Ok, back at it. House is going ok, son getting married, daughter loves her job, son going off to be an air liaison officer with the army (not real thrilled with that but he does what he wants) so grabbed a few minutes and back on the air.
First thought--to succeed you got to think in this world. Most people don't. A French, yes French, philosopher said "Those who feel, think life is a tragedy. Those who think, feel that life is a comedy." Or something like that. To be successful you have to think and think hard. One guy that does is Forbes columnist Ken Fisher. If you can't afford Forbes you can find him and his staff at MarketMinder.com.
Here is one column that requires you to think, not feel. I'm probably breaking some copyright law but, hey--
Veto Power
10/4/2007
- The third year of a US president’s term is usually very positive for stocks
- So far, 2007 has been a classic presidential third year with no major legislation passing into law
- With the 2008 election race revving up, congress is likely to accomplish even less in the next sixteen months
The third year of a US president’s term is simply stellar for stocks historically. Doesn’t matter who the president is, or what his agenda was—it’s great for just about all of ‘em. A president’s third year has historically been good for stocks because his party has typically lost seats in the midterm elections, leaving the country closer to legislative lock-up. A Congress split down the middle (or close to it) specializes in posturing and pontificating. But that’s about it. Stocks love when there’s little to note legislatively, preferring the status quo to government intervention in free enterprise.
- A Presidential Popularity Contest, 7/25/2007
- A Political Punch, 5/31/2007
- Hot Fuzz, 5/17/2007
Think about it. Bill
Sunday, April 27, 2008
My husband had to explain installment loans to me.
Yes, folks, while I humbly submit to you that I am brilliant, I am not infallible. I understand a lot of the standard financial wisdom, a good bit of the less-common but still useful wisdom, and even some of the more abstract concepts. However, there is one thing I simply cannot wrap my mind around, and it is how installment payments work. So, when you take out a mortgage or a student loan or a car loan, provided it is on a fixed interest rate, you have a set repayment schedule where you make a certain payment every month which pays off all the accrued interest and part of the remaining principal. As the loan runs its course, the interest and principal both gradually decrease. The rate at which they do this is called an amortization schedule. A really helpful amortization calculator can be found here. The concepts behind this are baffling to me, though my husband can write out the mathematical formulas for periodic payments without breaking a sweat (he's awesome, did I tell you that?).
Anyway, what keeps tripping me up is that I forget that the advertised interest rate for loans is an ANNUAL rate, not a monthly rate. So, for example, with a 6% annual loan, the monthly interest rate is really .5% of the principal balance. Usually your interest rate doesn't neatly divide into 12, which makes it harder to figure out in your head. So I was wondering if the interest must be paid in full every month or if you can pay the principal instead. He said that the payments are usually applied to the interest first and then the remainder goes to the principal, which makes sense. It also makes sense that you must pay some portion of the principal every month otherwise you will be in a negative amortization situation, where the total balance of the loan is increasing on a monthly basis. This is what a lot of creative home buyers are currently facing.
So this raises the question of a financial tidbit you hear so often: Make an extra payment to your mortgage broker every year, and label it as saying "apply this to the principal balance only." Doing this in the early years of your mortgage can take years off of the life of the loan, since early on most of your payments go towards paying the interest. For example, with a $200K loan at 6% for 30 years, it takes almost four full years of $1200 monthly payments before more than $250 is going towards the principal on the loan. It sounds like a good idea, but will it ultimately make a difference in the amount you pay altogether as opposed to just a straight-up extra payment? The answer depends on how frequently your mortgage interest is compounded. If the mortgage is compounded monthly, it won't make a difference provided you make the two payments within the same month (which would happen in some fashion or other, right?). If the mortgage is compounded daily, it will make a difference, but depending on how close together the payments are received, it may not be as dramatic as you think. My advice in this situation would be to make a timely payment for double the normal amount (say $2400 instead of $1200), allowing for the entire balance of the second payment to go towards the principal. This is the approach I have taken with my student loans and it has worked well. By paying them down aggressively when the rates on savings accounts were lower than the loan's rate, I have managed to knock seven years off the life of the 20-year loan. If rates fall farther, we might consider adopting this approach again, but it won't save us as much in interest as it has in the past, even though it will retire the loan sooner. This study does go to show that making extra payments early on in a loan (most likely when you can least afford to do so) will potentially save you a great deal of money in the long run.
