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Dave Ramsey's Investment Advice

November 17th, 2009 at 11:08 am

I was thinking about Dave Ramsey and specifically his investment advice. He recommends investing in good quality mutual funds (5+ year track record). He also talks about A shares and paying the front end load.

The reason I believe he deals with front end loads is because he advises using a mutual fund broker to help comb through your investments and use as a teacher when questions arise.

By talking about good quality mutual funds, he is talking about actively managed funds as opposed to index or passively managed funds. In the actively managed case, the manager will look at the S&P 500 (or some other index) and make bets (this will be a good year for consumer products but not banks). The passively managed fun will just buy all the stocks in the S&P 500 and keep the same weight of the securities in the S&P 500.

There are pros and cons of each. People say a good manager should be able to out perform their benchmarks but yet only 25% seem to do that in any one year. But there are some who do seem to do it year over year. There is also reason to believe that good manager leave firms to start their own hedge funds or investment firms.

But Dave's basic advice seems to be actively managed portfolios with experienced managers outperforming the market and using a good mutual fund broker to help navigate and educate you on the market and what you are buying.

He goes on to talk about 4 types of funds: growth, growth and income, aggressive growth and international. He says all should be equally weighted. He also mentions on his web site that if this is too risky, you can substitute a balanced fund for part or all of the aggressive growth fund.

So he is recommending a 75/25 US/foreign portfolio that has small, large and medium sized companies. Seems like a pretty well diversified portfolio from the stock side, but you will notice he doesn't have a fixed income piece.

I believe the second part of his investment strategy takes care of that. The second part of his strategy that he talks about is buying paid for investment real estate. You buy the investment property for cash and you have an income stream that should be fairly well adjusted for inflation. As inflation goes up, the rent you charge should also go up.

I will agree that there is probably more risk then in a government bond fund or investment grade bond fund. However, I believe that by investing in the real estate you can have a third party manage it and set up a nice inflation adjusted stable cash stream, and the cash stream would be more stable then a mutual fund's cash stream.

On the surface, everything Dave Ramsey talks about seems to be rather simplistic and overly simplified. When I start peeling back the layers, I generally feel that the advice he gives is pretty solid and well thought out.

I could argue in getting an annuity instead of real estate or dividing international investing into international and emerging markets. I could also argue that passive index is the way to go. You could also argue that his allocation is aggressive, and I would tend to agree, but replacing the fixed income portion with a real estate portfolio is an interesting spin.

But if you feel uncomfortable about investing or don't know where to start, I believe his advice at the end of the day is pretty solid and a good place to start. As you become more educated and confident, you can then tweak as you want.

Thank Everyone

January 20th, 2009 at 10:57 am

I want to thank everyone for the kind words the other day. The purpose of the blog entry was for me to just kind of look back in the road and revisit where I was and where I am going. The second part was maybe to offer people who are traveling down the same path the opportunity to catch a glimpse of what’s ahead and maybe just reaffirm the decisions they made.

As a whole, I don't think my story is very different then a lot of people. I do think that today's society values the individual so much that the concept of marriage, sacrifice, and true teamwork are left by the wayside.

By forming a team with our spouse and treating them as equals with valid ideas and working through compromises, I believe that a marriage is truly greater then the sum of there parts. My wife balances my risk taking and offers me strength in times of weakness.

Did this happen overnight? No, trust is something that has to be earned through constant action. And I do trust that my wife has the family's interest at heart.

My Tale Over the Last Year

January 16th, 2009 at 11:17 am

So I went back and starting reading some of my old entries. I like to think of where I was and how I got to where I am now. That got me to thinking about how my attitude and general outlook has changed on things.

October 2007 – The breaking point.

Prior to October of 2007, I was keeping my head above water, living paycheck to paycheck. I had some credit card debt, 2 car loans, and a mortgage. I was spending more then I made but was making payments on everything. We were going out to dinner a lot and blowing money on who knows what.

In August, my second son was born. A few days after we took him home, he started to have seizures. We took him to the emergency room and he spent the next 10 days in the NICU. They ran every test (blood, chromosome, ekg, etc.) and had specialist from Boston drive out. I turned out be a gland issue that corrected itself in the following few weeks.

I had insurance so I was thinking maybe a small bill but nothing too bad. Well August comes, the charges start coming in – over $30,000. I fight with the insurance company, I fight with the wife. The wife says we need the Cadillac of insurance. Cost - $1,250 a month. The hospital says I need to start paying them at least $1,500 a month. Christmas is around the corner.

Feelings of despair start to creep in. I'm in a hole and I don't know if I can get out. Every time I hit bottom, there seems further to go.

December 2007 – Starting to gain control

Late November, I created my first budget for December with the wife. It was a chore. There was bickering back and forth. We both made sacrifices and agreed to lifestyle changes.

The furnace broke in December, but I had money in the budget for it.

Over the next few months, unexpected expenses popped up but the budget was starting to get easier. I also paid off a big chunk of the medical and had a payment plan of $500 a month for the rest of the balance.

I was feeling control. Something that hadn't happened in a long time. I knew what was coming in and where it was going. Also, the bickering with my wife became less. I was still standing in a big hole, but I was now confident I was at the bottom or very close.

March 2008 – All pistons firing

When March rolled a round, the budget was easy. I had kept tightening it up. I actually trusted the budget and my funding plan. My two big expenses were health insurance and mortgage. They combined to $4,000 a month. If I could put $1,000 a week away, I would have all the money I would need for these. The funding plan was really the key. What part of which paycheck funded which expense.

I was also able to start looking at my goals and start projecting what I could get accomplished in 2008. I revamped my goals going from getting rid of one or two debts to getting rid of all my debt (but the mortgage).

I hadn't really noticed, but the hole was starting to fill up. Not a lot, but very slowly. I started to feel hope. In six months, I went from despair to hope.

June 2008 – Sucker punch.

By June, things were going so well I started planning a big birthday party for the wife. We had been sacrificing for 8 months and it was time let loose just a little and then buckle down and finish off the debt.

Well , no journey is smooth sailing. In June out of the blue, I received a medical bill from August of 2007 for $4,400. It was like someone sucker punched me. All my momentum form the previous months was gone. This threw off all my goals!!!

Sometimes you just have to look at yourself in the mirror and push through. That's what I did. It wasn't fun. I had goals that needed to be re-projected.

December 2008 – Big sigh of relief

In December, I paid off the last of my debt (except the mortgage), fully funded my 401 (k), got a will, and got term life insurance. Not only did I breathe a huge sigh of relief but I felt all this stress just disappear.

There is still a long way for me to go in my journey, but the turnaround in my attitude and outlook is remarkable. For those of you out there, I have been there when there is no hope and no control in your financial life. I have been just holding on. You can get through this. You will be tested and Murphy will show up. It's not easy and requires honesty, communication, and extreme sacrifices to your lifestyle.

The only thing I can tell you is that it's worth it.

Wonder Land bailout

December 16th, 2008 at 10:12 am

With the government on the brink of rescuing the U.S. auto industry, we have learned that the Treasury Department is drawing up plans to bail out Christmas. "We have reason to believe," said a person close to the matter, "that without an immediate capital injection, Santa Claus will fail before December 24." Mr. Claus could not be reached for comment.

Government officials are said to be concerned at the risk that the collapse of Santa Claus could pose to the nation's intricately related system of holiday happiness. Though a failure by Santa Claus poses the largest systemic risk, the government is also prepared to step in to bail out Christmas trees, caroling parties and mistletoe producers.

President-elect Barack Obama has been briefed on the initiative, and through a spokesman was quoted as saying, "I'm OK with bailing out Christmas."

Inside Treasury, some officials privately worry that such a precedent could result in the nationalization of Santa Claus, leading to similar calls for help next year from the Easter Bunny and even Valentine's Day. Treasury Secretary Henry Paulson personally concluded, however, that "Santa Claus is too big to fail."

