Feb

6

The solution to the mortgage crisis is so simple it is almost ridiculous no one has yet to propose it. We have 350 billion ear marked to be spent. This money is more than sufficient to deal with this problem and then some.

The current mortgage crisis really stems on two important facts:

1) Homeowners are upside down on their home and as such cannot qualify to refinance in todays market?

2) Mortages on ARM’s are adjusting to rate the homeowner cannot afford, or mortgages were written on a balloon that is coming due.

MOST of these homes are owned by people with the means to pay the mortgage at a refinanced rate. All the government needs to do is guarantee the upside-down portion of these peoples homes in order to qualify them for a refinance rate they can afford. In return the government would get an equity position in these peoples homes. Assuming a 30% stake in an average home, 350 billion would buy a stake in 6 or 7 million homes which is more than enough to solve this problem. 

 

 

Jan

3

It slays me that the pundits and experts are still reporting everything on the short term. Many have begun talking like investing has become a thing of the past, at least for the time being.

A few have even posed the question “what will the upcoming job loss report do to the market?” The answer typically is that the markets are “forward looking” and this is a “backwards looking” statistic.

Certainly, there are huge behaviorial drivers that shape our economy. Hence, it is hard to say with certainy how the markets will react to this macro economic news. From a pragmatic perspective, a loss of jobs means that businesses are contracting in order to adjust to the current economic conditions so they can still be profitable. People losing their jobs sucks, but rising unemployment is an appropriate response to the times. I think it is possible that we will see double digit unemployment by mid year. I think it is a safe bet that most consumers that our conservative with their money will continue to tighten spending when they see this statistic rise.

Many seem aghast by the impending news that unemployment is projected to hit 7%.

How soon we forget.

Many view the Reagan presidency fondly, though forget that the first six years were NEVER below 7%. In fact, twice it went over 9%, almost hitting 10% once. Another fact, the first five years of his presidency saw an increase in unemployment higher than at any time during the Carter administration. [source of unemployment statistics http://www.miseryindex.us/urbyyear.asp].

The Reagan period was a time of government spending and escalation of National debt, about 1.4 trillion actual, 2.6 trillion if you adjust for inflation in todays dollars. These statistics are readily available from US Government websites.

Hindsight is 20/20. One can access statistics and news from eras past. When examining the data one can find that even during the great depression businesses started, and there were pockets of opportunity.

I do not believe for a minute that the stock market has hit bottom. This is not to say that there are not opportunities in the market. For instance, Obama is convicted to rid our dependence from foreign oil. Natural gas will be one of the big tickets to punch in doing this. Formulation of a new energy grid will be part of this plan. Utility companies have been viewed in the past as conservative, boring investments. Their 52 week swings are typically very low when compared to other business sectors. These companies consistently pay dividends. They are commodities that we continue to need, even in dire times. Demand WILL increase due to government expansion of our national infrastructure. I see these as the next darlings of wall street.

If you have a good cash position you can get into stocks like Chesapeake (CSK) and Duke Energy (DUK) with tight stops to minimize your risk. These companies have good balance sheets and are currently paying dividends more than double what you can get in cash accounts.

Once Obama gets into the big chair and his stimulus plans get announced you will see upward movement on these stocks. If you afford to take bigger risk, energy transmission and distribtution stocks which are trading near the bottom will also take off. These have wider swings than utility stocks so you need to be careful.

Remember, your goals for 2009 are to stay as liquid (cash) as you can!

Dec

30

I heard a “so-called” real estate expert on CNBC’s On the Money claim the real estate bottom was pretty much here. Nonsense! She does not know that any more than you or I. Fact is, there are a lot more toxic mortgages (ARM’s due to re-adjust, Type R-Mortgages that are still under the radar as they are not technically sub-prime but they are just as TOXIC as the subprimes!

