The Market Ticker
Commentary on The Capital Markets- Category [Consumer]
2014-04-18 11:05 by Karl Denninger
in Consumer , 289 references

This sort of thing makes my blood boil, and not for the reasons you may think:

If you think cars are getting too expensive, you may be right. A new report shows that the average price of a new vehicle is out of reach for people in medium-income households in all but one of the 25 largest metro areas in the U.S.

The report by shows that Washington, D.C. is the only American metropolitan area in which a family earning the city's median income can afford the average price of a new vehicle, which was $32,086 in 2013, according to Kelley Blue Book. That price equates to a monthly payment of $633, assuming the buyers put 20 percent down, financed for 48 months and principal, interest and insurance did not exceed ten percent of the household's gross income.

$32,000 for an average new vehicle is utterly nuts.

Flat-out, stark raving nuts.

First off, virtually nobody puts 20% down on cars any more; almost everyone I have heard from or about is buying them with 100% financing -- which is stupid all on its own, because if you don't take GAP insurance and wreck it you're totally screwed.  If you do take GAP insurance then you're paying for yet another service and your monthly cost goes up even higher.

Second, there is this claim that the car should be "no more" than 10% of household gross income.  What are you smoking over there?  We are talking about two-income households, right?  So now we're also talking about two cars, right, or is the second person walking to work?  20% of household gross tied up in vehicle payments and insurance?  

Are you stark raving mad?

To put some percentages on this that actually matter my "reasonably safe" financial leverage limit for most people stands at 28% maximum for all fixed housing-related expenses, which means principal, interest, hazard insurance, any mandatory association or coop fees and property tax (or rent + tenant insurance.)  The maximum safe leverage limit for all fixed obligations (including housing and transportation) is 36%.  That means that you can afford one vehicle that has a carrying cost of 8% of your gross assuming no other debt of any sort, such as credit cards or student loans, if you are up against the 28% maximum on housing expenses.  By the way note that taking on that 8% obligation means you are locked into not taking any more debt until either your income rises or you pay off the note -- it is not just a "qualify and then do what you want" ratio.

But this, by the way, this is not what you'll be sold at any dealer.  If you actually run to my limits (36% maximum gross income obligation against housing and transportation) you will find that your household is pretty damn tight on money.  Not desperately so, but moderately.  That means you won't be buying fancy vacations nor will you end the month with a bunch of extra cash allowing you to go out on shopping sprees and spend it.  Instead you will be coming to the end of the month juggling a few things -- that night in the bar will burn your last disposable $50 but you'll still manage to hit the match on your 401k at work -- barely.

If you go the limits "recommended" by the "finance guys" you will instead be eating Mac-N-Cheese on a fairly regular basis or you will start doing really bad, destructive things -- like carrying a credit card balance from month to month, having zero in cash reserves and, when the inevitable bad thing happens that requires you to spend a few hundred dollars without prior warning or planning you will be screwed.

I am not surprised though.  What did surprise me, as I recently shopped for a new car (and ultimately bought one as I wrote about here a few weeks ago) was how utterly outrageous vehicle prices had gotten over the last few years in comparison to what you actually got for your money.

Why, one might ask?

That's pretty simple -- the financialization of vehicles has advanced to the point that we no longer do "traditional" car loans from a bank or credit union, or paying cash, as our primary means of purchase. This has taken what should have been a dramatic and continuing technology improvement process that reduces price and led to everyone along the way, from manufacturers to banks to dealers scalping all of the value add from that process for themselves, increasing prices so that all but the last ten cents of that value goes to them and only a tiny bit comes to you.

This is exactly what has happened in both education and health care -- and what happened in housing as well.

This pattern is self-destructive for the economy as a whole but it will not stop until something breaks the financialization model -- and there is no indication we're going to see that from the car industry or the finance industry any time soon.

Can you fight back against it?  Yes and no.  Unfortunately this same trend causes used prices to rise too, so there is only some defense available by buying a quality used vehicle instead of a new one.  But what you can do is stop playing "I need a Lexus" and start showing the car dealers the back of your head on a regular basis.

