prancingbull.com

I have decided that I am going to open a savings account at a new financial institution. There a few reasons that I am going to do this. The first reason is that my current financial institution is too far away for me to use on a consistent basis. It doesn’t make a whole lot of sense for me to drive the 21 miles round trip to make a deposit there. That’s about a 40 minute trip to the bank and back. This bank is directly north of Seattle, and I hardly ever travel north of the city. This makes it especially inconvenient because I have to make a special trip to the bank just to take care of my business. With gas as expensive as it is, it is almost worth taking a hit on the ATM fees just to avoid the trip.

Instead of take the hit on the ATM fees, I figured that I would just open a regular savings account with ATM access at an institution that is located down town. This would help me in my new savings strategy. My new savings strategy is cash only. The plan is to transfer somewhere between $100-$150 a week from my current checking account to this new one. At the end of the week I would put back any cash that I didn’t use and then take out an additional $100-$150 for the next week.

I went downtown today to look at a few different institutions. The one that I was thinking about going with, Washington Federal Savings, did not have an ATM outside their building, so that pretty much defeated the purpose of joining them. Next, I went to Evergreen Bank, but they require you to have a $300 minimum balance in their savings in order to avoid the $8 fee. That didn’t sound like much fun to me, so I decided not to sign up for either one.

So I didn’t accomplish my mission, but here comes the ironic part. When I got home today I had my monthly statement waiting for me from my institution. When I opened it up there was a flyer inside of it. I assumed it was your typical refinance your loan flyer. When I took a closer look I found that it was an advertisement for a service called MoneyPass. MoneyPass is an ATM service that many banks have begun to use in order to expand their ATM network. The best thing about MoneyPass is that it is FREE! In downtown Seattle, the banks that are a part of this network are US Bank, Watermark Credit Union, and Northern Trust. Based on punching in a few random zip codes around the area, it seems like US Bank is the only major bank that uses the MoneyPass network, and the rest are small institutions.

This is the first time that I have heard of MoneyPass and if it becomes as popular as I think it will, I imagine people will start to see it around a little more often. It is a great idea and a no brainer for people who have been paying $2-$3 per transaction. According to the MoneyPass website, these are the main benefits to their service:

• No surcharge at ATMs that participate in MoneyPass
• Access to thousands of ATMs across the nation
• Convenient, accessible locations that include bank and credit union branches, convenience stores, grocery stores, restaurants, discount retailers and many more

I checked a book out from the library a few weeks ago called “Green Investing” by Jack Uldrich. When checking out this book I was hoping to find some ideas on companies that were in the business of producing environmentally friendly products and services. This book was full of good information on that subject.

The book was divided into nine different chapters. Each chapter discussed different companies within a certain part of the “green industries.” To better make my point, the following is a list of chapters in the book:

1. Green Investing: A Long-Term Trend
2. Due Diligence: Do Your Homework
3. The Big Dogs: The Fortune 500 Companies
4. Biofuels: Fuel of the Future?
5. Solar: Heating up or Flaming Out?
6. Wind Power: The Sky is the Limit
7. “Alternative” Alternative Energies: Geothermal, Fuel Cells, Wave Power, & Clean Coal
8. The Cleanest form of Energy: Energy Conservation
9. Tracking Cleantech and Building Your Own Cleantech Mutual Fund.

In each of the main chapters, Uldrich gives an extensive list of the companies that are poised to excel in this field. He gives the trading symbol and market (if applicable) for each company. He also gives a website as well. Each company also receives a short description, reasons to be bullish, reasons to be bearish, what to watch for, and a conclusion.

It is nice that Uldrich has done all the hard work for you. He has weeded out the bad companies so that you can focus more of your time on the good ones. This book was published in 2008, so it is very up to date.

One thing that I did not like about the book was that there were a decent amount of companies that were either private companies, or could only be traded in foreign markets. To me, it would be hard to invest in either a private company or one that only traded on a foreign market. I guess if you have the money to invest you can probably find a way though.

