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Archive for May, 2008

Got to love a recession like this

May 29th, 2008 at 12:28 pm

GDP up more then 50% of the estimate (revised up to 0.9% from 0.6%). Consumer spending up 1%. Corporate profits up 0.3% to 1.57 trillion (annualized). The trade deficit shrank to an annual pace of $480.2 billion, the smallest since the third quarter of 2002. Trade's contribution to growth jumped to 0.8 percentage point, four times more than previously estimated.

Let the Harvard guys and Canadians argue about the US economy at stall speed. Sure there is some negatives, unemployment up by 4,00 and 3.1 million receiving benefits (highest since Feb 2004).

All in all, I believe a very good report.
Also, ďMasterCard Inc. said consumers are continuing to reach for plastic. The company's shares jumped to a fresh high after the credit card processor said it still expects to see double-digit growth in net revenue this year. While it said gross dollar growth in the U.S. is slowing, purchasing is increasing in other parts of the world. Avoiding a big falloff in consumer spending and strength elsewhere in the world could help the U.S. economy avoid a serious downturn, some economists have reasoned.Ē (Source: http://biz.yahoo.com/ap/080529/wall_street.html)


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May 29 (Bloomberg) -- The U.S. economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to a record.
The 0.9 percent gain at an annual pace in gross domestic product compares with an advance estimate of 0.6 percent, the Commerce Department said today in Washington. Fourth-quarter growth was 0.6 percent. Separate figures today showed the number of Americans continuing to receive jobless benefits rose to a four-year high this month.

``It's basically like an airplane at stall speed, just skimming above the water,'' Jeffrey Frankel, an economist at Harvard University who is a member of the panel that dates U.S. economic cycles, said in a Bloomberg Radio interview. ``I wouldn't rule out going into a recession'' later in the year.

Trade remains the bright spot for an economy that is likely to slow this quarter as surging fuel and food bills and falling home values force consumers to cut back. The economy will expand just 0.1 percent this quarter as spending slows further, according to economists surveyed by Bloomberg this month.

``We are somewhere in the twilight zone between an expansion and a recession,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ``We will have a poor pace of growth through the year.''

First-time claims for unemployment insurance rose to 372,000 last week, higher than economists had forecast, from 368,000 the previous period, the Labor Department reported. Those continuing to receive benefits jumped to 3.104 million in the week ended May 17, the highest level since February 2004.

Stocks, Treasuries

Stocks rose, with the Standard & Poor's 500 index up 1 percent at 1,404.2 at 12:40 a.m. in New York. Treasuries slid after benchmark 10-year note yields yesterday climbed above 4 percent for the first time since January. The yields were at 4.11 percent, from 4 percent late yesterday. The dollar rose 0.8 percent to $1.5506 per euro.

Honeywell International Inc., the world's largest maker of airplane controls, said last week it is confident in its full- year forecasts as demand outside the U.S. remained robust. Record oil prices have boosted orders for refining equipment and building projects in the Middle East, India and China has pushed up sales of its energy conservation devices.

This year ``is going to be another strong year in a more difficult environment,'' Honeywell's Chief Executive Officer David Cote said on May 19 at a conference in Florida.

Gains Abroad

Eaton Corp., the world's second-largest maker of hydraulic equipment, reaffirmed its full-year profit forecast on May 28 and projected international markets will grow as much as 6 percent. The company's U.S. markets will expand 2 percent to 3 percent this year.

Procter & Gamble Co., the world's largest consumer-products company, said last month that third-quarter profit rose on increased sales overseas and higher prices.

While a recession is often described as consecutive declines in GDP, the National Bureau of Economic Research, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.

The group says that in a recession, decreases would be visible in payrolls, production, sales and incomes, in addition to GDP.

For that reason, the U.S. is probably already ``in a mild recession,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The economy will be pretty flat on its back through much of this year.''

The Bush administration is betting the U.S. will keep growing as the economy benefits from the impact of tax rebates and seven interest-rate cuts by the Federal Reserve since September.
White House View

``We think that it will'' avoid a recession, Keith Hennessey, director of the White House National Economic Council, said in an interview with Bloomberg Television. ``We think that growth is continuing in the second quarter'' and will strengthen in the second half of the year, he said.

