Apple stopped innovating with iPhone 5S?

by philg

Apple is in the news for disappointing earnings growth. I wonder if this is due to lack of innovation. I’ve met a lot of folks who are still using their iPhone 5S and aren’t interested in upgrading unless motivated by a device failure. Thus, at least from the point of view of the average user, the company stopped innovating after the 5S was delivered.

I’m reasonably happy with the iPhone X, but am not excited about the XS or whatever Apple calls its latest and greatest. I would switch to Android if any vendor made a superior camera (in practice) to Apple’s. Now that I’ve stopped using ForeFlight, I have no allegiance to iOS (which maybe limits how much profit Apple can extract from people like me?).

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The U.S. delivers a Third World ground transportation experience?

by philg

Back in the 1980s, you knew that you were in a Third World country when

  • traffic congestion made daytime trips take 2-3 times longer than they would be on clear roads
  • your driver had only a tenuous command of local geography
  • your driver was not proficient in English

On a recent visit to Miami, my born-in-Colombia Uber driver was unable to find the Hyatt on Miami Beach, unable to follow the directions from the Uber app, and unable to speak more than a few words of English. Here’s Interstate 95 circa 6 pm on a Monday:

Upon arrival in Boston, my born-in-the-Dominican-Republic driver struggled with the English language (after six years in the U.S.; he’d been a bus driver in the DR so presumably hadn’t needed English there) and with the mid-December snow (thanks, Honda, for engineering the Accord so that I’m still alive!).

None of my previous 10 Uber drivers in Miami or Washington, D.C. had been native-born or were English-proficient.

Is it fair to say that, at least when it comes to traveling around our cities, the U.S. is delivering the Third World 1980s life experience?

[Tangentially related: We lined up for coffee and “Aussie pies” at a shop in St. Augustine, Florida a couple of days ago. The huge Christmas/New Year’s tourist crush was over, but the city was still packed with humanity (of course we need more via immigration!). It was 10:30 am and they’d mostly sold out of the pies. I noted to a former Soviet comrade: “This is just like what Westerners said life in the Soviet Union was like circa 1970. You wait in a long line and then when you get to the front find out that everything has been sold.”]

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If Elizabeth Warren doesn’t become president…

by philg

… will the New York Times blame voters’ prejudice against women or voters’ prejudice against Native Americans?

Readers: How do you think our Massachusetts Senator will do?

Related:

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Cuba tourism: cruise ship versus hotels

by philg

Hurricane season is over so perhaps it is time to plan that Caribbean vacation. If you’re curious to visit Cuba as a U.S. citizen, you can choose between going native (hotels) and just touching briefly at the edges via a cruise.

Based on my December cruise with Royal Caribbean on Empress of the Seas, here are some thoughts…

The cruise is way cheaper than any of the land-based options that I saw. The basic rooms with window were being marketed at $100/night per person, including food and entertainment. If you need to be connected, Internet is roughly $40 per room additional per night (two people, one phone and one laptop each; unfortunately it was not working consistently on our ship and in our room).

A lot of the fun of Cuba seems to happen after 9 or 10 pm. Some cruises will dock overnight in Havana or stay late (we departed at 1 am so that people could come back from scheduled shows), but if you’re passionate about Cuban music the hotel option is probably best.

(Note that the cruise ship essentially becomes a temporary downtown hotel. The dock is smack up against the old city and a 5-minute walk from many of the liveliest tourist sections of town. See picture below.)

Cuban official salaries are low by US/EU/China standards, e.g., $60/month for a doctor or $20/month for a government job that requires a college degree (though keep in mind that they don’t have to pay taxes or rent). A pedi-cab driver can charge $5 or $10 for a ride if a tourist isn’t passionate about negotiation. A schoolteacher can substantially supplement her income with one night of, well, “work” with a tourist. Thus there is an entire industry of hustlers trying to persuade tourists to buy various things. Walking around Havana unescorted, a pair of male tourists will be saying “no, gracias” to offers of taxis, women, restaurant meals, and bars/shows every 30 seconds. A tour group out of a cruise ship, on the other hand, glides through this semi-official economy mostly unnoticed. Near the paddle-equipped guide and sporting a matching tour number sticker, the same two guys will be presented with an offer once every 10 minutes.