Indeed, the situation was considered sufficiently dire that Mr. Paulson agreed to travel to the North Pole to speak to Mr. Claus. A Treasury official with knowledge of the situation agreed to provide this reporter with an account of the meeting. "Secretary Paulson," this person said, "has had a lifetime belief in Santa Claus and firmly supports what he represents."

Last Saturday morning, Mr. Paulson flew by government plane to meet with Santa, though a spokesman would not disclose the exact location of the famed toymaker's North Pole workshop. Mr. Paulson's plane landed on the polar ice cap, and then the Secretary was taken the final 300 miles in a sleigh pulled by Santa's fleet of reindeer. In deference to Mr. Paulson's unfamiliarity with sleigh-riding at altitude, Mr. Claus ordered his assistants to bring the Treasury department party overland.

The picture of Christmas painted for Mr. Paulson by his rosy-cheeked host was bleak.

Apparently Santa's difficulties in "producing product," as Mr. Paulson described it, originated in a poorly understood aspect of the jolly elf's current operations known as "Christmas list swaps," or CLIPS.

Mr. Claus said that going back as far as anyone can remember, Christmas lists had been handled in the traditional manner. Children would draw up lists, which were left out in the evening with a glass of milk for collection by Santa's elves; other lists would be exchanged with siblings, cousins and loved ones.

Several years ago, according to a participant who requested anonymity, some of Santa's elves were contacted by representatives from Bear Stearns and Lehman Brothers, who persuaded the elves of the benefits of an elaborate scheme of Christmas-list securitization.

As outlined to the elves, the idea worked like this. Brokers would break each item on the Christmas lists into separate pieces and repackage the requests as securities, using a formula known as a "benevolence diffusion algorithm." This would guarantee happiness for everybody in the world on Christmas morning. No one would lose.

At first Santa was doubtful of the plan. Mrs. Claus was especially skeptical, pointing out that in her experience with baking Christmas cookies, a seemingly foolproof enterprise, a failure rate of 5% was not uncommon. "There is simply no historical data to suggest the whole world can be long Christmas," Mrs. Claus said. "No scheme will ever rid the world of bad little girls and boys."

According to a person with knowledge of the North Pole couple's affairs, Santa received a call from a Franklin Raines, who identified himself as the president of a "government sponsored enterprise" known as Happie Mac. Santa apparently became convinced that Happie Mac sounded similar to his own business of free giving, and so agreed to the proposed system of Christmas list swaps.

Difficulties emerged when a CLIPS salesman from AIG called a senior elf to say that a large number of the Christmas list swaps had ended up in the hands of Russian billionaires with links to former Russian president Vladimir Putin. "These plutocrats don't even believe in me," Santa was heard to say as Mr. Paulson's sleigh rode out of sight.

On returning to Washington, Mr. Paulson's plan to bail out Christmas immediately ran into problems. Fed Chairman Ben Bernanke, whose great-great uncle is rumored to have been an elf, pointed out that Santa Claus might not qualify for a TARP loan. According the Fed's analysis: "Santa Claus belongs to the people. Any bailout must pass through the appropriate committees of the House."

House Speaker Nancy Pelosi, notwithstanding that she is the mother of five children, has reportedly told Mr. Paulson that Congress will bail out Christmas only in return for a promise from Santa Claus to "go green." Speaker Pelosi said the Environmental Defense Fund has long complained about Santa's eight tiny reindeer and that Mr. Claus would be asked to appear this Tuesday before Rep. Barney Frank's committee with a plan to reduce the sleigh's carbon footprint.

With only 13 days remaining for a Santa rescue, Mr. Paulson and Speaker Pelosi are said to be discussing the appointment of a Christmas czar. The leading candidate is Oprah Winfrey

Source: http://online.wsj.com/article/SB122895773035096657.html

For Baselle: Treasury Bills Trade at Negative Rates

December 9th, 2008 at 01:45 pm

Looks like you can stop searching for change and still outpace treasuries


Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

“It’s the year-end factor,” said Chris Ahrens, an interest-rate strategist in Greenwich, Connecticut, at UBS Securities LLC, one of the 17 primary dealers that trade directly with the Federal Reserve. “Everyone wants to be in bills going into year-end. Buy now while the opportunity is still there.”

The benchmark 10-year note’s yield dropped seven basis points, or 0.07 percentage point, to 2.67 percent at 3:10 p.m. in New York, according to BGCantor Market Data. The 3.75 percent security due in November 2018 gained 21/32, or $6.56 per $1,000 face amount, to 109 12/32. The yield touched 2.505 percent on Dec. 5, the lowest level since at least 1962, when the Fed’s daily records began.

The two-year note’s yield fell nine basis points to 0.85 percent. It dropped to a record low of 0.77 percent on Dec. 5.

If you invested $1,000 in three-month bills today at a negative discount rate of 0.01 percent, for a price of 100.002556. At maturity you would receive the par value for a loss of $25.56.

‘Horrible Year’

Indirect bidders, a group that includes foreign central banks, bought 47.2 percent of the four-week bills, compared with 31.7 percent in the prior auction. Primary dealers bought 52.1 percent, while direct bidders such as individual investors purchased 0.7 percent.

“It’s been such a horrible year people want to show they have the good stuff on their balance sheets, not the bad stuff, but with yields already so low it pushes these even lower,” said Theodore Ake, the head of Treasury trading in New York at Mizuho Securities USA Inc., another primary dealer.

The rate on four-week bills peaked at 5.175 percent on Jan. 29, 2007. The government began issuing the four-week bills in July 2001, according to Stephen Meyerhardt, a spokesman for the Bureau of Public Debt in Washington. The bills are intended to reduce the government’s reliance on irregularly issued cash management bills.

Meyerhardt wasn’t aware of the three-month bill ever trading at a negative rate before.

Housing Slump

Treasuries of all maturities have returned 11.4 percent this year, the best gains since all of 2000, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. That compares with a 39 percent loss in the Standard & Poor’s 500 index, including reinvested dividends.

Bonds have surged as the U.S. housing slump pushed up the cost of credit globally, causing equity markets to tumble. The world’s biggest financial companies incurred almost $1 trillion in writedowns and losses since the start of last year, helping push the major economies into recession.

The National Association of Realtors’ index of signed purchase agreements, or pending home resales, fell a less-than- forecast 0.7 percent to 88.9 from a revised 89.5 in September, according to a report from the group today in Washington. The median forecast in a Bloomberg News survey of 35 economists was for a 3 percent decline.

Futures contracts on the Chicago Board of Trade show odds of 98 percent the Fed will lower its 1 percent target rate on overnight loans between banks to 0.25 percent on Dec. 16. The probability was 38 percent a week ago. Rate predictions based on the futures are not considered as accurate as once were because the Fed hasn’t sought to bring the daily effect rate to the level of its target.

Mutual Funds

Money-market mutual funds that buy mostly Treasuries are starting to turn away new investors as the record low yields pull down returns for shareholders and squeeze managers’ fees.

At least three Treasury money-market funds run by JPMorgan Chase & Co., Evergreen Investments and Allegiant Asset Management recently stopped taking outside cash, according to Web site notices and regulatory filings. Barring new customers protects returns for investors already in the funds because managers don’t have to buy as many new Treasuries with yields lower than current holdings. Higher fund yields also prop up management fees.

The record low borrowing costs for the Treasury may turn out to benefit President-elect Barack Obama as he faces a widening budget deficit while pledging to embark on the biggest U.S. public works plan since the 1950s to stimulate the economy.

The U.S. is headed toward $1.5 trillion in debt sales as the budget deficit approaches $1 trillion in the 2009 fiscal year according to Bank of America Corp. The deficit this year was $455 billion.

