There are no benign conflicts of interest

Back in January I wrote about the problem of conflicted advice, and the solution:

"Your stockbroker, your insurance agent, and your affiliate blogger are all required to disclose their conflicts of interest, and do so dutifully. The problem is that disclosure of conflicts of interest does not have any impact on the quality of the advice provided, and may perversely lead you to trust the conflicted party more, not less.

"Let me be clear: the logical response to "I may be compensated based on your choice of mutual fund/insurance product/credit card" is not to discount the advice given by 10%, or 20%, or 50%.

"The logical response is to discount the advice given by 100%."

Yesterday a remarkable article from the Milwaukee Journal Sentinel crossed my Twitter feed (via @MilesperDay). The following passage startled many people: 

"Trusted websites such as TripAdvisor, Expedia and others have strict policies limiting what is allowed to be included in online customer reviews.

"So while readers might learn that a resort's seafood isn’t fresh and the beds are too hard, they won’t typically hear that guests were assaulted on the property or that they believed a bartender slipped something in their drinks.

"When guests interviewed by the Journal Sentinel tried to describe what happened on those sites, they said their comments were rejected."

There's no mystery what's going on here. Websites which receive their income from hotel reservations booked through the site are not in the business of providing a clearinghouse for user reviews of their hotel stays. They allow users to submit reviews as an ancillary source of content for their actual business: selling hotel rooms.

Reviews, even negative reviews ("beds are too hard"), are no threat to the underlying business since someone booking away from a negatively-reviewed property towards a positively-reviewed property still generates referral commissions.

The reviews that pose a threat to the business are those which cause someone to decide not to travel to Cancun at all because people are being drugged and raped in Cancun.

This is a useful example of the aphorism from my post in January: if you are not the customer, you're the product.

There are no benign conflicts of interest

At this point the analogy between credit card affiliate bloggers and hotel booking sites is hopefully obvious: unless special bounties are being offered for certain credit cards, it is much less important to your affiliate blogger which credit card you get than the fact you get credit cards — as many as possible as often as possible. The only advice you'll never hear is "the only credit card most people should carry is a no-annual-fee, no-foreign-transaction-fee, chip-and-PIN cash back card."

In other words, the conflict of interest between credit cards that pay affiliate commissions and those that don't is a relatively minor subset of the vast conflict of interest inherent in selling credit cards for a living: the preference for credit cards over not credit cards, just like Expedia's conflicted preference for travel over not travel.

I'm conflicted too — proceed accordingly!

While I may come across as some kind of fire-and-brimstone frontier preacher, every single thing I've said applies in full to my own blogs. This is a for-profit enterprise, after all! If you're reading this in a browser, you can see up top I have a disclosure:

"Disclosure: to the best of my knowledge, the only remuneration I receive for any of the content on this site is through my personal referral links, my Amazon Associates referral link, the Google Adsense ads found in the righthand sidebar, and my blog subscribers, who also receive my occasional subscribers-only newsletter. You can find all my personal referral links on my Support the Site! page."

As you can see, I'm hopelessly conflicted. I have personal credit card referral links, and while it's true that means I can only refer people to credit cards I actually carry, it also means I will benefit personally if my blog convinces readers to apply for an American Express Hilton Surpass card or Delta SkyMiles Business card (the only referral links I currently have available). Proceed accordingly!

I also have Amazon Associates links, so if I write about a book or object (since Amazon sells everything) I benefit if readers use my links to buy the thing. I don't provide Amazon Associates links to specific products, but it's still a conflict if I benefit from my readers' actions. Proceed accordingly!

I also have Google Adsense ads, and (I assume) writing about certain products or services changes the ads that appear there. So if I knew that a certain kind of ad paid especially well, I could write about that topic and try to bump my ad revenue in that way. In other words, I'd be writing for the Adsense engine, not for the benefit of readers. Proceed accordingly!

And of course the overwhelming majority of my income comes from blog subscribers, who also receive my periodic subscribers-only newsletters. That gives me an incentive to hold back content for newsletters, and it influences what I write about since I benefit when additional people become blog subscribers. Proceed accordingly!

Conclusion

Conflicts of interest, as I hope I've made clear, aren't inherently good or bad. The fact that my Adsense revenue increases when my writing attracts more readers may make me a better writer who writes on more timely or interesting topics, for instance, or it may cause me to write about topics which generate more lucrative ads. The same conflict, in other words, can have different outcomes.

But while disclosing conflicts of interest is an important legal requirement, and identifying conflicts of interest where not disclosed (like Expedia's preference for travel over not travel) is a critical task, both will prove pointless unless you take the additional step of synthesizing the content, conflicts and all, in order to reach decisions which, ultimately, you alone will benefit or suffer from.

Giving up on Drop? Unlink your accounts!

For the last few weeks a lot of us have been messing around with the "Earn With Drop" smartphone application.

