I can’t recall how this website became known to me, as it was bookmarked and then forgotten. Angry Renter is a website petition. The website’s platform is based on a silent minority, America’s renters. Many people rent. I did , still do, and will likely continue to do so for a few more years. They present an argument that I half agree with, and half don’t. So should I sign the petition?

Angry Renter argues that its not fair for the government to help bail out those affected by the credit crunch. Can’t argue with that, Capitol Hill won’t help anything. Some new regulation of that industry might be prudent but its not their job to bail out the American Half-wit.

They continue their argument on the supposition that its discriminatory for homeowners to get tax deductions on their mortgage and not renters. This is where Angry Renter and I differ. We encourage the tax-payers to buy property because that ownership is a source of revenue to the government (property tax). To make the deal appear sweeter the interest on your mortgage is tax deductible. Angry Renter does not acknowledge this fact and wants a tax deduction for rent. Renters don’t pay taxes on the lease, there’s your break.

To each his own though. If you disagree with me, you might agree with Angry Renter. Go check out the petition and sign it if you agree with their cause. We don’t always have to agree, but I always love to see Americans do what they do best: Question the government. I love this country.

At the time of this writing, Hillary has recently taken what many think is the final blow to her campaign. I tend to stay out of politics on the blog, but that doesn’t mean we still can’t pick apart what she said.

Clinton recently endorsed a gas tax cut proposed by John McCain. The idea is to suspend the federal gas tax from Memorial Day to Labor Day (international readers: thats basically our summer). The idea is to free up some money for all us poor people suffering.

Its our job, as educated individuals, to pick apart such proposals. Mom didn’t raise no idiot, but most moms did. Most of America is fixated in these little headlines and ignore the meat of the story, that’s why this Clinton plan almost worked.

Before we proceed let’s make sure we ignore the fact that Clinton never proposed this as a bill to Congress, knows full and well it won’t make it through Congress, and only said it to garner votes from us poor Americans.

So let’s take a look at why this tax cut is a bad idea. Don’t get me wrong, I’m big on cutting taxes, but this is the wrong place. The biggest flaw of the plan is the lack impact. While a headline about gas tax cuts looks great, estimates vary on the savings per person from $20-$50. Chump change even to us poor folks. Most of the gas tax is state, the feds only get 18.4 cents per gallon. Now if they took a % of the sale like most taxes, maybe a temporary suspension is worth a second thought, maybe.

Team Clinton (mascot: donkey) missed another important fact. If for nothing else, this tells me she knows nothing of economics, maybe she should read this blog. Removing a tax does nothing for the price of gas and oil. Remember most products you buy have the tax added in later. While the price you see at the pump will decrease, the wholesale price does not. Oil won’t drop as a result of this. A better plan would be something to decrease the price of oil. Or better yet, butt out and let the free market do its thing.

It is likely the tax cut would increase demand and the price of gas would go up. We could find ourselves with the same price we’re paying now only without a tax by the end of the summer. Then, come Labor Day, we’re worse off than before.

Thankfully this plan didn’t seem to work that well. It looks like America isn’t as dumb as I thought.

I’m writing this in March with the hope I’ll remember to post it on Mother’s day. Yesterday (back in March), my mother viewed my website for the first time. Being the great mother she is, Mom was so proud of what her son had done. She was impressed with the content, the layout, and the inspiration I had to start Weakonomics.com. Now if anyone else had reacted in the manner she had, I would have thought they were exaggerating. Perhaps my dearest mother was just being nice, but it doesn’t matter. I’ll say this and hope you can agree with me:

Nothing feels better than having your mother express how proud and impressed she is with you.

There’s a warm feeling you get when this happens, I’m not sure where it comes from but I know you’ve felt it too. If you don’t thank your mom today for doing all the typical mom things (raising you and all that), you should thank her for giving you self esteem. Happy Mother’s Day Mom and thanks for giving me a big head!

The Weakonomist

Sorry, I wasn’t able to put up a post this morning. This last week has been hectic at work, and I traveled all day Friday. I spent all day today (Saturday) moving my grandmother out of her house and in with one of my aunts.

