The Financial Bullet

Random Thought

2008-11-07T18:50:00.000-08:00

I know like many, I am happy that the whole campaign session is over. We could not watch television without being bombarded by commercials for one politician or another saying Lord knows what about each other. It was sickening, maddening, and annoying.

Now the world is back in order and we can return to watching commericals for Levitra, Cialis, and Viagra.

Three more pricks trying to get your vote.

I knew I was Stupid...I didn't know I was Undecided...Portugal!!!

2008-10-13T04:25:00.000-07:00

http://www.thedailyshow.com/video/index.jhtml?videoId=187570&title=the-stupid-vote

We Need Leadership

2008-10-10T15:50:00.000-07:00

I'm watching Hank Paulson talk about the global economy and the downturn that we have been facing. Here is one issue that I have with Hank...I am seeing the top of his head more than his face. He is reading a script. Now, I know that not everyone is the best public speaker...but come on. Look us in the eye when you are giving it to us.

Is he saying anything worth while...uh, no. It is just a change in plans. They are now going to take an equity stake in banks and not buy up the troubled assets. So this isn't new but it is just a change of plans. But what about the bad debts on the books? Guess that goes into the dark matter world and hopefully everyone forgets about it right???

We need a real leader step forward and state, "This is what we are doing...This is how were going to do it...The banks need to get on board now or they are on their own. This is going to be painful, we can see that it already is. We are a great country. We have past every test that history has thrown before us and this time will be no different."

People are not that stupid. We can handle bad news. For real. Someone, anyone, come up with a path and stick with it. We must come up with a plan that is clear and understandable to the people at home. I know this is difficult. This is some pretty complicated stuff. But it can be done. And if you can explain it and you can tell the people that times are going to get rough (the well duh element) and SET A COURSE, then we can move forward. That is what the markets want, it is what the global economy wants, and it is what we need. The United States of America is still the light of the world. The world looks to us to set a course. We need to set one and soon. And NOBODY, Bush, McCain, Obama, Paulson, and Bernanke have not done it.

Give me a leader! Where are our Lincolns and our Volckers in today's world? That is all that we really need...a true leader. The world is not rainbows and unicorns, we're adults, we understand this. We don't want more spin and spin and spin. I guess that I basically want to say "GROW A PAIR!!!"

Rate Cut & Benefits of Credit Unions & Bank That Will Be Around

2008-10-08T14:14:00.000-07:00

Okay, so I was early on the global rate cut, by a day. Notice that it did not help? The Fed is firing bullets into the darkness now. This won't be the last domestic cut...I can see them easing again at the end of this month.

Almost every call I take at some point winds around to..."So are you guys going to be around?"

I work for a credit union. Realize that the business model of a credit union is different than that of a bank. Most banks, have to make a profit for their stockholders. They make big bets to make more money (traditionally) so that they can maintain a reasonable level of profitability. Asset classes are falling and if a bank have to raise capital in a market where capital is not available(see yesterdays post)...well we've seen how that ends (think IndyMac, WaMu, and Wachovia). Credit Unions are there for the shareholders, those who actually have their money on deposit with the credit union. It is much more simple business. Credit Unions do not take the same risks for banks. The very nature of the credit union and who it serves, makes the relatively safer bet than some banks.

So, do I think my credit union will make it through this. Absolutely. The only thing that I can see tripping up where I work is large job losses in our area. I don't think it is too big of an issue as my credit union services teachers and medical professionals for the most part. It is a pretty safe bet those jobs aren't going anywhere. But you never know.

As for banks, if you're not at Bank of America (BAC) by the way...no one can be surprised by their price dive. They BOUGHT COUNTRYWIDE and MERRILL LYNCH, Wells Fargo (WFC) which is the only one of these names that I would consider adding (which I'm not)and THEY BOUGHT WACHOVIA (but I bet you they end up with the GOOD part of Wachovia). Or JPMORGAN Chase (JPM), which has purchased BEAR STERNS and WAMU. And maybe Citi...but they have their own problems. I think they fought so hard to get their piece of Wachovia to be in the "too big to fail" category.

Outside that fantastic four, I can't see who will still be around. You are going to have smaller players that will remain because they were much smaller players and didn't go whole hog on the mortgage orgy at the turn of the century.

A Firehose to A Flood

2008-10-07T15:48:00.001-07:00

I'm here with my fire hose....Point me to the flood.

I know, yesterday I told you that the World would cut interest rates. Well, only the Aussies came through today with a full point cut. And the market tanked another 500 plus points. Should you be upset with the Bullet? Well, any cut would be a short lived pop, that's it.

Should we really be surprised that the world did not come through with the cut? Probably not. Considering with the Fed moves Monday paying interest to banks on required reserves it was a stealth cut. And the Fed also is pouring money into the system through Lending Facilities of all types and kinds.

So if the world is awash in cash, which it is, why is it not working? Would you bring a fire hose to a flood? The issue is not the money, it is trust between banks is non existant and debt destruction.

Put it this way...I come to your house and give you $500 dollars and ask you to please lend this money to Dave, charge his interest. Then you can give me back the money later.

