Personal Finance Roundup

Here are some interesting tidbits from around the web-o-sphere. Regardless of your political persuasion, this is a powerful video:

And here are a few excellent personal finance posts:

The Simple Dollar has Ten Pieces of Inspiration

Money Saving Mom shows us how to Tweet and get 5 bucks worth of Amazon Video

What Can Harry Potter teach us about personal finance? Wise Bread has the scoop.

Should I Plan For A Market Correction?

Is a major market correction headed our way?

What should I do about it?

What is a market correction, anyway?

Why is it going to happen?

 

Well, I believe there are 3 big reasons why we are going to see a major correction sometime soon.

 

But first, let’s answer the big question. What exactly is a market correction? In pure ‘big finance’ terms a market correction is a drop of 5-20% in stock values in a relatively short amount of time. A quick market dip of sorts. Not quite as quick as the flash crash but not nearly as long as a true bear market. I like the term ‘correction’ here because it implies, usually rightly so, that stock prices are artificially high and need to be corrected to their fundamental values.

For an idea of what these fundamental values are and how to find them take a look at “The Intelligent Investor” by Benjamin Graham.

For our purposes just suffice it to say that there has been a rapid run-up in stock prices that are not driven by the values of the underlying securities. said differently. Stock indexes are high because of undue optimism, government fiddling and other stuff that is not based on the actual value of the companies whose stocks make up the index.

So what are the 3 reasons a market correction is imminent?

1. June 30 marks the end of QE2. QE2 is the government policy of quantitative easing that was essentially the Federal Reserve’s program to buy a ton ($600 billion= a ton)  of  bonds. this was supposed to grease the skids by holding down long term interest rate in effect making mortgages cheaper for people to get and reduce the cost of new projects for businesses. The big problem here is that if this hail mary pass gets fumbled, the result will be that inflation will kick in and kill the fledgling recovery. To use another metaphor, the Fed is pushing the economic jalopy one last time hoping that businesses and consumers will pop the clutch and drive off into the sunset.


2. The smart money is heading to safer ground. What are billionaires doing? they are putting their assets in currency (i.e cold, hard cash). This is a fear/wait and see what is going to happen response. Cash is not a good investment because inflation will eat it up. Everyone knows this. Billionaires know this and are still fleeing to cash. Why? Perhaps they know something.
3. How are house prices still going down? Impossible! Interest rates are at an all-time low and there is a glut of empty homes on the market. Home prices and interest rates are low, right? Not quite so fast. We are actually nowhere near the bottom in the U.S. housing market. Check out the Case Shiller.

Case Shiller

Home Values Index Case Shiller

The collusion and corruption that artificially inflated home values has only been barely touched so far. After 1999 home prices took off not because homes started to become so well built and wonderful (quite the opposite) It was because incentives were in place for banks to screw us and politicians to look the other way. Unfortunately, Our fine public servants and regulators seem to still be in bed with Wall Street. Sad. Home prices will need to get to pre-1999 levels before growth in this sector picks up again. The economics of this are rather simple. The only way a middle-class family can afford to buy a home with the new, stricter lending rules in place is to buy a cheaper one. Requiring 20% down, for example, is good policy since it puts the buyers skin in the game and requires financial discipline to achieve. The downside for now is that 20% of $400,000 is $80,000. Way more than most families have at their disposal. With job security looking shaky for many and dropping prices all around people are afraid to get in. Even folks with the requisite 20% down and interested in buying have an incentive to wait for the bottom.

So, as an investor, what are my options?

It really depends on how you personally read the tea leaves. If you think that there will in fact be a major overall stock market drop of 20% or more then rebalancing your 401k/IRA dollars into cash or cash equivalents in the short term might be prudent. There are 2 major things coming up that are sure to create uncertainty in the marketplace: QE2 ending in late June and the debt ceiling being reached early August. Shifting from equities to cash for a few months might not be a bad idea.

But what if stocks keep going up? What if you are wrong and the DOW goes to 15,000?
Rule # 1: As soon as you opt out of any investment it will take off like the Space Shuttle (or at least appear to). Right now stocks are close to an all-time high. If you stay fully invested in the stock market (assuming your positions are in index funds) you could possibly eek out another 2-4 %.

If the DOW climbs steadily to 15K then I’ll eat my hat.

 

If a correction happens it will be brief, don’t try to time the bottom since the bounce back up will be sudden. get back into equities and ride it all the way back up.

 

In the 2004 Berkshire Hathaway chairman’s letter, Warren buffet quipped, “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.” (emphasis mine)

 

Thoughts?

