You’ve no doubt heard all about the drought in Texas this year and seen the pictures of land so parched it looks ready to spontaneously combust! Well, there has been an unintended side-effect that has resulted in a great example of the double-edged sword: a hay shortage. This allowed hay producers to charge record amounts for hay that was trucked to Texas while creating a problem for locals around those hay producers who found signs saying “SOLD OUT” when they went to pick up hay for the winter. I experienced this first-hand as follows:

On August 15th or so, I called the guy I normally deal with for hay and he had a story to tell. Back in July, his entire crop received 7 rains effectively ruining the hay for horses. He continued stating “all the local hay is going to Texas, so you better stock up!” How right he was. Call after call resulted in the same story “we’re sold out and have sold off the next cutting to Texas”. Thanks very much Mr. Hayman! What are your regular clients supposed to do now that you’ve become a sellout like the rest? The answer happened to be truck in your own semi-load! I did just that! Screw these guys who took an extra buck a bale rather than passing that cost onto his normal clients who wound up paying much more as a result of their greed.

The above picture is of the semi-load I shipped in at a ridiculous cost to cover our needs. There are many folks who are paying $300-$350 a ton for hay that cost 1/4 of that in 2010! It’s a travesty and yet, when you check craigslist in Nebraska for example, there is still hay available for $50 a ton! Doesn’t say much for our integrity now does it?

An even bigger issue is one I heard from farmers in Wyoming and Montana- much of their hay being shipped to be Japan. With so much local hay being shipped rather than consumed by locals, a shortage is quickly exacerbating the situation and we’re seeing crazy prices like $150 for a 700lb bale of grass hay. That’s insanity. Who can afford to feed animals at that cost. My prediction on what another unintended effect might be is the sale of beautiful horses at meat auctions which is an absolute travesty.

As a result of the above situations, I attended the hay auction on October 29th, 2011 and the lowest priced decent hay recorded was roughly $240 per ton. That doesn’t include shipping mind you, so you’d have to add on the cost. Many of the lots exceeded $350 per ton for excellent quality hay. The problem? This hay was 1/3 of that amount last year. Paying a little more is one thing, tripling the expense of feeding your animals is another. Not everyone has a few extra grand laying around to bring in a truckload and I saw it as having no choice. Take the risk or pay three times what we did last season.

The answer to all of this for those unlucky enough to live in an area like Northern Colorado? Locate a trailer-load of hay and have it shipped in. Search craigslist in Nebraska, hop in the truck and take a ride. Make the deal, hire a trucker and put this nightmare behind you.

The advent of internet marketing and “instant online car insurance quotes” was most definitely a turning point in how car insurance was compared, marketed and purchased. The first player to the game was Progressive Insurance.  I remember it well [major digression coming....]  Since 1991, I have been fascinated by the internet as we knew it today, but years earlier a dear friend named Paul- who went to U.C. Berkeley introduced me to dial-up message boards. This was back in 1986 if I remember correctly. We would place our push button phone’s receiver into a special cradle connected to the computer. We would then dial into the board and download the messages. Our replies would be posted similarly and before we knew it- we were hooked.

Anyhow, my earliest recollections of shopping for car insurance online involved visiting Progressive’s site where I requested an online rate. This was way before the decision to tie credit ratings into the purchase of car insurance and the process was pretty smooth. Then along came a few others like Electric Insurance, 21st Century and a few others. The buggy interfaces soon gave way to improved versions and better features. Then Geico came onto the scene and somwhere inbetween aggregators like Insweb.com, Netquote.com, 4freequotes.com, insureme.com(used to be insurance shopping network) to name a few. The line became a bit blurry between the aggregator sites – which worked with both agents and carriers – and the actual insurance carrier web sites. Most have thrived, weathering the bubble burst of 1999-2000, but one of them-{begin rant} Insweb.com has fared so poorly in such a tremendous marketplace, that one has to wonder how they went public in the first place. How do you spend 150 million plus over 12 years and not figure out how to turn a profit? This eludes me. If only someone had invested $100 million in my ideas, the game would be over… {end rant} )

The two largest aggregators- netquote and insureme are now owned by Bankrate.com under the banner BankRateInsurance. That must have been a tough transition for they were the two largest companies in the space with very different philosophies. The question is how the integration and overlap will affect the combined company and whether the strategies will mesh. Make no mistake, with north of $250 million invested, they will have no choice but to play nice! Their expectation levels have to be staggering. With Google reportedly coming into comparison shopping, this will be interesting to watch.

Since those days in 1994, the market has matured considerably and you can now make changes online, purchase insurance online using a credit card, even get a loan online, purchase a car right there, then insure it a few minutes later. Simply amazing in terms of the amount of legwork that has been removed from the average consumer’s search. It’s getting late.. will continue this line of thinking tomorrow.