You don't trust Dave. He has a gambling problem. But even if you trust Dave, His brother Freddie and his sister Fannie, well they suck and who knows who Fannie and Freddie do their business with.

See the problem? If you can't trust your lending partner, or who else your lending partner is working with too...then you can't trust you're going to get paid. Blame Lehman and AIG. Since their failures, the wheels have really come off.

It will not matter what the Fed does with rates, until banks can trust each other we are stuck in this mess. I'll talk about what really has to happen either tomorrow or whenever I feel like it.

Markets Down, Not Out

2008-10-06T15:46:00.000-07:00

The biggest thing to remember is that Wall Street is not the economy. The bad news is that the economy might be worse than Wall Street. It is coming painfully clear that the wheels are coming off, all over the world. The US is actually doing okay. We are further along in this cycle of debt destruction than the EU. That is why you are seeing our dollar strengthen against the the Euro. If terms of suckiness, we are just a little less sucky. Now that is saying something.

Tomorrow, you will wake up have your morning coffee and see that the major economies of the world have all collectively decided to lower rates in a major move. I would expect .50 to .75% before the markets open up here at home. If not by open, no later than ten o'clock.

Tuesday is for bounces. We have seen this over the last few weeks. It started to happen because of all the Sunday investing news, Fannie & Freddie, and Lehman Brothers Bankruptcy all happened on Sunday. Monday has been freakishly bad over the last few weeks.

I know that I have been lack posting. Even you followed you knew that I was high on EWZ, the Brazilian EFT. If you hadn't gotten out before now...I'm sorry. I sold out at $64 taking my medicine back on 9/9/08. I was hoping for a bounce, saw it and took advantage. The bottom has really fallen out now...it closed just north of $42 today. It dipped all the way down under $38 earlier. The EFT is made up of financials and commodities...two big no nos in this market.

Want to know what I am looking for right now? Nat City to fail in the coming days. Fifth Third and Key to follow. It doesn't take a rocket scientist to figure that one out. I would go highly defensive at this time. Gold, I'm not sold on right now. I see too many gold hawks screaming for our fiat currency to fail. If I were looking at equities it would be highly defensive...Pepsi, McDonalds, Wal-Mart, Colgate, and PG. None of these names have fallen too much, pay dividends, are not financials, and will be around when all of this finally calms down.

This may be bad, but this is not a depression. Nor do I think it will get to that level. God, I hope it doesn't get to that level. Good luck.

The Bailout

2008-09-27T03:54:00.000-07:00

I have been quiet for the last few months. Writing here has become more of a chore than a joy and that is pretty much why this blog is dead. I'm ok with that. No one read it anyway.

But I worked for a credit union in the mortgage department and get asked every hour on the hour what do I think about all of this. I not going to get into derivatives, credit default swaps, or mortgage backed securities.

1) Remember when you had one of those tests back in school where the teacher told you, "There are no wrong answers." Well, this is exactly the opposite. No matter what we do big, small, or stay the course, it will be the WRONG answer. Bottom line: There is no rose pedal path back to prosperity. Sorry, $700 billion won't do it. Letting banks fail all around us won't do it either.

2) I'm not a doom and gloomer. I don't think this is the end of the world. But I do feel strongly that we as a country are going to stagnate over the next decade. We saw it with the Japanese with their "lost decade" that came from a housing bubble. I doubt that it will look the same but it will be similar in effectiveness.

3) What happened to moral hazard?

4) Funny thought about this government, we are PROACTIVELY trying to spread DEMOCRACY through war and sanctions but we are REACTIVELY becoming SOCIALISTS through our own stupidity. The Chinese,Russians and Hugo Chavez must be having a nice laugh about right now.

5) And I will leave you with one final thought. WARNING: THIS IS POLITICAL. Remember when Bush wanted to privatize social security? Can you imagine that right now? Look at how people freak out about their 401K...can you imagine if the other part of their retirement "nest egg" had been in this mess? Want to know which candidate for president supported that measure? I will give you a hint, he cheated on his wife to marry a beer heiress. He has seven houses, thirteen cars, thinks anyone making less than $5 million a year is middle class, said ten days ago that the economy was "fundamentally strong", one of his chief economic advisers called us a "nation of whiners", and suspended his campaign stating that he was going to work until this bailout was done and not debate if it did not get worked out, acted like a bull in a China shop, left the whole thing worse off than when it started, declared the mission was accomplished, debated when a deal wasn't done, has a creepy smile, calls people "my friends", and has a swollen gland on the side of his face that I can't help but stare at.

6) I bet you'll never guess who I am voting for.

The Big Problem

2008-06-15T09:43:00.000-07:00

You mean that inflation is not under control?

I found it laughable last month when April's inflation numbers came in "lower than expectations" and all the talk of the bottom being behind us was abound. It was laughable because in May we had seen energy prices sky rocket to all time highs on a daily basis.

How could so many people not see it? They were looking back at a report when the current picture was dramatically different. It is the problem with all reports, as I have said before, are backwards looking. It is like driving a car when all you can see is only where you have been and not what lies in front of you.