In conclusion, I think this book is an excellent primer to the world of green investing. Uldrich has done most of the hard work for you. Now, the investor only needs to find a company that they like and decide if it is worth investing in.

As an employee of a financial institution I have the ability to view prospective member’s credit reports. It is amazing how many people are in collections from the library. Did you know that not repaying that nominal library charge for turning in your books is actually hurting your credit scores? What do you think lenders think when they see that you have been in collections with the library for the past two years over an $80 fee? If you can’t repay the library (who lets you read their books for free), why would you repay your normal debts at an institution?

Before you decide to not pay your library fee out of principle, remember that potential creditors have the ability to see this and it will hurt your credit score. Lower credit scores equate to higher rates on your loans. You will easily pay over $80 in additional interest with a higher rate loan. Do the smart thing, pay off your library fees because they may come back to haunt you.

When I was at the gym this evening I saw a story on the TV about a proposed “Gas Tax Holiday” for the summer driving season. Since I was too far away to read the subtitles I looked into it a bit once I got home. I found a nice article written by Nick Timiraos of the Wall Street Journal.

In the article titled “Will Voters Accept Obama’s Gas Plea?” we learn that Senator John McCain has proposed an elimination of the Federal Gas Tax from Memorial Day to Labor day. This would eliminate the 18.4 cent per gallon tax on unleaded fuel. Senator Hillary Clinton also supports this proposal. Senator Obama decided to take the rational approach and oppose this “holiday.”

The article suggests that Obama’s choice to oppose this tax relief act should put him in a “politically treacherous position.” The main reason for him being in troubled waters is because US consumers are fed up with high gas prices. The fact that he opposed a reduction in the price of gas could cause many people who were going to vote for him to vote for someone else.

This image was linked from opentravelinfo.com.

Politically, this move by McCain and Clinton is genius. At an average price of $3.60/gallon, the discount only amounts to a little over 5%. In reality that isn’t much to brag about, but the average person doesn’t look at it this way. To put this in simpler terms, in order for someone to save $100 in gas during this time period they would have to consume 543 gallons of fuel. At an average rate of 20 mpg, one would have to drive 10,860 miles over this three month span. If you annualized this mileage, it would be a pace of 43,440 miles for the year! Most leases penalize you if you drive over 36,000 miles over the course of three years!

“Obama has been positioning himself as a candidate who can win by telling voters hard truths rather than offering easy political solutions.” The easy political solution is to cut taxes for a short while to make consumers happy. In the end, a Gas Tax Holiday may be even more detrimental to the price of gasoline. In advertisements to Indiana and North Carolina voters, Obama makes the lack of savings crystal clear to voters. “You’re going to save about $25, $30, or half a tank of gas.” Although this doesn’t quite seem right, don’t forget to take my $100 in savings equation into consideration and then do the math. The savings are few and far between.

The only problem with Obama’s claim is that the average voter will likely think that they are saving a lot at the pump each time, but in the end this will not be the case entirely. When the price goes down by the amount of the tax, people will start to believe that gas has become much cheaper to them. As they think this, they will be more inclined to purchase even more gas. If the supply of gasoline is held at a constant rate and demand increases, then prices will naturally rise in order to reach equilibrium. This rise in price should offset whatever savings the consumer felt that they had saved from the lower prices.

One major option to reduce the amount of gas consumed each day is to increase gas taxes. The increase in taxes will raise the prices, and will cause demand to be reduced. Of course, no politician could ever run on the platform of increasing the gas tax by exorbitant amounts. That would eliminate any chance whatsoever of being elected.

In my opinion, something must be done to help wean the US off of our gasoline addiction. I believe that higher gas taxes, and/or increased toll roads would help promote more awareness on the issue. The funds from these taxes would be used to fund more mass transit options rather than improving existing roadways.

It should be interesting to see how the public reacts about Obama going the opposite direction on such a delicate issue such as this. A poll found in the New York Times shows just how the nation feels about gas taxes. It is obvious that Americans think wallet first, environment second.

