17 August 2008

Peak Oil?

Most of the petrol we consume today comes from oil fields where crude oil can be cheaply converted into petrol. The largest is in Saudi Arabia. However, there are plenty of oil fields containing e.g. shale oil where crude oil can be extracted and made into petrol if high enough petrol prices justify it.

Furthermore, a company called Sosal in South Africa has the technology to convert coal into petroleum. Using this technology, the amount of coal in America alone can provide for that country's consumption needs for the next 250 years.

All this makes me wonder why so many are going around yelling about peak oil. It is a well know sales trick to make buyers believe that their product is scarce. It creates a sense of urgency and the perceived scarcity allows the seller to charge higher prices and make fatter profits. The Saudis and the oil companies would love to convince everyone that oil is scarce.

13 August 2008

Buying Land in the Country for Emergencies

I listen to many podcasts, but my favorite at the moment is The Survival Podcast. The guy makes these podcasts while he drives to and from work. Apparently he drives 50 miles (80 kilometers) to work, which is incredibly far. (I only live about 25 kilometers from the city.) I am guessing he drives on the freeway to work because driving in regular traffic usually requires a lot of concentration, and you don't have the ability to concentrate on making a podcast while you're checking out traffic lights, watching pedestrians, changing lanes, etc.

The Survivial Podcasts (TSPC) is about survival. Surivival is the number one reason why I aim to be a millionaire by 35. TSPC claims that when many people think about survival and survivalism they think of the extreme survivalists, e.g. people who buy guns, stock up on food, live in the country, wear camouflage, etc. Some survivialists are environmental extremists who think that being self-sufficient is necessary to help the environment. The other extremists are skeptical of government and believe that the Illuminati control the world. TSPC wants to appeal to the mainstream, to teach them that many survivalist concepts can be applied by urban people.

In the car I have been listening to 15 No Risk Survival Tactics Anyone Can Implement. These tactics include the following: buy land in the country, stock up on food, get a second job and save up cash, get out of the stock market, have an evacuation plan, and many others.

Getting land in the country I think sounds good. I have been checking out Domain and prices of land in the country seem very cheap, about $20,000 or so compared to the clearly overpriced $400,000 houses in Australian capital cities. Even though my net worth is a little over $30,000 right now, I only have about $23,000 in liquid cash, so I could probably buy property outright. The Surivival Podcast claims that buying land in the country is a good safety net. If everything goes wrong, e.g. you lose your job, then you can always move to the country and live cheaply off your land. He claims that even if nothing goes wrong, you have an investment. This sounds rational.

Another piece of advice he gives is to stockpile non-perishable food. This is something I am uncertain about. The reason why is because food can easily rot (even non-perishable food can rot if not stored well) and food can be stolen easily. Buying non-perishable food can be a good hedge against food price inflation, but I happen to think that buying land in the country is a good hedge against food price inflation. The value of land in the country is related to how useful that land is. If food prices go up, land in the country is more valuable, and therefore prices of rural property in theory should go up as food prices go up. Land prices in urban areas however are likely to be influenced by the state of the economy in that urban area.

Another recommendation given is saving up cash and getting out of the stock market. This is where he and I diverge. TSPC is much more cynical than I am, believing that the economy is going downhill and will not recover for a long time. This pessimism is probably due to the fact that TSPC is created in the US where the economy is in fact doing terribly. Another problem is that saving up cash in the currency used in your own country means that you have a lot of faith in the fiat currency of that country. TSPC does in fact recommend people diversify currency by buying commodities and currencies of other economies, e.g. Japanese Yen or Euros.

11 August 2008

Melbourne McMansions

I've been reading Social Gap Widens from Outer to Inner Melbourne from The Age. The article claims that rising petrol prices and higher interest rates have divided outer Melbourne and inner Melbourne. Residents of inner Melbourne suburbs such as Toorak and Fitzroy have access to better public transport and social infrastructure while those in the outer suburbs (e.g. Lynbrook, Epping, Sunshine, and South Morang) have little. Home prices in inner Melbourne have been booming while prices in outer suburbs have been stagnant. Those in inner Melbourne also tend to earn more.

Google has set up Street View in Melbourne, so I decided to dive into some of these houses in the outer suburbs. What I noticed is that many houses in the outer suburbs seem very large, which is quite surprising given that these people are supposed to be low-income first-time home buyers. Many houses in the inner-suburbs, by contrast, tend to be smaller, e.g. the ones in Carlton. I have a screenshot below.