A word of warning folks, read the fine print when you get one of these notices. I took a few moments to read AMEX’s most recent update- which of course is meant to be better for me – but in reality only backs us into a corner further. The most poignant piece of this update in terms was the DEFAULT INTEREST RATE which says that if you have one late payment- just one – they can default my interest rate to 27.24% (prime plus 23.99%) for a MINIMUM of Six MONTHS!!!! At their sole discretion of course. The same default rate applies if you bounce a check as well. They are definitely not on your side like Nationwide…

The solution: enroll in their automated payment system which will take the minimum payment from your checking account automatically thereby avoiding the issue of late payments altogether. Be sure to add over-draft to that checking account because bouncing a check will result in the same 27% interest rate being applied for six months. I’ve dealt with AMEX on the phone and let me tell you, they are not accustomed to working with people and any company that would bang you for a minimum of six months because of one late payment might need to be avoided…. if the were the only one. Sadly, this is common.

Might sound like they are here to help in the advertisements, but trust that if you are having trouble, they’re not going to bail you out. It’s just not in the business model. During the economic crash we saw in 2008, I received what could only be called a “margin call” from AMEX. Here’s how the conversation went:

AMEX: Good afternoon. This is AMEX. We need you to make a payment today.
Me: The bill isn’t due until the 15th and I am current.
AMEX: How much of a payment can you make today?
Me: Did you hear me? The bill is not due.
AMEX: How much of a payment can you make today?

They never faltered from this same line. I was both pissed off and disgusted at the same time. Their strong-arm tactic wasn’t for the weak-willed and I’m sure they made thousands of calls that week. What I didn’t realize was that their fiscal quarter was ending and it was an attempt to shore up their cash position. Bet it worked, but it made me vary wary. A word to the wise: be ready to make a payment at any time if AMEX is your main source of credit.

Pay your bill on-time, set up auto-draft to avoid late payments and have enough to cover this payment at all times!

How many times have you heard a person or accountant say “don’t pay off your house, you need the writeoff”? Too many if you ask me. Here’s what I figured out and my accountant shook his head in disbelief when confronted with it.

Let’s use the following parameters:

• 100,000 annual income
• 27% effective tax bracket
•  $16,000 in annual mortgage interest payments.

By paying $16,000 in mortgage interest, you receive a $16,000 deduction. Simple enough. By taking this deduction, you actually save 27% of the $16k or $4320.

• Pay $16,000 in interest
• Take $16,000 deduction
• Save $4320 in taxes

Now let’s get this straight: Why the hell would anyone pay $16,000 to save $4320? You have lost $11680 just to get a $4320 deduction. Who perpetrated this fraud? It has to be the bankers. The same people who used to work until 3pm while you and I couldn’t leave our desks until 5pm when the bell rang, then brought the country to it’s knees in the biggest scandal of this lifetime. The one caveat here is that a $16,000 deduction could move you down a bracket, but even at that, you cannot break even unless you drop your effective tax rate 12% with a $16,000 deduction… I don’t believe this is possible unless you have a total of 71,000 in deductions on your $100,000 income.

If you have the ability to pay off your mortgage or not take one to begin with, why would you take a loss just to have a deduction???

Updated 5-29-07: Another scenario…

Let’s say you have $200,000 in mortgage at 6% and inherit $200,000 from your late uncle. Should you pay off the mortgage or put the cash in the bank?

Facts on the mortgage:

• The mortgage payment on a 30 year, $200,000 note at 6% is $1199.10 monthly ($14389.20 annually).
• This provides a $14389.20 deduction your tax return for mortgage interest. The net savings is 27% of this number or $3885.08. Thus, the true cost of the money is $10,504.17.

Facts on the cash:

• $200,000 in a taxable CD earning 5% annually will earn you $10,000 annually in interest.
• The tax on this interest is 27% of the $10,000 or $2700, netting you $7300.
• HOWEVER, if you leave the cash to compound and pay the taxes out of pocket, this number will compound earning you a bit more each year.

Let’s consider the after-tax outcome of the above scenario:

$10,504.17 paid in mortgage interest
$7200 earned in interest on the $200,000.

Net cost to hold onto $200,000 in cash: $3304.17 or just about $275 per month.

What does all this mean? Your net mortgage cost is $275 per month, plus you have $200,000 in the bank! So when friends ask what your mortgage is monthly- the answer of course is $1199, but the reality is you have $200,000 in cash and make a net payment of $275 per month after realizing the interest on your money. Not too shabby. This is why the rich get richer.