San Diego - Tijuana Border and Flight Comparison

A proposed solution to San Diego's crowded airport is to build a pedestrian bridge to Mexico. Tijuana's General Abelardo L. Rodriguez International Airport (TIJ) is located just across the US-Mexico border, and the proposed bridge, about 20 miles away from downtown San Diego, would allow people to cross the border into the airport. Otay-Tijuana Venture, the project's developer, cites that of the "roughly 4 million people who fly into and out of TIJ each year, more than half cross the border one way or the other." However, crossing the San Diego - Tijuana borders on automobile involves notoriously long waiting times. Some prefer to cross by foot and then catch transportation on the other side. San Ysidro crossing between the two cities is the world's busiest port of entry.

How much cheaper is it to fly out of Tijuana instead of the San Diego area airports? The following are the costs of the cheapest flights, for one adult roundtrip, from Expedia retrieved tonight, departing on Monday, December 7th and returning Wednesday, December 9th:

Destination	San Diego	Tijuana
New York	$351.10	$972.59
London	$2,214.60	$2,282.60
Tokyo	$1,050.50	$3,932.80
Sydney	$1,577.80	$3,082.21
Cairo	$1,316.68	$3,930.00
Rio de Janeiro	$1,269.49	$1,540.55
Panama City	$800.40	$938.19
Mexico City	$342.59	$291.16
Cancun	$400.40	$371.04

For many of these cities, San Diego offers an enormous discount. Even for other Latin American destinations, San Diego offers cost advantage. It is only within Mexico that Tijuana offers cost advantages. The Tijuana flights to rest of Mexico are also more frequent and have fewer stops on average. Looking at just these results then, it would seem as though the pedestrian bridge serves to relieve those in Southern California traveling to various parts of Mexico by air. A positive externality would be slight relieving of the border crossing for those going to the airport.

Sources:

• http://online.wsj.com/news/articles/SB10001424052702303559504579196370226844190
• http://www.expedia.com/Flights
• http://www.tijuana.com/info.html

Effects of Depreciation on Financial Statements

The effects of financial transactions on the three major forms of financial statements: balance sheet, income statement, cash flow statement, are important to understand the financial performance of any corporations. While most effects are intuitively understood, a few deserve special attention.

Depreciation: if depreciation amount and tax rate were 100 and 20%, respectively, then the net income would fall by 80. However, on the cash flow statement, there will be an increase of 20 in cash flow from operations. This is because the cash flow statement starts from the net income and adds back the full amount of depreciation. The depreciation itself caused no change in cash amount. The tax deduction from the depreciation allowed for more cash to be retained. Combining this all on the balance sheet, there would be 20 increase in cash and 100 decrease in net PPE. This 80 decrease is matched by the 80 decrease in equity, given the depreciation expense of 80.

Loss / gain on sale: if there was 100 loss on sale and given 20% tax rate, earning before tax would decrease by 100, and similarly net income would fall by 80. Assets would fall initially by 100 but with only 80 decrease in equity, the 20 is matched by increase in cash from not having to pay the additional tax, in similar fashion to depreciation. On the reverse, 100 gain on sale would only increase assets and equity by 80, given the additional tax expense.

Microsoft Nokia Deal Summary

Microsoft Corporation and Nokia Corporations announced a deal on September 3, in which Microsoft would pay $7.17 billion USD to purchase Nokia’s Devices & Services business and license Nokia’s patents. Microsoft will utilize its overseas cash reserves to complete the transaction. At the end of Q2-2013, Microsoft’s cash and short-term investments totaled more than $76 billion. Nokia’s mobile business, which Microsoft purchased for 3.79 billion Euros, generated nearly half of Nokia’s 30.2 billion Euro revenue. In all, the purchase was a bargain for Microsoft.

The challenge comes to integrating the businesses. More than 30,000 Nokia employees were brought into Microsoft, including former CEO Stephen Elop. The two companies have been in partnership since 2011, and this deal is the second largest acquisition Microsoft has ever done. The acquisition also marks a remarkable transition in the Windows business model: vertical integration, as Microsoft aims to introduce its Windows Phone software into the hardware units. Microsoft has long touted a separation of software and hardware in the PC era. But as mobile hardware has been less commodity-like than computer hardware, Microsoft expects this deal to be accretive to its adjusted EPS starting in fiscal year 2015. Microsoft had been receiving less than $10 in software licensing fees from Nokia, but now can make more than $40. The challenge becomes selling more Windows phones. Currently it lags behind Android and iOS. And with Apple introducing reduced-cost iPhone models, the challenge becomes even harder for Windows Phone to find its niche.

Two weeks after the Nokia deal, Microsoft announced that it would increase its dividend 22% over the previous quarter, and authorized up to $40 billion in share repurchases.

