Business is Personal (Finance)

Can you spare a million mister?

Wed, 20 Jan 2010 11:24:00 -0800

A recent story in CNN about the wealthy having trouble getting mortgages:

http://money.cnn.com/2010/01/20/real_estate/mortgage_woes_for_wealthy/index.htm

Some of the examples of woe in the article:

A self-made man, he had sold a business and put much of the proceeds in a charitable remainder unitrust that paid him $150,000 a year. He took paper losses in his stock portfolio against that income, however, which lowered his taxable income. The cash flow stayed intact but the income he showed was much lower.

So you put most of your assets into a trust. And if you default on your mortgage, I can't touch your assets. Hmmm ... ok, sure, let me write that check to you right now.

The problem was that the client wanted to buy a second home. And because the client would not, could not, swear that he would occupy the home at least 75% of the time, lenders weren't interested.

So you want to borrow -- oh let's say $2M -- to purchase an investment home. Your monthly expenses will be about $20K/mo including tax and maintenance. You will then rent out for $8K/mo. Uh huh ... and when were you planning to walk away?

Take the doctor client of Bruno's with a home on 19 expensive acres of Connecticut countryside. He had more land than he needed and some time ago toyed with the idea of subdividing and selling it off...His bank wouldn't count the sub-dividable land, worth $8 million, as collateral because it was now a separate parcel...His lenders limited him to a loan of $1.3 million.

Ah yes, the amateur land developers. They had a pretty good record of repaying their loans. I hate to say it but this is a rather obvious consequence of his action. His house now sits on a smaller plot of land. Since all the other parcels are considered separate, he needs to get refinancing for each plot. What? Banks won't refinance empty land? But but but ... they're not making any more land!!!

Not to turn the screws too much on the examples in this story but It does seem like writers in business/investing/financial media often don't know what they're writing about. I can count article after article where the writer did not ask basic questions. But I guess they need to appeal to the masses with emotional stories instead of accurate stories.

Christmas Spending

Tue, 19 Jan 2010 10:28:00 -0800

I'll need a few more months before I have enough records to make some sense of our spending. However, I can say our December was one of the lowest on record. In China, Christmas is a minor holiday -- store merchants might put some decorations up but otherwise, you would have no idea it was the holiday season. So we ended spending about $100 to host a party, $20 for a fake tree and $20 total for gifts for kids who showed up at the party.

We won't get off so lightly for Chinese New Year though.

"Look at all the money I saved!"

Sun, 17 Jan 2010 15:27:00 -0800

An edited snippet (for grammar) from a conversation on the topic of travelling in China:

Don't forget the exchange rate! $1 equals almost 7. You will save lots of money shopping!

:) I tried to make a joke about this statement but the speaker of this quote kept pushing on about all the things you could buy. Ahhh, to be young, carefree and naive again -- both a blessing and a curse.

My wife has been tracking our spending in China the past few weeks. I'll look through her notes later and try to make some sense of it but in the meantime, some recent spending stories in a similar vein to the above quote.

Cheap Eats

A new Korean restaurant opened up near my son's preschool so we went over one night for dinner. Food was tasty and cheap. The typical dish was priced at 7 RMB. appetizers at 4 RMB which meant for about $2 USD a person, you could have a very satisfying meal. This restaurant though is 2 blocks away from one of my wife's favorite shopping spots (a parking garage chopped up into tiny merchant stalls) so we walked by for a look. We went from looking for a sweater for my 2 year old daughter to boots, skirts, tops, etc. for my wife. $7 dinner -- $50 shopping afterwards.

Only 10 Left

A local merchant had a special deal -- vests for 18 RMB ($2.65) -- but he only had 10 of them so get there early before they're sold out! He opened at 10:30AM so we first sat around for an hour at a restaurant eating dim sum -- 50 RMB ($7.35). Then we walked around the supermarket for another hour buying this and that -- 150 RMB ($22). Finally we were able to buy a vest and it certainly was a great deal as we had previously bought the same vest elsewhere for 42 RMB ($6.18). But the total spending report definitely favored the more expensive vest.

Now these numbers are very small for somebody earning a U.S. income living in China but I'm sure everybody has similar stories except with numbers proportionally bigger. It's hard not falling into these traps as businesses simply have the upper hand on consumers.