Today's GDP report is the second of three estimates. The median forecast of 74 economists surveyed by Bloomberg News was for a 0.9 percent pace. Projections ranged from gains of 0.6 percent to 1.3 percent.

Following a 0.6 percent growth rate in the fourth quarter, the reading was the smallest six-month expansion rate in five years.

The trade deficit shrank to an annual pace of $480.2 billion, the smallest since the third quarter of 2002. Trade's contribution to growth jumped to 0.8 percentage point, four times more than previously estimated.

Consumer Spending

Consumer spending, which accounts for more than two-thirds of the economy, rose at a 1 percent annual rate in the first quarter, the same as estimated last month. The gain was the smallest since the 2001 recession.

The revisions also showed bigger gains in incomes than previously estimated, easing concern that spending will collapse.

Personal income increased at a 5.1 percent annual pace from October through December, compared with an initial projection of 4.2 percent. For the first quarter, income growth was revised up to 4.7 percent from 4.4 percent.

Income growth may slow in coming months as the labor market softens. The U.S. has lost jobs for four consecutive months this year, and payrolls may post another decline for May, according to the
Bloomberg survey.

Inventories Drop

The gain in growth last quarter would have been even larger if not for a reduction in estimates for inventories.

Companies cut stockpiles at a $14.4 billion annual rate, compared with an initial estimate of a $1.8 billion gain. The figures added 0.2 percentage point to growth, less than the previously estimated contribution of 0.8 percentage point.

A measure of total sales, which strips out stockpiles, was revised to a gain of 0.7 percent at an annual rate rather than a 0.2 percent drop. Sales rose at a 2.4 percent pace in the fourth quarter.

There are signs that demand is slowing even more. Auto sales in April slid to a 14.4 million annual rate, the lowest level since 1998, industry figures show.

Spending this quarter will grow at a 0.5 percent pace, the smallest gain since 1991, according to the median estimate in a monthly Bloomberg survey.

Fed policy makers last month trimmed their economic growth projections for this year by about 1 percentage point to 0.3 percent to 1.2 percent.

``A number of participants were of the view that financial headwinds would probably continue to restrain economic activity through much of next year,'' minutes of the Fed's April meeting showed last week.

Construction Slump

Residential construction decreased at a 25.5 percent pace, less than previously estimated, though still the biggest drop since 1981.

Reports this month showed declines in home building will remain a drag on growth. Builders began work in April on the fewest single-family houses in 17 years.

The figures today also included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, increased 0.3 percent to an annual rate of $1.57 trillion.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aKYWc5_8EEbY&refer=home

Recession Rant

May 27th, 2008 at 01:59 pm

Ok. I am getting really fed up with this. Everywhere I turn people are saying we are in a recession. So where do we start? How about the definition of recession?

ďIn macroeconomics, a recession is generally associated with a decline in a country's real gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.Ē (Source: http://en.wikipedia.org/wiki/Recession).

Of course, the NBER can overwrite this and say that we are in a recession, but I didnít see that in their news release. (Source: http://www.nber.org/releases/). Now true, I only go to this site every few weeks and may have missed it but I donít see anything there.

So, letís stick at our working definition of 2 quarters of negative growth. So we should go to the BEA site, right?

ďReal gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6 percent in the first quarter of 2008, according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP also increased 0.6 percent.Ē Huh, seems like the economy has been expanding for the last few quarters, slowly but not negatively. (Source: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm)

Oh yea, this was released April 30, 2008 so itís pretty current.

Well it FEELS like a recession. Well, my desk at work feels like Iím in a cockpit of a jet fighter. Guess what. Iím not. And we arenít in a recession.

So enjoy life because we have 4 months before we could possible be in a recession. Thatís right, we need 6 months of negative GDP before we can declare a recession.