The Treasury will sell $28 billion of three-year notes tomorrow and $16 billion of 10-year notes the following day. The $44 billion total is about $3 billion more than expected by Wrightson ICAP LLC.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aOGXsWKEI6F4&refer=worldwide

Debt in General and then a little Dave Ramsey

December 8th, 2008 at 10:15 am

I thought I would just comment on debt in general and then Dave Ramsey and his steps.

Debt is neither inherently evil nor good. It is just a financial tool, but it is a double edged sword and can cut both ways. Many people view a student loan as good debt.

In some cases, it is not. If I borrow $60k for college and come out making $30k a year was it worth it? This is the risk aspect. In essence, when you are taking on student loan debt, you are betting that your future earnings will greatly exceed the debt.

If you were laid off or unemployed, you would still need to service your debt. This is where the risk really becomes evident. You took a loan that must be repaid for a better job that you are unable to get. (With hardship deferrals, this might not be the greatest example but I think you get my general point.)

With debt, you also need a larger emergency fund. You need enough to pay the minimums and your other expenses. In my case, last year, I was paying about $1,700 a month to service debt on medical, cars, and braces. For a six month emergency fund, I would need to have an additional $10k just to stay current on the debt. If I were to add in my mortgage of $2,042, the emergency fund goes up another $12,252. So, my example, over $22k of my 6 month emergency fund is just to service debt.

What do I truly need to survive? Food, utilities, transportation, insurance (health at least) – total cost might be $2,500. Or a $15,000 emergency fund. Or about 60% of my emergency fund is used towards servicing debt.

The interest on the above debt ranged from 0% - 4%. In fact, the highest interest rate I paid this year was 5.5% on my mortgage. Some people would say well you could invest that and beat what you are paying on the interest.

Also, this year might be a good example where it would have been hard to beat 4%. Sure, this year might be an anomaly, but my point is that you can't guarantee that you can beat the interest on your debt.

More importantly, I didn't have the money at that time. And that is the real reason for the debt, and I suspect this is the reason that most people go into debt in the first place. In my opinion, the whole investing and taking out debt argument is a way for most people to rationalize the debt.

Switching gears and looking at Dave Ramsey. I believe his true goal is to free up your cash flow as quickly as possible and use that towards wealth building. With that in mind, the issue I have with Dave Ramsey is that he is short on investment advice. His goal, I believe, is to bring you to a spot where you can start building wealth.

If you look at his first three goals, they are really to set up an emergency fund and pay off all your "small debts" (everything but the big mortgage or big second mortgage). His argument is that in the long run, it doesn't matter if you miss a year or 2 of saving for retirement or college for the kids.

His other point is that when we are first starting this journey, most of us don't have enough extra at the end of the month to do everything – save for an EF, pay of debt, save for retirement, save for college, invest. So, his method is a path that helps people focus their resources and quickly move to free up cash flow.

Personally, I have been paying debt and maxing my 401(k) contribution. In retrospect, I would have been debt free at the end of September and had an additional 3 month of EF saved. In hindsight, I probably would have been better off following Dave Ramsey's advice. I definitely would have had less stress.

And next year, I will be attacking 3 goals at the same time – EF, 15% to retirement, and college funding. I will be doing these all at the same time as well. By the end of 2009, I'll be in the same please regardless of which way I went, but I do think following Dave Ramsey's plan would have reduced my stress further.

Dave Ramsey also makes some exceptions to his rules that I think are good. If you are in danger of being laid off or your wife is expecting, stop paying off debt and start saving everything. Once these events past, throw everything saved at debt and then proceed.

So to sum up this rambling, debt is neither bad nor good. It is merely a tool. The real issue is how we use it. In the example of student loans, is it a way to increase our earnings at a reasonable cost?

Do we really do an analysis on how we use debt? Do we look at risk and added stress, opportunity costs, and the future payoffs of our decisions now?

For most of us, we use debt to fund a want we want now. We buy cars by looking at the monthly payment without thinking about what we are giving up by making this choice. We fund things on credit cards and carry balances month to month, wasting money on fees and high interest rates.

As for houses and student loans, the issue is that you don't want these debts to be a burden and you need to look carefully at these debts.

As for Dave Ramsey, I think that his steps of budgeting, eliminating debt, and savings for college and retirement are pretty solid. He gives you a step by step approach on how to focus and gives you tool that help you see quick progress.

Some people say to pay off the highest interest rate first. Mathematically, it does make sense. In truth though, you might save a few months. If you look at your credit cards which probably have the smallest balances and the highest rates, you might have a difference of 5% per card which is about 0.4% monthly difference. If you have zero percent and 30%, the interest difference per month would be 2.5%, which I think would be the most extreme case.

But you need to also take into account what your goals are. Are you welling to give up your life in the short term to pay off debt or would you rather slowly pay off your debt and enjoy more of your life?

For the first, Dave Ramsey's plan works. For the later, you are better off saving a little for retirement and building an EF.

The real issue and the end of the day is: What are your goals?

Veteran's Day

November 11th, 2008 at 06:05 am

To all the vets, thank you for your service. Not only those who made it back but also those that gave the ultimate sacrifice for this country.

Also, a thank you for military families whose sacrifices sometimes go unnoticed.

My Take On The Markets

September 25th, 2008 at 11:00 am

Where do I even start? Ok, first let me say that I don't hold presidents responsible for economic issues. So, I won't be bashing Bush, Clinton or Bush.

Was it caused by real estate speculators, the mortgage brokers writing loans with out proof of income and employment and 100% + loans, was it caused by credit agencies rating all the paper off of SIVs and CDOs AAA and Aaa?

I believe the underlying problem started after the S&L crisis. Coming out of the S&L we hit a little recession where the unemployment rate hit 7.5% and middle management was being squeezed. From 1991-1992, the fed lowered the fed fund rate 375 basis points in less then 2 years. This made credit very easy to get, whether it was buying stocks, loans for companies, and yes even mortgages.

When everything is clicking, this added leverage in the economy causes the economy to expand. Jobs are easy to find, labor pay increases … life is good. But leverage can also cut the other way too.

You could even go further back in time. The S&L crisis caused a recession which caused the fed to loosen the economy. The deregulation of the 1980's caused the S&L crisis. The inflation of the early 1980's caused the deregulation as a last ditch attempt for the S&Ls to save themselves. In the 1970's, S&Ls didn't realize that their business models were fundamentally changing and didn't have a plan when inflation hit.

I could probably go on and on. One thing feeding of another. If I had to choose one thing, it would be the fed aggressively open up credit to everyone in the 1990s, and this has evident in all industries, corporations,

So here we are today. We have underlying assets devalueing or correcting (which ever term you want to use). When these assets started to devalue, firms went out and raised capital (in other words debt). Some of the headlines were Baclays raises 4.5 billion, Fifth Third raise 2 billion, Lehman posts 3 billion loss and sets 6 billion stock sale.

But recently something happened in the markets. The write downs of the assets didn't stop and investors stopped loaning money and buying preferred stock.

So now we are in September, AIG's assets deterred to a point where they had to keep putting up more capital and just couldn't do it any more. Lehman was basically shut out of the capital markets. Write downs are still occurring and financial ratios are still deteriorating.

So what has the government done? First is to save AIG. AIG is basically the insurance provider for the financial industry. If they went under, it would have caused a ripple affect of failures as hedged positions became unhedged.

The second issue was the common citizen losing confidence in the financial system. This was seen when there was a run on money market accounts. Money Market accounts invest in safe short term paper (except the cash enhanced which invest in CP on SIV and CDOs. Black Rock wrote about this last December). In any case, if everyone sells out of a money market fund, the portfolio manager must liquidate the fund. This causes them not to get full value and liquidate for less then a dollar. We say State Street lose 35% of its value in one day because of this.

So the government has now set up $400 billion to guarantee that money markets will have a dollar price. This has had the effect of stopping the run on the mutual fund industry and chances are the none of the $400 billion will be used. If the market works with out panic, the portfolio managers can unwind there positions without forcing to liquidate at a fire sale.