Thank you for riding the REIT dropzone, please come again

Thu, 14 Jan 2010 13:11:00 -0800

If somebody opened up a Wall Street themed amusement park, a REIT rollercoaster would be one of the most harrowing rides. If you were monitoring the VGSIX/VNQ on a regular basis, here is what the monthly fluctuations looked like:

When looking at percentages, negative returns have a bigger impact than positives of the same scalar so the cumulative return adds up like so:

Not very nice looking numbers for somebody who decided to get on the ride late 2006 or early 2007. Unfortunately, that's when I switched to indexing and randomly picked VGSIX as one of my options. I did keep buying more and more using monthly contributions and then threw in big lump sums early 2009. In gambling, this is called "doubling down" -- in investing, we call it rebalancing, tactical asset allocation and other fancy names. Basically, I kept shovelling money in as fast as the sink hole kept collapsing.

A graph of my REIT holdings the past 3 years:

Legend: RED = contributions, BLUE = return, YELLOW = balance

The graph shows the YELLOW line meeting back up with the RED line after a wide separation from August 2008 until the end of 2009. This time, I've come away from the table with my money back and an inexpensive lesson learned. Hence, the first transaction I made in 2010 was to rebalance my REIT holdings to get it back in line with my asset allocation.

Transferring money to China

Thu, 14 Jan 2010 10:58:00 -0800

Living in China but collecting a U.S. paycheck (direct deposited into Vanguard money market funds) does require getting the money over. Here are some of the methods I have been using:

Western Union

Most people use Western Union by bringing cash in person to a local retail presence. As I am overseas, that option is off limits to me. Instead, these kind of transactions usually involve friends and/or relatives sending cash to here and then I write them back a check via online banking. However, I did use Western Union to send money to my brother-in-law in China before flying out. The cost of this service is $14 for up to $2500 and $25 for up to $7000. (Edit, fees have been raised to $17 and $32!)

Western Union does allow using a debit or credit card to send money online but the extra fees make it unappealing when other options are available. (Edit, with the increased fees, WU is now my last choice.)

Wire Transfer

All banks of course have traditional wire transfers -- usually at a cost of $15 to $25 for overseas transfers. There are some options at specific banks to bypass such fees:

Bank of America can send $1500 per wire twice a month to an account holder a China Construction Bank at no charge. (I could find nothing on their website describing this deal but was able to sign up for it a local branch in San Francisco Chinatown.)

Wells Fargo has a similar relationship with Agricultural Bank of China for PMA account holders ($25K assets at Wells Fargo). You can send $1000 per day up to a maximum of $75K a month. I know -- the math does not work out -- if you sent $1000 every bank business day during a month, you could only do roughly $20K per month.

ATM

Just like how some banks of special wire transfer relationships with banks in China, there may be similar relationships for ATMs. From a China Construction Bank ATM, I can withdraw the equivalent of 2000 RMB from my Bank of America checking account. This corresponds to roughly $293 USD.

Cash

If you have cash, you can find local merchants who will convert the money for you. Unfortunately, the exchange rates are not as good.

Check

If time is not an issue, you can write a check off a U.S. bank and deposit it in a China bank. Fees and time to process depends bank-to-bank. From our inquiries, it appears China Construction Bank has both the lowest fee (about $1.50 for a $5000 check) and fastest service (1 month to clear).

Exchange Rates

Exchange rates do vary depending on the institution and method. Here's a rough estimate of what I've been seeing:

Trading Rate: 6.83
Wire Transfer, ATM, Check: 6.81
Western Union: 6.80
Cash @ Street Merchant: 6.78

In short, the difference between the trading rate is where the merchant/institution is getting their fee (or extra fee in the case of Western Union).

Additional Notes

Foreigners can open bank accounts in China. All you need is your passport. However, receiving wire transfers and depositing checks can be a hassle. You have to fill out reams of forms each transaction -- I did a test transfer of $100 and sat there at the window for 30 minutes signing one form after another. My recommendation is if you have trusted family in China, transfer the money to their accounts. Chinese nationals can get through the process 5 times faster.

China also has a limit of $50K USD received per person annually. Once you hit this limit, you will get USD cash which you then have to find a local vendor to exchange.

China visas

Wed, 13 Jan 2010 10:20:29 -0800

I've just renewed my Temporary Residence Permit (basically a visa that is only issued inside China) so the visa process is still very fresh in my mind.

