Making Better Decisions

“Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts”, by Annie Duke, describes how most people incorrectly view the outcome of a decision as being reflective of the quality of their decision process. They think good outcomes from a decision means there was a good decision process and bad outcomes are because of a bad decision process. According to the author, who was a professional gambler, the outcome is more often related to luck than a bad decision process. For example, if you decide to drive through a red light, the fact that you did not get into a crash is more related to luck than being the result of a good decision.

The author claims that people are very uncomfortable with the idea that luck plays such a big part in the outcome of their decisions and are even more uncomfortable with the idea luck plays a big part in their life. Instead of evaluating our choices as having different probabilities of success (like a poker hand), we see our choices as more black and white options with no shades of grey in which choices may be best. Like playing a game of poker, the more information you gain as the game progresses, the less luck controls the result and the better the probability of your chances of making a decision with positive outcomes. Rather than characterizing choices as black or white, her recommendation is to put a probability of success on choices and modify the probability as more information comes available.

Since reading this book, I have been looking more closely at how much information I have about my given set of choices. I noticed that as soon as I started adding a probability (my belief of the percentage chance of success) to each choice, it clarified how much I didn’t know about the future and what the overall risks I was taking with each choice.

I recently had a major decision about my car, since my 3 year lease was coming to an end. Should I buy it? Should I lease another car? Should I buy a new car? Should I use the same dealer? As I collected more and more information and calculated the costs and downside risks of each option, it became clear that a new lease had the best probability of long-term success for me. This process quickly ended my quandary as to what to do. It also made the process of leasing a new car much easier since I went into the negotiation aware of how much of the process was a gamble; would the car be great or a lemon? Time will tell.

It is fascinating to consider how much of the outcomes of my life decisions are just chance, out of my control.

This book is really well written which made understanding the concepts of probability easy to understand and enjoyable to read.
I highly recommended the book!

Happy Money

The book, Happy Money: The Science of Happier Spending by Elizabeth Dunn and Michael Norton, summarizes current research on how you spend money changes how happy and satisfied you are in life and affects your health and well being.

This is a wonderful book that explains how you can increase your happiness by spending on experiences with the people you value rather than spending on prestige belongings that many people think will make them happy.

According to the book, research shows that spending money on leisure activities like trips, movies, sporting events, gym memberships and the like leads to more happiness than buying expensive consumer and prestige items. Experiences tend to be appreciated more as time goes by whereas things tend to be less appreciated as time goes on as better things than they bought emerge. Experiences tend to make us feel more connected to other people which improves life satisfaction. When couples do exciting and novel things together, their relationships improve. Anything we do to make the time with our friends or partners special is money well spent. Experiences make memorable stories for retelling for years to come and give us a sense of who we are or who we want to be. Experiences can’t be compared  to things purchased. Experiences that remind of us of the past and give us nostalgia, like going to a museum, watching an old movie, or hearing a favorite song, can bolster our vitality and reduce stress.

Research indicates people earning over $75,000 a year do not have an increase in happiness. High income individuals spend more time doing high stress activities like working, commuting, and shopping than those who make less. High income individuals view their time as highly valuable which makes them feel like they have less time. In contrast, buying time, called time affluence, increases happiness. You can gain time affluence by moving closer to work to reduce your commute, working in a job that requires less hours, or hiring people to do your yard work or cleaning.

Research shows that having expensive things does not bring happiness, health, or well-being. The University of Michigan found that those with cheaper cars had the same satisfaction driving them as people with expensive cars. Surprisingly, homeowners are not happier than renters, and are on average are 12 lbs heavier than renters. Those who simplify their lives by reducing their wardrobe, moving into a smaller abode, changing their consumption patterns, and reducing their stuff are happier. The enemy of appreciation is abundance; if we make everything we do special it will increase appreciation and happiness.

I highly recommend this book for people wanting more happiness, time, and life satisfaction. Five Stars. 

Common Sense Investing

I found a lot to like about the The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle. Mr. Bogle was the founder of The Vanguard Group and is famous for creating the world’s first index mutual fund in 1975, the Vanguard 500 Index Fund.

The logic of his index fund was to invest in a large number of stocks, all the stocks comprising the S&P 500, to make money from the combination of their growth and dividends. This is a departure from the more common view of investing in undervalued stocks to make money from an increase in their stock value.

Bogle makes a convincing argument that the best way to get the value from the stock market is to invest in all the stocks by buying mutual funds based on indexes of the market that invest in all the stocks.

The author points out that the real net income from stock investments is the investments’ gain minus the cost of the investments. The costs are relatively easy to determine in the case of retail brokers charging for a stock trade when buying or selling  stocks. However, the costs are much more complicated for mutual funds because, in addition to the cost of the trade, in many cases there is an annual incentive sales fee for the broker for up to five years (up to 1.5% a year according to the author). I had no idea that there were hidden sales fees in addition to the purchase fee charged by the brokers. In addition to annual fees, most mutual funds typically have additional management fees of 2 to 3%. In comparison, index funds have low management fees (often .4% or lower) with no hidden sales fees.

What is more disturbing is that 99% of mutual funds significantly underperform the S&P 500 index. When the excessive costs combined with the underperformance of mutual funds are compared to S&P index funds, the long term income differences are shocking. The net return after taxes of $10,000 invested in an indexed fund from 1980 to 2005 would have been $76,200 versus $16,700 for other mutual funds (for those mutual funds that survived). This represents 456% more net income to the investor with far less risk.

If you are one of the 85% of investors who let their broker "manage" their assets, Bogle’s book may keep you awake at night. To sleep better, I switched to low cost, low risk index funds. 

The author’s perspective is unique since he invented the very first indexed funds. It is a little like reading Thomas Edison's thoughts about the light bulb. Bogle knows the issues and history of investing in indexes versus other types of mutual funds.

This "common sense investing" book was easy to read and easy to understand. I highly recommend it to anyone wanting their investments to produce more income with less risk.  Five Stars and hats off to the founder of index investing. 

