Credit Scores
A busy week. Lots of driving. I put 35k miles minimum a year. I can spend 5 hours a day in a car more than once a week. Driving 90 minutes doesn’t even register. I’m amazed at the people who don’t have to do that. I listen to a lot of Dave Ramsey lately, podcasts. I agree and disagree with him in equal measures but I enjoy their perspectives. And now that Dave is trying to scale back, there is this Hunger Games type of thing happening on air as talent jockeys for a place at the Ramsey network broadcasting table. You can feel the tension in the air as these people try and find a place.
I don’t really agree with him that debt is bad and should be avoided. I do agree it’s dangerous, and you should never be cavalier about it, and since a lot of people aren't great with understanding basic finance, personal or business, yeah, it can get burdensome quickly. He dumbs down a lot of stuff past the point of reality - like, I’m not building a home building business to this size, with my business model, without a ton of debt (thank you Jeff Bank). But, within a few years of starting up, my debt was project based, per house based, and not operations based. Big difference. I did the Ramsey thing like 10 times. Load up on debt, and focus like the devil to pay it off.
I never realized, though it makes perfect sense, how dumb financially it is to buy a new car unless you have substantial net worth, especially now that cars cost $50k and people are financing them over 6-8 years (that’s crazy) and having $700 a month payments (that’s crazy). Anything with a motor he says is depreciating, and is the inverse of wealth building. Makes sense. Hard to make sense of a purchase that after 3 years is worth half of what you paid for it while you still owe 75% of what you paid for it. Keep doing that your whole life and it adds up to a lot more than that other wealth destroyer - Starbucks Coffee.
He’s also on the forefront like no one else I know of the student loan catastrophe for millions of families, and doesn’t hold back on the nonsensical nature of taking out $120k in loans for jobs that pay $60k.
I have to admit being guilty of this, and to be honest I’m about ashamed by it, of looking ‘down’ at people who don’t choose college as their route. I noticed it a ways back, when I was introducing some people and their husbands are young and successful in their own young way, but I skipped over them when introducing the dinner guests and what they did - granted, the dinner guests had 20 years and a lot of professional skill and experience behind them, but in the back of my mind, their careers were 2nd tier.
Which is really bad, coming from me, since I deal with everyday talent extremely hardworking millionaires every day of my life who have never been to college - my masons, framers, plumbers, well drillers, hvac people, etc… Literally have no use for a pointless college degree.
And some tiktoks hit it home for me - instead of wasting 4 years, coming out with a degree of debatable worth, and typically a lot of debt, only to hope for a job that will pay you $60k start and then a struggle to move up as your colleagues vie for the same openings - instead, you start working at 18, you get paid as you train half the time, you are in industries that pay well, and at 24, 25, 28 you can be making 6 figures, and have your choice of jobs. Getting away from college-is-for-everyone is critical to America’s future - college is too expensive, and of debatable worth for a lot of people. Even though I’m saying this, the idea that trades are a good route is a no-brainer, but would I be happy if my daughter (if I had one) brought home a successful car mechanic or plumber or Hvac professional? I know I wouldn’t, and that’s on me.
But, lets be honest too - education, learned wisely and affordably, opens ones mind and creates a web of curiosity, compassion and understanding that going to work at 18 with a bunch of high school grads isn’t going to provide, be it about religion, gender roles, aspirations for your children, etc… So, like most things as an adult - it’s complicated.
But the point of today’s blog is none of the above - although that’s not true, it’s a Ramsey rant offshoot. But first, my day -
Got up, dressed for my road bike, biked 10 miles down and 10 miles back on Rt 206 between Milford and Stroudburg along the Delaware Water Gap - 20 miles in 1 hr 30 minutes, then napped, then read a book which I’m loving and now blogging. Then pool. Tomorrow we have the big event at Ashokan Acres.