Sources:

• http://www.microsoft.com/en-us/news/press/2013/sep13/09-02announcementpr.aspx
• http://www.slate.com/articles/technology/technology/2013/09/microsoft_nokia_deal_a_great_idea_that_came_too_late_and_killed_windows.html
• http://online.wsj.com/article/SB10001424127887324432404579052112731349626.html
• http://edition.cnn.com/2013/09/03/business/microsoft-nokia-boulden/index.html
• http://www.microsoft.com/en-us/news/press/2013/sep13/09-17dividendpr.aspx

Strengthening Australian Dollar and Ford Shutting Down Production

It was reported this week that after nine decades of operating in Australia, Ford will shut down production in the country due to the strength of the Australia dollar and high costs, particularly wages. Ford reported that production costs in Australia "are twice that of Europe and nearly four times higher than in Asia." The factories are planned to close within 3 years.

Strength of the Australian dollar would make it more costly to operate there. How exactly has the Australian dollar fared against other major currencies? The AUD-USD is currently around 0.97. This is actually on the lower end of the 52-week range, and further down from the peak of around 1.10 reached in mid-2011. However looking at the 5 year chart, AUD-USD was as low as 0.6 in late 2008. Since the start of 2011, it has been steadily strong at above 1. Looking at AUD-JPY, again a similar strengthening trend can be observed. After hovering around 80 for most of mid-2009 to mid-2012, it has surpassed 100 this year and currently is around 97.78. Finally, looking at AUD-EUR, the pattern can be seen as it has strengthened from around 0.5 in late 2008 to currently around 0.75, although it was as high as 0.85 in mid-2012.

Sources:

• http://www.euronews.com/2013/05/23/ford-quits-australia/
• http://www.bloomberg.com/quote/AUDUSD:CUR
• http://www.bloomberg.com/quote/AUDJPY:CUR
• http://www.bloomberg.com/quote/AUDEUR:CUR

Mixed Headlines Regarding Housing Market

There were mixed headlines regarding the house market today. Sales of new homes in the United States climbed to an annualized rate of 454,000 in April. This was the second highest monthly figure since July 2008. Year-over-year, the median selling price increased 14.9% to $271,600, which is the highest on record. Partially fueling the rising demand are the low interest rates. This week the average 30-year fixed mortgage rate was 3.59%.

Despite these news, limitation on home supply is put by the lack of equity to sell homes. In a report released by Zillow (NASDAQ: Z), a real estate information provider with a "database of more than 110 million U.S. homes," keeping the property listing tight are the "about 22 million Americans ... [who] lack enough home equity to move." The report stated that 44% of homeowners with mortgages had less than 20% equity in their home, and 20% is usually required to purchase a new home. This figure includes 13 million Americans, or a quarter of homeowners with mortgages, who were underwater, or owed more than what their homes are worth. Zillow projects that by Q1-2014, only about 1.4 million homeowners will regain positive equity.

Sources:

• http://www.bloomberg.com/news/2013-05-23/sales-of-new-homes-in-u-s-climbed-to-454-000-pace-in-april.html
• http://www.bloomberg.com/news/2013-05-23/home-supply-limited-by-americans-lacking-equity-to-sell.html
• http://www.zillow.com/corp/About.htm

A Look into Venture Capital Firms Behind Tumblr

Yahoo's acquisition of Tumblr was a boon for many, including Union Square Ventures and Spark Capital, the two venture capital firms who made initial investments into Tumblr during its infancy. The combined investments of $10 million translated to 47% ownership of the company, giving them a 50-fold return in the recent deal with Yahoo that valued Tumblr at $1.1 billion. The deal was also a spark for the New York start-up community, as Tumblr represents the "largest venture-backed purchase for a New York company."

Union Square Ventures, based in New York, describes itself on its website as a "small collegial partnership that manages $450,000,000 across three funds" and invests in companies that "create services that have the potential to fundamentally transform important markets." Spark Capital, based in Boston, manages about $1.5 billion. Common across both funds include Twitter.

On Tuesday, the front page of Union Square Ventures highlights the Tumblr acquisition, which characterizes Tumblr as "world's greatest platforms for self expression." Tumblr has 108 million blogs across its network, and generates about $13 million in revenue annually, which is the amount Yahoo generates daily. Nevertheless, it is the younger audience and mobile users whom Yahoo seeks to attract through this acquisition.

Sources:

• http://www.bloomberg.com/news/2013-05-21/nyc-startup-scene-boosted-by-50-fold-return-on-tumblr-deal-tech.html
• http://www.usv.com/
• http://www.sparkcapital.com/

Interest Rate Swap and Swaption

Interest rate swap is also known as plain vanilla swap, or fixed and fixing swap. It is the exchange of cash flows on a notional value (say $1 million) given a fixed interest rate (say 3%), for the cash flows from on the same notional value given a floating interest rate (say LIBOR + 0.5%). The notable aspect is that the notional value never gets traded, and thus is rather arbitrary. Over the life of the swap, the payments are made to the counterparty at intervals that are usually 6 months. The swap benefits entities that may want more exposure or mitigate exposure to interest rate risk.

Swaption is an option on the swap, whereby the writer has the option but not the obligation to enter into a swap agreement by a certain date. But furthermore, the contract specifies whether the buyer will be the recipient of the fixed or floating rate cash flows.

