Zucca Ristorante, Los Angeles: Extremely Mediocre

To contact us Click HERE
I recently dined at Zucca Ristorante in downtown Los Angeles, which is part of the Patina Restaurant Group, which also owns the excellent Cafe Pinot by the downtown library. Zucca has four and a half out of five stars on Citysearch. I was expecting it to be fairly good.



From the Dinner Menu (flash warning), I ordered:

Linguini vongole
Linguini pasta tossed with cockle clams, garlic, parsley, white wine and diced tomatoes $17.95

Which was extremely disappointing. It came with five (5) small cockle clams, which were chewy and not particularly good. The pasta was also sort of chewy and cold, and there wasn't very much of it either - perhaps 2/3 of a cup. It wasn't satisfying at all.

Tortelloni di Zucca con burro e salvia
Handmade roasted pumpkin tortelloni, butter, sage and Parmigiano-Reggiano 18.50

Lasagna Bolognese
Thin home made sheet pasta layered with meat ragoût, béchamel and Parmigiano 17.95

The lasagna was half decent. The tortelloni was downright terrible - mainly because it was served luke warm, and some of it was downright cold.

For desert, we ordered tiramisu, which was nothing to write home about, and a chocolate tort - which was like a giant piece of fudge made up to look like a cake. It wasn't very good either.

The worst part about the whole experience, beyond the bad food, was the service. It was awful. Dinner came out in three groups, broken apart by 10 minute spans. The waitress waited for 20 minutes to check up on us. When we complained about the terrible tortelloni (which came out last and should have been hot), the waitress barely apologized and offered a free desert. She then cleared the table, including the barely eaten tortelloni. 10 minutes later, the manager came out and made another half-assed apology then offered a free desert. We didn't get the desert menu until 15 minutes later, almost a half hour after we finished the meal.

We ordered desert and coffee. Desert came out 10 minutes later. About 5 minutes after that, the waitress wandered out with a couple cups of cofee and no creamer. 10 minutes later, another guy showed up with the rest of the coffee - but was short one cup. By this point, we'd almost finished the desert.

The bill arrived, and they had gone ahead and charged us for the inedible tortelloni. I was deeply impressed. There are too many good restaurants in Los Angeles to waste time with bad food and pisspoor service. I certainly wouldn't return to Zucca.

Movie Review: "Maxed Out" documentary

To contact us Click HERE
Over the weekend, I rented the movie "Maxed Out", which I thought would be a fairly amusing look at the American credit card debt addiction.

Boy, was I wrong.

I knew something was immediately wrong when it started by following along a woman in Las Vegas. She's drives around in her Mercedes, giving a tour of the fancy new developments in Las Vegas. Then she starts talking about her house. "I couldn't afford to build it if they hadn't have given me a loan based on it's value when it was completed." Then the screen goes black and in a nearly unreadable font it says "This is the same accounting technique used at Enron..."

I believe the accounting technique they are referring to at Enron was "mark-to-market" in which Enron booked the entire present value of a contract immediately.

Example: Enron signs a 10 year contract to deliver 1,000,000 MMBtu of natural gas to a factory per year. The contract is booked at $6.45 per MMBtu and they use a 6% discount rate. The total present value of the contract is $49,598,875 - and so instead of booking $6.45MM in revenue per year you book the entire present value now.



This woman had a construction loan for her new house. This is WILDLY different than booking the present value of future revenues. For starters, the bank releases the money in segments. If construction stops, or something goes wrong, the bank stops releasing money and the total value of the loan is much lower than it would be if they had just handed the home owner a big check. Furthermore, it's a pretty safe assumption that the completed house will be similar in value to other houses in the market. And this is a secured loan, which means if the woman fails, the bank can take possession of the house and resell it (at a loss, but a much smaller one than an uncollectible unsecured loan.)

So already I wasn't too impressed. It got much worse from there. It followed the stories of three people that apparently ended up committing suicide over credit card debt, and made it seem like the big bad banks were dealing crack cocaine. It then mixed in some loans made to a boy with mental problems, then went off on a wild tangent about the national debt.

You might enjoy this poorly researched, poorly edited, poorly captioned film if you are uneducated and possibly intoxicated. Or if you're a film critic (same thing?)

Otherwise, save your money. If you're like the people in the film, you probably need it to make the minimum payment or to increase your collection of collectible plates.

"College Cost Reduction Act of 2007" will bring some interesting volatility to SLM

To contact us Click HERE
Last Friday, the US Senate passed the "College Cost Reduction Act of 2007" with a vote of 78-18. You can read the text of the bill, sponsored by Representative Miller of Georgia, here. A variation of the same bill was also passed by the House of Representatives on July 11th witha vote of 273-149.

Speaker Pelosi's blog had this to say about the bill:

The bill will provide the single largest increase in college aid since the GI bill in 1944. The legislation invests about $18 billion dollars over the next five years in reducing college costs, helping millions of students and families. It comes at no new cost to taxpayers, and is funded by cutting excess subsidies paid by the federal government to lenders in the student loan industry.

Basically, this is in response to the student loan scandal. Congress decided to punish the big lenders by taking away subsidies. It appears that some of these subsidies will go towards lowering student loan interest rates, increasing pell grants to $4,900 in 2008 and $5,200 by 2011.

SLM Corporation (SLM) aka Sallie Mae is particularly interesting because they are in the middle of a $25 billion private equity buyout by Friedman Fleischer & Lowe, J.C. Flowers, Bank of America and J.P. Morgan Chase.

Apparently, J.C. Flowers believes this massive reductions in subsidies will reduce the value of Sallie Mae significantly. This article from last Friday's Wall Street Journal said:

The buyout group, an investment group led by private-equity firm J.C. Flowers & Co., has said that the bills "could result in a failure of the conditions to the closing of the merger to be satisfied."

As the bill makes it's way through committee and to the President's desk (where I suppose it could be vetoed), it will be very interesting to watch the ups and downs in SLM stock. I strongly suspect you could make some money betting in either direction as the stock swings wildly up and down based on congressional rhetoric and private equity jockeying for position.

Allison Transmission deal in trouble: Is this the death knell for the Chrysler deal?

To contact us Click HERE
On June 28, 2006, Yahoo reported the sale by General Motors of it's Allison Transmission Unit to two private equity firms - The Carlyle Group and Onex Corporation.

The terms of the sale were:

General Motors gets $5.575B in cash

Carlyle and Onex put up $1.5B in cash (split evenly)

Allison takes out $3.5B in bank loans

$1.1B in "high yield" or "junk" bonds are issued by the company.

The underwriters of the loans - "Citigroup Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co." had planned to sell $3.1 billion of the loans to other banks.

Well, it turns out that other banks don't want any part of it.

"Allison Transmission, a highly profitable unit of General Motors Corp. based in Speedway, Ind., has gotten stuck in a traffic jam in the debt-financing market.Wall Street firms postponed a sale of $3.1 billion in loans that would pay for the leveraged buyout of Allison by private-equity firms, said a person familiar with the matter. While the sale of Allison to Carlyle Group LP and Onex Corp. is highly likely to proceed, the trouble raising debt from investors complicates matters for the company and its bankers."

So now the underwriters are stuck and the junk bond issuance is on hold. I would assume the deal will still close though, since Allison is a very profitable company and it makes sense to me to buy it. Also from the WSJ article:

"The company posted $2.3 billion in revenue last year and posted an operating profit of nearly $350 million, making it one of GM's highest-margin divisions."

By my calculations, that's an Operating Profit Margin of 15.22%.

From their website:

"Having literally invented the category, today the company continues to dominate with an 80% market share of all medium- and heavy-duty commercial fully automatic transmissions produced."

Further:

"This support network provides service and technical support worldwide to the division's 250 OEMs, and the many fleet owners and operators, and end users. Allison Transmission has a workforce of over 4,000 salaried and hourly employees."

I believe it also comes with a big chunk of intellectual property. From the President's Message:

"The employees of Allison Transmission have over 600 patents, making the company one of the most prolific patent organizations within General Motors."

So if a company that has 80% marketshare and 15.22% operating profit margin isn't able to get 1.1 billion in Junk Bonds, how is a company like Chrysler going to get $60+ billion from the debt markets for a buyout from Daimler by Cerberus?

And how are GM/Ford/Chrysler going to fund a VEBA plan to shift the pension plan/health care benefits over to the UAW? This is going to require even MORE debt.

The news of the postponement of the Allison Transmission deal caused a pretty big shift in the derivatives markets.

"The cost of protecting GM's debt for five years with credit default swaps widened by 61 basis points to about 568 basis points a year, or $568,000 for every $10 million of principal protected, according to data from various brokers and dealers."

Unless the appetite for risk increases again in the credit markets AND the unions give some hefty concessions, I believe the Big 3 are in very big trouble.

Chrysler debt sale postponed. Underwriters to carry debt themselves.

To contact us Click HERE
In a BAD sign for Detroit, the underwriters of the Chrysler/Cerberus deal weren't able to sell the debt to other investors or banks, and are now stuck with it.