WR

Personal Finance Snapshot

Some interesting things going on in the world. Gotta keep your eyes open or you might miss them. Here are a few of the more interesting tidbits:

 

1. Why is this even legal? O.K. Not PF but damn! How can that be kosher?

2. Does it hurt when you hit the debt ceiling? Why yes. Yes it does.

3. I have a BIG pile waiting for a place to call home.

4. Don’t think you qualify to refinance? Think again.

 

Let me know what you think.

-WR

Worthwild Financial Snapshot: Cinco de Mayo Edition

Happy Cinco de Mayo!

First, Let me dazzle you with my Margarita Recipe:

2 Ounces of  freshly Squeezed lime juice (Pulpy is good)
1 oz triple sec
2 oz tequila ( Get a bottle of Dos Gusanos, or Two Worm Tequila and share with a friend)

Ice, Kosher salt and a few wide rimmed glasses.

Ok, Now that’s better. Let’s do a Worthwild Roundup. Here are a few stories and articles I found worthwild this week:

1. SCORE blog: Successful Entrepreneurs Share Stories.

My favorite line: Self-employed individuals have a certain entrepreneurial spirit that’s hard to describe. But, you can see it in his or her facial expressions and hear it in their voices. Once you catch the bug, it is hard to think of anything other than launching your business. How true

2. Budgets Are Sexy: Help a Reader- pay off student loans or start saving

My Advice?: Get moving on building an (at least) 6 month contingency fund. This is not a matter of current need, local situation or any other fleeting reason. It is a matter of philosophy. Building and maintaining a contingency fund forces you to make tough value choices and build enormously powerful lifelong habits. You’ll realize that having this critical safety net allows you to make better choices about almost everything else in your financial life. Try to refinance your student loans to lower rates + longer term. One thing different about student loan debt than most other forms is that *hopefully* your earning power will climb over time.

3. Consumerist: I am so glad to see an American company be so profitable, Wait! What? http://con.st/10018507

4. Deal Seeking Mom: Lots of coupons going on!

5. Get Rich Slowly: Pack Smart To Save Money

Great article. My personal tips are to pack sandwiches, water and a bag of veggies for long road trips and picnic instead of restaurant. You get on the road quicker and can spend the time walking and stretching your legs (instead of sitting in a booth at a Shoneys). You save a ton of cash, too!

 

I posited my opinion on who should get the Bin Laden bounty

 

Let me know what you think.

Who Should Get The Bin Laden Bounty?

Bin Laden is dead.

I have little doubt that our fine media will debate the minutiae of every bit of it for quite some time. Was the raid legal? How was the intelligence gathered? Was it torture that drew out the golden nugget of info that led to Osama’s bunker? Why the burial at sea? Who should get credit? The Seals? Obama? Clinton? Bush? This Guy?

These questions and more will be the fuel for a politically charged back-and-forth debate all the way up to the 2012 election.

Regardless of how this story plays out, I do believe the $25,000,000 reward placed on Usama Bin Laden’s head should be paid. But to whom?

I’ll throw this idea in the hat. It was not a rogue warrior, a president or a self appointed mercenary that killed Bin Laden. The Navy Seals were at the head of the spear but I believe it was the collective sacrifice of members of the U.S. Military and their families over the past several years that made this mission successful. These are the people who deserve this reward!

I beleive the $25,000,000 dollar bounty should be spread generously across the entire nation through the local chapters of Operation Homefront.

What is Operation Homefront?

Operation Homefront provides emergency financial and other assistance to the families of our service members and wounded warriors.

Operation Homefront provides direct services to alleviate a military family’s or individual’s actual/complete emergency financial burden, as well as counseling and/or recovery support. Emergency financial assistance is in the form of checks paid directly to mortgage lenders, auto mechanics, contractors, hospitals, doctors, dentists and other providers. Other emergency funding assistance, which an applicant receives within 24 to 72 hours, includes the following:

  • Financial assistance
  • Emergency food
  • Emergency home repairs
  • Critical baby items: formula, food and diapers
  • Home and appliance repair
  • Furniture and household items
  • Local moving assistance
  • Community events
  • Wounded Warrior Transitional Family Housing

I thought it would be fitting to share what I found interesting relating to this. Especially the affect on personal finance:

Free Money Wisdom contemplates the effect this will have on the markets.

Marketplace has a good summary of this issue as well.

Let me know what YOU think?

 

The Debt Ceiling Thought Experiment

Update: With some accounting magic, Treasury Secretary Tim Geithner reset the new Doomsday date to Aug. 2, 2011. Gives us a bit more time to pontificate.

Armageddon or Life as usual?

These are the cardinal extremes we hear will happen if Congress does not raise the debt ceiling by May 16th.