The next piece is to free up capital and let the credit markets work again. This is the $700 billion. Right now, the institutions carrying this debt bad assets keeps writing them down and doesn't have capital to lend and people with capital to lend don't want to lend it because these write off just keep continuing.

Some the $700 billion is there to buy this debt from the financial institutions. The consensus is that the price will be above the fire sale price currently out there put below the maturity value of the debt. The government will then hold the securities until the market recovers or keep them to maturity. There is talk of starting with the MBS (mortgage backed securities) and moving to others.

So a MBS is security that represents a pool of mortgages. So they take a bunch the 30 year fixed at 5.5% and sell a slice to the bond fund. Most people pay there mortgages so most of the mortgages in the pool will be fine. It's just this small percent that will default and no one knows how much it is. So there is now a supply of MBS and not a lot of buyers. The yield on these are 15%-20%, so the are already steeply discounted.

Now the government is going to come in and basically buy the securities so the yield might be 10% - 15% and hold until the market recovers or the pools mature.

Personally, I expect the government to make money on the AIG deal and the MBS deal and maybe loss less then a billion on the money market thing. Also the terms are that the money will be available if needed. This usually means that the government will sell treasury if the money is needed, they don't have it on hand.

There is an urgency to this. You don't want the credit markets to sieze.

So that's my take. Hope it may sense.

Retirement Numbers

September 24th, 2008 at 08:38 am

Every financial site has there 2 cents on how to determine a retirement number. Some are complex formulas that use monet carlo simulations. They simulate various market conditions and inflation scenarios about a 1,000 times to spit out numbers like there is an 87% chance that you will reach 73% of your goal.

So what is a lay person to do?

Personally, I like simple and easy things. So the first thing is to determine the amount of income you need in retirement. Some sites say 80%, some others say less. I use 100% of my income.

Why? First, it is easy to compute (income * 100% = income). Secondly, I know I can live off this income (I am doing it know). Third, I am actually living below it so I have some cushion. Forth, even if I retired, my work related expenses would decrease but my leisure expenses would increase so it would probably be a wash.

Now take your income and multiply by 25. Why 25? Because 25 times your salary would allow you to withdraw your salary every year and allow for your savings to grow and keep up with inflation. So, if you could get an 8% return, you could take out 4% and increase your yearly withdrawal by 4% to keep pace with inflation.

But that number is huge!!! 25 times let's say 100k = 2.5 million. That is a lot of money. This number can also be adjusted down. If you have a pension, annuity, income producing real estate, or social security, you could reduce that number significantly.

Let's say I am going to get 1,500 a month for SS or 18,000 a year. I have a three family that's paid of when I retire and I can get 2,200 a month from that after expenses or 26,400 a year. Well, that's 44,400 a year in income. So theoretically, I would only need to generate 55,600 a year and my number would need to be 1.39 million instead of 2.5 million.

Now, I am figuring this all off of invested assets. I am not including my house, automobiles, furniture, etc. I am not including the house because I don't know where I will live in retirement. It may cost more or less. But I could live in my house for most of retirement.

I didn't include the rest because the resale value is negligible on a nest egg of 1.39 million.

What I also like is that this approach tends to be pretty conservative. In other words, I am retiring on what I am currently making adjusted for inflation without touching my 1.39 million nest egg. This allows me to have a cushion for the unforeseen, take care of nursing home expenses, leave a little something to the people I love, and most importantly not be a financial burden.


September 22nd, 2008 at 06:22 am

If you have under $100,000, you money is safe. Since FIDC started, it has not lost a penny of any depositors money under the $100,000 threshold. Either your deposits will be transferred to another FIDC insured bank or FIDC will send you a check.

If you have over $100,000 in one account (there are multiple type of accounts you can have and I think each one has the 100k limit), the acquiring bank can buy the deposits in full or a percentage (even 0%) of the uninsured deposits. So even though, the deposit is uninsured, you have a good chance of getting something. Of course, I would recommend you keep within those insured limits.

FDIC has its own fund. All FDIC banks pay a premium to the fund. If the fund were to run out, FDIC has the ability to borrow as much money as it needs directly from the Treasury. There is interest charged to the loan.

Most of the bank failures do not cause the FDIC to take a loss. Indy Mac is an example of one where the FIDC will need to pay money. It currently looks like FIDC will need to pay 8.9 billion for the 32 billion bank failure.

All the talk about the FIDC fund drying up is because the reserve ratio (the funds balance divided by insured deposits) fell to 1.01 in June form 1.19 in March. The FDIC is forced to restore the ration back to 1.15, meaning banks will need to pay a higher premium in 2009.

The decline from 1.19 to 1.01 was mainly due to 10.2 set aside for insurance losses. (This number does include 8 billion set aside for Indy Mac.)

This was the lowest level since 3/31/1995 when it was 0.98.

U.S. Says Banks on `Problem List' Rose 30% in Quarter

August 27th, 2008 at 09:43 am

Aug. 26 (Bloomberg) -- The U.S. Federal Deposit Insurance Corp. said its ``problem list'' of banks increased 30 percent in the second quarter to the highest total in five years as more commercial real-estate loans were overdue.

The list had 117 banks as of June 30, up from 90 in the first quarter and the highest since mid-2003, the agency said today in its quarterly report without naming any institutions. FDIC-insured lenders reported net income of $4.96 billion, down 87 percent from $36.8 billion in the same quarter a year ago.

``More banks will come on the list as credit problems worsen,'' FDIC Chairman Sheila Bair said at a news conference in Washington.

Regulators are adding to the list as bank assets, liquidity and other fiscal measures weaken. Nine banks have failed this year, including California-based mortgage lender IndyMac Bancorp Inc., which the FDIC is running as a successor institution, IndyMac Federal Bank FSB.

IndyMac's failure will cost the U.S. deposit insurance fund about $8.9 billion, exceeding a $4 billion to $8 billion estimate, said Diane Ellis, the associate director of financial- risk management. The FDIC discovered additional insured deposits and had time to value the assets, Ellis said.

Second-Lowest Earnings

Second-quarter earnings fell from $19.3 billion in the previous quarter, driven by higher provisions for loan losses, the FDIC said. It was the second-lowest net income reported since the fourth quarter of 1991 behind the $600 million reported in the fourth quarter of 2007, the agency said.

``The results were pretty dismal, and we don't see a return to the high earnings levels of previous years any time soon,'' Bair said.

Funds set aside by banks to cover loan losses more than quadrupled to $50.2 billion from $11.4 billion in the year- earlier quarter.

Loans 90 days or more overdue, deemed troubled by the FDIC, jumped 20 percent to $162 billion from $136 billion in the first quarter, the FDIC said. Real-estate loans accounted for almost 90 percent of the rise in the past three quarters, the agency said.

The deposit insurance fund fell 14 percent to $45.2 billion and the reserve ratio, or balance divided by insured deposits, was 1.01 percent. The FDIC is required to shore up the fund when the ratio falls below 1.15 percent.

Higher Premiums

The agency in October will consider a plan to replenish the account that will likely include an increase in the premiums charged banks, Bair said.

A greater share of the increase will be shifted to ``riskier institutions so that safer institutions won't be unduly burdened,'' she said.

Lenders on the ``problem list'' had assets of $78.3 billion at the end of the second quarter, triple the $26.3 billion in the first quarter, the agency said. The FDIC said IndyMac's assets represented $32 billion of the increase.

Many banks on the list have high levels of commercial real- estate loans, especially in construction and development loans, said John Corston, the FDIC's associate director of large bank supervision. The number of problem institutions will continue to rise, he said.

``Problem institutions continue to be scattered across the country,'' Corston said. ``However, we expect to see some migration to areas experiencing the greatest stress.''

