If everything we do we try to make things simple, eventually myths come up and for those outside the industry, it is accepted as truth. Sometimes the myths are not correct, in some ways they are not necessarily wrong, but conventional wisdom is not always perfect. Doug Hoyles is co-founder of a large personal insolvency firm and wrote a book called Straight Talk on Your Money published by Milner and Associates, Toronto, 2017.  Mr. Hoyles is reflecting on his years of practice and offers advice on how the system is structured.

Myth 5   The Most Important Number is the Monthly Payment

The notion that only the monthly payment matters is ridiculous and the worst myth in these segments. If you only worry about the payment (and you can) the interest on the item will be much more than the cost what you think you will be. For example a $30,000 car at 7% stretched over 72 months will cost $36,825. Remember the reason to have a car is to drive it which includes insurance, gas, maintenance, the cost of the car increases from the low monthly payment.

It might be better to drive a less expensive vehicle, then buy another one in a few years.

Myth 6   Bank at only one Bank

Many of the people working at the bank are nice people, they are also sales people.

Watch for fees – once you are a customer they have less incentive to give you the best rates because it is hard to switch because many people have preauthorized payments or deposits to their accounts.

You lose control – best solution – have your income deposited a one bank and pay your bills from another bank. In this manner, if you have a credit card at a bank, they can go into your account (even if you did not authorize it, to take the minimum payment).

Myth 7  When a collection agent calls, always pay up

To understand collection agencies, you need to understand the process in which they operate:

1. all is good, you are paying your bills on time.
2. something happens and you are unable to pay the minimum (remember 50% of US consumers said if they had an unexpected bill of $1,000 they would be behind). The first stage is a letter is sent to you.
3. The next month is no better, the phone calls start, the people are understanding and nice asking if there is something you will be doing or can do?
4. By month number 3 the friendly approach is over. The bank will suspend your card and demand full repayment.
5. The collection agencies pay their people less than at a bank and their commission tends to be 20% of what is collected. A letter from the collection agency starts and you will be called daily for about 2 months.
6. The time has passed and they do nothing, no letters or calls.
7. A new collection agency has your file and the process begins again but the commission has changed to 40% of what they collect.

For debts under a year, the banks tend to keep the debt but the commission rate for the collection agency gets larger because it is profitable for the bank to keep the debt. If debt is older, then it will be sold to gain something for the bank.  This is the reason why it is hard to make a great deal with the collection agency. If a buyer paid 5 cents on the dollar and you pay half back they make 10 times their money. If the collection agency does not own your debt, then they are less inclined to do a deal because they lose money.

Depending on the size of the debt, if the collection agency says it will sue, they will almost never sue. Why logistics? The case would be in small claims court, the collection agency lawyers cost money; you could either self represent or have legal aid; and even if the collection agency wins what do they get? The person likely has no assets.

Often the collection agency will ask for partial payments. If you have not paid in 2 years, do not make partial payments it only resets the clock. A partial payment means the collection agency has another 2 years to contact you. A small payment helps them not you.

Linking to dividend paying stocks, similar to all industries there tends to be a process. In every large organization their is a process for everything, so people are protected. For your investments you need to know what their process are – how does the business work? what are the cycles? what actually affects the profitability of the company? After you know these then you can determine if the company is in good shape or not.

There are more questions than answers, till the next time – to raising questions.

 

 

 

1. re all aaaaaaaa

If everything we do we try to make things simple, eventually myths come up and for those outside the industry, it is accepted as truth. Sometimes the myths are not correct, in some ways they are not necessarily wrong, but conventional wisdom is not always perfect. Doug Hoyles is co-founder of a large personal insolvency firm and wrote a book called Straight Talk on Your Money published by Milner and Associates, Toronto, 2017.  Mr. Hoyles is reflecting on his years of practice and offers advice on how the system is structured.

Myth 1   Humans consider the acts and make rational decisions.

If you are truthful, you will say we can rationalize any decision, but most we take from a non rational decision. The example Mr. Hoyles uses is your toothpaste. The brand you bought you likely have bought before, how much time did you spend analyzing the new benefits of the toothpaste the manufacturers do every year? If you are reasonably normal, you did not. You may have no idea, but you like the brand and use it. Is there a better one? do not know.

