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I sent this email to Jiffy Lube today, after wondering how many other people had been adversely impacted by this practice.  I decided to post it here as well, as many people seem to be unaware of how much difference temperature has on tire pressure.  The email (with personal info removed) follows.

I went to Jiffy Lube for an oil change on my wife’s (vehicle) on the afternoon of May 24th.  One of the guys working on it popped into the customer lounge and proudly announced that my tires were at “almost 40 PSI”, and the sticker on the door said “they should be 35″ so he had “adjusted the pressure” (let some air out) in order to put them all at 35 PSI.

It was a hot day, and I had been driving for quite some time around town before I went to Jiffy Lube.  I told the guy that yes, I know the sticker says 35 PSI, did he read the part that says “Cold”?  Did he know that tire pressure should always be set when tires were “cold”?  I got a blank stare after asking those questions.  It’s obvious that he thought I was driving around with my tires over-inflated when they were in fact correctly inflated.

I do not know about other Jiffy Lube locations, but this location had caused my tires to be under-inflated by almost 5 PSI when I later checked them “cold”.  The tires are 100% brand new Michelin’s, having just been purchased and installed the day before – May 23rd.  And I had verified that they had the correct pressure myself.

Please ensure that the people working on vehicles at your locations know what they are doing BEFORE THEY DO IT, as I do NOT want to run my tires at 30 PSI “cold” when they should be at 35 PSI “cold”.  Considering that it was about 90 degrees on the afternoon of the 24th, and that I had been driving, I would expect the tires to be at “almost 40 PSI”. Or even at 40 or 42PSI.

Have them read this: http://www.tirerack.com/tires/tiretech/techpage.jsp?techid=73
Or this: http://www.michelinman.com/tire-care/tire-saving-tips/air-pressure-tips/

I expect your service locations to check tire pressure and to add air if the pressure is low.  But unless they know absolutely, positively, with 100% certainty that the tires (not just a single tire) are dangerously over-inflated, they should NEVER “adjust” tire pressure by removing air from all the tires.  Even then, they should probably ask the owner first.

How many people are driving around today with under-inflated tires because of an uninformed person at Jiffy Lube?  What happens when a tire blows because of it?  How much needless tire wear and excessive gas usage is happening because this guy doesn’t know what he’s doing?

Please correct your tire pressure “adjusting” procedures before more damage is done.

gk

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I was reading a Reuters story about the proposed budget in California tonight when I saw this:

Wheelchair-bound Christina Mills, 32, of Sacramento, California said disabled workers could not afford to have subsidies for assistants cut as the governor proposed.

“If they didn’t have home-care workers to help them get dressed in the morning, they wouldn’t be able to go to work.”

Hey Christina – that sucks doesn’t it?  It’s sad, but true – if you need someone else to pay for you to get to work, you’re not earning enough to make your job worth the investment in you!  It would be cheaper for everyone if you stayed home and we payed to take care of you there.  Plus, you wouldn’t be in denial about how much your work is actually worth.

Yes, it’s harsh.  But it’s also true.

gk

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I haven’t posted in what seems like forever.  It’s a combination of work and a lot going on personally, but really just apathy on my part.  I’m spending a lot of time on fantasy football and stuff with my kids, and I hate saying the same things over and over in a different way.  “Yes Johnny, the government is getting bigger each and every day and I think it sucks.”  That’s the basic message of most of what I have to say.

But I read a post from The Daily Reckoning today that made quite a bit of sense in looking at the future in an optimistic light by comparing it to what we faced in the 1970’s.  I’ve copied it here because it’s worth reading to put things into perspective.  Enjoy!

gk

And finally today, back to Bill…

Our old friend John Mauldin answered last week’s note. Our point was that our children face a different world than we did. From what we can make out, it will be a tougher world. Everything was looking up with the baby boomers. Especially in the lives of the luckiest of them – your editor and John included. Is everything still going up? The US economy? The power and wealth of the US empire? And how about our children? John and I started out with nothing to lose. Our children can slip down as well as slide up. John has today’s Daily Endnote for us. Please enjoy…

It’s More Than Half Full.

Ok, Bill, let’s review those wonderful days from whence we sprang, so fraught with the advantages of having nothing. So potent with opportunity. It was the middle of the ’70s when we started our careers. Inflation was high and rising. The Soviets were seen as a major threat. Japan was beating our brains out and buying everything, even if nailed down (like Pebble Beach and New York skyscrapers). I had to borrow money at 15% (or more) to buy paper in order to meet customer demands for printing. And guess what? The banks got into trouble and called loans willy-nilly. (My bank even called my mother and threatened her to pay my loan – against written agreements – and she did. Evil sons of bitches. The more things change… And they delightedly did fail! Not that I hold a grudge.)