Regulators rate banks based on their asset quality, earnings, liquidity and other fiscal measures. Banks are ranked on a numerical scale, with 1 being the highest and 5 the lowest. A rating of 4 or 5 places a bank on the ``problem'' list.

The FDIC is a Washington-based bank regulator that insures deposits at 8,451 institutions with $13.3 trillion in assets.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aXGDnqbSdt.s&refer=worldwide

Highest level since 2003. I don't remeber worring to much about bank's solvency in 2003. I did in 1991 though.

Inflation Could Be Worse

August 20th, 2008 at 09:59 am

Zimbabwe "inflation rocketed to a staggering 11 million percent in June, the highest in the world, from 2.2 million in May, and chronic food, fuel and foreign currency shortages are worsening.

But many economists believe the figure is higher still and it has little meaning for Zimbabweans, who find that a loaf of bread costs almost five times more than it did a month ago -- if it can be found for sale."

Source: http://www.reuters.com/article/marketsNews/idUSLJ72598820080819?pageNumber=2&virtualBrandChannel=0

Exxon Mobil and Obscene Profits

August 7th, 2008 at 01:21 pm

The profits Exxon Mobil made fro Q2 are obscene. No firms should make that much. Right? But should we stick to one sector? Are there other companies making obscene profits?

How would be compare? I say we use the Net Profit Margin come up with a number and then take 100% of profits over that number. So Net Profit Margin for Exxon is profit divided by revenues. So thats, $11.6 billion obscene dollars divided by $138 billion in revenue or 8.4%. So if a company makes 8.4 cents of profit on every dollar of revenues they sell, it's considered obscene.

Ok Google has a net profit margin of 25%. Talk about obscene. That' s 297% more obscene then Exxon.

In fact, the average net profit margin of the S&P is over 9%. Healthcare industry is at 12.28%, tech at 9.31%, Internet firms at 20.8%, and Personal products at 11%.

Over half the companies in the S&P 500 are gouging us. From banks to computers, to household companies. I say stop the gouging and cap the net profit margin at 5%. Anything above should be taxed at 100%.

It's time that companies stop gouging the American public. These companies would be forced to either increase their costs (like hiring people) or reduce their prices. Every company would be on a level playing field.

Source: http://biz.yahoo.com/p/s_conameu.html

I almost forgot those evil railroads at 13.5%.

He ventured forth to bring light to the world

July 25th, 2008 at 08:03 am

And it came to pass, in the eighth year of the reign of the evil Bush the Younger (The Ignorant), when the whole land from the Arabian desert to the shores of the Great Lakes had been laid barren, that a Child appeared in the wilderness.

The Child was blessed in looks and intellect. Scion of a simple family, offspring of a miraculous union, grandson of a typical white person and an African peasant. And yea, as he grew, the Child walked in the path of righteousness, with only the occasional detour into the odd weed and a little blow.

When he was twelve years old, they found him in the temple in the City of Chicago, arguing the finer points of community organisation with the Prophet Jeremiah and the Elders. And the Elders were astonished at what they heard and said among themselves: Verily, who is this Child that he opens our hearts and minds to the audacity of hope?

In the great Battles of Caucus and Primary he smote the conniving Hillary, wife of the deposed King Bill the Priapic and their barbarian hordes of Working Class Whites.

And so it was, in the fullness of time, before the harvest month of the appointed year, the Child ventured forth - for the first time - to bring the light unto all the world.

He travelled fleet of foot and light of camel, with a small retinue that consisted only of his loyal disciples from the tribe of the Media. He ventured first to the land of the Hindu Kush, where the

Taleban had harboured the viper of al-Qaeda in their bosom, raining terror on all the world.

And the Child spake and the tribes of Nato immediately loosed the Caveats that had previously bound them. And in the great battle that ensued the forces of the light were triumphant. For as long as the Child stood with his arms raised aloft, the enemy suffered great blows and the threat of terror was no more.

From there he went forth to Mesopotamia where he was received by the great ruler al-Maliki, and al-Maliki spake unto him and blessed his Sixteen Month Troop Withdrawal Plan even as the imperial warrior Petraeus tried to destroy it.

And lo, in Mesopotamia, a miracle occurred. Even though the Great Surge of Armour that the evil Bush had ordered had been a terrible mistake, a waste of vital military resources and doomed to end in disaster, the Child's very presence suddenly brought forth a great victory for the forces of the light.

And the Persians, who saw all this and were greatly fearful, longed to speak with the Child and saw that the Child was the bringer of peace. At the mention of his name they quickly laid aside their intrigues and beat their uranium swords into civil nuclear energy ploughshares.

From there the Child went up to the city of Jerusalem, and entered through the gate seated on an ass. The crowds of network anchors who had followed him from afar cheered Hosanna and waved great palm fronds and strewed them at his feet.

In Jerusalem and in surrounding Palestine, the Child spake to the Hebrews and the Arabs, as the Scripture had foretold. And in an instant, the lion lay down with the lamb, and the Israelites and Ishmaelites ended their long enmity and lived for ever after in peace.

As word spread throughout the land about the Child's wondrous works, peoples from all over flocked to hear him; Hittites and Abbasids; Obamacons and McCainiacs; Cameroonians and Blairites.

And they told of strange and wondrous things that greeted the news of the Child's journey. Around the world, global temperatures began to decline, and the ocean levels fell and the great warming was over.

The Great Prophet Algore of Nobel and Oscar, who many had believed was the anointed one, smiled and told his followers that the Child was the one generations had been waiting for.

And there were other wonderful signs. In the city of the Street at the Wall, spreads on interbank interest rates dropped like manna from Heaven and rates on credit default swaps fell to the ground as dead birds from the almond tree, and the people who had lived in foreclosure were able to borrow again.

Black gold gushed from the ground at prices well below $140 per barrel. In hospitals across the land the sick were cured even though they were uninsured. And all because the Child had pronounced it.

And this is the testimony of one who speaks the truth and bears witness to the truth so that you might believe. And he knows it is the truth for he saw it all on CNN and the BBC and in the pages of The New York Times.

Then the Child ventured forth from Israel and Palestine and stepped onto the shores of the Old Continent. In the land of Queen Angela of Merkel, vast multitudes gathered to hear his voice, and he preached to them at length.

But when he had finished speaking his disciples told him the crowd was hungry, for they had had nothing to eat all the hours they had waited for him.

And so the Child told his disciples to fetch some food but all they had was five loaves and a couple of frankfurters. So he took the bread and the frankfurters and blessed them and told his disciples to feed the multitudes. And when all had eaten their fill, the scraps filled twelve baskets.

Thence he travelled west to Mount Sarkozy. Even the beauteous Princess Carla of the tribe of the Bruni was struck by awe and she was great in love with the Child, but he was tempted not.

On the Seventh Day he walked across the Channel of the Angles to the ancient land of the hooligans. There he was welcomed with open arms by the once great prophet Blair and his successor, Gordon the Leper, and his successor, David the Golden One.

And suddenly, with the men appeared the archangel Gabriel and the whole host of the heavenly choir, ranks of cherubim and seraphim, all praising God and singing: Yes, We Can.

source: http://www.timesonline.co.uk/tol/comment/columnists/gerard_baker/article4392846.ece

The facts on bank failure

July 16th, 2008 at 02:24 pm

With the failure and government bailout last week of IndyMac, the fifth bank to fail this year, here are some questions and answers about what happens when a bank fails.

Q.What happens when the government takes over a bank?

A. In such a scenario, called a conservatorship, a bank's regulator takes control of the company and oversees the operations. The move is to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by the bank.

Q.Is my bank at risk?

A. John Bovenzi, the former chief operating officer of the Federal Deposit Insurance Corp., which guarantees bank deposits up to $100,000, has said that bank failures have been rare in the past, and that if more banks do fail, the government has enough in reserve. According to regulatory policy, there is no advance notice given to the public before a bank's assets are seized by federal regulators.