As you may have seen around the blogosphere (Miles to Memories, Angelina Travels), Drop has suddenly cracked down on potentially lucrative uses of the application, as well as on folks who were just using it to grind out worthless points here and there on their everyday purchases.

It doesn't matter what I think, but...

Whenever these opportunities come along people get into the speculation game, and trust me, I'm no exception.

So let's speculate.

First of all, the company's current business model is clearly unsustainable, which they discovered (along with the rest of us) when they found they couldn't meet the redemption requests coming in for gift cards out of the limited amount of venture capital they had raised so far.

Second, the company may be in violation of certain banking and international currency rules, since they're based in Canada and for some reason have failed to incorporate a US-based subsidiary. That means not only are they transmitting bank transaction data internationally but they're also sending money across the border in the form of gift cards to folks who have inputted nothing more than an e-mail address. I'm not a lawyer (and I'm definitely not your lawyer), but there are rules on cross-border financial flows that this gift card nonsense is clearly indifferent to. 

Third, they've changed their Terms and Conditions page to exclude the kinds of transactions many of us were doing after the relevant transactions had occurred. Ordinarily I would say that's a violation of US law, except it's a Canadian company acting as a fly-by-night operation in the United States, so who knows what laws it violates?

All this stuff will get to court eventually, probably civil, maybe criminal, and I'll cash my $0.85 settlement check when it arrives.

That's not what this post is about.

Unlink your accounts before you delete Drop!

This post is about reminding you, before you delete the Drop app, to unlink any bank and credit card accounts you had linked inside the app! If the company does have a business model (an open question), it revolves around monetizing your transaction history. If you delete the app without unlinking your accounts, they'll keep monitoring and monetizing your transaction history until they go bankrupt and get acquired by someone even less scrupulous than them (if that's possible), who will do even more terrible things with your transaction history.

Don't let that happen. Unlink your banks and credit cards as soon as you suspect your account has been frozen.

Then grab some popcorn and wait for the fireworks.

Points For Trips award strategy tool review

A while ago the founder of the website Points For Trips reached out to me to advertise on this blog (you can see their ad in the righthand sidebar). I told him I'd not only sell him ad space, I'd review his site, too. Lest my beloved readers doubt my impartiality, I did make him pay me first:

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It is challenging to structure information in a useful way

As travel hackers gain experience, they invariably start to build mental models of the travel hacking universe that help them organize everything they've learned. These models can take a wide variety of forms. Some bloggers simply write a single post about every flight they take on every airline as a sort of encyclopedia of award redemptions they can Google later. Others focus on award programs individually, so they can refer to a single post to see all the sweet spots offered by a given airline or hotel loyalty program. You can see my own personal organization in the righthand sidebar, where I break down loyalty currencies into the various chapters of my ebook.

There's no right or wrong way to organize your knowledge of loyalty programs any more than there's a right or wrong way to organize your closet, as long as you know where everything is.

Points For Trips tries to build rewards strategies around specific itineraries

Websites like Points For Trips and AwardAce, which I've reviewed in the past, attempt to organize knowledge about the world of travel rewards programs by taking a user's desired trip and returning the loyalty programs that make it possible on points.

This is a promising approach! As I've been saying for years, the point of travel hacking is to pay as little as possible for the trips you want to take, so taking "the trips you want to take" as input is much better than the backwards logic of planning a trip because an affiliate blogger pitched you on some hotel where you can redeem Hyatt free night certificates.

How Points For Trips is supposed to work

The Points For Trips homepage looks like any travel booking engine, albeit one without any dates. After entering your origin and destination, you select an airline rewards program and hotel loyalty program, or a specific hotel. Points For Trips then spits out a list of credit cards that earn the required points, some or all of which I assume are affiliate links.

This works pretty well! I inputted my trip to Jamaica and Points For Trips accurately identified that Southwest offered nonstop flights and accurately listed both the standard and suite redemption rates at the Hyatt Ziva and Zilara Rose Hall. The list of suggested credit cards is also pretty good. These are more or less the same cards I would recommend to someone planning a Southwest flight and a stay at a Hyatt resort:

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An expert is going to find things to quibble about

In a stroke of bad luck for Points For Trips, the very first search I did on the site was for First Class seats between the US and Europe, and since I've got Korean Air SKYPASS on the brain lately, I selected that program to redeem points:

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100,000 miles is, indeed, the cost of a First Class redemption to Europe according to the Korean Air SKYPASS award chart.

The problem is, you cannot redeem 100,000 SKYPASS miles for First Class between the US and Europe. The only SkyTeam partner that offers First Class across the Atlantic is Flying Blue, and you can't book La Première with SKYPASS miles.

Accuracy matters

Is that a minor quibble? You betcha! But the point of these tools is supposed to be to make the experience and wisdom of experts accessible to beginners. If the tool returns a mistake that no expert would make, the tool isn't doing its job.