Sources:

• http://financial-dictionary.thefreedictionary.com/fixed+for+floating+swap
• http://financial-dictionary.thefreedictionary.com/swaption

Currency Movements and Global Macro Calls

2013 Year Ahead Report published by Bank of America Merrill Lynch Global Research features 10 macro calls on the world economy. One call regarding interest rates and currencies states that "the U.S. dollar and euro could rally on the global recovery and greater fiscal clarity, pushing the yen lower and emerging market currencies higher." Another recall, regarding the crisis in Europe, states that "the big tail risk of a eurozone breakup has likely passed."

With this theme in mind, it was announced on Monday that Japan would further devalue its currency. It has already fallen 14% since October, and this has been helping the country's exports. Prime Minister Abe has "[stepped] up the pressure for the Bank of Japan to ease monetary policy" and increase the inflation target to 2%. The yen currently trades at 88.95 on the US dollar, which is near its 52-week high. While the yen has been pushed lower, the euro has hit an 11-month high against the US dollar, at $1.3382. Yields on Italian and Spanish 10-year bonds have stabilized to 4.19% and 5.03%, respectively. These numbers do go along the macro call from report that "European economy should stabilize as the year progresses."

Sources:

• http://money.cnn.com/2013/01/13/news/economy/japan-yen/index.html?iid=HP_River
• http://www.reuters.com/article/2013/01/14/us-markets-global-idUSBRE88901C20130114
• http://newsroom.bankofamerica.com/press-kit/bofa-merrill-lynch-global-research-2013-year-ahead-report
• http://www.bloomberg.com/quote/USDJPY:CUR
• http://www.bloomberg.com/markets/rates-bonds/

Frick Collection, Frisk House, Frick Mansion

See previous related post: Alpine, NJ 07620: Nation's Most Expensive Zip Code

The Frick Collection is an art museum located on Manhattan's Upper East Side, at the corner of 5th Avenue and East 70th Street. The Frick House houses the Frick Collection today. The Frick Mansion is the 30,000 square-foot house, listed for $68 million in 2010, across the Hudson River in Alpine, New Jersey, country's most expensive zip code. All of these entities relate to Henry Clay Frick, "the Pittsburgh coke and steel industrialist," who lived from 1849 to 1919.

Frick was an art patron who collected paintings and other art objects. The Frick House was built in 1913 at its present location, and was built with Frick's intention that he would eventually "leave his house and his art collection to the public." The Frick Collection opened to public in 1935, 16 years after the death of Frick himself, and presently contains over 1000 works of art, "from the Renaissance to the late nineteenth century." The Frick Mansion in Alpine traces back to an estate the Frick family built in the 1930s. In 2006, real estate investor Richard Kurtz paid $58 million to acquire the 60-acre estate, and built the 30,000 square-foot mansion on the property. Immediately after completion, Kurtz put it on the market. The Frick Mansion, located on a completely gated drive, contains "12 bathrooms, 19 bedrooms, a library, a ballroom, a main kitchen, a catering kitchen, a basketball court, a movie theater and an 11-car garage," and furthermore can be controlled from anywhere with a smartphone.

Sources:

• http://quintessence823.blogspot.com/2012/04/alpine-nj-07620.html
• http://www.frick.org/collection/history.htm
• http://www.businessinsider.com/most-expensive-smart-home-alpine-2012-1?op=1
• http://blogs.wsj.com/developments/2010/06/03/alpine-mega-mansion-most-expensive-home-most-expensive-zip-code/

Evaluating Cleveland RTA Park-and-Ride Locations

See previous related post: 10PM, Tower City Terminal

Having convenient and pleasant park-and-ride rail stations is the key to developing effective public transportation systems that reach out to those in the suburbs. In Cleveland, many stations come with free parking along the rail lines. Park-and-ride can save two types of costs: a fixed cost of parking, and the variable cost of driving, which includes gasoline and depreciation. Merely accounting for parking, even for two people park-and-ride is a cost-effective alternative ($9 round-trip) to most  parking garage rates downtown, particularly on event nights. However, the system doesn't serve all regions of the metropolitan area evenly.

Bypassing Downtown
If one is to stop at downtown but ultimately bypass it on the overall route, East 55th Street Rapid Station strategically has the best location for park-and-ride. It is located right off the junction of I-490 and I-77, offering quick access back onto the highway. Furthermore, all three (Blue, Green, Red) Lines go from E. 55th to Tower City, minimizing the expected wait-time to catch any of the trains. This quick stretch of 7 minutes is particularly unique in that heavy-rail (Red) and light-rail (Blue & Green) lines run side-by-side. Despite these advantages and its recent renovation completed in 2011, E. 55th Station does offer several important challenges. The parking lot is quite small, capable of holding fewer than 50 cars. The bigger challenge is the fact that maybe it's too close to downtown, with its inner-city location potentially deterring suburban riders who prefer stations in areas they may be more familiar with. Adding onto the problem, coming off I-490, the parking lot is not easily accessible. Bower Ave, which has direct access to the main lot on the eastern side of E. 55th, is restricted one-way lane. The easiest lot to get into is located across the street. Crossing the busy street requires a bit of walking to and waiting at the street lights.