I don't think that's going to happen, however, which makes this a problem that we're going to have to deal with for some time to come -- right up until it blows up in all of our faces in aggregate, just as college loans and medical spending are destined to.

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In the coming months, the environmentally minded can go to Mosaic’s site and invest in portfolio of 20-year loans made to homeowners. (Each individual loan will be scrubbed of identifying information.) Mosaic is offering the loans through a partnership with solar installer RGS Energy.

The interest rate is 4.99 percent as long as homeowners pay down the loan with a 30 percent federal tax credit they’ll receive for installing a solar system. If they keep the tax credit, the rate jumps to 10 percent after 18 months.

“We think a solar loan if structured right can open up the market and make solar more affordable and accessible for more homeowners,” Mosaic co-founder Billy Parish told The Atlantic.

Ah, I see.

So if you spend the money and do not take the tax credit personally the interest rate is 5%, which is still quite high for a secured credit facility (secured by you getting tossed on your ass from your house!) in a world of zero rates and a 10 year that trades at 2.6%.

If, on the other hand, you don't do that and finance the entire amount the interest rate looks like a damned credit card.

Now let's look at the total payments.  Let's assume your "system" costs $20,000.  Note that the "tax credit" (1) may not be able to be carried forward after 2016 and (2) has to be used to pay down the principal.  So let's assume you don't cap out on the tax credit (and thus lose it) and do pay it down (and thus your effective financed amount is $14,000); the total payments would be $22,062.50.  This is probably why it looks attractive; over the 20 years you are only "paying" an effective $2,000 for the financing -- because you stole the rest of the principal from everyone else.

Now let's assume you can't manage to meet your tax bill while doing that.  Then you're ****ed as the system now costs $45,938.22.

That's assuming you don't default, by the way.

If you do you lose your house.

Explodo-loans, irrespective of how they're wrapped and presented to people, ought to be against the law.

H/t: Dmj, who alerted me to this one.

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Oh, look at the spin....

CHARLOTTE, N.C. — The North Carolina Attorney General's Office is now joining other states investigating a massive data breach at a credit reporting agency that has put 200 million Social Security numbers at risk.

State justice officials told Channel 9 they are concerned about how many residents could fall victim to identity theft because of the breach uncovered at Experian.

Investigators said sometime before March 2012, a Vietnamese man named Hieu Minh Ngo used a false identity to purchase Social Security numbers with a database called Court Ventures, and then sold that information on the international black market.


See, there was no "breach" at all. This guy didn't allegedly break into a computer and steal the data. The accused (who has since been arrested, incidentally, after he was lured to US soil where he could be tagged) bought the data.

Yes, he did misrepresent who he was.  But the real question that is not being asked here is why is this data collected and exposed in the first place?

There's no need for it to be in places where it can be collected in this instance.

We have this general problem in that despite the fact that the original Social Security cards (including the one I first got when I applied for it as I started working as a youth) had emblazoned on the front "not for identification" it has indeed become exactly that -- a de-facto government-mandated ID.

This in turn means that it has value standing alone, instead of being what it was intended to be up front, which was simply a means of identifying your tax payments into the Social Security system.

The problem isn't that this guy allegedly got access to the data.  It is that it is collected and correlated in the first place despite being allegedly improper to do so in the first instance.

The fix for this problem is to stop that crap -- to halt the "credit bureau" abuse of this sort of data originally.  Then there is no single piece of information that can be taken and used in this fashion.

The real risk is not so much theft as it is exactly what happened here.  See, this wasn't theft -- the guy who got the data bought and paid for it, exactly as do thousands of businesses every year.

The real question is this: If we're going to prosecute this guy, and we clearly are, why aren't we also prosecuting all of the aggregation, sale and purchase of the data as a whole, when the data itself, in this case Social Security numbers, was originally tagged as "not for identification"?

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2014-04-06 12:22 by Karl Denninger
in Consumer , 197 references

This is really kinda funny coming from Bloomberg....

