Tag Archives: finance

The end of #lendingclub’s most lucrative note grades

The return on my portfolio with LendingClub – my choice was mostly low-grade notes – steadily dropped all the way down to 5.88% over the last year and a half. Until we finally run into this:

As of 11/7/2017, F & G grade Notes are not available for purchase by investors.

because LendingClub

noticed an increase in prepayment and delinquency rate in F and G grade Notes

Seems like the 20+% APY party came to an end. Even without any major event or recession in sight yet. My guess would be that with a spike in demand, LendingClub had to loosen up some criteria and let in a bunch of borrowers they wouldn’t and shouldn’t have otherwise, so now all of us are paying the price. Still might get much worse when the economy starts to tank.

Your #SSN DOB credit cards were leaked. Go do a credit freeze at all 3 agencies (FTC): https://goo.gl/RXZAVL

Equifax Says Cyberattack May Have Hit 143 Million Customers (Bloomberg)

That’s 60% of all US adults, or pretty much everyone with a credit card. There is a big file floating around somewhere that has enough info on you for anyone to take out a bunch of money in your name and dump that debt on you. You can prevent that by putting a credit freeze on your personal info, which you can lift when you need to apply for credit yourself – here is an FTC link on how to do all three.

The most maddening thing about this leak is that – unlike Ashley Madison – this time you cannot opt out of this shit or “just stop doing it”. If you are a functioning human in USA, you are pretty much forced to store your most sensitive financial and personal info with these scumbags, and then they go on and leak all of it. I hope they get sued to death for being a bunch of incompetent de facto extortionists.

Of course, it’s another issue altogether that what used to be called impersonation and bank’s failure to verify its borrower, the same thing now is referred to by an idiotic oxymoron identity theft and somehow it became not the bank’s problem but yours.

Real concerns about #robo-advisors and #Betterment

Quick summary from reading up on tons of links and discussions on Betterment, Wealthfront, WiseBanyan, etc.

TLDR: real concerns:

  1. You can actually do it better yourself if you put in enough time: both rebalancing and tax loss harvesting (the latter actually only kicks in when there are losses)
  2. Betterment just jacked up their fees, and there is no telling whether they will do it again at any point in the future, which leads us to the third point that is more general for all robo-advisors:
  3. An argument can be made that the whole robo-advisor business model is unsustainable, especially with low initially advertised fees that are the key competitive edge over an ocean of other funds, choice quotes:
    • Charles Schwab is already undercutting both companies with no fees (0.00%), and despite what Betterment will tell you, it’s a great deal.

    • 25 basis points is not a business model, it’s a temporary growth tactic.

Even shorter TLDR: it’s worth paying them if you really want to automatically rebalance and diversify across a range of funds and ETFs for a still-low fee, and hope they can make their model work out. If you are not particularly bent on having, e.g. a slice of bonds and overseas equities, then VTI/VOO/what have you is the way to go.

(Of course, in the context of present day, this assumes you are either not of the opinion that we are in an equities bubble, or it’s not a concern for your portfolio choice)

A healthy bit of #conspiracy theorizing for 2017

Why doesn’t anyone see the obvious? Many years of near-zero interest rate and dumping cheap money into the system produced mediocre economic growth combined with a huge debt and equity bubble (though surprisingly little inflation).

The rate will have to go up to realistic levels at some point, and with it will evaporate the equity bubble, mortgage affordability and the housing market – with debt servicing (consumer, corporate and government) draining all other parts of the economy.

Wouldn’t it be nice if we had a temporary figurehead with historic unfavorable rating to use as a scapegoat to do some bloodletting in this system?

Oh, wait…

Does #SharingEconomy work? Can you make money renting out cars on Turo?

TLDR: Of course not : ) To grow your income, it’s better to invest in your individual strengths (e.g., improving coding skills) and spend less time playing other peoples’ games.

My overall take on sharing services (Airbnb – can never figure out how to cap this word! Uber, Turo, etc): they are temporary exploits of outdated technology and regulation, and people who rely on these services for income too much will not be happy in the long term. There are lots of posts out there tearing up both Airbnb and Uber. I personally don’t believe they are doomed, just do not consider either one as a stable long-term income option. But today let’s take a look at another poster child of the sharing wave of the future: Turo, formerly known as Relay Rides.

