Oil and commodities

In the dictionary, scarcity is defined as "insufficiency or shortness of supply." If you look in an encyclopedia, you'll find this answer: "In economics, scarcity is the problem of infinite human needs and wants in a world of finite resources."

From my previous post, "The Price Is Wrong" I mentioned that we set the price every time we buy something. This is exactly what is happening now to oil and other commodities. Even though prices are increasing, we are still buying. In the past 5 years, 1 liter of oil at a gas station in the U.S. has risen from 30 cents (300 won) a liter to around 93 cents (930 won) per liter. However, the demand has not decreased. This is true around the world. Oil companies and farmers (rice, wheat, corn, etc.) are realizing this.

Let me give you another example. Everyone has heard of Rolex watches right? Rolex watches used to sell for $800 each. That's not cheap, but not insane either. Today, the same watch sells for around $4,000+ each. Rolex realized that customers would be willing to pay 5 times more for the same watch. Why should they lower the price? Instead, they increase the price every year. lol

There's a great article on MSN about the price of a barrel of oil reaching $180. It's around $120 a barrel as I write this. That's a possible 50% increase. If you have to pay 50% more for gas, will you drive less?

On the other side, BP and Shell (Europe's largest oil producers) posted huge profits recently. This is when oil was $111 a barrel. Their profit will be even better next quarter at the current $120 barrel price.

How much oil does the world use? 87.2 million barrels a day. lol

Skype Tip Part 2

Skype just announced an international calling plan and a U.S./Canada calling plan. Both are pretty good deals in my opinion.

For the U.S./Canada plan, it's unlimited calls for only $3 (3,000 won) a month. You can't get much cheaper than that. Right now there is a special if you order 2 months, you get a 3rd month for free.

So, I paid $6 for 3 months of unlimited calls to landlines in the U.S. I guess my family will be happy, since I'll be calling more often. =)

There is also an international plan that will allow unlimited calls to 34 countries for $9.95 a month. "The countries encompassed include most of Europe, plus Canada, Australia, New Zealand, Chile, China, Singapore, Taiwan, Japan, Korea and Malaysia."

Normally, I use Skype with a bluetooth earphone.

Here's a picture of it.
It's a Plantronics Voyager 510, if you're curious.


The reception and sound quality is awesome. And I can walk around my place and do some chores while I'm on the phone. Multi-tasking baby!

Skype tip

A lot of people use Skype to make free (or very cheap) long distance calls. For example, I can call my family or friends in the U.S. for 2 cents (20 won) a minute. In addition, you may use Skype to call your financial institution or the federal government, the IRS for example. When making these calls, you'll frequently encounter morons on the phone.

What's the solution?

Pamela

No, not the Pamela you see on the right. (And by the way, those are fake.)

This Pamela. You can record Skype calls for future evidence and reference. This will lessen the chance of any disputes with your bank or the IRS. I've tried it out it works like a charm.

Investing

I am by no means a professional investor or an investing guru. However, I've learned a few lessons and made many mistakes since I started investing when I was 20.

1. Stop paying money to fund managers because they can't beat the market. Use index funds.
"I believe that 98 or 99 percent — maybe more than 99 percent — of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs." - Warren Buffet

2. Don't go "All in." If you play poker, you need to do this. But you're not gambling, you're investing. Most people, when they decide to invest, will do this:

Gee, I want to start buying mutual funds/stocks to make some money because everyone else is. Okay. Let's see... I have 3,000,000 won to invest. I'll just put it all in the stock market now. 30 days later. I invested 3,000,000 won but the stock market went down 20%. I guess I have to sell now. =(

I've seen this happen to so many people. Don't do this. Instead, invest 1,000,000 won and then wait. If the stock market goes down 10%, buy more. Down another 10%? Buy some more.

3. If you decide to buy a stock in a company instead of an index fund, tell me a story. Why are you buying this company? The PER (p/e) is low? You think the stock is cheap? The company has a bright future? It pays a huge dividend? Most people spend more time choosing a dress or suit than they spend researching a stock. Please do some research.

4. Diversify - I'm American, but I've owned or currently own Korean stocks, Canadian stocks, Hong Kong stocks, British stocks, etc. I also have cash in Korean won, U.S. dollars, and Chinese RMB. (I sold some Japanese Yen last month.) I would be happy if the U.S. dollar becomes weaker. =) A lot of Americans are hurting right now because of the sub-prime mortgage crisis. The value of their home has decreased. Their stocks have gone down and the U.S. dollar is weaker. A perfect storm. The situation for the average American citizen is similar to 1997 for the average Korean.

Here are my favorite investing websites:

Warren Buffet Watch - I want to know what he's doing at all times. Is he eating dinner? In the restroom?

IPO home - Every public company had to take their first step. My very first stock purchase was an ipo.

Gurus - What are the world's greatest investors doing? What are they buying and selling?

ETF Connect

Yahoo Finance - I can find some research and the stock price for every stock on every exchange in the world. =)

MSN money

Seeking Alpha - Investment news and opinion.

Fool.com - Investing opinion.