Bankers Postpone Chrysler Debt Sale
By SERENA NG and GINA CHON, July 25, 2007

Both Cerberus and Daimler, however, will be helping to lend $2 billion to Chrysler because of weak investor interest in buying its debt, a person familiar with the deal said. The debt underwriters, which include J.P. Morgan, Citigroup, Goldman Sachs, Bear Stearns and Morgan Stanley, will initially lend the auto business $10 billion, but intend to sell some of that to investors at a later date.

This is an unusual occurance. Underwriters aren't usually a big fan of taking on billions of dollars in risk - especially given that this type of debt is the last in line to get paid during a bankruptcy.

Chrysler bond deal changes 'very untraditional'
By Leslie Wines
Jul 25, 2007

The underwriters also will hold some Chrysler debt on their books, an unusual practice. "This is a 'sweetheart deal' for Chrysler," Atkins said. "Usually underwriters sell the debt to investors so they don't have to hold it on their books. But this time they are going to hold onto some of it and try to sell it at a later time. This is a big gamble. This is an underwriter-driven deal, not an investor-driven deal and that is very unusual."

But no one tell the fools in Detroit. They've already started changing signs and planning a big party!

As changing of signage begins, Aug. 1 party is in the works
July 24, 2007
BY TIM HIGGINS
FREE PRESS BUSINESS WRITER

As lawyers from Cerberus Capital Management and DaimlerChrysler AG push to complete their Chrysler deal, officials at the Auburn Hills automaker are beginning to remove "Daimler" from some signs and are making plans for a celebration next week.

Business Idea: Rent Your Wifi Connection

To contact us Click HERE
My DSL connection is a waste of money most of the time: I pay $19.99 a month plus the cost of the landline from AT&T. Most of the time, it's not being used at all. The maximum hours I have available to use it works out something like this:

Monday-Friday: 6pm-12am = 6 hours x 5 days = 30 hours
Saturday-Sunday: 8am-12am = 16 hours x 2 days = 32 hours

Out of the 62 hours I'm actually home to use it, I probably really only use it something like 10-12 hours a week.

And that's not looking at bandwidth at all. I mostly read news sites. I get around 120K down and 40K up. While I'm actively using it, I probably average 20K down and 5K up. Maybe. Considering it's idle most of the time.

Like most people, I have a wireless router. My laptop tells me that there are usually around 10 other wireless routers in range that are broadcasting SSIDs. There might be 12-15 total. And just like most people, my router is setup as a closed system. Without the WPA key, you don't get to use my DSL at all.

I have a few reasons I won't share my wifi:

Performance: I don't want my connection to be slow.

Fear: I don't want some fool to download Beyonce's newest and get me a nasty letter from the RIAA that I can't defend myself against.

Security: You have to have a key to have a secure connection.

Really though it's pretty stupid for all 15 of us in range to be paying $19.99+ a month for broadband. We could probably all get by just fine with 5 connections. But I'm not about to walk up and down my neighborhood trying to work out some complex network sharing arrangement to save a few bucks a month.

Today I've been looking at Skype Wifi phones. I came to the conclusion that the Netgear SPH101 for $149.99 - $50.00 mail in rebate from Amazon.com is a pretty good deal. For another $29.95 a year, you get unlimited calling inside the US and Canada. Hard to beat that. The downside is that outside of my home and office, it can be tough to find a wifi connection.

If you want to pay, you can get t-mobile hotspot to go for $29.99 a month with a one year contract. Or with a voice plan, $19.99 a month. Course, it mostly only works in Starbucks and Borders. Some deal that is.

What if I wanted to use my skype phone someplace else? It would be nice if there were more wireless connections available. Especially if they weren't that pricey.

I had the idea that it would be pretty nifty to rent out the connections. It would work something like this:

A new company handles the transactions and accounts. Wireless router makers (Cisco? Netgear? Etc?) installs software on their router to connect to the company website and use a company proxy. From the owner end, you set up an account with the company and set a price for wireless access. Users with Wifi devices see a list of available accounts and a price per minute. It can be competitive. Could look something like this:

Joe's Broadband
Signal Strength: 7/10
Last speed test: Yesterday
Upstream: 20K
Downstream: 40k
Cost per minute: $0.005

Jan's Broadband
Signal Strength: 6/10
Last speed test: Today
Upstream: 5K
Downstream: 15k
Cost per minute: $0.001

Mary's Broadband
Signal Strength: 3/10
Last speed test: Today
Upstream: 10K
Downstream: 100K
Cost per minute: $0.10

The company is responsible for the following:

Setup of accounts (collection of money, etc)

Testing line speed to make sure its not being oversold

Proxy to record internet usage to protect the wifi provider

Public key encryption to keep your use private from the provider or anyone who is snooping

In exchange, they take some portion of the money - say 30%.

So say you login to Jan's broadband and use it for 5 hours. 5 x 60 x $0.001 = $0.30. Jan earns 70% of that, or $0.21. Jan has a highspeed connection, so she has 10 available slots (50K upstream, 150K downstream, plus extra for her own use). If all the slots are filled, she can make $0.42 an hour. Say she averages 65% of capacity for 6 hours a day, 30 days a month - she ends up getting paid = .65 x .042 x 6 x 30 = $4.91 for the month. Is it a lot? No. But maybe it brings her DSL expense down dramatically. If she were on the edge of a college or some other busy spot, maybe she ends up actually making a profit by raising her price!

Following in Google's footsteps, the company would only send out a check when the account balance reaches $100. Also, the providers can use their credits to go out and use other people's wifi connection when they need to.

In this manner, I think a real market would be rapidly created for dirt cheap wifi access and micro payments to the providers. With the ability to actually profit from a broadband connection, open wifi would become far more common, and the use of nifty wifi internet devices like the Skype VoIP phones would be far more common.

Monster.com (MNST) cuts 800 jobs - a brief look at their operations.

To contact us Click HERE
Monster.com today, in connections with their second quarter earnings, announced that they would be cutting 800 people from their workforce.

"July 30 (Bloomberg) -- Monster Worldwide Inc., the world's largest network of online job-hunting sites, said it will cut 800 jobs, or 15 percent of its staff, after reporting that second-quarter profit fell. The shares rose 6 percent.

Net income slid 28 percent to $28.6 million, or 21 cents a share, from $39.6 million, or 30 cents, a year earlier, the New York-based company said today in a statement. Sales rose 20 percent to $331.1 million, missing the $337 million average estimate of 15 analysts."

Now I haven't used Monster in years, but I was under the impression that it had seriously degraded in quality. Apparently, I'm the only one that feels that way as it hasn't lost much in the way of traffic.



I also thought this was a fairly interesting factoid:

"Job cuts in human resources and finance will eliminate duplication in the U.S. and Europe, Iannuzzi said in an interview. The U.S. sales team will also shrink as Iannuzzi tries to boost the percentage of job ads Monster clients place on the Internet themselves. Monster processes only about 15 percent of ads electronically, he said."

What is it, 1978? Why on earth are most of their ads being placed by workers and not directly by the companies themselves?

A few quick numbers:

800 workers / 15% = 5333 workers.

$170MM / 800 = $212,500 per worker.

Following that formula: 5,333 x $212,500 = $1,133,262,500.00

Gee, something's amiss, seeing as how their total operating expense for Q1 2007 was only $270MM x 4 = $1,083MM.

So how can they save that much per worker?

You can read http://phx.corporate-ir.net/phoenix.zhtml?c=131001&p=irol-newsArticle&ID=1033074&highlight=">more straight from the horses mouth here. (Not the official 10Q or I would've linked to it below).

According to the June 2007 Media Metrix report, Monster.com was the 22nd most hit US website with 25,825,000 unique users. Close competitor Careerbuilder.com came in 30th with 21,723,000 users. Other close competitors that offer other services that weren't broken out of the rankings include #1 Yahoo with a total of 133,093,000 unique users and #28 CRAIGSLIST.ORG with 22,529,000 unique users.

A few interesting things from their first quarter 2007 10Q:

Careers – North America: $184,017

Careers – International: $106,206

Internet Advertising & Fees: $38,805

Total Revenue: $329,028

Revenue at our Internet Advertising & Fees segment increased 19.6%, a much slower growth rate than throughout the periods in 2006. Several factors contributed to the reduced growth of the Internet Advertising & Fees segment, however the main drivers were slower growth in overall users and reduced lead generation volume. Revenue from lead generation approximates 48% of our revenue base and is generated from many sites across our network. During the first quarter of 2007, we experienced a reduced volume of users to our sites, and were unable to deliver a high volume of quality leads to our advertisers. Display advertising approximates 25% of our revenue base and is the other main source of our revenue. Our websites across our network realized a higher ratio of remnant versus brand advertising during the first quarter of 2007, resulting in excess inventory and a lower cost per impression, contributing to our overall slower growth rates. We continue to believe that online advertising represents a significant growth opportunity for us, as our audience is appealing to both brand and remnant advertisers.

It seems that Monster.com has lost their way and are wandering into the "LOTS OF ADS!!!!" as a solution for growth instead of "Let's make our system better for users"

Another quick analysis:

25.8MM unique users per month
$38.8MM revenue per quarter / 3 = $12.93MM per month

So they are making $0.50 per unique user per month. Not too bad!

