Sunday, October 26, 2008

Credit Card Rewards: Redeeming for Goods is a Scam

When presented with two identical goods, any logical consumer should choose to purchase the lower priced option. But this obstacle is apparently overcome in the case of credit card point redemption.

For example, many credit cards (such as the one I have) offer points as rewards for purchases, and give the option of redeeming those points for cash or goods. The conversion rate for points to cash maxes out a 1/100, so 25,000 points can be redeemed for $250, and 50,000 points could be redeemed for $500.

But purchasing goods offers a much lower conversion rate. For example, a camera that on costs $160 in cash would cost the equivalent of $332 dollars (33,200 points) from the credit card company. A GPS that from Magellan costs $150 would cost in points $350 (35,000 points). By buying the goods with points, the consumer forgoes the cash and therefore pays an extra $172 dollars for the camera and an extra $200 for the GPS.

Obviously it would most benefit the consumer to redeem points for cash and buy the goods separately. (Additional benefit from this option is that the consumer would receive points for the additional purchase.)

So why do people redeem points goods? After all, the option wouldn't be available if no one used it. I think they are taking advantage of a psychological phenomenon whereby the consumer thinks (falsely) that they are getting something for free, and therefore become price insensitive. I would welcome your thoughts on this as well as further examples.

Wednesday, October 15, 2008

Financial meltdown prediction from a year ago

Click here for a must see video clip of Peter Shiff predicting the financial meltdown over a year ago.


My first interviews of the season are tomorrow (or I guess actually later today). Wish me luck!

Complete Streets

Here's a link to a great initiative for improving our cities:

The streets of our cities and towns ought to be for everyone, whether young or old, motorist or bicyclist, walker or wheelchair user, bus rider or shopkeeper. But too many of our streets are designed only for speeding cars, or worse, creeping traffic jams. They’re unsafe for people on foot or bike — and unpleasant for everybody.

Now, in communities across the country, a movement is growing to complete the streets. States, cities and towns are asking their planners, engineers and designers to build road networks that welcome all citizens.

The big news is that Governor Schwarzenegger signed this into law in California.

Sunday, October 12, 2008

Ex-communication: useful for entrepreneurs in emerging economies and medieval Jewish communities

I crossed the bridge to BU last week to attend Kol Nidre, the opening service of Yom Kippur, after which Rabbi Polak invited us to a class. (As he said, what else could you possibly have planned for tonight?) His teaching focused on a line from tractate “Yoma” of the Mishnah (alt link):

On the Day of Atonement it is forbidden to eat, drink, bathe, put on any sort of oil, put on a sandal, or engage in sexual relations.

The Torah portion is not as explicit as the Midrash in its list of prohibitions:

In the seventh month, on the tenth day of the month, you shall practice self-denial; and you shall do no manner of work, neither the citizen nor the alien who resides among you. For on this day atonement shall be made for you to cleanse you of all your sins; you shall be clean before the Lord. It shall be a sabbath of complete rest for you, and you shall practice self-denial; it is a law for all time.

(Other relevant verses)

Since the midrash prohibitions are so extensive, the Rabbi asks, in what other situation is eating, drinking, bathing, anointing, and wearing leather on the feet prohibited? Answer: The frequently persecuted Jewish communities of medieval Europe used the threat of a limited form of excommunication, called niddui, to keep their members in line. The niddui was announced by the blowing of the shofar, after which the community members weren’t supposed to come within ~6’ of the offender or eat with him, and the offender was not supposed to cut his hair, wear shoes, etc. So on Yom Kippur, we are essentially placing ourselves in niddui for the day due to our sins over the year, and that’s why we blow the shofar, don’t eat, don’t bathe, and don’t wear leather shoes.

As a business student the concept of niddui is interesting also for its implications in emerging markets. For class we read this article “Private Order under Dysfunctional Public Order” from the Michigan Law Review (Recommended read. Most of the article is available online.), in which the authors demonstrate how in emerging markets that do not have strong institutions to support small businesses, such as a functioning court of law or credit bureaus, entrepreneurs still manage to flourish by creating extra-legal systems of their own. For example, in the ethnic Chinese community in Vietnam if one business cheated another business then the entire community would boycott the cheater. By looking at these communities which have created niddui of their own, we can perhaps better understand the context in which the concept evolved in the Jewish tradition, and what life may have been like in a Jewish village in medieval Europe.

