Living Large

I was having lunch with a friend the other day - seemingly in the middle of a good conversation - when he pulled out his Blackberry and started thumbing away at the keyboard, staring intently at the little device as if I had suddenly vanished.  Poof.  I’m gone.  Conversation over.

“Hey, still there?”, I inquired.  He nodded but was still glued to his tiny screen, as if God were about to text him the Dow’s performance for the next year.

“I was suprised you ate that big ball of hair that was in your salad”, I commented to him.  “Was it good?”

“Yeah, good lunch”, he replied distractedly.

Now I am the first to admit that I can sometimes be a bit verbose, but normally my friends will smile and say “yeah, I remember you telling me that” to move the conversation on.  They seldom transport themselves completely out of the discussion into some other digital world to speak abbreviated languages to people they barely know.

Cell phones and PDAs have certainly helped people connect in many ways, but they have also transformed many of us into distracted, communication-addicted zombies - and unfortunately have added an entirely new level of rudeness into society.

I have a new iPhone.  It is my first foray into portable e mail and texting, and I see how the addiction and corresponding rude behavior develops.  I sometimes feel myself slipping, my hands grasping the sleek little device, wanting to log on just to see if anyone is looking for me or to check how the market is doing. I haven’t connected digitally with anyone for minutes!  Important stuff could be happening!  Would the person I am with notice if I just checked it quickly? 

Of course they would. 

I’m in another restaurant the other day.  There is a father and child sitting next to me - Dad and lad out for a day of bonding.  But lad is sitting distractedly  - figeting while Dad types away on his Blackberry - oblivious to his son, and the fact that his current parenting skills will help develop a rude little man that prefers video games to people.

If you attempt to have normal human interaction while chatting on an electronic device you are missing the wonder of real conversation, you are probably not comprehending important info, and you are being incredibly rude.

Two months ago after spending two weeks preparing an important presentation, I spent $1200 to fly 2000 miles to present to a potential client.  Throughout the presentation the clients stared down between their legs.  At first I thought they had some kind of personal fixation on their genitals - but they turned out to be Crackberry addicts - typing away while I wasted my time and a very expensive presentation. 

And in a twist of fate (and another sign of the current economic turmoil) one of the clients is now out of a job - and contacted me looking for work.  For some reason I can’t even remember what they look like - my only memory is the top of their head as they stare down at the screen between their legs, and the sinking feeling that I wasted a lot of time and money, and I probably would not want to work with such a rude client anyway.

Even very successful bizzy people like to save money, especially in this economy.  With the spending season rapidly approaching, here are a few tips and techniques that will save you cash and time during the holidays:

Shop Online.  It saves time, gas, parking fees, frustration, weird encounters with guys dressed like Santa, and the annoyance of having to wrap and ship gifts, since they do it for you, and most of the sites are pretty efficient!  Also, with our current economic state I would expect great discounts this season! To save some money, first go to a shopping rebate site.  I have written about these before, and I am suprised more people don’t use them.  They are easy-to-use sites that conglomerate major shopping sites.  When you click through, they register your click and rebate you on everything you purchase.  Depending on the sites, some of the rebates are up to 10% or more of your total purchase.  A couple favorites I have mentioned before - www.fatwallet.com, and www.ebates.com.  Otherwise, Amazon continues to be the premier shopping site for almost everything.  Unfortunately you will not find them on either of the above sites, but their prices and service more than make up for it.  I suggest signing up for their “Prime” program which allows free two day shipping.  You pay a yearly fee for this, but if you are buying a lot of gifts it more than makes up for the fee.

Get a Rebate Credit Card.  Of course, we all know that the credit card industry is a Weasel-infested corporate cesspool that charges ridiculous fees and steals from the poor!  OK - maybe not the entire industry…..  But, if you are smart and pay your bills you can actually play the credit card biz to your advantage.  First point - if you are carrying credit card debt - stop reading now as you should not be even contemplating buying Christmas gifts. Bake cookies.  Send a coupon good for an hour of your time to clean the attic. Write them a song.  But don’t spend money!  The best gift you can give your family is to be personally financially stable - so don’t increase debt to buy gifts!  But, assuming you do pay your bills on time and in full every month, consider one of the new cash rebate credit cards.  I was a fan of airline cards, but the points get more and more difficult to use, and I think the best deal around is a cold, hard cash rebate.  My personal favorite rebate card is the Chase Freedom Card (and here is a site that gives you a $50 rebate on the card) - www.chasefreedomnow.com  This card rebates you from 1 to 3% on every purchase.  They have a really easy to navigate website, and when you have accumulated $200 in rebates they will actually send you a check for $250.  Their customer service is also the best I have encountered with a credit card company.