How your Bank Balance buys you Happiness

I recently read an interesting study, How your bank balance buys happiness: The importance of "cash on hand" to life satisfaction, by Ruberton, Gladstone, and Lyubomirsky from the University of California, Riverside and Judge Business School, University of Cambridge. The study claims having more cash in your checking and saving accounts leads to increased life satisfaction.

This is the first study on money to use actual banking records from the participants to assess how their “liquid wealth” affected their life satisfaction. Previous studies only used self reported estimates of bank account information. In addition to the previous year of bank records, the participants took a Life Satisfaction survey and a two question Perceived Financial Well Being survey. Measures for the study also included Income, Total Spending, Total Investments, Indebtedness status, Employment status, and Relationship status. Another key detail was anyone who had greater debt than savings was excluded from the study.

The study’s results confirmed previous studies findings that people with higher debt have lower life satisfaction and people with investments have higher life satisfaction, as do people with an income high enough to have a moderately good quality of life (approximately $75,000). It also confirmed studies showing that life satisfaction is unrelated to income above $75,000 and people with no debts have higher life satisfaction.

The new revelation from the study was that having more cash in savings or checking accounts increased financial well being and life satisfaction more than any other factor, including total debt, income level, or investments. The study found that with each increase in cash by a factor of ten, life satisfaction increases by 3.45%. So an increase in savings from $1 to $1000 increases life satisfaction by about 10.35%. The next 3.45% increase in life satisfaction is at $10,000 in cash. And another 3.45% increase is at $100,000. The next 3.45% increase in life satisfaction requires a million dollars.

Even people with very large investments (over ten million dollars) who had small amounts of liquidity in their bank accounts had significantly lower levels of financial well being and life satisfaction than those with vastly lower investments yet more liquid wealth in cash.

What is unclear about this new finding is if it is the result of the 2008 financial collapse, since investments may not provide the same feeling of financial well being as before. Or is this something that has been true for a long time and not previously found due to self reporting biases, since actual bank statements were not used in the past. 


The researchers also raised the alarm about how much the long-term, extremely low interest rates from banks may be costing society in happiness and well being. These low rates punish those who have more cash in savings.  

How to Make Your Money Last in Retirement

I just finished reading Jane Bryant Quinn’s book "How to Make Your Money Last: The Indispensable Retirement Guide”. Ms. Quinn wrote this book last year and is now 78 years old, so her concepts are not theoretical or abstract. She shares clear, concrete, and very detailed information on how to make your retirement money last which made this book useful and enjoyable to read.

 

The most basic thing she recommends to do to make your money last is to earn income as long as you can (as old as possible) and not start taking your social security until you are 70 years old. The social security payout increases 8% a year for every year after age 62.

The second way to make your money last is to control spending. The happy place to be in retirement is where your expenses are equal to or less than your income.

For most retirees, their biggest reduction comes from downsizing the cost of their housing. 

Another major expense for many are high stock trade fees and hidden commissions in mutual funds, annuities, and life insurance products. These high costs and hidden fees can eat away as much as 50% or more of the long term value of a retirement portfolio. The best way to avoid this is to use a discount broker and manage investments yourself.

An area of great savings and great risk is Medicare. You can start taking Medicare at 65 and it may be much cheaper than your employers health coverage plan, however, there are big risks to doing this. If you start Medicare, the government will automatically start your social security payments. You have to have the payments stopped or you could lose your 8% lifetime increase. If you miss a payment to Medicare, they cover it with social security and that could impact your start date. You may not even be notified and only find out about it at age 70 when you file for social security. Not a small risk.

Although I have  considered Annuities and Reverse Mortgages foolish things to do, the author pointed out some circumstances where they can be very profitable. The book does a great job of explaining the difference between an IRA, a 401K and a Roth IRA and the tax implications of each. She describes the rules for taxes and inheritances and what income is and is not taxable.

One thing I found surprising is that you can open a Roth IRA at anytime and put in any amount. The earnings are not taxed and, unlike an IRAs, there is no minimum that must be withdrawn each year or maximum that can be withdrawn each year. Even better, the earnings are not taxed when taken out. It actually seems too good to be true, so I recently bought a book on the details of Roth IRAs to see what the downside might be.

The author recommends that you pay off all credit card debt before retiring; apparently people 50 and older have a lot of credit card debt - far more than younger people. She also thinks it is best to avoid buying rentals as a source of income because they are hard to manage.

The book’s detail and depth makes it a slow read but I found the information so useful that I used a highlighter to mark the critical details and consider it an important reference.


I highly recommend this book, five stars.

Trump’s Plan for America – Improve your Health and Sanity by knowing the Future

Rapid change and uncertainty can be upsetting and even make you sick.  The media’s daily portrayal of President Trump’s s behavior as crazy and unpredictable has convinced many people that his plans are vague and out of control.  The reality is that Trump published the actions he planned to take as president in 2015 and as far as I can tell he is following the plan exactly.  Knowing his plan and what to expect next has reduced my stress and allowed me to ignore the media’s portrayal of Trump as a clueless president who has no idea what he is doing.  I summarized Donald Trump’s 10 major plans for America based on his book, Crippled America: How to Make America Great Again:

Immigration

End illegal immigration in America. Enforce existing immigration laws and deport all illegal immigrants who have come across the border or overstayed their visas. Build a wall along the US/Mexico border. End US “birth citizenship” which grants a US passport to babies born in the US to non-US citizens, in many cases their mothers travelled to the US on tourist visas, temporary visas, or illegally for the sole purpose of the birth.

Foreign policy

Foreign policy will be based on what is best for the US. The US will no longer put other countries first at the expense of the US tax payers and American workers. This will have wide-spread effects on trade, defense, and foreign policy where America is footing the bill for the defense, economic protection, safe ocean passage , or international organizations for other countries.