From East Side
For those coming from the Southeast, the terminus of either Blue or Green Lines offer that opportunity. While both lines take around the same time getting to Tower City (approx. 30 min), and around the same distance to I-271, Green Line holds a slight advantage. The terminus of Blue Line, Warrensville, does not offer direct parking. Riders have to park at the adjacent Farnsleigh station. This would be fine, except that upon getting out of the lot onto Van Aken Blvd, drivers can only turn westbound. As a result, leaving the station is more burdensome than the terminus at Green Road. From the Northeast, only two stations: Superior and Windermere along the Red Line, both in East Cleveland, offer park-and-ride. Windermere Station, however, is over 2 miles off I-90 through East Cleveland. As a result, options are more sparse for those coming from the Northeast.

From West Side
Despite Red Line being the sole rail system west of Cuyahoga River, the West Side has more convenient choices. Every station from Brookpark to West Blvd has free parking exceeding 100 spaces, and the choice of station depends on whether one is predominantly coming along the direction of I-90 or I-480. Brookpark is conveniently located near the junction I-71 and I-480, offering the best alternative for those coming from the Southwest. From the Northwest, Triskett and W. 117th Stations are convenient due to their proximity to I-90, along the Cleveland-Lakewood border, and these stations are only around 15 min away from Tower City.

South?
With Lake Erie off to the north of the city, the RTA system currently leaves the South devoid of rail connection. For those predominantly coming from the direction of I-77, there is not an effective park-and-ride location. E. 55th would be the natural choice from the map, but given the reasons described above, may not be the ideal choice. Plus, going up to I-490 is almost going into downtown anyways; barely any money is saved on the gas. The RTA does have several Park-N-Ride routes using express buses. They originate from southern suburbs like Parma and Brecksville, but these programs only operate on weekdays, during rush-hours, and only in the rush-hour direction. As a result, they are not viable for night or weekend events. The current system favors West (whether Northwest from I-90 or Southwest from I-480) and Southeast the most, while Northeast and particularly the South don't get nearly as much benefit.

Sources:

• http://www.riderta.com/majorprojects/e55/
• http://www.riderta.com/pd_rapidtransit.asp
• http://www.riderta.com/parknride/

Expected Payoff from Mega Millions

Lottery games usually advertise the enormous amount of money that can be won, and the luxurious life that such winning would bring. But everyone knows that the chance of winning the jackpot is miniscule. So in this battle of extremities, does the large amount of money or the small chance win out?

Information taken right from the Mega Millions website reveals that it takes $1 to play a game. The calculations put aside for each of these possible prizes, here are the monetary amounts of the prizes with their associated chances of winning:

Prize	Chance ^ (-1)
Jackpot	175,711,536
$250,000	3,904,701
$10,000	689,065
$150	15,313
$150	13,781
$7	306
$10	844
$3	141
$2	75

The ultimate jackpot prize value varies consistently, but at present is estimated at $65 million. To get the expected payoff, simply multiply each earning by its likelihood, and sum the products. This can be easily done in Excel.

When the jackpot is $65 million, the expected payoff is only 55.18 cents. In fact, it takes slightly less than $144 million for the expected payoff to just reach $1. The jackpot recently reached record high of $656 million. With that, the expected payoff was slightly over $3.91. However, tax was not considered in any of these situation. Furthermore, as in the case of the recent record high, the winning amounts are split if more than one winner arises. In all, the small probability of winning seems to dwarf the large amounts of potential winning.

Sources:

• http://www.megamillions.com/howto/
• http://abcnews.go.com/US/wireStory/ill-mega-millions-winner-claim-jackpot-share-16160742#.T45qo9XZYS4

Mileage Rates: Overestimation or Underestimation?

The Internal Revenue Service (IRS) sets the business mileage reimbursement rate, which on its website is stated as the "optional standard mileage rates for employees, self-employed individuals, or other taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes." This rate is also often used by employers to compensate employees for operating their own vehicle for the employer's business purposes. The business mile rate in 2012 is 55.5 cents/mile, unchanged from the second half of 2011. At a first glance, this number may be a huge overestimation. After all, even overestimating gasoline at $5/gallon and less-than-stellar fuel economy of 15 mpg, that's only 33.3 cents/mile. However, while gasoline is the main cost factored into the mileage rate, other fixed and variable costs, notably depreciation is factored in. But the mileage rate doesn't make a distinction between the type of cars.

Let's see how much gasoline factors into the mileage for different type of cars. Data from the Department of Energy lists the most and least efficient vehicles. For two-seat cars, Honda CR-Z was listed as one of the most efficient, while Bugatti Veyron was listed as the least efficient. Next, we can use AAA's Fuel Cost Calculator to estimate the cost of gas needed to travel between two cities. For this exercise, we chose New York as the starting city and Cleveland as the destination. For this 452-mile trip, the 2011 Honda CR-Z needed 14.58 gallons of gasoline. For the same route, the 2012 Bugatti Veyron needed a whopping 56.5 gallons. AAA's estimate used a price of around $3.96 / gallon for the trip, which meant that the New York - Cleveland trip gasoline cost for the CR-Z and the Veyron was $57.75 and $223.77, respectively.