Q.How can I make sure my money is safe?

A. All deposit accounts worth $100,000 and less are automatically insured by the FDIC. Many retirement accounts, such as IRAs and 401(k)s, are insured up to $250,000 per person. But since it's a person's aggregate deposits, and not their individual accounts, that are insured, any amounts over $100,000 deposited at any one bank are not covered.

In a joint account, each depositor is insured up to $100,000.

The FDIC has information about its insurance on its website, at http://www.fdic.govdeposit/deposits/insured/yid.pdf.

Q.How much money does the FDIC have?

A. The FDIC has nearly $53 billion in insurance funds. Beyond that figure, Bovenzi said the FDIC would have go to other banks to raise more money, adding that in such a case, consumers could expect to see some of that amount passed on to them in the form of higher fees.

The current estimated loss to the FDIC resulting from IndyMac's failure is between $4 billion and $8 billion.

Q.How big does FDIC like to keep its deposit insurance fund?

A. The FDIC board of directors has set a designated deserve ratio of 1.25 percent. That means their ''target'' balance for the fund is 1.25 percent of estimated insured deposits. As of March 31, the fund was $52.843 billion and insured deposits were $4.431 trillion, which resulted in a reserve ratio of 1.19 percent, 0.06 percentage point below the Board's target. If the fund falls below 1.15 percent of estimated insured deposits, the FDIC is required by law to adopt a restoration plan that will bring the reserve ratio back to 1.15 percent within five years.

Q.Do banks have to pay into the deposit insurance fund?

A. Yes. The total amount depends upon the assessment rate assigned to the institution and the size of its assessment base -- which is roughly equal to an institution's total domestic deposits. Assessment rates are assigned to institutions based upon the risk they pose to the fund, and currently range from 0.05 percent to 0.43 percent, with the vast majority if institutions -- almost 94 percent -- paying between 0.05 percent and 0.07 percent.

Q.Does the government's decision to aid Fannie Mae and Freddie Mac help the nation's banks?

A.Tony Plath, an associate professor of finance at the University of North Carolina at Charlotte, says yes. ''As mortgage money becomes harder to get and real estate prices go down even more, the solvency of many banks is called into question,'' Plath said. ``The Fed is moving to protect the solvency of the banking industry by maintaining integrity.''

Source: http://www.miamiherald.com/business/story/606067.html

The 10 Biggest U.S. Bank Failures

July 16th, 2008 at 02:18 pm

With an estimated $32 billion in assets, IndyMac Bank of Pasadena, Calif., which federal regulators seized Friday, is poised to become the third-largest bank failure in American history. Here is a list of the top 10 failures, based on total assets, according to Federal Deposit Insurance Corp. data covering 1934 through 2007.

1. Continental Illinois National Bank and Trust, Chicago (1984)
Total assets: $40.0 billion

2. First Republic Bank, Dallas (1988)
Total assets: $32.5 billion

3. American S&LA, Stockton, Calif. (1988)
Total assets: $30.2 billion

4. Bank of New England, Boston (1991)
Total assets: $21.7 billion

5. MCorp, Dallas (1989)
Total assets: $18.5 billion

6. Gibraltar Savings, Simi Valley, Calif. (1989)
Total assets: $15.1 billion

7. First City Bancorporation, Houston (1988)
Total assets: $13.0 billion

8. Homefed Bank, San Diego (1992)
Total assets: $12.2 billion

9. Southeast Bank, Miami (1991)
Total assets: $11.0 billion

10. Goldome, Buffalo (1991)
Total assets: $9.9 billion

Source: Federal Deposit Insurance Corp.

Bank Failure Facts

According to the FDIC, from 1934 through 2007, there were only two years with no bank failures, 2005 and 2006.
The year during that period with the most bank failures was 1989, when 534 banks closed their doors.
During the savings-and-loan crisis (1986-95), 2,377 banks failed, representing 67 percent of the 3,559 bank failures from 1934 through May 2008. At the peak of the crisis (1988-1989), 1,004 banks failed, a rate of one failure every 1.38 days.
Bank Failures by Decade

2000-2007: 32
1990-1999: 925
1980-1989: 2,036
1970-1979: 79
1960-1969: 44
1950-1959: 28
1940-1949: 99
1934-1939: 312
Source: FDIC Historical Statistics on Banking, 1934-2008

Source: http://www.usnews.com/articles/business/economy/2008/07/15/the-10-biggest-us-bank-failures.html

Back to the Future

July 15th, 2008 at 07:24 am

Remember 1989 1992? The housing market fell an average of 15%. 747 Savings and Loans went out of business. The unemployment rate in June 1992 was 7.8%. Inflation was over 6%. Does this sound familiar?

What is the saying, those who dont study history a bound to repeat it?

So, lets compare to today. The housing market on average is off 15%. It will probably deteriorate a little more. You could also argue that a handful of areas are skewing the results. In particular, CA, NV, FL,MI, OH, and AZ account for most of the foreclosures. But in any case, the current market is down 15% and will probably continue to drop.

I am looking at the prices to start bottoming over the next 6 months and linger. An L curve is what I would be expecting. The market has excess inventory that just need to work its way out and that will take time, just like the 90s.

Analysts are estimating 150 banks are in or going to be in distress. That seems like a large number until we compare it to the 747 S&Ls that went out of business.

Just like the early 1990s, real estate loans were to blame. RTC noted this was the number one contributing factor to the S&L crisis. Other factors included the high short term interest rates in late 70s and early 90s. Some might also say the deregulation of the industry. I would argue the deregulation allowed more time for the S&Ls to try to get out of the mess by being allowed to take on higher margin products (or riskier investments).

So, what happened? Well, the deposits were insured but the fiduciary did not have enough to cover all of these deposits. So, the fed stepped in to cover the gap ($124 billion).

Now, it is a little different. Banks have to be more capitalized and the insurance premiums that banks pay for that FIDC insurance have gone up. So, your money in the bank is safe. Just make sure you stay within the insurable limits.

Unemployment might go up to 6% in the short term and inflation may hit 5% or a little more. But to add perspective that 1992 saw 7.8% and 6% respectively.

So to summarize, I see this as more of 1989 1992. And just proves that these things run in cycles.

Rant or Puppies - Your choice

July 9th, 2008 at 10:22 am

OK, time for another random Merch rant. Ive your having a plesant day, please skip to the bottom (after END RANT) to continue your pleasant day..

Last warning. OK, I warned you.

-----Begin RANT-----------

So lately, I have been getting more and more irritated by people in general. I dont know whats causing this in society or what. Maybe because we get our news from the internet or maybe it is that all news has hidden opinions or people are too lazy to research things. I dont know.

But my issues are basically: 1) If something is repeated a certain number of times it is considered fact 2) People reinvent the definition of words 3) Feelings are more important then facts.

So lets take a quick example. We are in a recession. I have heard this on the news and read it on the internet countless times. To the point where a recent survey found that the 75% of Americans believe we are in a recession.

Well, the definition is 2 quarters of negative growth. We havent even had one quarter of negative growth.

Well, thats on definition of recession. No, that is the definition of recession.

Well, I feel like I am in a recession, so we are. OK, I admit I cant argue feelings with logic.

Or another example. Inflation is out of control. And yes, I hear this on the news and read this on the internet all the time. The unadjusted 12 month CPI (April 2008) was 3.9%, which is hardly out of control. Source: http://www.bls.gov/cpi/cpid0804.pdf

The average since 1947 has been 3.85% so inflation seems about normal year over year. Source: http://bigpicture.typepad.com/comments/2006/06/chart_of_the_we_3.html

Well you know, the government isnt taking into account oil or food properly so the methodology is wrong.

Really? Heres what is measures:
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, service meals and snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).