Tuesday, October 7, 2008

Boston Real Estate Market

I put together some numbers for an email on the Boston real estate market, and thought I'd share them here with you. Below I pasted the spreadsheet with some stats (click on it for a readable view), but here are two highlights:
  • I estimate that the total commissions collected by real estate firms for sales in Boston has decreased 24% (from $177MM to $142MM) this past year compared to the year October 7, 2004 to 2005. However, the decline in commissions has not been steady, with the sharpest decline this past year. I expect this to translate to market consolidation of brokerages.
  • Looking at all property types, average sale prices and listing prices have not fallen significantly over the past year, and in fact have risen 5% to 7% over October 2004-2005 in Boston. Rather than affecting price, the market slowdown has most affected volume and the number of days it takes for a property to sell. This may not be true for all market segments, but it is at least superficially promising that value has not decreased.
[click on the image for a readable view of the spreadsheet]
I'd be interested to hear your comments on what you think this means.

Sunday, October 5, 2008

Fast Fluffy Eggs

So you want a real breakfast but are in a rush? These are my weekday morning quick breakfast recipes. Minimal prep time, minimal cleanup, and the eggs come out fluffier than if you'd fried them.

Fluffy microwave egg omelet:
-beat an egg in a microwave-safe bowl
-toss in whatever filling you desire (veggies, cheese, cheerios)
-microwave on high for 45 seconds. (or until fluffy)
-salt and pepper to taste. eat. (be careful, it's hot.)

Mountain bread:
-Place a slice of bread in a microwave-safe bowl, so the edges of the bread curve up slightly against the bowl.
-Crack an egg on top of the bread
-microwave on high for 45 seconds. (or until fluffy)
-salt and pepper to taste. eat. (be careful, it's hot.)

Saturday, October 4, 2008

New Hedge Fund

The financial sector has traditionally supplied a good portion of new MBA's with jobs, but with the current financial crisis those jobs are drying up. This affects me because all those finance people are now applying for jobs that I want. So let me suggest instead that they consider this new hedge fund: Strategery Capital Management.

From their website:
Strategery has several competitive advantages compared to other hedge funds.
  1. We have approximately as much in capital as all other hedge funds combined, so we can negotiate best-in-the-business terms with counterparties.
  2. We have an unlimited ability to raise more capital even in times of distress. Therefore the traditional limits to arbitrage (irrational return-chasing investors) does not apply.
  3. We have a close relationship with the federal courts so counterparties seeking to terminate a transaction with us face not only civil litigation costs and losses, but potential criminal liabilities.
  4. We are not limited to looking for opportunities with positive expected returns and so can cast a broader net across the investment universe, thus extending our efficient frontier beyond what other hedge funds can offer.
P.S. Yes, this is a joke.

Friday, October 3, 2008

sensitivity analysis

Quote from an invitation explaining the reason for the event, a soccer match between two ethnic-group clubs :
Why: To increase awareness of all ethnic groups at [school] (and to show that Africans/Minorities are better than the Latinos at Soccer).
I'm glad we don't go overboard with political correctness here.

Thursday, October 2, 2008

busy busy

Hello all, I've been back at school now for a month. I haven't blogged more due to the crazy pace of events. I'm taking a heavy course load with classes finance II, industrial economics, two different marketing classes, global entrepreneurship, a negotiation class, and a leadership class with a well-known CEO. Also, recruiting is in full swing and I'm trying to make a good impression on my potential future employers, and I'm putting together a team for my start-up. Recently I told my Reserve commander that I'm planning to leave the Army, and so now I've got to start the paperwork.

But I will try to post more. =) To start, here are links to the company Endeavor, an interesting non-profit that invests and mentors entrepreneurs in developing countries, and an article in the Economist about them. I'm going to South America over the winter with a team from school to assist one of their companies.