There were multiple successive and deeper recessions. Gold was rising as the dollar was seen as a joke. Howard Ruff (a good friend to both of us when we were starting out!) and almost every newsletter writer were telling people to buy gold and freeze-dried food to protect themselves against a near certain economic, if not apocalyptic, catastrophe. Unemployment was high and rising for a decade.

The correct answer to the question, “Where will the jobs come from?” back then was “I don’t know, but they will.” And it is the correct answer today.

In 20 years, no one will want to come back to the halcyon days of 2005. Our kids (all 13 of them) are getting ready to live through what will be the most exciting period in human history. There will be a century’s worth of change, measured by the standard of the 20th century, just in the next ten years, and then we will double that pace in the next ten after that. Medical miracles that will mean our kids and grandkids will live a lot longer than their dads, although I intend to be writing well into my 80s, like our mutual hero Richard Russell.

There will be whole new industries developed in the US. How do I know that? Follow the money. The rest of the world spends a fraction on research and development that we do. Where do you go if you are looking for venture capital?

Do I care if the Chinese and the “developing” worlds are far better off, relatively speaking, than the US in 20 years? Not a whit. Good on them. I hope they make discoveries and inventions and new businesses that benefit us all. But we are not going into some long dark night. We, and our kids, get to choose how we respond to what is the reality of the day.

Our nation had to almost hit the wall in 1980 before a Volker could come along and force us to take the pain of recessions to beat back inflation. And we will have to come perilously close to the wall this time before we take action as a nation. Way to close for comfort. Maybe you are right, and we have a soft depression. I hope not, but even so, the world will be better, far better, in 20 years, with far more opportunities than today.

It was not fun starting new businesses in the ’70s and early ’80s. But we did. I remember coming to Baltimore and being (literally) afraid to get out of the car to visit your offices in the slums. But that was what you could afford. A far cry from the chateau in Ouzilly.

I lived in a small mobile home. Tiffani was born there, and we converted part of the kitchen to be her bedroom. (Yes, I was white “trailer trash.”) But I got up every morning just like you did and killed as many alligators as I could. The rest had to wait till the next day.

And that is the legacy our kids have. They know what it is to wade into the swamp every morning. Never quitting. In thinking about this, you may be the father I respect the most. You have raised your kids to be multi-lingual children of the world. What a work ethic. How did you get them to scrape window shutters at your chateaus? (I actually saw this, and my kids marveled.

Thereafter I threatened to make them go live with you when they did not act right!)

You have given your kids the opportunity to follow their dreams, even demanded that they do so. And such dreams they (and mine) have. Will they succeed? Who knows? But they will go at it with gusto, in a world with more opportunities than you and I ever imagined 40 years ago. And, oh boy, were we optimists back then. How else could we have done what we did? If we believed the rhetoric that the world was coming to an end, would we have dared to venture out?

You cannot have raised your kids to be such bold adventurers without instilling in them a certain high level of optimism. I am going to out you, Mr. Bonner. You present yourself to your readers as a bona fide end of the world pessimist. But you are a really and truly a closet optimist. Your whole business empire (and what an empire it has become!) is based on finding people who are optimists, in the sense that they think they can actually get people to send them money for what they write. Which they do! Even if it is to read why the world will come to an end, which it thankfully never does.

You are right in this: it is personal gumption that makes or breaks us. There are those who started out with less than we did (hard to imagine but true) and made a lot more. And there are those who started out with far more and made less. But there are very few who are happier than either of us. Or luckier.

Our kids? It is not the times which dictate the man (or daughter!), but the response of the man which dictates his own time. Today has a brighter future for someone young than any other time in history, whether they are in the US or Brazil or China. They just have to seize it.

And as our kids do just that, and as the millions of kids of those who read us do so, and the billions of kids who are just now getting ready to bust loose all work to achieve their dreams, the world is going to be a far more fantastic place. Smooth ride? Not a chance. We didn’t get one, and in thinking through history, there have not been many smooth rides. Why should we think we will get any better? Our kids will just have to live with our generational (and individual) iniquities, government debt and all, and figure out how to master their own fates. But if I had a choice to take the ’70s or today? In less than a heart’s beat I choose today. And I bet you would too!

