MUNY: Risk / Reward of Bonds versus Stocks? Some times the only way to win is not to play!

Right now, there is no best bet on the market
By Scott Burns  |  May 7, 2006

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Viewed in terms of earnings yield (stock earnings per share divided by price), low-quality stocks at 18 times uncertain forward earnings have an earnings yield of 5.56 percent, slightly less than the earnings yield on five-year TIPS. High-quality stocks, meanwhile, have an earnings yield of 6.85 percent, only a small premium over no-risk Treasury obligations.

What's the bottom line?

This year is developing a really creepy resemblance to 1987. That's when both interest rates and stocks rose — until October, when stocks plunged 20 percent in two days.

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One has to learn the lessons of the past before they put you on your butt. A 20% drop in the market would certainly be typical of the secular bear market. A further market run up might break us out of the secular bear pattern. BUT, the economic factors around the current environment don't seem to favor that outcome. But what do I know.

MUNY: The majority of auto loans are now five years or longer.

Longer loans defy common sense
By Michelle Singletary | May 7, 2006

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It appears we’ve hit another consumer milestone, and it’s not one we should be proud of either.

Last year, it was our savings rate. In 2005, for the first time since the Great Depression, the personal savings rate fell into negative territory.

This year, consumers have hit another landmark. The majority of auto loans are now five years or longer.

New vehicle loans over 60 months accounted for nearly 55 percent of loan originations, according to the Consumer Bankers Association’s 2006 Automobile Finance Study. Used vehicle loans over 60 months accounted for 40 percent of originations.

In 2000, five-year-or-longer car loans comprised just 22 percent of all such lending.

Have people lost their financial minds?

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Clearly so.

If one projects the “life” of a car at 100k miles, then one can calculate the accumulated depreciation. Ahh, but only businesses do that.

In the early 70’s I found Frau and I on that treadmill. Between us, we came up with an idea how to get out of that rat race. We figured the life of a car at 6 years. We’d go to the credit union for a 36 month car loan and plan to keep the car for a minimum of 6 years. We’d save for three years “painlessly” for the next car.

The credit union was the best place for a car loan since they didn’t use the rule of 78 in computing interest payments. The rule of 78 is a little know gem the auto loan people use to have you pay all the interest up front and the principal later. So if you pay off a loan early, you don’t save any interest. Credit Unions don’t use this fraud. You make your payment and your interest expense goes down. Have a windfall or a few extra bucks? You can pay it down faster and save interest expense at the credit union.

So we’d repay the car loan in 3 years and then continue making the same payment to the credit union for the next three. Our credit union encouraged this by keeping those payments separate from our checking, saving, or other loans.

Then, at the end of six years, we had a substantial downpayment for a new car. Don’t forget that for three of those years we were earning a nice interest rate. We even took CDs for the anniversary date and made a few bucks more. As we got better at it, we “settled” for cheaper cars (i.e., we didn’t get sucked into fancy accessories or “dealer incentives” or expensive options). As we got to the end of that road where we needed to borrow to buy a car, the saved downpayment often equaled the price of the car.

When we finally got out of that necessity to borrow to buy a car, in retrospect, we probably could have adopted a strategy that lowered our overall interest cost. That is take a holistic look at debt and rates and repayment terms. Saving in the car account may not have been the “best” use of credit when one, from time to time, might have had a credit card balance over a month.

But I would assert it was good “education”. It also would allow us to develop the concept of “financial silos”.

Like the early envelope system Frau used, it compartmented our thinking. Closed the water tight doors between compartments in our “financial” ship.

When the entertainment “envelope” was empty, we stayed home. We never raided the new car “envelope” for movie tickets. Not that I wouldn’t have, but she woudln’t let me. ;-)

Financial management was never taught in school, and it’s tough to learn.

