How to Avoid the Financial Slaughterhouse

One of my favorite terms in the English language comes from the world of agriculture: The “Judas cow.”

The Judas cow is a cow that lives at the slaughterhouse. The staff takes great care of the Judas cow.
Her function is to meet the other cows coming off of the cattle cars, down the ramps and into the pens outside of the slaughterhouse. From there, the Judas cow settles the other cows down, and leads them calmly into the slaughterhouse. The staff, of course, lets the Judas cow through and out the other side. The rest of the cows, naturally, become dinner and boots.

So what does this have to do with economics and finance? Well, it has to do with considering the source of information. A few weeks ago, the National Association of Realtors published a glowing, bullish report on the future of the housing market.

Of course they’re bullish! (no pun intended!) The National Association of Realtors represents the real estate industry! Specifically, they represent agents who don’t get a commission unless houses are sold. When people are optimistic, they buy houses, and drive home prices (and commissions) up.  When people are pessimistic, they tend to wait. Deals don’t close, and realtors don’t get paid. Meanwhile, house prices fall on the deals that do go through, so realtors get hit with a double whammy: Falling volumes and falling commissions.

Let’s go back a few years: The National Association of Realtors actually had a staff economist, David Lereah, who was acting as the Judas cow for real estate investors. The National Association of Realtors called him an economist. But that wasn’t his job. His real job was in PR and Marketing. His real job was to sell the dream of homeownership and real estate investing, come Hell or high water.

And Lereah was a very efficient employee for the National Association of Realtors – lending an economists’ veneer of credibility to the positive marketing spin, publishing enthusiastic, bullish reports on real estate in the mid to late 2000s, even as the wheels were coming off. His dogged adherence to the NAR party line earned him rueful comparisons to Baghdad Bob, the hapless spokesperson for the Hussein regime who comically assured news viewers that American forces were being slaughtered in the desert even as U.S. tanks were overrunning the airport in Baghdad in 2003.

Lereah was the Judas cow of the housing crisis. And when he was no longer useful to the NAR, he made an exit to head his own firm, Reecon Advisors, to be replaced at NAR by Lawrence Yun. 

Curiously, once Lereah was no longer on the NAR payroll, his analysis took a much more bearish tone. Yun, of course, has consistently maintained that now is a perfect time to invest in real estate, all through the decline.

Of course, at some point, he’s bound to be right.*

Here’s what you need to know:  Lereah was not the only Judas cow out there. The practice of dressing PR shills up as economists or “analysts” and trotting them out before the cameras is common in the financial services industry. It’s even routine. Before Lereah, there was Mary Meeker and Henry Blodget, touting Internet stocks at any price, back in 1999 and 2000, hawking these stocks to the public even as they were confiding to each other that these earnings-less Internet stocks were far, far overpriced. Before them it was biotech. Before them it was the Nifty Fifty, and radio stocks. And so it goes back to the tulip bulb bubble of the 17^th Century in Amsterdam and beyond.

These financial Judas cows are everywhere – and they regularly infest the talking head news programs on TV. And precious few journalists are equipped to see through them. (If they were any good, most of them wouldn’t be journalists for long!)

That’s why we believe strongly in the value of fee-only financial planning. At Vaerdi, we receive no compensation from any outside interest. We don’t get a higher commission for steering you in or out of any investment. We have only one obligation: To give you the best, most unbiased financial advice you can get. Our job is to help you spot the Judas cows on TV and in the print media.

 *Incidentally, if you’re wondering, we’re neutral about whether it is, or not. Most of the time, personal and local factors are a much bigger part of that equation than any national projection for real estate asset prices. Direct ownership of real estate is so property specific, and person-specific, that we take each case one at a time, and broad national projections don’t factor much into it.

Celebrity Bank Cards Attract Young Customers

I’ve been carrying around an article about celebrity bank cards from the New York Times since, well, last year, partially because the picture of the Twilight characters on a bank card amused me, but more because the sneaky tactics to get young consumers to buy this product astounded me.  While I originally thought it must be a joke, this very real product has seriously high fees–and targets young consumers (the author may think she’s a young consumer, but apparently not: imagine paying for a business lunch with a Kardashian Kard?).

Celebrity bank cards are not new, but they have not been as successful until now: current designs lure young consumers into a product without knowing the price of cool.  The price of cool, however, comes with high fees: $7.95 monthly fee, $1.50 ATM fee, $1.50 to speak with a phone representative. Want to keep up with the Kardashians? Get their bank card, spend like they do, and achieve their lifestyle. Not quite.

With the changes in consumer protections and the recent financial crisis, there have been some positive changes: many of us have become more informed consumers.  Many of us also know that people got into trouble by making uninformed decisions.  Some of us know to understand the underlying costs and read the fine print.  Few of us can escape the pressures of marketing, especially younger consumers who are entering the world as new, independent consumers.  In the case of celebrity bank cards, remind those young consumers you know to keep up with the Kardashians on TV, not through their wallets.

Rasher, Basher, Clasher … who are you?

So, are you a Basher or a Rasher?

Need a hint?

What’s your personality type?

… no not the Jungian Myers-Briggs type (I’m an INTP for those of you who want to know). No, what  I refer to is the type of spender you are.

Do you make rash decisions? If so, you may be a Rasher! Do you frequently experience buyer’s remorse? I bet you have a streak of Clasher in your personality. Understanding your own relationship with money and financial decisions is key to a successful financial outcome. You may ask why this is important, after all, if you have a financial plan with clear goals, conservative assumptions and a well put-together investment policy, that should be enough right? I mean, the plan tells me how much to set aside on a regular basis, it tells me for how long to do it, it tells me where to put my money and it tells me how much I’ll end up with to finance my goal in the end. Well the plan may tell you all of this, but you are the Captain and you decide whether to follow the route as planned, or… if you want to make a detour (for example a rash purchase of that must-have fancy tech gadget).

Joe Pitzl’s recent post in the All Things Financial Planning blog discusses the importance of uncovering your money DNA, in other words, how you are financially ‘wired’. 

Below is a list of personalities referenced by Pitzl, originally from Susan Zimmerman’s book “The Power in Your Money Personality”. Do you recognize yourself in any of the personalities?

Flasher (values high quality items, prestige, “flashy” purchases)

Rasher (impulsive financial decision-maker)

Clasher (conflicting views, regret about purchases)

Dasher (too busy to worry about/spend time on money)

Basher (don’t deserve money, money may have a dark side)

Asher (frequently worries about money)

Casher (safe saver, values control and systems)

Stasher (values growth, deal-makers)

Successful financial achievement is one part professional advice and two parts self-determination and reflection. Do yourself a favor and get a handle on your ‘personality’, knowing this will make it easier to follow through on your financial goals! I recommend reading Pitzl’s post as it has a couple of good references to further reading on this topic.