Likewise, I don't know how the credit card suggestions are sorted, but this is what Points For Trips returns for a trip with a Korean Air redemption and Starwood Preferred Guest stay:

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Now, to be fair, it is technically true that Membership Rewards points can be transferred to Starwood Preferred Guest. Consulting my own flexible points page, I see that the transfer ratio is 1000 Membership Rewards points to 333 Starpoints. That means Points For Trips is ranking a $550 card with a 20,000-Starpoint signup bonus above a $95 card with a 25,000-Starpoint bonus.

The founder seems like a nice guy so I'm perfectly willing to give him the benefit of the doubt that this is just an oversight. But, again, it's the kind of oversight no human travel hacker would make, which means the site's not doing its job in delivering high-quality advice to beginners.

Conclusion

Much like computer-assisted chess players perform better than both computer chess players and human chess players, I think Points For Trips could be a useful tool for knowledgable travel hackers to source ideas for strategic redemption opportunities. In its current form, however, I wouldn't rely on it to be the first or last word when planning a redemption or round of credit card applications.

Washtubs, not teaspoons

A few years back, reclusive travel hacking personality Mr. Pickles started tweeting pictures of a gas pump dispensing hundreds of gallons of gas for free and asking "what am I filling up?" Twitter's an elusive medium and I can't dredge up the actual thread (send me a link and I'll update this post!), but as I recall it ended up being a large wheeled diesel generator of some kind. There's nothing special about a travel hacker being able to buy gas for next to nothing, if they have access to the right stores during the right promotions, but Mr. Pickles didn't just have free gas: he had a plan.

In Warren Buffett's latest shareholder letter he wrote:

"Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do."

Many people in the country today are in the midst of such a downpour, which has got me thinking about the ways a travel hacker can equip herself with washtubs, not teaspoons.

Maintain a diverse collection of credit cards

I've been taking advantage of the current promotion with my Hilton Surpass American Express and US Bank Flexperks Travel Rewards cards, which I consider worth manufacturing spend on even in the absence of a promotion. But reasonable people disagree, and might instead manufacture spend primarily at unbonused merchants using cards like the Starwood Preferred Guest American Express or Chase Freedom Unlimited. Most of the time, that's a perfectly defensible decision. But when an opportunity like the current one comes along, it leaves those people at a disadvantage compared to people who keep one or more credit cards bonusing grocery store spend.

Manage credit lines

Like most travel hackers I have a general awareness of my reported credit card utilization rate, but unlike many travel hackers I don't really care about that rate, since my practice focuses mainly on manufacturing spend, not accumulating signup bonuses. However, being sure that you have the credit lines available to maximize an opportunity while it exists is a totally separate question. It's absolutely worth thinking in advance about how you'll open up credit limits suddenly when a unique opportunity emerges. How fast can you liquidate your spend in order to create additional headroom? Even if you manufacture relatively little spend, you might consider having a plan in place when a particularly lucrative opportunity comes along.

Come up with a plan

The benefits of the current promotion expire on April 6, which means there are two different timelines: the deadline to earn additional benefits and the deadline to redeem them. There's no point earning benefits that won't be used, or using benefits for things you don't want. That means I've been spending a lot of time looking around my apartment thinking, "what can I buy today that I'm certain to use eventually?" If you're hitting this opportunity hard, you may need to think further outside the box than usual. A few suggestions:

• Paper goods: Paper towels, toilet paper, facial tissue, coffee filters.
• Occasionally used products: batteries, lightbulbs.
• Toiletries: toothbrushes, toothpaste, soap, feminine hygiene products, razors, deodorant, shampoo.
• Canned goods.

Of course, the best time to come up with a plan is in advance, which is what Mr. Pickles did. I'm not saying you should buy a diesel generator just in case an unlimited free gas opportunity arises. But I am saying Mr. Pickles did and was able to hit that opportunity as hard as humanly possible.

Give stuff away

Once you've stocked up on everything you can possibly imagine needing, it's as good a time as any to think about folks who have unmet needs. I don't particularly care if you think of this as "charity" or as "paying it forward" or as "sticking it to the man," but if you have the ability to make somebody's day by giving them free gas, free groceries, or whatever else your travel hacking practice gives you free or cheap access to, then I think it's worth considering.

Conclusion

I happen to be in a position to take advantage of the current promotion fairly aggressively, but it should be obvious that I'm trying to frame this discussion in more general terms. If you don't have a plan in place in advance of a promotion, you're more likely to waste valuable time coming up with one while the promotion is ongoing.

The advantages of prepaying for travel at a discount

I have never belonged to the "travel is free" school of travel hackers, not because I don't think there are free or negative-cost methods of manufacturing spend (there are) or because I think my time has intrinsic value (it doesn't), but for the much simpler reason that most techniques that can be used to generate travel rewards can also be used to generate cash back. No matter how cheap or profitable your travel hacking is, the same techniques can often be used to generate some amount of cash back; that cash is the price of your "free" trips.