As I was surfing the internet tonight I came across an issue that I had briefly read about earlier in the election system. What I came across was the official website for the “Fair Tax.” If my memory is correct, I recall a president candidate or two running with a major part of their platform being the “Fair Tax” system. According to the site, John Cox, Alan Keyes, Ron Paul and Mike Gravel all supported the Fair Tax. John McCain did not support the Fair Tax. Barack Obama and Hillary Clinton did not give and official answer one way or another. The official website can be found here.

Here is my official view of this proposed tax policy.

Under the Fair Tax system, there is no income tax. If you make $10/hour and work 80 hours during your pay period you will get a paycheck for $800, instead of the tax adjusted amount. The government has to get their money from somewhere though, and the Fair Tax system suggests that they should get it from sales taxes. The Fair Tax systems is actually entirely consumption based. Those who like to spend a lot of money will pay the most in taxes. Those who are savers will be rewarded by paying less in taxes. Compared to the current income tax based system, the Fair Tax would be the equivalent of a 23% income tax. Compared to a sales tax, the Fair Tax system would have a 30% sales tax.

Fairtax.org makes some compelling arguments for why a switch to this kind of system would be a good idea. Their main arguments are:

• Enables workers to keep entire paychecks
• Enables retirees to keep entire pensions
• Refunds in advance the tax on purchases of basic necessities
• Allows American products to compete fairly
• Brings transparency and accountability to tax policy
• Ensures Medicare and Social Security funding
• Closes all loopholes and brings fairness to taxation
• Abolishes the IRS

The people in favor of the Fair Tax feel that too much time money and confusion is spent each year attempting to file taxes. With a flat rate sales tax, this would cover all government expenses without all the confusion.

Some critics argue that the Fair Tax system would eliminate the deduction that is taken on interest payments on a home. Fairtax.org argues that since you will have more take home income this would offset the deduction that you would normally take. They also claim that “With the fair tax, mortgage interest rates fall by about 25 percent (about 1.75 points) as bank overhead falls.” Homes also become more affordable since “first-time buyers save for that down payment much faster, as savings are not taxed.”

The Fair Tax system has created what they call a “prebate.” This is essentially a prepayment by the government to offset the estimated amount of taxes that one would pay on essential goods and services. For example, a household with two adults and two children would receive a prebate of $537/month. This is based on the assumption that they will spend $28,000 on essential goods and services. Hawaii and Alaska oddly enough have a different prebate table, which actually result them receiving a greater amount in prebate money.

Some people argue that the prebate is pointless, and food and medicine items should just not be taxed. FairTax.org responds to this by saying, “the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor. Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit.” They also feel that “exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today.”

Although the system was designed to be free of loopholes, there is one that really stands out to me. The Fair Tax only taxes new goods. The theory behind this is that the item was taxed already when it was first purchased and should not be taxed a second time as a used item. Therefore, people who purchase used goods will not have to pay the tax. This could could have a couple of benefits/drawbacks. Poor people are more likely to buy used than the rich, and therefore will be saving 30% automatically on all used goods. At the same token, used goods could be sold at a 30% premium because it is common knowledge that these items aren’t going to be taxed, and therefore the missing tax gets passed on to the business owner in the form of higher profits. Having no tax on used items is something that would make any environmentalist happy. With a automatic 30% markdown on all used items, it would encourage people to buy used rather that new and would help to reduce consumption and encourage reusing old items.

Having no tax on used goods could have a major negative impact on companies though. Imagine a car manufacturer like Ford. Why would someone want to pay a 30% tax on a new $30,000 car ($9000 in taxes added on). The $30,000 car would actually cost $39,000 after taxes. It is a common theory that vehicles lose 20-25% of their value as soon as you drive them off the lot. At 20% we could conservatively say that the $30,000 car would be worth $24,000 not long after it was first purchased. Let’s say that the value drops by 20% by the end of the first year of ownership. Why would someone want to pay a $15,000 premium for a car that is a year newer? Remember that the slightly used car would not be taxed and the new one would. This would not make any sense at all from a consumer’s standpoint. I think that this Fair Tax system would have a very negative impact on big ticket item manufacturers.

