cars to leather trimmed luxury vehicles with many power options.

Of course part of this is an overall trend. We've become accustomed to having more features and options and toys in our cars and that's exactly the point of this posting.  Today there are only two cars you can even buy that don't come standard with air conditioning - one is the Jeep Wrangler and the other was the Chevrolet Sonic.  However probably 90% of both of these vehicles built are shipped with air conditioning from the factory, so it's really a moot point.

Power windows and power locks, are also pretty standard, as is remote keyless entry a magical like device that would have baffled people back in the 1960s.  Cruise control is also pretty standard on a lot of cars and usually automatic transmissions are offered at little or no extra cost.   In fact, manual transmissions are today, nearly extinct.  Folks today wouldn't even understand what a car without power steering and power brakes is all about. T oday, if somebody's power steering goes out, they crashed the car into a tree, not realizing that they can still steer the car - it just requires a exponential level of effort.

A friend of mine still likes to buy Mercedes, and hr just recently bought a very lovely E-class Coupe. He was quite frustrated as he was regaling me with all the fancy features on his new E-class Coupe - while at the same time running down our little hamster.  He told me that the E-class had a glass sunroof that ran from rail to rail and from front to back, "The car has its entire roof made of glass!" he said.   "So does the hamster," I replied.

"Well," he said. "I have electric push-button start in my car.  I don't have to put the key in, I just push a button in the car starts!"

"So does our hamster," I replied.  Although I'm not sure exactly what the point of that feature is.

"Well," he said, "My Mercedes has heated leather seats and a heated steering wheel and not only that, the seats are air-conditioned as well!"

"We have that in the hamster, too," I replied, "And the rear seats are heated as well."

He was starting to get frustrated.  Almost every feature on his Mercedes was replicated on our hamster.  The only thing we didn't have was a power passenger seat, and of course the engine in our car is much smaller.  But all the features we used to consider the realm of "luxury" are pretty much available in even the most plebeian of cars.  And oftentimes, these are the exact same components made by the exact same companies.  You look at the controls in a luxury car, and there are nearly identical to those in a much cheaper car.  And this is because these parts are all made by the same company.  Usually in China.

And I think people are starting to figure this out.  Why pay more for a BMW or Mercedes when all you get are the bragging rights for the status of the emblem on the front grill?  Not only that, if you've looked at the BMW and Mercedes cars lately, they are rather boring vehicles.  Yes, Americans are infatuated with their SUVs and pickup trucks, and both BMW and Mercedes offer SUVs as well.  But there is no real compelling reason to spend two to three times as much money to own one.

When we bought our BMW X5 (used), it was a 2002 model, one of the earliest ones off the assembly line. Back then, very few people made SUVs like the X5.  Ford was offering the Explorer, which was based on the Ranger pickup truck, and Toyota was offering its 4Runner which was based on Tacoma pickup truck.   Most car companies were offering truck-like SUVs with fairly Spartan Interiors.

The X5 was something different. It was shaped differently and was a unibody construction with front and rear subframes - and a fully independent suspension as well.  It handled like a car.  And the interior was lined with wood and leather and it had all the toys in bells and whistles - for the time.

Fast forward a decade and a half, and almost every car maker today offers a midsize SUV that looks like a clone of a 2002 BMW X5.  Hyundai has one, Kia has one, Chevrolet has one, Ford has one dash - everybody has one.  And they all follow the same format - with a unibody construction, independent suspension front and rear, and loaded with all sorts of luxury goodies. The only difference is the SUVs from these more plebeian makes are far cheaper than the ones being sold by BMW and Mercedes.

Again, I think people are starting to figure this out.  When your Chevrolet Traverse breaks down, you can take it to a Chevrolet dealer in almost any town have it fixed fairly cheaply.  And when it finally blows a head gasket at hundred fifty thousand miles you can just afford to junk it and buy another one.

A BMW or Mercedes SUV on the other hand with a six-figure price tag is a whole 'nother proposition.  Even if you can "afford" to buy or lease one, you'll end up paying a lot of money for not very much transportation.  And you may find it sitting in the shop a lot more than more plebian brands.  Cars that are made in limited numbers tend to be less reliable than mass-produced vehicles.

A recent article a rider in Reuters suggest that BMW in Mercedes are headed for a blue Christmas. sales of automobiles in general are down, while sales of SUV's and pickup trucks are up.  But sales of luxury cars are really in the toilet and luxury SUV's aren't doing so well either.