If you want to expend minimal dollars and zero effort to satisfy your curiosity regarding what life is like in Cuba and how socialism has worked out (recognizing that it hasn’t truly been given a fair chance!), the good news is that a couple of all-day guided tours off a ship will suffice. Perhaps it is the demographic, but we didn’t hear anyone on our ship saying “Boy, I wish we’d had three more days in Cuba to dig into the local experience.” People were more likely to comment on the poverty and disrepair that they’d observed.

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Move to the UK if you’re an entrepreneur? (10 percent capital gains tax)

by philg

Beginning of a new year and time for some tax planning. If you’re not a U.S. citizen and thus subject to worldwide taxation, maybe it is time to move to the U.K.? The all-in tax rate for “entrepreneurs” is 10 percent for capital gains (see Entrepreneurs’ Tax Relief). Compare to 37.1 percent for a California resident (20 percent federal plus 13.3 percent to uphold virtue within the state plus 3.8 percent Obamacare tax).

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New Year’s Wish: National and Global Unity via more cruise ships

by philg

A wealthy (through marriage) and virtuous (through Trump-hatred) friend posted while on a $1,000+/day luxury vacation on Grand Cayman:

I mentioned the fundamental lack of sustainability of any economic ecosystem involving cruise ships filled with passengers interested in snorkeling coral reefs and visiting white sandy beaches. How the destruction of mangrove forests for the sake of resort development will only increase the damage done by future hurricanes, and that it was my hope that tourists not want to visit places with gross wealth disparity between themselves and the local population: the simile is an invasive species that devours resources to (the resources’) extinction before moving on.

This is consistent with a lot of what I’ve seen and heard from elite Americans. They say that they’re upset by inequality. They also say that they hate cruises and they mock cruise ship passengers as obese, uneducated, undiscriminating, and uncouth.

My response:

If you dislike wealth disparity you should welcome cruise ships. They are the cheapest form of vacation. A week on a cruise ship that visits St. Bart’s is cheaper than one night of hotel on that island. (Currently on a Royal Caribbean ship where the cost per person per day is less than $100/day including food, entertainment, and transportation to all of the ports visited.)

Let me devote New Year’s Day, then, to celebrating the cruise concept, which enables people of many different income levels and nationalities to come together and experience the world. Empress of the Seas is the smallest vessel in the Royal Caribbean fleet, but we still had crew from 59 countries and passengers from 39 countries on board. The cost of visiting Cuba via this ship was less than half of the cheapest land-based “person-to-person” tours that I’d ever seen. Roughly 20 percent of the Americans on board were African Americans. Due to the policy of mixing up passengers at tables for eight, I saw more mixed white/black groups in a week on the ship than in a year of dining out in Boston. Retired government workers (loyal Democrats!) conversed politely with working small business owners.

Here I am with a new friend:

(my Facebook friends posted some similar images, minus the golden halo, after each had found one African American friend to join for Black Panther)

One block of cabins on our ship was occupied by graduates of a Taiwanese engineering college enjoying their 60th reunion(!).

Who else, other than Purell sales reps, will be brave enough to join me in hoping that 2019 sees further growth in what has already been a spectacular growth story and a force for national and global unity?

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Cuba could attract Americans with sin?

by philg

Happy New Year’s Eve from St. Augustine! My hope for readers is that excessive alcohol consumption doesn’t interfere with the efficacy of their medical marijuana edibles…

Back to my favorite topic: Cuba.

It seems that much of Cuba’s appeal in the pre-Castro days was the availability of goods and services that were considered sinful and therefore illegal in the U.S. For example, Cuba has casino gambling, legal alcohol (during our Prohibition period), and prostitution that was at least de facto legal.

Our Cuban guides suggested that if the U.S. trade embargo against Cuba were lifted, the river of American visitors would flow again.

But would it?

Suppose that the motivation for a lot of American visitors was sin. Isn’t there a lot more competition in that market now?