Credit Scores - there is literally not a person who should have their credit score pinned at the highest possible level other than me- I’ve used debt responsibly for 25 years. Literally hundreds of millions of dollars borrowed and paid back, on time, ahead of time, in full. Car loans, truck loans, house loans, business loans, personal loans, credit cards galore. Never late, never carry a balance on a credit card, pay shit off and pay it off fast. The fICO companies literally have thousands of months of credit card history to see exactly what I do - run em up, and pay em off, the same month.
And yet, depending on the credit agency, I can see my credit score dip in the 600’s if I happen to pay my $125k lumber bill with a credit card, or borrow $100k for a new truck. It doesn’t matter that there is $400k in cash, no mortgages, big fat balances sheets with no liabilities, gigantic earned income - all they see (or want to see) is “OMG you are using 55% of your available balance on one of your cards” - never mind that that amount x50 is sitting in a bank account.
The only reason I can see that credit companies want to use this infantile way to evaluate risk, this one size fits all regardless of your net worth or yearly earned income, is because it helps keeps rates elevated for a large pool of borrowers who should be at the top level of FICO score. I mean, if I’ve been using 5 credit cards for 20 years, heavily, - like 1200 months of on time payments, each and every month before interest kicks in, but I’m being put into the same formula as the guy with a mortgage, 3 kids, nothing in the bank, a car loan and a $100k household income, -of course I’m getting screwed when I go to borrow - so for this wealthy or somewhat wealthy slice of people who literally have zero chance of defaulting on anything struggling to keep a 700 or 800 score, it’s just a scam. And I guess like everything else in America, it’s a scam to fleece the consumer, with collusion among rating agencies, banks, gov’t etc…, baked so deeply into the fabric of our life we don’t even notice it. It's like measuring the danger of driving a race car without examining the experience of the driver, or evaluating the probability of hitting a major league fastball without taking into account the skill of the hitter, or in my case, judging the likelihood of attracting the female favor without knowing the extent of my game.
Or maybe we do notice it - and that explains the resilient attraction to a burn it all down candidate like Don Trump.
I mean, it should be pretty simple, and transparent - have liquid assets that are 3x your debt exposure and a predetermined length of unblemished payments, and you get a perfect credit rating. It could be anything, but it should transparent, it should be objective, it should be rooted in the size of your shovel (income) as well as the size your hole (debt). Without the income side, without the asset size, credit scores are a complete scam and an American way of life, to the detriment of the average American. With that, I’m with Ramsey all the way.
General Musings
Electric is out, near and far here in Milford PA since last night when some storms blew through. Something serious happened cause it’s out for like 5 miles in all PA directions. That’s unusual. Lucas and his friend Cameron spent the day without Tech which I think was eye opening for them as they built stuff, hit stuff, explored stuff, lifted stuff, crushed stuff, etc…
Lots of seasons starting up - pool season, lavender and black eyed Susans season, garden season, and even HS football season is kicking back into gear with nightly strength training and drills. I’ve harvest lettuce from my 1st year garden this year, and soon tomatoes, cauliflower, corn, mint and basil. The bumblebees are right on the heels of the lavender blooming.
I have solar here, and I also have a stack of 5 batteries, so in essence I have a working generator which is a pretty cool way to live off grid. As long we get a little sun here and there, I’m literally off the grid here in the burbs, spinning the meter backwards.
As I have noted, less blogging means less stress at work, having to work things out through the process of writing and thinking it out. Still a ton going on and going wrong and going right, but it feels like we’ve exited the true transition phase and now are pretty close to figuring out how the company will best operate going forward. What is true is that it will operate better.
I don’t know why I’m always being tested, but I don’t know of another company that has as many black swan instances of employee or employee-family illnesses that rock the boat like we’ve experienced over the last 3 years. For a company that is heavily dependent on our employees, and each one that sticks around is filling some vital role, we’ve had 3 or 4 employees that had no intention of going any where else for employee, be impacted by a health incident that caused them to quit our employ. Really strange and odd and it really pisses me off - since it’s just black swan wholly unpredictable, highly unlikely events, that set us back and make us scramble. Just this week we had our part time book-keeper helper have an emergency appendix operation and we haven’t heard from him since. It gets old, and feels unwarranted and undeserved.
