Is the Inflation Beast Coming to the U.S.?

I think there is a high likelihood that inflation is coming to the U.S. in a bigger way over the rest of 2008. So far there is little evidence of serious inflation. Indeed for the first 3 mos. of 2008 the CPI ticked up at only a 3.1% annual rate. After a 4.1% increase in 2007 this doesn't appear to be too alarming. But, here is why I think inflation may tick higher. First, the Fed just injected a bunch of liquidity into the economy (by drastically cutting interest rates) and that tends to drive inflation. Second, with oil at $125 I think we should see that creep into the cost of many goods. Finally, with the dollar weakening and many of our goods coming from outside the U.S. I would expect many finished goods consumers buy to creep up in price. Goods from China in particular where the government is letting the Yuan strengthen should become significantly more expensive in dollar terms over the next few years.

There is not a lot you can do about inflation. You can hope that your wages will increase at the same rate as the goods you buy, but my guess is they won't. The only thing I can really suggest is that you save a little more than usual. Why? Because as things get more expensive you may need to tap into that savings to buy goods that are still quite affordable now. Furthermore, if inflation does rear its head then the Fed is likely to raise rates to put the breaks on it. If the economy is not healthy by then it may slow further as a result of higher interest rates. If that happens there may be higher unemployment and if you are one of the unfortunate ones to experience downsizing you will need that extra savings. Something I am thinking of doing (I still haven't pulled the trigger yet) is buying an inverse long bond fund that will hopefully benefit if inflation takes off. I have a hard time believing investors will accept 1% or lower real yields on long-term treasury bonds for too long . For those of you wondering
"real yield" means the yield after taking into account inflation -- for instance the "nominal" yield on the 10 year treasury note is 3.77% today, if inflation is 3.1% then the "real" yield is a paltry 0.67%. If inflation takes off, I think that bond yields will also likely rise (and the bonds themselves will fall) so the inverse long bond funds should perform quite well.

How much is YOUR free time worth?

I went to the full-service car wash today. This is the first time I have ever done it since there were a lot of automatic washes in Denver and then I usually would just vacuum by myself. However, here in Dallas there are very few automatic washes (it must be because they allow hose washing which Denver didn't for several years due to water restrictions). So anyway, I decided to go to the full service wash for the first time ever here in Dallas. I took both of our cars. Each car took 20 minutes and cost me $20 per car. Had I done this myself "for free" with a hose wash it would have taken me at least 3 hours. Inherently then I have decided that my free time is worth at least $40/2.33 or $17 per hour. In reality I think I paid even less for my free time because I was able to read a book (something I wanted to do) while I waited for them to wash my car. I probably saved 2.75 hours of "free time" by paying to have the cars washed at a net cost of $14.54 per hour. The whole thing got me thinking though, what is my free time worth?

This is no easy question to answer. The simple mathmatical answer is that free time is probably worth at least your annual net after tax and work-related expenses income/the number of hours per year that you work. For instance if you make $75k per year net of taxes and work 40 hours per week, then on a per hour basis your time is worth 75,000/52*40 or about $36/hour. You can use this calculator to get a more complicated answer that states your leisure time in terms of the number of hours you work to get an hour of free time and how much you are paid for those work hours. However neither of these approaches seem like a wholly satisfactory answer because for most people they really couldn't choose to work 3 more hours on a Sunday (when I had my car washed) and make an extra $108. It seems that different hours of the week should carry a different value. Likewise the marginal value of certain hours is high while for others it is low. For instance if you are sleeping four hours per night then an extra hour of sleep is probably of high value to you. But if you are sleeping nine hours per night already an extra hour of sleep is probably not worth that much to you.

However, the confusion doesn't stop there. You then have to factor in intangibles. For instance, I have been reading a lot of books about being a dad since I have a little miss Armchair on the way. One word of advice that hit home with me was the reality that when a father is on his deathbed he rarely says "I wish I had worked more," but he often might say "I wish I had spent more time with my children." So then how do I value time I will spend with my daughter knowing that it is time that I will never have the chance to spend with her ever again? What is the opportunity cost of working, washing the car, or mowing the lawn instead of participating in my daughters first word, first step, first whatever?

The bottom-line is that I need to think about all these questions and come up with my own way to value my free time. After thinking about it though the $14.54/hour I just spent on the car wash to buy some free time sure seems like a good deal!

If you have thoughts about how you value your free time please share them in the comments.