I have a hint for you. June's inflation number will be fairly muted and either hit or be below the consenus estimate. The only reason it won't is that food prices will continue to rise in the next couple of weeks in response to the flooding in Iowa and Indiana.

The whole, "Oil will hit $150 by July 4th," has some way to run. I don't know. I don't follow it that closely, but it sure doesn't seem like oil has the gusto at this moment to hit $150 in the next couple of weeks, but it still may hit it sometime this year.

As for my friend, the Fed. Well, frankly, you're screwed. You have no plays. You can't lower the rates anymore because the dollar will continue to fall and inflation will continue to rise. That's no good and they have FINALLY admitted as much. You can't raise the rates right now because of the housing slump and banks still really need the liquidity to stay afloat and that little thing called the Presidential Election.

So, the answer is that the best plan of action is no action at all and bluff and blow hard that you are going to raise the rates aggressively as needed. Which you will have to do to curb inflation. Look even the low-ball government estimate is putting inflation at just a touch over 4%. The current Fed rate stands at 2%. The rates will have to be HIGHER than inflation to curb stem it's tide.. Little .25% increases will not cut it.

Great News For Fannie & Freddie...Almost

2008-04-05T05:36:00.000-07:00

Finally, Fannie and Freddie have been cleared to open up their coffers, reduce the amount of reserves they need to carry and able to invest in more expensive mortgages in high cost areas. This is great news. Now the biggest and second largest mortgage investors in the country can really put more people into homes. Right? By the news releases and market responses you sure would think so.

But not so fast there my friend. Fannie and Freddie have been increasing their market share since the market truly started to melt down in August of last year. Many large mortgage lenders are only dealing with these two companies. Gaining market share isn't a problem in this environment. Gaining the ability to possibly finance more properties at higher dollar amounts isn't really that big of news. It helps in limited market areas, not all high cost areas.

But here is the thing. Fannie and Freddie have changed their guidelines to make it, A) more expensive and B) more difficult to finance a home through their programs. Both companies had released late last year that they were going to base rate calculations on credit scoring. That went into effect March 1. On March 17, the two released new pricing guidelines that go in effect June 1st. Guess what...it isn't going to be cheaper. Fannie Mae also announced that they are going to be changing DU (their underwriting software) and increasing credit requirements.

While this is going to make it more expensive for the average credit individual, you will still be able to help a vast majority of your borrowers, just maybe not at the most attractive rates. But then there is the issues of the PMI companies.

Not familiar with PMI (Private Mortgage Insurance)? Consider it default insure that your lender put into your payment if you have less than 20% down payment or equity in your property. You pay the premiums in your monthly mortgage payment. If you default on your loan, these insurance companies pay a portion of the loan to the lender.

What is the big deal? If you have less than 20% down or equity in your home and want to do a Fannie or Freddie loan...normally PMI is required. For the last few years lender would do "piggyback loans" to avoid PMI by doing 2 mortgages to finance your home. That has gone by the wayside. Most lenders want the protection that PMI offers in this market. If you want to do a loan with less than 20% equity, you have to be able to obtain PMI if you are going to do a Fannie or Freddie loan.

Most PMI companies have their own guidelines, separate from Fannie and Freddie. They have really dropped the hammer. Want to do a mortgage with less than 5% down? Better have a 680 credit score or better. Want to do any more with PMI, better have a score of 620 or better. If you are in a declining market, you cannot do a cash out refinance to consolidate debt such as combing a 1st and 2nd mortgage.

Those are just a few examples that I see with my PMI company. These are more lax for me since I work for a credit union compared to a banker or mortgage lender, their guidelines are even more harsh. The box to fit loans are getting smaller and smaller.

Oh yeah, and the modernization of FHA? The suggestion this week is to RAISE the down payment/contribution requirement to 3.5% from 3%...not lowering the requirement that has been talked about for months.

Have you seen the Wachovia mortgage commercial yet? I'll talk about it next time.

Thoughts on the Fed

2008-04-02T17:52:00.000-07:00

There were plenty of things that I wanted to write about when I wasn't posting, but I wanted just to take a break. Sure, my traffic has basically died.

One of the things that kept jumping into my mind is how the market is always reacting to old news. Of course, that is the only news that we can get. But that is one of the main issues facing the Federal Reserve in the next few months and over the next year. They are trying to gauge whether to further stimulate the economy by cutting rates, stay the course and do nothing, or try to finally apply the brakes and start raising interest rates.

It has to be one of the most difficult and frustrating aspect of their jobs. I blame Greenspan for so much of this current mess. Many have voiced their frustration that his Fed held the rate at 1% for too long. And when they did start raising the rates, they did it too slowly. The problem was that they didn't want to apply the brakes to soon and squash a fledgling recovery. And they had to make their decisions, good or bad, with old news. But from what I remember, he was cheered at the time. And remember that when they started raising rates, hoping that long term rates would start to follow along, they didn't. Treasury bonds stayed low fueled by foreign investment.