If you are interested in a stay longer than a vacation and you are a U.S. citizen, apply for the 12-month multi-entry L (tourism) visa. Write down you plan to visit Macau, Hong Kong and a few other nearby countries to show the consulate/embassy that you need those entries/exits. There are visas with shorter durations, fewer entry/exit rights but U.S. citizens pay the same price no matter what so might as well apply for the best option. (Passport holders from other countries pay different fees depending on the duration, entry/exit count.)

U.S. citizens either born in China (which I am) or married to a Chinese national can apply for a 24-month multi-entry L visa. If you qualify for this visa, this is the easiest option if you plan to stay in the Guangdong province. Every 90 days, you have to take a trip to either Hong Kong or Macau, go through border controls and then come right back in. Since visas determine expiration by the last day you can enter, a 24-month multi-entry L visa lets you stay for 27 months if you go through border controls on the last day. (12-month L visas have 60 day stays so you can stay for a total of 14 months.)

Sounds pretty nice -- unfortunately, these visas an only be applied for outside of China. Once in China and you want to extend your stay, you can only get a "visa" with 0 entry/exits. So the moment you head off to Hong Kong (90 days visa free stay for U.S. passports) or Macau (30 days visa free for U.S. passports) for a fun vacation, your visa is no good any more and you must apply for a new one. From the information we received, the maximum China visa stay you can get in Hong Kong or Macau is 90 days. Before the Beijing Olympics, it was possible to apply for a separate entry/exit permit but that program has been suspended and it is unknown if or when it will be resumed.

To get a Temporary Resident Permit L visa, you need a Chinese resident to sponsor you. It's not really that difficult. You basically have to go to 2 locations:

Go to your sponsor's local Police Security Bureau to register your residence. Submit:

passport photo
copies of your passport (photo page, latest visa page, latest entry/exit stamp page)
your sponsor's Household Registry and ID card

To expedite the process, get the photo taken at a shop that is electronically linked to the local PSB. They will give you a number and the PSB can simply pull it into your paperwork. The first time, we did not do that and this process took 2 hours. The 2nd time, it was done in 30 minutes.
Go to the Entry/Exit Bureau for your region to apply for the visa. Submit the same photo copies in addition to the printout the local PSB gives you. If you are applying for visas for both you and your kids, make sure you have copies of your sponsor's documents for each application.
Head back to the Entry/Exit Bureau in 5 days to pick up your passport. There may be expedited processing available for extra fees -- I did not inquire about this.

This visa is good for 6 months and you can apply for it twice in a row. After that, you must leave the country (Hong Kong/Macau) and apply for a visa to re-enter China.

I have some business that will need attending to in the U.S. later this year so my plan is to fly back just a bit before my visa is up. Once in the U.S., I hope to get a 24-month L visa -- or at the minimum -- a 12-month L. I do not want to drag my kids on two 15 hour flights so they will just head off to Hong Kong for a vacation when their visas expire. A 90-day dual entry visa would then let us also visit Macau before we again apply for the internal 6-month 0 entry/exit visas.

Fewer index options at Bancorp HSA

Wed, 04 Nov 2009 02:50:23 -0800

In this entry from a year and a half ago, Bancorp HSA seemingly was the best investment option for HSA accounts. Since then though, about half of their index funds are no longer available. I suspect the fund companies themselves have given up trying to compete with Vanguard, Fidelity, ETF providers and rolled those funds back into their regular actively managed core funds. After scanning through the updated list of funds, the following seem to be the best options available depending on whether you have $2500 minimum or $10,000 minimum to invest.

DBMIX - Dreyfus Bond Market              -  2500 - 0.40%
DIISX - Dreyfus International Stock      -  2500 - 0.60%
PESPX - Dreyfus Midcap                   -  2500 - 0.50%
PEOPX - Dreyfus S&P500                   -  2500 - 0.50%
DISSX - Dreyfus Small Cap                -  2500 - 0.50%
FINPX - Fidelity Inflation-Prot Bonds    -  2500 - 0.45%
CRSOX - Credit Suisse Commodity Return   -  2500 - 0.70%
FFNOX - Fidelity 4-in-1                  - 10000 - 0.20%
FNCMX - Fidelity Nasdaq Composite        - 10000 - 0.35%
FBIDX - Fidelity US Bond                 - 10000 - 0.32%
FSMKX - Fidelity Spartan 500             - 10000 - 0.10%
FSIIX - Fidelity Spartan International   - 10000 - 0.10%
FSEMX - Fidelity Spartan Extended Market - 10000 - 0.10%