I think Reuters gets it partially right, that the transition to trucks and SUVs in the US market is a big factor. But it's like these stories that claim that such-and-such a brick-and-mortar company went out of business "because of Amazon" when the real problem was staggering debt.

Similarly, I think we're seeing other factors that work with the decline in sales of luxury vehicles. People can find the same features of a luxury car in a much less expensive vehicle today.  Vehicles are becoming interchangeable, with no one brand or type or class having an advantage over another, other than for status purposes.  Why spend money on a BMW or Mercedes when you'll actually get just as good a driving experience in a lesser car, and perhaps in terms of overall value and reliability a much better experience?

But that's not the only thing that work here. I think we also have an issue of consumer confidence which I alluded to earlier.  This is not a good time to be buying expensive vehicles, at least for most people.  We are hearing over and over again about how manufacturing is up and the stock market is up and everything is going hunky-dory.  But a lot of people are struggling right now and a lot of them are struggling with a lot of debt.  Maybe the very rich can afford to buy expensive vehicles but Mr and Mrs Middle-Class - the Strivers - can't afford to buy that hundred-thousand-dollar Mercedes at this point.

Now, of course, many of the same people are buying $50,000 pickup trucks  (or were, anyway) and not batting an eye.  However I think the sales of those monsters will start to taper off, even though the manufacturers are all offering enormous incentives to move iron off the showroom floor.

In other words this might be another point on a graph that indicates a trend.  We may be headed for a recession and perhaps as early as next year.  It may not be just the luxury car makers that are facing a Blue Christmas.

Wednesday, November 8, 2017

One Chart, Two Interpretations

Does this "wealth pyramid" chart illustrate how unfair life is in America, or how lucky we are compared to the rest of the world?  Click to enlarge

A reader keeps sending me links to a site called "valubit" which seems a little far-left to me.  The articles seem to harp on class warfare and income inequality.   One wonders if the site is funded by the Kremlin.  Whenever someone tries to get you to hate your fellow countrymen, think about who benefits from that.  There is ample evidence that Russia has been spoofing us for some time now, trying to divide us against one another - and it ain't hard to figure out why.   Destabilizing the West helps Russia.   Trump.  Brexit.  Catalonia.  Connect the dots.

Anyway, this article, which was ostensibly about Harvey Weinstein, somehow morphed into a discussion about wealth inequality.   But before we address the latter, consider the former.   Granted, what Mr. Weinstein did was pretty atrocious.   And the fact that others covered up for it or were afraid to speak out is scandalous as well.   But at the end of the day, the entire thing was exposed and his career and life were ruined.

Our country may not be perfect, but we at least try to make it better - and often succeed.   Compare this to say, oh, I don''t know - Russia?   A place where opponents of the regime are murdered with Polonium or just beaten to death in a prison cell.  And no, no one is too outraged over there about that, and no, Mr. Putin's career has hardly been derailed.   We need to keep things in perspective.  We are the good guys, even if sometimes we elect bad guys.

But the pyramid chart shown above is being interpreted by the author as another example of income inequality - at least that is his takeaway.   For me, it tells another tale - that as Americans we are incredibly spoiled and well-off, and yet are the world's loudest crybabies about how awful we have it here.  Well, maybe we tend to think that after reading articles written by Russian troll sites.

Click on the chart above to enlarge.   First, the good news.  If you are an average middle-class American, odds are you are in the top 1% of wealth globally.  If you have, or will have, saved up a million dollars (or even a half-million) by retirement - or have a pension in excess of $50,000 a year - you are one of those evil 1%'ers.  Welcome to the wealth inequality club.

Even if you have as little as $10,000 in savings, you are in the top 12.5% of wealth for the planet.   You think you have it bad?  Imagine how awful it must be for the bottom 71% shown in the pyramid.  Those folks have it rough - and odds are they live in a country where wealth and growth opportunities are not just limited - they are non-existent.

At least in the US of A, if you keep your nose clean, stay away from drugs, and move the fuck out of the ghetto, you have a shot at getting ahead.  It does require effort and discipline, of course, but it can be done - I've had friends do it.   I've done it myself.   You can get ahead in America - but that doesn't mean success is guaranteed or just handed to you for showing up.

Sadly, it seems more and more Americans want the latter.  "I work at a job," one man opines on Reddit, "So I should have free healthcare, a reasonably priced place to live, and a government provided pension!"    Others argue that even less effort is required - that we should all be granted "guaranteed income" simply for existing.    The entire system of rewarding people for effort should be thrown out and replaced with a welfare state.

