Thin Line Between Crime and Sloth

From out of the Tampa Bay area in Florida comes a story of a young man who appeared to be embezzling money from his employer, a phone company called MetroPCS. He was responsible for taking MetroPCS' deposits to the bank, but after a while it became apparent they weren't getting there. Investigators soon found a total of $18,000 in bank deposits stashed in the young man's closet. That represented two weeks' worth of deposits for the company.

He was charged with grand theft, a felony. But at his trial, he came up with an excuse: It wasn't that he was stealing the money, it was simply that he hadn't had a chance to get to the bank yet. We've all had days like that, haven't we? Or weeks like that, as in this case.

The judge apparently had, because the man pleaded his case down to the misdemeanor charge of petit theft. He got away with a year's probation and 50 hours community service. And, presumably, a new habit of going to the bank on time.

Visa's Upswing

We've talked before about signs that credit spending has been increasing, signaling not just a rise in consumer confidence but an expansion in the amount of money American have been spending - which is of tremendous good to the larger economy. This week we got the strongest data point yet: Visa announced that its fiscal second-quarter profit was up 33 percent over the same period in 2009. It also said that payment transactions were up 14 percent from a year earlier.

Visa, remember, doesn't actually issue any credit cards; it's a payments network, processing transactions for member banks like Capital One and Chase. Visa's income for the three months ended March 31 was a relatively paltry $713 million; by contrast, Capital One had revenue of nearly $4 billion in the last quarter. Although we tend to refer to our credit cards as Visa cards (or MasterCards), the Visa side of the equation is not nearly as significant as the issuing bank. So that means Visa's figures are a pretty pure representation of credit card usage, and not a result of jacked-up interest rates or any other factors that go into Capital One's revenue.

Total payments by people using Visa cards rose 3.4 percent in the quarter; this was the first quarter showing an increase since 2008. Credit card payments are kind of a reverse of the tragedy of the commons - it's a bad idea for any one individual to rack up a lot of credit card debt, but it sure can be helpful for society as a whole.

More Bad News for Greece

Despite the positive thoughts we had about the resolution of the Greek crisis last week, the whole situation took another step backwards yesterday. The $60 billion emergency-aid package that seemed to signal a turnaround wasn't enough to keep Standard & Poor's from dropping Greek bonds to junk status. Greece, a member of the powerful European Union, is now considered no more creditworthy than Azerbaijan.

What does that mean for the world's economy? First of all, it means that Greece, already in tremendous debt, is going to have to pay even more money to get investors to buy its bonds. Yields on two-year Greek notes are a staggering 18 percent. That reflects S&P's concern that Greece will default on these bonds and never repay them, which is start to look more and more like a real possibility. 

The worst-case scenario is that Greece - and possibly Portugal as well - defaults on its debt and leaves the euro community until it gets it fiscal house in order. That would be an extreme case, but if the other European nations have no interest in propping up Greece, that would confine the damage to Greece and the poor saps who bought all of its debt (which does include several other European governments). It promises to be a messy procedure, but if Greece and perhaps Portugal are the only nations that end up defaulting, it shouldn't have too strong an effect on the American economy. We shall see.

On Guard Against Irrationality

Do you behave rationally in your financial decisions? A professor at Duke University, Dan Ariely, describes most people's behavior as "Predictably Irrational." He's written a book on the topic and is the subject of an article in a recent issue of Investment Advisor, where he talked about why people make common mistakes with their financial plans. See if any of his findings apply to you:

* Are you asking the right questions? Ariely says that one of the causes of the housing bubble is that people started asking themselves "How much house can I afford?" rather than "How much should I spend on a house?" When you can't figure out the answer to a question, maybe it's' time to step back and ask yourself if you're even looking at the problem in the right way.

* Are you in the proper emotional state? Taking big losses or big gains in the stock market can create an emotional state wherein an investor is willing to take even bigger risks. People make their best, most rational decisions in a cool emotional state. If you've had a substantial change in your financial state, think about whether it's the right time to make the most rational decision.

* Are you using money when you should be giving of yourself instead? If you run a business, money is an expensive way to create worker loyalty. It's easier on everyone to create a social model wherein the business cares about its workers in areas like sick leave and team-building. A rival can always offer your employees more money, but no one can steal them by promising more of a family environment.

Ariely's next book will be called The Upside of Irrationality. That will be worth keeping an eye on as well.

The Crude Oil Question

As other aspects of the economy have gotten stronger lately, the price of crude oil has also been headed upward. Many people in the media are quick to ascribe these prices to the good economic news, and while things are probably not that simple, at the same time there is probably something to it.

The logic goes like this: As the economy comes back to life, more people will have jobs, and be able to afford bigger houses, and drive to work and go on vacation. All those things increase fuel consumption. Following a report last week that new-home sales had risen 27 percent, crude-oil futures jumped 1.7 percent in a single day. A barrel of crude oil now costs more than $85 for the first time since October 2008.

Here we see one of the downsides of the growing economy. No one wants to pay more at the gas pump, or more for heating fuel next winter. And the rise in oil prices may result in an increase in the inflation rate; although energy prices aren't included in what's called core inflation, they are a factor in the Consumer Price Index employed by the Federal Reserve. And of course, rising gas prices tend to cause an increase in other prices, such as for goods that need to be hauled by trucks. So while the rise in crude oil prices may reflect the growth in the economy, it could paradoxically be a factor in its eventual slowdown.

A Housing Rebound?

There are several signs out this week that may be signaling that the housing market has moved past its bottom into a full-fledged recovery. First of all, existing-home sales jumped 6.8 percent in March, and are up 16 percent over the rate of March 2009. We now have roughly an eight-month supply of available homes, down from eight and a half months in February; the rule of thumb is that we need six months' inventory to have a healthy market.

More intriguingly, the Wall Street Journal reported that home builders in Arizona have started buying up land. There was actually a bidding war for some developed land in the Phoenix suburb of Gilbert, and there are reports of big land purchases around the country. At the very least, these people expect the price of land to increase sometime in the near future, if not the price of houses.

Home builders certainly have some of the best knowledge of where the real estate market is headed - and the most to gain from placing their bets properly. It's nice to see that even in an area like Phoenix, which was ravaged by the deflation of the housing bubble, people still see opportunities for growth.

The New C-Note

The Treasury Department announced yesterday that it will introduce a new high-tech $1oo bill next February, with a Liberty Bell that changes color when you look at it from different angles. The idea is to make the hundred even more difficult for counterfeiters to replicate.

Interestingly enough, the hundred is more popular overseas than it is here at home. Fed chairman Ben Bernanke said, "We estimate that two thirds of all $100 notes circulate outside the United States." That's a total of 6.5 billion Benjamins, or $650 billion, of American money in foreign pockets.

It also suggests that holding American hundreds is a choice for these people, who could be carrying around their homeland's money if they so chose. The $100 overhaul may make these bills more secure, and even more attractive, around the world. If so, that's a good reason for the redesign.