So, I was having drinks with the housekeeper…

So, I was having drinks with the housekeeper in East Hampton the other day and I commented on her new Louis Vuitton bag from the welovesprouse.com collection. Every few months she seemed to have a new one. Real ones, not the fakes.

Was she affected by the crisis, I asked? She replied very matter-of-fact that Housecleaning in the Hamptons is like Heathcare in America; it’s a recession proof industry. Even though she has steady income, she volunteered that she had to make choices in life...she's on a budget after all. For example, she nodded to her new Escalade parked next to my 1998 Ford F-150 and lectured me that she didn't opt for the platinum package because the gold package was good enough...and she wanted to save her money for handbags.

As we finished off a bottle of Wolffer Rose, I told her I was trying to better monetize Mr. Gatsby's Chic Experiences. Could she share some of her ideas as an entrepreneur?

She told me that gouging me $25 an hour was really a loss leader for her as she lit-up a cigarette on my terrace and asked me to get her an ashtray. She made her real money through "affiliate programs" and "repackaging".

Through a very structured network, she explained that she receives distribution "royalties" from an affiliation of gardeners, pool men, handymen and caterers whom she refers to her client base. The royalties she receives from referring into the program range from ten to thirty percent in perpetuity. Additionally, she bills the client hourly for meeting service affiliates, in effect double dipping.

When she helps cater events, often she is given left over bottles of alcohol, wine and champagne that she repackages and sells through the affiliate network. Open bottles are deeply discounted while sealed bottles are sold at a 20% discount below retail. Clients can also request to purchase alocohol from her inventory which she charges at full retail, plus delivery fee. Had I asked her to pick up the case of wine from which we were drinking?

Fascinated by this sophisticated revenue model, I wanted to learn more, but had to end the conversation as I saw the electrician pulling up in a Range Rover to adjust a dimmer in my cottage. Was he waving to me or the housekeeper?

I found it strange that the electrician was so quick to respond to my request which I had submitted only a few days earlier. As he came into the garden, something in his stride told me he wasn't here to adjust the light. The housekeeper sensing my disorientation, explained that she hadn't expected me to linger so long at the cottage given this was the off season. I then realized this house was effectively hers until Memorial Day. She had invited members of the affiliate program to the cottage for a cocktail party. Could I stay? Of course, but somehow the tables seemed to have turned as I found myself serving drinks and emptying ash trays...



(Legal Disclaimer: Characters are fictionalized in this story....)

YSL's Lalanne, my 401k and Thoughts on Real Estate

620 was meant to be my lucky paddle number at the YSL auction. The paddle was assigned to me last Friday and would be my ticket to investing in the “New Economy”.

There was a private viewing of the Yves Saint Laurent collection at the Grand Palais this past weekend with much pomp and pageantry….a lot of pomp and a lot of pageantry if you catch my drift. In addition to putting themselves on display, many had come to pay respects to Saint Laurent and peek at the articles of his private life.

I had my eyes set on several pieces created by Claude and Francois-Xavier Lalanne after having seen the estimates in the Christie’s Catalogue. Given the mood in New York when I left, I was hoping these particular pieces would go towards the low end of the auction estimates. I thought this would be a great time to invest! When I need to retire, in forty years I can sell these pieces for thirty times what I paid giving me enough money to pay for astronomical insurance premiums and bad health care.

In addition to being my nest egg, my small collection of art and furniture is also something that gives me pleasure every day. As for other investments, my 401k now is worth the same amount of the actual cash contributions I made, and I quit investing in it almost ten years ago. When paper shredders first came out, I enjoyed shredding papers at my father’s office. But shredding those incomprehensible 401k statements doesn’t seem so fun anymore, well at least not as much fun as collecting art, furniture, and real estate.

John Thain, the former CEO of Merrill Lynch, must have thought similarly when he commissioned Michael Smith to decorate his then office for a reported $1.2 million. Knowing Michael’s work, I’m sure he selected wonderful antiques and rugs that have a tendency to appreciate in value. I saw Thain on the news apologizing for using Merrill’s money to decorate his office as the press badgered him for squandering Merrill’s money on furnishings when the company was generating multi-billion dollar losses. After all, the company had earned the right to decorate the CEO’s office by "earning" fees from 401k holders like me even if those fees didn’t’ make the company profitable….right?

If the “collection” Michael Smith assembled belonged to Merrill, Thain was actually investing well…investing much better than allocating more corporate funds to the toxic crap he and his cronies were hocking to other money mangers.

But Thain must be clever as a fox as they say. He said he would “make right” by offering to reimburse Merrill for the antiques and the rug in an attempt to atone for wrong doings. Might he have traded the value of his own Merrill stock “at the time the collection was assembled” so that he could take possession of those pieces? A shrewd investment indeed!

Thinking of Thain reminded me of a Merrill retail stockbroker who tried to hock me some stocks, mutual funds and term life insurance in my early twenties. I have a BS degree from the Hotel School at Cornell with a concentration in real estate and corporate finance. I had worked as consultant at Arthur Andersen, and even with this background, I wasn’t sophisticated enough to understand “whole life insurance”. I was hopeless at choosing stocks and always felt I was at least one day behind the market.

Instead, we bought a house in Los Angeles in the best area that we could afford (which felt quite expensive at the time). We paid the house down over the years instead of investing more money in a 401k or a Roth-IRA. When mortgage rates dropped a few years ago, I refinanced to a fifteen-year term at a 5 percent interest rate. Last year, we moved to Sag Harbor and now let (rent) the house in Los Angeles. If we were to moderate my lifestyle and spending habits just slightly, the income that the house in LA generates would be enough on which to live. The 401k plan doesn’t seem to offer quite the same flexibility as income producing real estate.

Other collectors attending the auction must also have had a similar investment perspective to mine as I lost out on bidding for the objects of my desire. Many of the YSL Lalanne pieces sold for more than ten times Christie’s high estimates. Such is a sign of investing in the New Economy. The buyers may have overpaid for the pieces, but unlike Madoff investors or Lehman bond holders, they have a story AND something to show for it…..