Random Thoughts For Tuesday

Random thoughts for a Tuesday

Reading through the headlines of one of the major financial sites I saw a headline that said that GM & Ford were in trouble due to a potential car loan bubble (likely), and another that said that Ford shares should jump 40% because Cars.com predicted an increase in car sales.


While it’s obvious that the writers of those articles aren’t looking at things holistically, it begs the question: how in the hell are average investors supposed to sort through all of this mess to make any decisions? Do they just pick sides as far as sites, writers, viewpoints, etc., and just follow the advice from “their favorite”?

Talk about a case for just investing with ETFs.

Also, no wonder future wifey tells me to just “take care of it” when it comes to our investments with the added “if you screw up, YOU’RE going to be the one working when we’re old, not me”.

Wouldn’t that be a great way to work with a financial advisor? “Look man, if you mess up my money, you’re going to have to get a job and support me when I’m old”

Also, 40% is a huge jump; just how many additional cars does that author think Ford is going to sell?

I loved this blog post discussing how absurdly vague software patents are allowed to be, and how that nonsense doesn’t fly in other industries.

I read a news story around how a new start-up is offering an electronics payment service that doesn’t charge credit card fees, instead it offers customers “special deals” or “purchase credits” and charges the retailers that use them $0.35 on the dollar for each purchase credit.

Here is the problem: in order to make money LevelUp needs to generate more revenue from the 35% it charges on purchase credits than it pays in credit card fees. Meaning: if LevelUp gets to a point where it makes money, it’s no longer a profitable relationship for the merchants using it as the cost for the purchase credits will exceed the cost of paying credit card fees. 

Needless to say, I’m skeptical of the mathematics of this situation.

Trying to find an end around the law of no free lunch is probably not the best way to build a payments business…

…unless you’re thinking that a lot of business owner’s pathological hatred of credit card fees will cause them not to realize that you’ve tricked them.

Apparently we have a bunch of communes in Seattle, the owner of one noted that she hates that her neighborhood has become full of “double income white people, it’s boring”.

My retort would be that I’m black and I find overly educated white people complaining about “double income white people” insufferable, in fact, I find any self-righteous complaining about “people different than me have moved into my neighborhood, help, help, I’m being oppressed” to be annoying. 

Especially since that neighborhood has nearly always been 90-95% white, you know, like ALL of the Seattle area.


Here is the funny thing: I know some of her neighbors, they share really similar world views, she might like them if she looked past the fact that they have good jobs. 

Maybe that’s the real issue as far as partisan divides in this country, anyone far left or right is close minded and insufferable.

Either way, reading about the communes struck a nerve, not sure why. 

Loved this piece by Susan Schorn related to the Hobby Lobby case (written before the SCOTUS’ deplorable decision), reading it makes me wish we could bring back my great-grandmother and Susan’s great-aunt to straighten out the government.

I mean, sure, they’d wind up discussing smacking techniques and then unleashing hell on Congress, but don’t you want Boehner to have something to legitimately cry about? I mean, when my great-grandmother smacked my little brother* for talking back in the early 80s he never talked back to an adult again. ß This is true. He even brought it up the other day….

…..and he’s 36.

Speaking of tough women my Grandmother had this to say when she signed her DNR: “Of course I’m signing this, I don’t want ya’ll waking me up out of my good sleep, I’m old, I’ve had a good life and I’ve always been surrounded by people that loved me”

*I freely admit I violated the Warrior Ethos by running away when this happened, there was no need for both of us to go down.

Market Based Minimum Wage

I’ve been thinking about the minimum wage debate within the context of a pay leveling exercise I conducted about eight years ago with a team I was managing. The basic story was that the uppity ups wanted to pay people slightly better than Wal-Mart wages (for our industry), and get, well, the performance you’d expect for Google wages.

 Here is how I approached things:

  • I went through the books and found ways to save a ton of money on various items
  • I restructured how we did business in certain areas so, again, we saved a ton of money.
  • I proposed a series of across the board wage increases based on merit, and even gave some small “motivation” wages to underperformers (even bums deserve to be paid fairly), replete with “hit these targets and we’ll raise you again”

It was easy to get it approved as the cost savings more than paid for the wage increases.

The meta point is that while people do deserve to be paid fairly, the money has to come from somewhere. As I noted last summer, despite Wal-Mart’s huge profits the size of their labor force means they’ll never be able to match Costco’s wages.

SO back to the minimum wage debate, wouldn’t it make more sense to set the minimum wage level on a market-by-market basis, i.e. based on what local businesses and the local market can support?  It shouldn’t be too hard to come up with a formula that first sets a wage floor at the state level, and then adjusts it up (or down) for the state’s major cities.

Here is why I say “up or down” in the same state:

In Syracuse, NY*** the median household income is $31,459.00, and the median home value is $85,900.00, meaning someone with an income of about $11/hour could potentially buy a house.

Needless to say, the same scenario is not going to work in NYC. 