Maybe this seems like a keen idea to some folks.  To me, it seems like a one-way ticket to that bottom 71% of that pyramid.

Tuesday, November 7, 2017

Always Be Ready To Move

Mobility of the workforce is the hallmark of an industrialized society.

A reader takes me to task with regard to my last posting about the ice maker.  Again, if I was building or remodeling this house, I would not have put one in.   But now that it is there - or should I say today, an ice-maker sized hole in my cabinets, something has to be done.  And the easiest and least costly way of fixing it was to just replace it, even though it is expensive.

The reader suggests I just put some shelves in the hole or something.   And since I am not planning on moving for a decade, why not just leave the hole there and replace it before we're "ready to sell"?  That seems like the "stingy" thing to do, but it is short-sighted, in that it trades off overall long-term transaction costs for a small savings in immediate cash-flow cost.  And usually cash-flow arguments are the wrong answer to any problem.   Sure the monthly cost of leasing a car is less - but the overall transaction cost is far more, compared to owning.

The other problem with that argument is that you should always be ready to sell on a moment's notice, as oftentimes, you will find yourself in a situation when you are selling your home and weren't planning on doing so.

My parents moved several times during their lifetime, once even to Egypt.   Mobility is essential to the modern industrial workforce, and if you are "rooted" in some small town or impoverished area, odds are, your economic opportunities will be severely curtailed.   As I noted in other postings, it is very hard for me to "feel sorry" for these folks profiled in Flint, Michigan or in West Virginia, who complain about how awful things are but refuse to move where things are better, arguing that prosperity should be brought to them and not vice-versa.

In the 1960's, the Mayflower moving van was a common sight in the suburbs of America.  Every year, new families would move into the neighborhood, and other families would move out.  Staying put was considered abnormal, not the norm.  Today, people seem less inclined to move where the jobs are, perhaps in part because jobs no longer pay enough to make moving seem worthwhile.   Hell, back in the day the companies that hired Dad paid for him to move his family.   Times have changed since then, a bit.

We still are a migratory species, we move - like most animals do - to areas where there is plenty, and leave areas where there is nothing but desolation.   I've had to move several times in my life - and didn't complain about it, but instead viewed it as an opportunity to see and try new things as well as succeed economically.

So no, we don't truck that sort of bullshit here, that "the Illuminati are trying to move us off the land!" or whatever.   Move to where there is progress, and you will progress as well.  Stay where there are no jobs and no opportunities, and you will have no job and no opportunity.

And in many cases, you may have to move on short notice.  My parents, as I noted, moved several times in their lives, and often at times not of their own choosing.  Dad was fired, laid-off, or quit, and had to scramble to find another job and put the house on the market.   It is not easy to do, and if your house is a pile of half-finished projects and "things I'll do before we sell" it makes things even harder.

In my own life, I found I had to sell on fairly short notice almost every time.  I sold my house in Chittenango, New York when I was told to "report for duty" at the Patent Office in a matter of weeks.   I had little time to prepare the house for sale, and in fact, it didn't show well.   I left money on the table as the house looked abandoned, not merchandised.  There was a broken window, for chrissakes!   Why I never "got around" to fixing that is beyond me (perhaps drugs were involved).  It is embarrassing to even think about.

Our house in Virginia was sold on 30-days' notice, with a bulldozer in the driveway, gunning its engine the entire time.  In that case, it didn't matter if the house was in "show condition" but it gave us a very narrow window to leave.

And so on down the line.  We sold our investment properties on pretty short notice - having time to tidy up and stage them, perhaps, but not time to make repairs (which fortunately, were not needed, as we kept the properties up).   Our vacation home was sold in less than a month - which we were able to do as it was in tip-top shape.

A home is not something you will own forever.  On average, you will probably move every 5-10 years in your lifetime.  The "family homestead" is today little more than a myth - no one pines for the tract home they grew up in - it was just a place to live for a while.  You really don't own real property anyway - you just rent it from the government for a while (stop paying your property taxes and you'll see what I mean!).  We are stewards of property for a few years, not true "owners" of it.  And I say this after having "owned" about eight properties just in my lifetime.   It is like with cars - they seem permanent to a 20-year-old, but by age 50 you realize they just pass through your life.