The solution is when you make major decisions, depending on the money involved take an extra week or paycheck to decide – that might be an extra week or two depending on how you get paid.

Myth 2  We are the architects of own lives. We make our own luck or it’s your fault

Some reasons why your financial woes may not be your fault:

Aggressive and Sophisticated Marketing by the financial institutions – they want to make fees or interest from you.

Job Loss or Unemployment – almost 1/2 of the bankruptcies are filed because of job loss or loss of income. If you worked or a company which paid you reasonable and it went bankrupt or moved its operations is it your fault? If you are paid less or are underemployed, sometimes what is good for the company is not necessarily good for the employee.

Illness – you are healthy, until you are not and then you find out how much your medical insurance really pays.

Divorce – separation of the assets

Student Loans – the government does not allow the debt to be written off or forgiven.

Solution – it is possible to change the future. It may not be easy, but it is possible and opportunities can arise to help your situation change.

Myth 3 We live in a complex world we need the advice of experts.

All experts have a bias and are generally fee based. If you do not believe it – pick the dealership of your vehicle, if you went in and asked about the best vehicle – do they believe the best on their lot or the best vehicle for you which may not be their brand?

For financial planners follow the money, how do they get paid? would they recommend a low fee mutual fund or one that paid them more commission?

Myth 4    A high credit score is proof that you at a good money manager

Ever wonder why the credit card is called a credit card rather than a debt card? In marketing terms credit is good, debt is bad.

In terms of the credit score – it is only a measure will you continue to pay the payments or it is measure of risk to the lender which is of benefit to the lender not you. If you have $1,000 limit and carry $200 you have the ability to borrow $800 and more than likely will which makes your credit score higher. If you carry no debt on your card, you make no money for the companies so your credit score is lower.

Rule 72  or Compound Interest    Take 72 divided by the interest rate and you will get an approximation of the number of years it will take for the amount to double. If you purchase something at 18% and pay the minimum payments in 4 years you have double the cost of your purchase. This is great if you own the stock in the credit card; if you do not own the stock then it is good to know if you owe money.

The Credit Score Scam – if you want a high credit score, you need to have debt. Worrying about your credit score is not good because FICO score is owned by FICO (Fair Isaac Corp). If a company uses FICO they pay a fee to FICO, so the credit reporting agencies use similar information but not directly FICO? What does your financial institutional use?

Get a Free Credit Score? just understand free means you are on a list and the companies will try to sell you other products.

Best Advice:  be prudent with your spending; work to improve your income; save money; and do not borrow excessively.  The strategies improve cash flow and reduce debt and that is good for you.

Linking to dividend paying stocks, all industries have myths and ideas which others believe are true. Some of them are meant that way to rationalize the fees people pay seemingly willingly. If you believe the myth, then why not pay? If you do not believe the myth, then you might look around, do your homework and then rationalize. You may or may not pay the fee. For dividend paying companies, they would prefer you stick with them for a long time but remember it is your money.

There are more questions than answers, till the next time – to raising questions.

 

 

 

Just before Christmas, the Commerce department released a report which stated US single family home building and permits surged to more than 10 year highs in November. It has taken about 10 years from the collapse of the housing market for the cycle to push up housing prices. According to Lucia Mutikani of Reuters the rate of housing units was 930,000 units.

Builders have struggled to meet demand which is being fueled by labor market near full employment. (one might wonder how an economy which is near full employment will gain a even greater growth, but the President knows) Land and skilled labor have been in short supply and lumber prices are increasing. At the moment, there is a glut in multiple family unit buildings or apartments which means rent increases have slowed.

Linking to dividend paying stocks, two of the biggest companies to consider in the home improvement and building business are Home Depot and Lowe’s, both stocks have registered gains this year. The economy is based on services and consumers spending which means every home owner has to fill up their home. It may be expensive for the average consumer but the overall economy benefits.

There are more questions than answers, till the next time – to raising questions.