I think one major advantage of the Fair Tax system is that it would help to reduce tax evasion and illegal immigrants. People can definitely evade taxes in this system by buying used goods, but there are times when you have to buy new goods. Food, medicine, motor oil and gasoline are some major items that quickly come to mind. The Fair Tax system would increase the amount of money that is put into the tax system by illegal immigrants. The system would also give a large incentive for illegal immigrants to become citizens. The prebate is given out to “all valid Social Security cardholders who are U.S. residents.” Illegal immigrants would not fall into this category and would not qualify for the prebate. They would be forced to either qualify for citizenship, or pay the 30% tax for food without a prebate.

Overall I think that the Fair Tax system has the potential to be an effective system. It has a few issues with it that could use a little more ironing out, but as our current tax system becomes more an more confusing I could see an increasing movement towards this type of system. For those who are interested in reading more about the Fair Tax, there is a book dedicated to the subject written by Neal Boortz and John Linder.

For a link to the official Fair Tax Act of 2007 – HR 25/S 1025 plain English summary, click here.

A visit to the US Treasury website will show you a state by state breakdown of how the Economic Stimulus Act of 2008 will affect Americans. The US Treasury estimates that 131.8 million Americans will benefit from this act, with California being the state with the most affected at 14.7 million people. The US Treasury projects that the total reduction in income taxes paid will be $112 billion. This equates to $849 per affected person.

$849 per person seems a bit high, since each parent can get up to $600 with a $300 credit per child up to two. I guess these results suggest that there are quite a few single parents out there with two kids or more. The US Treasury gives a probable reason for this discrepancy on the report. They say that “The proposal extends tax benefits to significant numbers of tax units that did not file during calendar year 2007. The estimates for these units are based on the characteristics of filing units and are therefore subject to greater standard errors and bias.”

You can see the entire two-page pdf report here.

Many people may be wondering how much exactly they will be getting. The US Treasury has a nice five-page pdf file that shows how much money a person will receive under just about any imaginable scenario. You can view the report here.

The past few years there has been a lot of attention on the news about different ways to go green and make a difference in the environment. Even with all this focus on creating a greener way of life, large energy companies like ExxonMobil continue to make record profits. Something does not seem quite right here. As an environmentally conscious investor, one may focus the dilemma of choosing between a profitable company like ExxonMobil that will surely make them money, or searching high and low for some obscure environmentally friendly company. Once you do find that company, chances are they won’t even be profitable.

Portfolio 21 has taken the guesswork out of this for you. This investment company is based out of Portland, Oregon, which is the greenest city in the United States according to Popular Science Magazine. Simply put, Portfolio 21 only invests in companies that meet its stringent standards for being or working to become green companies.

The official strategy from their website reads, “Portfolio 21 invests in companies designing ecologically superior products, using renewable energy, and developing efficient production methods. Portfolio 21 companies seek to prosper in the 21st Century by recognizing environmental sustainability as a fundamental human challenge and a tremendous business opportunity.”

Besides looking for companies with strong balance sheets and income statements, Portfolio 21 also requires that companies have “ecologically superior product lines, . . . evolving product lines, investments in renewable energy, innovative transportation and distribution strategies, and efficient use of resources with respect to meeting human needs.” If a company starts to shy away from its green operations, Portfolio 21 will take action through what they call “Shareholder Activism.” Through this, they essentially file a complaint with the company to try to get them to return to their green ways. If this does not work, they will divest their funds. “If a company no longer meets our selection criteria, we divest. By divesting these companies we hope to send a clear signal to management regarding the importance of maintaining a focus on sustainable business strategies and improving performance in these areas on an ongoing basis.”