My Anthem

May 23rd, 2008 at 06:57 am

So back when I was but a little Merch, I joined a swim club. I was like 12 but for some reason had to swim with the high schoolers. Every day in practice I got my but kicked, made fun of (I was a skinny kid with long arms), and would bike home.

In meets, I would swim the back and again get my ass kicked. I was a 12 year old , swimming with 17 year olds, and an outcast from there group. After practice and meets, I would bike home and have my headphones on listening to my walkman.

I listened to the same tape before every meet and before practice, especially one song Ė Donít Look Back. At first, I think that my coach would always yell at me ďMERCH KEEP YOUR HEAD BACK!!!!!! DONíT LOOK AT ME!!!!! DONíT LOOK BACK!!!Ē. So the song just re-enforced what I needed to do.

Well, then I started to listen to the song and the lyrics. One set really grabbed me.

I can see
It took so long just to realize
I'm much too strong
Not to compromise
Now I see what I am is holding me down
I'll turn it around, oh yes I will

At age 14, I was extremely competitive and 15 Ė 17 I was undefeated for 3 seasons. And I always listen to that one song before a meet and it got me fired up and focused.

Through out my life, this song has been playing in the background, whether a new job interview or first day at college or first date with my wife. The song reminds me to quit holding myself down and sometimes to enjoy the ride if you are on the right road.

Today on my way to work, I heard this song and I feel all fired up and ready to tackle whatís next, because:

Now I see what I am is holding me down
I'll turn it around, oh yes I will

Do you have an anthem? Does it change depending on where you are in life?

If I had to rewrite the lyrics, I would change ďDonít look backĒ to ďWonít go backĒ. The whole lyrics:

Don't look back
A new day is breakin'
It's been too long since I felt this way
I don't mind where I get taken
The road is callin'
Today is the day

And I can see
It took so long just to realize
I'm much too strong
Not to compromise
Now I see what I am is holding me down
I'll turn it around, oh yes I will

I finally see the dawn arrivin'
I see beyond the road I'm drivin'

It's a bright horizon but I'm awakin'
Oh I see myself in a brand new way
The sun is shinin'
The clouds are breakin'
'Cause I can't lose now, there's no game to play

I can tell
There's no more time left to criticize
I've seen what I could not recognize
Everything in my life was leading me on
But I can be strong, oh yes I can

I finally see the dawn arrivin'
I see beyond the road I'm drivin'
Far away and left behind, left behind

(guitar bridge)

Oh the sun is shinin' *and I'm on that road*

(guitar solo)

Don't look back
A new day is breakin'
It's been too long since I felt this way
I don't mind where I get taken
The road is callin'
Today is the day

I can see
It took so long just to realize
I'm much too strong
Not to compromise
Now I see what I am is holding me down
I'll turn it around, oh yes I will

I finally see the dawn arriving
I see beyond the road I'm driving
Far away and left behind

Don't look back
Don't look back
Don't look back
Don't look back...

Response to BA

May 20th, 2008 at 01:03 pm



I was looking at your target trade and thought I would put in my two cents.

The red lines I put in is the current trading channel. It has been trading in here since middle of March. I also noticed some resistance points just below 52 and 55. Over the next week or so, you should see whether it is following the red or the green area.

Personally I believe it is fallowing the top green line and the bottom red line. If this is the case, it should be setting up a classic pennant and then shot through 55. At that point, I would buy.

Thatís my 2 cent thoughts. By the way, if the news was not reflected into the price of the stock, it would have gone down more then 55 cents with greater volume (probably closer to 2 or 2.5 times the 3 month average).

So, bottom line is I think you made a great pick. But I think you got in too early and out too soon. But we shall see.

Response to SA Blog

May 19th, 2008 at 09:52 am

I believe the author of the blog made few incorrect points and with my rambling still I thought a blog might be needed to encompass what I wanted to say.

So the major assumption that Dave makes is that the individual is not making enough to attack all the goals on has (reducing debt, saving for college, saving for retirement, emergency fund, etc.). So he lays out a road map to get you to a stable base as quick as possible. These are the first three steps (1,000 emergency fund, all debt paid off but house, and fully funded emergency fund).