Also, if you're capable of more abstract thought, you can see that it's a better deal to borrow as little money as possible. Here's one last example to illustrate that point, figures derived using this tool. Suppose you are purchasing a $200K house with a 30 year mortgage at 7%. If you have saved a 20% down payment, you'll only need to borrow $160K, which you will ultimately repay in full along with $223,214,24 in interest. In borrowing the full $200K, you will ultimately pay back the full principal along with $279,017.80 in interest. Providing your $40K down payment saves you $55803.56 in interest, not to mention PMI or potentially higher rates because of a greater likelihood for default, etc. This is too significant to ignore.
Saturday, April 26, 2008
Rice Controls And Rumors Of A Coup Or Two
Thailand may have spent the Cold War on the free market side of the Bamboo Curtain but rice socialism still reigns. Price shocks have politicians scrambling to raise rice productivity through irrigation projects, while consumers are now facing new purchasing limits on rice at markets.
Consumers are limited to buying just three bags of rice at the markets. It's a form of demand side price control made necessary by the supply side price controls exercised by the government. Rice is only allowed to be sold to consumers within certain price bans, which would lead to shortages if market processes were allowed to work themselves out. To avoid market created shortages, the government has decided to preemptively create its own shortages by limiting purchases by consumers.
The next move may be for the Commerce Ministry to release its Strategic Rice Reserves. No really. The government hordes rice in case of shortages here, the way the US government hordes oil. But this possibility may actually lead to further shortages in the long run, as rice farmers may plant fewer crops for fear of downward price pressure from government reserves being released.
All of this is feeding into rumors of a possible military coup. Some say that Thaksin Shinawatra, the populist politician who was ousted in the last coup, may be preparing to come back the same way he was forced out: through a military backed overthrow of the government. He's popular with the monks and the have-nots of Thailand, and has been spending time in temples across the country. Supposedly this temple tour is to atone--or make merit--for past sins. Thaksin insists that it only looks very much like a political campaign.
The rumors of a Thaksin coup have sparked rumors that his opponents could stage a pre-emptive coup to establish their own version of military rule before Thaksin can build his. No one expects Thailand to become another Burma, but talk of competing coups has many saying it is only a question of who does it first.
-- John Carney, who is vacationing in South East Asia, has never stage a coup, military or otherwise.
Sunday, April 20, 2008
British Banking
Observation: Gordon Browne in Washington, D.C.
Observation: Gordon Browne meets with all the regulars AND Bernanke.
Observation: Browne was a senior (the most senior?) British financial official for 10 years.
Observation: The Pope's visit has kept the Browne visit out of the papers.
Observation: Bank of England grudgingly admits financial intervention might be required.
Observation: USSP5 swaps spiking significantly.
Observation: It's Friday, meaning two day lull in markets for crisis management.
Saturday, April 19, 2008
Vulture Investing with the Pros
In the current market environment, there are myriad investment opportunities that present themselves only once in a blue moon. Separating the gems from the train wrecks can be daunting for the individual investor. That's where the professional vulture investors come in. They both the experience and foresight to wait out the euphoria, allow trends to drive a market sector/market crash, and then pick up the valuable assets out of the rubble. They also have the capital to do so.
One such investment outfit is Leucadia National (LUK), which invests in distressed industries. Some recent investments it engaged in were subprime lender Americredit and financial services company Finova group. It is not solely a financial company though, as its holdings are as diverse as telecom, lumber and carpet padding companies.
The performance has been stellar, returning close to 80% during the past year compared to a loss of close to 8% fpr the S&P500. Shares are also up over 300% in the 5 year period vs. 32% for the S&P500. Given its exposure to some financials, it clearly picked the winners and steered clear of the CDO mess.
Disclosure: The author has no position in LUK.
Friday, April 18, 2008
Welcome back!
I gather that some new visitors are discovering the site, or maybe just some old friends are bellying up to the bar again. Regardless, welcome! It's an absolute pleasure to have you here.
Let me recommend a few ways to catch up on what's been going on with me.
- Look up in the upper left-hand corner. See that search button? That will shift through all 300+ posts that I've accumulated here during the past four years (FOUR YEARS! Ridiculous, I know). I recommend searching for a random word or topic and seeing what comes up. (Like bridesmaid or ocean or friends or cat.) It's a really fun way to explore the craziness that's been my life since I started the blog.
- I started tagging my posts into categories, which you can find on the left if you scroll down the page (ok, really far down). I haven't been able to do all the posts, but there are a lot of good topics to reflect on.
- I've also kept every single post on the archive, so if you want to follow my journey chronologically, start at the oldest post and work your way up.
PS-- I would like to give a special shout out to all my new friends in Toluca, IL... I'll see you on Labor Day for the Bocce Tournament! And another to my 22 readers in Belgium. I don't know how on earth you found me but I hope to one day come visit!