Now, there are a few exceptions. The IHG Priceless Surprises promotion didn't have a "cash back" option (although I did make some money when I sold the Bose speaker system I won). Likewise if you had 24 paid stays or 49 paid nights at Hyatt in 2016, you could pay for one additional stay and get a free night at any Hyatt in the world when Hyatt Gold Passport switched over to World of Hyatt. That's good old-fashioned travel hacking, with no obvious cash back equivalent.

But if you earn most of your loyalty rewards from manufactured spend, fulfillment by Amazon, or reselling private label products, you can almost always choose to earn cash instead of travel rewards. That's the simple reason I think travel is almost never free.

Instead, I prefer to think of my travel hacking practice as prepaying for travel at a — sometimes very steep — discount.

Prepaying for travel can save you money

This is obviously the most attractive reason you might choose to earn rewards currencies instead of cash back. If you need to choose between earning 1.5 Ultimate Rewards points with a Chase Freedom Unlimited card or 2.625% cash back on a BankAmericard Travel Rewards card, the obvious reason to do so is if you expect to get more than 1.75 cents per Ultimate Rewards point, for example on a premium cabin United redemption, expensive Hyatt stay, or Wanna Get Away fare on Southwest.

While I mentioned manufacturing cash versus rewards currencies, there are other ways to prepay for travel at a discount: Hyatt gift cards, for instance, are often on sale for 10% or more off face value, allowing you to "lock in" savings by purchasing gift cards on sale and redeeming them over time as needed.

It's more convenient to spread travel spending throughout the year

The other day I was chatting with a travel hacker who consults with businesses to use rewards to lower their travel costs and started thinking about the way a firm could use rewards earned throughout the year on business expenses to avoid month-to-month fluctuations in travel costs. After all, if you absolutely have to go to Louisville for business in May during the Kentucky Derby, you don't have the choice of paying the October cash rate — but you do have the option of paying the year-round points rate if, of course, you can find a standard room available.

This is more or less how I think about my Delta SkyMiles. I earn a block of SkyMiles each year with my Platinum Delta SkyMiles American Express card at a fixed cost, and then redeem them for my Delta flights whenever appropriate. Sometimes (hopefully more often than not) I save money compared to a cash back or fixed-value points card and sometimes I don't, but I don't have sudden Delta flight expenses as long as I have enough points to cover my flights.

This is partly what Frequent Miler calls "the joy of free:"

"When you book travel using miles & points, it may feel like your trip is free (or nearly free), regardless of how many miles and points you spend. If so, the pleasure you get from spending points and miles may greatly outweigh the pleasure you’d get from paying for the same trip with cash. In this case, miles & points are arguably (and ironically) worth more to you because you do not value them like cash."

But there's a more serious side to it as well. Travel expenses that can't be covered by existing points balances and have to be charged to a credit card require you to have cash available to pay off those new charges, lest you be stuck paying interest charges that quickly devour any profit or savings from your travel hacking practice. If you aggressively invest as much of your monthly cash flow as possible (have I mentioned my new blog, Independently Financed?), then having additional cash on hand to cover credit card payments necessarily disrupts the pace of your investments.

In other words, there are potential advantages to steadily building up and redeeming an inventory of travel rewards currencies even if you save relatively little in out-of-pocket expenses.

Some people need a permission structure to travel as much or as well as they'd like

Reader ed commented the other day:

"once a certain cache of points is retained, a freedom opens up to divert efforts toward cash back while still retaining flexibility for award-based travel. It would seem perfectly OK to me to pay for that increased flexibility even if I didn't use it. Therefore, I'm not sure that points that go unredeemed are without value. The value may simply be to clarify what my priorities are in the present moment, while retaining the means to travel on very short notice."

I think this is an interesting point that I don't always fully take into account. It's not just that traveling for "free" is more joyful, as I quoted Frequent Miler writing above, but that some people need the permission that paying little or nothing out of pocket provides in order to travel at all. A person who's both frugal and wants to see the world may need the impetus of high or even excessive points balances, hopefully cheaply acquired, in order to give herself permission to take the trips she's always dreamed of.

In this spirit, the constant drumbeat of devaluations may actually be a positive for the reluctant traveler! A trip that's affordable today might not be tomorrow, which may be enough to get someone out the door.

Conclusion

I love earning cash back, and try to earn as much of it as possible each month. But I admit that each of these different motivations drives me in part to earn rewards currencies in lieu of cash back: there are rewards currencies that I know will invariably save me money compared to cash back, there are rewards currencies like Hilton HHonors points that are so easy to earn and redeem that I'm able to spread my hotel spending evenly throughout the year, and there are currencies I accumulate just to give myself permission to book trips I might otherwise consider too expensive.