Sun Prairie Beef: Better than Whole Foods!

My wife loves organic food. The penny pincher in me really doesn't like organic food, but tasting is believing and my wife makes darn good meals with the organic food that she buys! Rather than be penny-wise pound foolish I enjoy my wife's organic habit night after night even if my pocketbook doesn't. However, with organic grass-fed beef from Sun Prairie Beef I get the best of both worlds. I get better beef than I have ever tasted anywhere and I get it at up to half Whole Foods prices.

Sun Prairie beef is a true "grassroots" organization. It's run by a father and son team out of Yuma, Colorado. In addition to producing some darn fine grassfed beef, they are also genuinely great people, the kind you want to support with your pocketbook. Most importantly though, their grassfed beef is simply the best on earth. Better yet, for the first time since they started the business in 2005 they can actually air freight beef virtually anywhere in the U.S. (Thank goodness since I am moving to Texas!). Don't take my word for it though, go to http://www.sunprairiebeef.com/ and order yourself some today. You will want a rather large freezer (or a second one) as 25 lbs. is the minimum order size. You won't be sorry you ordered and in fact you'll wonder why you didn't order 100 lbs!

How to Find a Real Estate Agent to Sell your House

We signed up a real estate agent to sell our house in Denver. We interviewed several brokers (I'd recommend that you do too) and decided on this one for several reasons:

1. He was confident enough that he could sell our house that he offered a reduced commission (3.0% instead of 3.2%).
2. Included in his commission is the cost of an appraisal, professional photos, professional staging, and cleaning of the house prior to photos.
3. We liked how he planned to market our house with a big focus on the Internet (which is how we looked searched for houses in Dallas).
4. His firm was listing several houses in our neighborhood so they clearly knew the area.

I recommend asking the following questions when interviewing a real estate broker.

• How long have you been in the business?
• What % of asking price do you typically sell a house for?
• What is the average length of time a house listed by your agency is on the market before it sells?
• How many agents does your firm have?
• How many houses is the agency listing right now?
• How do you plan to market my house?
• What repairs/improvements do you think I need to make to my house before putting it on the market?

I'll keep you posted on how our listing and (hopefully) sale goes.

Cash Rates are Terrible and So Are U.S. Treasury Yields: Time to Buy Stocks?

Well money market rates are officially pathetic right now. According to Bank Deals 4.0% APY is about as good as you can get and most places yields are much lower. Pretty soon I bet 3.0% is the high. Going out to long term US treasuries isn't too appealing either with the 10-year yielding a pathetic 3.7%. This basically tells me that there has been a flight to quality (i.e. panic). My plan is to take a long-term view and move towards being more fully invested in some much riskier assets now that we have had a nice correction across both the credit and equity markets. I will look at lots of international equity mutual funds. I may even look at some retail and financial specific sector funds since those secotrs have both been hammered. I am also considering looking at an inverse long-term US treasury bond fund or ETF to take advantage of what I view as unsustainably low yields on US treasuries. When I finally make some moves I will be sure to let you know what I did. They will probably be gradual over the next 3-9 months. Anyone else have any thoughts on where to put capital now? Leave them in the comments.

Real Estate: A Truly Local Market

Well, I was recently reminded about how local the real estate market truly is. As part of our move my wife and I were recently looking for houses in North Dallas. I was fully expecting to see many houses on the market for a long period of time. However, the reality was that there aren't that many houses on the market in North Dallas (I houses for sale are up about 25% y/y in Dallas) and that many of the good houses were selling in two weeks or less. Towards the end of our house-hunting trip we saw a house that we liked. It had been on the market for only one day. We decided to put in an offer and I cringed as my wife basically took the contract from my hand an wrote something just below the asking price on our offer. However, she was right. That house ended up having four offers in its first day on the market. We ultimately ended up pursuing another house, but it was definitely an interesting reminder that national headlines about how slow the real estate market is don't necessarily mean that any one particular neighborhood or market are necessarily slow. I just hope our neighborhood in Denver is as healthy as the one in Dallas was...

Lots of Changes for the Armchair Fiduciary

It has been a while since my last post. There have been a lot of changes for the Armchair Fiduciary in the past few weeks. I quit my job, took a new job, and am moving from Denver to Dallas. There will obviously be plenty of posts to come about both the hunt for a new house and the sale of my existing house. Likewise chalk up a move to Dallas (where my wife's family is from) as an additional "cost of baby."