The industry’s fight over prices, ignited last year by T-Mobile US Inc., is beginning to have a noticeable effect even for consumers who haven’t switched carriers. As they jockey to match or beat each other’s discounts for new customers, the wireless companies are also passing along savings to their current users to keep them from running off to a competitor.

It's called "a mature market"; all that's left is trying to eat the other guy while he tries to eat you.

The problem with this situation comes when you have so-called "analysts" that keep pounding the table on "growth" -- in revenue, EPS, whatever.  There isn't any in a mature market -- there's only cannibalization.

T-Mobile led the way in separating the costs of buying devices from the rest of the wireless bill. Its competitors have followed suit, offering phones on installment plans and billing separately for service. This is a bonus for carriers. It relieves them from having to pay hundreds of dollars to offer phones below cost, a strategy that had been used to lure customers into two-year contracts.

Uh, no.

The typical "subsidy" winds up being about $40/month on a pure analytical look.  That's $480 a year, which is far more than the actual discount off the "retail" price of most phones.  And since contracts are two year deals the real impact to the consumer isn't $480, it's $960.

The carriers have been screwing the customer, in short, out of roughly a grand for a device that costs $500 when bought on the open market.  This is great for them -- but not for you.

Anyone who thinks that the destruction of this business model is good for carrier earnings has rocks in their head or is trying to sell you a bridge (possibly in the form of shares with the names of these companies on the face.)  

However, this evolution is unquestionably good for the consumer -- it's this magical thing called "competition."

For extra credit in your economics class today you can explain why this same principle hasn't cut the cost of your health care in half over the last 10 years.  Should you run into some trouble understanding why that dynamic doesn't work in the health field you can enhance your comprehension of what's going on in that area of commerce by reading here.

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So here I am about 400 miles into the Mazda 6 "Sport" and I thought I'd post some impressions of the car itself....  So with no further ado, here it is:

  • For a car of this size fuel economy is damned impressive. I'm getting 35 mpg combined -- considerably better than the alleged EPA "combined" estimate of 29.  With the cruise locked at 70mph on a flat freeway the "instant" read-out on the trip computer says 40.5 and stays there.  That's damn good for a gas-engined vehicle.  The trip computer said 34.0; miles driven over gallons filled says 35.9 (!)  The tank was full at delivery (4 miles on the ticker and I was present when it was filled up) and I filled one tick over a quarter-tank left just to see how far off the onboard computer was.  Other than my drive home with the car I've been driving it as I usually do around here with a typical mix.  That works out to 9.9 cents/mile for fuel, which compares quite favorably with the Jetta.

  • The engine has a very pleasant torque curve and excellent drivability.  "Skyactiv" is a long-stroke engine and power comes on reasonably low in the RPM range; peak torque is claimed to be right near 3500 RPM.  Many 4-cylinder engines have to be wound up pretty tight before they get going; this one is an exception.  The power band is flat and pleasant; it's not "smoke the tires" fast by any means but the vehicle has plenty of power for general use.  Being normally aspirated there is no big peak in power when boost comes on as is common with turbocharged engines.

  • It's mechanically simple compared against many other designs.  Being normally aspirated there is no turbocharger.  It has a timing chain as opposed to a belt.  Most of the magic is in the exhaust manifold 4-2-1 design, which takes up physical space but is passive in action.  The only bit of sophistry that has the potential to be a pain in the ass is electrically-driven variable valve timing, but this is a feature shared by a fairly large number of modern gas engines and has generally not been a troublesome area.  The VVT changeover is able to be felt; it's not obtrusive but if you zen with your car when driving you will notice the changeover as you roll on the power.  The best description of the change is "a bit of hesitation" -- just noticeable, but it's there, and if you tweak your driving style just right you can drive right on the edge of the changeover and provoke it almost "at-will."  This contrasts against a turbo engine that, unless you have the turbo spooled up, requires quite a bit more time to get the wheel up to speed before the boost comes on.