Jim Jubak - Stock picker

The Price is Wrong

There's an interesting article in today's Chosun Ilbo. Here's a condensed version:


Why Koreans Pay More for Electronics Than Americans

Kim, a 40-year-old man who worked in the U.S., bought an LCD TV made by Sony from Costco and shipped it to Korea before he returned home. The reason was simple: even with the shipping fee, it was cheaper to buy it in the U.S. than in Korea. The same model with the same specifications but under a different model name in Korea is priced at W3.5 million (US$1=W990), compared to US$2,200 in the U.S. The same goes even for products made by Korea’s LG Electronics and Samsung Electronics.

U.S. price comparison site Pricegrabber.com indicates the lowest price for a 32-inch LCD television by LG Electronics (32LB9D) is $599.95. Korean price comparison site Danawa.com puts the lowest price at W990,000. The LN46A550 model, a 46-inch LCD TV made by Samsung Electronics sells for as little as $1,512 in the U.S. market, but the same product (LN46A550P1F) is W2.45 million in Korea.

On average, Korean consumers have to pay 30 to 40 percent more than American consumers to buy the same product. But it is difficult for consumers to find this out because so many items have different model names in the two countries. The companies sell virtually the same products for more to Korean customers by saying that different parts were used and citing different market situations. But in fact they are cutting prices in the U.S. and China.

But the fundamental reason behind the price gap is the difference in the size of the markets. In the U.S., the world’s largest electronics market, numerous companies compete fiercely to secure a foothold. However, the Korean market is well out of the top 10 in the world, and is dominated by the two domestic giants, LG and Samsung. Without threats from other companies, there is thus no reason for the two firms to lower their prices.

This article points out something I noticed when I first arrived. Electronics (TVs, mobile phones, stereos, computers, etc.) are a lot more expensive in Korea. However, I believe the writer's conclusion is wrong. Price has nothing to do with market size. Don't believe me? Look at the prices for the 2GB Ipod Nano around the world. This is from Reuters:

1. Brazil $327.71
2. India $222.27
3. Sweden $213.03
4. Denmark $208.25
5. Belgium $205.81
6. France $205.80
7. Finland $205.80
8. Ireland $205.79
9. United Kingdom $195.04
10. Austria $192.86
11. Netherlands $192.86
12. Spain $192.86
13. Italy $192.86
14. Germany $192.46
15. China $179.84
16. South Korea $176.17
17. Switzerland $175.59
18. New Zealand $172.53
19. Australia $172.36
20. Taiwan $164.88
21. Singapore $161.25
22. Mexico $154.46
23. United States $149.00
24. Japan $147.63
25. Hong Kong $147.35
26. Canada $144.20

Is Hong Kong or Canada a larger market than the U.S.? Taiwan is a bigger market than Korea?
Most people know India has a huge population (over 1 billion people). Yet, the Ipod Nano is much more expensive in India.

Country Population

Hong Kong 7 million
Taiwan 23 million
Canada 33 million
Korea 50 million

Here are the reasons for expensive electronics in Korea.

1. Duty - The customs office charges 20% for anything over $150 entering the country.

2. VAT - This so-called value added tax doesn't add value, but increases the price.

3. Consumers - A product sells for whatever people are willing to pay for it. In Korea, people are willing to pay 2.45 million won for a 46" Samsung LCD TV. In the U.S., people will only pay 1.5 million won for the same TV. If you sold that product for 2.45 million, no one would buy it.

Let me give you another example. Eels are quite popular in Asia. However, most Americans do not eat eels. Fishermen in the U.S. used to throw away eels when they were caught inside their fishing nets. When Asian immigrants first arrived, they were shocked to see American fishermen throwing away live eels. lol

Every time you buy something, you are setting the price. =)

Before You Study Abroad.

According to "It Doesn't End With Getting In" by Samantha Lewis, the average U.S. university graduation rate is 63%. That means a whopping 37% of U.S. university students do not graduate.

Typically, at a U.S. university, if you have one semester of low grades you will be placed on academic probation. A second semester of low grades means you're kicked out of school.

Are professor's tough? Well, for one thing an A is not given very liberally at most universities. If you got an A in a class, then you absolutely deserved it. However, they do hand out Cs and Ds like they're free samples at Costco. While I was a student, I managed to make the Dean's List twice. Those were two semesters that I did little else but study, research, and write. In my opinion, it takes twice as much effort to go from a B to an A.

Some of my former students have sent me e-mails about their studies in the U.S.

Here are some quotes:

"It's the most studying I've ever done in my entire life."

"It doesn't matter if it's Monday, Friday, or Saturday, my life is the same." lol

"I'm writing ten pages paper now. It's horrible. I stayed all night yesterday, but still I have a lot of references to find and read. After this, I have 200 pages of reading, and one more essay."

The language programs in the U.S. are structured much like the FLTTC at HUFS. They are not university classes. If you decide to take a real university class, be prepared.

Kobe Bryant

If you read my blog, then you know I'm a big basketball fan. My favorite team is the LA Lakers. How can you not like Kobe Bryant? 81 pts. in one game.

Cannes Lions

This is an international advertising festival. You can watch the winners in Korea every year at Cinecube. Just check the schedule. I've gone for the past 3 years. I highly recommend it.