Trade

Renegotiate all US trade deals to favor the US.  Renegotiate or terminate NAFTA. Although WTO is not mentioned, changes to trade deals with China and Europe and Japan are specifically discussed.  Stop countries like China, Germany, and Japan from getting a trade advantage by keeping their currency artificially low.

Defense

Make the US military unquestionably the best military force in the world. The plan is to increase funding, increase troop numbers, improve training, and improve the quality and military equipment available to US troops. Have the best missile systems in the world. Charge countries the US protects around the world for the cost of the defense.

Energy

Support US oil, gas and coal production. Stop the EPA from enforcing rules that are not laws. Repeal environmental laws that impede the energy industry. Charge OPEC for the cost of the military protection the US Navy provides them.

Health Care

Replace Obamacare. Provide cheaper alternatives for health insurance that gives people more choices and does not fine those without insurance. Create more competition between insurance companies to reduce healthcare prices. Negotiate with drug companies for lower drug prices. Build and fund mental hospitals to take care of the people that need to be there.

Taxes

Make the tax code so simple that no American will need an accountant to fill out their forms. Any person earning under $25K or couple earning under $50K will pay no federal taxes. All corporate taxes will be 15% as well as individual entrepreneurs.  US corporations will be able to bring money earned overseas back to the US and pay only a 10% tax. All loopholes for the rich will be closed and the effective tax rates for the top 1% income earners will be increased.

Guns

Make gun law standard nationwide.  Allow everyone, except felons, to carry a concealed gun anywhere in the US. Make it a federal crime for any felon caught with a gun, with a 5 year sentence in federal prison with no parole or reduced time for good behavior.

Education

End federal programs for education. Give all federal funds for education to the US States to use as they see fit.

Infrastructure

Rebuild the infrastructure across the US.  Increase the amount the US spends on infrastructure from 2.4% of the US GDP (Gross Domestic Product) to 9.0% of our GDP. 

I have come to believe that much of the commotion surrounding President Trump’s actions are caused by his business approach of getting his plan completed as quickly as possible and not from him doing  the unexpected. Whether you agree with Trump’s plan or not, you can reduce your stress by knowing more about details of what he plans to do. I highly recommend this book, 5 stars. 

The Downside of Low Interest Rates

Ever since the US downturn in 2008, interest rates have been dropping both for savers and for borrowers. The upside is those with debts, who were able to refinance, enjoyed a greatly reduced cost of borrowing. Low interest rates made buying a home much cheaper and easier to qualify for.  Monthly payments are almost 50% less at a 3.5% interest rate than at a 7.5% interest rate. The reduced cost of buying a home has helped keep housing prices high in Hawaii, reduced foreclosures rates, and added to local governments’ funds with higher property taxes from higher real estate valuations.

If the US economy continues to improve and interest rates return to previous rates of 8% or more, what will the downside be of this past decade of ultralow interest rates be?

The most obvious downside is that house buying will be much more expensive. A monthly payment on a 30 year, $600,000 mortgage will go from $2308 at the current 3.5% interest rate to $4195 at a 7.5% interest rate.  A $2308 payment at a 7.5% interest rate would only buy a $329,714 home, a mere 55% of what the same payment buys at 3.5%. If the return to higher interest rates drops the home selling prices and ultimately the property values as you would expect, then these lower values will reduce income to local governments from  lower real estate taxes. It seems likely that foreclosure rates will also increase along with more people having underwater mortgages.

A similar calculation can be run on how stocks prices could be affected with increased interest rates. With low interest rates, stocks are far more attractive to people wanting to earn money on their savings. Most saving banks are paying only 0 .25% interest which makes stocks that pay 1% dividends look very attractive. Risky stocks that pay a higher dividend (2% to 4%) are attractive to people who may not normally be willing to take the risk. When savings banks return to paying 7% or more in interest, it will have a very negative effect on most stocks; normal savers and investors  will be able to get better returns without the risk. Companies have benefited by being able to borrow at lower interest rates and they have improved their returns as a result. When interest rates go up, stock prices could drop up to 50%.

As we study how rising interest rates may affect the prices of real estate and stocks, we can see why the Federal Reserve (which controls interest rates in the US) is so reluctant to raise them. The interest rates offered by banks are normally higher than the Federal Fund rates for mortgages and lower for savings. If they raise the interest rates too soon or too much, the results could be a sharp drop in real estate and the stock market causing a downturn in the US economy.

The Cycle of House Prices and Foreclosures

Our first experience with a volatile housing market and mass foreclosures was in Texas after the oil crash, in the mid-1980’s. Ten years earlier Dallas and the surrounding areas had a real estate boom from a surge in oil prices and influx of people attracted to the area by the new jobs. Even in the suburbs north of Dallas, like Plano where we lived, there were labor shortages and high real estate prices. Track houses purchased in 1979 increased 30% in value in just 3 years. 

By the mid-1980’s, the crash in oil prices was severe and the massive layoffs included many of our friends. Houses were rarely for sale in Plano, so it was a shock to see “For Sale” signs lining the streets. We watched dumbfounded as the super hot Texas economy and real estate market became a calamity. Half built skyscrapers stood idle. A huge new shopping mall near our apartment  had empty shops and tumble weeds blowing through it. The Texas economic downturn was steep with dozens of banks going bankrupt and thousands losing their jobs and life savings.  The federal government created a corporation to "warehouse" all the debt from home mortgages and commercial properties until an orderly market returned to sell them off.

We experienced the Texas boom and bust during our early years of working, and although we were somewhat on the sidelines without the income or down payment to buy a house, the experience left a big impression on us.  

Twenty years later when we saw the rapid rise in house prices in Santa Cruz County we got a terrible feeling in our stomach.  Based on our experience, it was only a matter of time before the crash. But our friends and neighbors were convinced that house prices only go up. They claimed that the 32% price increase in their houses over the past three years, from 2002 to 2005, was only the beginning.