While the three rationales may differ in the degree of their economic "rationality," hopefully there's more to life than maximizing a utility function.

Doubt, skepticism, and risk management

Late last week there was a widely-publicized deal allowing you to earn 150 Avios per dollar spent at Match.com (with follow-up here). I had an exchange on Twitter with Ralph at PointsCentric that got me thinking about an issue that comes up fairly regularly in any travel hacking practice: the intersection of doubt, skepticism, and risk aversion.

I doubt nothing

Every travel hacker knows the feeling early on when they say to themself, "there is no possible way this will work," only to discover that it does. Doubt gets pounded out of you fast when you're regularly being paid by banks and merchants to shuffle money in, around and through them.

That's why I doubt nothing, and am willing to evaluate any deal at face value: what's the out-of-pocket cost, how much will I earn in rewards, what's the potential upside of the deal compared to other opportunities?

I'm skeptical of everything

In this case, the best case scenario was purchasing roughly 82,000 British Airways Avios for roughly $550, or 0.67 cents each, a 33% discount compared to transferring Ultimate Rewards points (worth one cent each) to British Airways.

Next, you can start considering the risks:

• The purchase won't track properly;
• The purchase won't track at all;
• The deal will be retroactively changed or revoked;
• Your account will be closed for abuse.

It turns out that what appears to have happened so far is that points were only awarded for "base" subscription amounts, not any additional features added to the subscription, meaning people who "maxed out" the deal earned 30,500 Avios for $550, paying roughly 1.8 cents per Avios.

Let me be clear: I did not predict this in any way, and am not taking credit for being prescient. I stated clearly in the Twitter exchange I linked to that I expected they would honor the deal (as they partially did). What I did say was that "you can buy Avios for one cent each year-round. The extent of the discount is the extent of your confidence." While I thought they would honor the deal, my level of confidence was extremely low, far too low to commit $550 to finding out whether my prediction was right or not.

It does sound like people are being refunded their Match.com subscription fees upon request, so those folks who jumped on the deal will, fortunately, be made whole.

Risk management is the intersection of belief and skepticism

There are two rules that are as true in travel hacking as they are in virtually any other field of human endeavor:

• The majority of gains accrue to those willing to take the most risk, and;
• The majority of losses accrue to those willing to take the most risk.

While I'm willing to take unlimited risk in my investment portfolio, I'm willing to take virtually no risk in my travel hacking portfolio. For me, travel hacking is about easy, consistent wins: I can calculate my profit on manufactured spend down to the penny, and I can fully comprehend the (not inconsiderable) risks.

I wrote back in January about a relatively speculative play I made, counting on an increased portal payout that never arrived. For that play I managed my risk in several ways:

• I made the purchase on a card the statement closing date of which had just passed, giving me the benefit of a full statement cycle and grace period to determine if the purchase would track and post properly;
• I made the purchase from a merchant with a generous, extended return period, ensuring that if the purchase failed to track properly (as it ultimately didn't) I wouldn't have to resell the merchandise at a loss.

As I explained in a recent subscribers-only Newsletter, I ended up making a small profit on the deal anyway, but I was only willing to pursue the deal in the first place due to the risk-management I had available.

Conclusion

When these time-limited deals come along, the fear of missing out that is the object of much popular fascination swings into action.

My basic view is that people should have a perfectly rational fear of missing out on the experiences they want to have, while trying to assuage that fear with respect to a particular deal or particular opportunity is far more likely to lead to expensive (or at least time-consuming) errors.

It's perfectly reasonable to relentlessly chase every deal that helps you achieve your goals, while only pursuing the fashionable deal of the moment after the most careful consideration.

Money is fungible, but only if you funge it

Back in October, over at the Saverocity Observation Deck podcast Joe Cheung interviewed Noah from Money Metagame and they discussed a post Noah wrote last year asking the question, "Is Anyone Actually Saving Money By Travel Hacking?"

Read the whole piece, as they say, but rather than respond directly to him, I am going to be more proactive and explain how how you really can save money using the tools of travel hacking.

Money doesn't funge itself

Perhaps after opportunity cost, the fungibility of money is one of the most popular concepts from economics applied to travel hacking. If money is fungible, then it doesn't matter how you earn income: whether from employment, reselling, manufactured spending, or high-stakes poker, every dollar you earn goes into the same pot, out of which you make decisions about consumption and savings.

This is true as a description of money, but need not be true about your own behavior towards money.

Ringfence your profits

One way to turn your travel hacking into asset-building is to identify and isolate your profits from travel hacking and direct them exclusively towards long-term asset accumulation. For example, if you have a Fidelity Visa Signature card earning 2% cash back, you're already depositing your cash back each month into a Fidelity account. Instead of withdrawing it into your regular checking account, where it will funge with all your other money, put it into a separate account (I personally use a Consumers Credit Union Free Rewards Checking account that pays 3.09%+ APY).