In the past year, Portfolio has rejected some very notable companies as investment opportunities based on their lack of greenness. Some companies of note are:

• UPS
• News Corp
• Royal Bank of Scotland
• Yahoo!
• Bank of America
• Texas Instruments
• Corning

As of 3/31/2008, the companies Top 5 holdings are

• Novartis (3.1%)
• Novo Nordisk (2.7%)
• Nokia (2.4%)
• Staples (2.3%)
• IBM (2%)

Some other noteworthy companies were Google, Siemens, Canon, HSBC Holdings, Intel, Nike, HP, Briston-Meyers Squibb, Dell, & Whole Foods.

The fund is currently trading at $34.34 under the symbol PORTX. If you invest directly through the company, the minimum investment is $5,000, or $1,000 if you choose to set up a retirement account. It is also offered through many brokers as well where the minimum may vary. As of 12/31/2008, the fund managed $266M allocated over 115 different positions. Its’ annual return has been 17.39% over the past 5 years. Another thing that I like about the fund is that the managers of it have been managing it since its’ inception.

If green investing is something that you would like to start doing, but lack the time or research capabilities to do it, a fund like this may be appropriate for you. As always, make sure to look over the entire funds past performance and investment objectives and always remember that past performance is never an indicator of future returns.

According to a Wall Street Journal article written by David Enrich, bank fees continue to rise even thought the economy slumps.

Many large national banks have begun to raise their fees across the board in order to boost revenues. Banks make money through two different sources. The traditional way they make money is by lending out money at a higher rate than they are paying to have access to it. The second way is through various fees. When a large number of loans start to default, it makes it so that the banks have to rely more on fees to make up for the lost profit.

“Earlier this month, for example, J.P. Morgan Chase & Co. started charging customers of other banks $3 nearly every time they use one of the bank’s 9,100 ATMs. Before that, the fee ranged from $1.50 to $2.” Assuming ATM use remains constant, J.P. Morgan Chase & Co. can raise their ATM income by 50-100%. There are not a lot of investments out there that earn those kinds of returns. $3 to use their ATM may seem high, but if you consider the cost of tracking down your own ATM it may end up being quite the bargain.

If gas costs $3 per gallon and your vehicle gets 20 MPG, the most you would be willing to travel to avoid the fee is 20 miles round trip, or a 10 mile radius from your current location. If you consider how much your time is worth to you, you would be willing to travel far less. This is one reason why banks can get away with these relatively high fees.

While some consumers may wonder if J.P. Morgan’s fees are a bit excessive, J.P. Morgan has an alternate viewpoint. They claim that “ATMs are a convenience for its customers. ‘If you’re not a customer, you have to pay for that convenience.’” Others say that the higher fees give consumers incentives to join that particular institution. J.P. Morgan does not charge its customers to use their ATMs, so joining their company would be a good way to avoid those obnoxious fees.

How high can bank fees go? They can go as high as the market will bear. Once consumers start to say that enough is enough, then fees should start to level out, but in the meantime they will continue to rise to offset their loan losses.

If you don’t want to join these fee happy institutions, but still need the cash, there are ways around the fees. For example, don’t spend $3 on fees to take $20 out of the ATM. Withdrawal up to your daily maximum, and live off that money until it is gone. You could also use the money that you need and then redeposit it at your institution when you have used all that you need. If you take $20 at a time, it will cost you $15 per $100 taken out. This is like paying a 15% tax on your withdrawals. Another way out of the ATM fees is to get a debit card and make all of your purchases on debit. Transactions on debit cards are typically free, and the transaction will also show up on your monthly statement. With cash, if you forgot what happened to $60 of that $200 that you took out, you will have to rely on your own receipts to find out.

While ATM fees are here to stay, there are ways to get around them and save some money. Remember, if you did only one ATM transaction per month, it would cost you $156 in ATM fees over the course of a year assuming the ATM fees were $3 per transaction.

This article is a follow up on the previous post on Car Mileage.

A common belief amongst people is that the value of a car declines more rapidly the newer it is. Some say your car loses 25% of its’ value when you drive it off the lot. I am about to put my Craigslist data to the test to help prove whether or not this theory actually works.