At the end of 2007, real estate prices in Santa Cruz County started to fall. From 2008 to 2012, house prices fell 33%.  The crash crushed the buyers who had purchased their homes at the height of the boom.

Now we are living on Oahu observing the island’s housing boom.  The average price for a single family home is currently $725,000, a 12% increase over the past three years. Oahu’s foreclosure rate of 1 in 3200 homes is one of the lowest rates in the US. In contrast, Maryland, the state with the highest foreclosure rate in the nation has a rate of 1 in 537 housing units. 

The income needed to afford a $725,000 mortgage for an average Oahu house is $290,000 a year, based on the conservative qualification criteria of a mortgage not exceeding 2.5 times your income. In contrast, the average salary for job postings in Honolulu is $40,000, which is 31% lower than the average salary of job postings nationwide. In our central Oahu condo complex, a 3 bedroom, 2 bath, 2 parking spot, 1100 square foot condo is listed at $525,000 (with no amenities like a gym or swimming pool or common area). 

The high cost for a house on Oahu feels a lot like California in 2005, particularly when the low wages in Hawaii are factored in. Even so, house prices continue to rise.

The extreme cycles of housing prices has taught us to expect the unexpected.

The Dilemma of Renting versus Buying a House

Since moving to Oahu nine months ago, we have been perplexed about whether to buy a home or keep renting. Since we plan to move back to the Big Island at some point, our decision has to take into consideration the economy and inflation.  We could get financially crushed by buying a home if there is significant de-inflation on Oahu in the next 3 years.

The problem is we have conflicting views about whether there will be inflation or deflation in Hawaii. We have a list of things that will cause housing prices to go up in Hawaii and another list of things that will cause housing prices to go down.

Here is our list of some things we think could cause inflation in Hawaii:

1. If the U.S.’s military and defense infrastructure in the Asia - Pacific region expands, there will be strong demand for housing in Oahu.  Currently, the U.S. military presence in Oahu is down about 7% from 2012.

2. If the U.S. economy continues to improve and more jobs become available, Americans will have more money to spend on vacations and to visit Hawaii. Furthermore, Hawaii’s vacation appeal will increase if unrest spreads in vacation spots elsewhere in the world. Tourism on Oahu was up 4% this year. More tourism means more jobs and higher wages for residents which would increase the demand for housing.

3. If the Federal Reserve keeps interest rates low that will help keep the cost of a mortgages lower and the demand for houses higher.

4. The 76 million baby boomers are retiring in large numbers (some estimate over 10,000 a day). If even 1/10th of one percent of them move to Hawaii that would add 760,000 new residents to Hawaii which would increase the demand and prices for housing.

5. Affluent buyers from China and India may continue to buy homes in Hawaii which is already a positive factor in Hawaii real estate prices. 

Here is our list of some things we think might cause de-inflation:

1. The military presence in the Asia – Pacific region could be decreased by the next U.S. president and congress which would reduce the housing demand in Hawaii. Even cuts in military housing allowances for soldiers stationed in Oahu would have a negative effect on housing prices in Oahu.

2.  If the U.S. economy suddenly stalls, which some people think it might, Oahu could see a sudden drop in the number of visitors. There are numerous things that could tamper with the U.S. economic recovery. Robots and automation, for instance, are replacing workers in the U.S. in manufacturing plants, warehouses, and retail jobs. The rising U.S. dollar makes a vacation more expensive for visitors from Japan, China, and Canada.  A shrinking tourist industry would result in job cuts that would ultimately effect the demand for houses on Oahu.

3. Although the 76 million baby boomers are starting to retire in large numbers, they may not have enough income to move or even visit Hawaii.

4. Although lower oil prices have reduced the cost of airfares to Hawaii, they have also lowered the cost of driving vacations on the mainland which may reduce the number of visitors to Hawaii.

5. If the Federal Reserve raises the interest rates it will make buying a house in Hawaii much more expensive which could damper demand. An interest rate increase from 4% to 8% would increase a mortgage payment 54% percent.

Over the last year, more rentals have come available in central Oahu and many are renting for 10% less than last year.  Like many places in the U.S. right now, the current cost of a home in Oahu plus the additional expenses of owning is more expensive than renting. Our plan is to keep track of the cost of renting versus buying and watch for changes that may result in inflation or deflation. Right now, we believe the risk of a collapse in the housing market is too high to buy. 

Booming Hawaii Island - the off season that never came

It has been a strange Spring on the Big Island. Usually by this time of year it is very warm, the tourists are gone, and the residents that live full time on the island have the beaches and roads to themselves. This year the weather has been unusually cool, far cooler than it was this winter, and the tourists never left.  The island is the most crowded we have seen at this time of year.  The Mauna Kea Hotel is having a job fair this weekend, which is very surprising for this time of year.

In addition, new home construction seems to be booming on the island. On a drive to Kona yesterday, there was bumper to bumper traffic both directions with about half of the traffic construction trucks and  construction workers. Everywhere we look we see huge new projects being started. We are also seeing a lot  of older, presumably retired couples who appear to be setting up new households on the island. They are in Targets and K-Mart shopping for household supplies instead of souvenirs.

Our best guess is that what we are seeing is the result of lower oil prices which makes a Hawaii vacation more affordable than it has been in years by reducing gasoline expenses and air fares. We may also be seeing the first wave of the 77 million boomers starting to retire this year.

It is an interesting and exciting time ahead for Hawaii Island.

Surging Tourism on Hawaii Island

Hawaii Island tourists on a cruise

Merrie Monarch is over in Hilo and the spring break season has come to an end.  This time of year on Hawaii Island the beaches are mostly empty and the tourists and part-time residents are thinning out;  but not this year.  This year there has been no end to the crowds, traffic, and beaches packed with tourists.

The Hawaii Tourism Authority (HTA) forecasted a record-setting year of visitor arrivals across Hawaii for 2015. They attribute the increase to more flights to the islands from the US mainland.  Hawaiian Airlines reported that they transported more than 887,000 people to Hawaii in March, a 7% increase from March of last year. HTA reports that visitors to Hawaii are up 8% from the West Coast and 9.8% from the East Coast. 