Look For Coupons.  There are dozens of couponing sites that often offer great discounts from your favorite online and traditional stores.  The easiest way to find a discount?  Just Google what you are buying and “coupon”.  For instance, last month I needed new tires. I Googled “Firestone Tire coupons” - and found a coupon good for one free tire with the purchase of three - which saved me $200.

Use American Express Rewards for gift cards.  Another idea if you are an American Express Membership Rewards member. If you are like me you have been accumulating points to transfer to airline programs.  But as covered earlier most of the programs are really difficult to use and return less than 1% (that should be the minimum goal of your credit card rebates).  So consider purchasing gift cards with your Membership Reward points - and specifically look for the cards that redeem at 1%.  Then buy gifts with those cards (a better choice than giving them as gifts as a lot of people loose them or don’t redeem for other reasons).  A few good choices available from Amex that redeem at 1%: Home Depot, Pottery Barn, and Banana Republic.  There are dozens to choose from.

Negotiate.  If you had the good sense to read my book Warriors, Workers, Whiners, & Weasels (By the way - you can click to the right - go right to Amazon, and get a great deal on this essential personal and professional management tool.  It also makes a wonderful gift!), you know the following:

1. I’m not afraid to shamelessly promote my book.
2. I am a firm believer in the concept that everything is negotiable.
3. I like titles with lots of W’s.

The big point here as you shop.  Almost everything is negotiable - even in stores you would not think it possible.  A couple months ago I negotiated a discount at a Brooks Brothers Store.  Feel free to ask if an item is going on sale, if they are running a promotion that is not reflected in the price, etc. Often they will offer dramatic savings, and it is relatively painless.

There is a lot of chatter now about the outrageous salaries many public CEO’s make - especially those CEO’s that have recently seen their companies implode - so I thought I would do a little investigation into the facts.  According to a recent survey by Forbes, here is a snapshot of the compensation last year for some of our highest paid CEOs:

CEO                         Company                     Compensation

Larry Ellison                Oracle                               $193 million

Frederic Poses             Trane                                $127 million

Aubrey McClendon      Chesapeake Energy           $117 million

Angelo Mozilo             Countrywide Finance         $103 million

Howard Schultz           Starbucks                            $99 million

Nabeel Gareeb             MEMC Electronic                  $80 million

Daniel Amos               Aflac                                     $75 million

In fact, the highest paid 25 CEOs in the country all made in excess of $46 million each.  These are phenomonal numbers.  I am the CEO of a private company  - considerably smaller than any of these individuals run (though last year I am pleased to announce we were more profitable last year than several of the companies on the list of the 25 highest paid CEOs).  I founded the company, but now have investors, and those investors deserve a decent return on their money.  Accordingly I work on a reasonable base salary, and a bonus based on profitability and growth.  No profitability - no bonus.  Seems like a reasonable deal to me.

While there are certainly great companies and great CEOs on the highest paid list (and many founders that created those great companies) - many actually were at the helm of shrinking companies with little or no profit - yet they made massive amounts of money - hence the great public concern of overpaid CEOs.  Average pay exceeding forty six million dollars a year is an incredible statistic, and shareholders have every reason to be irate. I am a believer in the power and importance of the entrepreneur, and compensation based on performance. CEOs that take home tens of millions per year while driving stockholder value into the ground should be thrown out.

About fifteen years ago while doing some advertising work for Philips Electronics, I went to the Consumer Electronics Show to meet with company officials and see some of their newest developments.  I was ushered into a secret room and shown the “entertainment system of the future”.  At it’s heart was a 42 inch plasma screen television.  Though they are commonplace now, at the time this was one of the most futuristic things I had ever seen.  A huge, thin television that blended into the wall.  The Philips people assured me that in the near future every home would have one, which at the time seemed decades away, since the initial price was $15,000.  I had no idea that this technology would play a key role in the current economic crisis.