And, he wants these three steps not to linger. You want to get on them and knock them out. He wants you very focused on these steps. Once you get through step three, he usually letís people loosen up. You want a vacation? Go ahead but pay for it in cash. You want to go out for dinner and a night out. Go ahead, make sure itís in the budget.

As for step 4, 5, and 6; these should all be done at the same time (15% in retirement, college for kids, and pay off home).

As for the compounding argument made by the author, it really doesnít hold much weight. Isnít the compounding on your debt working against you? And arenít those interest rates generally higher then what you are earning in your retirement accounts? Also, Dave Ramsey has said that the first 3 steps should only take a couple of years and not longer.

In general, people who are trying to reduce their debt are not saving 15% towards requirement. In fact in general, I would argue that most people are not saving 15% of their income.

The argument I make is that if you could get out of debt and live within a budget, it is far easier to reach that goal then if you have to make debt payments.

And if you look at his plan as a diet, it is an intense diet for about a year. During that time, your doing things like changing your attitude and habits with a small safety net to catch you. And after step 3, itís all about maintaining.

And, step 7 is all about getting to the point in life where your money makes more then you and you can coast. Do what you want. And that is living like no one else.

Now in all honesty, if I was following Daveís advice. I would dropped my emergency fund to $1,000 and stopped contributing to 401(k). I didnít do this, but I am on a budget and intense on getting rid of my debt. And I will be through step 5 by the end of the year.

Mid-May Update

May 15th, 2008 at 09:05 am

That's great, it starts with an earthquake, birds and snakes, an aeroplane -
Lenny Bruce is not afraid. Eye of a hurricane, listen to yourself churn -
world serves its own needs, regardless of your own needs. Feed it up a knock,
speed, grunt no, strength no. Ladder structure clatter with fear of height,
down height. Wire in a fire, represent the seven games in a government for
hire and a combat site. Left her, wasn't coming in a hurry with the furies
breathing down your neck. Team by team reporters baffled, trump, tethered
crop. Look at that low plane! Fine then. Uh oh, overflow, population,
common group, but it'll do. Save yourself, serve yourself. World serves its
own needs, listen to your heart bleed. Tell me with the rapture and the
reverent in the right - right. You vitriolic, patriotic, slam, fight, bright
light, feeling pretty psyched.

It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine.

Thatís right. I feel fine.

Yep. My wake up to date started with an earthquake of 25k in medical debt last August. Then, I was listening to my inner voice just churn with self-doubt. Then, the fear of the height of my debt crept in. Then, I saved myself and served myself and it was the end of my old world as I knew it, but I feel fine.

During the first quarter of this year, mid month was always the apex of the stress for the month. Then last month, something happened. There wasnít any stress. This month, no stress.

Why? I had a plan at the being of the year. Itís basically the same plan I have this month. Itís because I have full faith in the plan. As they say ďPlan the work and work the plan.Ē

So now, I donít have to devote my mental energy to worry about the whether the plan will work or not. I can now start mapping out my next steps. My plan, which encompasses my goals, is pretty much mapped out for the rest of the year. I work the plan and I should get there.

This leaves me to start looking at what I want to do in 2009. What direction do I really want to go? And what are the main variables?

So whatís on the table for 2009?

Definite:
1) $15,500 to 401(k)
2) Contribute to 529s Ė total of $4,000
3) Max. 2008 IRA contributions

Now comes the harder goals. I need to explore if it is better for me to be a 1099 consultant or a W-2 consultant.

But the real big question is whether to stock up cash for real estate investment purchases or to pay down the mortgage. My thought process is that I am probably 2-3 years from purchasing my first investment property. I have a child that is 9 months and one that is 3.5 years old. At this juncture in my life, I really donít want to take time away from them. Also, I want to do tremendous research into the market and formulate a business plan. I also want to enter the market from a position of strength (good down payment, strong cash reserve, and time to devote to it).

I also would love to get my 30 year mortgage down to a 15 year.

