Nadia Lee :: Romance Writer

Recently I read a front-page article on the Washington Post that had the following gems:

• She [Aba Kwawu] unearthed clothes in her own closet that she had never worn, some with the tags still on. ... "I had not shopped in so long I was going through withdrawal," said Kwawu, 34. "I thought, 'I have to get something now. I've been good long enough.' "
• She [Gillian Joseph, 42, of McLean] finally broke her fast, walking into Nordstrom after a long absence and buying a pair of 4 1/2 -inch heels in bright floral colors. The experience was cathartic, she said.... "It was like spring -- rebirth, reawakening."
• "However, I work all the time....And if you work hard, you like to reward yourself in some capacity."
• "It's almost like I've come out of the recession before the market," he [Paul Wharton] said proudly. "I made a choice! I just refused to be in the recession any longer!"

I don't get it. Spending even a penny in a store makes my stomach hurt. It takes me months of budgeting and cashflow analysis before I decide to buy laptops, etc. This summer while in the States I spent thousands of dollars on shoes, clothes and a netbook after not having shopped for clothes or shoes for two and a half years, and even then I felt sick to my stomach. I think I returned about half the stuff before leaving the States because I just couldn't tolerate the idea of spending that much money. (The only thing I don't mind buying is books - paperbacks, mind you - because they're like decadent indulgences to me.)

So...how does shopping make someone feel better? What value do people get out of spending thousands of dollars regularly on items they don't even need or use? Am I missing something?

Before I begin: This post is not about politics. I'm talking about this from a purely financial point of view. Numbers. If anyone leaves comments with political hate-talk, they will be deleted with extreme prejudice.

As we all know, Americans don't save much. That's one reason why we have to borrow so much from China, Japan, etc., and it's obviously a bad thing. In addition, many people are unable to retire due to a lack of sufficient money to fund their golden years. So in order to make it easier for you to save, Obama is proposing several measures. One of them is this:

In a second move, Mr. Obama said the Internal Revenue Service will allow people to check a box on their tax returns and receive their tax refunds in the form of United States savings bonds. White House officials said about 100 million families get tax refunds each year, and the average refund is about $2,000.

This wouldn't be a bad idea...if U.S. savings bonds actually offered a decent rate of return. According to the US savings bonds website, the interest rates as of September 2009 range from -5.56% (this is not a typo -- the website really says that the rate is negative) to 1.5%. So the government gets to keep your federal tax refunds for years and pay you almost nothing. (You know the Chinese demand more than 1.5% on their money.)

If that's not bad enough, with the current rate of inflation, the value of your money will decrease. If you're making 1.5% on a bond and the inflation rate is 4% (let's just say), then your money is worth 2.5% less every year you leave it in the bond. So by saving, you actually lose ground.

The best way to encourage saving is not "allowing" people to put their tax refunds into some savings bonds that pay a nominal and virtually worthless rate of return. It is by raising interest rates and making saving (i.e., delayed gratification) worthwhile.

But I doubt that's really going to happen. If everyone saves, who's going to increase consumer spending, the all-important gauge of economic activity in America?

I know it seems incredible that the market can still go lower, but I'm afraid it will.

It does not inspire confidence when the U. S. administration believes that the economic plans are showing results. I suppose it is true if the aim of their plans was to deepen the recession. But I thought they were trying to stimulate the economy.

Furthermore, Obama's statement made me go "huh?" It really showed how clueless everyone in Washington D.C. is about the market and how unqualified they are in giving investment advice to people:

What you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it.

I hate to ask, but what are "profit and earning ratios"?

The only ratio with P & E that I know of is the P/E ratio, a.k.a. P(rice) / E(earnings) ratio. In business lingo profit and earning are more or less the same thing, so it's a bit odd to create a ratio out of those two because the result will always be "1". Also looking purely at the P/E ratio to evaluate any particular company stock's potential is utterly ridiculous. There are so many variables to consider, and historical performance is not indicative of future performance.

Furthermore, earnings (a.k.a. profit a.k.a. income) should be regarded with skepticism. There are many ways to fudge the data and adopt different types of amortization schedules and so on to either inflate or deflate income. This means you must read the notes and do some heavy-duty calculation (meaning accounting) yourself to ensure that the earnings data you're using for Company A is truly comparable to other companies within the same industry and so on.