  • The manual transmission is awesome.  The feel is light, crisp, the throws short and the gates are precise with nearly no play.  The clutch is hydraulic, light and has a relatively long take-up.  It has a very different feel than the Jetta, which has longer throws, is far less precise on the gates and the clutch on the Jetta has much less take-up range than the Mazda.  I'd only change one thing on the Mazda in the gearbox area, and that's 2nd gear -- I suspect they chose the ratio to specifically make possible a one-shift 0-60 run; I'd like a shorter 2nd.  I'm grasping for something to complain about here though when it comes to the gearbox -- it's that good.  Speaking of which the car also has a "hill hold" feature that isn't obtrusive at all.  I personally hate this feature on most cars but Mazda has managed to do it in a way that, at least in my experience, is unobtrusive yet does exactly what you'd like; it is almost as good as a manual heel-toe accelerator/brake maneuver (or manual use of the handbrake.)

  • It comes off a cold start incredibly quickly.  I'm not sure how Mazda pulled this off but the "cold" light is out by the time I'm to the end of my residential street -- about a half-mile.  I haven't had real cold weather to evaluate performance under those conditions and won't until next winter but the difference here is not subtle at all measured against not just the Jetta (which as a diesel won't warm up until you ask it to work a bit) but my gas-engined truck, which typically isn't off the cold peg until you reach the third mile or so.  Mazda has done an unbelievable job of thermal management; the only thing you notice is that the idle is up materially (around 1200 rpm) on a cold start for the first 30 seconds or so.  Normal, hot idle is right around 600 RPM indicated.

  • Handling is excellent.  The brakes are well-modulated and firm, there is very little body lean in turns, steering is precise and has a reasonable amount of feedback (surprising for a vehicle with electric boost as opposed to hydraulic) and stability on both even and uneven surfaces is excellent. This is not a landyacht; road feel is maintained without being harsh; IMHO the balance in that regard is exactly where it should be.  It is much better than the Jetta in this department.  Of course the Jetta has a solid rear axle as opposed to the independent link design on the Mazda, which I'm sure has a fair bit to do with this.  With that said I won't get the opportunity to take the car somewhere twisty where I have to get the brakes good and hot for a while yet, as there's nothing like that around here -- but I do not expect to be disappointed.  There is a TSP "off" switch but I've yet to provoke the system into arguing with my right foot so I haven't had occasion to use it.

  • I have one nit to pick on electronics design and implementation -- retained accessory power.  When shut down the power windows retain accessory power, which is nice if you forgot to roll them up before you shut down and is expected these days. However, the radio does not retain accessory power until the door is opened or it times out, unlike many other vehicles. That's IMHO a brain fart and, if you turn the accessory power back on for the radio window retained power is lost (they only activate normally in "Run.")  I don't know that this is so-much "wrong" as it is "different" and this may be a function of the logic in the radio itself as opposed to the vehicle commanding the radio off.  Speaking of retained power and design decisions Mazda switches the 12V accessory outlets which means you can leave something (like your phone charger) plugged into them and not risk draining the battery when the car is shut down.  VW, are you listening?

  • While the car "formally" doesn't have "coming home" lighting listed as a feature it in fact does.  If you leave the headlights "on" and shut down they and the tail lights remain on for a couple of minutes, then turn off automatically. When you start up they come back on.  I like having the option as opposed to "fully automatic" come-home/departing lighting as there are times when you'd rather have "off means off."  Speaking of that the courtesy lights on the doors are one of the better-enginered designs I've seen.  Most face inward; the lenses on these face both in and down, so they illuminate the ground in the gap between the door and car when the door is open.  In addition interior lighting dims by about 20% when all doors are closed, then fades to off after a bit, so you have a positive indication of "doors closed" before starting up without having to look for the "door ajar" light on the dash.  Good job Mazda -- very classy.