Regards,

John Mauldin
for The Daily Reckoning

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Many have been warning of this pending implosion for years, but evidently it’s just now hitting the major news organizations.  How did anyone ever think that a mortgage that didn’t even cover the interest charges each month was a good idea?

From the numbers I’ve seen, 2010 and 2011 are the years when most of these Option ARM’s are due to reset to “real” interest rates.  House prices aren’t done bottoming yet.

gk

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Here we go again….  I just posted about the broken window fallacy on Saturday, and here comes Eric Zencey writing in the NY Times trying to claim that “If you get into a fender-bender and have your car fixed, G.D.P. goes up” and that “Hurricane Katrina produced something like $82 billion in damages in New Orleans, and as the destruction there is remedied, G.D.P. goes up.”

According to the blurb at the end of the article, Eric Zencey is “a professor of historical and political studies at Empire State College”.   Now I don’t know where  Empire State College is (I’m guessing New York) or what it may have as a claim to fame, but basic economics – or common sense – evidently isn’t a prerequisite in order to be a professor at the institution.

According to Mr. Zencey “If you get into a fender-bender and have your car fixed, G.D.P. goes up.” The only way that makes sense is to assume that the person who got the bent fender just happened to have the money to repair that fender lying around.  And by “lying around” I mean that literally.

If it happens to be invested in company stock, it’s already in the GDP.  If it happens to be in the bank in a savings account, it’s already part of the GDP.  Only if it’s in a mason jar buried in your backyard (or the equivalent) could the money you spent repairing a fender be included in the GDP.  Here’s why.

From Wikipedia – The GDP is calculated as: GDP = private consumption + gross investment + government spending + (exports − imports)

The money to fix the fender HAS to come from somewhere.  Let’s say it cost $1000 to fix.  If that $1000 came from your savings account, it decreases the investment amount by $1000 and the net change to the GDP is zero.

Does this change if you have insurance and the insurance company pays to repair your fender?  No.   Where did they get the money?  It was invested – insurance companies call the money you’ve paid them (but that they haven’t yet had to pay out) “float” and Warren Buffett got to be a billionaire by investing that float in places other than your fender.  All his billions are invested somewhere, so when Geico pays to fix your fender, it’s still subtracting from the overall investment total.  The NET EFFECT IS ZERO.

The same is true if the government spends more money with a “stimulus package”.   The only way GDP can increase via government spending is if the money didn’t come from another category.  But government money comes from higher taxes – which reduces the “private consumption” part of the equation – or it can come from borrowed money, which reduces the “gross investment” and/or increases the “import” (depending on where you borrow the money from) part of the equation.

Government spending only appears to increase GDP if it was previously collected but not spent.  In that case it transferred the spending from one time frame to another.  Government spending can increase the current GDP only at the expense of decreasing the GDP at another time.  If the government spent money it had saved, it decreased the earlier GDP.  It the government borrowed money and spent it, it’s decreasing future GDP.  This ain’t rocket surgery.

Money was simply moved from an investment where (it hopefully) could be used to create something valuable – to somewhere where it HAD to be used in order to repair an asset which had already been purchased.

It’s a bit crass, but think of it this way – if destroying an asset (via fender bender or hurricane or earthquake or nuclear war or whatever) CREATED wealth, here’s a solution to all our problems.

Why wouldn’t that work?  Got an answer for that Professor Zencey?

Cash for clunkers is the same concept.  Taking money from one part of the economy and spending it in a different part has a net effect of ZERO.  It may appear that you’ve got a bump in GDP for awhile, but that’s simply because you haven’t had time to see the effect of the loss in the other area.   Every government dollar spent buying a clunker is a dollar that isn’t spent providing health care, or building bridges or highways, or defending the country, or building a subway, or whatever you think the government should be spending money on.

The net effect is still zero, because every dollar the government spends has to come from somewhere – and “somewhere” means taxpayers.  And that’s why government spending (unless it’s from unspent tax surpluses of which the US has none) doesn’t actually do anything.

gk

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Here’s a bumper sticker someone needs to make – “Honk if I bought your clunker”, or “Honk if I bought your new car”.

Just like the “Honk if I’m paying your mortgage” stickers last year, cash for clunkers is simply a way for politicians to take money from one group and give it to another who hasn’t earned it.  It’s a redistribution of wealth, just like the bread and circuses of Rome.  Keep the plebes happy so they continue to vote for the incumbent – and so they don’t revolt.

When are Americans going to say “Enough”?  I don’t think enough of us will ever get to that point, and I think we can look forward to a fairly rapid decline of this country.

gk

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Cash for clunkers seems to be all the rage this week.  Hundreds of news stories and blog posts are telling everyone how successful it is, how it RAN OUT OF MONEY IN ONE WEEK when it was supposed to last until November, and how this will boost the economy.