The good news for my grandmother is she has sold her house to one of my cousins. The house is certainly a family legacy. My great-grand-parents built it, my grand-parents lived in it shortly after marriage, and then raised their children in it. Now my cousin owns it so the house is in the family.

Anyway, because of the long week I might miss some posts next week. I’m also going on a litter vacation and have not yet figured out how to do a post by a timer. I’ll work on it, but if you know how send me an email (philip@weakonomics.com) and fill me on on how to do this in Wordpress.

You want some links? OK the first is my post on spinning numbers to fit your agenda. Since writing it I’m working on a follow-up that includes some new “facts”. Also, we have my post on gas prices. A great read that got some feedback from you readers. I appreciate the feedback so please continue to email me your thoughts.

And now for a non-personal finance link. When traveling with my mom today I was describing archive.org, I thought this would be the perfect site to tell you about. Among other things, the primary goal of archive.org is to archive the internet. The coolest feature of the site has to be the “way back machine” which can be accessed from the homepage. This is a catalog of what web pages used to look like. As an example, this is the Yahoo page back in 1996. Check out some of your favorite sites from the 90s.  Thanks for reading.

Growing up I always thought the Fortune 500 was a list of the richest 500 people in the world. The knowledge that Fortune was a magazine and not just the name of a list had not yet been shared with me. You’re not as naive as I was, so of course you know the Fortune 500 is a list of the 500 biggest companies in the United States. This is the top 10 for your convenience:

The Fortune 500 is like CNBC, the “State of the Union” speech, and the Macy’s Thanksgiving Day Parade. They all have no significance but you can’t help but pay attention. That doesn’t mean the list is irrelevant, its just not as important as Fortune wants you to believe. My first annoyance is how the list is generated. Without looking, do you know how they rank the Fortune 500? It’s not based on some complex formula. Plain and simple revenue. That’s fine and all, but it just doesn’t tell me anything I care about. Top 10 with revenue and profit:

Instead of ranking based on revenue, a better list can be compiled based on profit. Two of the top 10 (Ford and GM) are immediately dropped because they didn’t even make a profit. Wal-Mart drops because they don’t make much profit. They have to harass vendors in order to keep prices low. If Target ever figures out a way to do the same, Wal-Mart will join K-Mart on Chapter 11 train. So who gets the title as most profitable? Exxon Mobil, duh! For more info on why this isn’t a big deal read Why Big Oil Isn’t Your Enemy. Another oil giant in the top five is Chevron. GE and two banks are the other 3 on this top 5. What is interesting here? JP Morgan made less than BofA in revenue, but made more profit. Now the difference is small, but it shows JP Morgan may be a better investment choice between the two (assuming fair value). Top 5 in profit:

Still, there may be another metric that evens the odds. Instead of measuring all out profit, what if we looked at profit in terms of revenue, AKA Profit Margin. Profit Margin is the percentage of revenue that was profit. In idiot terms - how much of each dollar a company made was profit. For example: Wal-Mart’s profit margin is 3%. For every dollar you pay in the store, $.03 of that dollar is profit to Wal-Mart. Compare to AmerisourceBergen (a pharmaceutical wholesaler), who pockets $.43 of every dollar. This was best on the list. You know Coca-Cola and Cisco Systems, and Altria is a tobacco company. Number 2 on the list is Microsoft with a 28% profit margin. Despite the incredible margin, Microsoft stock has been stagnant for years. I have said this in many conversations but never on this site: Microsoft is the most undervalued stock in the S&P500. Top 5 profit margin:

Alright we looked at the companies that made the most profit and the companies that have the best margins, what does it matter? Instead of scanning a list, it forces you to think about what companies are important, and where the money is really being made. Of course it allows you to speculate on things like: If the operation is scalable, Microsoft can make the same profit as Exxon with less than half the revenue. That’s the kind of stuff worth reporting. The statement below is even more profound:

If I buy a $1 Coke from Wal-Mart, I know 3 cents of profit went to Wal-Mart and 21 cents of profit went to Coca-Cola.

That’s fascinating to me. It also helps to explain why Warren Buffet owns a bunch of Coke stock and only a little Wal-Mart. It also makes the Fortune 500 seem less important.