Overall, my thinking here is pretty simple: $15/hour might be sustainable in a city like Seattle where the median income is $63k and the median income of two its closest suburbs (whose population nearly equals 1/3 of Seattle’s) is pushing $90k.

To put it another way: $15/hour comes out to about $31,200/year, less than ½ Seattle’s Median income and barely 1/3 of the median income in its affluent suburbs.

This is not to say it won’t be a hardship for some businesses, but, you can argue that with the right price increases the market can support those wages.

But what about a city like Cleveland, Memphis, St. Louis, Milwaukee or Syracuse where the median income is within $25-$35k, and it’s possible to buy a house off of a $10-$15/hour wage? Can the market support prices that would make the current median the bottom of the market?

I doubt it.

Ultimately the reality of most Americans is more likely to reflect living in a place like Memphis than a city like Seattle.

Creating a formula that sets the wage floor based on what’s sustainable and logical will deliver better results for everyone involved.

Of course – this isn’t likely to happen as long as all parts of this debate are more interested in pushing ideological agendas than they are in having a constructive conversation.

I.e. Conservatives yelling that higher minimum wage = job destruction, and liberals yelling as if people paying minimum wage are all rich bankers, as opposed to being more likely to be a small local business owner. 

Maybe I should put it simpler: people whose opinions on the matter make me think they don’t know how business works. 

*Before you occupy types have a hissy fit, I mean relatively, as in compared to how much money I brought in, relax. 

**Seattle peeps don’t go on Zillow and start looking at homes in Syracuse, just don’t, you get so much for the money than here that it’s depressing. 

Digital Wallets vs. Rewards Credit Cards (Updated)

In keeping with a recent rant on Twitter related to my thoughts on the potential T-Mobile and Sprint merger, I recently switched my phone to Verizon. Once I started playing with my new phone I noticed an icon for the Verizon Isis app, another in a long-line of digital wallets 

The offering only works with a select number of credit cards and there is a promotional offer if you use it with the American Express Serve Card, a sort of pre-paid card that comes with an app that allows it to be a digital wallet as well.

It all seems interesting, but I couldn’t help thinking: what’s the point, unless I just “want” to pay for things with my phone? Is taking a card out of my wallet really that much of a hassle? Especially since this service isn’t widespread enough for me to use it everywhere?

Something hit me as I scoffed at yet another digital wallet offering that doesn’t seem to provide anything more than a different form factor:

Why hasn’t anyone paired a rewards program with a digital wallet? I might’ve signed up for Isis if had more to offer than a couple of money saving offers from Amex. Being able to link my digital wallet with a variety of rewards programs (cash back, airline miles, points I can use for various items, etc.) would change the game IMO.

To put simply: I think don’t think we’ll see broadband adoption of digital wallets until customers are provided with more than a form factor or alleged convenience you can only use with a limited number of merchants. Create a situation where customers can earn airline miles, cash back and other rewards and using a digital wallet just becomes a smart decision

Just think of all the people like my girlfriend and I who are the customers the credit card companies hate: we put all of our expenses on rewards credit cards* and then pay it off at the end of the month, often 2-3x a month as we hate having balances. If it weren’t for the rewards, we’d just use our debit cards. 

The same goes for digital wallets and mobile payments, offer innovative (and hopefully better) rewards programs than the credit card companies and adoption will skyrocket. 

*Hush Dave Ramsey crowd, we have discipline and the money we’d use for expenses if we weren’t using our credit cards just sits in the bank until we use it to pay our cards. We’re not going to fall and find ourselves in debt. Anyone selling you an approach to personal finance that tells you to just ignore certain options, instead of intelligent using everything available is probably trying to sell you a book ;) 

Walkable Cities = Wealthier Residents? Only if you Spin the Data

One of the biggest problems I see as far as media reporting on socioeconomic trends is that the data is nearly always misinterpreted via the cognitive bias of the writer, reporter or “journalist”.

 To an extent it’s understandable, most journalists don’t have a data analysis background, people are writing with a pre-formed agenda, they need link bait to pay the bills, etc., but, sometimes, things get ridiculous. Case in point, this recent article on Wired.com:

“We already know living in a pedestrian-friendly city can make you healthier and happier. New research shows it’s good for you bank account, too.

Average gross domestic product per capita—a fancy way of saying approximated average income—in metro areas ranked as “highly walkable” is 38 percent higher than in “low walkable” areas. In dollars and cents, that means the average GDP per capita in places that promote walking is $60,400 compared to $43,900 in those that do not. It’s not quite clear why that is, the new study says, but “evidence suggests that encouraging walkable urbanism is a potential strategy for regional economic development…

…This research doesn’t indicate whether more educated people make cities more walkable or walkable cities attract the better educated, or whether both factors are at play, says Chris Leinberger, lead author of the report and president of the Center for Real Estate and Urban Analysis. While there’s no clear causal connection behind this “very substantial correlation,” he says, cities shouldn’t wait to make life better for pedestrians. Whatever the reason for the correlation, it’s clear that more walkable areas are wealthier areas. That should be reason enough to slow traffic, add crosswalks and bike lanes, and improve public transit.”