Well, as we all know now the flat screen is now the standard for new televisions, and many homes do have them.  While the price has fallen drastically from $15,000, they are still pricey (hovering a little over a thousand to several thousand).  They are still gorgeous to look at, and it is no wonder that consumers are captivated by them and need to own one or two.   I own several. Fifteen years ago the average “home theatre” consisted of a 19 inch TV that could be purchased for $199.  Now many homes have huge plasma screens and sound systems that cost thousands or tens of thousands of dollars.

And how did America pay for these home wonderful techologies?  Many families tapped into their home equity and essentially took out long term loans they could not afford to purchase luxury items that would last a few years.

The causes of our current economic meltdown are and will be widely discussed.  Certainly there is a lot of blame to go around.  Deregulation, greed, idiot politicians, excessive Wall Street compensation, silly and complicated financial instruments…… they all play a big part in the problem. But despite all the factors that created this perfect storm in the financial market, the real essence of the issue is that people bought a lot of stuff they could not afford.  The average American went on a buying binge.  They bought houses that cost two or three times what their salary could support.  They filled them with expensive “stuff” - including plasma televisions.  They lost control of their spending, and assumed that rising valuations would somehow bail them out at the end of the day.

And now it has all come crashing down.

My parents, both depression-era self-made people, were very conservative financially.  They resisted all debt.  That meant no credit card debt, no installment loans….. the only debt they had was their house loan, and it was a fixed-rate fifteen year loan that they paid off early.  The idea of buying a house you could not afford, “stuff” to fill your house, and then using your home to leverage that debt would seem incredible to them.  Their mantra was “only buy it if you can afford it”. They were disciplined. They bought used cars until they could pay cash for a new car.  They understood - as the country in learning now -  that debt is your enemy and a form of slavery.  If they needed extra money for something, they found a way to make some extra money.  They didn’t go out and borrow.

And when my Dad finally did buy a plasma television a few months before he passed away, he paid cash - and still complained about how much it cost until the day he died.

So America is suffering now because of our lack of fiscal control.  Like teenagers with a credit card, we went crazy, spent more than we could afford, and we have to figure a way out of the mess.  And this will result in a profound change in the way most people live. 

And here’s the ironic sidenote to the plasma television.  It was reported last week that the process of manufacturing them creates excessive amounts of methane gas that is leading to more global warming.

You’ve probably been so captivated by the global financial meltdown that you have forgotten about the polar ice cap meltdown.  There are so many meltdowns happening right now it’s getting tough to know which one should make you the most paranoid and depressed.

But while the Washington braintrust is tackling problems, perhaps they should give a little thought to cow farts. The gaseous old men in Washington might actually have special talents in this area.  My guess is that W and Dick Cheney are quite accustomed to gas attacks.  I can even envision Bush yelling at Cheney with delight as he enters the Oval Office - “Wyoming, get over here and pull my finger”.  But back to the topic. 

Unfortunately, when cows “poof” - or belch for that matter - they expel huge amounts of methane gas.  And experts pinpoint methane gas as a main contributor to the greenhouse effect.  In fact, they estimate 18% of the greenhouse effect is due to methane gas.

Now to be fair to cows, their gas is not the only source.  Sheep, goats, even water buffalo expel the toxic gas.  Certain plants emit it.  But cows are among the worst offenders, since there are over 1.2 billion cattle in the world, and the number is growing.  I love steak, but perhaps we all need to cut back on our carnivorous diets and eat a few more salads.

Entrepreneurs might see this as a great opportunity.  Beeno for cows?

Perhaps in this economy it is a bit cruel to point out more than the obvious benefits of being wealthy, but according to a recent survey of 600 high net worth individuals, having a lot of money not only buys you a lot of stuff, it also leads to a much more robust sex life.

Researchers Hannah Shaw Grove and Russ Alan Prince found that the rich have sex more frequently and with a greater variation of partners.  Now this might not come as a suprise to many rich men.  After all, do any of us really think that Donald Trump would be scoring super-models if he was “Donald the Plumber”?