RANT: Democrats Agenda “raise the minimum wage”

Confident Democrats Lay Out Agenda
Party Plans Probes Of Administration If It Wins the House
By Jonathan Weisman
Washington Post Staff Writer
Sunday, May 7, 2006; A01

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Democratic leaders, increasingly confident they will seize control of the House in November, are laying plans for a legislative blitz during their first week in power that would raise the minimum wage, roll back parts of the Republican prescription drug law, implement homeland security measures and reinstate lapsed budget deficit controls.

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As a Big L and a Little L Libertarian, I have no use for EITHER big government party.

But here is an example of the folly of voting for either.

The minimum wage benefits: (1) politicians allowing them to claim they are helping the poor; (2) government workers who all get a raise when the minimum wage goes up; and (3) union workers who all get a raise when the minimum wage goes up.

The minimum wage hurts: (1) the poor who lose those marginal jobs; (2) the young who lose those jobs as trainign for bigger and better things; (3) students who grab those jobs to tide them over; (4) small business people who can't afford to pay the higher wages and on the margin are driven out of business; (5) the consumer who now pays higher prices for the same good or service; and (6) the taxpayer who now has to pay for more expensive government big time, the welfare costs for all the people who are now out of work, and the opportunity costs of all those taxpayers who are now not paying any taxes at all.

So why would any one still advocate for a minimum wage?

(1) Who does the "political class", government workers, and union people ususally vote for?; (2) Their own economic stupidity that they never learned the "economic laws of gravity"; and  (3) The economic ignorence of the voters allows them to fool the people.

I would advote voting Libertarian. If no libertarian is on the ballot opposing a "minimum wager", then write yourself in. It can't hurt! Vote communist. At least you'll get a certifiable fool rather than someone hwo is trying to defraud you!

TECHNOLOGY: Using freedownlodmanager, mp3split-ght, and some batch files to make life easy

To compensate for a cheap mp3 player which doesn't remember where in an mp3 it left off (i.e., it always starts at the beginning of a "song" arghh) and its lame fast forward function (i.e., hold down a button forever), I engineered my own solution.

I like to listen to the fellows over at, who while sometimes a tad "juvenile" about what they are interested in and talk about, do have a show that talks about liberty. It does challenge one's assumptions. And, even for a cranky old Libertarian like me, it has developed my thinking. It's a good use of my commute time. And, they put their show out as a podcast, which means I can time shift. They rapidly wormed their way into my commute and become my favorite podcast. And, the podcasts are free unlike almost every other talk show like Rush, Bob Brinker, or such. Many talk shows don't even have a podcast for you to time shift with. From time to time, I listen to IT Conversations, but it's too much like work where I'm going to or coming from.

Any way back to compensating for the cheap mp3 player. The freetalkwebsite has the last six days of podcasts available as an http download. More than a year's worth are available by BitTorrent. So every Sunday, I get the last week's for my next week's drive time.

FreeDownloadManager is a download accelerator and manager. Free! Using this software you can easily download files from any web site. With FDM, I do my usual "save as" and FDM takes over from there. So I do six right clicks on the web site, select the right destination directory, first time takes a few more clicks, and FDM does the dirty work. It gets each one in turn; two at a time.

Then, I fire up mp3split-ght and get ready to surgically split the nominally 3 hour mp3 from FTL into 12 ten minute segments. I experimented with 24 fives and that was OK; ten seems to be "better". SO I set my output destination the first time; it remembers after that. Select 600 minute blocks. And, select my input file. Usually by this time, FDM has all the files. So I run mp3split-ght and it creates my 12 ten minute mp3s.

Here's the tricky part, if I just went ahead an split the next file, it gives them the same name. (I haven't figured out that different name stuff in the program. Must have a feature. Just too lazy!) So I run a trivial batch file to rename the parts to Monday1 to Monday12. Yes, I have six batch files, one for each day.

I proceed to iterate. Split and rename five more times.

Then I use MusicMatchJukebox to nuke everything on the mp3player from last week and stuff this week's stuff on it.

The whole process takes less than 20 minutes. And which doesn't require my full attention all the time.

FWIW YMMV just in case you were interested in a cheap and lazy way to do it.