Update: A rep from AmerisourceBergen contacted me and informed me their revenue was in fact $66 billion instead of the $1 billion I reported. Please disregard this line item as the rep was very much correct. I do not know where I got that figure from. As the rep points out, this makes their profit margin terrible. Sorry for the bad year. Next time don’t be so grumpy when you contact me, this is a blog, not WSJ.

Sometimes you have to give awards to people retroactively. Case in point, Gordon Burger. Gordon is probably a good ole boy that got into house flipping with the real estate bubble in the early 2000s. Business Week featured him in an article back in the “good days” of 2006. No big concerns existed back then of a credit crunch. So what happened to good old Gordy? Gordon found out about interest only mortgages based on a flier advertising a low rate (mistake #1). Thinking this low rate would save him thousands in interest payments based on his own math (mistake #2), he signed up. Neglecting the fine print of what an option ARM is (mistake #3), Gordon quickly found the amount he owed was going UP each month.

Bonus Mistake: I know this guy lives in California, but what is a cop doing with a $500,000 home anyway?

Now he’s locked into a contract with thousands in prepayment penalties. It’s lose/lose for this guy as he can’t refinance or accelerate his payments (he can’t afford to anyway). Remember this was back in 2006. Given what has happened since September 2006, this guy is a prime candidate for foreclosure and bankruptcy now.

The article goes on to talk about the history of ARMs and even explains a bit about how banks make money off these loans. The trifecta of a great article from the past is: a great story that’s still relevant, an education component that’s still relevant, and bitter irony.

The irony is in the three following paragraphs (I bolded the important parts, but you must read the entire text to get the full effect):

Yet the banking system has insulated itself reasonably well from the thousands of personal catastrophes to come. For one thing, banks can sell some of their option ARMs off to Wall Street, where they’re packaged with other, better loans and re-sold in chunks to investors. Some $182 billion of the option ARMs written in 2004 and 2005 and an additional $83 billion this year have been sold, repackaged, rated by debt-rating agencies, and marketed to investors as mortgage-backed securities, says Bear, Stearns & Co. (BSC )Banks also sell an unknown amount of them directly to hedge funds and other big investors with appetites for risk.

Personal note to the above… HAHAHAHAHAHAHAHA!

The rest of the option ARMs remain on lenders’ books, where for now they’re generating huge phantom profits for some lenders. That’s because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment — the so-called fully amortized amount — even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share.

For many industries, so-called accrual accounting, which lets companies book sales when they contract for them rather than when they receive the cash, makes sense. The revenues will eventually come. But accrual accounting doesn’t apply well to option ARMs, since it’s more difficult to know if unpaid interest will ever cross a banker’s desk. “This is basically an IOU that may never get paid,” says Robert Lacoursiere, an analyst at Banc of America Securities. James Grant of Grant’s Interest Rate Observer recently wrote that negative-amortization accounting is “frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity.” The Financial Accounting Standards Board, which is responsible for keeping GAAP up to date, stands by its standard but told Business Week in a written statement that it is “concerned that the disclosures associated with these types of loans [are] not providing enough transparency relative to their associated risks.”

Gordon gets the Weaky for his bad choice in loans and playing the role of pawn in this game of bad loans. I’m sure he knows better now.

An honorary award (not a Weaky) goes to Business Week and Mara Der Hovanesian, the author, for this great article that basically explains what will happen within the next 12 months from its publishing date. I contacted Mara to tell her how great this article was and to ask if she could give us an update on Gordon. Sadly, she has not been in contact with him but agrees with my point on how predicative this article was.

Read, Gordon’s part of the story starts with section called “The First Wave”.

Welcome to a new personal finance term. Its likely you’ve heard of liquid net worth - the value of all assets that can readily be turned into cash. That would exclude things like real estate and ownership in private companies. To not confuse liquid net worth with my definition, I’m calling it just liquid worth. What makes up my liquid worth? Liquid worth is the sum of all cash I can have in hand within 5 days. I don’t subtract any debts (like a car payment) because I may not need to pay it in the next 5 days.