Office Launch Soon

Tue, 20 Oct 2009 12:01:45 -0800

My office in China is nearing the opening bell. The contractor is 98% done with just some minor issues to correct. Desks and computers have been delivered and I'm working day and night setting up the networking infrastructure. I've done a half a dozen phone interviews (whittled down from 2 dozen inquiries) and a few in-person interviews.

I'll have more to write about once this home stretch is over.

Asset allocation review

Tue, 13 Oct 2009 13:54:00 -0800

I've been saving a nice chunk of my salary since I started working fulltime 15 years ago. Over time, it has grown mostly due to contributions but there have been periods of euphoric market gains. If I could split it up, I can point of several distinct periods.

Period 1: Random Fund Picks

Like most people, I knew little about asset allocation and portfolio construction. Instead, I looked at Morningstar ratings and past returns. This meant I had a slew of random funds in my T.Rowe Price 401K and a slew of random funds (Janus, Strong, Columbia, Franklin Mutual, Pioneer) in my taxable accounts. This lasted for a good decade before I finally decided to enter all my statements into a database and analyze how I was doing. The answer -- I was underperforming the market by a good 1% per year -- or roughly the average extra expense ratio I was paying in these funds.

Period 2: Index Fund Conversion

After realizing I could not pick funds worth squat, I closed all my accounts and moved everything to Vanguard. I still did not know anything on how to construct portfolios and I picked equal dollar amounts in Large Growth, Large Value, Small Growth, Small Value, Total International and REIT. To be honest, there's nothing that bad about this portfolio other than some of the asset classes would be better off in tax-advantaged accounts.

Period 3: Alternative ETF Experimentation

The next stage in my evolution came when I transfered my Rollover IRA to Wells Fargo to take advantage of the PMA free trade offer. I read up on all sorts of "neat" ETFs and ETNs and had visions of holding every single possible asset class mentioned at Index Universe. During this brief period, I held China ETFs, India CEPs, Timber REITs, Mortgage REITS, Commodity ETFs, Commodity ETNs, Gold ETFs, Dividend ETFs, International RE ETFs, International TIPS ETFs, Leveraged Muni Bond CEPs, Leveraged International Bond CEPs, Currency Carry ETFs. As you can imagine, all these holdings became quite complicated to track, maintain and rebalance. I actually ran out of my annual free trades and had to pay $5.95 commissions.

Period 4: Portfolio Planning

March 2008 was the turning point. With Bear Stearns going bust all the exotic/alternative classes I held went down at the same time. Except for SPDR International TIPS, none of the ETFs/ETNs/CEPs I had picked had provided any downside protection. When the core stock market dropped, they all dropped in lockstep. In reality, I might as well have stuck with regular equities and saved myself the hassle and extra expenses.

So I started paying much more attention to the portfolio construction threads at Bogleheads. The 2 ideas that really piqued my interest were Harry Browne's Permanent Portfolio and Larry Swedroe's Concentrated Risk Portfolio. The main points I picked up that drove my allocation decision:

Slicing Equities into smaller pieces (for example, Japan Small Cap Value) cannot provide downside protection. When bad stuff hits, all equities go down. Hence, the #1 asset class to make bear markets less severe is Bonds. Commodities come in a distant second for the case when unexpected inflation hits.
Hold only the safest bonds (U.S. Treasuries and TIPS)
Hold more Gold, Commodities, Bonds to provide a counterweight to take more risk on the equity side.
Hold Real Estate, Gold, Commodities, TIPS to provide inflation protection with all the government bailout money being thrown around.
Value and Mid/Small Cap tilt to take more risk on the equity side.
On the International side, developed markets (EAFE) are closely correlated with domestic markets. The major difference is you get currency diversification. Hence, concentrate risk and only hold Emerging Markets for currency diversification.