Usually our condo complex is empty by mid-April. This year it is as crowed as it was at Christmas time.  Every condo has a visiting family, the traffic is the heaviest we have ever seen, and the nearby stores and restaurants are packed.  Though we hear many visitors speaking German, Italian and eastern European languages, most of the visitors are from North America speaking English.  Surprisingly, the large number of Japanese tourists we see this time of year are not here.  Every evening we sit on the crowded beach and watch families, primarily from the US, throwing balls, snorkeling, running, playing in the sand, and enjoying the beach with seemingly endless energy. 

Having a huge surge of visitors is a boon to Hawaii Island.  The island has limited job opportunities and an improvement in the tourist industry on the island would not only provide more jobs but hopefully increase pay for the mostly minimum wage service workers.  On the other hand, the hotels, restaurants, and tour companies are not staffed for the current demand.   We are seeing overwhelmed workers having a difficult time keeping their cool with endless lines of impatient people wanting to get on with their vacations.

If visitors to Hawaii Island have a great time, they will likely return.  Hawaii Island is less densely populated per square mile than Oahu, Maui, and Kauai with average home prices 50% lower.  Returning visitors could ultimately increase island real estate prices which have taken a big dive since 2008 and improve the island economy.  

Year of the Wood Sheep 2015

2015 Wood Sheep

It is time for our annual predictions based on the Chinese lunar calendar for 2015 Year of the Wood Sheep.  As we predicted, the current 2014 Wood Horse year has been fast paced, with explosive energy, expansionism, military power, economic change and chaos.  There are a couple more months of the Horse year ahead before the Sheep brings some calm to the global chaos and slows down the pace on February 19, 2015.  The Sheep is more stable than the Horse and prefers diplomacy and harmony to the Horse’s confrontation and demands for justice.

We find it useful to review what happened 60 years ago, during the last Wood Sheep year, to see how events may relate to today’s world.   The last Wood Sheep year, in 1955, was a year of many firsts in US consumerism. Disneyland opened, McDonalds opened, the Scrabble game and Lego came to market. New popular TV shows were introduced including the Johnny Carson Show, Gunsmoke, Lawrence Welk Show, Honeymooners, Alfred Hitchcock Presents, Millionaire, and the Mickey Mouse Club.

Sheep years are known for diplomacy and during 1955 numerous treaties were signed including the Warsaw pact, USSR peace treaty with France and Great Britain, Turkey and Iraq defense alliance, British military treaty with Iraq, Belgrade declaration, South East Asia Collective Defense Treaty, and Egypt and Saudi Arabia defense treaty.  The Israel government was formed by David Ben-Gurion, the West European Union was established, and the Vienna Treaty restored Austria's independence.

The US and USSR performed nuclear tests and President Eisenhower’s “Operation Alert” exercise assessed the US readiness for a nuclear attack.  The first atomic generated power was used by towns in the US, the Atomic clock was developed, and the first nuclear powered submarine was tested. The military demonstrated self-guided missiles and the first seagoing oil drill rig went into service.

Politics in the US changed dramatically with the start of the civil rights movement after the arrest of Rosa Parks and other African Americans for resisting bus segregation in the Southern US.

On the economic front, the minimum wage was raised from 75 cents to $1 and GM became the first US corporation to make over $1Billion in a year in 1955.

The last Sheep Year in 2003, a water Sheep, was focused on the Iraq war and overthrow of Saddam Hussein.  It was also the year the Department of Homeland Security was formed.

Although Sheep avoid conflict and are quiet and calm, some of the previous Horse year storms will still be raging during the Sheep year.  Unfortunately, Chinese astrologers warn of the flying star of hostility and violence being prominent in 2015.  Conflicts around the world may increase and escalate.  Hostilities may overtake the benefits of the sheep year for some people. 

Sheep like to spend money and love being part of the crowd.  So expect some financial improvement in the economy and more focus on consumerism.  Some people will find it a great year to generate wealth.  Although most of the news is good for relationships, commerce, and wealth during the Sheep year, be careful of misunderstandings and hostility in your environment and the world in 2015.

If you are looking for a 2015 day planner – check out Your Ideal Hawaii Day Planner for 2015.

The Hawaii Time Share Benefit

Years ago we shunned offers for Hawaii time shares marketed to visitors to Hawaii. The sales people gave super discounts on activities and deals to stay for a week if you listened to their spiel.  But, we believed buying a time share was a bad financial deal because we viewed it as overpaying for vacation condo ownership without all the benefits.  So we bought a condominium in Kona and used it for our vacations to the island for years and rented it to other visitors while we lived on the mainland.

However, when friends were visiting last month, we advised them to buy a time share for their annual two weeks of vacation, rather than investing in a condo.  Here is why we convinced them:

First, every time we came for a “vacation” we ended up spending the first three to four days fixing a long list of issues with the condo.  It was a lot more work than we would have guessed.  Since we did not have our tools in Hawaii, we ended up buying a new set of tools every vacation. Eventually, we made a small portable tool kit that we brought with us each time.

Second, owning a condo meant that  we always came back to the same place.  If we had a time share we could have visited other places in Hawaii or the world.   We could have upgraded.  In retrospect, that is not a small thing.

Third, the great tax advantage that we anticipated did not happen.  During our high income years on the mainland we were blocked from taking the losses we had from changes in IRS rules and in recent years, our losses on the condo have given us no tax benefit because our taxes are so low from lack of income.

Fourth, any savings from staying in hotels by having a condo was more than offset by the ever increasing Home Owners Association fees that went from $300 a month to over $660 a month. Insurance, taxes, upkeep and the associated bookkeeping to track the money we lose every year is expensive and time consuming.