Electricity: The Failure of the US Government in Iraq

To contact us Click HERE
In yesterday's news, there were some numbers on current electricity production in Iraq.

"Despite the setbacks with the power plant, Bowen said Iraq's electricity supply still rose to 4,230 megawatts, compared with 3,900 megawatts during the previous quarter and 3,800 before that. But that is still below the prewar level of 4,500 megawatts, he said."

A focus of the problem is the Al-Doura (also spelled Dora) power plant, which produces 320 megawatts primarily for Baghdad.

In a story from July 20th on Boston.com:

"Bechtel National won a $1 billion contract to rehabilitate the electricity sector in Iraq and began work on Doura in August 2003. The two turbines, Unit 5 and Unit 6, were refurbished in June 2005, at a cost of $90.8 million, and Iraq's Ministry of Electricity took control of the plant. Worried that the staff at the plant would be unable to maintain the turbines, US officials spent $81 million more on "coaching, mentoring and on-the-job training" for 239 staff members at the Ministry of Electricity."

In addition:

"More than a year after the Doura Power Station was handed over to Iraq's Ministry of Electricity, neither of the two steam turbines that the United States paid $190 million to repair is operational, according to the report, released Wednesday evening."

So pretty much, we spent $81MM to "train" the Iraqis and within a year the two turbines failed.

$81MM / 239 = $338,912.13 per employee.

Now I don't want to say that Bechtel skimmed money, but frankly I'm a little skeptical considering the cost of attendance at Harvard is only $50,950 per year including room/board/tuition/etc. It seems like we could have flown every one of those employees to the United States, given them a year of extremely intense training at one of our many fine technical colleges, then put them in a year of training in our power plants and wound up MASSIVELY ahead. Even if we only did it with 50 employees, it would be a big start.

Why is electricity so important?

From a simplistic economics perspective, you need four factors for production:

Land

Labor

Enterprise

Capital

So say I want to make widgets in Iraq. Can I get the land? Sure. How about labor? No problem (60% unemployment.) Enterprise - that's me. Capital is where we run into a tid bit of a snag.

Modern factories use a wonderful invention we like to call "ELECTRICITY" to drive the machines. From air compressors to conveyer belts to 10 ton presses, the vast majority require electricity at some point to operate.

When your supply of electricty is tenous at best (3-6 hours a day), how do you apply labor to your capital to produce goods? Do you just tell the workers they won't get any money while the power is out and they stand about the factory floor in the sweltering heat and darkness?

Electricity is the key to the whole Iraqi puzzle. Without it, there will never be serious production of goods in Iraq. Oil alone is not enough. 60% unemployment is like a bad joke and I would venture to say that it's the cause of many of the problems.

Possible Solutions

Electricity production isn't magic. What you need is some form of energy, a power plant, and lines to deliver it to consumers. Iraq has SOME electricity. It's just not produced in a reliable fashion. So what can be done? Here are some steps I'd take immediately.

1) Decrease demand: Dramatically raise the price of electricity. Cut off areas that don't need it immediately. FLOOD Iraq with the new energy efficient light bulbs. 100 million of them would go a long way, and I'm pretty damned sure we could buy and deliver them for less than $3 a piece. Even if 95% were sold off and only 5 million were installed, 5MM bulbs at 20 watts instead of 60 watts = 40 watts x 5MM = 200 megawatts savings or 62.5% of the entire production of the Dora plant.

2) Increase supply: Electricty can be transmitted over long distances (up to 4,000 miles per wiki). If we can't build and maintain a plant inside Iraq, why don't we build one OUTSIDE Iraq? Kuwait City is only 344 miles from Baghdad. Iraq also shares a long border with another of our allies - Saudi Arabia. If the environment is unacceptable - let's just put one across the border. Supposedly a 1,000 megawatt coal plant only costs $1.5 billion. We could build three just outside Iraq for only $4.5 billion and increase total electrical production to 7,230 megawatts - a 71% increase! With big money and heavy political pressure, I imagine we could get these plants built in a matter of 2 years or less.

3) Education Education Education: If there is one HUGE advantage the United States has over the rest of the world, it's having the best universities on the planet. Let's take advantage of that. Let's try rotating 50 engineers from every plant to our universities for a year of training. It'll be good for the Iraqis, it'll be good for our goals in Iraq. Give them each a degree or certificate of some sort. Then rotate them through American power plants for another year. Send the Iraqi managers to business school. Why not? It only costs $150k - that's CHEAP compared to what Bechtel spent on it's failed education attempts. Why are we trying to reinvent the wheel inside a war zone when we have wonderful wheels at home?

Prosper.com: Debt to Income (DTI) shenanigans.

To contact us Click HERE
I've been wondering what would drive a person to Peer-To-Peer (P2P) lending. Why would anyone want to take out a loan from a website like Prosper.com when it seems like every day the huge banks are trying desperately to loan you money in one form or another.

Big Banks Vs. Prosper.com:

The bank I chose for comparison was Bank of America Corporation (BAC) one of the largest banks on earth. I found some data on their loan rates in this Supplemental Second Quarter 2007 Financial Information on page 9, titled "Quarterly Average Balances and Interest Rates - Fully Taxable-equivalent Basis"

Yield

Credit card - domestic: 12.67%

Other consumer: 9.28%

Direct/Indirect consumer: 8.46%

Home equity: 7.57%

Residential mortgage: 5.70%

Now let's look at Prosper.com. They have a nifty chart of loans made in the past 30 days, but I didn't think it was all that helpful as it didn't tell you amounts or give you an idea of weighted rates for comparison to Bank of America. Here it is anyhow, for your amusement.



Instead, I found the following data on their loan performance page for June 30, 2006 - June 30, 2007.

Average annual return
AA: 9.13%
A: 10.07%
B: 10.91%
C: 11.18%
D: 11.65%
E: 8.64%

Then I thought it would be interesting to look at recent activity, so I pulled the data for June 1, 2007 - June 30, 2007 and ran a few numbers.

Loans Originated: $2,571,711
Number of Loans: 327
Average loan: $7,864.56

AA: $764,958 - 82 (Average = 9,328.76) - 29.7%
A: $475,316 - 55 (Average = 8,642.11) - 18.5%
B: $493,534 - 57 (Average = 8,658.49) - 19.2%
C: $465,625 - 62 (Average = 7,510.08) - 18.1%
D: $284,127 - 48 (Average = 5,919.31) - 11.0%
E: $61,100 - 15 (Average = 4,073.33) - 2.4%
HR: $27,051 - 8 (Average = 3,381.38) - 1.1%

Using the above average returns and assuming that 100% of the HR loans will default (0% return), I got a weighted average APR of 10.19%.

Compare this to Bank of America's average rate for a direct consumer loan of 8.46%. That's a premium of 1.73% over Bank of America's average return. What's the deal here? Why would you pay a premium to throw your life story on the internet where anyone can read it? Is it because the borrowers have low quality credit?

Credit Quality: Fico Scores

I wanted to see how credit quality works with FICO scores. The distribution of scores (Source) looks like this:



Prosper.com's credit grades (Source) look like this:



And to be helpful with your analysis, Prosper.com also provides you with this nifty chart of historical defaults by credit grade. Please not something VERY important on this chart - the note that says "for borrowers with debt to income ratios of 20% or less".



Going back to the loan data from June 2007, it appears that most of the loans are being made to high quality credit. 48.2% are going to A or beter, which are people with credit ratings of 720+. That should be a default rate of less than 0.9%, right? WRONG.

Debt To Income (DTI)

Let's look at what Prosper has to say about DTI.

"What is a debt-to-income ratio?

Part of a borrower's credit profile is a debt-to-income ratio. Debt-to-income ratio (or DTI) is a measurement of the borrower's ability to take on additional debt. This number takes into consideration how much debt the borrower had prior to their loan in addition to what their debt will be if the loan they are requesting is made. (Their debt history is part of their credit history, and is reported to Prosper in the initial credit check.) The DTI is calculated by dividing the borrower's annual income (before taxes) into their annual non-housing debt payments. It is expressed as a percentage.

Generally a DTI of 20% is at the upper end of normal when excluding housing debt. Loans with debt-to-income ratios exceeding 20% are more risky—in some cases very risky—and much more difficult when trying to estimate default risk. In fact, whereas Prosper provides general default rate estimates when debt-to-income is 20% or lower, no estimates are provided for debt-to-income ratios greater than 20%.

If the DTI is shown as "N/A" (not available), it may be for one of two reasons. First, it may be that Experian (Prosper's credit reporting partner) has not been able to provide a reliable number for the borrower's monthly debt burder. Second, it may be that the borrower cannot provide documented proof of income, and has stated so in his or her application.

If you are a beginning lender or unsure of how to factor in high-risk borrowers, we recommend that you stick with borrowers who have a DTI of 20% or less."

Looking at current loan listings that are at 100% funding meaning the loan is going to be made for sure, here's what I found for average DTI. (Ignoring loans that didn't list DTI.)