The first noteworthy data is the vast contrast. The CR-Z is about 3.87 more fuel efficient than the Veyron, allowing 31 mpg compared to 8 mpg. Now what does the IRS mileage rate compare? For the 452-mile trip, the cost from the mileage comes to $250.86. That number is only 1.12 times the gasoline cost for the Veyron, while it is 4.34 times the gasoline cost for the CR-Z.

Depreciation and other costs of maintenance may be difficult to measure. But here's a quick way to estimate its order of magnitude. Take the Honda CR-Z; its price as listed on its website is around $20,000. Let's give a conservative estimate, in order to overestimate the depreciation value, that its lifespan is only 100,000 miles. In that case, we can divide the numbers and get $0.20 / mile depreciation value. For the 452-mile trip, this calculation will yield $90.4 in depreciation. That's over 30% higher the total gasoline cost for the CR-Z, so the depreciation figure isn't a trivial value that can be dismissed.

While it may be difficult to exactly calculate the true costs of driving, the calculations here reveal that depending on the fuel economy of the car, the IRS mileage rate may overestimate or underestimate the driving costs. In either case, the mileage rate will cover the current gasoline cost, even for least fuel efficient Veyron. But the calculations here have shown that other costs cannot be ignored, even if costs like maintenance and particularly depreciation are always not tangible. In fact in an April 2011 report, AAA compiled all of the costs of driving and operating various types of vehicles. At this time, the business mileage rate was only 51 cents / gallon. The AAA report stated that the total cost ranged from 45.1 cents for a small sedan to 63.3 cents for a minivan. So in the end, the mileage isn't a gross overestimation by any standards; in fact, for many models of vehicles, it doesn't even fully offset the true total costs of driving.

Sources:

• http://www.irs.gov/newsroom/article/0,,id=250882,00.html
• http://www.irs.gov/taxpros/article/0,,id=156624,00.html
• http://www.fueleconomy.gov/feg/best-worst.shtml
• http://automobiles.honda.com/cr-z/
• http://fuelcostcalculator.aaa.com/
• http://accountingportal.com/2011/06/24/irs-increases-mileage-rate-55-5-cents-mile-rates-71-123111/
• http://newsroom.aaa.com/2011/04/cost-of-owning-and-operating-vehicle-in-u-s-increased-3-4-percent-according-to-aaas-2011-your-driving-costs-study/

Comparison of Apple and GDP

Apple Inc. (NASDAQ: AAPL) has been dominating the news. Its shares opened the year at $409.40. Barely more than one quarter into 2012, the prices closed Thursday at $633.68. This is a whopping increase of 54.78%, and some analysts predict a climb as high as $1000 per share. Already with the current prices, the market capitalization (which is the simplest way to measure how much a company is worth) of Apple is around $590.82 billion. How does this compare to the GDP of major world economies? How do the per-employee figures of Apple compare with GDP per capita of major world economies?

The CIA World Facebook provides the latest figures of GDP. Specifically, the numbers are expressed in purchasing power parity (PPP), which is the "sum value of all goods and services produced in the country valued at prices prevailing in the United States." According to those figures, the GDP of the United States is just about $15 trillion, just slightly below that of the European Union. China comes second at $11.29 trillion. Apple's market capitalization of $590 billion puts it right underneath the GDP of Thailand at #25 ranking in the world. No African countries eclipse the figure, but South Africa would come right underneath with $555 billion.

According to 10-K form filed by Apple on September 2011, Apple claimed that it had "approximately 60,400 full-time equivalent employees and an additional 2,900 full-time equivalent temporary employees and contractors." Using the figure of 60,400 employees, Apple's worth per employee in terms of market capitalization would be around $9.78 million. In 2011, Apple reported $25.9 billion of net income, or about $430,000 per employee. In comparison, according to the CIA World Factbook, Liechtenstein, the Central European country with a population barely above 36,000, had the highest GDP per capita at $141,100.

Sources:

• http://www.businessweek.com/news/2012-04-02/apple-fever-to-push-stock-to-1-001-within-year-analyst-says
• https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html
• https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html
• http://www.sec.gov/Archives/edgar/data/320193/000119312511282113/d220209d10k.htm
• http://www.google.com/finance?q=NASDAQ:AAPL

Response to "First Person: How I Got Myself $80,000 in Debt"

Recently, Yahoo contributor S.L. Carroll wrote an article detailing how she incurred the enormous amount of debt early in her life, and in retrospect seems regretful of her decisions. For two of the categories - student loans and medical bills - most can sympathize with. Rising tuition has been a severe concern in the past few years, and the medical insurance has been a topic of heated political debate. But the other category - credit cards - is less likely to draw sympathy. Although Carroll admits that she "never should have applied for a credit card much less six of them," her reasoning for the prior behavior was what "the free money was addicting."

Debt is not free money. It is a liability, an obligation of reimbursement. Applying for credit cards wasn't the problem. Taking on debt gives access to more assets, which could be a beneficial short-term decision for an individual or a firm, particularly when new ventures are sought or begun. But it also adds onto liabilities, and requires the responsibility to recognize that obligation, at the bare minimum. Debt is not free money. Recognize the obligation to get the reimbursement under control, or one is stuck under a heap of burden. For a corporation, it could mean the difference between survival and bankruptcy. For an individual, it could mean the difference between proactive financial planning and reactive financial recovery.