At work I have heard anecdotes about young people who have such high expectations that they immediately buy a large McMansion instead of a small unit. Such extravagance was apparently common in the post-9/11 era of excess that was encouraged by low interest rates. Now that the global credit crunch has hit, people are starting to feel the pain as interest rates rise.

Basic Income and Sin Taxes

Many people think that politics is just whatever politicians do, but I define politics to be a system of organizing large groups of people. Hence, politics exists in all places where there are large numbers of people, e.g. in families and companies. Politics is the study of the way that groups of people organize and end up deciding what to do. Unless you live in the country by yourself, chances are you are to some degree a politician and you are involved in politics.

One political concept I want to talk about today is the Basic Income. I think that Government should give everyone $10,000 per year regardless of whether you are rich or poor. This money is a Basic Income necessary for living. It provides a safety net just in case you run into some trouble. Some people believe that such a plan would be expensive but if all other benefits were taken out, e.g. Medicare, Family Tax Benefits, Baby Bonus, various subsidies to farmers, and so on, I'm sure enough money could be found. There is also the problem of inflation, that is prices of goods go up, and so the cost of living increases over time. This is easily fixed with a Basic Income Commission meeting up every so often to increase the Basic Income in line with cost of living. The Basic Income concerns how money should be spent by Government. What about how money is raised?

To get taxation, I believe that Government should tax bad things rather than good things. Currently in Australia (as well as in America) the more you earn, the higher you are taxed. I believe that income taxes should be abolished completely. Taxes should then be applied on goods and services that are genuinely bad, e.g. tobacco, alcohol, saturated fats, and energy consumption. These things are genuinely bad. Tobacco, alcohol, and saturated fats are bad for your health and energy is bad for the environment.

The Psychology of SUV Drivers

In my parking lot at work, a really small woman got into her 4WD (or SUV) and backed into a concrete pillar. She swore and then lurched the car forward, almost hitting me as I walked by. She got out to inspect the damage. I told her, "It looks okay." She replied, "Thank God I drive a 4WD." That started to make me wonder if this woman drives a 4WD just because she knows deep down that she is a poor driver.

A friend of mine who works at university as a chemist purchased a 4WD. He told me that he wanted it so that he could, as he said, "drive down the road and tell other people to get out of my way or I'll run them over." Once again, it seems as if 4WDs give their drivers a sense of strength, invincibility, or superiority.

Another friend, a carpenter, purchased a 4WD and told me that he wanted to get a 4WD so that he can "watch the environmentalists squirm." Getting a 4WD then is for the purpose of rebellion. Given that a car is a major purchase, it's quite strange that this person is basing his decision to buy on the childish emotion of rebellion, wanting to be cool or unique by being bad.

The catch is that these three people were driving small 4WDs. The girl at work was driving a two-door compact Suzuki 4WD while the chemist was driving a Toyota Rav4. The anti-environmentalist was driving a Nissan X-Trail. When I think of 4WDs I don't think of these cars. I think mainly of three cars: the Land Rovers (Discovery and Range Rover), Toyota Landcruiser, and the Nissan Patrol. The Land Rover is a marque that is dedicated to 4WDs and the brand has a strong reputation of building vehicles that can go through almost any terrain in the bush or the desert. On the downside Land Rover has a poor history of reliability. The company has changed hands countless times. It used to be owned by BMW, who then sold it to Ford, who then sold it to Tata. The Toyota Landcruiser is a favorite especially among Australians. The Nissan Patrol is used by the United Nations. While these three are highly able off-road vehicles, on road they are not pleasant to drive. Marketers then decided to capitalize on the imagery of the 4WD and created what is known as the soft-roader. These cars are really just normal hatchbacks that are jacked up a little to make it look like a 4WD. Therefore, they have the fuel economy and drive comfort of a small car but the imagery of a 4WD. This marketing magic resulted in a huge swing from real, truck-like 4WDs to these pretend cars. Soft-roaders include cars like the Toyota Rav4, Honda CRV, Nissan X-Trail, BMW 5-Series, and Mercedes M-class. Some of the ads really go far to express the 4WD psychological imagery inherent in these cars. For example, the Nissan X-Trail's ad features a man who, instead of driving around with a puppy dog, drives around and plays with a crocodile as a pet. How many of these soft-road drivers will actually use their cars to haul around crocodiles?