I do not want to squelch optimism. Actually, this time has been very hard for me and it is very hard to write about this stuff as I get that social and behavioral factors are HUGE drivers in our economy.

But, I am a practicing pragmatist when it comes to my money. I am not saying this is not the time to buy real estate. I am not saying do not buy stocks. I am not saying do not buy a new car if the circumstance dictates. Actually, during the last recession we took advantage and bought a new Chevy (yes GM) at 0% interest. 

But…

Do you have at least a minimum of six months in savings to run your household?

(Note: I am not even as conservative as Suze Orman who thinks you need eight months, though I currently have cash to cover one year of living expenses with 0 income, and my goal is to build this to two years. My advice to you is six months minimum if this is your comfort zone. Though, take it to a max that makes you feel comfortable.)

If the answer to my question is no, I think changing the answer to yes should be your immediate #1 goal.

After you have accomplished this if you want to put your money into stocks, go for it. But, do good research and buy strong companies like GE, Power companies, compnaies that sell consumer goods we all need. There are many strong companies with good fundamentals that consistently pay dividends and are profitable, well managed and thus can likely maintain levels of profitability through these times.

But… (always seems to be one of these)

Make sure you can afford to be upside down in the stock for a long time. For example, through the Great Depression GE consistently dividends. But, you could have timed buying the stock and ended up losing 1/3 of the principle value. It tooks YEARS for stock prices to recover.

As an example, say that you bought $5000 of GE stock today. Do you know that the market is not going to lose another 20%? No you do not, and neither does anyone else. Let’s say GE stock loses 20%. This is a solid well managed company, good fundamentals. Very unlikely they will not make it through these times. But, like the great depression, it could stay down 20% for years. If you need access to that money all you now have is $4000. If you can deal with this make the trade.

Bottom line?

Be conservative and put your money where you can sleep well at night. For each of us this is potentially a different bed even under the guise of being conservative.

 

 

Oct

24

In the past few months I have watched finance experts, …and cork balls like Bill O’Reilly claim ignorance to our recent meltdown.

Wait a minute… are you kidding? What a bunch of revisionist doof bags (when they can actually remember)…

On January 19th I wrote a blog titled “The Great Mortgage Debacle” http://everydollarmatters.com/blog/2008/01/19/the-great-subprime-mortgage-debacle/

Here is an excerpt…

“Housing market is so hot…
 - People can flip houses in weeks, making crazy profits without even lifting a finger.
 - To get into a house you have to offer more than the asking price
People with credit so bad they cannot qualify to move into most apartment complexes are given loans for housing they cannot afford at terms that are outrageously unfair
… Absolute Insanity …

I guess since it has been a while since the .COM insantity we needed a new means of losing our minds.”

I certainly was not the only one crying wolf back then.

I must say I am so glad to here all the experts now telling me what anyone with a lick of common sense back in Q4 of 2007, and Q1 of 2008 already understood.

 

 

Jun

7

Oil and energy prices skyrocketing. Food prices soaring. Home prices tanking. Jobs shrinking. Things are looking pretty bleak. Living through these times can be a real roller coaster ride.

For those of you not saddled with debt there are some potential long and short term opportunities out there.

Energy prices are heading upward. They will likely level out at some time in the future (who knows when), but it is highly unlikely that we will ever see gasoline under 3$, even 4$ again in the good ‘ol USA. It is already over 8$ in many parts of Europe. As I said in a previous post, the answer is to build cars that increase MPG. What is the most popular vehicle? The Prius. Gas hog vehicles sales are plummeting, fuel efficient vehicle sales are on the rise.

US auto dealers are being tight lipped. While their management can be a bit stodgy and slow to react they too can read the tea lives. In fact, it may very well be the energy crisis that cause both GM and Ford to get busy and to emerge again and compete with the likes of Honda and Toyota.