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A trip to Kansas City got me thinking. Interesting city, really nearly dead center in the USA. As far (or as close) from the East as to the West. While I was away on this 36 hr jaunt, it seems the Hudson Valley got crushed with a pretty significant flooding event with lots of roads, train tracks, and bridged impacted. Hoping NOT for chaos on my way home from the airport this morning - (this was cut and pasted from last Monday and all went well, at for me).
In terms of KC, and maybe this is true for most of the US, it’s just not the pressure cooker of the coasts, not the rushedy rush rush, not the pushing and shoving. There’s something really to be said about the cost of living.
We got a ton going on, but it’s different than it was. It’s mostly ‘for hire’ work - either our homes on your land or custom designs brought to us - or spec homes. That’s different because in the past we would also have quite a few homes that have buyers signed up for, that we are building, that they will buy at the end - customizing and personalizing as we go along. This last one has always been our bread and butter, but takes a lot of office skills and time that we scaled back on. So we will see how the spec homes sell, and we’ve sort of pivoted a little and are better defining what is and what is not on the table in terms of personalization.
Our Ashokan Acres project is taking off. Roads in, 3 or 4 building permits. Driveways in. Building lots cleared. Open house/Land tours scheduled for the 23rd.
The Student Loan thing to me continues to amaze. I kept hearing about these people who would pay year after year and end up with more of a balance then when they started and I didn't see how that was possible, being a digging out of debt veteran myself. Turns out, they opted into a payment plan based on a math formula of their cost of living, income-based, so they ended up paying less than the interest each month, or the same as the interest or just a little more - so DUH, if you aren't touching the principle, how would your debt go down? Financial illiteracy is just so dangerous. But the idea that such an option is even possible is crazy. And now there has been a pause FOR 3 YEARS. I just want to get this straight - the gov't offers loans and supports private loans to young, unqualified buyers far in access of what they will conceivably be able to pay based on a ton of data. Make these loans non-forgivable and non-bankruptable. Offer no limit to what you can borrow and what you can use it for. When you get out of school, and can't pay back, offer payment plans that actually increase the size of the loan. Bemoan the problem while making more loans everyday. Get colleges and high schools in our the scheme, characterizing people who don't go to college as 2nd tier.
I used debt heavily to get my life rolling. I bought my first house in Sullivan County in 2002 with a credit card check that came in the mail. By 2004 I was really swimming in the dark waters of debt. But as soon as I had a dollar i started paying it down, aggressively. and continued to do so. Rack it up, pay it down, rinse and repeat. And eventually my shovel (my income) outpaced my debt (hole) and the habit of paying it down gained steam and turned the corner. But as the Dave Ramsey critic says, college in my day cost $6k, came out of school with $10k of debt, loans weren't offered to pay for 4 years of elevated lifestyle - so that was a plus, though, I think I would have plowed through it anyways. Insane, and it will be interesting to see how it plays out as the Biden administration pulls out every trick in the book to continue to delay repayment, I think the latest being no default of credit blemish for the first 12 months after repayment kicks in - Hello Joe, it's just delaying the inevitable pain for these folks.
Been taking Lucas my son along with me. He got his first paycheck the other day. We got him a bank account, a brokerage account, a retirement account, a quick books account, he's been snapping some drone shots, going to work with me, going through the 7 stages of grieving each morning on the way to work but all in all, going pretty well. I think it's good for him to see what I've doing everyday for 20 years in order to make his life and lifestyle possible. He's old enough now to at least on some level observe and appreciate the effort I'm making, and have been making.
and finally, take that GOLDSTEIN!!