Write-Offs: 04.17.08
$$$ Blame The Subprime Meltdown On The Repeal Of Glass-Steagall [Consumerist]
$$$ Merrill's Muppet Moment [DealBook]
$$$ Yankees pitcher rules Taiwanese economy [TheDeal]
$$$ IP Litigation Arbitrage Tactics [GP]
Thursday, April 17, 2008
Bear Trader To GS
Obviously when we're talking about JPMorgan and Bear Stearns (and really just life in general but in this particular case, the little deal that's going on between these two specifically) the question we have to be constantly asking ourselves is, where does Goldman fit in? And, more to the point, how does Goldman benefit? You already know that Lloyd Blankfein has scored the Laz-y Boy Cayne spent so many hours lovingly rolling joints in while he was at the office, but the firm has also called dibs on BSC mortgage derivatives trader Peeyush Misra, who made Bear upwards of $100 million a year. Oh and Josh Weintraub, head of Bear's "private-label mortgage group," is headed to RBS Greenwich, though that doesn't have much to do with Goldman, so I'm not sure why you'd be interested.
Bull market for Bear traders [Fortune]
Wednesday, April 16, 2008
Memories...
I got this e-mail today and it made me all nostalgic for simpler times, when I was desperate to just stop spending money and somehow plug the holes in my budget. Also made me miss my friend who moved away from Chicago far too soon after we met. I'm super impressed and kind of flattered that she remembers my financial goal of saving $3k when I first started the site.
Enjoy my personal e-mail chain...I'm sure many of you can relate! We've all come a long way!
(Ignore my response. I thought it added personality to the overall post, but then I realized that I just didn't know how to cut myself off. I guess that's the benefit of an editor.)
>>>>>>>>>>>>>>
From Natalia, 12:58pm Mar 16th
i just read your blog again and i remember when you set your goal to put 3k into your savings account (thats what i just made my goal, this yEAR!)- now your goal is 30K? you are RICH. congrats on how well you're doing. you are an inspiration and a true role model (and i thought role models were all supposed to be oldeR?!) ... thought i would say hi. hi. holla back when you have a sec.
xox -me
From Nicole, 8:00am Mar 18th
Ahhh... those were the days. I am seriously the farthest thing from a role model, though. Half the time I feel like I can't even get myself together, let alone help other people do their thing, LOL! (That's true!) What are you doing now? Who do you work for? Have you been doing any drawings or art lately? ...And most importantly, when are you coming back to Chi-town? Maybe this time we can actually get our schedules together for drinks!
>>>>>>>>>>>>>>>>>>
Everyday Finance Portfolio Update and Market Commentary March 24, 2008
Given the recent market turmoil and some time since a portfolio update, I thought I'd share the latest holdings, trades and outlook on the market:
The most notable recent trades were the plunge into the financials last Monday with the leveraged 2X Financial Sector ETF UYG. I can't take credit for stellar performance this year, but in this case, I called the bottom spot on (here). On Monday 3/17, I recorded the following transaction for a 1 week 35% return:
3/17, Bought 100 UYG @ 26.069
Today, Sold 33 UYG @ 35.0206
I'm still holding the remainder with the thought that the Financials are undergoing a sustained recovery, but this is a rather bold statement, so I took 1/3 off the top.
Elsewhere in the portfolio, I sold the gold ETF GLD and bought the 2X leveraged ETF DGP. I believe gold's going to hit 1200 before it hits 800 per ounce. The dollar has staged some temporary strength, but I don't think it's going much higher given further cuts and a long way to go to true stability in the economy.
On a bit of a whim, I bought Sirius Satellite when I caught wind of the merger announcement with XM. I'm kicking myself for this one. It's been a year that this routine, logical merger should have been approved and the action was awaiting finalization. I should have bought in months ago, but following a random conversation in the office about the news, I bought in at $3.19 per share and in after hours, it's at $3.26 for a nominal gain as of now. I envision as the relief sets in and terms and conditions are fully recognized (along with requisite regulatory approval), the shares move up from here, not down.
Below is a full snapshot of the trading portfolio:
BIDU
CHL
DGP
FMCN
GOOG
KTII
SIRI
SU
TKC
UYG
VIP
To highlight a few notables...
- Baidu.com was up 15% today. I think BIDU has been overly punished during this downturn in Chinese stocks, as it is the leader in an increbible market with real earnings.
