- - Page 12 of 15 The Finance Gourmet

Does The Deficit Really Matter?

June 9, 2015 by Finance Gourmet

The U.S. national deficit marked up some interesting news coverage these last few months. First up, was news at the total national debt hit $18 trillion earlier this year. Then, seemingly different news when a May report showed that the U.S. ran its largest budget surplus in seven years during April. What does all of this deficit stuff mean, and does the national debt really matter? (The government often runs a surplus in April; it’s when the majority of U.S. taxes are collected, so it is a larger than normal inflow of funds.) The Deficit vs The National Debt It is important to understand some terminology. First, the national debt, is the total amount owed by the United States government. Contrary to popular belief this debt is not owed “to China” or to any other government. Rather, the debt exists in the form of Treasury Bills, Notes, and Bonds (including those U.S. Savings Bonds your grandmother gave you). These all trade as securities on the open market. The Chinese government is free to buy them if it wants, and so are you, and anyone else. Owning these securities entitles you to an interest payment and the repayment of principal on a predetermined schedule. Neither …

Higher Minimum Wage Help or Hurt?

May 21, 2015 by Finance Gourmet

Now, Los Angeles becomes the biggest city to pass a $15 per hour minimum wage law. Note the very big difference between having a law, and having an actual $15 minimum wage, which it does not, and will not until 2020. Almost exactly one year ago, I wrote about how raising the minimum wage doesn’t really end up hurting businesses or the economy, in large part because minimum wage jobs are already, well… minimum. The idea is that minimum wage jobs pay the minimum, are done by the minimum number of people, and cannot be outsourced to somewhere where you could pay less than the minimum. The only possible downside, then, is a mass closing of minimum wage businesses. This was because Seattle had just become the biggest city to have a $15 minimum wage law. Various publications and “news” organizations are already trying to claim to see whatever effect their side predicted is happening. The irony is that anyone saying they know, or can already see what the effects of a higher minimum wage are, is probably lying, or misconstruing their data. What Happens With $15 Minimum Wage Here comes hard fact number 1. There is no $15 minimum wage yet. …

Tesla Cars Too Expensive?

May 11, 2015 by Finance Gourmet

There is an article on the CNN website with the headline that T. Boone Pickens thinks Tesla cars are too expensive. The article really isn’t about that, and T. Boone (man, I really hope people call him T. Boone) only says that he thinks the next thing Elon Musk should do is make them cheaper, so that isn’t really the most on point of headlines, but it probably draws in more clicks. Tesla Pricing There are a couple of things about the article that are interesting. First, and foremost, T. Boone is an oil school oil man. Frankly, he’s probably the old schoolest of all oil men. He’s rich because of what he, himself, did in oil, not as a money guy or CEO, or anything else. He found it, drilled it and sold it. You would think the old school oil guy would have some sort of cheap shot about electric cars then. That isn’t true. He just thinks they are a little pricey. Otherwise, I think he knows they are the future, just not right now. The thing about the pricing of Teslas is that they are luxury, sport automobiles. They are that on purpose. You see, before …

Do Young People Invest in the Stock Market?

April 9, 2015 by Finance Gourmet

Do Millenials Have Money To Invest? A recent Bankrate survey shows that just 26 percent of Millenials say they own any stock. That sounds about right to me. As a former financial advisor, I never conducted any official, statistically valid surveys, of course, but I did talk to a lot of people, many of them younger. Younger people, like Millenials, almost never became my clients. The feeling was mutual. You see, most younger people don’t HAVE any money, even if they are currently making it. If you graduate from college at say 22, and you get a job paying $75,000 per year, then you are doing pretty well. But, you may have student loans; you probably would like to buy a house; you might be getting married and saving for a wedding. Of course, you might also be enjoying your freedom and taking trips, buying cars, and so on. The thing is, even if you were saving 10 percent of your income that still means you only have $7,500 of investable assets after a year. $15,000 the next, and so on and so on. By the time you had even the minimum of $100,000 that makes it worth even a …

What Happens When The Fed Raises Interest Rates?