Bullshit.

Here’s an excerpt from the Daily Reckoning.com explaining why it’s bullshit.

And as Bill has been pointing out, this is just another example of the government promoting the idea that the future doesn’t matter – just spend for today. He wrote in Friday’s essay: “Instead of letting the consumer buy a new car when he is ready, the feds give them money to buy now. So, he buys in 2009 and not in 2010. What good is accomplished? It is as if they didn’t expect 2010 to ever arrive…”

The Wall Street Journal backs us up here: “The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.”

This is what’s known as the “broken window fallacy” that I posted about in February 2008.  It’s a classic story and you can read all about it on the link, but here’s the main part as told by Henry Hazlitt’s classic “Economics in One Lesson” (Which I urge you to read.) It’s copied from my earlier post -which was copied from Lew Rockwell’s post on Mises.org.

A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items, and the circle of rising prosperity will expand without end.

What’s wrong with this scenario? As Bastiat put it, “It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.”

You can see the absurdity of the position of the wise commentator when you take it to absurd extremes. If the broken window really produces wealth, why not break all windows up and down the whole city block? Indeed, why not break doors and walls? Why not tear down all houses so that they can be rebuilt? Why not bomb whole cities so construction firms can get busy rebuilding?

It is not a good thing to destroy wealth. Bastiat puts it this way: “Society loses the value of things which are uselessly destroyed.”

It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American economic intervention.

If you are with me to this point, perhaps you have a hard time believing that anyone really believes that wealth destruction is actually a good thing. Let me try to show that the fallacy is as pervasive as ever.

After every natural disaster, we at the Mises Institute start what we call the “Broken Window Watch.”

After hurricane Katrina, the Labor Secretary said, “[W]hat will happen — and I have seen this in previous catastrophes and hurricanes — there is a bright spot in that new jobs do get created.”

And The Economist said, “While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins.”

And the New York Times said, “Economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding.”

That’s what we’re doing with Cash for Clunkers.  We’re diverting capital from where it would naturally go into a program to destroy valuable assets and replace them.

Why not apply the concept elsewhere? How about cash for houses? Cash for liquor? Cash for newspapers? Cash for trips to Europe?

Yes, there will be a temporary boost to the economy, but it comes at the expense of next year, and the next year, and the next year.  WHO IS PAYING FOR IT?  We all are, and all we’re actually doing is postponing the day of reckoning.  You cannot borrow your way out of debt, and that’s what this program is trying to do.

gk

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Just glancing through the news this morning and saw this in a story on CNN.com:

The blue-chip Dow turned in its best July performance since October of 2002.

On a related subject, this could be the best August since April….

gk

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The government announced the details of the $1 billion “cash for clunkers” program today.  Here’s a relatively good Q&A on it.

One thing the Q&A says that I disagree with – ok, I think they are 100% wrong – is this:

Q: My old car or truck is worth more than $4,500. Should I use this program?

A: Probably not. The program essentially guarantees a minimum trade-in for a vehicle. So someone with an old beater valued at $1,000 that meets the mileage requirements stands to gain the most. Any prospective buyer with an old car worth more than $4,500 should probably trade it in for a new one. But many automakers and dealerships are offering additional incentives, so it’s worth talking to your dealer.

This is wrong because a sensible buyer will NEVER buy a new car – unless you’ve got piles of cash laying around that you don’t know what to spend it on.  Buying a new car is one of the most stupid financial decisions you can make.  Especially if you need to borrow money to buy it.  Spending money on something that will lose  at least 1/4 of it’s value within a year is stupid.

Buy a used car instead.  Personally, I think a 3 year old car is the sweet spot – some other sucker gets hit with the depreciation, while you get a fairly new, low mileage car for about 1/2 the cost of the car when it was new.

Here’s a link to the NHTSA page with all the details if you’re curious.

gk

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I just ran across this site tonight and it seems pretty good.  I added it to my blogroll pretty much sight unseen because of the name, and their “about us” page.  It says:

Whiskey & Gunpowder explores the crossroads of liberty, finance and moral philosophy. Frankly, we don’t believe these things can be examined separately and we do our best every business day to demonstrate why. We regard state intervention as the danger it is to healthy free markets. We also lean heavily toward a consideration of commodities in a world of increasing scarcity.

In other words, I agree with their philosophy, and I’m hopeful that the content of the site lives up to their ideals.

gk

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