But here is the stat that caught my eye.  Rich women actually seem to use their money to sexual advantage better than men.  84% of rich women versus 63% of rich men say having money means having better sex. And as all of us have always known, women regard sex differently than men.  The women in the study were much less concerned with multiple partners, but loved the idea that wealth brought them more exciting sexual experiences.  In fact, 72% of the women said they had “joined the mile high club”, as opposed to only 33% of the men.  Makes you look at the friendly skies completely differently!

Here was another suprise.  Rich women are even bigger cads than men!  73% of rich women, versus 53% of wealthy men admit to having an extramarital affair.

My brother-in-law Don called this weekend to express his thanks for The Bizzy Life.  A couple months ago after reading guest blogger Ray Link’s entry - Why Investing In Stocks Might Be A Bad Idea - he decided to move his savings from the market into cash, and of course now he could not be happier.

Ray, Don sends his thanks for your sage advice!

As the election heats up there is a lot of focus on which potential President will raise taxes.  McCain say Obama will raise taxes - Obama admits he will raise taxes on the rich, but versus the McCain plan will lower taxes for the middle class.  One could argue that given the fact our country is going broke we probably all need to pay more taxes, but according to the Tax Policy Center here is how the candidates really compare:

If you make        you would save under Obama          under McCain

Less than $19,000                $567                                      $21

$19,000 - $36,600               $892                                      $118

$36,600 - $66,400               $1118                                     $325

$66,400 - $111,600             $1264                                     $994

$111,600 - $161,000           $2135                                     $2584

$161,000 - $227,000           $2796                                     $4437

So the clear fact is that if you make less than $111,600 per year (as most of America does), and you vote strictly based on which candidate will hit you with the lowest taxes (or on the surface what appears to be the lowest taxes), then you should vote for Obama.  However, wealthier Americans only concerned with Federal taxes will clearly like McCain more.  Take a look at how the tax rates compare if you are among the top 5% of earners in the US:

If you make                      pay more under Obama       save under McCain

$227,000 - $603,400             $121                                          $8159

$603,400 - $2.87 million       $93,709                                     $48,862

More than $2.87 million         $542,882                                    $290,708

So, if you make $1 million a year, under Obama your taxes will increase as much as $94,000, but under McCain you will get a tax break of $48,000.  This is all very confusing to me, as McCain’s supposed base - the straight-talking heartland of America - typically does not make huge amounts of money, so financially you would assume they would be in Obama’s camp.  They are also justifiably upset by greedy Wall Street “big wigs” - the people that make millions per year and tank our economy.  But these are the folks that would benefit most by a McCain Presidency.

Personally if Obama wins my taxes go up.  But I agree with an earlier post by Ray Link that there is more to making money than the tax rate.  The value of my investments has plummeted under an administration that believes in little or no regulation and tiny tax rates for the rich.  I’m hopeful that by paying more in taxes my asset base will grow, and I will sleep a little better at night.

Guest blogger Ray Link joins us again today with a very concise and interesting analysis of the relationship between maximum tax rates and the GDP - and whether it makes financial sense to pay more taxes. Ray is a big-brained finance guy, and a good example of what the Republican Party once stood for long, long, long ago; small government and fiscal restraint.

Should High Income People Want to Pay More Income Tax?

Senator Joe Biden recently made some comments that I thought were out in left field when he stated that “wealthy Americans must pay more taxes to show patriotism”. I have no real issue with high income people paying more in tax and to some degree even paying disproportionately more, but I never felt it was my patriotic duty to want to pay more. But am I better off with a higher tax rate or a lower one? So, being an accountant, I crunched some numbers to flesh out the facts.

A brief history is in order. The United States adopted an income tax in 1913 with the passage of the 16th amendment to the constitution. Prior to that time the government funded itself largely from tariffs on imports. Once it became law Congress gradually increased the rates from 1% in 1913 to a top rate, also known as the maximum marginal rate of 94% during World War II and then set the top rate at 91% for many years. The maximum marginal rate is the rate paid on income above a stated level, which usually impacts a small percentage of taxpayers. But because these few people earn so much it contributes a fairly large percentage of all income tax paid. It is also a source of debate when Congress raises or lowers the top rate as it only impacts high income taxpayers. These high rates prompted many tax shelters and schemes to avoid taxes and Congress eventually lowered the rate and the threshold and eliminated many tax shelters. A table of this rate since 1960 follows:

Now that I am enjoying some of the lowest top tax rates in the past 50 years, I ask the question, am I better off and is the country better off?

