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Leno’s free tickets are going for $800 on eBay.

Some people are either lamenting that this person is selling them, and other some other people are ridiculing him – various forms of protest against his actions.

“These tickets were free,” they say, “and were meant for laid-off or unemployed people.  How dare this guy get these tickets, taking these spots away from some honest guy, and sell them!”

The assumption underlying those sentiments is that this seller is some employed person who is living comfortably, has connections to get the tickets, and just wants a quick profit so he can buy himself a second iPod or something.

But let’s allow some benefit of the doubt for this guy.  What if he is laid-off, and he is asking for $800 for these tickets so that he can make his mortgage payment this month?  What if the $800 goes to keep his car from being repossessed and to put food on the table for his kids to eat?

Wasn’t Leno’s purpose to help the needy and discouraged in Detroit?  What better way to help the needy than by letting them possibly profit from it?  Of course, I have no idea if the seller fits that description of needy.

On the other hand, you had to know that some people would take advantage of the free tickets.  Leno’s show did not put any restrictions on who could ask for or get tickets, so they should not be surprised that someone played the system.  If they didn’t want that to happen, they could have put safeguards or restrictions in place so that only those who demonstrated need got tickets, or the tickets were keyed to the person who got them, or etc.

Leno doesn’t lose anything by letting this guy sell the tickets, and the guy is better off too.  The only people who lose are those that would have otherwise gotten the tickets free, but it’s impossible to know who that would have been.  Plus they lost out on seeing a comedy show.  It’s not like they would be hurting without the show and saved with the show.  Sure, a comedy show can help your spirits temporarily, but you need deeper roots than that.  On the other hand, $800 can go a long way.

Since we own a couple of vehicles, we occasionally get mail about those vehicles.  Usually the mail has to do with vehicle maintenance or warranties.  Today I am sharing one of the warranty notifications with you.

The reason for sharing this letter is to show how to tell it’s not a good program. Take a look at the whole letter, above, and then look at this particular excerpt, below.

For those who can’t see the image: it says “Due to the nature of this program, we can only authorize your vehicle for 72 hours from the receipt of this notice.”

One of the reasons to distrust it is that it pretends to be related to a dealership by using the words “Dealer Warranty” prominently.  But it’s not from a dealership at all.  It’s similar to those coin companies that have the words “US” or “Federal” or “Mint” but are not related to the actual US Mint at all.

Anyway, these guys are offering to extend my factory warranty (with their own warranty).  But our vehicle has been out of warranty for about 30,000 miles and 2 years.  Oh, and only my vehicle qualifies, so it must be an exclusive program that I should feel privileged to join.

If you look at the whole letter, you will not find a date anywhere. How do I know when the 72 hours expires? What I forgot exactly which day I received it? How do they know what time my mail arrives?

It’s not 3 days – it’s 72 hours … from when I receive the notice. They can’t know when the offer expires, but I need to “call immediately”. That’s one of the ways to tell a scam – being told that urgent action is required and being pressured for a decision. That’s especially true when the person applying the pressure is the one who will be taking money from you (or getting you to give them your money).

Hey! Isn’t that what’s being done with the president and congress right now? “We need a stimulus package, and we need it right now. We need to take 800 or 900 billion dollars from the taxpayers, but we don’t want to think about it too long. Don’t delay, vote now! Urgent action is required.”

Unfortunately, I can’t just toss the government’s requests in the trash like I do other junk mail.

“For wisdom is protection {just as} money is protection, But the advantage of knowledge is that wisdom preserves the lives of its possessors.”
– Ecclesiastes 7:12

To cut down on our mail, I selected the option given to us by our credit card company to just do everything online and skip the paper account statements.

One of the benefits of that is that now I don’t have a collection of papers piling up. I like to save things, and financial statements are one of those things. But if they don’t mail them to me, I can’t save them and so I won’t have to wonder how long to keep them. Perfect!

But they still sent me things in the mail, like this:

Read it closely, and you see that they were sending this letter as part of their All-Electronic Program. And we got this letter every month!

At the very least they could do is stop claiming that it is All-Electronic (not to be confused with All Electronics) and call their program Mostly-Electronic.