As petrol prices go up, many people are switching away from large cars, but although small cars sell well, many people are also switching to these soft-road cars.

10 August 2008

The Sucker to Saint Phenomenon

I have been reading an article called Suckers and Saints: How We Rationalize Being Wimpy about a phenomenon whereby a person who is insecure e.g. about being weak rationalizes it by acting morally superior. As the author says, "Claiming the moral high ground is driven by a basic insecurity." This would suggest that those who are poor would be more inclined to believe that money is evil. It also suggests that morality is just rationalization and that a person who is not insecure in any way would have no morality.

For example, many people believe that rape is bad. If you watch the news you may hear about a rapist and you may think that the rapist is an evil person and that you are morally superior to the rapist because you would never rape anyone. However, maybe this feeling of moral superiority is driven by insecurity. Perhaps you claim you are morally superior to a rapist because you do not have the guts to rape people.

This suggests that the fully secure and confident person with self-esteem is the person with no morals, a person who goes around robbing banks and raping women because he believes that nothing is morally wrong.

07 August 2008

Sense of Entitlement

I hear many people complaining that too many people nowadays have a sense of entitlement. One person I spoke to said that this is because children are nowadays overprotected and therefore come to believe that the world will protect them when in reality nobody will.

If we all have human rights, aren't we all entitled to something? For example, imagine if a man was raping a woman. The woman complains about this and says that she has the right to not have sex with the man if that is what she wants. However, the man who rapes her can claim that she has a sense of entitlement because she believes that she is entitled to this right to choose whom she has sex with. If it is wrong for anyone to have a sense of entitlement then it is therefore wrong for the rape victim to believe that she or he is entitled to freedom from coercion.

Of course, slavery and coercion is much more complicated than the example given above. When someone is a victim of rape, usually the rapist is stronger then the rape victim, and this difference in strength results in the victim not being able to exercise his or her option to stop having sex. With slavery, the slave can disobey but there are usually punishments set up to make this option not preferred. A slave has choice but the best choice leads to a poor outcome. For example, in Ancient Egypt it is widely believed that slaves were used to make pyramids. A slave had freedom in that he could choose two options: (1) work, e.g. pull heavy stones or (2) not work and get whipped. The slave has freedom to choose between working and not working but since the latter option leads to extreme pain, the slave is driven by fear of pain to work for the slave owner. This slave situation is analogous to the plight of workers in modern capitalist societies. In Australia, if you cannot get a job, you must go to Centrelink, which is a government agency that helps the disadvantaged. Centrelink will pay you a certain amount every fortnight but in return you must look for a job. To prove that you are looking for a job, you must write diaries and attend Centrelink seminars. I know all this because one of my friends went through all this. This system of welfare is analogous to slavery because the worker does have choice. For example, suppose an 18-year-old girl is dumped by her parents and needs to get a job to feed herself. Assume she is not intelligent and therefore cannot get any job other than being a prostitute. She doesn't want to be a prostitute because she hates sex and therefore resigns and is taken to Centrelink. The only thing Centrelink will do is put her back into employment, which means she will be a prostitute again. Therefore, she cannot escape work, which therefore means she is a slave. The fact that she is forced into sex against her will also means that she is being raped. What if she can find another job? It doesn't matter. It's still slavery because the individual cannot escape work, and the work available will likely be low paying and just as demeaning and nasty as a job as a prostitute. What if she gets a good job that she likes? What if she likes being a prostitute? If that is the case, then she is fine. She is doing what she loves. However, preferences tend to differ among people and there will always be those who don't like what they are doing but have to do it.

Many people who see those who don't like their job and choose to quit call them lazy. However, if you saw a slave complaining about how horrible being a slave is, would these people blame them for being lazy even though their situation is analogous? Would these people judge rape victims?

Having a sense of entitlement can be beneficial because we therefore fight for those rights we think we should have. For example, if nobody had a sense of entitlement, people would never fight and die to secure for women rights to vote.

06 August 2008

My Thoughts on Dave Ramsey

I've been reading about Dave Ramsey, who is a financial guru. His financial advice is apparently based on the Bible and has a strong dislike for debt.

Many say that by borrowing money to invest, one can make more money because investing more money earns more than investing little money, and the only way to get more money if you don't have that money is to borrow it. Dave claims that although this is true, the added risk or leveraging to invest makes debt investing worthless. He even quotes the book of Proverbs in the Bible that claims that "the borrower is slave to the lender."