The key point is that it has to be additive. If you already have an IRA housed with Fidelity that you would max out each year anyway, you aren't increasing your savings by depositing cash back rewards into it, you're just changing the funding stream. Instead, you could open a brokerage account and use your cash back rewards to fund investments in that account.

Buy travel from yourself (with a friends and family discount)

When I'm booking travel for other people, I normally charge them either the cash value of the points I redeem or the fairest price I can think of, for example one cent per mile for airline miles and half a cent for Hilton Honors points. Since in virtually all cases I would rather have money than miles and points, this is usually a way to get my friends and family big discounts and turn my stagnant balances into cash — a win-win.

I don't pay myself for travel I redeem on my own behalf, but you could! After all, if you treat a 25,000-point Hyatt redemption as "free," instead of costing as it does $250 in transferred Ultimate Rewards points, you might travel more than you really, objectively speaking, can afford to. If you instead sold travel to yourself (with the same friends and family discount you'd give anyone else) and moved money permanently into an investment account or other place you were sure you wouldn't spend it, you might develop a more tangible sense of the costs of your "free" travel.

A related issue arises when you redeem bank points like those earned with the BankAmericard Travel Rewards card, Capital One Venture, or Barclaycard Arrival+ against travel purchases: the redemption really does reduce your outstanding credit card balance, and so is clearly some form of "income," but you never actually see a deposit into a bank account. Instead, you simply don't pay off part of the credit card balance you incurred booking your travel. "Buying" travel from yourself is a way of dealing with this curious situation and converting hypothetical profits into long-term assets.

Liquidate into your net worth, not your bank account

I've written before about using Plastiq to liquidate tiny-denomination prepaid debit cards, like the balances left over on 5% Back Visa Simon Giftcards (you can find my personal referral link on my Support the Site! page). Plastiq has a lot of billers in its database, so you might be tempted to use it to pay monthly recurring bills, like your rent or utilities. But making those types of payments won't help you accumulate assets, they just leave extra cash in your already-funged checking account.

Instead, you could deliberately target those payments towards long-term debt reduction, like making additional payments towards your mortgage, auto loans, or student debt. That way, instead of replacing payments you are already making anyway, you're using travel hacking to pay down those debts more aggressively and both increase your net worth and reduce the interest you'll pay over the life of the loans.

Conclusion

The economics professors in my audience are welcome to tut-tut me for suggesting such degrading psychological tricks, but it seems crystal clear to me that if you don't use one of these or some other method of isolating and investing your profits from travel hacking, then it's exceedingly unlikely to actually improve your overall financial position. On the flip side, a few additional thousands of dollars invested in sensible low-cost index funds have the potential to turn your short-term travel hacking profits into long-term financial success.

Maybe just show up to a Global Entry interview without an appointment

I've never had a card that offered Global Entry or Precheck fee reimbursement because I don't pay $450 annual fees, but a generous reader with many, many more such credits than he could ever use insisted I use one to pay my Global Entry registration fee (thanks, SD!).

This being the federal government, all the Global Online Enrollment System, or GOES, requires is the credit card number and verification code of the credit card used to pay the enrollment fee; they don't verify the billing address or zip code of the credit card.

I have three regional Global Entry interview locations relatively close to me, but since I wasn't in any rush I didn't shop around and simply selected the first interview time available in downtown DC. It was months in the future, and I completely forgot about it.

After I rescheduled the appointment to yesterday, I diligently set up calendar reminders on my phone so I'd be sure to make it. I had a 2:45 pm appointment, and gave myself plenty of time to get there, arriving at 2:19 pm. By 2:39 pm, I had completed my interview and was walking out the door.

Maybe just show up?

As far as I can tell, the Global Entry interview appointment system allows one interview to be scheduled every 15 minutes at a given location. But at an actual Global Entry interview location, there are multiple agents working and interviews take much less than 15 minutes.

I don't know if there's an official protocol, and frankly I don't know if the agents know if there's an official protocol either: when I showed up at my interview location there was just a ratty paper book where you wrote down your name and the time you arrived. There's also a line for "notes," where people at my location wrote down their scheduled interview time or "walk-in," but that appeared to have been made up completely by the people being interviewed; there were no instructions to that effect.

This is an extremely common phenomenon, where the objects of bureaucratic indifference organize their experience so it makes more sense than it, objectively speaking, does.

Agents have access to an eclectic range of data

The first question my agent asked me was "what was the purpose of your trip to Turkey?" My totally truthful response was, "I was connecting on a flight to Budapest."

Then he asked me about my business, and I told him about this blog, so he asked me, "so is your travel for business?" My totally truthful response was, "I try to be scrupulously honest about only deducting legitimate business trips."

Only as I was walking home did I realize all he was asking me was, "business or pleasure?"

So don't overthink the agent's questions. Just say "business" or "pleasure."