So those are the three things rolling through my head right now. But I have time to think before 2009 gets here. Time at the moment is on my side.

Gas Prices .. Really?

May 7th, 2008 at 07:31 am

I keep on hearing about gas prices. How they are hurting the average American. Typical media frenzy? Have you wondered how much gas prices increased from last year? A dollar? 2? 1.50?

How about 40 cents. Thatís right the average price of gas went from 3.22 to 3.62 a gallon. Yes I do have sources below from CNN.

So what does that translate to? If you fill up your car every week, itís probably an increase of $32 a month. 20 gallons X 40 cents X 4 weeks.

Is the average American so over extended that $32 a month per vehicle is the straw that broke the camels back? Whatís the median income in the US? About $48,000.

Well, I guess if you have a $600 car payment, mortgage, HELOC, boat payment, plasma TV and credit card debt, it might be hard to come up with that $32 a month.

I really havenít felt the gas or the food increases. Maybe because I live on a budget and follow it. True, I might have to substitute lower priced options like pasta for rice. But, itís not like I have to go from Lobster to Ramen noodles.

Anyway aside form truck drivers, I really donít see how all this really affecting the average American. Maybe, Iím too rich. After all, I am only 23k in debt.


Source: http://money.cnn.com/2007/05/21/news/economy/record_gas_monday/index.htm

Source: http://money.cnn.com/2008/05/05/news/economy/gas_prices/index.htm

Conversation with Myself

May 2nd, 2008 at 06:30 am

So I had a conversation with myself this morning.

Mirror image: You make me sick!!!
Me: What did I do now?
Mirror: Your goals. Are you going to up them or what?
Me: Well, I am still working on some scenarios ?.
Mirror: LIAR!!!!!
Me: Well, they?re very aggressive ?.
Mirror: So we shouldn?t do it because it?s hard?
Me: Well I might fail and it will be in my blog ?
Mirror: This isn?t about them. This is about you and where you want to be.
Me: But?..
Mirror: You got keep on adjusting those goals every time they become achievable.
Me: But?.
Mirror: But nothing!!! How do you think a baby learns to crawl? You put the toy just out of reach. Then the baby twists and turns until he gets the toy. Now, you move it further away. And the baby learns to crawl
Me: These last goals are just in my grasp.
Mirror: Exactly!!! Time to move the line!!!
Staring into the mirror and in my best Rambo voice: GOALS!!! I?m coming to get you!!!
As I was leaving, the mirror: That?s my boy. Keep the focus.

And with that, I am upping my savings goal from 10k to 15k. Yes, a 50% increase.

I am also adding a new goal of saving 4k in college funds for my kids.

This should keep that guy in the mirror happy and off my case, at least for a little while.

June is next month. At the end of the month, we will be half way through the year. Are you on track? Do you need to make your goals more aggressive? What?s holding you back?

You might need to talk to that guy or gal in the mirror. Be careful, they know when your lying and they don?t take excuses.

I am a deadbeat and a freeloader

May 1st, 2008 at 08:19 am

I am a deadbeat and a freeloader and am not alone.

I found out today that some of the largest companies in the US thinking of me as a deadbeat. How could that be? I have excellent credit, I pay my bills on time, I pay off my credit cards every month Ö How could I have such a soiled reputation?

I am also considered a terrible customer. And my wife or I use these companies probably every other day. Now, they have never said anything to my face but I know what they say behind my back. ďHeís not generating enough profits for us. Heís costing us money.Ē

Yes. I am taking about credit card companies. I read somewhere that it costs credit card companies about $25 per account per year. Now, if the charge 1.25% per transaction, I would need to charge $2000 just for them to break even. And after $2000, they make 1.25% off my transactions. They could make more money opening a savings account.

So who are their best customers? People who carry outstanding balances month after month paying 16%, 20%, or 29% interest on those balances. But these arenít even their best customers.

The best customers are late on payment that way they can charge fees plus increase the interest rates. These are the best customers. This is where all their profit comes from.

So yea, Iím a lousy, deadbeat, freeloader customer, and I wouldnít want it any other way.