AA: 13 loans, $128,501, weighted average 20.8%
A: 12 loans, $98,560, weighted average 24.8%
B: 14 loans, $105,900, weighted average 19.44%
C: 15 loans, $107,600, weighted average 37.08%

So MOST of these loans are being made to people that are listing their DTI at ABOVE 20%. No wonder the big banks won't give these people money. According to the the US Census, renters spent 29% of their income on housing in 2001. So say 20% is the upper guideline for DTI. 20% DTI + 29% housing = 49%. That leaves 51% for food, transportation, savings, luxury items, insurance, etc. It seems pretty iffy.

Now look at the C grade debt at 37.08% DTI. 37.08% + 29.00% = 66.08%, leaving 33.92% for food, clothing, utilities, etc. At under 20% DTI, the C default rate is 3.30%. What do you think the default rate is above 35%?

But it gets worse - I believe their listed DTI ratios are questionable at best.

Information Quality:

Check out this example. If the link is dead, you can read some excerpts here:

"Purpose of loan:
I want to stop my collection accounts from accruing more interest by making a settlement on the larger one, and paying in full the smaller one. As you see in my listing, my total delinquent amount is about 3600. The larger account is 3300 of that total. I recently received a settlement offer of 1300$ for that account. I used to work in the debt collection industry for Northland Group (about 1 yr) and FRS (Financial Recovery Systems, about 6 months) and I know that summer time is the hardest time for them, so I'm writing a counter offer of $700. I'm sending my correspondence by certified mail, and only accepting an offer if I receive it in writing. If they do not accept my smaller offer I will immediately make another offer slightly higher until I come to an agreement with them. I know they will NEVER offer me in writing the lowest they can accept. That's taking money out of their own pocket. I'm asking for the SMALLEST amount of a loan that I can because I don't like to borrow money anymore, but I know now is the right time to try to get my deal accepted by the collector. That's why I am asking here.

My financial situation:
I have around $500 in savings in a sharebuilder account, as well as some old series E savings bonds which were given to me by my grandparents as a gift, which now are valued at around $350.00. I would not want to cash them in unless I had to, but the sharebuilder account is my emergency fund.

Monthly net income: $ 2000.00

Monthly expenses: $
Housing: $ 900.00
Insurance: $ 60.00
Car expenses: $ 90.00 (gas, oil change, filters, car is owned 100%)
Utilities: $ (included in my rent)
Phone, cable, internet: $ 60.00
Food, entertainment: $ 100.00
Clothing, household expenses $ 40.00
Credit cards and other loans: $ 30.00 (both cards I'm currently using I pay more than double the minimum 5$)
Other expenses: $ 65.00 (cell phone)"

I think something might be askew in the numbers, don't you? Theoretically, he SHOULD have $655 a month of free cash, right? Obviously he doesn't, or he wouldn't be borrowing money to pay off $3600 in defaulted credit cards. For example, I strongly question the food expense of $100. Food stamps are $155 a month for a single individual and that's supposedly hardly adequate. Yet somehow he's able to live on $3.29 a day?

More importantly, he lists a DTI of 2%. Even if he only needs to pay $30 a month towards the two cards - what about the cell phone? Isn't that an open account at $65 a month? What about the phone line? The internet? The cable? Something isn't right here.

Conclusion

While it's a lovely idea to want to help people with their problems AND make money doing it - clearly there is a reason that these people have to go to Prosper.com to get the loans. They are already loaded to the gills with debt and shouldn't get anymore. Further, since you can't possibly predict the actual default risk - since the information is flawed at best, you can't figure out what your required return needs to be.

Is it cheaper to bake your own bread or buy it at the store?

To contact us Click HERE
For some reason, yesterday I got going on breadmachines. Amazon.com has a pretty nifty Sunbeam 5891 automatic bread maker for $42.24 (with free shipping!) I got to thinking, gee whiz - how much does bread really cost to make? I hardly know ANYONE that makes their own bread anymore.



So I went looking. I found the simplest possible bread recipe using hardly any expensive components like dried milk, butter, etc.

BASIC FORMULA FOR A ONE-POUND LOAF
(Serves 12)

This simple recipe can easily be modified to suit your taste.

1 cup liquid (water, soy milk, or apple juice for example)
1 Tablespoon sweetener
1/2 teaspoon salt
3 cups flour (a combination of any two or more white, oat, rye, or
whole wheat bread flour)
1-1/2 teaspoons active dry yeast

Total Calories Per Serving: 107
Fat: less than 1 gram

I figure it can't get much less complicated than that, right?

Then I went to the store and looked at the price of various components. Note that it MAY be cheaper where you live - I happen to live in an expensive area. These aren't warehouse prices in huge bulk either. Here's what I found:

Sugar: $1.99/5lbs

Bread flour: $1.89/5lbs

Fast acting dry yeast: $9.39/4 ounces

Salt: $1.40 / 4.75 ounces

Converting into the units of the recipe, I found the following:

Sugar: $0.0130 per tablespoon
Bread flour: $0.1972 per cup
Yeast: $0.4081 per teaspoon (OUCH!)
Salt: $0.0512 per teaspoon

The total recipe cost of components is as follows:

Sugar $0.0130
Flour $0.5915
Yeast $0.6122
Salt $0.0256

Subtotal: $1.2423

Then you have the cost of electricity and the wear and tear on the equipment. Since it has a one year warranty, I figure it could be used 365 times. $42.24 / 365 = $0.1157. The machine peaks at 600 watts and it takes three hours to bake. Figuring at $0.10 per kilowatt hours, that's 1.8 kilowatt hours or $0.18.

Total cost: $1.5380
Total calories: 12 x 107 = 1,284
Calories per dollar: 834.83

At the very same store, they had a loaf of "value" bread for $0.89 with 22 slices at 120 calories per 2 slices. 11 x 120 = 1320 calories, or 1483.15 calories per dollar. Much cheaper.

"But wait!" you say. "What if I just used the oven instead?"

Well, I believe an electric oven OR a gas oven would cost more to operate than the bread machine. This site says it costs $0.20 per hour to operate an electric oven and $0.18 per hour to operate a gas oven. Even if the oven lasts 20 years, it costs $350 for a cheap one, or 4.8 cents per day. You would also need a bread pan, and more tools to make the bread since you would have to mix it yourself.

Figure:
- $0.048 per day (cost of oven over 20 years)
- $0.180 per hour (cost to operate gas oven, 1 hour)
- $0.010 per use (cost of a bread pan over a 3 year life)
- $0.040 per use (other tools - bowls, spoons, etc)

Total cost: $0.278

Which may slightly edge out the breadmaker at $0.2957 per use, but ONLY over the very long term. This also ignores the connection fee that might actually make gas more expensive than an electric oven.

So assuming the breadmaker is the most efficient way, how can you reduce the costs further?

1) Make your own yeast. It's easy if you like sourdough bread. Instructions. This would save $0.6122 per loaf.
2) Buy the flour in huge bulk at a warehouse store. I'm sure it's much cheaper than $0.1972 per cup if you buy a 50lb bag at costco. But where do you store it?
3) Buy the salt and sugar in huge bulk. Actually, since it's in a 5 lb bag already, you have a 153 day supply of sugar. The salt is expensive "real salt" which I'm sure you can completely crush if you bought a big bag of generic salt somewhere.

So let's assume the following:

Flour: $0.10 per cup
Sugar: $0.013 per tablespoon
Salt: Free, or darned close to it
Yeast: Free

New total:

Flour: $0.3000
Sugar: $0.0130
Yeast: $0.0000
Salt: $0.0000
Machine: $0.1157
Electricity: $0.1800

Total: $0.6087

Or 2,109 calories per dollar. I suppose, given your willingness to work harder and make more of the components, bread CAN be cheaper than store bought. But just barely. It's pretty damned hard to compete at home with the giant production line and enormous buying power of a large bakery.

Better bread typically runs $2.29 per loaf. The problem here is that in order to make a similar product at home, you need far more components like honey, dried milk, butter, etc - which are very expensive. Unless you want to make a very specialized recipe that you can't buy at the store, it makes more sense to just buy the bakery made bread.

The Rule-Of-Thumb Personal Budget: 4-6-10-25-33

To contact us Click HERE
I always hear numbers thrown out about what you SHOULD be spending on various things. "1/3 of your income on housing." "$10 a day on food." But none of these systems are really comprehensive in guiding you for a budget. Wouldn't it be nice to know how you are doing compared to everyone else? Are you spending too much on your house? Did you buy a car that is more money than you can really handle? How much should you really be spending on clothes?

The US government puts out a lot of statistical reports on all sorts of things. I found one in particular that seems like it should be pretty useful for this purpose:

Consumer Expenditures in 2005
U.S. Department of Labor
U.S. Bureau of Labor Statistics
Report 998
February 2005

It contains all sorts of data. What I was really interested in was the average percentages of expenditures of most consumers.