It is difficult to grasp that concept when the current government debt is over $15 trillion, or over $48K per person, in the United States. But fiscal responsibility can begin at the individual level. Better yet, fiscal responsibility needs to begin at the individual level, where one can and does control his or her own destiny. In this case, it's not about reaching bipartisan agreements or arguing over political values. Instead, it's crystal clear as recognizing that debt is not free cash; taking on loans means incurring the responsibility and obligation to repay the amount.

Sources:

• http://finance.yahoo.com/news/first-person-got-myself-80-000-debt-163400779.html
• http://www.brillig.com/debt_clock/

Public Ownership of Sports Franchises

One may not initially associate sports franchises with issuing stocks, but Green Bay Packers are doing exactly that to finance the addition of seats at Lambeau Field. A publicly owned corporation since 1923, the Packers had over 110,000 shareholders (larger than the population of Green Bay) owning 4.75 million shares before the most recent sale on Tuesday. Although deficient of many advantages associated with traditional stocks, the Packers stocks hold more important sentimental values for the stakeholders.

Among the disadvantages, these stocks receive zero dividend and can only be transferred to family members. As a result, there is no re-sale value and doesn't even help the shareholders gain an advantage on the long waiting list for season tickets. NFL rules also prohibit the shareholders from betting on games. The only practical perks for the shareholders are voting rights and the rights to attend annual stockholder meeting in the summer.

Yet despite these restrictions, Packers fans rushed to own part of the team when the offering began on Tuesday. During the first 11 minutes of the offering, 1600 shares were sold. Packers hope to raise $22 worth of stocks before the offers closes next February. The greatest value is the claim of partially owning the franchise. It's this sentimental value, not monetary incentives, that motivates the fans to "invest" money into their team, and the benefits in the form of larger stadium, will help to benefit the fans themselves.

Green Bay is unique among all North American professional sports franchises. With a population of only around 300,000 in the metropolitan area, it by far has the smallest local fan-base. Nevertheless, Green Bay Packers have remained loyal to the Wisconsin city, over 100 miles north of Milwaukee, since its founding. Public ownership has helped that trend, but certainly the success of the Packers has allowed such passion. The Packers have won more Super Bowls than any other franchises, most recently in 2011. With a perfect 12-0 record heading to this week, it is aiming to go back where they were.

Similar small-town professional franchises have not fared as well. NBA's Sacramento Kings recently considered moving to Anaheim to provide more financial stability for the struggling team. While ideas were never proposed, it seems unlikely that Kings, which has fared poorly for most of the latter half of the past decade, could've generated much revenue from stock offerings.

Certainly, America continues to embrace its professional sports franchises, and most teams have very loyal fan-base in their hometown. Even in Cleveland, where teams haven't fared well in recent years, loyal fans bought their personalized bricks at the Heritage Park in Progressive Field, to be part of the history of the Cleveland Indians. In the turn of events this year that saw labor strikes in NFL and NBA, teams could consider selling part of the ownership to the devoted fan-base. It would strengthen the stability and presence of the team in the area while sustaining financial growth.

Avid sports fans flock to stadiums or ESPN to follow their passion, but at the end of the day, money and sports can't be separated. Franchises operate to maintain financial growth. Fans pay to see their teams succeed. Offering partial ownership of the teams to the public could be the link between the two sides.

Sources:

• http://online.wsj.com/article/SB10001424052970204903804577082524238902912.html
• http://www.csmonitor.com/USA/Latest-News-Wires/2011/1206/Green-Bay-Packers-stock-goes-on-sale-receives-mixed-feelings
• http://blogs.sacbee.com/sports/kings/archives/2011/05/kings-announce-1.html

Response to "First Person: My $50,000 Salary Felt Like Minimum Wage"

Laura Cone, a professional writer for more than 20 years, recently published a blog entry on Yahoo entitled "First Person: My $50,000 Salary Felt Like Minimum Wage." In her article, Cone calculates that after she abandoned her work-at-home job and took on working at the office, costs associated with employment has been so high that her $25/hr wage really boils down to about $7.50/hr. After arriving at that number, Cone concludes that "[her] high paying job equaled minimum wage."

Thousands of viewer comments were left on the blog entry. Most either ridiculed or lambasted Cone's conclusion. Viewers making less than $50K remarked how they were more careful in their spendings and that Cone should appreciate her income. In particular, those who left comments pointed out that the costs associated with employment are not necessary job expenses, but rather implicit costs associated with abandoning a work-at-home job. In Cone's case of transition from working at home to at office, the decision to take the office job has enormous additional costs. From costs of childcare to extra spending to combat work stress (all of the subtracted costs Cone listed in her analysis), all of these costs represent the hidden, implicit costs of working at office. In essence, these also represent the opportunity costs of working at office, as opposed to working at home. In her blog entry, Cone "discovered [she] was not making as much as [she] thought due to hidden career costs." It is plausible that these hidden career costs may not have been fully compensated by the increase in gross income at the office job, leading to Cone's conclusion. Nevertheless, they represent opportunity costs, which is necessary for all firms and individuals to take into account for any decisions such as moving employment locations.