My experience (and that of my parents) is not an anomaly.  Moving on short notice is quite common.  We live on a resort island which is also a retirement community.  Many people live here until they become infirm, at which point they have to move to an elder-care facility or some place with better support for the elderly.   And often, this happens on short notice, after an illness or other medical problem, such as a stroke.  And I've seen firsthand what happens to folks who have to sell when the house is starting to fall apart.  "I'll get around to finishing that painting project next month!" they say, until months, if not years, have gone by and the paint has hardened in the bucket and the house is two different colors.  As a result, it is hard to sell the house and get a good price, or worse, they delay moving to the eldercare facility, convinced that "someday" they'll have the house in shape for sale.  Someday often never comes.

Your home isn't really an "investment" but it may be the single most expensive thing you own, and you may have to liquidate it on short notice.  And if your home is a nightmare of half-finished or half-assed home improvement projects, well, its resale value is diminished substantially.  Yes, believe it or not, there are people who will turn up their noses at a house because the rooms are not painted the color they like, which is superficial and stupid, but it reflects the reality of most home buyers.

But as the single most expensive thing you own, you should take care of it and make sure it is in good condition.   A house that has "issues" can lose 20-50% in resale price, depending on the extent of the issues.   At some point, the only buyer for your house will be a developer or flipper who will gut it and start over - and they are not going to pay a lot for your home, as it will need all this work done.

So, that's why I say, it isn't a good idea to have a mis-matched cabinet or oddball appliances in different colors in your kitchen - or broken things that need repair.   Buyers look at one broken appliance and wonder, "I wonder what else is broken that they aren't telling us about?  How well did they take care of this place?"

It is like a friend of mine who had a nice car with a broken window.   He put a sheet of plastic over the hole with duct tape around it.  "Hey, this is cheaper than a new window!" he said, but of course, when he went to trade-in the car, he got nothing for it.   Oh, and by the way, car windows are not all that expensive these days - I paid about $30 for one for the Frontier, and installed it myself.

At the end of the day, this half-million-dollar vacation home on a resort island is the most expensive single thing I own, and I do want to take care of it, and have it in tip-top shape, or at least in the best condition possible under my budget.   And it makes no sense to "put off" repairs, as eventually they will need to be done anyway, before you eventually sell the home - which may be at a time and place not of your choosing.

I could dick around patching together some sort of cabinet or shelving instead of just replacing the ice maker.   It would take me more time and energy and if I had to hire someone to do it, cost more money.   In the end, it is just easier to make one phone call and have it replaced, and have the house put back together the way it was originally.

Monday, November 6, 2017

Why I Replaced the Ice Maker

If I was building a house or remodeling from scratch, I doubt I would install an expensive ice maker - or indeed even an inexpensive one.   But if you buy a house that has one, what do you do when it breaks?

A reader gave me a hard time about replacing the ice maker in our house.   It broke and broke bad, and I would have to replace it or decide to do something else.   I figured there were a limited number of options I had:
1.  Leave it broken.   I could just leave it where it was, unplug is and disconnect it from the water line (or even not do that) and have a non-functioning appliance in the house.   Some folks take this route.  The power window in their car breaks, and they decide to live with a window that doesn't go up and down anymore.  Real fun to be behind them at a toll booth.

This is the cheapest option, but when you sell the house (or the car with the broken window) it says volumes about how the previous owner treated the place (or car).   If this is broken, what else is?  And no, saying "you can fix that" doesn't make it right (run away from people selling stuff and saying this).

Plus, it just lends a general air of crappiness to your house (or car, boat or whatever) when stuff is broken.  And over time, you'll have more and more broken stuff, and pretty soon you are living in (or driving) a shit hole.   So this is not an option for me.  I don't "live with" broken things.

2.  Install a cabinet.   I could just take out the ice maker and install a cabinet in its place.  But since the cabinets are custom, this means I can't just buy a matching cabinet at Lowe's and install it myself, but would have to hire a cabinet maker to build and install one, and even then, it would not match and look awkward. 

Again, you can patch something together, but this is a house we are talking about, not some trailer hovel.   The other alternative is to rip out the whole bar and install all new cabinets, and start over.  Of course, this means removing the countertop, back splash, cabinets, etc. and staring over, and then re-painting and sheetrock repair and a bit of construction mess.   Lots of labor and probably just as expensive as replacing the ice maker.   And for what?  To get rid of something.