-------BORING CPI STUFF--------------
Each month, BLS data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United States to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. These economic assistants record the prices of about 80,000 items each month representing a scientifically selected sample of the prices paid by consumers for the goods and services purchased.
During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of 8 when they previously had been sold by the dozen) of the good or service since the last time prices had been collected, the economic assistant selects a new item or records the quality change in the current item.
The recorded information is sent to the national office of BLS where commodity specialists who have detailed knowledge about the particular goods or services priced review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments which can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item's features or quality. Thus, the commodity specialists strive to prevent changes in the quality of items from affecting the CPI's measurement of price change.
The CPI is a product of a series of interrelated samples. First, using data from the 1990 Census of Population, BLS selected the urban areas from which data on prices were collected and chose the housing units within each area that were eligible for use in the shelter component of the CPI. The Census of Population also provided data on the number of consumers represented by each area selected as a CPI price collection area. Next, another sample (of about 16,800 families each year) served as the basis for a Point-of-Purchase Survey that identified the places where households purchase various types of goods and services.

---------END BORING CPI STUFF-----------

Well, I feel that we are in a high inflation period.

I dont really understand what happened when feelings can override facts and people just except it. I feel that this is becoming more and more common place but I dont have any facts. (Did I just fall into my own trap?)

------END RANT------------

And for those just coming back to my blog.

Puppy dogs, warm spring days, and a cool breeze. Dont you feel better? I do.

In this world of change,

June 25th, 2008 at 09:37 am

nothing which comes stays, and nothing which goes is lost."

---Anne Sophie Swetchine

Very odd. Almost like a slap in the face. You might even say rude.

Since none of this describes the BA I know, I choose to believe BA had no choice but to leave the community without posting a note.

And with that, I bid BA a fond farewell and all the luck, happiness, and success in the real world.

Much like a close friend who passed on, BA will be watching and reading our blogs from a far. He was taken away from us in his prime as a blogger.

BA will always be remembered for being candid, approachable nature and his starnge love for Bed Bath and Beyond.

So I say, God speed fellow blogger, God speed. And may you find happiness and comfort in your life.

The Best Fathers Day Gift.

June 16th, 2008 at 02:17 pm

True, my oldest son is 3 and Fathers day is a foreign concept to him. To him, it means my wife having him construct a work of art and pick a card. But he doesnt understand the true gift he gave me.

You see now I am a role model. He studies everything I do. Do I yell at people, grab stuff away, do I tell lies, do I follow through on my promises?

Being around him, I have to be on my best behavior. I have to be polite. I have to be supportive and understanding. If I make a promise or give my word, I have to deliver. I cant say well not today.

I promised him that we would sleep in a tent the other weekend. Well, wont you know, they sprayed chemicals on my lawn. So, I set the tent up in the bedroom and we camped there. He told me scary stories about ghosts riding alligators (or at least thats what I thought he said).

See, being a role model, means you are under constant scrutiny. You have to mind your p and q and dot you I and cross your t. Sure, he pushes my buttons, but hes only testing me, making sure Ive learned the lessons he has taught me.

So I want to thank you son, for the greatest present ever making me a better person and expecting me perfect but accepting me as dear old dad a work in progress.

Commentary - Peter Schweizer: Conservatives more honest than liberals?

June 2nd, 2008 at 09:55 am

The headline may seem like a trick question even a dangerous one to ask during an election year. And notice, please, that I didnt ask whether certain politicians are more honest than others. (Politicians are a different species altogether.) Yet there is a striking gap between the manner in which liberals and conservatives address the issue of honesty.

Consider these results:

Is it OK to cheat on your taxes? A total of 57 percent of those who described themselves as very liberal said yes in response to the World Values Survey, compared with only 20 percent of those who are very conservative. When Pew Research asked whether it was morally wrong to cheat Uncle Sam, 86 percent of conservatives agreed, compared with only 68 percent of liberals.

Ponder this scenario, offered by the National Cultural Values Survey: You lose your job. Your friends company is looking for someone to do temporary work. They are willing to pay the person in cash to avoid taxes and allow the person to still collect unemployment. What would you do?

Almost half, or 49 percent, of self-described progressives would go along with the scheme, but only 21 percent of conservatives said they would.

When the World Values Survey asked a similar question, the results were largely the same: Those who were very liberal were much more likely to say it was all right to get welfare benefits you didnt deserve.

The World Values Survey found that those on the left were also much more likely to say it is OK to buy goods that you know are stolen. Studies have also found that those on the left were more likely to say it was OK to drink a can of soda in a store without paying for it and to avoid the truth while negotiating the price of a car.

Another survey by Barna Research found that political liberals were two and a half times more likely to say that they illegally download or trade music for free on the Internet.

A study by professors published in the American Taxation Associations Journal of Legal Tax Research found conservative students took the issue of accounting scandals and tax evasion more seriously than their fellow liberal students. Those with a liberal outlook who reject the idea of absolute truth were more accepting of cheating at school, according to another study, involving 291 students and published in the Journal of Education for Business.

A study in the Journal of Business Ethics involving 392 college students found that stronger beliefs toward conservatism translated into higher levels of ethical values. And academics concluded in the Journal of Psychology that there was a link between political liberalism and lying in your own self-interest, based on a study involving 156 adults.

Liberals were more willing to let others take the blame for their own ethical lapses, copy a published article and pass it off as their own, and were more accepting of cheating on an exam, according to still another study in the Journal of Business Ethics.

Now, Im not suggesting that all conservatives are honest and all liberals are untrustworthy. But clearly a gap exists in the data. Why? The quick answer might be that liberals are simply being more honest about their dishonesty.

However attractive this explanation might be for some, there is simply no basis for accepting this explanation. Validation studies, which attempt to figure out who misreports on academic surveys and why, has found no evidence that conservatives are less honest. Indeed, validation research indicates that Democrats tend to be less forthcoming than other groups.

The honesty gap is also not a result of bad people becoming liberals and good people becoming conservatives. In my mind, a more likely explanation is bad ideas. Modern liberalism is infused with idea that truth is relative. Surveys consistently show this. And if truth is relative, it also must follow that honesty is subjective.

Sixties organizer Saul Alinsky, who both Barack Obama and Hillary Clinton say inspired and influenced them, once said the effective political advocate doesnt have a fixed truth; truth to him is relative and changing, everything to him is relative and changing. He is a political relativist.

During this political season, honesty is often in short supply. But at least we can improve things by accepting the idea that truth and honesty exist. As the late scholar Sidney Hook put it, the easiest rationalization for the refusal to seek the truth is the denial that truth exists.

Peter Schweizer is the author of Makers and Takers: Why Conservatives Work Harder, Feel Happier, Have Closer Families, Take Fewer Drugs, Give More Generously, Value Honesty More, Are Less Materialistic and Envious, Whine Less ... And Even Hug Their Children More Than Liberals (Doubleday).

Source: http://www.examiner.com/a-1419425~Peter_Schweizer__Conservatives_more_honest_than_liberals_.html

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?

In 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. (Source: http://en.wikipedia.org/wiki/Recession).

Of course, the NBER can overwrite this and say that we are in a recession, but I didnt 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 dont see anything there.

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

Real 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. 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 its pretty current.

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

So enjoy life because we have 4 months before we could possible be in a recession. Thats 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 Dont Look Back. At first, I think that my coach would always yell at me MERCH KEEP YOUR HEAD BACK!!!!!! DONT LOOK AT ME!!!!! DONT LOOK BACK!!!. 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 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 whats 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 Dont look back to Wont go back. 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 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 lets 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 its 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 doesnt hold much weight. Isnt the compounding on your debt working against you? And arent 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, its 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 Daves advice. I would dropped my emergency fund to $1,000 and stopped contributing to 401(k). I didnt 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.

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. Thats 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, its 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? Whats 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 havent 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, its not like I have to go from Lobster to Ramen noodles.

Anyway aside form truck drivers, I really dont see how all this really affecting the average American. Maybe, Im 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

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 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. Hes not generating enough profits for us. Hes costing us money.