Casually browsing the Interwebs you might notice some numbers getting thrown around that may give you an impression that it’s an easy way to get an additional income stream. But after a quick round of research things become significantly less rosy. Let’s do some quick math – first, the fun part:

Revenue

Let’s say we start on the pragmatic side and offer up a boring but practical car for $40/day. After Turo’s cut of 15% (actually 25% with extra protection features, but let’s say we are too cheap) and a pretty optimistic utilization rate of 70% (which means pretty much a non-stop stream of customers to be serviced), we settle at a healthy $714 of revenue per month.

Expenses

For simplicity, let’s consider a new or a lightly used leased car. It is actually a violation of your lease contract to rent it out on Turo, but technically doable and does not affect our calculations too much if we chose to buy instead.

If we take a pretty average lease of a Corolla or an Elantra, it will set us back by about $1500 in down payment+tax+registration plus a monthly payment of about $100, let’s say for 36 months. Let’s also assume that we magically get enough miles to go with it (basis for this assumption: even though you may need up to 3k miles/month for heavy utilization, you can find takeover leases that may actually fit that need for a short period of time, or again, price out a purchase, which will not be very different). That will give us $141.67/mo if we spread out all those expenses over the lease period.

Next, operational expenses. A typical heavy utilization rental takes about three days. This means we rent out 7 times a month. If we decide to do an express wash every time, and a more thorough wash once a month, that’s $65/month in cleaning. Let’s also set aside about $70 a month for arranging the pickups and resolving any logistical problems (e.g., if someone runs late, or an occasional TaskRabbit for a delivery if you are out of town). Let’s also set aside $100/month for repairs – even if there is a warranty, you can and will get into out-of-pocket situations, and about a grand a year does not seem unreasonable. Finally, we need to add the car to the personal insurance to be able to drive it between the rentals, e.g. to the shop. Let’s throw in about $20/mo for some kind of  a super-minimalistic plan (which technically we could skip, but that would be uncool).

All in all this gives us $396.67 in monthly expenses.

Bottom Line

These numbers leave us with about $317.33 in taxable income per car. Which, for a purely theoretical exercise, falls pretty close to what this guy is proudly reporting from the field, considering he got his Chevy Cruze almost for free.

To put things in perspective, if you try to scale and operate, say 5 cars like that, you will be making slightly less than a burger flipper at McDonald’s. For that money, you will have to deal with an average of about 2 customers every day (that includes cleaning the car) and any associated overhead such as people flaking, running late, scratching or staining the car, screwing you over on gas, disputing mileage or just randomly giving you a crappy review. If we tighten the numbers to, say, 90% utilization or even completely remove the cost of the car itself! or find perhaps a higher-end vehicle combination that might yield closer to $1000 in profit per car (though I doubt that number can be achieved in a stable long-term way), that’s still not really the business I would like to be in.

To consider scaling further and doing this full time, you would have to deal with 15-20 cars which gives us 7 pickups+cleanings every day, including the weekends. At this point, a private parking lot near a major airport and a carwash would come in handy, too.

The LendingClub debacle: what does it mean from a lender’s perspective

Short-term: it means nothing. The sky isn’t falling and my adjusted return rate over 3 years is still 13.77%. And MMM et al are still collecting a sweet chunk of referral change for sending the general interwebs population in that direction.

Long-term: will see. Short of catastrophic operational disruption (which I don’t think is the case here), I expect things to move along the same way in this established business (ok, so the startup tag on this post looks pretty ridiculous by now, of course). The threat I’m still concerned about is some economic event which may cause people to default much more. But what will take the biggest hit in that case – equities, funds, real estate or peer-to-peer lending – is anyone’s guess.

Market is 𝘴𝘵𝘪𝘭𝘭 ~2x 2010 – do you believe avg company 2x richer than 2010? Bar hyperinflation, it has to correct more

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So I painfully moved to cash, bonds, money market and other assets throughout 2015. It was a very lonely and depressing experience, missing out on all those FBIOX gains (I know, right?) But I kept asking myself, do I really believe that all those S&P 500 big old dudes, the General Electrics, the General Motors, IBMs, and Exxons. Do they make twice more money than 5 years ago? Hardly. So why all the craze? We don’t have a noticeable inflation, at least not in the consumer, non-real-estate space. S&P 500 is still almost 2x over 2010, give or take, even after the ongoing correction early in the year. There are no fundamental reasons for these companies to jump 2x in their market cap. Meaning, there might have been some other, non-fundamental reasons – perhaps more speculative in nature – and now we still have some way to go…