Posts Tagged BrotherJohnF
John Embry’s Presentation at the 2012 California Resource Investment Conference in Indian Wells near Palm Springs California
Truth About Cars reports European New Car Sales Have Worst February Of The Millennium
The European new car market crashed in February. According to data released by the European manufacturers’ association ACEA, new car sales were down 9.7 percent in February. Two months into the year, car sales in the EU are down 8.3 percent from the same period a year earlier.
Hedging against catastrophic loss is common-sense, and becomes more so as risk rises.
As a general observation, those with less wealth tend to be unhedged and those with more wealth tend to be hedged. In other words, hedging matters. Hedging has a clubby investment-speculation sound, but it basically means “insurance.”
Since there is a risk your vehicle could be damaged in an accident or stolen, you buy auto insurance to limit your loss should either of those unfortunate but not uncommon “bad things” occur.
“Middle-class” people (i.e. those with some financial security) have auto insurance, while “poor” people (i.e. those with little financial security) often do not. Thus when the accident occurs, the person without the hedge suffers a potentially catastrophic loss. Without a car, they can’t get to work, etc., and if they don’t have enough cash or credit to buy another car, then they have become much, much poorer.
Auto insurance is not free; rather, it is very expensive, especially for young people, so the temptation to forego that expense is high. Having no insurance is “playing the odds,” that is, betting that a bad thing won’t happen. Since the consequences of not having a vehicle are high in the U.S., then that is an intriniscally risky bet because regardless of where you place the odds, the potential loss is significant.
Homeowners buy a fire insurance policy to protect their house against the risk of fire, but the cost of this insurance is typically a very small percentage of the potential loss or value of the home. Auto insurance, on the other hand, is often a significant percentage of the vehicle’s value.
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