Market thoughts
Slow start to the summer season, with the June being a chilly then rainy month. This 4th weekend doesn’t look that promising either, though it’s a tricky one as an employer, with the Holiday falling on Tuesday, you feel you should give the Monday off but you also feel you shouldn’t. We just gave our team a 4 day Memorial Day weekend, so it’s hard to justify the same action a month later - we aren’t the Gov’t.
Lots of articles out about the decline in Airbnb bookings. A little hard to get to the facts, since the headlines are focusing on the few big markets that are seeing a serious decline and making good headlines. Airbnb in an article I read today is claiming only a 3% across their platform. I’m sure each market has it’s own story, and the story of the Hudson Valley has always been unique.
I could dive into the stats - there are several publicly available databases which purport to shed light on the short term rental market (STR) - but I’ll leave that to someone else. What I know, and of what I speak, is just general observations.
My local banking colleagues have said they have scaled back on lending to these types of business plays. It was clear to me that it seemed 2 out of every 3 people who bought a home up here were planning to rent it in order to offset their expenses. And just like in the 60’s and 70’s when tourism in the Catskills was decimated by alternative choices, once again the main client of choice - the NY metro family - is back on the road, the air, able to get around and go where they want, post-covid. Meaning, mostly, less local travel to the Hudson Valley. Don’t get me wrong - it’s still a busy place since Covid.
I don’t follow Airbnb rates - and I’m not a big Airbnb patron - I like hotels - and
I’m always shocked at how quickly a night room rate gets expensive. Fees, cleaning, this, that, jeez. $$225 turns into $360 before you know it and $400 become $600 before you blink twice. And you only realize it once you’ve decided, reserved, gone thru all the hoops and ready to book. It’s annoying. And frankly, I’ve stayed in as many bad ones as good ones, and I don’t have the time or bandwidth to really figure out where value meets form best. I know one thing - most of them are not what you see in the marketing and advertising.
What’s been interesting as I’ve been mulling over this pending student loan payback restart, is once again how predatory the lending environment is across the board. 72 months or more for car loans when a car loses half its value in 2 years. Student loans with insane terms for very inexperienced borrowers. Loans of all sorts - boats, motorcycles, RV, mortgages - being made to applicants without taking into consideration the paused student loan monthly payment obligations. The student loan mess is criminal - those loans never should have been made in the fashion they were - and once again, you see how corrupt the system is - think about it, the system and lawmakers and colleges are so corrupt they are willing to shackle 2 generations of kids to endless and crippling and non-dischargeable loans. There is no reason why kids with no borrowing history, credit score, or much of a clue should be able to borrow $10k, let alone $100k or more. It’s disgusting.
So kudos to Joe Biden for having this on his radar. But, why put it on your radar and try and give some forgiveness while you are still allowing and making the exact same loans today?
Dave Ramsey is feeling some heat, and I know he’s feeling the heat because he feeling the need to be defensive, about his attacks on millennials and similar demographics for living at home and being cuddled.
This really articulate rednecky (at least that’s how is presenting himself) put out a tiktok that went viral, and continues to, countering Dave’s point that Millenials living at home are lazy, cuddled and need tough love.
This guy makes a great case that the Millenial generation has been dealt a pretty shitty hand of timing and luck. First, they were victims of a predatory student loan program, perhaps the first group really exposed to the rising cost of college and the scams out there to pay for it. 2, that everyone was encouraging everyone to go to college, and ‘invest in yourself and your future’ and let’s admit it, not going was considered 2nd class. 3, when they came out, needing to pay off this big predatory debt and get a job, the deepest recession the country has seen since the great depression arrived, and lingered and languished for years. Then, when they were hitting their early 30’s Covid, job losses, then inflation, then housing and rental prices that were 10x inflation compared to wages that rose incrementally.
Taken all together - great recession, burdensome student debt, inflation, housing price increases - he makes a good point about the stresses and callouses this group has endured. I can agree with him, and disagree - since I know of a few millenials who do live at home and carry around Louis V handbags and very nice clothes and cars.
