Tuesday, February 1, 2011

Hamster Huey and Pinewood Derby lessons.

This time last year I was diligently blogging pretty much once a week. Life gets in the way and interest can wain, so it seems now I'm registering once a month lately give-or-take. I'd like to use the excuse that it was the holidays, but given that it's now February that ship ain't gonna sail no more.
I've got a few things to discuss this time around, and, as always, will include Kim K at the end for your entertainment. She's kind of like a bad reality TV show - hard to fathom why it captures our attention but oh-so-hard to ignore. Oh wait...didn't she have a bad reality TV show that we actually DID ignore? So much for analogies.
Let's dive right in to the Middle Class Money Muddle. I've given this a bit more thought and decided instead of talking about this or that money-saving tip (which can be found all over the place online), I'd instead take a recent bit of financial/economic news and analyze it's impact on the daily life of the average guy. Disclaimer!! - I'm not a financial advisor or Nobel Laureate in economics, however I do follow the financial and economic news closely and have an MBA in finance and BA in economics (although my career choice of real estate development means my financial/economic analysis skills are a bit rusty). That being said, my analysis could be way off base and have about as much relevance to your life as the price of tea in China (although in today's global economy and the rise of China, this expression may be losing some of its former steam as the price of tea in China probably does have an impact on your life.)
 The big decision is choosing what to pull apart with all that going on in Egypt, the new Congress coming into office, the ongoing housing crisis, and on and on...
So how about this? The first possible "whiff of inflation" in the economy. Yikes! Inflation? That's rising prices and that's bad! right? Well, yes and no. For much of the past 2+ years, inflation has been so low as to cause concern of possible "deflation" or a drop in prices. But wait - that's good right? Again - yes and no. Good for your wallet in the short term, bad for the economy and your financial well-being in the long term. When expectations are that prices will drop in the future, both people and businesses stop spending now on the expectation of paying less later. This means money stops flowing in the economy. Bad. When businesses and people stop spending...well, we've been down that path the last few years and we know where that leads us and it's certainly not Nirvana.
There is a "healthy level of inflation"* What? How, you ask, can inflation be healthy? For one, people will spend now instead of later if they expect prices to rise. That gets money flowing in the economy which in turn keeps the economy growing, companies hiring and people working. It's a virtuous cycle. However, its a tricky business keeping to that healthy level. Too much inflation (called hyperinflation) and the economy overheats, prices keep rising ridiculously fast causing people to spend even more now to try and stay ahead of the curve. General craziness ensues until everything goes kablooie.
It's also important to separate out different kinds of inflation (to over-simplify it). As a consumer, your primary interest should be in the CPI or Consumer Price Index. Very briefly, this shows a rise (or fall) over time in the price of a pre-selected "basket of goods" the typical household buys. From the perspective of a business, they are concerned with the PPI or Producer Price Index or the change in cost of the materials, good and services they must buy to produce their products. On a day-to-day basis, you don't need to be overly concerned about the PPI if you hear it's rising. The reason is that as a general rule of thumb, most producers will absorb small rises in costs without passing them along to the customer so as not to affect sales in the short to mid-term (remember - a company lays out an annual business plan with sales projections so any monkey wrench in that is a big no-no unless absolutely necessary). If however, the PPI is consistently rising or suddenly rises, then you can probably expect price increases at the store in the not-too-distant future. And to bring it full circle, the "whiff of inflation" article linked above is about producer costs. The very question of if those costs will be passed along to the consumer is central to the discussion especially given the fragile nature of the economic recovery. My guess is "not yet".
A rise in energy prices has one of the biggest overall effects on general pricing. It takes energy to make everything, energy to transport it, energy to light and heat the stores where stuff is sold. So the price of oil is one thing to watch if you're concerned about your wallet. No doubt you've felt the pain in recent months as the price at the pump has gone back above $3/gal. This is also one of the driving factors (pun intended) behind trying to reduce our dependence on oil. It's not just the price of gas or global warming. If we can develop a reliable, cheaper alternative, the cost of nearly everything will go down (but this would be different than deflation as this overall drop would be more akin to an increase in efficiency as monetary resources could be reallocated toward uses other than energy).
*What level that is, is somewhat debatable but the Fed likes it to be somewhere around 2% per year give-or-take. Here's a more detailed explanation from Investopedia and a table showing the annual inflation rates at each month during the year. Note: you can't add the months up for an annual rate! The rate for each month was the overall calculated annual rate at that point in time. The primary source of information about the economy is the Bureau of Labor Statistics website. Lots of analysis and data. 
OK...so you got all that? Good. Let's move on to some more easily digestible fare.
How about the every-exciting, sexy and highly charged world of refurbishing old tools? Yes? Good. So a friend of mine is a carpenter and when I was over at his shop a short while back I saw a rusty old handplane sitting off to the side. I asked him about it and he said he got it from his uncle when he'd done work for him. A couple weeks later I asked him if I could take a stab at bringing it back to life. Needless to say, he got back a nice, very serviceable 85-year-old Stanley #5c jack plane that is good to go for another 85 years with proper care. He was quite amazed because he didn't think it could ever work again. Let me just say it took a lot of elbow grease and sandpaper. Probably not collector quality (yes, people collect old tools and often pay quite a bit for them!), but it's very functional.
Two weekends ago my two younger sons' Cub Scout Pack had its annual Pinewood Derby. For those of you not familiar with Scouting, this is one of the highlights of the year. Parents and boys spend many hours on their cars (let's call it what it is - dad spends a lot of time on the car), fine tuning them for maximum speed as I did. Being the somewhat handy type, I volunteered to work the "tune up table" which is supposed to be to help make those final adjustments to the cars - a little extra weight, make sure the wheels are straight, etc. Then there are the parents who either don't have either the time, interest or skills necessary. These are the ones who show up at the weigh-in the night before with a half-built car. No joke, cars still smelling of fresh paint and no wheels or weight were handed over to me by hopeless-looking parents. The line backed up 5 or 6 deep. I resorted to quickly sticking the wheels on, pushing the axles (nails) into the pre-cut slots with my thumb, then crudely hot-gluing weight to the bottom of the car. Given the fact I was  working with cars the parents had clearly done little work on, you'd think some would be a bit less particular about ensuring I got it exactly to the legal limit of 5 oz. Needless to say I managed the evening with a smile...which turned to a grimace the next day at the races when, sonofabit ch, my sons' two cars only did mediocre and several of the cars I jammed the wheels on at the last minute wound up with trophies...next year my boys will race a plain wooden block.
How often do you spend time playing? Probably not enough. Well, there's growing evidence that adults need to make more time for it in order to remain happy and healthy. Not only that, but while knowledge may be gained from working, real wisdom most likely comes from play when you are able to deeply dive into who you truly are, be happy and build self-esteem. You then bring those qualities with you into the workplace, making you more effective.
Finally, we at last get to Kim. Seems she's upset over a recent photo spreadSo here's the deal - she poses for W Magazine then is upset because of "full-on nipple" showing. This from a woman who has a sex tape, posed for Playboy and puts herself in the public spotlight at every opportunity?  So here's one of the pics from the spread...but somewhat censored from its original version via "strategic" stars. I think that given the lifestyle she's chosen she needs to, as the pic references at the bottom, face her reality. As Harry Truman said "If you can't stand the heat, get out of the kitchen."