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 arent 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, Im a lousy, deadbeat, freeloader customer, and I wouldnt want it any other way.

Just Looking Back

April 22nd, 2008 at 06:48 am

I was thinking about my journey on my way to work. Basically, where I was last year and where I am this year and where I am going. About every 6 months, I look back over the past year and I look forward for the next year.

About 7 years ago, I had a job where I would be vested in 5 years. The company would put away 15% of my salary allocated the same as my 401k every year and it would be vested after 5 years.

Jokingly, I told my boss at the time looks like you got me for the next 5 years. His reply was If you look at it that way, this job will kill you. And he went on to give me probably the best corporate advice I ever got. He said that after every six months look at where you are, where you came from and where you are going. The philosophy is that during that six months, it is a short enough time that you can stay in a job or situation you hate with enough time to rectify the situation.

After 5.5 years at that company. I left that job. It baffled more then a few people. I was leaving at the top of my game, but I could see my opportunities a year out not being there. I need to retool. So I took a job as a consultant. I told by wife that Ill do this for a year and then we could reevaluate. Will we did and ten months ago, I took a different consulting job that had no travel (I had 80% travel before).

Yes, I do talk to my wife about career moves. A new job directly affects her whether a move or hours Ill be home to money we have to spend. I know men who just concentrate on their careers and could care less about their wifes input. Sad.

Well in August my second son was born and started having medical issues (seizures). Hes ok now but my health insurance was less then spectacular and I owed about $25k.

Well that was the cause that forced me to reevaluate where we were with my wife. We decided that for the next six months we would put together a budget and really stick to it. We would go in fully committed and see where it took us.

Its been about six months since we made that decision, so time to reevaluate.

First, if you can have an honest conversation about money you can have an honest conversation about anything. The communication between my wife and me continues to improve. Six months ago, we had money fights (she spent to much, I spent to much, grocery cost too much). Now the conversation centers around our goals and budget. If we buy that then we have to reduce our debt snowball this month.

My wife also asked advice about parenting our 3 year old. I would have never envision this 3 weeks ago never mind 6 months ago. I feel that we are getting on the same page and acting more like a team instead of individuals.

I also feel less financial stress, especially this month. I see the snowball really taking hold and see my cash flow freeing up a little bit. My wife is about a month behind me in where we are on our path, but we are on the same path.

I also feel a lot of hope lately. Probably because I am moving in the right direction faster then I thought I could.

I have already planned my last half of 2008 and it looks like all my goals will be met, plus I might add a few in Q4. I have started roughing out my goals for 2009, which are really sub goals that bring me closer to my real goals.

My real goals are to work because I want not because I have to and spend more time with my family. In other words, I am looking at passive income (whether real estate or investments) to support my monthly expenses.

So when I look at setting up my goals, I ask myself do they support or get me a step closer to my big goals. I review everything every 6 months just to make any course corrections or evaluate new paths.

By the way, my two big goals also align with my wifes.

Is your Why big enough?

April 21st, 2008 at 08:21 am

I was reading Petunias blog and it got me thinking why some people fail and some succeed.

My first thought was having a what or a vision. You start by dreaming what would by life be if I was debt free. But that isnt the answer. We all have dreams but not all of us will achieve them.

Maybe its the how. After all, it wasnt the what. Well, its really not hard to get out of debt. You budget less then you make or pick up another job and throw the excess at the debt. Not rocket science and I could even give you a formula. Income expenses = whats left for debt reduction.

The leaves us with the why. But not any old why will do. You see if I said to you your life would be better off if you could save $30,000 this year. Could you? Maybe and then again maybe not. What happens if you need to save $30,000 because your spouse or child needs an operation. Well now, thats one big why and I can tell you I would have $30,000 saved will before operation whether 6 months or a year away.

But with the first scenario, it would be a hit or miss. Yea, it would be nice, but then life happens (nice vacation, eating out, etc.).

My point? A big enough why keeps us focused and on point and our dreams can be achieved. For spouses, the whys maybe different but should be big enough.

My why? For me and my wife to feel more secure and spend more time together as a family. And the first goal is getting out of debt with the second goal to reduce my hours away from the family.

I know the how for the first but not the second, because my whys got me focused.

And Happy Marathon Monday from Boston!!!!


April 14th, 2008 at 08:23 am

OK, this has been simmering in the back of my mind for about a month now. My wifes best friend came over with his family. Him and his family are nice people. I really like them.

Well, there in the same place I was about 5 months ago. The cash flow is getting squeezed. Under my old thinking, there were only a couple ways out: find a new job making more, get a second job, or hold on ride this because in the future we will always make more. Right?

He has decided it best to hold on tight and hope for the best. He has a pretty good job and could have a decent jump in income over the next 5 10 years.

I started to talk to him about budgeting and how we have been able to find money and start cutting down the debt. While I could tell, he felt I wasnt under the same financial pressures as him. In other words, my cash flow was better. Well, needless to say, I ended the conversation by saying that he should look into Dave Ramsey. No sense in getting things all heated for no good reason.

I was also going to say that if I could do it, you can do. But I knew that wasnt true. And this is the issue of my rant. Its not that what I am doing requires a master degree in finance. It requires something that a lot of people today do not have: discipline, focus and the ability to sacrifice.

Yes, its hard work to stay focused, to have the discipline, and be able to sacrifice. But its far better then the stress of picking which bills to pay and just scraping by.

To each there own, but dont suggest to me that luck played a part in this. Theres a lot of hard work behind these numbers. YTD through debt reduction and adding to my 401(k), I have added $29,843 to my net worth (not taking into account market conditions during that time).

My 2008 goals are very aggressive for me, and I am right on track. Why? Because my yearly goals are broken into quarterly goals, which are broken into monthly goals. which are broken into weekly goals, and daily decisions are made on how they effect weekly goals. The weekly goals may need to be adjusted to keep the monthly goals on track or the monthly goals must be adjusted to keep the quarterly goals on track but the yearly goals are not being adjusted.

What have you done to increase your net worth YTD? Are you where you thought you would be? Why not? What decisions are you making today to keep you from your goals?

You still have 8 months left in the year. Time to get back on track and start accomplishing your goals. Theres still a ton of days left in the year, time to get cracking.

Random Thoughts

March 18th, 2008 at 06:53 am

So, my wife has started her new job and she will be working 5-10 hours a week. Truth be told, this will probably last until June when the weather gets nice and then shell start working again in October.

Well, after her first day on the job, she was feeling all empowered and made the statement Now that am working, you can stay home with the kids.

I said OK, to bring home what I bring home you would need to work over 100 hours a week. She quickly calculated in her head that would be about 20 hours a day. I said or 14 hours if you work 7 days a week.

She then said Never mind, you can continue to work. I just kind of laughed to myself.

So my dream of staying home with the kids and watching ESPN will drinking beer and eating chips is still but a dream.

Shifting gears, I have been watching Dave Ramseys TV show at night lately, mainly because nothing else in on and I like to see him slam some of the people that call him. My wife usually sits on the couch next to me reading a book or magazine.

Well last night, I was watching some coverage about a little tourney coming up.

My wife goes No Dave Ramsey tonight? I was really stunned. I didnt even know she listened to the show never mind enjoyed it.

Especially since she was complaining the other about needing more clothes the other week. Now for some perspective. We have a closet thats 9x10 filled with some of her clothes and all of mine. Yes I do have about 5 feet of one wall. And she has a closet in the guest bedroom (not walk in but still big) and she has the entire coat closet. I think she may have boxes of clothes in the attic or basement but Im not sure.

Since, watching Dave Ramsey, she hasnt asked for money for new clothes or in general money for anything discretionary. She also is asking more questions about the budget and participating in it.

In fact, I never bring my lunch to work and always buy lunch, she said Dave Ramsey wouldnt approve. Probably not, probably not.

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