Ultimately, I want my target portfolio to look like the following:

15% Intermediate Treasuries
15% TIPS
5% Commodity Futures
5% Gold
10% REIT
10% Domestic Large Value
10% Domestic Mid Value
10% Domestic Small Value
20% Emerging Markets

The end result is 60% Equities, 30% Bonds, 10% Commodities. However because I'm taking more equity risk (hopefully compensated risk) by overweight on Small, Value and EM, the theory is I will get the same long-term returns as a 80% Equities, 20% Bonds portfolio but with less volatility. Entering my target AA into Morningstar X-Ray (I calculated the REIT allocations myself) produces the following report:

Country Breakdown

U.S. 55%
EAFE 0%
EM 33%
REIT 16%

Style Box

19 | 16 | 9
20 | 14 | 3
12 | 6 | 2

At the moment, I'm about 75% of the way there. My overall mix is 76% Equities, 15% Bonds (4% TIPS), 9% Commodities (4% Gold). A X-Ray of my current portfolio shows:

Country Breakdown

U.S. 37%
EAFE 20%
EM 17%
REIT 20%
Intl RE 6%

Style Box

18 | 16 | 12
18 | 12 | 6
10 | 5 | 2

My value and size tilt is almost right on target. I have a touch more REIT than desired and a whole lot of EAFE. If I liquidate EAFE to move into equally into Bonds (TIPS) and Emerging Markets, that would bring my portfolio to 70% Equities, 21% Bonds, 9% Commodities. Then over time, I would target new contributions to get to the endgame allocation.

Computers in China Follow-up

Mon, 12 Oct 2009 02:00:00 -0800

In this previous entry, I mentioned a few computer parts that were more expensive than what could be found in the U.S. These past 2 weeks, I've been asking for quotes for to put together computers for our office. It took a while but I finally found a local vendor who understood why I wanted specific parts (for example, I want SSDs with Indilinx chipset because SSDs with the Micron JF602 controller have bad stuttering problems). To compare, I went to NewEgg for prices in the U.S.

                              CNY  USD FX  -  NewEgg  +S.Tax    Diff%
AMD Athlon II X2 250          495   72.69  -   76.00   83.22  -12.66%
Asus M4A78-E SE               815  119.68  -  115.00  125.93   -4.96%
Memory DDR2 800 2G            283   41.56  -   31.00   33.95   22.42%
OCZ Vertex 30G SSD           1200  176.21  -  139.00  152.21   15.77%
Seagate 1TB HD ST31000528AS   620   91.04  -   90.00   98.55   -7.62%
Intel PWLA8391GT              350   51.40  -   27.00   29.57   73.84%
Acer 22" LCD                 1160  170.34  -  150.00  164.25    3.71%
HannsG 28" LCD               2300  337.74  -  310.00  339.45   -0.50%
D-Link DES-1228              1050  154.19  -  160.00  175.20  -11.99%
Netgear WPN824                490   71.95  -   60.00   65.70    9.52%
TOTAL                                                           1.48%

At first glance, prices looked lower across the board in the U.S. But then I remembered sales tax (9.5% in California). After factoring that in, the ending difference of 1.48% more expensive in China is data noise. The 3 items that are more expensive are:

Intel PWLA8391GT +74%. This is a very specific item because I wanted guaranteed support and stability for a Linux firewall. Most of the other items, I gave generic requests and the vendor could fill in with the closest he could find.
OCZ Vertex 30G SSD +16%. This is a bleeding edge product. I originally put down SuperTalent UltraDrive ME as my requirement as that's the cheapest Indilinx 30G drive at $113. Unfortunately, it is not sold in China so the vendor countered with a KingSpec 30G Micron JF602 SSD. However, after I googled up the specs (Pera-Kun translator for Firefox extremely helpful), I realized that was not a good drive. I queried back on a KingSpec Indilinx SSD but he could not get that drive either. I guess he then looked carefully at the difference between the 2 KingSpec SSDs, was able to find the closest thing with the OCZ Vertex.
2G DDR2 Memory +22%. I have no idea why the big difference for this product as this is just a commodity good. Oh well... let the vendor take a bit of profit I guess.

It looks like for regular commodity computer parts, buying in China is very competitive with buying in the U.S. As a theoretical exercise, I looked up a few laptop manufacturers and noticed Dell has a China sales presence. So I decided to do a quick price comparison. Luckily, the English and Chinese site versions have nearly the same layout.