So be ready. Ultimately, there is no doubt that the current Fed will hold rates too low for too long and will overshoot. It is an unfortunate side effect of using the idea of finding the "perfect rate" for the economy using data that is outdated. I don't know if there is a better way to do it. I'm frankly not that smart.

Market Soars on Bad News

2008-04-01T15:07:00.000-07:00

Yes, I took a month off. So what, nobody but my wife reads this religiously.

The Dow was up 391 points today based on Lehman efforts to raise additional capital by selling $4 billion in preferred stock. Ford reported a 14% drop in sales. UBS and Deutsche Bank report billions more of write downs and guess what...

That is good news! Who knew? We live in upside down world.

I have been reading a lot lately of those analysts that are calling a bottom to the market. Others say we are exactly half way through the recession period and that is the perfect time to buy stocks.

I'm not sold on it. Rallies like to today are fluff. It's nice to see stocks up, it's a nice warm feeling. But keep in mind that all the news that you saw hit the wires today was still negative. I'm not sure that the banks are done with their write offs.

We have seen Bear Stearns fail since I have spoken to you last. What has been learned? Well, the Fed, having earned a piece of what is REALLY being hidden by big investment banks and commercial banks now will be able to better assess what, if any, changes need to be made. As for the Fed taking on these "risky assets"...uh, the Fed could turn a nice profit, if the assets perform.

My feeling is that you are going to find some stocks that are on sale right now. I really like foriegn stocks, excluding most of China. I have suggested EWZ in the past, the EFT from Brazil. The EFT has reseasonably well in the current market, even with the dollar's struggles. As the dollar regains some strength, which it has in the past few weeks, you will see this EFT surge forward.

I still don't trust financials. Maybe I will miss the boat...but I think once you see at least two full quarters of the major banks posting no write downs, then the tide will have turned. Sure, you might miss some of the upswing, but the downside is still considerable in my opinion.

Ben Brings the Pain

2008-02-28T15:33:00.000-08:00

Note: Bronchitis is no fun.

So, Ben dropped the news on Congress...we may see a bank fail. This sent shock waves, along with the disappointing news on GDP and unemployment, that sank the market today.

But should we really be shocked by this statement? I don't think so. You saw Northern Rock bank in the UK basically fail and the government stepped in to prop it up. A company as large as Countrywide, which has it's own bank, basically went under if not for B of A stepping in and picking up the pieces.

So news that banks failing should not be big news. Banks are just like any other business out there and sometimes they fail. It is disturbing, no doubt. Nobody wants their money being held by a failing bank. But this is not something anyone should really be worried about.

A) The most likely bank to fail would be a small regional bank that has heavily invested in sub-prime mortgages or other off balance sheet instruments. B) You will probably see a bigger bank come in and buy out the smaller rival that is struggling and will never have to worry about the run on the bank. C) You are insured up to $100,000 by the FDIC or NCUA (credit unions) which covers that fast majority of it. So if your bank fails and a bigger rival doesn't buy it you would get a check cut for your money within 48 hours.

It is big news that the Fed would acknowledge the depth of the problems in the banking industry but it should surpise no one.

Mortgages & Credit Unions

2008-02-16T14:53:00.000-08:00

In a time of tighter underwriting standards and declining home values where can a person turn for options when their current mortgage lender or bank is saying no? How about your local credit union?

Haven't you thought about this option before? You're not alone. Roughly, only 2% of all outstanding first mortgage loans are held by credit unions. There are a number of reasons for this:

1) A good portion of credit unions (44% see last section of article) do not even offer mortgages.

2) In the past, you also needed to "qualify for membership" which could limit which, if any, credit union you could establish a relationship with. Today, many credit unions offer "community charters" which allow membership to those that live, work, worship, etc, in a particular geographic area. This makes membership much more attainable.

3) Those credit unions that do offer mortgages are simply not the first choice for many borrowers as they do not advertise as heavily as some of the larger banks such as Wells Fargo or Countrywide/Bank of America.

Credit Unions at their very heart were created for low to mid income individuals in mind. Credit Unions are owned by their membership. They are not worried about boardrooms and stock price as banks tend to be. Credit Unions are worried about service and relationship.

What does mean for you and your mortgage? It means that your relationship could outweigh other financing hurdles that you may be facing with another bank/lender. The deeper history that you have with a credit union, the more likely a credit union will take a chance on you.

3 factors that Credit Unions will look at beyond just your credit score:

1) Do you use them as your primary institution? If you do and if you have direct deposit of your income.

2) Have you had loans in the past? Have you paid those loans on time or worked with the credit union in times that you were struggling financially?

3) What is the story to why you are refinancing? Has your family made a bad financial decision and didn't think of the consequences? Young and unresponsible? Medical bills? Death? Divorce? Kinda sounds like FHA doesn't it? But if your story makes sense, a credit union can help you also.

Now, it may not mean that you will get into that 30 year fixed rate mortgage that you hoped for. If a bank/mortgage lender is having trouble getting you qualified for a traditional 30 year fixed rate mortgage, a credit union is going to have a similar issue. But their may be alternatives. Maybe the credit union will do another ARM but with a longer initial period, such as 5 years or more. A number of credit unions still offer balloon mortgages which may make sense.