Rising gas prices are going to create a demand in the market (it already is) for fuel efficient cars. In two years time we have gone from an average price of $2.25 to $4.50 a gallon and still climbing. At $5.00 a gallon (not far away) it is going to cost you $3600 a year to drive your 20mpg car 12,000 miles. Compare this with $1350 just two years ago! At $8.00 a gallon the cost will be $4800.00 a year.

Ford is allegedly working on a technology called hydraulic hybrid which could lead the way. There are rumors of an F-150 that can get 60mpg. GM is working on hybrid technology as well. Both stocks are currently in the tank (Ford has been for years).

If you have some patience, and are willing to take some risk this might be a good time to start buying auto stocks. This is bit of a contrarian view. And, there is no guarantee that US Automakers will see the writing on the wall.

 

 

Jan

19

Live Within Your Means

We have created quite the mess with this subprime debacle. We want to blame business,  business wants to blame the government, wall street is reeling.

Happy times

Unfortunately I think the slide has just started. Lets take inventory…

… Absolute Insanity …

I guess since it has been a while since the .COM insantity we needed a new means of losing our minds.

If you really think about it this has been nothing more than the old cliche “if it too good to be true it probably is”. The sad thing though is people actually made a great deal of wealth while many are now losing what little shirt they had to begin with. “I want it now, I’ll deal with the consequences later”.

Fact, is subprime lending has been going on for years. I remember when I was young, poor, and just starting out having a loan with HFC for a stereo and paying 25% interest.

Subprime lending for those of you that only know the buzzword is the market for those with “less than stellar” or “lack of” credit history. In exchange for outrageous interest rates and fees lenders will give money to people that have a poor record of paying it back.

Don’t get me wrong. Anyone, even the most disciplined person, can fall on financial hard times. The subprime market can be a means of re-establishing ones credit. But subprime lending became sheer insanity that now has us heading into the crapper.

The exposure by major financial institutions into the housing subprime market is just staggering. It is hard to identify these institutions until they report staggering losses.

According to CNN state by state going back to 2005 the entire Puget Sound (Greater Seattle/Tacoma/Everett and surrounding suburbs) had a 22% exposure. Much of California (25% statewide) and Florida (30% statewide) deeply buried in a sea of subprime lending.
http://money.cnn.com/magazines/fortune/storysupplement/subprime_statebystate/

And here we stand today in all this chaos. All because people are not willing to live within their means. All because of the greed of business. All because our government turned its head because at the time the alternative was a slowing economy.

I think we should ammend the “if its too good to be true it probably is” to “If you have the means to get in during the bubble and out before the burst you can exploit and profit at the expense of your fellow man”

I think maybe Countrywide and a few others waited too long. Eh?

Jan

19

Payoff your house 7-8 years early the ad proclaims. All you have to do is front $100.00 and pay a monthly fee of $10.00. For this price you get to make 13 mortgage payments a year instead of 12. Here is a newsflash. You can make 13 house payments on your own, save the up front and monthly fee and still accomplish the same thing. Stay away from these programs, they are a waste of your money!

Dec

23

My wife and I recently watched Al Gore’s An Inconvenient Truth . It was quite a sobering movie.

This past week the Puget Sound region (Seattle Metro Area) got hit with a windstorm that knocked out power for half a million+ area residents. Good ‘ol mother nature created some real havoc in our area. A few days after the storm we experienced gas lines that were quite long. This really got me thinking about how fragile our civilized society really is.

You walk through these huge mega supermarkets and on one hand marvel at the abundance, and on the other hand realize how quickly the shelves would be cleared in the event of a catastrophic situation (like Katrina).

About a year earlier I had purchased some food for storage from Walton Feed. It was actually pretty good stuff and quite reasonably priced. These recent events in our weather patterns have really made me wonder if having a weeks of food on-hand is really not such a bad investment after all.

Don’t get me wrong. I am not suggesting that we all buy Bowie knives and take to the woods to live off the land. But, these are some very interesting times and, well, just trying to be prepared.

Blogroll