Some folks do this.  The generator fails in their boat, so they tear it out and say, "Pre-wired for a generator" when they sell it, instead of "generator broke, so I threw it overboard".   I guess it is one approach, but again, sort of adds to the crappiness factor, and also isn't saving much money.  In fact, you are spending as much to have less.

3.  Go to a cheaper ice maker.   Again, most "cheaper" ice makers are 15" wide, leaving me with a 3" gap to fill.  Either I have to try my hand at finish carpentry or find someone to fill the gap (a finish carpenter) and pay him to do it.   The price "savings" over the stock unit evaporates quickly, and if the gap-filler isn't done right, it looks like crap.   This also means more effort and work as well.

Cheaper is what you pay for, and reading the reviews of these off-brand ice makers, I realize that many of them might not last even the 12 years the Kitchenaid did.  So am I being penny-wise and pound-foolish?   Also, all of our kitchen appliances match (white, Kitchenaid) and again, this is a house we are talking about and again, the crappiness factor.  Mismatched appliances in different colors of different brands can detract from the perceived value when selling the house.

With the added cost of putting in a patch panel, I am not sure this option is cheaper, either.

4.  Repair the old one.   Sadly, the refrigeration circuit is shot on this one (corrosion ate through one of the copper lines) so it is not feasible, or at least cost-effective to repair.   I found a used one online that "needed work" but it was sold before I could snatch it up.  I could have used the parts from mine to fix that.  But again, appliances last about 10-15 years, and used appliances, like used tires, don't last very long, so while it would have cost less, it wouldn't have given much service.  If I was selling the house next week, maybe.   But we plan on staying here another decade at least (God willing).

5. Buy the exact same damn thing and be done with it.   While this initially seems "more expensive" than the other options, it ends up being on a par with nearly all of them in terms of cost, and in terms of labor and hassle, far less.   Make one phone call, order the damn thing, and they show up and put in back in, and the bar looks like new and we have another 12 years of ice.   No patch panels, no construction zone, no off-brand item for 2/3 the cost (but half the service life) - no worries!

If you look at the decision matrix here, the best option is to try to find a used one to install, which I was almost able to do.   Failing that, the second best option is to just replace it.  Re-doing cabinetry is opening up a whole new can of worms and starting a major construction project.  Leaving dead appliances in the house is not an option for me.   I don't play that way.

Now one reader, who sometimes seems to be trolling me, said, "why not buy bags of ice?  They are only a couple of bucks a bag! and they last a week!"   I am not sure how to parse this.   I would use more than a bag a week, to be sure, and at couple of bucks a bag, we are talking $104 a year, or well over $1200 after 12 years, without the convenience of having ice at hand (buying ice and bringing it home before it melts is problematic).  Like I said, I think he was trolling me.   Lot of that going around these days.

The standard ice maker in the refrigerator, which makes u-shaped pieces of ice is acceptable for most uses, but the ice is cloudy with air bubbles.  By the way, it isn't hard to add one of these ice makers to most standard refrigerators, and they are not very expensive.  We installed one in our condo and it worked well.   As I recall, it was about $50 plus the installation kit (tubing and water tap).   This is obviously the "stingy" option for making ice.   But it isn't clear ice.

It is hard to explain, but "clear ice" works much better for beverages, particularly the shaken  variety.  This is the kind of ice you get at a restaurant.  And yes, ice makers in restaurants are very expensive and break down pretty often.   Again, all that water spraying around leaves deposits.  Having a clear ice machine is a luxury, yes, and again, I would probably not have installed the machine if I was doing the initial remodeling.   But since it's there, well, might as well use it.  And living at the beach, we tend to go through a lot of ice.  Trying to get rid of it is almost as expensive as replacing it.

So I made the decision to replace it.  Of all the alternatives, it was the least hassle and is a "plug and play" solution.   It is like when a part breaks on your car.  You can buy the standard replacement part and know it will fit and give good years of service, or try to use some fancy aftermarket part that will cost you more, have fitment problems, and perhaps not even last as long.   Just stick with stock, we know it fits, and we know it works.

UPDATE:  A reader writes that I should have just left the dead ice maker in place or "just put in some shelves or something" which I might have done in a lesser home.   But this is a half-million-dollar vacation home on a resort island, not a college dorm room.   Also, although we plan on moving from here eventually, you never know when you may have to move.  So leaving a gaping hole in the cabinet isn't really "saving money" as we'd have to either replace the icemaker or put a new cabinet in before selling the house.   A house with a lot of broken crap in it is not going to command a very good price.