But more troubling for public viewers of the blog entry is Cone's comparison to earning minimum wage. As comments pointed out, those earning minimum wages need to pay for the essential living expenses - food, transportation, etc - from their minimum wage. Cone's "minimal wage" is after all of those costs have been deducted. Furthermore, Cone was even "reimbursed mileage during the workday, but had to eat my commuting costs." Most employers for private companies don't even get reimbursed for mileage and the gas costs also come from their gross income. Lastly, some of the "career costs" Cone listed are luxuries that those earning true minimum wages would not be able to enjoy. For example, Cone wrote that she needs $40 per week on clothes; while this number may not seem outright lavish, she takes into account spending that amount for clothes, every week. What does indeed sound outright lavish, are what Cone says she needs to "combat work stress." She "needed to take expensive vacations just to unwind" and began "getting weekly massages." Citing that she now has "less time and more to juggle" (while working only the typical 40 hours/week), Cone "paid for someone to mow [her] lawn and clean [her] house." None of these luxuries are opportunities that those actually earning minimum wage typically enjoy.

It's understandable that people like Cone spend more for certain goods as her style of employment became more demanding. There's where the adage comes that "money buys happiness." However, it's not acceptable that implicit costs of career are counted under work expense; they are rather opportunity costs of making the transition from working at home to office. But more importantly, particularly in this economy of high unemployment and decreased real wages, associating these luxuries as work expenses, and drawing parallelism with earning minimum wage, after she indulges in the luxuries, is highly insensitive to those who indeed earn a gross income of minimum wage.

Sources:

• http://shine.yahoo.com/work-money/first-person-50-000-salary-felt-minimum-wage-194000717.html

Berlusconi to Resign

On Tuesday, Italian Prime Minister Silvio Berlusconi announced that he will resign after parliament approves economic reforms. The announcement comes after Parliament passed a budget measure with 308 votes, but saw over half of the 630 lawmakers not taking part in the vote, a vivid indication that Berlusconi no longer has the support of a majority in Parliament.

Italy has the third largest economy in the eurozone and eighth largest in the world. Struggling European countries like Greece, Ireland, and Portugal already had to be bailed out. Although currently solvent, Italy poses a tremendous challenge with its 1.9 trillion euro debt, or about 120% of its economic output, that Europe can't afford to bail out. The Italian bond yield reached 6.77% on Tuesday, dangerously approaching the 7% mark that prompted bailouts for Portugal and Ireland.

In the United States, the news of the impending resignation pushed Dow up 101 points to close at 12,170.18. Stock markets in Italy, Germany, and France also rose slightly.

Sources:

• http://finance.yahoo.com/news/Berlusconi-promises-to-resign-apf-3530821317.html?x=0&sec=topStories&pos=2&asset=&ccode=
• http://edition.cnn.com//2011/11/08/world/europe/italy-economy/index.html
• http://finance.yahoo.com/news/Stocks-rise-after-Berlusconi-apf-803223079.html?x=0&sec=topStories&pos=4&asset=&ccode=

Staten Island: Highest Per Capita Road Tolls

Residents and visitors of New York City continuously face higher toll fees compared to the rest of the nation. While the southbound toll on Golden Gate Bridge is $6 for cash users, fees on any of the eastbound Hudson River crossing recently increased to $13 for cash users. In 2000, while the United States collected $6.6 billion in tolls, $2.0 billion came from New York state alone, while $711 million came from neighboring New Jersey. While tolls can be burdensome for commuters and tourists, nowhere is the burden heavier than on Staten Island, the city's "forgotten borough."

First, consider the tolls on bridge and tunnel crossings into Manhattan for standard cars. Note that fees vary depending on the timing and other circumstances (E-ZPass and residency discounts). Let's just consider peak-hour fees for cash payers without residency discounts, the worst-case scenario. For entering Manhattan:

• George Washington Bridge, Lincoln Tunnel, Holland Tunnel: $12
• Henry Hudson Bridge (crossing Harlem River): $4
• 9 other Harlem River crossings: free
• RFK Bridge, Brooklyn-Battery Tunnel, Queens Midtown Tunnel (all crossing East River): $6.50, although tolls are charged in both directions
• Brooklyn Bridge, Manhattan Bridge, Williamsburg Bridge, Queensboro Bridge (all crossing East River): free

Now under the same conditions, for entering Staten Island:

• Verrazano–Narrows Bridge: $13
• Bayonne Bridge, Goethals Bridge, Outerbridge Crossing: $12

Not only are the tolls on bridges coming into Staten Island more expensive on average, but there are also fewer (none, to be exact) alternatives. New York state collects about $105 in road tolls per person each year, which is over four times the national average of $23.45. But the burden is even more concentrated in Staten Island, which pays nearly $293 per person. The effects aren't just felt by the residents. Staten Island suffers competitive disadvantage, as business location decisions are largely influenced by tolls.