Fifth, our anticipated equity benefit from real estate prices going up in Hawaii has not happened.  Many properties on Hawaii Island are still down by over 50%. We could have bought a really nice time share for what we have lost in equity over the past 10 years.  Though the condo is in a great location, it is too small to live in full time so it is still a vacation rental.  Even one year of our annual operating losses would have more than paid the annual fees of most time shares.

Looking back at our ten years of our condo ownership, we can see the great benefits of having  bought a time share rather than buying a vacation condo. 

2014 Year of the Wood Horse

It is time for our annual predictions based on the Chinese lunar calendar for 2014 Year of the Wood Horse.  As we predicted, the current 2013 Water Snake year has been about rich people holding on to their wealth and countries becoming increasingly isolationist and possessive.  In contrast to the internal focus of Snake years, Horse years are about energy, expansionism, military power, physical feats, and economic change.  Although Horse years can bring good luck and fortune, they require quick thinking and decisive action.  The time for planning and introspection will be over when the year of the Snake ends on February 3^rd, (a bit unique this year since the Chinese New Year is January 31^st). During a Horse year we must be ready to react quickly to keep pace with world events and changes.

We find it useful to review what happened 60 years ago, during the last Wood Horse year, to see how events may relate to today’s world.  In 1954, the previous Wood Horse year, the new, secretive Hydrogen bomb project expanded to above ground testing around the Pacific.  The 1954 Congress was attacked by four gunmen with semi-automatic pistols who shot into the US House of Representatives chamber from a balcony and wounded 5 congressmen while they were debating an immigration bill.  The Snake year McCarthyism created new laws in the 1954 Wood Horse year that made being a “communist” illegal, authorized harsh penalties for spies, and approved the CIA opening US mail.  It would not be surprising for the wikileaks, NSA leaks, and other secrecy issues of the 2013 Snake year to result in harsh, new laws in the 2014 Horse Year Congress.

Horse years bring economic growth and chaos.  Although the last Wood Horse year of 1954 saw the Dow Jones close higher than its peak before the 1929 crash, most recent Horse years have seen major stock market crashes.  In the Horse year of 2002 the stock market dealt with the dot-com bust and in the  Horse year of 1990 the stock market took a dive after the Iraqi invasion of Kuwait.   In the 1978 Horse year, a stock market crash of 22% one day in October came to be known as black Monday and caused a global stock market decline.  No one ever figured out what caused the panic, but protective measures were installed to prevent a repeat of the disaster.

Horse years are military power and transportation minded.  During the last Wood Horse year of 1954 the US Army created the first helicopter battalion, the US Air Force Academy opened, the B52 bomber, C-130 Transport, and Air Force One all had maiden flights.  During the last Horse year in 2002, Fossett made the first solo, non-stop flight around the world in a balloon.  We expect a year of military advancements in space, the formation of drone battalions, and faster vehicles of all types.  We expect to see military coups, the unrest the Middle East and Asia to expand, and rapid changes in world leaders.

Horses are energetic and physically strong and Horse years often break records in human feats.  During that last Wood Horse year in 1954, the four minute mile record was broken and new records achieved for the 5K and marathon.  During the 2002 Horse year, records were broken in baseball, football, cycling, and other sports, by many athletes now accused of using performance enhancement drugs. 

There are health issues associated with Horse years, in particular issues with the lungs.  Smog and contaminated air may become recognized as a world-wide health problem.  Excessive heat, cold, storms, and earthquakes are also common during Horse years.

Horse years bring focus to fairness, equality, and humanitarianism.  We think sexual rights will progress in the Horse year, much like race rights did in 1954 with the ending of segregated regiments in the military and the start of school desegregation.  The Humane Society was formed in 1954 during the last Wood Horse year. 

Horse years are focused on entertainment, communication, and sociability.  During the last Wood Horse year of 1954, Disneyland was announced and construction started; Disney’s TV show and the Tonight show hosted by Steve Allen were started; color TVs became more common in American homes; and the world’s largest mall opened in Michigan. During Horse years, people spend more money and time on entertainment and fun.

From the introspection and isolation of the 2013 Snake Year, the 2014 Horse Year will bring explosive energy, a fast pace, adventure, unique forms of communication, and a focus on fun.

Calculating the damage of the government shut down on Hawaii Island

When the US government shut down on October 1, 2013, news stories claimed that Hawaii would be one of the top states affected because of the number of federal employees, military bases, and federal contracts.  Oahu has been dramatically affected by the loss of income to so many residents, however, we are also seeing significant effects on here on the Big Island of Hawaii.

The biggest tourist site on the Big Island is Hawaii Volcanoes National Park which normally has about  4,500 visitors a day. The park’s closure means a loss of $1.8 million a week from visitors plus the loss of income to workers at the park, concession stands, the newly opened Volcano House within the park, and other businesses. Other important Hawaiian sites on the island under federal control are also closed including  the Puʻuhonua O Hōnaunau National Park, Puʻukoholā Heiau, and Kaloko Honokōhau National Historical Park.

Since the beginning of October, statistics from the Hawaii Tourism Authority have shown a sharp drop in visitor arrivals from the mainland  as compared to last year. The first week of shutdown, we saw lots of tour buses with just a few visitors on board; this week we have not seen any buses at all. We are beginning to expect a long term downturn in tourism from the mainland if this current shutdown is not resolved soon.

In addition to the economic impact of national parks and historic sites being closed, income on the Big Island has been lost by furloughs of federal workers  and projects funded by federal organizations (USDA, USGS, Department of Interior, Office of Native Hawaiian Relations, Bureau of Land Management, Bureau of Ocean Energy Management, NASA, etc). that are delayed and may ultimately be cancelled.  The telescopes on Mauna Kea have been affected by the shutdown.  The Submillimeter Array, partially funded by the Smithsonian, has furloughed workers and the Gemini telescope will lose 50% of its funding if the shutdown continues past October. The National Radio Astronomy Observatory’s “Very Long Baseline Array” already closed its telescope on Mauna Kea due to the shutdown.

