Straight Talk from Al Jacobs

 

 

WE HAVE GOOD NEWS – AND BAD NEWS

 

The federal government just released official figures on the Gross Domestic Product (GDP) for the second quarter of 2018. It rose at a favorable annual rate of 4%. In general, sustained growth stimulates jobs and contributes to lower unemployment, which in turn boosts tax revenues while generating the money to finance spending on public projects. At the same time here in Southern California, housing values continue to rise, with the median home price for June in the six-county area at an all-time high of $536,250 – up 7.3% from a year earlier. Obviously the nation’s business interests are prospering, all the while homeowners’ rising property values add to their net worth.

 

As usual, of course, the good is mixed with the bad. The GDP growth is narrowly distributed, with rank-and-file workers left behind. And as income inequality becomes more severe, the likelihood is future quarterly GDP growth cannot be sustained. As for the increasing home values, only current owners profit – the deck is stacked against those seeking to purchase. Currently in San Diego County, for example, with the median home price at $575,000, 28% of buyers can afford this price. In Orange County, with a median price of $739,000, it’s ever less favorable, with only 21% able to buy.

 

Do we have problems? We most certainly do. Corporate profits are up because their employee costs are shrinking. Many persons who desperately need work cannot find it. The job market is evolving in ways never imagined. The tasks of onetime irreplaceable employees are being filled by computers. Positions formerly paying twenty-five dollars per hour in Cleveland, Ohio, or Providence, Rhode Island, are now performed in Canton, China, at two dollars per hour.

 

What are our elected leaders doing to resolve the problem? They’re hiding behind a national unemployment rate of 4.0%. In 1994 the Labor Department redefined unemployed as “persons without jobs who have actively looked for work within the past four weeks.” If they added back in those without work for longer periods and part timers, the rate would well exceed 20% … not quite as bad as the Great Depression, but close.

 

A final thought: If you’re depending upon the government to cure the problems ailing the U.S. economy, you’ll wait a long time. Unfortunately elected officials specialize in getting elected to public office, not in solving problems after being elected.

 

 

Al Jacobs, a professional investor for nearly a half-

century, issues weekly financial articles in which he

shares his financial knowledge and experience.

You may view them on http://www.roadwaytoprosperity.com

Is homelessness curable? Here’s a plan that might work. www.roadwaytoprosperity.com  

Straight Talk from Al Jacobs

 

A NOVEL PLAN FOR HOMELESS RELIEF

 

It’s hard to believe, but I’ve just read an article on homelessness that seems to make sense. Its title: “An experiment to house homeless: private funds.” After watching government entities pass senseless resolutions, while throwing taxpayer money around indiscriminately, here’s a program that might actually work. The plan: A private for-profit real estate group in South Los Angeles will select low cost sites on which to erect nine-unit structures built from shipping containers. Eight of the units will be 4-bedroom residences of about 1,000 sq ft each, designed to house four single homeless persons who will share a common kitchen, bath and community area. The ninth will be for a resident manager who will oversee the project with its 32 residents.

 

Although the term “shipping container” conveys a dismal image, these are essentially modular home sections built in a factory, trucked to the site and set upon pre-built foundations. Once assembled, there’s little visible difference from a traditional building constructed on-site. As to cost, modular home prices start around $50,000 for an 800-sq ft home. After permits, utility connections, site prep, foundation, engineering and survey work, its total cost is $115,000…plus land, of course. Inasmuch as the area in which these units will be erected is modest, we may expect the price of the land to be minimal, and if land can be held to no more than $50,000 per 4-bedroom unit, the completed nine-unit complex, totaling 8,800 sq ft, should not exceed $1.5 million. This works out to $46,875 per homeless individual, which seems to be a viable program…a far cry from the several hundred thousand dollar estimates I’ve seen bandied about by various governmental agencies.

 

The impression given by the article’s title, implying the homeless will be housed with private funds, must be explained. Although the structures will be so built, the actual residency costs will not. When completed, tenants will be selected through a countywide database of homeless, giving the highest priority to those chronically most in need. Monthly sums will be paid to the group from either disability checks or subsidies, with services being funded with L.A. County’s Measure H homeless sales tax or charitable donations, with an average monthly payment per recipient of $725. It’s anticipated the $278,000 potential annual gross income will, after the rather substantial expenses of overseeing such an operation, generate a modest return of about five percent annually to the group…a fair return in today’s economy.

 

Al Jacobs, a professional investor for nearly a half-

century, issues weekly financial articles in which he

shares his financial knowledge and experience.