This is why IMHO the most important financial statement is not the balance sheet or income statement, but the cash flow statement. If you don't have enough cash to operate your business you will go bankrupt (unless you're "too big to fail"). You'd be amazed at the kind of insight you can gain by looking at a company's cash flow statement.

Anyway, I'll be holding onto my cash until the market has truly hit the bottom.

mood: upbeat
current workshop: Margie Lawson's Defeating Self-Defeating Behaviors
bought yesterday: Philips Sonicare R732 HealthyWhite Power Toothbrush

Went to McD for a Big Mac. It was that or cooking. For whatever reason, McD in Japan tastes better than McD in America. I think it's due to the fact that Japanese franchisees use fresher veggies, etc.

Yesterday, I bought Sonicare. I've been thinking about buying it for a long long time. It's less than $150 in the States. In Japan, it's $200. (For those of you who think protective tariffs are great, this is the result -- paying 25-50% more for the same stuff, just because it's made by a non-domestic firm.) Hero Material and I used it last night, and we decided that it is indeed excellent. My teeth feel extra clean.

This Christmas / New Years, I've mostly bought books, some stuff from VS and so on. For whatever reason, I'm not really interested in shopping. This month I'm also going to close my HELOC account the second I pay off the balance. I don't see any point in keeping it since the bank won't let me withdraw any money out of it. So yes, my bank did lose a customer, but I don't think it cares. Oh the joy of modern banking.

Hero Material and I've been watching The Closer recently, and who would've thought it would manifest in my subconscious?

A couple of nights ago, I had this weird dream that Kuro committed some kind of crime. I don't even know what he did, but that's not the point of my dream. The poor hamster was arrested, complete with teeny handcuffs. Shiro, with her litter, came to the police station to defend him. I was playing the Brenda Leigh Johnson character (the investigator, if you're not familiar with the series), so of course I asked her lots of difficult questions. The poor hamster squeaked in distress, hopping around on the table, but I didn't believe that she was telling me the truth. Meanwhile the infant hamsters were writhing on the table, blind, deaf and hairless. It was just really surreal. Kuro told Shiro he loved her, and the dream more or less ended.

On the non-weird-dream / hamster front, the weather's been odd. The temperature plunged suddenly, and it's freezing here. The big news here is the "massive" layoffs of maybe 2,000 workers or so by several local corporations. In Japan, there are two tiers of employment: seishain (full-time regular company workers) and contract / temporary workers. The latter category is broken down into two categories: shokutaku shain and hakken shain. Shokutaku shain is someone employed directly by the company on a short-term contractual basis, usually for a year. Hakken shain is what most Americans consider temp workers, meaning the company got them through temp agencies. When companies decide to cut costs, they usually let go of their contract / temp workers first. Currently Japan still clings to lifetime employment, and companies have certain obligations to their seishain. That includes not firing them first, paying for their health and pension insurance premiums, giving perks, bonuses, etc. (Contract / temp workers do not receive any bonuses or pay raises, etc.) Due to all this inequity in employment, a lot of non-seishain have been protesting the recent layoffs, etc. Furthermore, IBM Japan laid off its seishain (gasp!), which created even more drama. Oi.

BTW -- The Big Three bailout is a huge conversation topic in Japan. After all, it does affect Japanese firms. Auto suppliers hope for the bailout since many of them have contracts with the Big Three. I enjoy reading financial analyses, etc. but if I read another person write that Japanese firms have a huge cost advantage because they get free health insurance and pension, I'm going to scream. I've been in two countries with nationalized health care. It is not free. Everyone must pay. People pay about $400 or so per month, and if they're seishain, companies pay a big chunk of it. Companies also pay for their pensions. If that's not bad enough, Japanese companies must ensure that their workers aren't overweight or overly rotund around the middle or pay an enormous fine to the Health Ministry for overburdening the national health insurance system. Furthermore, the government had a huge screwup with its pension funds, and since Japan has too many retirees and not enough young workers, it's planning to double the sales tax. So please, stop with all this "free" stuff.