Since the shutdown, Hawaii Island has had a 24% increase in unemployment claims. Recent college graduates are shut out of government jobs and from even starting the testing and application process.

Thousands of families on Hawaii Island depend on Food stamps (SNAP) to help to survive on their part-time, minimum-wage jobs in the tourist and resort upkeep industry.  Food stamps not only feed families, they also support independent farmers and ranchers that get income from food stamps at local Farmer’s markets.  SNAP is expected to run out of money on November 1st.  That could mean the loss of food stamps for many Hawaii Island residents at the same time there are less jobs in tourism.

Battery technology for Hawaii

Our unexpected night visitor, a rat that ate through our bedroom screen door,  led us to look for a better rat trap.  Our search resulted in a high-tech, battery-powered Rat Trap that zaps rodents rather than crushing them.  The device works because of a new type of lithium battery that reviewers are saying kills tons of rats in their barns and farms before needing to be replaced.  

The latest technology of disposable AA Lithium Batteries last 9 times longer than previous versions. These batteries no longer contain cadmium so they are also less toxic than the first generation of lithium batteries. We are excited about this new technology because we think it could make Hawaii energy independent.

Why?

Hawaii’s perpetual sunshine is great for getting electricity from solar panels, but the problem is how to store all the electricity produced during daylight for use after the sun goes down.  When we had a solar panel in Hilo, the sunlight filled the battery before lunch.  The rest of the day was wasted electricity production.  

If rechargeable car batteries could store 10 times more electricity than they do now, it would solve the problem.  Electric cars batteries would provide weeks of driving instead of hours and big energy users like data storage farms, bakeries, and other manufacturing could become viable in Hawaii with large amounts of electricity stored from low cost solar power.   A power company in Oregon is testing a giant new type of lithium battery to help stabilize their local power grid.

When these new types of  batteries become more widely available, Hawaii residents will be able to generate more low cost solar power and the island’s money spent on imported oil could instead be used to improve the land and everyone’s quality of life.

Hawaii Cost of Living and Solar Panel Maintenance

Easy to clean on the ground panel

In Hawaii, a solar energy system can reduce the cost of a Kilo Watt Hour from 44 cents to about  6 cents.  Although solar panels are widely advertised as a way to cut the cost of the monthly electric bill, there is rarely anything said about the need and cost of maintaining the system and keeping the solar panels clean.

Industry reports say lack of solar panel cleanings can cause a loss of up to 25% of the power efficiency.  A typical residential installation in Hawaii costs $25,000 to $30,000, so a 15% to 25% drop in power translates to a loss of $3,750 to $6,250. This is in addition to power loss on cloudy and heavy vog days.  Panels collect dust, leaves, and other debris and in Hawaii the vog can leave a thick layer of grey volcanic ash. Moisture, bird droppings, and bugs covering the panel are also a problem.  Regular cleaning of the surface is the only way to maintain the power generated to maximize the investment and keep the electric bill low.

When solar panels are installed, they are usually positioned where they can perform most efficiently and are not in the shadow of another building, trees, or other obstructions.  But, their position on a roof may make it difficult and dangerous to clean and maintain. We used a solar power system at a cabin we owned for about ten years. The solar panel was installed in a rack outside about 5 feet high which made it easy to inspect and clean.  Since it was our only source of power we could tell it needed to be cleaned when our power suddenly dimmed.  Solar energy systems installed in Hawaii that feed power directly into an electric grid provide no “reminder” to clean the panels when power output lowers.

You can clean the panels yourself which takes time and effort and if the panels are on the roof, could be dangerous. The job requires an investment in tools and cleaning supplies.  Cleaning solutions are needed that do the job without harming the roof or garden below.  The water used for rinsing cannot be “hard” or it will leave a film of minerals. Telescopic poles with a water feeding system are available for about $1000 and up depending upon the pitch and height of the roof.   Other options are  to use a professional cleaning service or installing an automated cleaning system, but they add to the yearly cost of the system.

In our case, we have been able to reduce our monthly electric bill to about $100 by using LED lights, LED TV, and LED computers, turning down the water heater, never running the AC, and even minimizing our use of power when cooking.  When calculating the benefit of reducing a monthly electric bill with a solar power system, the hidden expense of system maintenance, solar panel cleaning, additional home insurance, and replacement cost for failing or corroded parts should be added to the cost. 

Living in Hawaii on Less

Recently we saw an article that claimed the cost of living in Maui was 200% higher than the “average” cost of living on the mainland.  This matches our experience of the costs in Hawaii when trying to live the same way as we did on the mainland.  Over the past five years, we have modified our lifestyle in Hawaii in order to cut our costs and improve the quality of our life.  As a result, our expenses are much cheaper than they were when we lived in Northern California and our life is substantially more pleasant.  Below is a list of living expenses that we reduced by changing our lifestyle.

Utility Costs - Electricity costs 4 to 7 times more than most places on the mainland so we have learned to live with less electricity.  We live in a house that has windows that open to let the air through and we block the sun from heating up the inside.  We never use AC and rely on fans and cold showers on really hot days.  We wear thin clothes and swim in the morning to lower our body temperature in the summer.   We use only LED lights and have an LED TV  and energy efficient appliances.  We keep appliances unplugged, our lights turned off when not being used, and our water heater turned low.  We don’t use hair dryers and we monitor anything electric with an electric current meter (Kill-a-watt ).  These actions have cut our electric costs by over 75%.

Food Costs - We only eat local fruit, vegetables, grass fed beef, and fish.  When we bought grass-fed beef and Hawaiian fish in California we paid about 3 times more than we pay in Hawaii and we never were able to get Hawaiian avocados, tomatoes, lettuce, cucumbers, mushrooms, bananas, and eggplants.   We order processed foods in bulk (rice, rice pasta, almond flour, cherry juice concentrate, etc) from Amazon.  Amazon has a Prime program that gives members free shipping, so we pay a third or less than the local store prices.  We estimate eating local and ordering in bulk saves us about 75% from our grocery store costs on the mainland.   We have to keep close track of our inventory to make sure we do not run out of food and modify our plan if the food we normally order is not on Prime at a particular time.  Eating foods that are reasonably priced on the mainland or depending on meals at restaurants can break a budget in Hawaii because of the high costs of labor and shipping of foods to the island.