The letter went on to say how to update our email address and how to update our postal address and how we should enjoy the benefits of the All-Electronic Program. The letter never gave any indication why it was being sent.

After a few months of these letters (and no problems with the online access), I decided to check my contact information. They had my old email address and so their emails were being rejected and so they were sending me letters. I assume the letters were supposed to get me to update my contact information, but they did a lousy job. Nowhere in the letter did it say anything about my email address being invalid. All they had to do was say that their emails were being returned and I need to provide a good email address. Then I would have known what to do.

So if you’re wondering why the program you enrolled in to receive your statements online only instead of in the mail is still sending you mail, wonder no longer. Just update your email address in their system and the letters will stop.

“Just now the wise men {and} the conjurers were brought in before me that they might read this inscription and make its interpretation known to me, but they could not declare the interpretation of the message.”
– Daniel 5:15

We bought a washing machine from an appliance warehouse store. The salesman was of the pushy type. And he was a salesman, paid on commission, not a helpful clerk. I suppose my definition of pushy would be when he asks us more questions than we ask him. And they were “Why don’t you…?” questions, too. That just put me in a defensive mode.

I don’t haggle or negotiate very well. Just tell me the price and let me buy it and get out of there. So I chased the kids around the store while my wife dealt with the salesman. She did a good job of haggling with him, and he ended up giving us a washer for a good price. How good a price was it? He told us that he wouldn’t be making any commission on the sale.

You could think either “Yeah right, that’s just one of your salesman tricks” or “You poor thing, not to be making any money today.” One response that we didn’t give was “If you’re not going to be making any money, then it wouldn’t bother you if we just walked away without buying it.”

We were wondering why he would even bother selling us something if he’s not making any money on it. Does he still have a minimum quota of number of items to sell? But it was only the 9th of the month – nowhere near the end of the month when you would expect quotas to be due.

I don’t like buying things from salesmen working on commission. That’s why the internet is great – price compare and purchase things with no pressure from salesmen.

I get a quarterly publication from a brokerage company. The issue before the presidential election had a little article thingy with the title “Will Investors Win or Lose on Nov. 4?” Now that’s just a blatant argument-starting, trying-to-be-controversial headline. It implies that one side of the election will cause investors to lose money and the other side will cause gains.

But the text just under the headline shows that investors have come out ahead under both parties. So the headline should have been “Which Political Party Has Been Better For Stock Market Returns?”

The article went back 6 presidents under each party (Democrats and Republicans). It started in 1933 under FDR (coincidentally, that was just after the crash of 1929 was done and the market was headed up). The results were that $10,000 invested only under Democrat presidents would grow to $315,000 whereas $10,000 invested only under Republican presidents would grow to only $74,000. The Democrats had 40 years of presidencies and the Republicans had 36. Even if I removed 4 years of Democratic presidency, I wouldn’t expect the numbers to be much closer.  And other studies have the same results.

Those 76 years of data might be enough for a reasonably large sample, but I thought I would conduct my own investigation and go back farther. I started with the 1900 elections and checked the S&P500 (or equivalent) every 2 years, coinciding with the congressional and presidential election cycles. I had to get the 1898 stock prices too, so that I could get returns for that first election.

My results show that yes, the market has gone up more under Democrats than under Republicans. There have been papers published about this correlation, and some researchers and journalists are wondering why investors don’t notice this and invest accordingly. “Invest accordingly” would mean put money in the market under a Democrat president and take it out under a Republican.

The main answer is that the market still goes up under both. Investors know that leaving their money in the stock market long term (regardless of which party is in the White House) is the best policy. If investing were as simple as putting your money on a political party, it would have been figured out a long time ago.

I don’t know the exact method that the article writers used. Mine was rather simple and I expect it has some flaws. I started with $10,000 and had it go up or down by whatever percent the market did from the start to the end of a given term. I didn’t use exact days of the president’s terms, as did the article. My data was the price of the market, every 2 years, at the transition from one year to the next (close of December/beginning of January). But my numbers did approximate the article’s numbers, so my method was good enough for generalizations.