Boston’s Encore casino will open in 2019. Restrictions on purchasing alcohol have been relaxed town-by-town and day-by-day (now on Sundays too!). New recreational marijuana shops are opening monthly. (Prostitution doesn’t make sense here since the first pregnancy with an upper-income customer would eliminate the need for further sex work; Massachusetts offers unlimited child support profits.)

The Massachusetts resident who isn’t satisfied with that mixture of sin can fly in nonstop comfort to London, which offers casinos, alcohol, and legal prostitution.

Cuba is in rather tough shape physically. Meanwhile, billions of dollars have been invested in competing sinful destinations.

Could it be that the our embargo against Americans going to Cuba for a carefree vacation ends with a whimper rather than a bang?

(Our own New Year’s Eve will be spent catering to the whims of the next generation, so please Party like a Kavanaugh (TM) on our behalf!)

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Rent-controlled San Francisco apartment plus sexual freedom

by philg

“When a Boyfriend Joins the Marriage” (nytimes):

I wanted my family. And I wanted my boyfriend.

We set a meeting for the playground the following week. We three adults had planned it out carefully. My son and I would be playing on the monkey bars. My boyfriend would show up and I would introduce him as my friend.

When this began, we still lived in a large apartment in the Mission; there was room for privacy the nights my boyfriend stayed over. It was awkward at first, but as the years passed we spent more time as a foursome — cooking, playing board games.

Then the owner of our apartment decided to sell and offered us an enormous sum of money to surrender our rent-controlled lease.

At the new house, my beau built a platform so I could store the mattress beneath a raised office, but it never felt right. It wasn’t sexy to sleep with him under piles of papers and the glow of the computer screen saver.

Will more people envy her life of sexual adventure or the rent-controlled apartment in San Francisco that she had?

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Time to buy foreign stocks and emerging markets in particular?

by philg

End-of-year portfolio rebalancing time.

What about this being the year of buying foreign stocks, especially emerging markets?

From a banker friend:

Since coming out of 2008/2009 the place to be has been US stocks, and more specifically US Large Cap growth stocks. On a relative basis US has outperformed International for something like 8 out of the last nine years. Last year, International and Emerging markets shined. That being said, if you look back to the period between around 1999 through 2007 International was the spot to be.

“Emerging Markets to US valuation ratio falls to its lowest since 2008” (October 2018; Economic Times (India)) suggests that emerging markets are a relative bargain. Bloomberg, July 2018:

Profits in developing countries rival those in the U.S. The EM index’s operating margin was 14.2 percent in the second quarter, compared with 13.8 percent for the S&P 500. Profit margins were also similar — 9.9 percent for the EM index compared with 9.5 percent for the S&P 500.

Yes, U.S. companies are generating a higher return on investment than those in emerging markets, but that’s only because U.S. firms are more levered. The EM index’s debt-to-equity ratio was 99 percent in the second quarter, compared with 113 percent for the S&P 500. After adjusting for leverage, the two indexes’ return on assets, return on equity and return on capital are all comparable.

The difference, however, is that emerging-market companies are far cheaper. The EM index’s price-to-earnings ratio is 13.3 based on 12-month trailing earnings per share, compared with 21.1 for the S&P 500. That difference is even more stark when looking beyond one year. The EM index’s P/E ratio is 14.7 based on 10-year trailing average EPS, compared with 29.5 for the S&P 500.

Is it reasonable to say that most of the good stuff that could happen to U.S. publicly-traded companies has already happened? They’ve had their tax rate cut from 40 percent (varies a bit by state) to around 25 percent. They’ve had interest rates set near zero for a decade. What else good can happen that isn’t already priced into current sky-high S&P 500 valuations?

(A lot of “U.S.” companies, of course, get the majority of their growth from foreign markets and some get the majority of their revenue from non-U.S. markets (see Apple, for example). So even if the U.S. stagnates (due to migrant caravans being stalled at the border?), some of these companies can still grow at the rate of world economic growth.)