In 2005, the average consumer unit has 2.5 people. It made $58,712 with 1.3 wage earners ($45,163 per wage earner). It spent $46,409 on a variety of things. The average top 6 as a percentage of expenditures over the four years of data were:

Housing: 32.60%
Transportation: 18.55%
Food: 13.10%
Healthcare: 5.83%
Entertainment: 5.08%
Apparel and services: 4.15%

Which is still a little confusing, since you have to know what percentage your expenditures are of income, and does that include taxes? So to make it even simpler, here are some rules of thumb using your PRETAX income. Everyone should know what they make a year, right? Well, here you go:

Housing: 26% or about ONE QUARTER. This includes utilities, maintenance, mortgage, rent, etc.

Transportation: 15% or about ONE SIXTH. This includes maintenance, the cost of the vehicle, gas, etc.

Food: 10% or about ONE TENTH. This includes eating out and food made at home.

I'm going to skip healthcare, because that varies based on age/location and health.

Entertainment: 4% or ONE TWENTY-FIFTH

Clothes: 3% or ONE THIRTY-THIRD

So there you have it. A very basic rule of thumb for how much you SHOULD be spending if you want to be average.

1/4 on housing
1/6 on transportation
1/10 on food
1/25 on entertainment
1/33 on clothes

Applied Example #1:
Your household income is $50,000 per year. Here's what you should be spending (year/month):

Housing: $12,500 year / $1041 month
Transportation: $8,333 year / $694 month
Food: $5,000 year / $417 month
Entertainment: $2,000 year / $167 month
Clothes: $1515 year / $126 month

An interesting way to look at transportation is to use Edmunds.com True Cost To Own. For my Subaru Impreza, it's $0.52 per mile. $0.58 x 12,000 for a year is $6,960. Using the rule of thumb of 1/6, you reasonably need to make $41,760 to afford that vehicle. At least, on the average definition of "afford" over all consumers.

Applied Example #2
Your household income is $24,000 a year.

Housing: $6,000.00 year / $500.00 month
Transportation: $4,000.00 year / $333.33 month
Food: $2,400.00 year / $200.00 month
Entertainment: $960.00 year / $80.00 month
Clothes: $727.27 year / $60.61 month

How much can you afford per mile for your car? $4000 / 12,000 = 33.3 cents per mile.

How much can you spend a day on food? $200 / 30 = $6.67

Conclusion
Now obviously, these numbers don't add up to 100%. And it doesn't scale well to the high or low end of the income spectrum. But it gives you a general idea of what Joe average is spending, and it's a quick guide to start your own budget.

The Economics of Extreme Commuting

To contact us Click HERE
For a number of years, I commuted 30 miles each way, usually spending about 50 minutes doing so. It really took a toll on me, both financially and in draining my energy levels. A while back I moved to a 15 mile/25 minute commute and the difference was astonishing. Apparently, it has been a growing trend for people to commute really extreme distances. In this post, I'm going to take a look at the financial impact of the decision to work really far away from home.

What is the Average Commute?
There has been a lot of media attention in the last few years on the subject. I found an interesting poll conducted by ABC news that not only lists average commute time, but also distance.

Poll: Traffic in the United States
Analysis By GARY LANGER
Feb. 13, 2005

"Life for commuters can be heaven or hell. They report an average one-way commute time of 26 minutes (over an average distance of 16 miles). But the variance is huge: On the best days, the average commute is 19 minutes; on the worst days, 46 minutes. That means traffic, at its worst, can double the average commute time, adding 27 minutes each way."

16 miles / 26 minutes = 36.92 mph

16 miles x 2 = 32 miles roundtrip

32 miles x 50 weeks x 5 days a week = 8,000 miles

If the average American drives 12,000 miles a year, this means 4,000 miles are non-work related.

Average Commute in Los Angeles
According to the US Census, the average commuter in Los Angeles spends
29.0 minutes getting to work. Assuming they are commuting the same distance as in the ABC poll, LA commuters are driving much slower at 33 mph. This is no big surprise if you've ever been to LA.

Extreme Commuting
Here's a story that defines what extreme commuting is in a few short sentences.

Think your commute is tough?
By Debbie Howlett and Paul Overberg, USA TODAY
Posted 11/29/2004 11:17 PM

"3.4 million Americans who endure a daily "extreme commute" of 90 minutes or more each way to work. They're among the fastest-growing segment of commuters, according to a Census study, Journey to Work, released in March. Their commute times are more than triple the national average of 25.5 minutes each way."

How many people are doing this extreme commute? The Census Burea says "Nationally, just 2.0 percent of workers faced extreme commutes to their jobs." But in Los Angeles, that number is much higher at 3.0% (PDF warning). Note that these numbers date back to 2003. With the effects of the housing price boom, I would expect significant growth to those numbers.

Let's take those numbers of 90+ minutes and apply it to the average speed of 33 mph in the Los Angeles area.

33 mph x 1.5 hours = 49.5 miles
49.5 miles x 2 ways x 5 days x 50 weeks = 24,750 miles

Plus an additional 4,000 miles a year for non-work related driving = 28,750 miles.

Cost Per Mile
The absolute cheapest Edmunds.com TCO per mile I could find also belongs to the cheapest car in America - the Chevy Aveo special edition. Over a span of 15,000 miles per year over 5 years in Los Angeles, it supposedly will cost $0.44 per mile. Here's how they came up with their numbers.

Price:


And the breakdown of different costs:



If this is for 15,000 miles per year, we need to modify these costs for our extreme commute of 28,750 miles per year.

Depreciation:

We'll assume that a Chevy Aveo with 143,750 miles will be worth zip. Total depreciation = $10,340 / 143,750 miles = $0.07193 per mile

Financing:

Total cost = $2,173 / 143,750 miles = $0.01512 per mile

Insurance:

Total cost = $9,774 / 143,750 miles = $0.06799 per mile

Taxes & Fees:

Total cost = $1,139 / 143,750 miles = $0.00792 per mile

Fuel:

Year one = $1,456 / 15,000 = 0.0971 per mile x 28,750 = $2,790.67
Year two = $1,500 / 15,000 = 0.1000 per mile x 28,750 = $2,875.00
Year three = $1,545 / 15,000 = 0.1030 per mile x 28,750 = $2,961.25
Year four = $1,591 / 15,000 = 0.1061 per mile x 28,750 = $3,049.42
Year five = $1,639 / 15,000 = 0.1093 per mile x 28,750 = $3,141.42

Five year total = $14,817.75 divided by 143,750 miles = 0.1031 per mile

Maintenance:

Edmunds says $4,462 for 75,000 miles = $0.05949 per mile
We'll assume that scales the same for the huge number of miles.

Repairs:

The Aveo has a 100,000 mile powertrain warranty. If you do minimal repairs, Edmunds says that you on need to spend $774 over 75,000 miles. We'll up that to $2,500 to cover the period after the warranty runs out - but we'll assume major parts like the transmission and engine don't die until the end of the five year period.

$2,500 / 143,750 miles = 0.01739 per mile

Summary:

Depreciation: 0.07193
Financing: 0.01512
Insurance: 0.06799
Taxes & Fees: 0.00792
Fuel: 0.10310
Maintenance: 0.05949
Repairs: 0.01739

Total Cost Per Mile: $0.34294
Cost Per Year: $9,797.80
Required salary using the 4-6-10-25-33 budget: $58,786.77

Normal Commute:
Cost Per Year: $5,280.00
Required salary using the 4-6-10-25-33 budget: $31,680.00

Required bump in salary: 85%

Housing Cost
What would motivate someone to live so far away from work? Why not just move closer? Let's take a look at housing costs in two cities - Los Angeles, with lots of high paying jobs, and Palmdale, with cheap housing. I personally know of at least a few people that make this commute daily.

Average house price in Palmdale, CA (2005): $303,800
Average house price in Los Angeles, CA: $513,800

Difference: $210,000

So using this data, I'm going to plug it into this very good rent vs buy calculator which seems to take almost everything in housing costs into account. Note that I'm not using the rent feature, as that complicates things significantly. I got the following assumptions for these calculations from the Freddie Mac Weekly Prime market for 8/9/07

Rate: 6.59%
Fees/Points: 0.4

The following information came with the calculator, and it looks to me to be a good wild guess at what they will cost.

Loan origination: 1.000%
Other costs: $800
Property tax rate: 1.00%
Home Insurance: 0.50%

I used a down payment of $65,022 based on 20% of the cost of the house in Palmdale plus fees and closing costs. The calculator gives two results. Total, which includes all cash flowing out, and net, which includes the tax benefits of writing off interest/property taxes.

House Payment (total/net)

Palmdale: $1,930 / $1,536
Los Angeles: $3,741 / $3,015

Using the 4-6-10-25-33 budget and the net amounts:

Palmdale: $1536 x 4 = 6,144 a month x 12 = $73,728
Los Angeles: $3015 x 4 = 12,060 a month x 12 = $144,720

So you require a far lower income to live in Palmdale. But then, there are less jobs and less money in Palmdale. So if you live there and commute to Los Angeles, do you end up ahead?

Cost of the commute: $4,517.80 per year / 12 = 376.48 more a month.
Palmdale net: $1536 + 376.48 = $1,912.48 - $3,015 = $1,102.52 ahead per month

That advantage shrinks over time thanks to inflation. But so does the tax benefit of the larger interest payment on the house in Los Angeles.