- I'd sold off about half of the holdings in FMCN and CHL, both Chinese stocks, after runups of over 150% each. Unfortunately, the remaining half of each position has declined significantly this year. I'm holding both through the Olympics this year in anticipation of strong demand for both advertising with FMCN and continued growth in cellular service with CHL.
- A stock I've been especially pleased with is the little-known K-Tron (KTII). It has held up quite well in this downturn and is virtually recession-proof. Full background here.
- I also expect to see the other emerging market telecom stocks VIP (Russia) and TKC (Turkey).
Tuesday, April 15, 2008
Pluses and minuses
Plus: I got my $50 National City gift card in the mail today - it was a Sharebuilder bonus for signing up through my National City account that I have for CashDuck. So that's pretty cool. Sharebuilder bonuses are awesome. (I invested my $6 in an S&P 500 index fund. It is now worth $6.14. How savvy am I?)
Minus: I got two W-2's that I had forgotten about - one for Pearson, which was a test-grading job that I had for about a month in April-ish ($988) and one for Kaplan, where I worked for exactly three days during the July-ish period when I decided I needed a second job and then decided that I really wanted to go home after work ($81). So that's about $200 more in taxes to pay since neither had much withheld. And it also makes me wonder where the thousand dollars went??
Plus: I finally am able to see information about Electric Orange, the new ING checking account, and I am ALL over that. They have a payment feature where you can send someone an email, they put in their banking info, and voila they get money! This is so cool I can't even begin to describe. Plus about 3% interest on the money you have sitting around in the account. I am so opening one for CashDuck!!
EDIT: I originally wasn't happy about this feature because you had to know their account info - but the description made it sound like you didn't have to anymore. On further investigation, it's the same. So I guess that makes this a neutral?
Minus: I went to Target on Sunday with a pocketful of coupons, spent $91 and walked out without remembering to actually hand over the coupons to the Target lady (about $10 worth.)
Plus: I got a prescription filled and actually had one of the free-gift-card-with-prescription coupons (which I did use) from Target, so I got a $10 gift card from that.
Plus: I get my first paycheck from my new job on Wednesday - and $500 of it is going into my 403(b). So, from my calculations, about $1340 will actually be deposited between my employer's contributions and my voluntary and involuntary contributions. Which is about as much money as I use to live on and pay bills other than debt. So I think that's pretty cool. If all goes as planned I may have to raise my goals of how much retirement money I want to save by 30! =)
Monday, April 14, 2008
The best $20 I spent this week
The days here are still relatively warm, but the nights have gotten downright COLD! My husband and I often wake up at night pretty chilly, even though we set the thermostat to 68 degrees (yeah, not too frugal, but I almost NEVER turn on the AC, so there) and have both a flat sheet and a comforter. While I was in Target, the other day, I sought to find a remedy to this problem, and I believe I have. I purchased a cheap cotton blanket to tuck between our sheet and our comforter. It's not too well-made, which means the weave is loose and there's a lot of space for air to get trapped, upping the warmth potential. It's perfectly sized, so it fits between the other blankets without showing, because it doesn't quite match them, color-wise.
I don't know how well it will hold up to repeated washing, as a few of the reviewers mention it kind of falls apart after washing and the hems look a little flimsy, but for our purposes, it's doing very well. After just a couple of nights under it, we're both sleeping much better and aren't freezing while in bed. Definitely a worthwhile purchase.
Sunday, April 13, 2008
Need Job Fulfillment? Read this--
I love Ben Stein. Really like the first part of this, not too crazy about the middle part and back on track for the last part. Go, Ben, go.
Arm Yourself for Job Fulfillment and Retirement Bliss
by Ben Stein
Now for some decidedly non-PC thoughts.
I hear a lot of bragging from my pals about how their daughter got into Brown or their son is being courted by Goldman Sachs or their grandchild just got into a fancy prep school.
Worth Bragging About
What I never hear is bragging from parents who say, "My son just got into the Army Special Forces and is risking his life to keep your son and you alive." I never hear parents saying that their kids got into the 82nd Airborne and are now fighting in Afghanistan to give people there a decent life and keep Al-Qaeda tied down so they don't come here to attack us.
Now, you may say, "All well and good, and it's great that these military families are so modest. But what does this have to do with me?"
It has everything to do with you, my friend.
Why It Matters
First, the military people on the ground -- and those in the ground in Section 60 of Arlington National Cemetery -- are the ones who keep your family alive. They're the ones who comprise the wall around America so that we can play and make money for our retirement and enjoy our children. They, whether in training or in traction, are the ones who keep America humming and keep the noblest dream of freedom alive in our hearts.
Again, you may say, "I agree and honor them, but what does this have to do with a column about money, careers, and finance?" Again, everything.