Will failing to pay the principal and interest on our loans create a death spiral for the U.S.? Some highly regarded economists seem to think so. I agree. For several decades the U.S. Treasury has issued a neat little financial vehicle called a savings bond. This has been recognized internationally as the safest investment in the world. When wars break out, natural disasters occur and political unrest seems to erode the stability of the local currency. The U.S. Treasury will provide an investment that is “backed by the full faith and credit of the United States government.

That sounds pretty great… Until it doesn’t.

Politicians are now playing chicken with the entire financial health of our country. It is absurd. I understand the ideologies at play and the mandate that some Tea Party Republicans believe they have from their constituency.

This, my friends, is not that.

The mandate was to achieve fiscal responsibility, not to plunge our nation into a double-dip recession or even a depression.

The specific results of the U.S. Government failing to fulfill it’s financial obligations is mind-numbing. I ‘ll try to paint a scenario:

May 16th hits with no action on raising the debt ceiling. So what?

First, investors will start to get cold feet and ‘quietly’ move away from Treasury bonds, redeeming them for cash. This starts to accelerate. Worldwide T-note dumping occurs.

Social Security checks stop getting mailed out. AARP reps on Fox and CNN are self appointed harbingers of the end of the world for seniors. Widespread Panic. Stocks plummet, Corporations hand out massive amounts of pink slips. The Great Depression: Part Deux is in full swing.

Recovery is not certain or swift. In fact a decade could pass before things begin to stabilize. Even then, The next time a US program wants to raise money it will have to pay higher interest to do so. The U.S. Dollar, once the worlds reserve currency, now sits alongside the Zimbabwean Dollar as a curiuos  relic of the past. Back when a U.S.A backed financial instrument could always be counted on.

 

The creditworthiness of the U.S. should never be some political poker chip that hack politicians can use to barter with. This is the bedrock of our entire society. Social Security, Medicare and many thousands of institutions that have placed their ‘safe’ money in U.S. treasuries would lose that faith and pull out. It is a confidence game.

Imagine that you have $1,000 dollars in U.S. Dollars. You are to be cryogenically frozen in about a week and revived in 30 years. (Think Han Solo in Carbonite).Here is your question:

Where would you invest your $1,000 ?

An individual stock? Apple? GM?

An index Mutual Fund? Vanguard S&P ? Fidelity ?

Real Estate? (Remember, you won’t be around for 30 years to unclog drains or find trustworthy tenants)

Would you buy silver or gold coins and bury them somewhere? (hope you remember where you put the map)

Would you bet on an emerging market? Asia? Latin America?

Now the big question: Would you buy U.S. Savings bonds or Treasuries?

 

What would you do?

SCORE!

Are you an Entrepreneur? Have you been bitten by the bug of free enterprise?

The official statistics about your chances in a new business venture can seem daunting. 90% of new businesses fail in the first year, right?

Not true. According to the Census Bureau new ventures have a 70% chance of survival for their first 2 years and a 50% are still be operating at 5 years. Quite a different picture than I was shown years ago.

There are tons of factors relating to the success or failure of a seedling enterprise. The Entrepreneurs Spirit, defined loosely as ones drive to succeed at just about any cost is a major factor. You need a lot of tenacity to overcome the obstacles inherent in starting ans running a small business. Carving your own way is not easy.

A major contributing factor in the success of any business is the quality of the coaching the principal players receive. To that end there is one resource that is available to all yet utilized by a relative few.

Have you ever eaten a Jelly Belly? Do you have a Vera Bradley? (If confused by this question ask your wife and/or daughter to translate)

Did you even know that there were Sears franchises?

What all 3 of these small businesses have in common is the fact that they reached out to SCORE for help.

SCORE, Counselors to Americas Small Business, offers free and confidential small business advice for entrepreneurs. They offer advice and guidance from hundreds of offices nationwide. The volunteers bring with them many years of experience and wisdom that budding entrepreneurs can learn quite a bit from.

From the upcoming launch of score’s new website I found a perfect example of SCORE’s mission and what working with them can mean to entrepreneurs:

“To respond proactively and positively to the current economic crisis, SCORE has challenged itself to achieve a stretch goal of harnessing America’s entrepreneurial spirit to help grow a million small businesses in the next five years, one business at a time.”

Want to know more? Check out what can SCORE do for me?

If you have volunteered for SCORE or have utilized the resources they  have to offer, please share with a comment.

-WR

Lovedrop instant winner

How many scratch off lottery cards are winners? Yes, not very many. Want to get an instant return on your $1 bill? Give a buck to Lovedrop. I am really liking Lovedrop. It Defines what it means to be Worthwild!

Last month they gave over $5,000 worth of cash and goods to their recipient, Katie, who had been battling a couple of brain tumors over the years, and it culminated with a surprise gift of 15+ friends showing up at her house to celebrate with her. It was awesome. You can watch how it all went down here.

