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2025-01-19 07:00 by Karl Denninger
in Consumer , 478 references
[Comments enabled]  

The economic storm, that is.

There is a lot of "rah-rah" over Trump coming back into office within days.  But the economic environment in his first term was very different than it is now.

For one thing housing affordability was double what is today, roughly.  That is you'd have to see house prices cut roughly in half with interest rates at a normal, positive-slope against actual inflation rate.  Current inflation at the monetary level from the government is about 6% so this means a 7+% mortgage, or roughly equal or higher than it is now.

In addition the squeeze on American workers has had four more years to ferment -- especially in tech but not exclusively-so.  This is an insidious and corrosive thing that has been going on for a long time but when you couple it with the end of a 30+ year rate cycle that has now convincingly ended and thus we must expect the other half of the cycle for the next 20 or 30 years you've got trouble with anything economic that depends on increasing debt loads.

IMHO from a personal preparedness standpoint the two best pieces of advice are no revolving debt at all and for the love of all that is Holy do not get yourself into a position where you depend on access to more of it to cover lifestyle or even emergency requirements as it may well not be there.

Back in the 2008 crash, and I expect things to be worse this time around, plenty of people had their credit card company slam their "available credit" down to their outstanding balance.  This of course cuts off more spending but it also does serious damage to your FICO score and thus frequently prohibits getting a loan from someone else because a significant part of that score is "utilization" -- that is, how much on a percentage basis do you have out compared with how much you have available.  You want that number to be low and for a lot people, despite having significant balances, it is -- it is not uncommon for a credit card company to give you a $10,000 line.

If you've got a $2,000 balance that's 20% utilization but if they slam it down to the $2,000 balance that's 100% utilization and will whack your score -- and they may, as they did last time, ratchet it down further as you pay it off so your utilization will remain very high.

This is a greatly-underappreciated risk for those who live their life off the plastic cards in their wallet.  Utilization percentage is roughly 30% of your score, so going from low-to-moderate to "slammed" can easily hit you for 100 points or more all at once.

That is not a small change and the compound effects of it in today's world where insurance companies use credit scoring as part of their pricing system means it won't be confined to interest rates and credit-card availability either -- it can easily ratchet up car and home insurance costs by 20% or more as well or even result in a non-renewal letter.

I cannot predict precisely when a "foldback" sort of event can and will come in the markets and economy but that we are at historically extreme valuation levels in the stock market coupled with severe affordability problems in the broader economy cannot be argued.  Our economy and markets are as dry as the SW California scrub with 80mph Santa Ana winds ripping over both and despite the smug pronouncements out of The Fed and others there is only a belief that someone will be there to buy at an equal or higher price that is behind any of the market.  Even firms that are very stable businesses such as Costco, which has a record of being able to expand earnings over long periods of time by 10% or so annually, is not selling at a 10 or a 15 multiple -- its selling at a 54 PE, which is easily four to five times a reasonable forward expectation -- this is a retailer with a 4% operating margin!

That which you could make a case for as borrowing got cheaper and cheaper over the last of 30 years doesn't work when that cycle ends -- and it has ended.  As that paper has to be rolled over the cost of doing so goes up and that hit drops directly to the bottom line.

No matter where you look in the market today you find this sort of multiple, with it being even more-extreme in certain areas.  Add to this the deterioration internally in the labor report on a quality, not gross employed number basis and the ratcheting upward of Americans' cost of living and the sky is rather gray with the wind picking up.

It is always better to be prepared to not need "freely available" credit and then not have anything horrible happen than to be neck-deep in debt, have all your revolving lines slammed down to their outstanding balance, have your FICO take a 100 point hit instantly as a consequence, your car and homeowners insurance price goes up 20% due to that and then your furnace fails and needs to be replaced right now in the middle of winter.

Don't be that guy.

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2025-01-16 07:00 by Karl Denninger
in Consumer , 218 references
[Comments enabled]  

This has fallen out of the news to a large degree because AirBNB (in particular) has split taxes and fees out, but other places -- here's looking at you Snowshoe in WV -- have not.