Housing costs - We rent and we move to take advantage of better deals as they become available.  We have learned to look at the net cost of living in a place rather than just the cost of the rent.  When we initially moved to Hilo, our rent was half of what we paid for a smaller, dumpy place in Cupertino, California.   Though our rent went up when we moved to Kona, our net cost was lower because the rent included services that we were paying for in Hilo including sewer, water, trash, and access to a gym and swimming pool.  When moved to South Kohala, we gained even more services and benefits without increasing our rent.  Signing a long term lease during off season has allowed us to cut the cost of our rent by 75% of what we paid in California.  Being able to decrease our housing costs over the past five years may not be feasible on other islands in Hawaii.  Owning a home in Hawaii can be more expensive than on the mainland because of the cost of upkeep, security, taxes, utilities, County services, and owner association fees.

Medical Costs - The cost of our medical insurance on the mainland was staggering. When we moved to Hawaii we were able to cut our cost by over 75% by buying a Kaiser policy.  Over the last five years our policy has doubled in cost, but it is still only 50% of what we paid in California.  We shop around for any services we require like eye checks, glasses, etc. since the costs vary dramatically on the island.  Maintaining a COBRA policy or mainland blue cross policy can be very expensive, so being able to switch to a low cost policy in Hawaii can make a big difference in cost of living.

Travel and Vacations - One of our biggest expenses in California was the cost of getting away from the cold, dreary winter to the sun in Hawaii.   Now that we live in Hawaii, we never “go on vacation”.  We have taken some trips to Oahu to visit our son, but we get great prices to stay in condos and hotels  since we are locals and get Kamaaina rates.  Many people we know travel back to the mainland frequently for business or family which can be a major cost of living in Hawaii.

We believe that the high cost of living a “mainland life style” is the major reason most new arrivals to Hawaii stay only a few years.  Taking the time to plan and invent a Hawaii lifestyle can make a huge difference in the cost of living as well as increasing the enjoyment of being in Hawaii.

Lowering the Cost of Living in Hawaii with Online Shopping

Shopping for fresh produce on Hawaii Island is a delight. The huge selection of fruits, vegetables, beef, pork, chicken, and lamb raised on Hawaii Island makes many healthy foods abundant and affordable.  Shopping for organic grains, oils, and health supplements not grown on the island, however, is a major challenge. We have waited for weeks for health supplements and organic grains to be available in island stores. The lack of merchandise and high prices have led us to shop online for our “mainland health foods”.

Perishable foods from the mainland have to be transported a long distance in refrigerated containers. The cost of shipping increases the prices of imported goods by 25% to 75% and the products are usually close to being out of date. Even non-perishable organic foods are often quite old by the time they show up in our island’s stores. We assume this is because they are warehoused on the mainland before being shipped to Hawaii. We have been buying from Amazon for years, but during the past year we have increased our food and supplement purchases from them. Amazon has slowly added a large selection of organic health foods and they have also provided a new way to dramatically lower the cost of transporting the goods to Hawaii.

When we purchased an Amazon Kindle last year, we received a month free of “Amazon Prime”, which costs $79 a year to join after a free month.  The first month we found so many good deals on organic grains with free shipping that we decided to join. We were sure we could save the $79 over the course of a year just on shipping costs. (Amazon Prime also includes other stuff like a Kindle library, free TV shows, movies, etc.).

The online prices for Prime seem to change frequently and shipping is sometimes free one day and not the next, so we watch closely. For foods that we eat frequently, like rice and pasta, we order them by the dozen.This strategy has allowed us to buy pastas, rice, and flours, for up to 66% less than any store on the island; a package of organic rice pasta is $2.75 versus $6 from the local health food store when they have it. Some products come to us directly from the mill or factory, so the food is extremely fresh. Even better, the packages are delivered by FedEx, UPS, or USPS to our doorstep so we do not have to pay for gas to go buy it.

We have a list of things we buy repeatedly,so when we see a good price with no shipping costs, we make the purchase. Since we shop regularly, we created a Hawaii Amazon Food Store with the health supplements and food products we buy.

Recently, we tried buying something different then food online, something much bigger. We have been planning to replace our mattress for over a year.  Our last bed cost $2000, so even though we have been uncomfortable for some time, we have been reluctant to spend money to buy a new one. We wanted to try out a memory foam mattresses, but the ones advertised on TV are about $1500 and even the cheaper versions are about $800 for a 12 inch thick queen-size mattress.  We considered the choices at COSTCO and wondered how we would ever get the huge, heavy box home. Since we have never tried this type of mattress, and some online reviewers complained that they made them hot at night, we were concerned about investing in an unknown.

On a whim, we searched on Amazon Prime, and were surprised to find a 12 inch memory foam mattress with great reviews and free shipping to Hawaii for $388.99.  The price seemed unreal compared to what we had seen elsewhere, so we ordered it. Four days later, a huge box arrived and was carried in by a very strong FEDEX guy. Having read the reviews, we knew not to open the box until it was in the bedroom. We managed to push the box up the stairs and when we cut it open, out flopped a tightly packed, thin roll of foam. When the binding was cut, the foam instantaneously expanded into a queen size square.

After an hour, the mattress had risen almost 10 inches and by evening it was fully expanded to 12 inches. Our house is warm, about 85 degrees, so that helped the foam to expand quickly.  The mattress is the most comfortable we have ever slept on in our life and we are having excellent nights of sleep.

Even on a remote island, there are ways to “shop” and get low cost deals that improve our health and the quality of our life in Hawaii.