Will you have enough time for an extreme commute?
If you work 9-5, that's 8 hours a day. Add 29 minutes to each end, and you have a 9 hour work day. Extreme commuting of 90 minutes x 2 adds another two hours to that, for an 11 hour work day. 8 hours of sleep plus another 1/2 hour to get up and get ready/eat = 19.5 hours. That leaves you with 4.5 hours a day to do other things. Not so bad, eh?

Of course, how many Americans really work a 9-5? With a half hour for lunch, that's only 37.5 hours a week. According to the Bureau of Labor Statistics, in 2006 the average full time employed American worked 42.9 hours a week. Almost 10% of the people worked more than 60 hours a week and another 13.7% worked more than 49 hours.

42.9 hours a week = 8.6 hours a day + 0.5 for lunch = 9.1 hours a day
9.1 hours a day + 3 hours commute + 8 hours sleeping + 0.5 hours getting ready = 20.6 hours = 3.4 hours a day to do other things.

Now say you get in a traffic jam and it takes you an extra 1/2 hour each way. Now you only have 2 hours a day of free time. You can see pretty clearly that if you work extra hours or hit heavy traffic or drive more than 90 minutes, your free time can be quickly reduced to ZERO. Then you have to start cutting into other activities like sleeping in order to do other required activities like eating dinner, going to the grocery store, etc.

Conclusion:
I don't think it makes sense to commute much further than a half hour. If you can't afford to live within that distance, then you probably should move elsewhere, rent or find another job. Business Week had a similar conclusion.

"This is what economists call "the commuting paradox." Most people travel long distances with the idea that they'll accept the burden for something better, be it a house, salary, or school. They presume the trade-off is worth the agony. But studies show that commuters are on average much less satisfied with their lives than noncommuters. A commuter who travels one hour, one way, would have to make 40% more than his current salary to be as fully satisfied with his life as a noncommuter, say economists Bruno S. Frey and Alois Stutzer of the University of Zurich's Institute for Empirical Research in Economics. People usually overestimate the value of the things they'll obtain by commuting -- more money, more material goods, more prestige -- and underestimate the benefit of what they are losing: social connections, hobbies, and health. "Commuting is a stress that doesn't pay off," says Stutzer."

GTD: Levenger Pen Pocket Briefcase Review

To contact us Click HERE
I'm a big fan of David Allen's Getting Things Done (GTD) system. I think he's got a lot of great ideas that can make a difference in your life. Unfortunately, I've been struggling a bit with implementation. My problem is mostly the capture device. I just can't seem to find a tool that doesn't fail me in some annoying way.

I started out with a Hipster PDA (hPDA). It has the advantage of being exceedingly cheap, easy to implement and light weight. For a week or two, I thought it was going to work out for me. Then I realized the fatal flaws: I'm a big guy and my body constantly is pouring off enormous amounts of heat. As a result, I sweat a lot, even in normal room temperature. Unprotected 3x5 cards in my pant pockets get ruined pretty quickly from the mildly damp environment. The cards lose their stiff cardboard quality, then become sort of soggy and unwriteable. The corners get bent. The edges get ruined. It's not as annoying in my shirt pocket, but only about 50% of my shirts have pockets.

I decided I needed something to protect the cards. At first, I tried a cheapy buxton 3x5 holder from Staples for $10. After I cut off the annoying pen loops and removed most the extraneous garbage from the inside, I had something that worked. Sort of. The corners of the 3x5 were covered, and thus I only had a writing surface of about 2x4, which reduces the usefullness greatly. And it was on the wrong side (left) for a right hander.

The next thing I tried was a moleskine. I started with a cahier. It worked alright, but the flismy cover and bendable quality quickly got on my nerves. I switched over to the full pocket notebook. It has a lot of advantages over the other systems; the full leather cover protects the paper, the bookmark, the rubber band to keep it closed. I organized the last chunk of the book into a datebook/calendar by putting one week per page. I put my open projects in the front of the book with an index. I used the middle portion for other data collection: maps to places I needed to go, phone numbers, email addresses, ideas, lists. It works pretty well. But I hesitate to write in it for some reason. I'm afraid to fill it with garbage, after I've invested so heavily in the format. It really is a top quality notebook though. Durable, good quality, easy to use. I still carry it with me, only I leave it in my car or at my desk.

After nearly a year of drooling over the levenger shirt pocket briefcase, I finally decided that it was time to just bite the bullet and order one. $38 is a hefty chunk of change for a glorified piece of leather though, and the shipping from levenger isn't exactly cheap either ($9 for a $38 pocket briefcase by USPS, ouch.) I hesitated. I pawed through the catalog again and again.

Then I did something I don't normally try - I tried eBay. It turns out that Levenger was unloading some outlet merchandise for CHEAP. I got a levenger pen pocket briefcase for only $19.40 shipped! (Normally $68 + shipping) Of course, it is monogrammed with some mistaken initials, but hey, I don't care and it's hardly visible.

Here are my impressions of the item so far:

The Pen: I'm not a huge fan of it. In fact, I took it out and left it on my desk. It's got a strange square shape that takes getting used to, but the real killer is the fact that it's a ballpoint. After being spoiled with years of using Pilot Precise V rolling ball and Pilot Varsity fountain pens, I really can't go back. If it were a gel pen, I might be able to handle it. But not a simple ball point. It doesn't do well on 3x5's at all. I can't imagine paying the extra $30 for this feature, or $32 for the pen by itself. It's just not worth it.

The Pen Holder Pocket: It fits the pen that comes with it just fine, although it seemed to try to slip out. Annoying. It also makes the whole thing sort of rigid and puts a bump on one side of the writing surface if you don't remove the pen. I tried putting a different pen in there. A precise V will fit, but just barely, and then you have to pull it out by the cap. I'm really not too impressed. I think it's far better without the pen at all.

The Briefcase: It really is like a little briefcase. Has three pockets. You can tell by feel alone which one is which. I use the outside pocket with the lip indentation for my context oriented cards (@Home, @Work, etc), the center pocket for blank cards (which I've been carrying about 7 of), and the remaining pocket for used cards that have random thoughts and information on them. The leather is top quality, the stitching is perfect, everything about it is nice. It holds 3x5's very well without covering too much of the writing surface. The whole thing is nice and flexible, and it's hardly noticeable in the pocket.

Overall: It's definitely worth owning. I'd say it's even worth the $38 plus $9 shipping. It takes the hipster PDA to the next level: Better organization, easier access, more protection for the cards from the harsh environment of the pocket.

A look at mortgage defaults in Los Angeles County

To contact us Click HERE
The credit/mortgage crisis has been all the rage in the news lately. I thought I'd take a quick look at the real meaning behind all the facts and figures. To start with, let's look at the Census Bureau's American Community Survey for Los Angeles County from 2005.

Number of households: 3,184,396
Owner-occupied: 1,562,853 (49.08%)
Renter-occupied: 1,621,543 (50.92%)

So what we're interested in here is the owner-occupied residences. How many of those have mortgages?

Housing units with a mortgage: 1,208,550 (77%)
Housing units without a mortgage: 354,303 (23%)

Obviously the 23% of the people without mortgages can't default. So now let's look at the 77% of the homeowners that DO have mortgages. According to la-foreclosure.net, here are the number of foreclosures in LA county in the past 7 months.

Jan-07: 3,270
Feb-07: 3,532
Mar-07: 3,893
Apr-07: 3,514
May-07: 4,264
Jun-07: 4,243
Jul-07: 5,317

Total: 28,033

That doesn't seem like a huge number for a city the size of Los Angeles, but look at that as a percentage of the number of mortgages - 28,033 / 1,208,550 = 2.32% of all mortgages defaulted in only 7 months.

When you think about it, that's a big deal. Mortgages are LONG term loans. It can take a homeowner 30 years to pay off a house. Annualized, that works out to a 4% default rate. Banks lose money on the houses that default. According to this blog (original article gone from the news website), the average foreclosure costs banks 20-25% of the loan value, or $60,000 nationwide. What would the loss be in California?

The average California borrower took out a $436,749 mortgage during the first half of 2007, according to DataQuick Information Services -- just $19,749 over the conforming loan limit.

Say we take the low end of that figure at 20%. That's a loss of $87,350 per default.

From the same article, the average interest rate for a conforming loan with a good credit score and 20% down was 6.22%. How much will the bank make from these mortgages? According to this article, Washington Mutual is projected to have a net interest margin of 2.51% in the third quarter of 2007. The net interest margin is the difference between what they have to pay depositors for checking/savings/cd/money market accounts and what the rate they can lend the money out.

The credit crunch could very well turn into a vicous cycle. Investors in mortgage backed securities will demand much higher premiums to compensate them for the increased default rate. In turn, banks will demand higher interest rates for new mortgages to keep their net interest margin at acceptable levels. These higher rates push down the affordability of a house. From the above example:

$436,749 mortgage @ 6.22% for 30 years = ($2,680.62) monthly payment

Assuming that's the max you can afford to pay per month, what amount can you borrow if the rate goes up?