  • Want a beef?  I have one -- the trunk light.  Who put a ****ing T-5 in there; that is ridiculously anemic.  My answer to that is going to be an adhesive LED lightstrip across the top.  Yeah, I know -- grasping at straws.
  • Ok, two beefs: Where are my temperature and oil pressure gauges?  There's a bit of sarcasm here, by the way.  Why?  Because I challenge you to find those on virtually any modern car, and if you do they don't count if the computer lies to you.  My Jetta has a temperature gauge but it lies, showing "190" (normal) for any temperature between about 165 and 220!  That makes it worthless for monitoring and there's already an idiot light for overheating (plus a beep alarm.)  As for oil pressure VW is so kind as to disable the low-oil-pressure warning at low RPM (!) so it is entirely possible to wreck an engine in that way. It's not very likely, but it can happen.  My truck, on the other hand, has what appears to be directly-connected temperature and oil-pressure gauges.  How do I know the latter is?  Because I can see the very minor fluctuations when the engine is cold at idle characteristic of the oil pump's pressure bypass with cold oil.  Yes, ladies, I'd like actual gauges.  Please and thank you and I know I won't get them unless I tap into the OBD port and read the values that way (such as with Torque or a Scangauge.)

  • Adding fogs and the "homelink" mirror was a less-than-an-hour exercise.  Both are pre-wired; you simply swap the stalk switch (takes a literal 30 seconds) and remove the mud cover from the bottom of the car (a handful of screws and reusable plastic pop-style expanding clips), pop out the blanking pieces in the bumper, and behind there you find a connector.  Insert the foglight and plug it in.  Repeat for the other side.  Done.  The "Homelink" mirror is similarly simple; pull the driver door seal away from the body of the vehicle (it comes off without drama or tools but is secure in normal use), remove the A pillar on the driver side (the kit comes with a new top "bitch clip" that will be destroyed when you remove it), replace the physical mirror and run the included harness down to the pre-existing connector under the A-pillar cover.  Plug it in, secure the wiring and put the cover back on.  Done.  Don't pay a dealer's shop charge to install these as there's no wiring to be done or hassle, and contrary to the instructions that come with the fogs you do not have to remove the bumper to do the installation.  Mazdagear has the bits for both at somewhat of a discount (~20% or so.)  I also added the spash guards which were a literal 10 minute install as provisions were made in the stone guards for them at the factory.  One note: US cars do not have the foglight indicator hooked up in the dash, so it won't come on when the fogs are in use.  I'm not about to pull the dash to see if this is as simple as a missing bulb (probably) or something more though.  And oh, by the way, the stalk switch is reasonably priced.  While VW's "euroswitch" can be had in Chineesium replacement trim for a rational price the OEM part is outrageously expensive for what it is and yes, there is a quality difference.

  • De-badging the car, if you wish to, is a 2 minute job.  I did and I like the appearance a lot better without the "Skyactiv" and "Mazda 6" badges on the trunk lid.  A piece of 30lb fishing line cuts right through the adhesive and the rest rolls off with a fingernail.  Done.

  • The A/C blows copious amounts of iced air.  One complaint I always had with the Jetta was that the A/C is marginal in the south.  It's fine anywhere else in the country, but it's just plain undersized for Florida.  It does the job but not as quickly as you'd like under severe conditions. It's a German thing, I guess; they don't expect 100 degrees and 100% humidity at the same time when they design for A/C capacity. That's not going to be a problem with this car.

  • The factory tires are actually nice.  Yokohama Advan A83As are the factory rubber.  They're quiet, ride well, have observed excellent wet traction and thus far I have nothing to bitch about.  Note, however, that they will likely never see snow, so I can't comment on winter performance nor do I care.  The maximum running pressure is 51psi and they're V-rated.  I don't think the car will do 149 mph before it runs out of horsepower, however.  Most factory tires suck just short of hideously enough to stop you from immediately spending $500 or more putting new rubber on the car, and you wait out their treadlife.  These are an exception; provided they wear well I might actually buy them again when the time comes.  Just don't buy them from the dealer; there is a report on one of the forums of an attempt to get a rough 50% mark up over Tire Rack's price for the same thing from someone who had a road hazard failure and needs a replacement.  Nice.

  • It has a donut spare.  Meh.  Better than "canned air and sealer" though.  I'll live.