The credit union where I work (yes, I'm biased. But I have worked for mortgage lenders in the past) offers a 10 year balloon. What this means is that your payment would be a 30 year term, giving you the payment you're looking for, but it requires that if you have not refinanced, sold, or paid off the home at the end of 10 years the remaining loan balance comes due and you would be required to refinance at that time at current rates. Who knows what rates will be 10 years from now? But you have 10 years to work it out. That gives you plenty of time to get your credit where it needs to be, wait through rate cycles if you need, and the rate doesn't change throughout that term. Not a bad "short term" solution.

Another credit union in my market offers a 15 year balloon that can be converted into a fixed rate mortgage (at prevailing rates) at that time or another balloon term extended for 5 years for a small fee.

The point is, credit unions are more willing to be creative to help you find ways to afford your home without making you "home poor". And when you have issues paying on your mortgage, credit unions are much more willing to work the situation out.

Now, there is no guarantee that your credit union is going to be able to help you out in every situation. There is only so much risk that they are willing to take. Credit Unions will not fill the gap in subprime loans. Credit Unions overall did not get involved in subprime loans and as such their loan performance reflects in their deliquency rates, foreclosures, and workouts (this is a small sampling from California).

If your home is still affordable in your budget and you have an established history with a credit union (and even if you don't), call them and see what options they may have available to you. What do you have to lose?

Another Reason Inflation Won't Moderate

2008-02-11T16:29:00.000-08:00

With President Chavez doing some saber rattling yesterday we say the price of oil surge and the price at the pump took a nice jump today right along with it.

Also there is news that OPEC will help control supply to help keep the cost of a barrel of oil around $90.

So much for inflation moderation.

We also see commodities, anything from gold to Minnesota wheat having a giant bull market.

The ECB has still been making it's stand firm that it will continue to fight inflation.

And this bit brought a smile to my face and my thoughts to hypocrisy.

The White House warn about legislation regarding mortgage reform.

This statement caught my eyes:

"Markets naturally self correct, rewarding good strategies and punishing bad ones. Government actions may be less effective at differentiating between the two and may prevent markets from creating products that benefit consumers," the report concluded.

No kidding? Then why oh why are is the Federal Reserve tampering with the markets every step of the way with their rate cuts. The cut before the market opened after President's Day was made to try to prop up the stock market. That was it. The full effects of the cut will not be felt for months. But the White House and Congress fully supports the actions of the Fed.

Now, I am not a financial historian, but it seems to me that Mr. Ron Paul may be right that the Federal Reserve needs to be disbanded. Open manipulating of the markets cannot be a good thing and the price to pay later on will be severe.

The Financial Bullet is Interviewed

2008-02-11T15:16:00.000-08:00

Check out my interview at debtconsolidationcare.com.

This was something fun and interesting and something that I never have done before.

Once you get your head full of me, check out some of the other cool sites listed out there.

Market Falls Based on Inflation News

2008-02-06T15:13:00.000-08:00

Ok, so there was a lot of news that pushed the market lower today, when it should have rebounded to some extent from the knee-jerk reaction to the ISM report yesterday.

Those included:

Merrill Lynch possible downgrade by Standard & Poor's because of their involvement in the sub-prime mess. To me, this is overdone also. Merrill has already written off billions of dollars and have changed their CEO. That new CEO (John Thain) will write down even more in billions trying to clean out the old guard.

Goldman Sachs downgraded GM & Ford, citing consumer spending slowdown. Like that is a surprise. Car sales have lagged for the last few years based on the change of consumer wants (no SUV and more high MPG cars) and a move by the companies away from high incentitives.

But to me, the big one was Mr. Plosser's speech on the economy. He mentions his concerns that inflation is not going to moderate even in the face of a slowing economy.

This is big. The market took this that the Fed won't be cutting rates until at least March. Boy, it breaks my heart to disappoint the market like that. 1.25% in two week wasn't good enough. Bill Gross from Pimco stated that his expectation for the Fed rate to hit 2.5% from it's current 3%. I still believe that it will not go below 2%.

Inflation is here to stay. This will keep the Fed bankers on their toes, even more than a slowing economy. Slowdowns are natural and a necessary part of every open economy and it is about time that the Fed and the rest of our government take a honest look and realize that all growth all the time is not necessarily the best for the future. There is always a price to pay when the Fed starts dropping rates and it is always inflation.

What We Can Learn From the Super Bowl

2008-02-04T17:06:00.000-08:00

So much has happened yesterday and more tomorrow.

Congrats to the New York Giants for winning the Super Bowl. Things we learned:

1) Playing every game counts. The Giants learned that they could beat the unbeatable when they met in week 17 when there was nothing to play for.

See what not playing earns to: Tampa Bay and Indianapolis.

2) Confidence is different than cocky.

See Giants and trademarking 19-0...weeks ago.

3) And for my loving wife. Cheaters never win.