7% = $402,918
8% = $365,325
9% = $333,153
10% = $305,459

Obviously, at a certain point this buyer drops out of the market because they are unable to find a house that is affordable. Supply probably drops as well, as people can't sell their homes because the value is lower than what they owe. Distressed sellers, who MUST sell due to financial hardship become more likely to default. This increases the default rate further, and results in even higher rates.

Eventually it all shakes out and we reach an equillibrium point again. I believe this is probably about 3-4 years out. In the meantime, I would expect house values to stay about the same or possibly drop a little bit in real dollars and inflation adjusted, I expect them to drop by somewhere in the 10% range.

What are Hilton HHonors points worth in dollars?

To contact us Click HERE
Because I have taken up travel lately and I have primarily been staying at Hilton brand hotels, I have been collecting quite a few HHonors Points. Enough that I applied for and got the HHonors American Express. I expect in the near future to have enough points for a decent vacation somewhere.

And every time I see the points pile up, I wonder "What are these actually worth in dollars?" Well, I think I have an approximate answer (although it varies from hotel to hotel).

Method

I needed a halfway reliable way to determine the average cost of a room at hotels, as obviously they change from season-to-season, by demand, and the type of booking (AAA, senior, etc). I decided upon using Yahoo Travel, which lists average price paid. From there, I looked up various hotels and found their HHonors point cost and ran a comparison.

Statistics

I sampled 25 hotels, all in different cities. I tried to mostly use the most populous US cities, although I will admit to probably having a Western US bias. Of my sample, 2 were Doubletree brand (because there weren't Hiltons listed in the city) and the rest were Hilton brand.

Here are the max/average/lows:

Points category: 6/4.72/2
Points Cost: 40,000/33,600/20,000
Yahoo Price: $280/$140.68/$68
Yahoo Reviews: 162/30.96/3

Results

Points per dollar

Average: 265
Standard Deviation: 87
Maximum: 515
Minimum: 143

So assuming it's a standard distribution, 95.4% of the hotels are between 439 points per dollar and 91 points per dollar.

Turning this into dollars per point (the inverse):

2 Deviations-: $0.01099
1 Deviation-: $0.00561
Average: $0.00377
1 Deviation+: $0.00284
2 Deviation+: $0.00228

Running with the average, what is the value of the Hilton HHonors American Express cash back? For the purpose of this post, I'm ignoring initial rewards and rewards earned from booking at a Hilton hotel.

"Earn 3 HHonors bonus points for every U.S. dollar (or U.S. dollar equivalent) charged for all other purchases anywhere American Express® Cards are welcome (less returns)."

3 x $0.00377 = 1.13% which isn't terrible.

When you look at special categories (grocery stores, drugstores, gas stations, restaurants, U.S. postal service, and for wireless phone bills) and charges at hilton hotels, you get 5 points or

5 x $0.00377 = 1.885%

Which is half decent,in my opinion.

Obviously these are rather quick and dirty calculations, but I suspect if you figure you're getting somewhere around 1/3 of a penny per dollar, you'll be pretty close.

'Twas The Night Before Racing

To contact us Click HERE
‘Twas the night before Christmas
Inside the barn area fence
Not a creature was stirring
Not track maintenance.

The hay nets were hung
From the stall doors with care
Hoping the guy with the sweet feed
Soon would be there.

The horses were all standing
Asleep in their bedding
While the grooms played the tunes
Of the Spanish Helen Redding
(Soy mujer, me oigo rugir!)

With mama closing the tack room
And I shutting light
We took a look down the shed row
Before calling it a night

When suddenly we heard
A bang and clang
It sounded as if
The starting gate rang

But the race track was closed
And the gate crew was drinking
So I turned to mama while wonderin’
What she was thinking?

Then a sudden red light
And with little alarm
I saw something land
Atop the test barn

It was the thoroughbred season!
There were no sulkies around!
So certainly this was
A sleigh that we found

I recognized the harness
And the reins were no mystery
But those were sure reindeer
“Track security is history!”

Then out from the sleigh
Jumped the driver dressed in red
He looks at me smiling
And says “Can you watch my sled?”

“I have peppermints here
Maidens and Claimers by name
Then suddenly he vanished
And I’m holding Rudolph’s reins

In less than a second
He was back and set to go
“How fast is this sleigh?”
He said, “You’ll never know!

“I use Christmas Spirit
To power this thing
For this team of reindeer
The world’s a bullring

“This is a very fast group
And this is a magical little bag
But don’t get ideas
They don’t run for a tag!”

Then a little toy trumpet
He brought to his lips
And he played Boots and Saddles
With his hands on his hips

I laughed then looked up
And he was gone in a sec
Then I looked down
And saw the win pic

As I looked at it closer
What a wonderful sight
It was Santa on the left
And me on the right

Donner was center
The rest were in back
And I don’t know who they were
But there were elves in the sack

He sprang to his sleigh
to his team gave a whistle,
And away they all flew
to Los Al then to Thistle.

But then I heard him say
with a laugh and a roar,
"Happy Christmas to all
And hit a pick-four!”

Back and Better Than Ever

To contact us Click HERE
Happy New Year and my apologies for the late start. My wife and I got hit with some kind of cold/flu “this, that and the otheritis” and have been totally out of commission since Christmas. But now it's time to get started and return to the world of blogging about Thoroughbred racing and breeding.

I’m predicting a good year for horse racing with the return of many stars and a sophomore class that has yet to define their leading Kentucky Derby candidates. Five-year-old Caracortado, last seen finishing fifth to Regally Ready in the Breeders’ Cup Sprint at Churchill Downs in November, has been one of the first stars of previous years to debut the year successfully, winning the grade 3 (Turf) Daytona Stakes at Santa Anita over the weekend, defeating Really Ready (DH for third) and Victory Pete (second) in the process. Mr. Gruff was the other in the dead heat for show.

Breeders’ Cup Juvenile winner Hansen and runner-up Union Rags are the probably the two leaders of those trying to get to Kentucky for the Derby presented by Yum! Brands, but like recent years, I’m sure there are many more anonymous stars in the class in weighting who will try to knock them off.

The Eclipse Awards nominations have been announced and I’m hoping Havre de Grace becomes the third consecutive female Horse of the Year, something that has never happened in North American racing history.

As Mike Greenburg of ESPN likes to stay, “We’re back and better than ever” and ready to hit the horse racing blogosphere again.

US Stars Have Dubai World Cup In Sights

To contact us Click HERE
With the recent announcement by trainer Bill Mott (photo right) that Breeders’ Cup Ladies Classic winner Royal Delta will be pointed to the $10 million Dubai World Cup sponsored by Emirates Airlines, it appears the United States will again be well represented in the March 31 race. Earlier this month, trainer Graham Motion told Daily Racing Form that 2011 Kentucky Derby presented by Yum! Brands winner Animal Kingdom is also scheduled for the world’s richest horse race. The Dubai World Cup is run annually at the luxurious Meydan Race Club in Dubai, United Arab Emirates.

Royal Delta, purchased for $8.5 million at the Keeneland November Sale by Ben Leon’s Besilu Stables from breeder Palides Investments N. V., has been training lightly at Payson Park training Center in Florida and may make the Dubai World Cup her first start of the year. Last year as a 3-year-old, Royal Delta also won the Alabama Stakes and Black Eyed Susan Stakes in addition to her big score in the Ladies Classic. Mott will be trying for his second World Cup victory after winning the inaugural edition with Cigar in 1996.

Meanwhile, Animal Kingdom has been training more aggressively from Motion’s barn at Fair Hill Training Center in Maryland and may be headed to the Gulfstream Park Handicap on grass Feb. 11 before heading to Dubai for the World Cup. Motion also told Daily Racing Form that he has not ruled out a February turf race in Dubai either.

Two-time Dubai World Cup winning trainer Bob Baffert has also indicated that his star older horse, Game On Dude (photo left), may also make the international trip to Dubai this year. Game On Dude was last seen finishing second to Drosselmeyer in the Nov. 5 Breeders’ Cup Classic and also won the Santa Anita Handicap and Goodwood Stakes at Santa Anita last year. Baffert won the 1998 Dubai World Cup with Kentucky Derby winner Silver Charm and the 2001 World Cup with Captain Steve.

Baffert told Daily Racing Form that he is planning to start Game On Dude next in the San Antonio Stakes Feb. 5 at Santa Anita and then will decide between defending his title in the $750,000 Santa Anita Handicap or shipping to the Dubai World Cup after that.

The 10-furlong Dubai World Cup has been won by North American-based horses seven times. Others include Pleasantly Perfect in 2004 and Invasor, Curlin and Well Armed in 2007-09 respectively. Street Cry, winner of the 2002 World Cup, had raced in the United States at age two and three but was based in Dubai during the winter of his 4-year-old campaign and was owned by Sheikh Mohammed al Maktoum of Dubai. Sheikh Maktoum is the Vice President of the U.A.E., ruler of Dubai and owner of Meydan Race Club.

Help Needed For Large Louisiana Thoroughbred Rescue

The Louisiana Horse Rescue, Remember Me Rescue, Sabine Humane Society and the Louisiana State school of veterinary medicine are asking for your assistance in a 60-horse seizure currently underway in Many, Louisiana.