The article had the market returns as 5 times better under Democrats ($305,000 gain versus $60,000 gain). My results showed about 3 times better returns for the Democrats, but mine were $200,000 versus $70,000 (rounded).  The article did not include inflation as a factor.

Say that the market doubled under a president. Go ahead, say it. So you started with $10,000 and ended with $20,000. That means you made $10,000 and you are $10,000 richer and can buy more stuff than you could before, right? But what if inflation totaled 100% under that president’s term, so that the cost of everything also doubled under his watch? Although your money doubled, your value didn’t. All you did was stay even. So if one president had the market go up 8% but inflation was also at 8%, should he be considered better for investors than a president who had the market increase only 6% but kept inflation to 3%? I contend not.

I factored inflation into the mix, using numbers provided conveniently by Robert Shiller, and found that returns evened out significantly. The results changed to $23,000 for the Democrats and $21,000 for the Republicans. That still had the Democrats ahead officially (1.8% annual return vs. 1.2%), but realistically there is not much difference. At least not enough on which to build an investing strategy.

The article also did not include Congress as a factor. The President of the United States of America has some power, but Congress has a lot to do with monetary policy as well. I factored Congress into the mix, using the records of the Senate and House of Representatives. Because Congress has two divisions, the results got complicated: 3 entities and 2 parties means 8 categories.

I tried to simplify things, but I still wound up with a bunch of categories.  I have listed the results of what $10,000 would become under those terms, along with the annualized rate of return.  I used just the years that the money would be in the market, not the time of the whole study, as that seemed better for comparison.  So each category has a different time base for the annualized rates (President: Rep. 62 years and Dem. 48, House: Rep. 44 years and Dem. 66, Senate: Rep. 50 years and Dem. 60).

“n” means “not adjusted” and “i” means “adjusted for inflation”

Single Indicators:

• President Only:
  Democrat: $202,000 (6.5%) n / $23,000 (1.8%) i
  Republican: $79,000 (3.4%) n / $21,000 (1.2%) i
• House Only:
  Dem: $342,000 (5.5%) n / $24,000 (1.3%) i
  Rep: $47,000 (3.6%) n / $20,000 (1.6%) i
• Senate Only:
  Dem: $143,000 (4.5%) n / $6,100 (-0.85%) i
  Rep: $112,000 (5.0%) n / $51,000 (3.3%) i

Compound Indicators:

• All Three Matching:
  Dem: $106,000 (5.8%) n / $22,000 (1.9%) i
  Rep: $16,000 (4.0%) n / $11,700 (1.5%) i
• President Opposite Congress:
  Dem. Pres, Rep. Con.: $25,000 (9.6%) n / $16,500 (5.1%) i
  Rep. Pres, Dem. Con.: $17,800 (2.7%) n / $6,900 (-1.7%) i
• Mixed Bag (split Congress):
  D. House, R. others: $19,300 (8.6%) n / $14,300 (4.6%) i
  R. House, D. others: $8,100 (-10.6%) n / $5,700 (-24.7%) i

The best single indicator, accounting for inflation, is the Senate.  The President and the House of Representatives are almost a wash when it comes to returns after inflation.  But the Senate – the difference there is quite obvious.  A negative return for the Democrats versus a strong positive return for the Republicans.  I say strong positive because it is about twice the return rate that you’d get if you played the presidency.

And you could play around with the compound indicators some more.  I wouldn’t put too much stock in the Mixed Bag category, since the second one (-25%!) was only two years.  It may have no correlation to anything at all, but it’s a fact that the worst combination for the stock market was a Democratic president with a Republican House and Democratic Senate.  You’re not going to be able to prove cause and effect, but you could sure make a headline out of it.

If you ever need something to do, you could waste a whole day just playing around with market returns to come up with statistics that benefit your particular party or cause. Or read someone else’s investigation of the issue. There are even futures markets for presidential elections (that’s a link to the old blog. The new one, but without that post, is here).

In conclusion, don’t trust dramatic headlines and don’t invest based solely on presidential political party. Now you can consider yourself a more enlightened investor.

“But you shall remember the LORD your God, for it is He who is giving you power to make wealth, that He may confirm His covenant which He swore to your fathers, as {it is} this day.”
– Deuteronomy 8:18

Madoff is under investigation for $50 billion Ponzi scheme.  My first thought when I heard that was “where did all the money go?  How can one guy lose (or spend) $50 billion?”