While some may point at the free Staten Island Ferry to Manhattan, public transport is still more inconvenient for commuters and impractical for businesses. The ferry completes the 5+ mile journey in around 30 minutes. Furthermore, the Staten Island Railway (SIR) only has one line situated along the southern portion of the city. With a population of nearly 500,000, Staten Island would be a mid-sized city in the country if separated. However, its 14 miles of rail service is shorter than service in a smaller city like Cleveland. The situation is not improved when residents remember that they are officially part of New York City, which boasts the nation's most sophisticated rail network. As a result, more residents have turned to cars, but they then face the highest per capita toll in the nation. The transportation situation in Staten Island strongly reinforces the mindset of its residents that they are part of the "forgotten borough" of the city.

Sources:

• http://www.cunyspsc.org/files/papers_o/p_TRA_2010_SI_Toll_Burden_White_Paper_v3_o.pdf
• http://www.mta.info/mta/pdf/approved_bandt_tolls.pdf
• http://www.panynj.gov/bridges-tunnels/tolls.html

Booming Growth yet Homelessness in North Dakota

Related previous post: Economic Growth in North Dakota

North Dakota is back on the news again with its strong economic growth. With the recent discovery of ways to tap the oil fields around Bakken Formation, demand has been high to hire not only skilled labor in the field, but also people from all sectors of the industry necessary to support the infrastructure of the business. From restaurant waiters to truck drivers, companies have not only been seeking to hire multitudes, but also offering lofty compensation in hope to entice people to come to oil boom-towns like Williston, ND to work. Truck drivers can make an average of $70,000 to $80,000 a year, and some fast-food restaurants have double their wages. While the numbers certainly look great, there is a severe shortage of lodging in the area. Where six-figure salaries are offered, homelessness has become a burden.

In order to sustain this economic growth, adequate housing is necessary to sustain the population growth. Unfortunately, the pace of housing has not caught up to the pace of jobs. Only about 2,000 new housing units have been built in the past year. Fortunate people have found space in "man camps" that the oil companies have built. But many have resorted to desperate measures to lodge in their cars, claiming parking lots as their street addresses. The situation is far from ideal, but the lucrative pay nevertheless has drawn many willing to sacrifice basic living conditions.

There have been efforts to invest in this area. First Millenium Construction is building a 500-person man camp in Watford City. Jarvis Green of the company expects a "200% to 300% return on the multi-million dollar investment." The investment opportunity certainly looks bright, as the discovery and the growth around Bakken Formation have only recently begun . But while the real estate growth currently lags behind the influx of people looking to take advantage of the boom, people in the oil-towns of North Dakota live within a seemingly incongruous juxtaposition: economic prosperity and homelessness.

Sources:

• http://finance.yahoo.com/news/Americas-Boomtown-North-cnnm-1424053087.html
• http://money.cnn.com/2011/09/28/pf/north_dakota_jobs/index.htm?source=yahoo_hosted

Is China Getting Richer?

People these days often hear about China's economic growth and its enormous impact on the global economy. Yes, China contributed 19% of the world's economic growth in 2010, and that figure is expected to increase to 24% this year. Western companies have invested in China to stay competitive in one of the world's fastest-growing market. This Tuesday, Boeing announced that it officially opened a service center in Beijing. China's travel is expected to grow annually at 7.6% over the next 20 years, and Boeing, which already has 800 of its airplane units in Chinese airlines, hopes to maintain the company's majority share of the market of commercial airlines in China.

But is this really indicative of China getting richer? A recent New York Times article argues that while its economy experiences rapid growth, China sees its households struggling to keep up, as those making more than the average usually save most of their earnings. While the US saves roughly 5% of the disposable income, that figure approaches 40% in China. Various factors, from depressed wages and soaring home prices, impel the Chinese to save. However, the interest rate on saving accounts are artificially low, not able to keep up with the rising inflation rate. As a result, consumption levels are low. Those who benefit from the savings are state institutions, fueling the rise of real-estate developers and government spending on railroad. As for the commoners, they have little choices. Many wish to avoid investing in the volatile stock market, and laws restrict the ability to invest overseas.

The most convenient outlet for many Chinese then, became the real estate market. Compared to the same period a year ago, Chinese investment in real estate was up 32.9% during the first half the year. Real estate prices have overall tripled in the past five years. Many have been concerned about the effects of a housing bubble burst. This is a legitimate concern for the United States, as China's growth is crucial for the multinational companies investing there; United States sold $92 billion in goods and services to China last year. But the focus still hasn't been on domestic consumption. So far, much attention has been focused on cheap land and capital for heavy investing. The soundness of the Chinese economy will need to depend on how the households can spend, not just the state corporations.

So is China getting richer? It depends on from what perspective one looks at. Is the GDP growing? Yes. Are foreign investments increasing? Yes. But are the average household better off? As ambiguous as the question may sound, the answer may just be "not exactly."

Sources:

• http://online.wsj.com/article/SB10001424052970203499704576624942566500046.html
• http://www.nytimes.com/2011/10/10/business/global/households-pay-a-price-for-chinas-growth.html?pagewanted=2&_r=1
• http://www.time.com/time/magazine/article/0,9171,2096345-2,00.html