Here are some my personal favorites from the past:

H-O-R-S-E

I used to play H-O-R-S-E a lot in our backyard, but I there's no way I can beat these guys:

My First Korean Credit Card

This story is a little embarrassing, so I haven't really told anyone about it. A few years ago, I wanted to get a charge card in Korea. It's kind of inconvenient to pay cash for everything.
So, I went down to Woori Bank (because I had an account with them) and applied for a card.

There are a lot of different cards to choose from in Korea.
The bank teller asked me a few questions and I answered.

What do you usually buy?

"Usually, online shopping or I go to E-Mart and other supermarkets."

Do you have car?

"No. I don't drive in Korea."

What do you do for entertainment?

"Sometimes I'll go to the movies or watch a performance."

Do you go to restaurants?

"Yes, about once or twice a week. I'll have a nice dinner."

Okay. Just fill out this application. We have the perfect card for you.

"Thank you."

After a few days, I received this....




Drum roll please.










WTH? LOL Are there any other men in Korea that have this card? Just curious.

Currently, I have an Asiana Samsung Card. My Mi-in card stays at home.

Savings...

"It doesn't matter how much you earn, it is what you save that matters."

My grandfather is an extreme saver. He saves everything. I don't think he's ever thrown away anything. A few years ago, he gave me a watch that he bought when he was around 20 years old. That means my watch is about 70 years old.
Maybe it's because he grew up during The Great Depression. I have no idea how much money he saved, but I do know that he has been in retirement and hasn't worked in over 40 years. lol

Who are the world's best savers?

China wins hands down.

How about the worst?

Kiwis (New Zealand)

However, Europeans are the most consistent savers. As most would expect, Americans (The United States of Consumption) hardly save a dime. I didn't realize Aussies were so bad at saving. I thought the Japanese were better at saving... Koreans used to be incredible savers. What happened?

Here are the "Household Savings Rates" from the OECD 2007 Factbook:

	1998	1999	2000	2001	2002	2003	2004	2007
Australia	2	1.9	2.4	1.2	-2.3	-3.2	-3.7	0.5
Austria	8.2	8.8	8.5	7.5	7.7	8.6	9.1
Belgium	11.1	11.1	9.7	11.6	11.9	10.4	..
Canada	4.9	4.1	4.8	5.3	3.5	2.8	2.7
China								24.0
Czech Republic	4.1	3.4	3.3	2.2	3	2.4	0.2
Denmark	-	-3.6	-2	4.1	4.6	4.8	1.1
Finland	0.5	2.1	-0.1	0.1	0.6	1.4	2.4
France	12.3	12	11.8	12.5	13.7	12.5	12.4	12.8
Germany	10.2	9.5	9.3	9.5	10.1	10.4	10.6	10.4
Greece	..	..	-4.1	-5.6	-7.4	-6.3	-5.8	7.3
Italy	..	9.8	9	10.4	10.8	11	11.6
Japan	12.1	10.7	8.5	5.2	4.9	4	3.2	3.0
Korea	24.8	17.4	10.7	6.4	2.2	3.9	6.3	4.0
Mexico	7.5	7.1	10.7	7.7	8.8	..	..
Netherlands	13.5	9.9	7.5	10.5	9.4	8.4	8.1
New Zealand	-4.2	-5.3	-3.8	..	..	..	..
Norway	5.9	5.6	5.2	4.2	9	10.1	..
Poland	12	10.6	8.4	9.9	6	5.3	4.1	8.8
Portugal	..	..	3.6	4.5	4	..	..
Spain	..	..	5.9	5.7	5.7	6	4.6	10.6
Sweden	3.1	2.1	3.2	8.6	9.2	9.2	8.7
Switzerland	12	11.2	13.2	13	9.9	9.9	9.1
United Kingdom	2.1	0.5	0.5	2	0.5	0.7	-0.7	2.7
United States	4.5	2.5	2.4	1.8	2.5	2.4	1.9	0.7
Euro area	10.4	9.3	9	9.5	9.9	9.7	..

I am not as frugal as my grandfather. So, I can't really give much saving advice.

Here are 5 things I do:

1. I avoid Starbucks/Coffee Bean. Why would I pay $5 for something that costs 10 cents?
Would you pay 50,000 won for one 김밥? That's what you're paying for coffee.

2. Eating at restaurants. I love eating at restaurants, but I only do it once or twice a week. Usually, I cook dinner at home. I can make a steak dinner for $7 as opposed to $22 at Outback Steakhouse. And my Italian food tastes better than the pasta at most Italian restaurants.

3. Buy online. I buy almost everything online because it costs less.

4. Clothes. I love clothes, especially brand names like Banana Republic, Calvin Klein, and Donna Karan. However, everything I buy is on sale or from an outlet. I never pay more than $30 for a shirt. My Calvin Klein and Levi's jeans cost $26. If you ever travel to the U.S., I'll tell you exactly where and when to shop.

5. Maximize your air miles. I like to travel, but I don't like paying for airplane tickets. I've had free tickets to the U.S., Shanghai, and Tokyo. In fact, I've flown to the U.S. twice for free.

How do you save money?