I want to know if my investments do better in high tax periods or in lower tax periods. I also want to know the impact of tax policy on the deficit and the growth in our national debt as well as the overall growth in our gross domestic product or GDP. The GDP is the sum of all goods and services produced by Americans and it is an important gauge of the health of the country. The deficit and total growth in our debt impacts inflation and the value of the dollar which impacts our world purchasing power. After all, aren’t high income tax payers those people with all the money so they shouldn’t they be more concerned over the growth in their net worth and the value of their money than the tax on their income?

Let’s investigate the facts. Fact one, the U.S. has run a budget deficit every year since 1957. Fact two, since 1960 the government spends about 18% more per year than it takes in taxes and fees. Sorry Bill, despite the popular belief that you ran a surplus; you too in fact were 0 for 8 in your ability to generate a surplus. You did have the single lowest deficit since 1960 in the year 2000 with a paltry, by Washington standards, deficit of just $18 billion. Here are some alarming data on deficits and the size of our national debt:

The above data are alarming but one that is really scary is that our total debt is 3.8 times the size of the government’s gross receipts. That would be like saying a company doing $1 billion in revenue would have debt of almost $4 billion which is highly leveraged and very risky. In addition, the fact that it would take every man, woman and child, all 300 million of us, to pony up some $30k each to extinguish the debt is dreadful. The interest cost alone on the debt is now approaching $300 billion or about 10% of the total budget. This is one of the main causes that the dollar has depreciated over 60% since 2000 compared with the euro and why it is so hard to keep inflation in check. We just continue to print money. Let’s look at what the deficit and growth in the national debt are doing to the value of the dollar since 2000:

The large depreciation in the value of the dollar compared to other world currencies such as the euro, Canadian dollar and pound sterling is also a huge underlying “tax” on our savings. It is a significant contributing factor to the increase in our national debt and deficit, especially compared to our slowing growth in GDP. If one wonders if this has any real impact I suggest you look at the price of oil or imported goods from Europe and you will find significant price increases since last year. If a few percentage points in tax rates can close that deficit, perhaps the dollar would be stronger and prices lower.

So what happens to the deficit, GDP and investment returns in periods after a major tax increase or tax cut?

Lots of data but what comes out is that some of our best returns in the S&P 500 were earned in periods of higher tax rates, often after a tax rate increase was enacted. The growth rate of the GDP has been on a rather steady decline but the budget deficit as a percentage of the GDP increased in the Reagan and both Bush administrations when tax rates were lower. Real growth as measured by GDP minus inflation suffered under Carter and both Bush administrations yet the tax rates were vastly different. On balance some of our best years were during the Clinton administration where we had a relatively low top tax rate (but higher than the previous administration) yet had smaller relative budget deficits, above average real growth and far superior investment returns. The key then seems to be a combination of modest tax rates coupled with modest deficits and it’s hard to have a modest deficit with really low tax rates.

As one of those “fat cat” Republicans in the maximum marginal tax rate I would gladly pay another 4-5% in income tax on my income above $300,000 and have much higher returns on my invested assets and the benefit of a lower deficit that otherwise is eroding the purchasing power of my money. So sorry Joe, I’ll pay more taxes if it is good for my country and also good for me financially, but it is not my patriotic duty to do so. It’s just good business.

Ray Link is a CPA and has an MBA from the Wharton School and is CFO of FEI Company, the world’s leader in electron microscopes. He is a former city councilman from Florida and a 30 year member of the Republican Party.

I like to work with stock and real estate brokers that have been through a recession or two and have experienced deep dives in pricing.  It gives them a certain perspective that the young and fresh don’t share.  They are typically much more resistant to panic.  They know from experience that the certainty of the market is that it eventually always goes up, and if you have built your portfolio correctly, avoid panic, and keep your debt levels in check, you will profit.

A 777 point drop in the market is painful - perhaps devastating if you are close to retirement.  But if you have a longer horizon, and have money to invest, this is a great time to go shopping.  There is a huge sale going on right now.  Great companies trading at deep discounts for no real reason.  For those with decade or two before retirement, this will be a blip in most people’s financial memory, and the smart money will have prospered.  Take advantage of this limited-time sale.