Tax and Spend is not Change

I warned you, Obama wants to spend like a drunken sailor and tax like crazy.

First, the $787 billion "Stimulus" package, and now the Democrats want to spend another $401 billion, with Obama wanting taxpayers to bail out everything from mice to McMansion-owning bus drivers.

How does he and the Congress propose to pay for this massive redistribution scheme? The simple answer since Karl Marx is to tax "the rich." While there is great speculation as to who "the rich" really are, I will stick with some basic facts.

Anybody who is currently in the 36% federal income tax bracket will now be taxed at 39.6% at the expiration of the "Bush" tax cut. Maybe that's too broad of a group so let's look at a more discrete set of folks.

According to the Wall Street Journal (really read this article, its worth it),

Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

Did you get that? The top 2% pay 62% of ALL federal individual income tax. I think that is more than their fair share, especially since they don't get additional services. Further, the top 50% pay over 96% of individual income tax. So, according to John Edwards, we really do have two Americas, those who pay income tax, and those who consume it through government benefits.

Just in case you didn't think you were paying enough, Obama wants to nationalize health care. Haven't we learned enough from the United Kingdom, Japan, and Canada that government health care is not only an atrocious waste of money, but also leads to poorer care??

Citizens and taxpayers of the United States, now is the time to contact your representatives in Congress and demand they stop wasting your money. These massive, and I mean more massive than we have ever seen, deficits spell hyperinflation. That is bad for everybody. Also demand that as a taxpayer, you don't want your taxes funding the 9000 earmarks in the Democrats new budget. In case you support these things, and are in the top 50% of taxpayers, get used to socialism and a declining standard of living, as that is what is happening.

Wake up America! Its happening right in front of your eyes!!

A Moral Hazard

CNBC's Rick Santelli got it right about this "Mortgage Relief" being pushed by President Obama. While I generally stay out of particular political issues in this blog, the video clip really hits the nail on the head.

For reference, Wikipedia has a good definition of moral hazard:

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.

So, some homeowners got themselves into mortgages which they probably knew they wouldn't be able to make. Now that they are sinking, in rides the US taxpayer to bail them out. As somebody who pays their mortgage on time, I resent having to bail somebody out of their uninformed mortgage mistake. You can read a great primer about the financial crisis here and here.

While I have sympathy for those who don't fully understand mortgages and mortgage documents, I don't have sympathy for mortgage brokers and those who just got big eyes for big houses. I also have only a modicum of sympathy for banks who were bullied into making bad loans by the US Justice Department via the 1977 and 1999 Community Reinvestment Act.

Although I could get on my soap box about thrift, savings, mortgages, living within your means, I won't. Rather, I wish that US citizens will seriously consider both the economic stimulus signed into law and these mortgage and mortgage relief provisions that President Obama wants passed. Finally, I tip my hat to Rick Santelli for telling it like it is.

Green Techonology Saves Money? Maybe.

This recession is finally getting people to consider the consequences of their actions, both long-term and short-term. The Wall Street Journal ran two pieces under the heading "Eco-Friendly... and Frugal."

Both pieces relate how both appliance manufactures, such as GE and Whirlpool, are aggressively marketing the cost savings of owning Energy Star compliant appliances. While I am a big fan of cost savings, I am also a fan of conservation. However, when purchasing appliances, doors, HVAC, etc., just because its Energy Star compliant doesn't necessarily make it a good deal.

The article states that prices for both traditional and Energy Star are narrowing, which makes the Energy Star product more appealing. However, it is the statements of savings by the manufacturers that have to be evaluated. From the article:

The cost savings don't usually amount to much in the short term. And many families may not see the kinds of savings that companies promise. That is because company estimates make certain assumptions, such as how long the new product lasts, how old your previous appliances were, and whether your are using the latest gadget with other energy or water efficient devices under the same brand name.

Huh, how about that? Further, the articles states that David Lockwood, director of consumer insights at Mintel International, believes that "In general, the actual dollars saved annually end up being lower than most consumers expect..."