Day after day I get letters from readers who complain about their jobs and their lives. They have dead-end careers. They have bosses who disrespect them. They have colleagues who are strangers. I know that world. I've been in it.
Real Job Satisfaction
But I also get letters aplenty from men and women in the military. They love their jobs. They do exciting work. Dangerous, of course, but exciting. They have immense responsibilities. They get challenged on a scale they would never have dreamed conceivable. They bring more out of themselves than they knew they had.
Yes, they don't get paid as much as they should. But their pay isn't terrible, and they get extraordinary benefits. More than that, they wake up each morning feeling that they matter. They never have to worry if they're making a difference in the world, because they know there would be no civilized world without them. Their colleagues on the battlefield not only treat them with respect, they would give up their lives for them. They have each other's backs in the real sense of the phrase. (Please, someone at a Wall Street firm, tell me if your colleagues feel the same way about you.)
In short, dear reader, you might want to consider a career in the military. The world needs you, and it just might make you feel like you're doing something very worthwhile with your life.
Light at the End of the Tunnel
Second, I want you to think about retirement in a serious, truthful way. This will tell you that while you're going to be fairly vigorous and sprightly for the first part of your golden years, you possibly won't be for all of them. You'll get a bit weak, often more than a bit confused, and generally not totally "there" for your duties and responsibilities.
This is one of the many reasons I love and recommend variable annuities, which you then convert into a lifetime annuity. Once you've set the annuity on autopilot and start adding to it (always with an eye on fees), it compounds month after month free from tax.
True, when you start withdrawing from it, you have to pay income tax on the amount of gains in the account. But for most Americans, that rate is now extremely low. And you get that check from the insurance company or financial house as regularly as clockwork. It mounts up and up during your contributing years, and then you get the money through the mail.
You don't have to study the market. You don't have to worry about ups and downs. The money just comes in every month or every quarter and you live on it. And it's guaranteed to be there until you die, or for some specified number of years thereafter.
Old age, especially the part of old age that involves loss of powers, is frightening enough for anyone. Old age that involves fear of financial insecurity is truly horrifying. Annuities are a safe, easily accessible, low-cost (if you keep an eye on fees) way out of that desolate valley. Keep them in mind, even if others mock them. They work.
Hardly Working
Finally, I have a correspondent who endlessly asks me if I know ways to get rich that don't involve much work so she won't miss her pedicures. She also wants to work only with nice people who are also smart.
I hate to break this to her and to everyone in her situation, but there's no such job. Making money takes hard work. The people who do it well make it look easy, but it isn't. It's hard work. Get used to it. And the people you work with aren't always nice, either.
There's no royal road to quick wealth. Hard work and disciplined, sensible savings will get you there. Not pedicures.
Saturday, April 12, 2008
Gonna be on the tee-vee
So about two weeks ago, I was contacted by a journalist who was looking for someone to be interviewed on camera about the new ING checking account. Apparently, I was the first person to say yes. A camera guy came to my house and filmed me talking about the account, at my computer using it, and then about 15 minutes of footage of me feeding the guinea pigs (including a couple minutes of extreme closeup, where his camera was almost touching the cage and they were eating a piece of celery right in front of the lens.) No idea how this will turn out, but I hope that gets in. :) This story is essentially going to be sold to a bunch of smaller networks, who will have their local news anchor read the copy and dub it over, so hopefully it will start appearing on the Web in late March. I'll post one if I find it.
Little-Known Special K-Tron Blows Away on Revenues, Earnings and Approaches All Time High
Thursday, April 10, 2008
Is Investing Like Gambling? A Rudimentary Question That Requires Further Inspection
A couple years ago, I read an incredible book about MIT students who were recruited and trained to master Blackjack and count cards in casinos (primarily Vegas, but also exotic locales globally) and net Millions of dollars at the expense of the casinos. It was a tale of incredible proportions - college co-eds strapping hoards of cash to their torsos and bypassing airline security, backroom roughing up, exotic disguises and deciept.
I was riding home the other night and heard an interview with one of the actual subjects of the book and they mentioned there will finally be a movie forthercoming titled "21". I wanted to highlight the book here and recommend that you take a read before seeing the movie, as you often miss out in just seeing a movie when it was preceded by a great book. Most of the time, you'll find that movie didn't do justice to the book, but you will feel vindicated in having read it first. You'll also sound cool in front of your friends in dispelling myths and misunderstandings in the movie and you can close with, "The book was better"...(we all hate that guy, I know). Attached are links to the original as well as the book tied to the movie "21":