According to the Remember Me website and reports from KSLA-TV in Shreveport, La., some 25 horses have already been found dead with others assumed buried at the farm owned by Charles Ray Ford, 46, a thoroughbred owner and breeder in the Ark-La-Tex area.

Sabine Parish District Attorney Don Burkett reportedly has been to the site where some 53 broodmares and 20 yearlings were believed to be located as recent as 2010, and has indicated that felony animal cruelty charges will be levied against Ford. KSLA-TV reports also said they were told Burkett would levy a separate charge for each horse affected, whether deceased or starving. Less than half of the broodmares and only six yearlings have been found at the farm.

Horses that are healthy enough to move are being taken to New Orleans where they will be evaluated and rehabilitated. Remember Me reports on their website that the cost to care for the horses is currently $450 per day. Remember Me is a Texas-based horse rescue operation run by Donna Keen, wife of trainer Dallas Keen who races in Texas and Louisiana.

For more information and to help financially, go to the Remember Me website.

Flat Out, Jackson Bend Make 2012 Debuts at Gulfstream Park

To contact us Click HERE
Three years ago this weekend, trainer Charles “Scotter” Dickey won the $50,000 Smarty Jones Stakes at Oaklawn Park with a promising 3-year-old son of Flatter for owner Art Preston’s Preston Stables LLC. It was a solid three and-a-half length victory for Flat Out in only his third career start and enough to put him on the road to the 2009 Kentucky Derby presented by Yum! Brands (gr. I). But feet ailments would soon begin to plague Flat Out and during a sixth-place finish in the Arkansas Derby (gr. 2) in April, a fractured shoulder was added to the colt’s injury list, ending the colt's chances to go to Kentucky for the Run for the Roses.

Disappointed but not discouraged, Dickey and Preston did not retire Flat Out, but put him on a 20-month rehabilitation that resulted in a successful return to the races in December of 2010, winning an optional claiming race at Fairgrounds. Still battling for a full recovery, it would be six months again before his next start, a second place finish to Awesome Gem in the Lone Star Park Handicap (gr. III) last May. But that was just the beginning of a year that ended with wins in the grade 2 Suburban Handicap and Jockey Club Gold Cup (gr. I) at Belmont Park, seconds in both the Whitney Handicap (gr. I) and Woodward (gr. I) at Saratoga and perhaps the top older handicap horse in North America.

Flat Out ended the year with a disappointing sixth place finish behind winner Drosselmeyer in the Breeders’ Cup Classic (gr. 1) at Churchill Downs in November and earned some time off for some well deserved rest. But there would be no more long rehabilitation.

Apparently Dickey figures Flat Out has missed enough racing in his career because they start 2012 quickly with his turf debut Saturday in the $100,000 Ft. Lauderdale Stakes (gr. 3T) at Gulfstream Park. The 1-1/16-mile Ft. Lauderdale will be the turf debut for Flat Out against eleven others that include grade 1 winner Teaks North and European group I winner Mutual Trust.

“We worked him on the turf here and decided on this race for a combination of reasons,” Dickey said Wednesday morning. “We still want to try him on the turf and the timing is right to get to the Donn Handicap (gr. I). If we waited and ran him in the Sunshine Millions (Classic on Jan. 28) it would probably be too quick back to make the Donn (Feb. 11).”

The Saturday card at Gulfstream Park also features the grade 3 Hal’s Hope Stakes at one mile for older horses where the popular Jackson Bend makes his first start of the year. Trained by Nick Zito, the Florida-bred Jackson Bend was last seen finishing third to Amazombie in the Breeders’ Cup Sprint (gr. I) in November. Before that he was second to Uncle Mo in the grade 2 Kelso Handicap at Belmont Park and he won the grade 1 Forego at Saratoga at seven furlongs.

The Hal’s Hope has drawn a field of nine that also includes Successful Mission and Soaring Empire, both stakes winners at Monmouth Park in New Jersey in their last starts. Successful Mission is making his first start since winning the $77,000 Elkwood Stakes in May and Soaring Empire returns after winning the $100,000 Majestic Light Stakes in late July.

Filly On Fire Baby Challenges Colts in Smarty Jones
Returning to the Smarty Jones Stakes, the 2012 version runs during a special opening weekend Monday card at Oaklawn Park and is the first in a series of races for sophomores leading up to the grade I Arkansas Derby in April then Kentucky Derby in May. The $100,000 Smarty Jones this year is likely to feature the filly On Fire Baby taking on the boys in an interesting early Derby story line. Trained by Gary Hartlage, On Fire Baby won the Pocahontas Stakes (gr. II) and Golden Rod Stakes (gr. II) at Churchill Downs last Fall against fillies.

Trainer Gary Hartlage talking about On Fire Baby

Further west, early action on the Derby trail gets under way in the $100,000 California Derby Saturday at Golden Gate Fields near San Francisco where trainer Jerry Hollendorfer has two contenders. Hollendorfer will saddle Russian Greek, winner of the Dec. 10 Gold Rush Stakes at Golden Gate; and maiden race winner Reconstruction.

The California Derby will also include Southern California invader Hodge, third in the Hollywood Prevue Stakes (gr. III) in November; Blacky the Bull and Cahill Chrome, third and fourth respectively in the Gold Rush. The California Derby is the local prep race for the grade 3 El Camino Real Derby in February.

Fat Lady Still Humming A Few Bars In Horse of the Year Race

To contact us Click HERE
I, and many in racing for that matter, expect history tonight at the Eclipse Awards. When they get down to giving out the golden Eclipse trophy for Horse of the Year, Havre de Grace may become the third consecutive female to be so named. Not since Hanover won the first North American Horse of the year title in 1887, has the title gone to females in three consecutive years.

Only once have females been named Horse of the Year in two consecutive years. Twilight Tear in 1944 and Busher in 1945 pulled the Horse of the Year double so-to-speak nearly 70 years ago. Havre de Grace would also be the fourth female in ten years to be Horse of the Year with Azeri getting the title in 2002. So there is certainly no female bias among the Eclipse Award voters.

Rachel Alexandra was Horse of the Year in 2010 after what many consider to be the greatest campaign ever by an American 3-year-old filly. The record setting Zenyatta was Horse of the Year last year. Both were substantially more popular and accomplished than Havre de Grace, but the now 5-year-old daughter of St. Liam (Horse of the Year himself in 2005) is still the favorite this year.

Of course this could all be for not if Acclamation is named Horse of the Year tonight by the voters at Daily Racing Form, the National Turf Writers Association and the National Thoroughbred Racing Association. And that upset could very well happen. At the very least, the race may be closer than some assume.

Like Havre de Grace, Acclamation, who will likely be named champion grass horse and possibly champion handicap horse at the ceremony at the Beverly Wilshire Hotel in Beverly Hills, Ca., won five graded races during the year. Havre de Grace is the heavy favorite to also take home an Eclipse for Handicap Mare.

Both won a major grade 1 race around two turns, against older horses on the main track. Acclamation won the Pacific Classic at Del Mar and Havre de Grace won the Woodward at Saratoga.

Acclamation’s four other wins included the Jim Murray Handicap (gr. IIT) at Hollywood Park, the Charles Whittingham Handicap (gr. IT) at Hollywood Park, the Eddie Read (gr. IT) at Del Mar and the Clement L. Hirsch (gr. IIT) at Santa Anita.

In addition to the Woodward, Havre de Grace won the Azeri (gr. III) and Apple Blossom Handicap (gr. I) at Oaklawn Park, the Obeah Stakes (gr. III) at Delaware Park, the Beldame (gr. I) at Belmont Park.

Havre de Grace had two losses last year: losing in July by a nose in the grade 2 Delaware Handicap to finish second to her nemesis Blind Luck. She ended the year finishing sixth in the Breeders’ Cup Classic. Acclamation lost twice to start the year before rattling off his five wins in consecutive order. The then 5-year-old horse finished fifth in the Frank E. Kilroe Stakes (gr. I) at Santa Anita in March, then finished and last of ten in the sloppy Charles Town Classic (gr. III) in West Virginia in February before the Jim Murray.

The Charles Town trip was Acclamation’s only foray away from his base in Southern California running all of his other races at Santa Anita, Hollywood Park and Del Mar. Havre de Grace raced in four different states including Arkansas, Delaware, New York and Kentucky.

Havre de Grace ran up a 2011 bankroll of more than $1.3 million while Acclamation was also a millionaire last year with $1,126,000 in earnings.

So despite the popular notion that Havre de Grace will be named Horse of the Year tonight, it is not a certainty. Looking at the actual 2011 race records and statistics of the two horses, there are actually few things that separate them. Havre de Grace will probably get points from certain voters for her travel schedule and for continuing her rivalry with Blind Luck during the year. (The two met for the fifth and sixth time this year: each winning one while the other was second.) Acclamation may be more popular among west coast voters.

No matter where the votes come from or why, tonight's Eclispe Award announcement for Horse of the Year, may be just a little more dramatic than some assume. If not dramatic, at least the Fat Lady has not completely ended her performance.