To buy or not to buy, that is the question. If you are in the market for appliances and the conventional model is priced at or near an Energy Star product, its worth considering the Energy Star one, as some savings beats no savings. Scrutinize the claims of the manufacturer. See if their claims are consistent with your lifestyle and use of the appliance. Consider also if the appliance adds to the value of your home. In some cases, a home with several Energy Star items (lights, doors, windows, appliances) can garner a premium, even in a down market.

In the end, spend your money they way you want. Consider what features you value and which you don't and act accordingly. That is what defines an economically efficient market, consumer choice and the determination of value.

Windmills and Solar Fail to Reduce Carbon Emissions

In what can be seen and judged as a triumph for the free market and an epic failure for government interference, Der Spiegel reports the following headline:

Wind Turbines in Europe Do Nothing for Emissions-Reduction Goals

The story, authored by Anselm Waldermann, explains that the "greening" of German electricity, "Roughly 15 percent of the country's electricity comes from solar, wind or biomass facilities, almost 250,000 jobs have been created and the net worth of the business is €35 billion per year." Ok, not bad, but what's the catch?

It turns out the that carbon credit trading scheme hasn't accounted for any reduction in carbon emissions, and Waldermann places the blame on the EU-wide emissions trading system. As it turns out, the system determines the total amount of carbon output. However, it hasn't reduced that amount as new alternative energy plants are built. In other words, carbon credits are oversupplied. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

So, now what, cries German climate-sensitive folks. Well, like most things bureaucrats design, they don't consider human nature. Companies aren't going to run and spend millions of share holders dollars to build windmills when they build a new coal plant cheaper. Mountain House Freeze-Dried Food

This story does have a happy ending! The German Green Party recognized that the best way to make this system work is to spend the money more efficiently. And here is the "A-HA!" moment:

"When reduction of CO2 emissions is more cheaply achieved through insulating a building than using a wind turbine, that is where we should concentrate our support."

And here is the chart that goes with the proverbial light bulb:

The Costs of CO2 Reduction
To reduce CO2 emissions by one ton, it costs (in euros):
Building Renovations (90% of cases) <0>100
Modernizing an old black-coal power plant 20
Reductions in industrial CO2 emissions >20
Replacing black coal with natural gas 28
Brown-coal power plant with carbon capture technology >30
Modernizing a new black-coal power plant 50
Replacing brown coal with natural gas 50
Black-coal power plant with carbon capture technology >50
Biomass >50
Biofuel >50
Wind Energy 50-60
Geothermal Energy >100
Solar Energy (Photovoltaic) 300-500
* A value less than zero indicates that the measure is actually profitable.
Sources: McKinsey, RWE, German Renewable Energy Federation

As one can clearly see, it doesn't make sense to spend tons of money to reduce carbon, rather, making simple changes is considerably more profitable. That is what business is all about. When a company can reduce costs and still deliver a high quality product, they will make a profit and share holders will be happy. In the words of Nelson Muntz, "HA-HA!"

The Free Market Strikes Yet Again!

What started off to be a piece gently mocking the heavily subsidized alternative energy disciples has actually left me somewhat humbled.

In an article from the "New York Times" titled "Dark Days for Green Energy," there was much wailing, moaning and gnashing of teeth around wind, solar and geothermal suffering from the credit crisis. Smugly, I was going to point that in peoples' faces and remind them that cheap and plentiful coal, as well as clean, renewable nuclear power were the way to go.

However, when I started looking into the big 3 solar stocks, SunPower (SPWRA), Suntech Power Holdings (STP), and First Solar (FSLR), I found something quite surprising. They are all pretty decent stocks that are doing well. While they are below there 52 week high, it seems the solar market is actually hanging in there, despite what the New York Times says. Surprised, aren't you? I didn't think so.

It turns out that these companies are locked into some pretty sweet deals with major power companies to install solar plants and that is driving the share price. While we can successfully argue the merits of solar, you can't argue that the stocks have done well. So yes, I made a snap judgement that was wrong.