The agent also asked me if I'd ever been arrested "regardless of the outcome of the case." I told him I had and he asked me if it was for a DUI (drunk driving). It wasn't (I don't drive drunk), and I told him so, and he told me that his system was showing him "some notes." It didn't keep me from being approved so I have no idea what his "notes" were showing him, but the point is, their system has more-or-less real-time access to criminal databases, so don't lie if you've ever been arrested for anything!

Sustainability: value, cost, and risk

When a good deal comes along, especially if it doesn't have a designated expiration date, folks often talk about whether the deal is "sustainable" or not. The general idea is that if a deal is "too good to last," then it won't.

Of course, there are lots of ways a deal can end. If it's ended retroactively, those who jumped on it quickly will find they've wasted their time, or worse. If it's ended going forward, the prospective benefits of a credit card application may be cut short, or someone can be left with a garage full of merchandise they have to return or resell at a loss.

I think there are three slightly different issues related to sustainability that guide how I think about how long a deal is likely to last: value, cost, and risk.

High-value deals aren't particularly vulnerable

For $75 per year, anyone can carry a Hilton HHonors Surpass American Express and earn 6 HHonors points per dollar spent at grocery stores. Applied to certain high-value redemptions, like a 5-night stay at a premier property like the Conrad Maldives Rangali Island, that might work out to a roughly 14% return on your grocery store spend (for a sample reservation from December 31, 2017, to January 5, 2018).

That's a great value. And since it costs American Express just a fraction of the value the cardholder receives, it's not particularly vulnerable. After all, American Express doesn't care where you redeem your Hilton points, they care what they pay for them, and they pay much less for 6 HHonors points than they earn on your grocery store swipe fees.

Likewise, the US Bank Flexperks Travel Rewards card offers "up to" 4 cents per dollar spent at grocery stores, but it's not like you get a check every month. Instead, you have to save up enough points to redeem for a flight you're planning to book. Then you have to hope the fare is close to the top of a redemption band. It could take the average customer years to save up enough points to redeem for a single flight, during which time they've paid multiple annual fees and they haven't cost US Bank a dime — in fact, they've been a profit center. That's a high-value deal to the travel hacker that has nonetheless proven extremely resilient over time.

High-cost deals are vulnerable in the medium-term

Compare that to the original "old" Blue Cash card from American Express, which offered 5% cash back at grocery stores and drug stores. Admittedly, cash back accrued with a 2-month lag time, but you could earn unlimited cash back far in excess of any swipe fees on a card, and with no annual fee. The "old" Blue Cash card was a loss center, and American Express noticed. They shut down some heavy hitters and transitioned the remaining cardholders to the product they continue to offer, which limits bonused earning to $50,000 of spend per calendar year.

Banks and other merchants have proven willing, but not particularly skillful, at shutting down opportunities like this. When you find an opportunity that moves cash directly to you from a bank or merchant, it's a good bet the opportunity will be closed within 6-18 months.

High-risk deals are extremely vulnerable

In my experience, banks don't seem to mind customers who grind away at them day in and day out. The reason isn't any secret: acquiring a single customer who runs up credit card balances they're unable to pay off covers the costs of many people happily earning 1-2% per month. A fisherman doesn't get at angry at all the fish he doesn't catch; he knows the more fish there are, the more likely he is to land a big one.

But unprofitable behavior is different from risky behavior. Spending a multiple of your credit limit each month isn't likely to get you shut down because it's unprofitable — lots of things we do are unprofitable in the short term. Spending multiple times your credit limit each month is likely to get you shut down because it's risky — if you look like you're struggling to juggle your credit limits across multiple cards, it creates the (not unreasonable!) fear that a particular bank might be the one left holding the bag.

That's not to say risky deals aren't worth pursuing. They're often very worth pursuing! But the riskier your behavior looks to the other participants in a deal, the more rapidly it's likely to be shut down — even if it's no more or less profitable than a high-value deal that's been available for years.

"Lombard Street" is a marvelous little book

This is a review of "Lombard Street: A Description of the Money Market" by Walter Bagehot. You can find all my previous book reviews here. If you're interested in buying a copy, I hope you'll consider using my Amazon Associates referral link.

19th century Britain, like all capitalist economies before and since, suffered periodic banking panics, during which the entire banking system froze and the economy was thrown into deep recession as the population waited to see when, and indeed whether, confidence in the system would be restored.

Walter Bagehot's "Lombard Street" is a careful description of the mechanics and aftermath of these panics, written by someone who experienced several of them firsthand. It has, I think, two great virtues that make it useful to the modern reader: he was writing about an economy which was operating on the gold standard by default, rather than by intention; and most, if not all, of today's market phenomena already existed at the time of his writing, but operated at a much slower pace.