Look at it this way, have you ever seen a movie where a kid is held hostage for $1 million and the dad is wealthy enough to put the cash in a briefcase in a few minutes? So, how much cash can I get on short notice without taking out a loan? And where do I get this cash?

I calculate my liquid worth based on all cash and equivalent accounts. For me, this is a checking and savings at my local bank, as well as two savings accounts with ING Direct. It doesn’t stop there though. I have a credit card with cash advance, and a credit line. Of course this has to be paid back, but not in 5 days. It is also a line of credit, but not a new loan. I also have a brokerage account with Sharebuilder, stocks can be sold in minutes and the money in my pocket in a day. So my liquid worth includes: 4 bank accounts, 1 credit card and 1 brokerage account.

What does this mean and what is its value?
No matter what you plan for, especially at my young age, there’s always something that comes up. Emergency funds are the foundation of liquid worth, but its good to take stock of what you have in addition to that fund. I track my liquid worth weekly because it fluctuates so much. My emergency fund is about 1/3 of my liquid worth, the rest being made up of the other sources. But when I make my car payment (remember its a huge payment), insurance payment, and a big Roth contribution all in a week, my emergency fund might now be 1/2 of my liquid worth. The next week, I get a paycheck and I’m back down to 1/3. Below is a little math to explain what I mean:

Liquid Worth = Emergency Fund + All other accounts + Credit card. Let’s say I have $1,000 available in each, giving me a liquid worth of $3,000. When I pay the bills, all “other” accounts are wiped out. Now my liquid worth is $2,000 made up of a credit line and the emergency fund.

This is the only aspect of my financial situation that worries me. I don’t want such huge fluctuations on a weekly basis, but its unavoidable while I’m paying down debt. My only solution is to track my cash flow and keep it manageable. What would make me feel better? Time, plain and simple time. As I continue to pay down debt, and grow my wealth, I’ll slowly relax on this.

My parents keep an enormous amount of money in liquid assets. More so than they need to but they are buying peace of mind in their conservative eyes. My goal is to have a year’s worth of salary available in liquid worth. This would include the bank accounts, and likely most would be taxable investments. When this happens paying the bills and getting paychecks won’t cause such drastic changes in my liquid worth. This will take a while and I do not know when it will be a reality. I do know that when it happens, I’ll relax.

Stimulated? Its rebate time! I haven’t talked much about our economic stimulus package and won’t here either. There are plenty of arguments why its a terrible idea and why its a good idea. Its not worth debating, its coming and there’s nothing you can do about it. To be perfectly honest, the best thing for the economy would be to cash your check and burn the money. The net effect is an increase in the value of the dollar. But you’re not going to do and I sure as hell ain’t.

I say this because of inflation. That $600 is worthless. Inflation is likely going to be the big concern for the second half of 2008. My advice, spend it all now because savings rates are lower than inflation right now. Pay down some debt, buy something. I don’t care. Just do it now.

But who gets a rebate? If you read personal finance blogs you likely qualify for a rebate. What I’m saying is you aren’t rich, and you make your own money. You read PF blogs because you want to know more about how to handle those precious pennies you get every paycheck.

What is the rebate expected to be spent on? Likely many people will pay down a bit of debt. But be realistic, we were the retards that had out of control spending problems in the past. Are we really going to be responsible with this new money? Its going to be spent on gas, groceries, cigarettes and beer. Its the American way. Sorry Canadians, no loonies for you.

Good details about the rebate and when you can expect yours can be found here. I grabbed the official page on the rebate from the IRS page as well.

$40,610,000,000. That’s the profit Exxon Mobil made last year. It’s a record, not just for oil, but everyone. $10,900,000,000. That’s the profit Exxon Mobil made in the first quarter of 2008. Annualize that and you’ve got another record year in 2008. Congress has once again pulled in the oil executives to explain themselves. As in the past, this does nothing for consumers and just lets Congress look like the good guy. Here’s the entire situation in a nutshell:

Oil got expensive, so consumers have to pay more at the pump. The oil companies started making bigger profits, while consumers suffered. Congress represents the consumers, and so its their job to ask Big Oil to explain themselves.