                     USD/S.Tax   CNY/  FX    HKD/   FX
Dell Inspiron 15    $399/ $437  4499/ $660   3999/ $515
Dell Studio 17      $699/ $765  7999/$1170   7999/$1030
Alienware M15x     $1499/$1641 14999/$2200  15888/$2050

To buy a Dell in China, it costs roughly 50% more for the base/midrange models and +35% more for the top-of-the-line Alienwares. I guess this is why laptops are a common request for travelers from relatives in China.

Phone Service from China

Fri, 09 Oct 2009 12:21:00 -0800

Working from China, most of my communication is through online channels. However, I still periodically have to speak to a human. Luckily, VOIP (Voice over IP) makes it very simple and cheap. With just an internet connection, a VOIP service makes it seem as if you were calling from back in your home country.

For the past 5 years (in the U.S.), I have not had a landline. Instead, I used only Vonage and cellphone service. Vonage is nice in that you can plug any ordinary phone into their phone router device and get VOIP service. I have been paying $38/mo for worldwide calling which was a nice deal a few years back. (Vonage's website now shows $25/mo for worldwide calling with a 1 year contract -- I may contact them and see if I can't get that rate for locking back in.)

Nowadays though, there are more options. I now have Skype as my 2nd VOIP line. A worldwide outbound calling costs $110/year when paid at once. And with an outbound calling plan, an inbound number costs $30/year. Pro-rated over 12 months, that's $11.67/mo. Amazing how you can call the world for such a low price.

The only issue is that Skype requires a computer to make your calls. A few computer manufacturers (Belkin, Netgear, Asus, etc) have been producing Skype phones that basically are tiny computers running Skype clients inside them. Just recently, I grudgingly allowed my wife to buy iPhones for us. After a week or two of playing games on the iPhone, I decided to check out more practical uses. I semi-remembered Skype being available so I downloaded that off the App Store and gave it a spin. Not bad ... any place I could get WIFI access, I can now call back to the U.S. for free. Then as I was browsing through Cydia's repository, I noticed there was a VOIP unrestrictor that fooled Skype into working on GPMS/EDGE/3G cellphone internet. Even better .. now that let's me use Skype from anywhere in China with internet cell phone service.

The only restriction remaining in place are the data plan limits. China Mobile's data plan offers 30MB per month for 5rmb (75 cents). Cheap but no where enough data. At 5K up/5K down, 30MB would allow for 50 minutes of talk time over Skype. The other options are 300MB for 25rmb ($3.75) and 500MB for 75rmb ($11). 300MB allows for 8+ hours of Skype talk time, 500MB 13+ hours -- either would be good options. I suspect I can find enough WIFI hotspots where the 300MB/25rmb will more than work out. What about 3G plans? China Unicom starts at 90rmb ($13) for 30MB/mo and I did not ask about the more expensive plans.

College Costs, Prisoners' Dilemma

Sat, 26 Sep 2009 02:25:00 -0800

For the past few years, I've been putting money away in Ohio CollegeAdvantage 529 plan for my kids. Just recently, CollegeAdvantage brought back their referral bonus program and various personal finance sites (examples: MyMoneyBlog, The Sun's Financial Diary) are posting their referral links. Last year when this program came about, I sent the info around to co-workers and friends with children thinking at someone was interested in saving up for their kids' college expenses. Nope, not a single bite -- not even with free money in the deal. College savings appears to be way down the list for Americans.

The return of this deal got me thinking some more. Perhaps I and every other person saving for their kids' college expenses are barking up the wrong tree. After all, the cost of college depends on supply and demand. The more money that's earmarked specifically for college -- whether via student loans or 529 plans with a penalty for non-school use -- the more expense go up.

Unfortunately this is a prisoners' dilemma situation. If collectively everybody decided not to save for college and not to take out student loans, the cost of college would drop drastically. If only a few people "break the bargain", those few people benefit more than the collective. But if a large number of people decide to optimize for their personal situation, everybody ends up losing.

It sounds like the prepaid college plans may be the best option. Except these guarantees are just as set in stone as social security is for younger workers. If college costs grow faster than expected, states either have to default on their guarantees or raise taxes to cover the liabilities. We already see Texas wrestling with this issue with the Texas Tomorrow Fund facing bankrupcy.

What to do about this situation, I do not know. Again, there are steps an individual can take to reduce costs (AP exams, community college) but if everybody takes these steps, then you would see costs shift there as the industry would follow the customers.