You may view them on http://www.roadwaytoprosperity.com

 

Straight Talk from Al Jacobs

 

BE CAREFUL OF WHAT YOU RECEIVE

 

A distinctive red, white and blue envelope arrived in the mail today. What more appropriate colors might you expect from Bank of America (BOA)? But even more welcome is the message boldly displayed in prominent font: “An exciting opportunity …0% intro APR on purchases and qualifying balance transfers for 15 billing cycles”

 

The enclosed brochure is headed with “Get the credit card that works as hard as you,” and then describes the benefits: “At Bank of America, we understand how hard you work to be successful. And that’s why we are giving you the opportunity to receive this offer for … bla … bla … ad infinitum.”  A little farther down it assures you of “Savings that work for you. Start with a 0% intro APR for 15 billing cycles … after that a Variable APR that’s currently 21.74% will apply.” When you get to the back page you’ll discover the rate for bank cash advances are 26.74% and should you be a touch late with a payment you’ll be paying interest of 29.99%. However, the final lines of the promotional mail out assure you “Hard work deserves to be rewarded. Don’t miss out on this special offer. Take advantage today.”

 

The reason the 0% intro APR is displayed on the envelope is because it’s specifically aimed at those persons who habitually don’t pay full credit card balances each month, and are thereby assessed interest. BOA expects most of the new customers they attract will be paying double digit interest to them after the 15 introductory billing cycles. You might note that if you have a BOA savings account, you will receive interest from them at an annual rate of 0.04% (four one-hundredths of one percent). This is essentially a cash advance to the bank … analogous to the bank’s cash advance to you at the 26.74% rate mentioned above. Thus, if you loan the bank $50,000 for a full year, they will pay you $20; if they loan $50,000 to you, you will pay them $13,370. Do you suppose this may in some small way explain how BOA managed to generate $18.23 billion net income in 2017?

 

A final thought: In the Aeneid, in the year 19 BC, the Roman poet Virgil, tells the story of the wooden horse of Troy, used by the Greeks to trick their way into the city. His line “Beware of Greeks bearing gifts” is revered to this day. Perhaps if Virgil were once again alive, he might pen a similar warning: “Beware of banks bearing gifts.”

 

 

Al Jacobs, a professional investor for nearly a half-

century, issues weekly financial articles in which he

shares his financial knowledge and experience.

You may view them on http://www.roadwaytoprosperity.com

 

Straight Talk from Al Jacobs

 

BE CAREFUL WITH WHOM YOU DEAL

 

An email from Bank of America arrived on my computer today … at least it said it was from the Bank of America. As for an addressee, it simply indicated “Recipients.” The subject: “Important notification.” The topic appeared to be one of urgency for the first two words in large font were “Security Alert.”

 

The several short paragraphs were clear and to the point: “Dear Customer: As part of our efforts to create a safe environment for Bank of America customers, we regularly carry out a number of security requirements ….During our recent security checks, we were unable to verify your information on your account … In order to protect the information of our customers, your system has temporarily placed restrictions on your account … you can validate your information by following the link below.” Immediately below was the link: “Activate my Account”

 

Three things did not ring true: A vague addressee, the lack of any way to verify the sender and the threat of restrictions being applied to my account. For these reasons I took the following actions: (1) I did not activate the link (2) I made a print of the email (3) I took the printed email to my BOA branch office to verify its authenticity.

 

A BOA supervisor confirmed my suspicions: The source was not BOA; my account was in no way compromised, though the activation link might have caused serious problems if I had clicked onto it.

 

For those of you not particularly aware of the nastiness going on, there are now more computer hackers breaking into computer systems in order to steal, change or destroy information, often by installing dangerous malware without our knowledge or consent. Although modern technology is a magnificent boon in a variety of ways, the downsize risks are formidable. The good news is there are simple steps you can take to greatly reduce the chances of these bad things happening to you. Briefly, you’ll be wise to keep all your applications and your operating system patched and updated, put a PIN, passcode or pattern lock on your phone, don't install 'off-road' Android apps, don't jailbreak your iPhone or iPad, install antivirus software everywhere you can, remove apps you don't use and use limited-user accounts.  But above all, have nothing to do with anyone soliciting you by email, phone or fax. They mean you no good.

 

 

Al Jacobs, a professional investor for nearly a half-

century, issues weekly financial articles in which he

shares his financial knowledge and experience.

You may view them on http://www.roadwaytoprosperity.com