March 27, 2015 by Finance Gourmet

There has been a lot of talk recently about the Federal Reserve raising interest rates. First, remember that the Federal Reserve only actually sets interest rates for banks. Specifically, the Fed sets two interest rates. The first interest rate, called the Discount Rate, is the interest rate the Fed charges banks for an overnight loan. The second rate is called the target rate, and this is the interest rate the Fed tries to achieve via the open market operations. Since the monetary crisis that started off the Great Recession, the Federal Reserve’s target interest rate has essentially been zero. The purpose of such a rate is to make it more worthwhile for banks to lend money. The idea is that more money in the economy stimulates additional growth. The economy is still growing very slowly, but it is still growing, which brings us to raising interest rates. Interest Rates Growth and Inflation In physics, basic equations come with the caveat that they are true, on a friction-less plane, in a vacuum. In other words, if there is no gravity or wind resistance. Such calculations are useful for understanding concepts, but would be devastatingly inaccurate for use in the real world. …

DirecTV False Advertising Says FTC

March 12, 2015 by Finance Gourmet

For years, everyone involved in the TV or phone business has boosted their profits using increasingly dishonest tactics, all made legitimate by a few paragraphs of fine print on ever advertisement. For example, the advertised rate doesn’t actually include all of the costs necessary to use the package you are buying. There are plenty of add-on fees, plus modem rental, DVR rental, and so on, which I noticed not long ago when comparing Comcast to CenturyLink here in Denver, one of many articles about cable bill scams I’ve written over the years. And, then of course, there is the gold standard of trickery, the limited-time offer, where your cable or satellite provider starts by offering you a reasonable competitive rate for a limited time. Then, your rate goes up, automatically, and all those great offers are for “new customers only.” FTC Claims DirecTV False Advertising Since all the TV and phone companies use this low-priced trial offer, it was somewhat surprising today to see that the FTC is charging DirectTV with false advertising regarding it’s introductory trial offer of service. Or, as the FTC blog says, “there’s DIRECTV — and then there’s Deceptively Advertised DIRECTV.” – Ouch. The key to …

What Is a Good Mortgage Rate Today?

March 2, 2015 by Finance Gourmet

When shopping for a home loan, it can be tough to tell if a certain mortgage rate is good these days. The trick is that all matter of gobbledygook can complicate what you are looking at when shopping for a good mortgage rate. In fact, the mortgage companies and mortgage brokers have made it pretty hard to know exactly what is the best mortgage rate today, or any day. Lookup Good Mortgage Rates First, stop worrying about what the “best” mortgage rate is. Chances are that the best interest rate for your mortgage is different from someone else. This is due to differences in credit scores (check your credit scores for free with Credit Karma, or Credit Sesame), differences in home price, and differences in areas. Then, don’t forget that like anything else, the advertised price for a mortgage is only for a specific mortgage in specific circumstances. One of the few good things to come out of the Great Recession and the near-collapse of the banking system is the Consumer Financial Protection Bureau, or CFPB (who for inexplicably uses lowercase latter for their logo). The CFPB has been building out not only an enforcement division to help protect consumers, but …

Why Cheaper Oil Hurts Stocks

January 6, 2015 by Finance Gourmet

There is a lot of new lately about lower oil prices hurting the stock market. This comes as a shock to casual investors who are used to HIGHER oil prices hurting the stock market. If lower oil prices are good for consumers, and the consumer drives the American economy, then why would lower oil prices hurt stocks? Short-Term Stock Price Movements First, never forget that short-term stock price movements are much more about speculators maneuvering for quick profits than about the actual value or prospects of the stocks in question. One way to calculate a company’s value is it’s market capitalization which is the number of shares outstanding the company has times the company’s share price. As I write this, for example, IBM has a market capitalization of $154.76 billion dollars. However, it’s stock is down approximately $3 per share from yesterday. That means that, theoretically, the company was worth $157.85 billion dollars yesterday. No matter what the price of oil is, there is no way that anything changed enough to make IBM worth $3 billion dollars less than yesterday. Short-term price fluctuations are the result of supply and demand. And, since a large majority of daily trades are actually between computers, …

Is The Economy Good or Bad?

October 14, 2014 by Finance Gourmet

I occasionally get questions regarding the economy that sound frustrated in the inability to get a clear answer. That is understandable. The U.S. economy is getting better, but it isn’t really getting better fast enough for anyone to be able to benefit from the fact that it is getting better. Add in the fact that many news outlets have gone partisan and that their reporting is designed more to highlight certain aspects that make their guys look good and the other guys look bad, and you get a confusing picture about whether the economy is good or bad right now. Doesn’t make much sense does it? To really understand what is going on economically, it may help to read an article from The Economist. As an aside, whenever you really want a reasonable idea of what is happening in the U.S. it can be helpful to read non-U.S. publications such as The Economist, and to a lesser extent, the Guardian. The Economist leans toward the conservative side, but that doesn’t mean the same thing as it does here in the U.S. More specifically, the publication does not have an owner or readership with a dog in the hunt, so to speak, …