  • Look under the car.  Really.  How they got the low coefficient of drag will be apparent, as will the means by which they reduced wind noise coming from underneath.  The car is nearly-flat on the bottom!  While the aero covers are plastic they are also well-fastened, removable without drama for inspection and maintenance (thank you!) and there are quick-access covers (secured appropriately) for service purposes (radiator drain, oil change, etc) so you don't have to remove the covers for routine maintenance.  The muffler is center-fed with a big fat pipe from the engine and flat, feeding the twin exhaust pipes from the rear while contributing nearly nothing to drag or under-car air turbulence.  In addition unlike the Jetta the front bumper does not form a "hook" that can catch a curb and tear off the lower section, nor does it appear that your "feeler" for clearance is the oil pan as on the Jetta.  The utility of an aluminum skid plate would thus be much-reduced over my Jetta, where it was damn near required (and is on the car as a consequence.)  It appears that a Class 1 hitch can be trivially added (for bicycles and such) without becoming the low point on the chassis -- I'm contemplating doing so.

  • It's a quiet car. Not stone-silent like some luxury makes, but pretty close.  Materially quieter than the Jetta.  Of course the engine is gas as opposed to diesel, but even on the highway where you can't hear direct engine noise Mazda did a good job of sound isolation.  If you were going to try to improve on it the first place to start would be to put some deadening material on the outer door skins (from the inside) to hold down outside sounds from resonating through the doors. (This is one of the first steps you want to take with most vehicles in that regard, incidentally.)  I may do that, but I suspect that "as delivered" the car is reasonably close to the point of diminishing returns already and it may not be worth it unless I get crazy with a sound system rework, which is always possible.
  • As for quiet -- when shut down a pump runs for a minute or so afterward.  The same pump runs when the ignition is "on."  I suspect this is the fuel lift pump (to feed the fuel system from the tank itself) and it's in the engine compartment rather than the tank.  The usual cautions about playing with things under the hood (or anywhere else that might be powered) with the battery connected on modern cars apply.  If in doubt pull the negative battery cable (which is easily accessible, by the way, but doing so does cost you accumulated trip computer statistics.)
  • Speaking of the stock sound system.... it's basic (intentional, as I did not want their fancier options) but functional.  It will read a USB key but doesn't know how to sort tracks, so you have to be careful the order in which you put files on the key (that's the order it plays them within a folder.)  It can display song names and such while playing, but has no folder search option -- it just shows the folder number rather than its name.  It also has an Aux input jack but beware if your device requires 12V power from the car as you need a ground isolator or you will get a material amount of noise in the audio; one of those is about $10 and IMHO Mazda should have included it in the aux input line.  The sound itself is serviceable; much better than the stock system on the CX-5, which makes little sense as the head units are identical and allegedly so are the speakers, but there is no comparison between the two.  IMHO the CX-5 "sport" audio system sucks; this setup is decent if uninspiring.  I will likely replace both speakers and head unit eventually but I am not compelled by short comings to do so today.  I may custom build around a tablet and external amp if I can find something that will fit cleanly in a double-din opening as it appears the only thing I'd really give up is radio, and I never listen to that anyway.  The problem with head units today is that they all suck; I'm sorry, but when you've had a synthesized-voice-navigation audio system in your previous car for damn near 10 years that has a 100GB disk drive in the trunk that can search by artist and album along with your own playlists going backward just doesn't make sense.  How hard is it for the aftermarket folks to come up with something that doesn't have a cheap front-panel feel like a $2 hooker and yet knows how to present a coherent view (including a directory tree with names) of a USB-attached SSD, allowing easy navigation, and then knows enough to sort the tracks in alphabetical order so if you number them "01..." everything works as intended?  C'mon folks, it's 2014 and that **** worked in 2003 -- what is the excuse of firms like Pioneer and similar, say much less car manufacturers themselves, that cannot manage to make that, plus bluetooth streaming, display and control, work flawlessly? Finally, why is it that the aftermarket folks think that cheap looking and feeling membrane controls are appropriate for something going in a nice car?

Overall I'm impressed, especially for the price.

Incidentally I have found zero defects so far with the vehicle; nothing out of place, no rattles, no problems.  We'll see if that holds up too but thus far everything looks good.

First impression after a week and ~400 miles on the Mazda "6": Love and recommend it.

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