See a former teacher of mine that said, "If you cheat, you suck."

Now, what can we take from this to your finances and investments?

1) Confidence. Believe in your picks. If you have studied a company and believe that company fits your plan, jump on it.

Paralaysis by analysis is deadly. See Peyton Manning, and as seen yesterday the Patriots.

2) Change your gameplan when needed. What worked yesterday may not work today, or tomorrow. When it comes to your portfolio, cut the losers when you need to. Rebalance yourself when needed.

See Patriots not playing their "game" , relying more on their previous "cold weather" game plan. Did they realize they were indoors?

3) Cheaters never win. Just because my wife wants me to say it.

Now that we have crowned a new champ and seen a historic "choke" we are now set up for Super Tuesday.

I am sure that we will have more to learn and how it still fits in your investment portfolio.

Microsoft & Yahoo And Bank of America & Countrywide

2008-02-02T11:30:00.000-08:00

This marks the 100th post of this blog...and I have one burning question for you....

Which sounds more sexually deviant?

Micro-hoo

-or-

Ya-Soft

I think that they both sound sufficiently twisted. You can have agree. I prefer Ya-Soft, which sounds like a Bostonian insult.

It is a whole separate question on whether you would want to invest in the company. It is questionable that this combined company has what it takes to really tackle Google. They have many redundant elements. I think that the Curious Investor's post regarding the merger/buyout gives all the pros and cons of what each company is bringing to the table.

I'm not hot on the deal. If I was an investor before the offer in Yahoo! I would be clamoring for them to take it being that it was over a 60% premium on it's current stock price.

Another interesting posting I came across was an ingenious way of investing in Bank of America through Countrywide on Arohan's Investing Life. Though as it is noted in this post the gap has closed significantly.

I hope you have enjoyed the first 100 postings. I hope to entertain, inform, and explore with you in the next 100 and beyond.

What to Make of the Month

2008-01-31T19:12:00.000-08:00

Well, January could have been worse. The month started as an absolute bloodbath and finished with some roses.

How? I'm not sure how.

MBIA CFO pulled off a dozy. The company announced huge quarterly loss, announced that they did not think they would lose their AAA rating (which is still in doubt), and even if they did they would stand to lose $100-200 million. And the market rallied on this news.

Not that the math made sense. The company wrote off $2.3 billion in losses. It also announced that it was getting a $500 million injection from private equity firm Warburg Pincus,

Somehow, it sounds like swing hard and hope type of ideas.

The also saw a lot of the Fed this month.

We are starting to see a fledging refinance boom recently. Actually, a lot of people are hoping to be able to refinance and just aren't seeing the rates low enough right now. Most are thinking that rates will be down in the next couple of weeks. I really don't know. We are definitely going to see what shakes out with employment and get a better read on how aggressive the Fed is going to be.

I have seen reports of possibly just one more .25% cut in March or April and then backing off. I have seen an analyst report stating that the Fed will have to cut rates back down to the 1% level seen with the Greenspan Fed. I do not believe the Fed can afford to drop rates to that level with inflation still there. The Fed says that inflation should moderate over the coming months, but give no reason why. What is going to cause the moderation? I don't see a catalyst to that side.

When Greenspan cut the rates to that level there was no major threats to inflation. Remember, they were concerned about deflation at that time. This is a totally different world picture. We see other economies such as Europe, China, and Brazil raising rates fighting the raise of inflation.

I look to see another .50% to 1% cut off the current rate.

McDonald's Earnings

2008-01-28T17:24:00.000-08:00

McDonald's (MCD), one of my portfolio holdings, was smacked today losing 6% today. The stock has been sliding since news came out two weeks ago that the company would post weak same store sales. It was the first non-growth sales report in 56 months.

Well, I think that Jim Skinner said it best, "We're recession-resistant, not recession-proof."

But some good news. Only 35% of McDonald's earnings are U.S. based. It was 58% in 1991. If the rest of the world can keep trucking along, which they all publicly say (but their markets say something totally different), then MCD should be just fine.

The stock is off it's 52 week high and is a solid stock to hold and hold for a long, long time. If my portfolio allowed for adding to a position, this would be a good time for me to do it and let it sit.

I do not see this one month flat sales or even a couple of slow months at the Golden Arches as a red flag of a sinking ship. Other fast food companies are struggling, including Wendy's. This is a strong company that has stated they are not going to get into a pricing war for burgers. They had innovated and changed their product offerings and that is why we have seen fantastic sales numbers over the last few years.

The company has also stated that they are going to start paying dividends on a quarterly basis.

There is just too much good in this company to turn away. The long term potential of this stock far outweighs any short term pressures the stock may face.

New Homes Sales 2007 & Mr. Mozilo

2008-01-28T15:12:00.001-08:00

Two bits of information caught my attention today. 1) That new home prices declined over 26% year over year. Marking the largest drop in four decades. 2) Angelo Mozilo is forgoing both his severance, consulting fees, and plane rights that we was granted by Bank America when they bought out Countrywide.