In my first example I used 2001 Jettas found on Craigslist. Based on those Jettas that came up in my search, only 26 of them were qualified to be entered into the data. I did not accept any VR6, TDI or wagon Jettas. I did this in order to keep the data the most consistent. The average 2001 Jetta had 82,312 miles and was selling for a price of $8,106. I found that for 2001 Jettas, they lost on average $.0342/mile driven. If this theory is to hold true, the 2003 Jettas should decline in value more per mile than the 2001 Jetta.

Let’s take a look at the data:

Listings with a negative difference are underpriced based on the data. Listings with a positive difference are overpriced based on the data.

I took the exact same approach as I did with the first test, except this time through I searched for “2003 Jetta” on the Craigslist site for Seattle. It returned 40 matches, and of those only 21 were qualified to put into the data. For the 2003 model, the average Jetta had 64,488 miles and was selling for $10,869.

After processing the data, I find that the regression of the data points has a coefficient of -.0328, meaning that for every mile that the car is driven, it loses 3.28 cents. It turns out that this is actually less than the 3.42 cent per mile loss for the 2001. The Y-intercept for the 2003 is $12,981.62 as opposed to $10,927.01 for the 2003.

You may recall that I calculated the value of a 2001 Jetta with 80,000 miles to be worth $8191.01 from the 2001 Jetta equation. Taking the 2003 Jetta equation, we shall find out what the value of an ‘03 Jetta with equal mileage should be. We can find this by subtracting from the intercept. So: $12,981.62 - (-.0328 x 80,000) = $10,357.62. This shows us that a buyer would pay $2166.61 for a model that is two years newer, even though it has identical mileage. In order for the consumer to pay the same amount for the 2003 as they would for the 2001 with 80,000 miles on it, the 2003 would have to be at 146,055 miles.

This data seems to find that the value of a car doesn’t seem to decline quicker the newer it is. Given the somewhat small sample sizes, it is possible that the data could be a bit skewed. It would also be interesting to see what the actual sales price of these cars are, because most won’t be sold for their asking price.

For those who must have the latest and greatest though, check out the 2008 Jetta.

This image comes from Autoblog.com

The new Jetta starts at $16,990 + taxes, licensing and all that other fun stuff.

Throughout the time that I have run this blog I have periodically chosen a few stocks and funds that I thought looked like winners. Now I am going to take the time to look and see how they have done since I first suggested them.

On 1/24 I chose Under Armour. On a 1-5 scale I gave them a 3.8. When I first recommended them they were trading at $35.66/share. The stock is currently trading at $35.48. Since I have recommended this company it has returned -.504%. During that same time period, the Dow Jones Industrial Average had a return of -.430%, and the S&P 500 has returned -1.42%.

On 1/28 I chose Generex Biotechnology. On a 1-5 scale I rated them a 2.5, right in the middle. When I first recommended them they were trading at $1.31/share. Since then, the stock has returned -12.2%. During the same time period, the Dow Jones Industrial Average returned -.472% and the S&P 500 has returned -1.56%.

On 2/4 I chose American Medical Alert Corporation. On a 1-5 scale I rated them a 3. When I first recommended them they were trading at $6.50/share. Since then they have returned 8.00%. During the same period, the Dow Jones Industrial Average has returned -2.45% and the S&P 500 has returned -3.48%.

On 2/9 I recommended Fidelity New Markets Income Fund. On a 1-5 scale I rated them a 4.5. When I first recommended them they were trading at $14.49/share. Since then they have returned .759%. In the same time period, the Dow Jones Industrial Average has returned 1.18% and the S&P 500 has returned .116%.

On 2/20 I chose Target. On a 1-5 scale I rated them a 3.2. When I first recommended the company they were trading at $53.40/share. Since then they have returned -2.68%. In the same time period, the Dow Jones Industrial Average has returned -.819% and the S&P 500 has returned -1.99%.

Based on this information, we can see that my stock picks mirrored the overall market fairly well. My two exceptions were Generex and American Medical Alert. Generex is an expecially risky company, while American Medical Alert has had some good things go their way over the past few months. I will try and update the performance every once in a while. The most important thing that this update shows is the value of a balanced portfolio.