However, about this I am right, neither solar, nor wind are currently profitable in the free and open market and require tremendous subsidies, that is, American tax payers are making up the difference. Further, wind and solar don't produce reliable power like coal, natural gas, or nuclear.

In short, I was taken in by the New York Times. What I thought was going to be an article bemoaning the crumbling of the alternative energy market actually turned out to be desperate plea to increase "green" funding in the stimulus bill. How could I have been some dumb?

***I am not a licensed financial adviser/planner/etc. This article doesn't constitute financial advice. If you buy the stocks listed in this article, you are on your own. You have been warned.***

France Denies the Law of Supply and Demand

Well, just when I was starting to like the French again, they go and try to void the law of supply and demand. More specifically, as reported in the Wall Street Journal, Luc Chatel, the junior industry minister, wants French automakers Renault and Peugeot Citroen to promise not close factories in return for a government bailout.

While I am all in favor of setting conditions for government money, those conditions shouldn't place the company in an uncompetitive situation. For if the company is uncompetitive, the taxpayer is chasing good money after bad. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Consider that labor, in general, is demanded by manufacturers. Labor is then segmented by its market and skill. Different countries have different quantities of skilled labor at different prices. We have all seen that with BMW plants in South Carolina and Hyundai plants in Alabama. Well, Turkey is much like Alabama, relative to skilled labor.

For the French automakers to survive, they need to find cheaper labor than 35 hour a week union members who take 6 weeks off and go on strike when the wine in the company cafeteria doesn't pair properly with the foie gras. Let's also not forget the smoke breaks.

However, M. Chatel thinks that by forcing the factories to stay open and carry excess capacity (15% for Renault per Credit Suisse), that will make things all better. WRONG! Let's consider the US plan which is to provide badly needed capital in return for a stake in the automotive companies. The governement is working to set benchmarks to streamline production, control costs, etc., though isn't calling for make work jobs, at least not yet. Come on, Obama was just inaugurated and the Congress hasn't finished all of the Inaugural ball debauchery. Compare Auto Insurance Quotes and Save!

In short, demand for cars in France is down with French labor being some of the most expensive in Europe. To stabilize their automotive industry, the automakers need to reduce costs, and lower cost labor may be the key. In the meantime, M. Chatel should go back and take a basic economics course and let that be his basis for recommendations, and not politics.

What is a Commodity?

Commodity is a word that most everybody has heard but may not really know what it is or how it has any impact on their daily life. Below is a brief explanation and example of a commodity and why you should know what it means.

According to dictionary.com,:

.	an article of trade or commerce, esp. a product as distinguished from a service.

Stock Exchange. any unprocessed or partially processed good, as grain, fruits, and vegetables, or precious metals.

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Talk about vague... Here is a easier explanation. We are remodeling our kitchen. My wife wanted the Grohe K4 faucet to replace our existing one. I looked it up and the MSRP was pretty high, so we asked our contractor to see what his best price was. Even then, it was pretty pricey, so I looked on Costco.com. Voila! They had the faucet and it was almost half of MSRP. I verified the part code to insure it was the right one, and purchased it.

The K4, whether sold by a retailer, supplier, or Costco is exactly the same. As a consumer, I spent a little time to find the best price, in other words, had full information, and made the decision where to buy it on price alone.

A product that is differentiated by price alone can be defined as a commodity. Another example of this would be of onions in the grocery store. An onion is an onion, regardless of where you buy it.

While it seems simple to think people comparison shop, many don't. With the availability of information via the internet, there is almost no excuse not to. However, a person may pay more for a commodity if the seller provides some service.