The first bit of news is not a new piece of information. We all have known that prices were sagging and that year over year numbers would decline. What I do think is a surprise is that December numbers showed an annualized amount of 604,000 sales. Over 40,000 homes less than anticipated annualized amount of 645,000. Prices also feel 10% in December alone year over year.

At the current pace of sales there is STILL an inventory of over 9.6 month supply of new homes on the market. Wow. Being in the market and seeing how much builders have cut back on new homes, that 9.6 month supply is staggering.

2008 is still new, but don't expect any substantial change in these numbers. Many analysts are forecasting further price declines in home prices, though not nearly as severe as 2007. Even with rates dropping, activity is not increasing. The issue is twofold. Tighter guidelines for mortgage qualification and fear on buyer's behalf concerned that the home they purchase today will be worth $10,000 or $20,000 less in six months.

As for our friend Mr. Angelo Mozilo...good for you. It is one of the only good, humane, and decent things that you have done within the last 2 years. Though this is only a small gesture for a man that has seen his company's stock falling over 80% in less than one year. At the start of last year Countrywide account for 1 out of every 6 mortgages completed in the country. Today, the company was bailed out by Bank America and is considered the dirty word of the mortgage industry. He sold out huge portions of his stock holdings while shareholders were left waiting to be delivered with a grip on the bag.

By turning down his GIVEN severance, consulting fees, and place rights was a just and needed move. It probably wasn't his idea. In fact, I'm sure that he didn't give up his money easily. His quote about his move,

"My primary focus today -- as it has been for the past 40 years -- is to do what is in the best interests of Countrywide's employees, customers and shareholders," Mozilo said in a statement.

"I believe this decision is the right thing to do as Countrywide works toward the successful completion of the merger with Bank of America."

Yep...no one can fold like Countrywide...no one. But don't feel too sorry for Mr. Mozilo if you think I am being too harsh on the man. He does get to keep his deferred compensation and his retirement benefits. It will total into the millions, even with the price of his stocks company under $6 per stock. He won't be hurting for money.

Mortgage Rates Have Bottomed

2008-01-26T06:52:00.000-08:00

This was one wild week as I detailed before. It was so wild in interest rates, that a flurry of refinancing calls kept me on my toes.

The good news is that it brought some much needed business in this, the traditionally slow time of the year.

The bad news was, rates this Friday were the EXACT same as what they were last Friday.

The rates are still very good, still the best that we have seen in the last couple of years. But they are now about a half percentage point higher than what they were on Wednesday. If only for a very small window of time.

If you tried to lock on Wednesday on your mortgage rate, you had roughly three hours window to hit the best rates. Most borrowers decided to wait because of the Fed's "promise" to cut rates next week. And that is the most common mistake I have seen when trying to time interest rates. Too many hopes are pinned to the Fed, when long term mortgage rates are indirectly influenced by what they say.

But the title of this post says, "Mortgage Rates Have Bottomed". I have 3 reasons why.

1) The treasury markets over-reacted to the emergency rate cut and futures markets that started to price in another .50% rate cut next week. Combine this with the rush for a financial stimulus package by the government sent traders looking for quality as if the sky was falling. To some extent, this has now reversed itself as the treasury markets have had a little time to digest the news and happenings. And finally came to their senses.

2) The European Central Bank kept rates steady. No one seems to really be talking about this, but I feel this is a big deal. If the ECB is standing pat trying to stave off inflation while the world's largest economy is slashing rates like it was a knife manufacturer doesn't hold some weight, you're nuts. A slowdown here will have a global impact, no matter what the ECB thinks. So either things aren't as bad as they seem or inflation is really a major, major factor. In reality, I think it is a healthy dose of both.

3) The result of these rate cuts and the government stimulus package will equal one thing and one thing only....inflation. Higher prices for goods and services. We all know it's there. Go to the pump, the grocery store, your cable bill, health care, and whatever else you want to name. Inflation, even though the Fed says it's not, is a major player right now. And inflation is the mortal enemy of treasuries. With the good job numbers we have seen and are forecast to be seen next week, treasuries will continue to sell off and push mortgage rates higher.

And here is my own personal take based on what I have seen in the past. When the "boom" was happening in the first part of this decade there were multiple "refinance booms" within it, driven by falling rates. Each of these refinance booms had a bottom rate which borrowers tried to gamble and predict. They all had similar characteristics at the bottom. One, was a swift drop in rates over a period of a couple days based on news, mostly from the Fed. Two, rates declined to a point where everyone's guess, even those who know how rates are effected predicted that they would fall further. Three, the real bottom for rates were market by an extremely low rate that was offered for a only a few hours time. Four, once the rates hit this short-term bottom they would rise as swiftly as they had fallen as the treasury markets reversed themselves.

This is exactly the action we saw this week. It was eerie. I thought to myself, "I have seen this before." And I had. I predict that if or more likely when the Fed's cut the rate next week, you will see a muted or negative response in the treasury market. Rates are going up for the time being. Don't be surprised.