He makes another great point when he points out how ‘easy’ we had it. Dave Ramsey is a little older than me, but the system was more or less the same. College was cheap, degrees were easy to get, Unions were strong and paid good wages to non-college grads, not going to college was not a black mark against you, starter homes could be had for $100k, health insurance was available and affordable. You could fail for awhile and even end up succeeding because not everything was stacked against you.
So it’s all pretty interesting, and why it’s so important to get information from varied sources and challenge your assumptions. One day I was nodding my head in agreement with Ramsey, the next day I’m like Wow, Ramsey’s an idiot, and I end up somewhere in between.
One thing that is becoming clear to me - remote work is scary for the soul. I’ve now met a few people who have been remote working for a few years, and I have to tell you, they really seem lost - they may or may not be able to do their job, but they are stuck in this anti-social, non-peer reviewed universe without the checks and balances that being in the office and out and about entails, and to be honest, it’s not healthy. Like people or not, it’s important to be out there navigating them. This one friend I met, works for a company, from home, that knows when she is in front of her computer and when she is not - so she literally sits at her kitchen table, alone, with her computer, with big brother monitoring her key strokes and time online - aware of every time she steps away - it was a truly frightening existence that was clear in her digressing social interactions.
Student Loan Debt
Wow, I don’t have student loans anymore, so I didn’t realize they were still being paused from Covid. I guess they were paused almost immediately after the Pandemic started, but who would have known they still hadn’t kicked back in? The reason I mention this is because I’m a financial literacy aficionado and know so many people in the ole USA really don’t really have a great understanding of their personal finances, and what certain decisions do and don’t do.
I mean, student loan repayments restarting - that’s a pretty big deal for a lot of people. I’m not an expert on federal vs private loans, and nuances therein, but federal loans and interest on those loans were halted back in Spring of 2020. That’s 3 years ago, that people have not had to budget this very real expense into their budgets (not that that many people budget accurately). And now the monthly bills are coming due, and they will be monthly bills for years if not decades.
Dave Ramsey always uses the story of the twenty something or early 30’s living with their parents and using their incomes to buy designer handbags and going out to eat, postponing the very real reckoning of living on their own and the expenses and obligations therein (wow, used ‘therein’ twice in one blog post). I heard it on his podcast a bunch but just recently have I observed in real life, and that's the thing about Dave, his observations about people and their behaviors - he usually has some pretty good insight.
But jeez, if you were a family that was receiving pandemic aid, had their student loans paused, and received this and that pandemic handout - this is going to be a really rude wake-up call - and not short term.
I guess all of this plays into the inflation story. There’s lots of angles to the inflation story, but this is certainly one of them - that the average consumer with student loan debt didn’t have to pay that monthly payment so could spend $300-$1000 a month on ‘stuff’ - lord knows they didn’t save it. Add in the Gov’t aid, and each and every individual had money in their pocket - some loose coin, some spending cash, some jingle jingle. Besides the financial strain, it must just be depressing to know it’s coming. And the habits of spending are hard to just give up - be it restaurants, handbags, beauty or whatever. It’s painful.
From what I read, credit card balances for individuals are growing, interest rates are up, student loans coming due. I wonder how long it will take the decline in individual spending to show in macro economic data, and then relatedly, how long till it starts to bring down inflation because of slacking consumer demand.
Or will people not stop spending, borrow more for cars, take out home equity loans, fill up their credit cards until their is a real problem nationwide on the scale of the housing crisis of 2008, where it was clear something stank but everyone ignored it.
For my business, I’m not sure it matters. My clients, and their respective social-economic position, it doesn’t seem that they are impacted or sensitive to interest rates, student loans, etc… Whether they have a big lump sum sitting somewhere I don’t know - but I do know their monthly take-homes are pretty significant.
And as Dave Ramsey likes to say - it's the size of the hole (expenses and debt) versus the size of the shovel (income).
I know, I should be on the Central Bank Board of Governors.