I'm talking about the wildly deceptive practice of putting out a price (on the web, usually) and then at the last screen just before you pay there's a "Taxes and Fees" single line, not broken out at all -- which could be 50% or more of the actual price!

What's actually in "taxes and fees"?  Good question.  Sales tax is of course charged in virtually all jurisdictions and that's an actual tax.  Some areas have separate "hotel" or "occupancy" taxes specifically leveled on short-term rental housing (e.g. hotel rooms, AirBNBs, etc.) in addition to or as a replacement for sales tax, and a few resort areas have specific tourism development taxes that are specific to certain types of lodging (usually geographically based.)

But then there are fees, which are not taxes.

If some business wants to charge these then that's fine but conflating a legally-mandated charge with a choice is a per-se deceptive practice since it leads one to believe that such is "mandatory" in some form or fashion and acts to conceal the magnitude of each, especially for out-of-state travelers who likely don't know what the state and local tax structure looks like.

The FTC has banned this sort of thing incrementally but short-term lodging and other tourism-related businesses have evaded enforcement, leading them to issue a new, tougher rule forcing the top-line advertised price to include all such fees.

Snowshoe appears to not have gotten the memo because they just tried this on me three days ago.  I closed the browser rather than complete the booking and due to questionable conditions for my intended trip (skiing) I bagged the whole thing rather than make alternative arrangements and deal with driving to and from the mountain daily.

Perhaps they'd like to get sued by the FTC or even better -- be put out of business -- on top of it; this sort of garbage needs to come with criminal penalties and prison sentences, not just threats and fines.  I won't put up with this garbage anywhere -- I never have, never will, and if getting around it is unreasonable under the circumstances then I don't patronize that place at all.

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Here comes (much) higher auto insurance rates... and this should result in heavy consumer-protection related prosecuting aimed at carmakers -- but it won't.

If you own a new car, there's a good chance that it features some form of keyless security. Whether it helps unlock your car or lets you start it with the push of a button, it makes driving all that bit easier. That's unless it's the reason your car gets stolen. Police forces all over the UK are reporting a rise in keyless car thefts, but a new report released by the Metropolitan Police today suggests that it now accounts for over a quarter of all vehicle thefts across London.

How are they getting in the door?

The claim is that they're breaking in physically and then accessing the ECU via the OBD port, allowing cloning of the key.  I'm not sure I'm buying that, although with some vehicles it is probably possible.

Specifically, it is known that certain older VWAG vehicles can have their cluster broken into via a piece of software that is available from various places in China.  This results in returning the "secret key" necessary to program new keys into the cluster, and then Bob's Your Uncle.

I think it's reasonable to assume that our "friends" with "most-favored nation" status over in China have this software for other makes as well.  In fact, I'd bet on it.

But the simplest way to steal a car with so-called "advanced keys", that is those that you don't have to press a button on a fob to unlock the doors and which has keyless start, is as trivial a paired set of radios and a confederate that gets close enough to you (5' or so) to be able to excite your key in your pocket while his "buddy" stands outside your car's door and pulls the handle.  The car thinks the key is next to it and the key thinks the car is next to it; they transmit their coded handshake and voila!

Next said thief sits in the car and hits START.  Same thing -- the key talks to the car, the car starts.  So long as you don't turn it off you can drive it.

The ugly part of this is that the frequencies aren't secret -- nor can they be, since the fobs and the cars are both intentional transmitters and thus have to operate on specific authorized frequencies.  The coding can be secret but that doesn't matter since you don't need to break the code -- just make the key think it's next to the car and vice-versa.

I'll lay odds this is how they're being stolen and it's why when I bought mine I was ok with keyless start but not with a fob that didn't require a press of the button to unlock the doors.

If you have to bust the glass to get in, or use an airbag or other conspicuous tool, it gets a lot harder and greatly increases the amount of time that the confederate has to be near me while the other guy works my car over before he can start it and drive off.

This is what your "convenience" has gotten you folks -- a car that is trivial to rip off for anyone with a modicum of technical ability.

Oops.

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