Photo Courtesy of Wired. 

They don’t know why and there is no clear connection, but, yes, let’s make the correlation anyway.

So many things wrong here:

1)   Metro GDP is a terrible measure because it’s only loosely related to real money income, as just because a successful local company is pushing up the GDP doesn’t mean that those profits are making it into the hands of people as income. Portland, OR is a great case in point: in 2005 it’s Metro GDP per capita was $62k, but it’s median income per HOUSEHOLD was $42k, median income for individual workers was $24k. Huge difference.

2)   This study was looking at metro areas as opposed to within the city limits, which is a very important distinction. In the San Francisco Bay area the major economic activity isn’t happening in the city, it’s in the outer suburbs like Mountain View, ditto for Seattle and Portland. Which means: you can’t exactly draw a correlation between economic activity and walkability in a city, when the major economic activity is occurring outside of the city in areas that people have to drive to.

3)   Apropos of the above take a look at this data for 2005 for Portland, OR related to people’s income based on how they travel to work, as you can see, the people who drive to work make almost 75% more than people who walk to work. Similar patterns play out for Seattle, San Francisco, Washington D.C. & Chicago. NYC is the only city where people who drove to work alone didn’t earn more than all other categories (albeit only one), and Washington D.C. is the only city in the top six where it was at least close.

However it’s worth noting that the data only covers people who live IN the city, and chances are there are even higher income people who live outside the city who drive into it. 

4)   The study doesn’t factor in cost of living, which could easily erase the benefits of living in a higher income city. Making $50k in NYC is probably similar to making $35k in Seattle and $25k-$30k in Portland.

In other words: I was able to thoroughly debunk this study in roughly 30 minutes via the census web site whilst also participating on a conference call. It also means that the people who put together the study were more interested in making a point, than they were in actually digging into the data and finding true relationships between the variables.

Otherwise they would’ve noticed that there was a coincidental relationship that wasn’t worth reporting on until someone was able to draw a clear relationship, especially since there are plenty of high earning cities that are not very walkable. IF anything the economic trends is a coincidence and walkable vs. non walkable is more a function of geographic features than anything else.

To put it simply: making a city more “walkable”, “slowing down traffic” and putting in more bike lanes is not going to make a city more economically prosperous, to even posit such a solution is ludicrous.

Not to mention the fact that people in economically depressed cities like Cleveland, Detroit, Sacramento and Cincinnati need jobs and opportunities, more than they need bike paths.

Final thought: you could also argue that I’ve debunked the idea that a city being walkable leads to its residents being happier and healthier as well, as they’re arguably really measuring something that’s a function of income not walkability. It’s easier to happy and healthy when you have enough money to meet your needs and can afford health insurance.

Either way, at some point certain online “journalists” need to make a choice: are they going to have real conversations about trends and data, or are they going to spin things for link bait and to fit an agenda?

You can promote the worthy cause of walkable cities without publishing rubbish on the Internet, or acting as if creating bike paths in Cleveland will magically generate more economic growth.  

Sharing Economy: Where Are The Non Profits?

Lets you think I was being cynical about the sharing economy, here is a quote I received in an e-mail newsletter from Tech Soup related to a non profit I manage operations and financials for:

“When TechSoup attended the SHARE Conference about the sharing economy, we were surprised by the lack of nonprofits and libraries. These organizations, pioneers in sharing, should be leaders in this growing space.”

Surprised by the lack of nonprofits.

If you click the link it discusses how the people at the event were venture capitalists, entrepreneurs and business people.

When do we get to the point where we all grow up and accept that Public Libraries are part of the sharing economy, while alleged sharing companies with billion dollar valuations are just businesses?

Don’t get me wrong, I don’t say billion-dollar valuation in a pejorative sense, after all, my career has revolved around consulting for large companies. Instead, I say “billion dollar valuation” as a way of pointing out that they’re just businesses using “sharing economy” as a marketing term.

Better yet let’s not pretend that companies like Lyft and Uber functions like a co-op, as opposed to clever companies that have shifted their wage, benefits and capital (cars) costs on to the independent contractors that drive for them.

Finally, if I were being cynical I might not that Wal-Mart employees get better benefits than the workers at various “sharing economy” companies, but I don’t like shooting fish in a barrel. 

Especially since I recently had a Twitter exchange with a former hedge fund manager turned venture capitalist, who called himself educating me on economics by explaining why he didn’t believe in fair wages. A Twitter exchange related to the alleged “sharing economy” companies he loves. 

P.S. The idea that AirBnB operators shouldn’t have to pay hotel taxes is complete and utter BS. If a Bed & Breakfast owner with three rooms or owners of small motels have to pay them, why shouldn’t the AIrBnB operators? To provide context, the Hotel Tax Rate in NYC is 5.875% - I hardly think tacking that on top of the cost of a room is hurting anyone’s price competitiveness.