Apple iPhones in China (or how to get a free vacation)

Tue, 22 Sep 2009 11:11:00 -0800

Now plenty of things are way cheaper here in China. In this previous post, I listed a few costs of living -- for example, breakfast for 40 cents. But some things are more expensive -- usually luxury goods. Some quick things off the top of my head:

Cars -- there is a 25% to 100% markup. A Honda Fit that might cost $15K in the U.S. costs $20K in China. A Prius is easily 50% more expensive and if you want a sporty BMW, 75%-100% more expensive would not be unexpected.
Select Office Equipment -- 100% markup. I spent $500 on Brother MFC-7840N where as the equivalent MFC-7440N would have been $250 in the U.S. (I could not get the MFC-7840W wireless version here.) The top-end color laser Brother MFC sells for $750 in the US, $1300 in China.

And the ultimate in luxury status-symbol goods is the Apple iPhone. Even with the original iPhone that only had internet access over AT&T, people in China were buying them on the grey market so they could have a super fancy phone. With iPhone 2/3G/3Gs, you now can fully utilize the iPhone over China's 3G networks and there's nothing people want more than an iPhone. How much does it cost? Well you cannot buy one yet officially in China but the 3Gs is available in Hong Kong for $1300 USD. Used 2.0s sell for $800 USD in Hong Kong.

So if you are interesting in a China vacation and have the contacts necessary, the 1st iPhone can pay for your plane ticket, the 2nd for your hotel & food expenses and all above that would be pure profit. (Sorry, don't ask me for contacts ... those are mine for when I make my periodic trips back to the U.S.!)

BSR = why ETNs suck

Mon, 21 Sep 2009 12:08:00 -0800

I've held BSR (BearStearns Alerian MLP ETN) for about 2 years now to try to capture the MLP segment. We all know that BearStearns was taken over by JPMorgan. Early March, JPMorgan released AMJ that looked nearly the same but with the JPM branding. Then in May, they announced they would delist BSR. Well I've been busy so I missed the news. So a few weeks ago, I log into my brokerage account and see:

073902835, BEAR STEARNS COS INC BEARLINX ALERIAN MLP SELECT INDEX ETN CPN 0.000 DUE 07/20/27 DTD 07/20/07 FC 08/08/07

No way to buy and sell online anymore as it appears to have turned into a bond due to mature in 2027. I spent some time Googling up how others were dealing with this. The news was generally bad. JPMorgan's official response was for BSR owners to open up a JPM brokerage account, transfer the assets over and JPM would redeem it for you. Umm -- no thanks?

After some more searching, I did run across one message saying Fidelity's bond desk was able to sell their holdings at a 10% discount. Sucks but I decided to give it a try and called up Wells Fargo trading line. After about 30 minutes on the phone (mostly waiting on hold), the WF rep said he could ask for a bid from their bond trading desk and see what they could do. About an hour later, he called me back and said he was able to get a bid for $28.62. I had already done the math based on BSR vs AMJ closing price on 6/12 and it looked like I would be selling at a 2.3% discount. No brainer decision here -- immediately gave confirmation to sell. Even better was WF charged no commissions.

I definitely will avoid ETNs from now on.

The wrong way to invest

Sun, 20 Sep 2009 08:37:33 -0800

I've been checking my investment portfolio lately and with the market rebound the past few months, my portfolio has exceeded it's 2007 peak return high. So it's not surprising that articles such as the following at Yahoo Finance have started to show up. Let me paste a few select quotes from it:

Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street's big downturn. Their portfolio is off by 25 percent.
...
Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments.
...
Now, some of the money that fled stocks for safe harbors like money-market funds and government bonds last year is beginning to return. Even with trillions still sheltered on the sidelines, some $56 billion has poured into equity funds since April, according to the Investment Company Institute.

What we have is people selling after their portfolios dropped 25%-30% and now buying back again after the market has rebounded +20%. This is why most people lose money in the market and would be better off with pensions + social security. The idea of buying low and selling high is easy to toss around but is extremely hard to do in practice because every fiber in your body says SELL SELL SELL when the market is dropping like a rock.

My advice: if you can't stick with an investment plan -- ie, continue to dollar-cost-average and rebalance faithfully through thick and thin -- just get out of stocks altogether and put everything in bonds.