A lot of bad stuff could yet happen to American companies. The festival of deficit spending could end and taxes raised so that we’re actually paying for all of the stuff that we demand from our Great Father in Washington. Regulations that favor trade unions could be imposed. Costs of defending employment lawsuits, including regarding #MeToo accusations, could increase.

So with limited upside and plenty of downside risk, why not sell U.S. stocks and buy foreign?

If buying foreign, why not go with the investments that have been out of favor, i.e., emerging markets? The Vanguard FTSE Emerging Markets ETF (VWO) tracks the “FTSE Emerging Markets All Cap China A Inclusion Index.” More than half of this index is China, Taiwan, and India. If you like to “buy on bad news,” you’ll be cheered to see 10 percent Brazil and South Africa in the index as well! (I’m hugely negative on South Africa’s economy; a growing population and fixed natural resources do not add up to a bright future as far as I can tell.)

Europe seems to be messed up, but maybe it would make sense to buy German and English stocks right now? The scary news about Brexit should already be priced into English currency and share prices. The news about Germany having been turned into a migrant camp should also already be priced in (and maybe it is bad news for Germans, who will be poorer per capita and suffer from more crowding and traffic jams, but is it bad for a Germany company?). I would be happy to buy Estonian securities. I have full confidence in that economy! (see https://philip.greenspun.com/blog/2016/08/01/estonia-tough-campaign-stop-for-bernie-sanders/) What is there to buy, though? The whole country has half the population of metropolitan Boston.

Readers: What do you think? Sell some U.S. stuff as soon as there is euphoria from the Federal government being restored to full operation and buy emerging? The professionals seem to recommend roughly 45 percent non-U.S. holdings for long-term investors.

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Renovate a 10-year-old Buderus gas boiler?

by philg

We have a 10-year-old Buderus GB142 wall-hung gas boiler that is suffering from myriad corrosion issues. The HVAC service folks recommend either dumping in $3,300+ for a “major renovation”, including replacement of the manifold and everything connecting to the boiler, or spending $15,500 (minus $2,750 in rebates under the poor-renters-should-subsidize-rich-homeowners political theory that prevails in Massachusetts) on a new 150,000(ish) BTU high efficiency system.

Does anyone have experience with these beasts? Are they worth fixing? Are we going to pay $3,300 now and then $15,500 a year from now when something else blows up?

Also, if we do decide to replace, Lochinvar or Bosch? (presumably we don’t want to go back into the Buderus money sinkhole, though on the other hand Bosch liked them well enough to buy them!)

Note that my glorious plan to replace this with an old-style standard efficiency boiler ($2,000 part every 20 years) seems to be impractical. It has to go into a small closet (no basement in this house due to architectural genius back in the 1960s) and the latest code would require fan-driven make-up air. So it wouldn’t be any cheaper than having a high-efficiency unit, according to the HVAC guys (and, for some reason, everyone who comes out to fix boilers on Christmas Day or crawl around in attics in July seems to identify as male; where is Hillary to address this injustice?).

[Separately, this is a great illustration of why official CPI is grossly understated for homeowners. The cost of maintaining a house has skyrocketed (very labor-intensive in a country where a worker can cost $30,000/year in health insurance premium before the first dollar of wages has been paid). The cost of paying real estate taxes has gone up dramatically (and about to go up 30% more in our town due to the approval of a $110 million school project (to renovate a school building occupied by 440 town-resident K-8 students!)). None of this is reflected in CPI (background) because they look at what we would pay to rent our house if we could find a landlord sufficiently passionate about losing money to want to buy it, maintain it, and rent it out.]

Update: Readers commented about what a rip-off the above quote was, for the Lockinvar 155,000 BTU boiler and associated fittings. So I got a competitive quote from a regular plumbing contractor who is excellent: $20.750. And I got a second quote from a friend’s heating guy: $15,000 plus or minus. Apparently this is the price in the Boston suburbs. We decided to go with the HVAC company’s $15,500 plan. Typical Americans can’t afford to live in America, is my conclusion. It just looks like we can because we’re using legacy infrastructure that hasn’t worn out or fallen down yet.

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