How much depends on consumer spending?

June 23rd, 2009

Some people are hoping for an economic recovery this year but I am not so sure any respite will last more than a few months because I don’t see evidence that consumer spending will increase.

Due to relatively high unemployment and many workers who are unable to get raises, how greatly can consumer spending increase? If consumer spending doesn’t increase, corporate profits can’t increase much.Neither can government revenue.

So how is the economy supposed to recover?

Strategy to pay down credit card debt

May 24th, 2009

Slowly but surely some friends worked the plastic the last year and low and behold ended up with a few thousand dollars on their card. Definitely caught up with them.

So they sat down and devised an interesting way to pay it down.

Basically anytime they use the card for something the cost is double – so if they uses the card for lunch and lunch is 15 dollars – the lunch will cost in their system 30 dollars.

When they get home they will add up their uses and send an online payment for double the amount to the credit card company.

this does a few things

1. It makes them stop using the card by doubling the cost They are now forced to really think if a charge is necessary now they aren’t blowing their money on small things that add up quickly like they used to –

2. By making multiple payments during the month instead of one payment at the end of the billing cycle they are slightly reducing their interest.and they are no longer shocked by large minimum payments when the bill comes ..

3. By double their payment they are of course paying down their credit card aggressively.. they said they really don’t notice the extra money going to the credit card because it is in small increments..

Of course the key is not cheating the system which they have been very good at.

Now this isn’t the best system. Obviously the best system is to pay your full bill at the end of each month, never paying interest. If you can’t then you stop using credit and budget the biggest payment you can each month. This system is for people who have tried the 2 better methods of paying down credit card debt and failed. After all, you can’t give up.

Economics of poverty

May 21st, 2009

Interesting article here on the economics of poverty. Poor people pay more for banking, spend more time waiting for stuff, more on food, etc.

Warren Buffet speaks some more

May 5th, 2009

Some more interesting stuff on Warren Buffet. He talks about insurance, real estate, Moody’s and more.

Where will Berkshire go next?

May 4th, 2009

Interesting article here on Buffet, his travel agent, and how he is more likely to buy US companies than foreign ones right now.

Berkshire’s Class A stock lost 32% in 2008, but the company reported a profit of almost $5 billion. Also with so much of it’s business (2/3) in insurance and utilities it’s not a bad call for uncertain times – if you still trust Buffet after he invested in ConocoPhillips when gas prices were at an all-time high. That cost Berkshire a billion or two.

real estate taxes doing what needs to be done to stimulate the economy?

April 20th, 2009

This article talks about how the new 10% tax incentive (up to $8,000 max) makes it a good time to buy a first home.

That’s from now until Nov. 30 or Dec.1 depending on which newspaper article you believe. In the article linked above, one couple amended their 2008 return and are expecting a check in a few weeks. They say that needs to be done by April 15th so I guess now you’d have to wait till you pay your 2009 taxes.

Anyway, this article says things might be working and real estate may be ready to lead a US economic recovery. It’s possible but I’m not sold that we’re in a recovery right now.

Is a low housing start number in this housing market is a bad thing?

April 16th, 2009

We’re looking for “green shoots” in areas that got us into trouble in the first place – excessive consumption, mis-allocated capital, and a trading mentality. We’re celebrating firms like Goldman and JP Morgan because they made good trading gains while credit to the real economy continues to be cut.

If you believe like the Administration and Wall Street that we’ve got a “confidence” problem, then growing housing starts indicates improvement. If you that we have a structural problem with the economy, then a drop in building over-supplied assets is actually good news.

Lower housing prices can be a good thing because it means that workers can prosper at lower compensation levels, which means that we can start regaining cost advantages relative to our trading partners and taking back industry lost as well as creating new industry. All it would take would be to let the zombies on Wall Street go under.

Vacation home sales are off but for how long?

April 16th, 2009

This article talks about how vacation home sales are on the decline and how prices are coming down. But the conclusion is that retiring baby boomers will start buying vacation homes and retiring in them.