Every holiday season, phone companies bring out new models and they have every new feature possible. It is relatively easy to stay with an older version which works well for you. Until you begin to have problems and then you check the internet to see if others have the problem. Apple has X or 10 out, but people with 6 and lower are having problems with their phones. Most consumers buy a phone and expect it to last for a long time and considering the average usage it should, just before Christmas Apple notified its customers the all lithium-ion battery degrade and has problems supplying the big bursts as they age and accumulate charging cycles. Apple tried to minimize the problem by reducing power which has the affect of slowing down the processor demands. The solution is to replace the battery.

In this case, consumers and Apple were both right and wrong, Apple was slowing down the older iPhones but it was for the right reasons as defined by Apple. However, it took a lot of evidence from dedicated users before Apple admitted to doing what it was doing.

Linking to dividend paying stocks, Apple has terrific margins and many people will continue to very loyal customers. It benefits from the lower tax rate because it makes profits as well as has billions of dollars in offshore accounts and benefits from the tax bill to bring the money back to the US. Apple is major beneficiary of the President Trump’s tax bill and expect earnings to be higher without doing anything more than what they did last year.

There are more questions than answers, till the next time – to raising questions.

In the northeast from a consumer stand point at this time of the year, we wonder about oil prices for it heats our homes and cost of driving to work. According to a report in Bloomberg News by Jessica Summers, Alex Longley and Christopher Sell the direction of oil prices will be decided in Texas.

Analysts are expecting oil to average about $60 a barrel currently the price is in the $64 range, for us consumers it should be around where the price is now. The US production is where analysts have a differing view, some believe although the Energy Information Administration says US crude will surpass 10 millions barrels a day, the growth rate in the Bakken basin in North Dakota area and the Permian Basin in Texas may slow down. If there is a slowdown then more oil from outside the US will be needed and prices will move higher. If production remains good, then prices will be relatively stable.

The other consideration is demand, while more and more energy projects are moving to renewables, there is still a long way to go and the country’s need for oil is ongoing.

Linking to dividend paying stocks, in all commodity based stocks the price of the commodity will do more than any management can do. If the price is low, then hanging on to higher prices is the order of the day. If the price moves up, then a variety of options are available including easily paying dividends. If you own commodity priced companies, part of your homework is to see if the price is stable or moving in one direction or another.

There are more questions than answers, till the next time – to raising questions.

Just before Christmas, President Trump signed the Tax Bill which he believes will make America Great Again. It may, but not likely for the effect on those below $80,000 income is marginal at best. Now for the wealthiest people, they have more to invest in the market and for corporations they will pay less tax. The money the corporations do not pay will eventually go to shareholders through dividends and share purchase plans. Very little will trickle down, not with standing the above criticism the largest banks in the country are receiving a massive Christmas gift.

It is expected the Earnings per Share will climb anywhere from 8 to 17% according to research by Citigroup Global Markets Inc. The benefits come from both domestic operations as well as lower repatriation rates for cash held abroad. The major reason for the additional increased in EPS is the corporate tax rate fell from 35% to 21%. However, ever since 2009, the banks have been complaining about regulations (which were to designed to ensure the banks did not fail), they thought they needed less of them. The tax bill does lower some of the ratios so the banks can lend more money.

Linking to dividend paying stocks, except for when the economy meltdown in 2008, the banks are dependable dividend payers and if you do not own them individually an ETF which owns the major banks is a good thing to own .President Trump has been good for the big banks and as long as he is President it is a good holding.

There are more questions than answers, till the next time – to raising questions.

If you think about space flight one of the more interesting aspect is the liftoff. Gravity has to be overcome to overcome gravity there are large rockets that blast away and provide the thrust to go to space. In the US one of the leading rocketeers was Wernher von Braun and for many people he was one of many unsung heroes who tried to ensure people went to space and came home safely as President Kennedy wanted. The story of Mr. von Braun is one which the US military overlooked his background in order to achieve the Presidential order. Mr. von Braun’s story is told in the autobiography by Michael Neufeld titled Von Braun published by Vintage Books, New York, 2007.