Every time Big Oil comes before Capitol Hill they say the same thing. Its such a formality at this point I don’t know why they even bother. The question always is “Why are your profits so high?”. The media has given us the impression that the answer is “Because we want to make lots of money”. The actual answer is, “We were smart enough as an industry to prepare for the growth in demand of our product, thus we reap the rewards”. Exxon and the other Big Oil companies owe the American public no explanation for their profits. Its called Capitalism, kind of why America is awesome. In fact, you should be smart and own stock in these companies. I do through mutual funds, likely you do as well.

Alright I still haven’t explained why Big Oil isn’t your enemy. Which do you want to do first, taxes or profit margin? We’ll do taxes since we’re still in that season. Exxon Mobil is the single greatest taxpayer in the United States. That is, no one pays more taxes than they do. Those taxes pave your roads, fund the EPA, and of course pay the salaries of everyone in Congress. Its true they have some tax breaks and maybe they should be revoked, but that’s an argument for another day. The fact remains that the profits of Big Oil are a big contributer to our tax revenue.

This one is my favorite. To be honest I didn’t even notice this until writing a post about the Fortune 500 (coming soon). As you may know, profit margin is the amount of revenue that’s profit. So if I have a 10% profit margin, each $1 in revenue gives me $.10 in profit. If I can grow my revenue while keeping the same margin, I’m going to get great profits. To the cynical consumer, you can look at profit margin as “how much of my dollar the greedy corporations are taking when I buy stuff”. It’s my feeling that Congress should focus on the industries with the highest profit margins. They are taking the most money out of my pockets per dollar I spend. Check out the list and see if you can find any other bad guys. Oh what’s this? Cigarette companies have a higher profit margin! When was the last time they had to answer for their profits? Oh! Despite having (what we were told) a bad 2007, BANKS still have better margins than Big Oil.

Source: Yahoo Finance

Better still, let’s just look at companies in general. Below we have some of the biggest consumer brands in the country. You should know the first 3 well, Revlon does make-up and Wells Fargo is the #5 bank in the country if you didn’t know. Why is it that Congress crawls the up the rear of Exxon but greets Bill Gates with open arms? Microsoft has almost 3X the margin. Wells Fargo participated in many bad loans to consumers yet no one other than Countrywide has been asked to testify. Revlon does makeup and has similar margins, but they aren’t being picked apart by the media. Just blame the highest profit.

I’m not here to tell you that Big Oil is the next United Way. They don’t have to be. Oil is a profitable industry. When the media tells us Americans are suffering, we listen whether its true or not. Naturally, the American way is to blame someone other than ourselves. Just acknowledge to yourself that you played a part in driving up the cost of oil. Don’t blame Big Oil because they planned their infrastructure in a way to expand with increased demand. Take responsibility for your own greed America. Blame yourself and then do something to decrease your reliance on the black gold, truckers will thank you. Now go on, find something else to blame for your inability to control spending. Big Oil may not be your friend, but its certainly not your enemy.

Twitter. Likely you’ve noticed in my sidebar The Weakonomist Twitter Feed. What’s Twitter? That was certainly my thought when I first heard of it. Well the answer is difficult. If you’ve ever used an instant messaging program like AIM, MSN Messenger, or in my case, Pidgin then you’ll know what an away message is. The away message is a great way to let people know what you’re doing.

Twitter is kind of a universal place to put up away messages. I mostly use it to announce new blog posts, but sometimes I’ll throw up some thoughts or even a cool link I’d like to share with you readers. Some call it “micro blogging”, as you’re limited to 140 characters. You can follow me and I can follow you. Its certainly difficult to describe and you won’t understand unless you try it.

Perhaps this video will explain it best. I just found it while posting this morning.

Search for people you know and see if they are on there. If you’re a tech head like I am, you must follow the likes of Kevin Rose and Jason Calacanis. I also follow Leo Laporte and other A-List geeks. Obama junkies can follow the campaign and get updates about where he is. He’s currently the most followed according to Twitterholic. Give it a shot, it won’t hurt you and you might find it useful.

No links back to my site today. Thanks for the emails, keep the coming!