I know a few retiring baby boomers, and some bought a place near Disney that could be considered a vacation home by some but most of the ones I know prefer to stay near their friends / kids. So I’m not convinced that baby boomers will be driving the market in places like Costa Rica.

There’s also a personal finaince lesson here. One that I’ve mentioned about saving for unforseen medical expenses (because you can’t trust the insurance companies) and one that I shouldn’t have to mention about interest only mortgages:

But so far, no buyers. While she has dropped her price on the property, with its rambling five bedrooms and nearby rain forest, from $2.35 million to $1.5 million, she is experiencing firsthand just how dismal the market has become for vacation homes. She has enough money to pay her interest-only mortgage of $3,800 through July, but after that, there are no funds left.

She decided to sell the property because of unforeseen financial problems, such as medical expenses. “We’re about to lose it to the bank.”

A good time to get started in real estate?

March 19th, 2009

Here is my situation. I work in Manhattan and a make a decent living. I am renting an apartment in Westchester with my girlfriend and I can’t help but want to own my own place and rent it out. I have about $25,000 available to put towards a downpayment, taxes, closing costs, etc. When my lease is up this fall I plan on moving back home to Stamford, CT to save money towards my first home purchase.

I know over the next year or 2 the market will be down and I want to capitalize on it since I have some money, I am young, and I can capitalize on the first time home owners loan (I have great credit as well). I would love to buy a place and rent, or buy a place close enough to NYC that I can commute from if I can’t find a tennant. Any suggestions on how to approach this? I know the first line of business is getting approved for a loan, but what other suggestions have you got?

Answer: How about picking an area with an upside and getting in touch with a local real Estate agent about purchasing a two family investment property where you can live and rent out either a finished basement or an upstairs pad. I think that would be a good start because this is clearly a buyers market and there should be a whole lot for you to choose from. Also making the rental your primary residence helps lower the necessary down payment.

Also keep in mind as more and more people are losing their homes to foreclosure, rental properties will be on the upside for years to come and don’t worry about those folks being bad risk just because they lost their homes as they still needed a stable roof over their heads.

Why we can not allow AIG to fail

March 8th, 2009

Many Americans are tired of giving money to AIG. It does not seem to be making things better. However, if the government were to allow AIG to collapse, the rest of the economy would go with it.

AIG is a different kind of animal when compared to the Bear Sterns and Lehman Brothers. Those companies were allowed to collapse because they were more or less self contained. As an insurer, AIG has its hands in way too many cookie jars. Many large and somewhat stable companies have assets that are backed by AIG, if you remove AIG from the equation, these stable companies are now are a huge risk to default themselves. There credit ratings will suffer and you would see another Bear and Lehman like spiral.

The government will keep pumping in capital until the nasty spiderweb that AIG has created can be untangled and bankruptcy can occur gracefully. Until then, get used to the abyss of soul sucking sorrow that is AIG.

It seems that AIG has been a major underwriter of Mortgage Insurance. Of course, in keeping with the times, they were fraudulent about the underwriting of these policys.

AIG categorized its instruments as Credit Swap Defaults, rather than the Mortage Insurance that it really was, because they did not have the liquid assets to qualify these instruments as Insurance.

Say bye to AIG and there would be a domino effect throughout the international banking industry, as many institutions far and wide hold what they think, and are counting on as positive assets, would be in fact worthless.

Here’s the problem: if you insure against loss in a case where a catastrophe can hit almost all your insurance customers are once, you’re screwed.

Was AIG dumb? Yes. Did they understand the risks they were taking? No.

But now look at who bought the insurance. Banks that were trying to hedge their exposures. Did they understand the counterparty risk they were taking by using AIG? No… but AIG was rated AAA so they thought there was no risk.

How much money has the Government handed over to AIG? And how many installments have already been made? I lost count, but one cannot help but notice this repetitive propping up of AIG at any cost. I think I understand why.