Mr. von Braun was a leading rocket engineer in Nazi Germany and although his childhood dream was to work on rockets and he was a very good engineer, during the war he was leading the charge for Nazi Germany of rockets (with explosives) bombing England. After the war, the German engineers including Mr. Braun were brought to the US. First he was in El Paso, later moved to Huntsville, Alabama. The division is now called the US Space and Rocket Center. One of the passages in the book suggested the people of Huntsville were at first weary of the Germans. Later, resources continue to be committed to the town which meant more people employed, the people of Huntsville liked having the Germans in their community.

After the war, people who were Nazis were classified as important and less important. It was understood, when the Nazis were in power, if you did not go along with them they may kill you or make life very difficult. If you did not like it, move or keep quiet. The US military after the war used Nazis in what became NASA and in Europe to help the Marshall Plan rebuild Europe. This time the idea was to build economic livelihoods rather than military dictatorships.

Linking to dividend paying stocks, as long as you like the ends, the means can sometimes be overlooked. For example, the recent tax bill passed by President Trump will benefit corporations greatly, it will only marginally benefit the employees. If you can live with that, then it investing makes a great deal of sense. If you cannot try to find companies which tend to be more generous and still make money.

There are more questions than answers, till the next time – to raising questions.

In some industries who seats in the executive chair seems less important for the decisions of the company seem to go on in an appropriate matter. In other industries, the CEO is more of a name brand and one example is the railroad industry. Most investors could not name the CEOs of the railroads but CSX’s Hunter Harrison is an exception. Mr. Hunter is considered to be the best railroad executive in North America. He recently joined CSX the stock is up 60% on the expectation profits will go up and service will be better. According to Nick Carey and Bhanu Pratap of Reuters, Mr. Hunter is in the hospital in Jacksonville, Florida where CSX has its headquarters. A few days later in was learned Mr. Harrison died.

Since joining the 3rd largest railroad, Mr. Hunter has closed several rail yards, laid off thousands of workers and instituted a new train schedule system. The new team of operating people have gone through his Hunter training sessions. Typically he favors maximizing asset usage by running fewer, longer trains running on schedule. Mr. Harrison arrival tends to mean more layoffs and higher stock prices.

Linking to dividend paying stocks, in most industries the CEO is important but does not imply the person will automatically push up the stock price. The person’s job is continue to earn revenues on good margins have debt under control to make money for the shareholders and to reinvest in the company to keep doing it. The execution is harder than it sounds for there are many complications, think simple home repairs which turn out bigger than expected. Most companies will not have a savior in the CEO but if something happens to the savior what does it do? how has the savior left the company to the next generation of leadership? If you see transitions are reasonable, then the company can be a hold. If the company depends on one person, it is good to have alternatives on your horizon.

There are more questions than answers, till the next time – to raising questions.

 

In the world of global pharmaceutical companies there is the name brand which invent drugs and have a 21 years monopoly to sell drugs at higher prices and the generic drug makers who make those pills as soon as the monopoly comes off and this decreases drug prices. The largest generic pharmaceutical is call Teva Pharmaceutical Industries based in Israel. In mid December as reported by Tova Cohen and Ari Rabinovitch of Reuters, Teva reported it was cutting its workforce by 14,000 people and suspending its dividend. The problem is debt – the company bought Allergan’s Actavis generic drug division for $40.5 billion. The company has $35 billion in debt and needs to pay down the debt and now has to save money (not pay it or layoff employees) and worry about cash flow.

The biggest market for generics is the US and prices have gone down (amazing drug prices going down), it is expected some drug prices will continue to fall in 2018 making some generics unprofitable. As the world’s largest generic drug manufacturer it does have a wide portfolio of drugs and some of them might be able to raise prices.

Linking to dividend paying stocks, on the face of it, the cost to produce pills should be relatively small. The company does not pay for the research and development and once the patent comes off, the formula is available to be produced. It should be a relatively easy method to make money, until debt becomes too high. It is always important to watch your investments – can it pay its debts, what is the cash flow and is the dividend supportable? the questions tend not to change as the year changes.

There are more questions than answers, till the next time – to raising questions.