Bagehot treats the gold standard as a feature of nature, not a regulatory decision

Today any introductory economics textbook will explain to you the importance of banks in the process of "money creation." Banks create money by loaning out a majority of their deposits. When those loans are deposited in a bank (either the same bank or any other), that bank then loans out a majority of those deposits. In this way money is "created" (in excess of deposits) and entered into circulation. A bank's regulator can slow or speed the process of money creation by increasing or decreasing the proportion of each bank's deposits it is required to keep on hand.

Bagehot would reject this idea outright. Banks cannot create money. They accept deposits, and then they can loan out some portion of those deposits and accept, in exchange, some security. The total amount of "money" within the banking system cannot be increased or decreased through this process, because the total amount of gold reserves kept by the banks in reserve is fixed.

To Bagehot, cash is gold and gold is cash. He literally uses the words interchangeably.

Bagehot's panics were gold panics

The source of Bagehot's panics is obvious: the banks of 19th century England were engaged in money creation just as our fractional reserve banks are today, but unlike ours, his banks refused to admit it! So the amount of deposits redeemable on demand for gold was, in fact, far higher than the amount of gold available for redemption. If enough people suddenly sensed that the amount of gold available was inadequate to cover their deposits, they would rush to the banks and attempt to withdraw gold before everyone else beat them to it.

This happened with some regularity.

Bagehot's solution is our solution

Today the Bank of England and the Federal Reserve solve the problem of banking panics through the "discount window," where they offer liquidity to any bank in need of it to meet customer demands for cash.

This is precisely the solution that Bagehot describes, except Bagehot's Bank of England had an important limitation our modern system does not: the quantity of gold bullion held in its vaults. Thus the central banking problem of Bagehot's time was maintaining a high enough bullion reserve to meet demand in time of crisis.

In those times of crisis, Bagehot says the Bank of England should lend freely to any and all banks, accepting any "security considered good in normal times." This is, almost exactly, the legal restriction the Federal Reserve in the United States operates under, being forbidden by law from making loans to "insolvent" banks.

Economic crises used to be banking crises

One of the best chapters in "Lombard Street" is when Bagehot explains what happens when the price of a commodity increases:

"When the agriculture of the world is ill off, food is dear. And as the amount of absolute necessaries which a people consumes cannot be much diminished, the additional amount which has to be spent on them is so much subtracted from what used to be spent on other things. All the industries...are somewhat affected by an augmentation in the price of corn, and the most affected are the large ones, which produce the objects in ordinary times most consumed by the working classes. The clothing trades feel the difference at once, and in this country the liquor trade (a great source of English revenue) feels it almost equally soon. Especially when for two or three years harvests have been bad, and corn has long been dear, every industry is impoverished, and almost every one, by becoming poorer, makes every other poorer too. All tracks are slack from diminished custom, and the consequence is a vast stagnant capital, much idle labour, and a greatly retarded production." (p. 56)

This is what we would call today a "supply shock," with a sudden decrease in supply in one sector causing higher prices and a decrease in production economy-wide. But the important thing to remember here is that Bagehot is only able to describe an increase in the price of corn denominated in gold, or as he would call it, "money." Every change in supply and demand for a particular commodity is also moderated through the supply and demand for gold bullion.

That means a sudden shortage of corn, and resulting economic contraction, also results in a banking crisis as people realize their deposits were lent out to businesses who are suddenly unlikely to be able to repay them. Panic quickly sets in and each depositor is anxious to withdraw their cash before the bullion reserve is exhausted.

The only solution is a rapid increase in the interest rate to attract deposits of gold bullion from overseas, in order to meet the sudden demands on the Bank of England.

A fiat currency works on the everything standard

Developed economies today issue fiat currencies, which people sometimes claim means they are backed by "nothing." But of course dollars, pounds, and euros are backed by gold — they're backed by the amount of gold you can buy with them. They're also backed by the amount of land you can buy with them, the amount of beer you can buy with them, and the amount of refrigerator you can buy with them.

It's true that dollars and pounds used to backed by fixed amounts of gold, instead of market rate amounts of gold, but that just meant that everything else — all the stuff you actually wanted to buy — was mediated through the supply and demand for gold.

Now not just the exchange rate between euros, pounds, and dollars float based on market forces, but the exchange rate between gold, land, beer and refrigerators floats as well.

And best of all, there is not, and can never be, a shortage of the convenient, wallet-sized, digitally-accounted-for, currency units of value.

Conclusion

Bagehot's description of the money market is of a system that is based on the psychology, and whims, of a diverse group of market participants. It takes only the slightest rumor to send the bill brokers and private bankers dashing through the streets trying to shore up their balance sheets before complete panic sets in and the nation is ruined.

Basically, if you were alive in 2008, it will all be familiar to you. Bagehot's advantage over the chroniclers of the Great Recession is his fine prose and step-by-step analysis of the psychology and business practices of bankers of every sort, from the country banker to the Governor of the Bank of the England.