I traded taking the faucet home that day for waiting until it gets shipped. That onion that costs $.02 more a pound may come from the closest grocery store. People consume not just goods, but the conditions that surround the good (convenience, timeliness, returnability, utility, etc.). Many of these decisions are subconscious and provide little value. However, once one begins thinking about why they purchase things, one becomes a more efficient consumer. Click here to visit BloomingBulb.com

A commodity is a good that is differentiated by price alone. However, even though a good is a commodity, it doesn't mean that it is priced the same, as the seller may offer some service around the good. Why am I writing about this? I am writing about this so people can better understand and articulate why they make economic decisions, and further hoping they will make better decisions in the future.

Big Green Trucks

Be sure to enjoy the new article about flywheel hybrids here!

Hybrids got a lot of press when gas was $4 a gallon, but now that it is below $2, does anybody care? Well, Eaton does.

Eaton has been in the power, hydraulics, and automotive business for quite some time, quietly developing new technologies used in most cars, trucks, and heavy trucks today. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

As I have written previously in "Hybrid Hummer Hums," Eaton was a main supplier in the hydraulic units for that vehicle. In this article, I will discuss two Eaton implementation of hybrid technologies.



Parallel Hybrid System
The picture above graphically displays Eaton's Hydraulic Launch Assist system, a heavy vehicle (garbage truck) with a standard engine, and hydraulic system is supplemental power. It is designed to capture energy through regenerative braking, store it in hydraulic fluid, and then use it to "launch" the vehicle from a stop.

From Eaton's web site, "During acceleration, fluid in the high-pressure accumulator is metered out to drive the pump/motor as a motor. The system propels the vehicle by transmitting torque to the driveshaft." This system is able to work in either Economy or Performance mode. The difference being that engine doesn't perform acceleration until after the hydraulic system is spent in Economy mode, while in Performance mode, both the engine and hydraulic system work together. In either case, Eaton predicts a 20-30% fuel efficiency increase.

Series Hybrid System
A series hybrid varies from a parallel system in that, "... conventional transmission and driveline are replaced by the hybrid hydraulic powertrain and energy is transferred from the engine to the drive wheels through fluid power."

The series hybrid allows the engine, mated to a continuously variable transmission (CVT) to operate at optimum efficiency, while "energy is transferred from the engine to the drive wheels through fluid power." This system also uses regenerative braking and managed engine cut-off to show fuel efficiency improvements of 50-70%. Would you feel better if you had more energy? Try FRS® Healthy Energy™ Free*!


Although these systems are not in full production, they are the leading edge in hybrid technology for heavy vehicles. Think about these hybrid systems when you see a city bus or garbage truck accelerate from a stop. Imagine seeing that same bus accelerate, but without that black cloud. That is progress.

Stop the Meddling With the Market!!

On the front page of the 04 December print edition of "The Wall Street Journal," the headline is "U.S. Eyes Plan to Lift Home Sales." Are you kidding me?? The article states unbelievably, "The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages."

You just read what I read, Freddie and Fannie back loans whose rate is below market. Good grief!! The goal is to extend more loans and "address falling home prices." Doesn't anybody remember the housing bubble? Why does the government think it makes sense to prop up home prices instead of allowing the market to price them? Also, why allow failed institutions to back below-market mortgages? I feel like I am living in the Twilight Zone.

Let's take this a step further. This scheme is only for buying a home and not refinancing. However, later in the article, Secretary of the Treasury Paulson says "...is to reduce the cost of mortgage finance so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages." Huh? Now he wants to subsidize mortgages? Maybe the plan can include only those refinancing with bad credit, as the rest of us suckers are stuck with what we've got.

When I bought my house, I had to scrimp and save to get a suitable down payment, as well as prove employment and the ability to pay. Guess what, I have been able to pay my mortgage, on time, and without any "adjustments." So why should things change now? What should happen is that those institutions that made bad loans face the consequences.

As a taxpayer, and somebody who pays on time, I resent that some new home buyer is going to get a subsidized mortgage. I also resent the fact the lenders are going to rewarded for not applying standard risk models and setting rates. Stop this madness!! If the US government wants to restore both faith in the financial markets, as well as stability, mortgage and home prices should be set by the market, not by government interference (and my money!).