Mortgage Rates Fly All Over the Place

2008-01-24T17:39:00.000-08:00

If you are interested in doing a mortgage, this week has been one for tracking interest rates. We started the week closed for Martin Luther King Day and the global markets were hammered due to concerns regarding a slow down and possible recession in the US. Tuesday, the Fed rushed in before the markets opened and slashed the rates by .75% trying to stave off a market decline in the markets. It helped, if only marginally. Wednesday, it seems like things would continue to weaken until late in the day when news that bond insurers (much in the news these days) were hopefully going to be bailed out. Today, more news that our government was going to put rebate checks out to most Americans in the coming months made everyone happy for the most part.

All this has had a major impact on mortgage interest rates and all have had a very different effect.

Basically, if you are into treasuries, this market has left you motion sick.

When the Fed cut the rates, there already was a concentrated flight to quality and away from equities. Also the Fed statement made it clear that it was likely to cut rates again at it's normally scheduled meeting next week. With these comments, many traders felt that the Fed was acknowledging that the economy was slowing much, much faster than they had anticipated. This caused even more flight to quality.

The result, a major drop in mortgage interest rates. While the rates had been good leading up to this week, rates late Tuesday and into early Wednesday were fantastic. We had not seen rates this good in the last couple of years. But as news about bond insurers leaked out and that market started to turn (a 600 point swing for the Dow) traders started to get out of treasuries....fast.

In fact the action was so fast that the rates at start of business Thursday were HIGHER than the rates at the start of Tuesday. This was amazing considering how unexpected the Fed move and statement had been before the open on Tuesday.

Here is my take. These rates we are seeing are a fleeting thing. My prediction, along with the place that I work prediction is that this is a bottom for interest rates. We feel that the Fed, if they do cut rates next week are going to wait and see what happens and not be as quick on the trigger in the future. They are going to want to see what effect this has on the market. The other aspect with the Fed rate going this low is that inflation is going to start to show itself more firmly in the next couple of months. Inflation is definitely the enemy of treasuries.

As inflation rears up, treasuries will sell off and raise long term lending rates. If you really are serious on purchasing and/or refinancing, you better get on board now. I foresee rates climbing back up in the next 6 to 8 weeks. This is a small window of time to find a home and get locked in. I could be wrong, I've been doing this long enough to know that the market is a fickle thing. But I think I have this one pegged.

New Blog Site! Deals That Matter!

2008-01-23T16:32:00.001-08:00

Oh, by the way, I have started a new blog site for those of you interested.

Deals That Matter

I've started to see some limited success with this blog, but it's goals and focus are pretty set in stone. I write about stocks, market news, and mortgages. There is so much more than just that in the big financial picture!

So I started Deals That Matter as a way to give a bigger picture and reflect a truer day to day way of life for most of us middle Americans. While I talk about the stock market and have a pretend portfolio that I like to also pretend is very important...I don't have nearly enough money on a daily basis to make a significant impact.

Deals will be about saving money. It will detail mine and my families struggles to save money. But it will give plans on just how I plan to accomplish a savings pattern. I am also going to give some of my favorite deal websites and plan on featuring a "Deal of the Weekend". If interested come along! You can sign up for email delivery of Deals directly on the site.

Thanks for your support!

I Told You So

2008-01-23T16:09:00.000-08:00

I told you we would see a bounce in the stock market today...I told you.

And I watched the market tank all day long. I was thinking about the post I was going to write. I was going to appologize and say things like, "Don't listen to me," and "I frankly don't have any idea what I am talking about."

It only took a 600 point swing in the Dow to prove me right. Shares of financial companies soared. But what I think what really put the rally into high gear is that the Financial Times was reporting that New York insurance regulators were calling big banks to pony up about $15 Billion to shore up bond insurers.

Bond insurers have been in the news recently, basically called the next shoe to drop in financials. With some new money flowing in maybe the can actually avoid the pain the rest of the sector has seen.

Who knows.

I can tell you one thing. I have been getting plenty of refinance calls being that I do mortgages for a living. Rates are as good as they have been in the last couple of years. Trick is, can you qualify for those good rates.

If you are doing short term financing such as a 15 year fixed, no problem. But if you want to go longer and have less than 30% equity in your home, you better have good credit. I have detailed what is going on with Fannie and Freddie before.

By the way, I'm not writing for Nesteggr anymore. The link above is my last posting over there. I didn't get what I wanted out of the experience/site. I wish there had been better communication with those who started the community and just a better community. All the bloggers only seemed to care about themselves for the most part and didn't participate on anyone else's blogs. It was sad. But I did meet Zach Stocks and Curious Investor and I continue to read their sites. I have noticed that both Zach and Curious have both either cut back on or stop posting on Nesteggr. So I guess I'm not alone.

So I have gotten a lot of phone calls from the rates dropping, but not a lot of business. Who knows what the heck is going to happen. I do think that you are going to see rates for mortgage creep up a bit the remaining portion of this week. What will be really interesting is to see what the Fed has to say next week. If they cut again, what will the statement say? Since they would have cut 1% off in two weeks, I cannot imagine them stating they were going to stay aggressive.

If they signal a pause, which I think they have to, these rates we see today will not last.