Remember, the Ponzi schemes are legal, but only if you are the government.  Then you can call it Social Security and people will accept it.  Civilians are not allowed to setup Ponzi schemes, because the government does not like the competition.

I heard some news stories after the deal, and of course they included the standard warning about “If it is too good to be true, it probably is.”

That gave me an idea about the next big scam.  Now Madoff did well because his returns were not sky-high.  They were on the upper side of average, but the scam clue was that the returns were always positive and in the same range.

Some people, in hindsight, were saying that should have been the tip-off.  That, and his books were not audited by an independent third party.

Anyway, the next big scam should involve some guy who gets returns right around what the market is giving.  The average mutual fund return slightly below the market, so a good scam would go up and down with the market to alleviate the concerns about being too good to be true.

This has the added benefit of better gains for the scammer.  Now he doesn’t have to give back so much of his take in order to appear like a good fund manager.

Of course, if his returns aren’t much different from the market’s, then it might be hard for him to attract investors. Oh well, maybe that’s why I’m not a con man.

Disclaimer: this was written to alert the good citizens of this country to possible scams, not give suggestions to devious scammers.

“Behold, I send you out as sheep in the midst of wolves; so be shrewd as serpents and innocent as doves.”
– Matthew 10:16

Most of the news items about the Big 3 automakers in Washington asking for money refer to it as the “bailout” for Detroit auto companies. It is not a bailout. They are asking for a loan. A bailout is what the financial companies got: billions of dollars with no questions asked, no strings attached, and repayment is optional.

The current Congress worries me a bit.  They are looking forward to setting up a new committee or appointee to oversee the running of the car companies. In other words, they are going to use this situation to expand government. They are going to take advantage of the financial crisis to add rules and power to Washington because they wouldn’t be able to get away with it in a normal economy.

The Big 3 car companies want a loan. They are going to repay the loan. They have a pretty good history of repaying the loans from the federal government. And the government has made a decent amount of money on previous loans to the car companies.  What happens once these loans are repaid? Is Washington going to disband the new car committee or car czar? Something tells me that this expansion of power will not go away as easily as it came.

<rant>

The senators and representatives seem to be fond of telling the car companies that their business plans are not sustainable and they need Congress to tell them how to run their companies. I would like someone to tell Congress that Medicare and Social Security are not sustainable and they need someone else to tell them how to run the government. Congress wants changes at the top of the car companies. Why don’t we also get changes at the top of Congress, particularly in the finance and banking committees that were supposed to be overseeing Fannie Mae and Freddie Mac? They were warned of their floundering finances, but did nothing to fix it. Why are those the people who are now, all of a sudden, responsible and knowledgeable enough to run car companies?

If the government wants to tell a public company how to run itself, it should follow the existing market methods. If the company is asking the government for money, there are three main options: gift, purchase, or loan.

• If the government wants to just give money away as a gift, then there are no conditions.
• If the government wants to help a company financially but wants a say in the matter, it should buy shares of the company. The more shares you buy, the more votes you get. It works well this way for everyone else.
• The third option is for the government to loan the money to the company. The company pays the government back, and there is no need for the government to force any changes in the company. If the company is being run poorly, then they will have incentive to change things so they can free up some cash to make the loan obligations. If the company can’t make it and goes bankrupt, then I am sure the government would arrange things with the bankruptcy judge so that they are the first to be paid. Even if they don’t get paid, how is this any different from the government’s grand plans to buy bad mortgage debt from the mortgage bankers? Washington was going to buy mortgages that were known to be bad, meaning they expected many of them would not be repaid. The car companies should at least be better than that.

</rant>

There are free-market solutions that the government can use to help the companies. Of course, a truly free market would not have the government get involved. And many people are arguing that government involvement was the root cause of this whole mess, so a truly free market would not have had the same problems that apparently only the government can solve. I vote for less government. Loan the money if you must, but don’t grab for power in the process.

“The rich rules over the poor, And the borrower {becomes} the lender’s slave.”
– Proverbs 22:7