Ultimately I think risk versus return is a matter of personal preference. Each of us have different risk tolerance. Since using debt to invest is a way to increasing both potential return and risk then whether it is good for you depends on you and how much you can stomach risk. If you are a fearful, risk-averse individual who is worried about losing money and would rather settle with little money instead, debt is not for you.

Dave is against credit cards because he claims that it gives people the impression that they have infinite money. I think credit cards can indeed do that. However, credit cards have many benefits. For example, you need a credit card to buy many things over the Internet. Buying stuff online saves petrol. (Using Paypal, you can choose to debit your bank account rather than use credit card.) The credit card I use, the Coles Group Source Mastercard, has a 2-month interest free period. This means you can leave money in investments for those two periods to accumulate interest. Because I spend so little, doing this doesn't earn me much money. The main reason why I use credit card is because I don't have much money in my bank account. If I used debit card all the time, as Dave recommends, then I may spend more money than I have and be charged an overdraft fee. Dave claims that I shouldn't spend money I don't have, but what if I have no money and I need to buy necessities like petrol or food? Dave claims that you should have savings in your bank account. The problem with this is that money in currency form in your bank account does not earn interest, so money in cash form is wasted. Dave claims that personal finance is 80% behavioral and that the problem with credit cards is that users think they have infinite cash. This may be true, but having heaps of cash in your bank account also gives you the impression that you have lots of money. Many people use savings accounts from their bank accounts to save up money for a deposit on a house, and what I often see is people hesitant to buy a house because of all the risks attached to it. They then have heaps of money in their bank account, and the temptation to just withdraw cash from an ATM or spend using debt card is huge.

Apart from my credit card, I am quite anti-debt. Dave recommends that you should attack your home loan as fast as possible. I would even go so far as to say that you don't need a home. If my parents kick me out of their house then I am prepared to live in a van. What you need is a roof over your head. A van provides that. Hopefully I will never be that desperate!

Dave talks often about teaching children good financial habits. I happen to believe that by having children you are putting yourself into debt. Why is this? First we must define debt. Debt is the obligation to pay or do something. By having a child, you automatically create an obligation to pay for the child's food, clothes, and so forth. You are obliged to do this by law. Thus having a child is no different to taking out a home loan. This therefore means that because each of us has to provide for himself then all of us have a debt. Because I need to eat, pay for rent/board, etc, then it follow that I have personal necessity debt. However, this debt can be eliminated. If I save enough money and invest it all, the returns on this investment could pay for necessities and then I would truly be debt free. There is the problem is inflation, that is a change in prices of necessities, however this can be fixed with hedging.

01 August 2008

Net Worth Report for July 2008

Cash: $91
Mutual Fund: $23,448
Super Fund: $3,491
Car: $5,825
Kiva: $431

Net Worth: $33,286


Not only do I have a normal streamline account with the Commonwealth Bank but I also have a cash management account with Commsec. This will allow me to purchase stocks. I also have a Paypal account and an Ebay account, which I used to buy $11 speakers for my Mp3 player because I want to be able to listen to my mp3s in my car without using headphones.

I increased the number of loans I make to Kiva, which meant my Australian dollars were converted to US dollars. Luckily, at this moment one Australian dollar buys 93 US cents, down from 98 US cents about a fortnight ago, which meant the Australian dollar has depreciated against the US currency, which means the value of my microloans have increased in terms of Australian dollars. I always tell people that even if you don't get any interest, you can achieve currency diversification with Kiva if you live outside the US.

My mutual fund balance went up, but don't be fooled. The stock market has been doing down and the only reason why there was an increase in value was because I worked longer hours and because I received half-yearly distributions of $1067 re-invested into the fund on 1 July 2008. This year I have made a capital loss.

My super fund is increasing even though the market is going down, which I suspect may be because it is actively managed. It could also be because I am working slightly more. The last time I checked my HESTA fund they were charging me contributions tax as well as insurance premiums. I am definitely going to try see if I can get a better deal at another super fund. I start my new job next year so it'll be interesting to see what kind of super fund my new employer gives me.

My grandma and co-workers are all telling me to buy a house as if it's something I've got to do. I've given up trying to convince them otherwise because I think it makes me sound arrogant or rebellious.

I am yet to fill out my tax papers. I am still waiting for my tax statement from Vanguard. Given that I've made capital losses on investments as well as donations to charities, I hope to get something from the ATO this year.