This month they start all over again and grow support for the Kahlen’s – a family who has been hit hard by the economy, and by their daughter’s serious medical condition, tuberous sclerosis. In addition to financial assistance, they’re planning to unite the artistic community to help support Kent’s glassmaking work.

Want to help? Here are two ways you can participate:

Give $1.00 – This is the best way to help out and join their team at the same time.
Donate a piece of art – They will be hosting an auction this month, and would love to feature your artwork in it. Proceeds go to help the Kahlen’s this month, and is a great way to promote your work :)

-WR

Love Drop March 2011

Last month the Love Drop Team raised over $13,000 (and 3 iPads!) to help two little boys with autism receive a service dog. They were beyond touched, and we did this in only 1 month – that’s it. Everyone came together and gave a few bucks each to impact one family’s life. If you were a part of it, THANK YOU!  You can check out the final video of us showing up to their house here – it’s pretty cool.
This month we start all over again and rally behind Katie, a single mom out in Dallas battling not only two brain tumors so far (she’s knocked out one, and currently working on the other), but who’s also dealing with hydrocephalus. We’d love to bring the community her way, and make a huge dent in her medical bills.
Wanna help?  Here are 3 ways we could use you:
  1. Give $1.00 – This is the best way to help out and join our team at the same time.
  2. Join our blogger network – Blog about our Love Drops each month like I am :) It’s easy, it’s rewarding, and it REALLY helps spread the word (which in turn helps our families). Love Drop will give you all the content you need.
  3. Give a gift or provide a service – Gift cards are always helpful. Places like Target, Safeway, gas stations, etc would definitely help them out.
-WR

The Wisdom of Warren Buffet

Warren Buffet is amazing. He is one part folksy, one part frugal and all parts genius. Anyone interested in achieving financial independence would benefit from his sage advice. Anyone interested in investing their lot successfully would benefit from reading a book he considers to be the best treatise on investing ever written The Intelligent Investor

Anyone who would like an annual insight into his methods, successes and failures would do very well by reading his annual letter to the stockholders of his company, Berkshire Hathaway.

I never, ever read stuff like this. Annual report to shareholders? ugh. Like reading the instruction manual for a microwave. (Why do they even have these. Should say, “If you do not know how to use a microwave, please return it to the store or ask someone to help you”.)

This one is different. Buffet’s annual letter to shareholder’s is the investment world’s Steve Jobs Keynote. Instead of dropping the cloth from this years i-Thingy, It is a look into the thoughts and philosophy of the worlds greatest investor. It is an anomaly. A shareholder letter should not be easy to read and funny. These literary vessels are supposed to obfuscate performance and hide the CEO’s mistakes, right? Instead, Buffet’s letter is clever, open and even whimsical. Full of interesting ideas and quotes with impact.

In his discussion of  Clayton Homes, Builder of manufactured homes (Trailers), Buffet discusses the plight of the American homes industry. In just a few paragraphs he sums up the conundrum. While Fannie, Freddie and the morally bankrupt mortgage industry were populating their stick-built homes with warm bodies (only to dice up the loans and resell them as commodities) , Clayton was in the unenviable position of selling and mortgaging small affordable dwellings without the help of the big government backed organizations. Why bother helping a working class family into a starter home they could readily afford when we could lure them into a McMansion and profit twice! First when the loan is sold and again when the home is eventually seized. The collusion and corruption we saw in the entire real estate sector (including the U.S. government involvement) is legendary. We will be reading about this era as a warning for a long time to come.

Buffet offers an unorthodox and outstanding solution:

“Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.”

Well said. My wife and I started off in a starter home, not a manufactured one but a structure 75 years old and small enough to be called a shed if looked at with squinted eyes. This was during the boom times and every lender I spoke to ridiculed me for not leveraging more. We bought that home (still own it as a rental) for a little over what I earned in 1 year. I used an online calculator that told me a conservative choice would be in the 400-420k range. I knew that was crazy. We found a home for 100k, drove used cars and worked hard to make it just right and never looked back. I am not suggesting that I made no mistakes (ask me about my WorldCom investments) but I do assert that your big choices need to be made using your own wisdom, intuition and clarity. A Bank and a Real Estate Agent will not have your best interest in mind when telling you what you can afford.

He is just as wise in summing up the subsequent credit crunch:

“Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed.”

We should all have cash in our portfolio. This is not just a contingency fund that waits for us to make mistakes, it also awaits our moment to seize a unique opportunity. To Zig when everyone else is screaming “ZAG!”.

“By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well.”

In short, Buffet runs his enterprise just as one should run his or her home and life. Keep an eye on value, be frugal, be optimistic in spite of the naysayers around you.

Here is the link to the letter: http://www.berkshirehathaway.com/letters/2010ltr.pdf

Let me know what you think.

-WR