Sunday, November 23, 2008

Auto Company Bailout

Back again and the sh*t is may actually hit the fan. The government is currently meeting with the leaders of the big three to determine if and how much money will be granted to bail these fruit loops out. Apparently, these "leaders" are idiots. When you ask someone for money, especially the government, you should be projecting an image of need. Instead, each of these guys flies to DC on their company's private jet to ask the government for a cash boost. And deservingly, the government called them out on it. For one thing, the big three have not been good, corporate citizens for the past 50 years. For example, they were against the increase of the tax on gas, known as the "Green Tax" to encourage people to use less gasoline because of the increase in cost in order to benefit the environment. They still wanted people to purchase their huge, gas guzzling monster trucks by keeping the price of gas low. I'm all for a low gas prices, but not at the sacrifice of our planet. The problem here is that the government should not be bailing anyone, especially the auto industry, out of this mess. What ever happened to capitalism? Let nature take its course on all companies. The best ones will survive and the rest will die. Think of it as a periodic burn. Periodically, forests and grass lands catch on fire from a lightning strike and burn a portion of the area up. This is essential for survival and just part of the life cycle of nature. This should be the same way, just let it play out and the economy will eventually recover. Since the government bailed out AIG, everyone is coming to the table for hand outs. Where the hell is my bailout money for the credit card debt I have accumulated? The auto companies didn't adjust to the needs of the market and increase in competition from foreign car makers and now they are feeling it. They have been rotting from the inside out for decades. This has been a long time coming. Every dollar the government sinks into the bailout will compound the pain we will feel over the next decade. The US economy will not be known as the House of Pain, but rather the "City Block of Pain". It is going to be ugly. You can still take advantage. Keep stock piling that cash. As Buffet says, get greedy when there is fear and get fearful when everyone else is greedy!! The main thing to add to that is patience and reevaluation of your portfolio on a weekly basis. Peace and I'm out!!

Thursday, November 20, 2008

DOW 6000- 1st Quarter 2009

Hey Everyone! Sorry for the delay for this particular edition. Most of you that have been keeping up with the market are wondering what the heck is going on. Here's the deal kids, ignore the bailout bs for both the banks and the possible bail out for the big three in Detroit. Everyone needs to pay attention to the big picture. The big old four letter word at present is "Recession" (yes, I know it is more than four letters, but I couldn't think of a better way to introduce it). The economy is shrinking, mainly due to the credit crunch which is starting to loosen up as we speak. Don't get too happy just yet. These things take time. If you are a long term investor as I am, then you'll be patient. The reason why you are seeing the big swings up and down is because there are those of us who are dumping everything and anything at the first sign of bad news, no matter how unimportant and unrelated this news is to the particular stocks we own. Others are trying to guess the bottom or at least buy on the dips. To be honest, this could be one of the rare times that day traders might actually make money on a consistent basis. Buy on the down days and sell on the up days, since they we seem to get triple digit down days 3 days a week and triple digit up days 2 days a week. Anyway, like I said with the last post. Stock up on cash and ride this rollercoaster out from the sidelines. The market has been beat up and folks (institutions as well) are looking for a rally to finish up the year due to the holiday season. That will probably happen, but the big picture is that the economy is hurting badly and everyone should avoid the herd mentality of buying when the market rallies during the next six weeks. 1st Quarter 2009 is going to be ugly. All those gains you might make will be erased and then some in the first months of the new year. Just remember, good companies that have no reason to get beat up are getting crushed. Let the credit market loosen up some more and you'll see some stablization in the economy. Don't be surprised is a big 3 bailout sends steam up the rear end of the market. Don't get excited. Emotion breads irrationalization. Keep doing your homework and wait for things to pan out before getting back in. Look at it this way, I haven't put one dime in the market since January 2008 and don't plan on putting any in until March/April 2009. I could always be wrong, but given the current conditions, I feel pretty comfortable waiting until we start to see what the current credit market will do and what, if any, the effect of the $700B bailout will have. Till next time!

Tuesday, November 11, 2008

O'Bama: No miracles.

Okay, now that the election is over (thankfully), we can get on with our lives. No surprise that O'Bama won, since the Republicans have taken on the habit of self-sabotage. The funniest thing to come out of the election is the fact that everyone, win, lose or draw is talking about Palin making a bid in 2012. I recently announced my run for the White House in opposition to Palin, simply because I think I have a chance against her and I'll reach the qualifying age of 35 two months before that election.

Anyway, back to the subject of O'Bama. Yes, he was the best choice, given the choices we were presented with. Let's not fool ourselves into thinking that having someone who is the polar opposite of the numbskull currently in the White House is going to change anything with any amount of significance. I know many of you McCain supporters feel that he is inexperienced, which is true. If you were looking for experience, then Hilary Clinton should have been elected. Her biggest downfall was that she came off as fake and insincere, which is exactly what she was doing. She had eight years in the background of Big Billy's tenure, which gave her a unique view of the workings of this particular office as well as significant time involved in foreign affairs. Don't get me wrong, however. I am in no way, shape or form a Hilary supporter. I'm just simply making a point.

Anyway, again back to O'Bama. With the sinking economy, O'Bama has been handed a big sh*t sandwich and he has to take a big bite out of it. Most O'Bama supporters think his election will point us in a new direction and make "everything better". I think they are fooling themselves into thinking things will change within the 4 years of his term. The magnitude of what has gone down is much larger than most realize. He can do very little in terms of fixing what is going down now. Time will heal the wounds, but don't think things will magically be fixed, because we have someone other Dubyah in the White Hizzy.

Make sure you all keep your heads and don't overreact positively or negatively to what is going on. For those of you who invest in individual stocks, stock up on your cash and wait till the end of quarter number 1 in 2009. You will most likely see a market rally before the end of the year, but it will most likely drop back to current levels or even lower by the Spring. Avoid the heard mentality and watch for good deals. I'm not suggesting not to buy anything; just do your homework on the companies you like. Don't hope that your portfolio is going to be saved, just because we have a different President. Control your own destiny. Cash is king!! Enjoy your Veteren's Day!

Sunday, November 2, 2008

Are You House Poor? Quit Your B*t*hing. Pay It Off Fast With Simple Math!!

Hello kids, welcome to round #2 for what could be a long and painful stream of hard news. What is the most important topic today, other than what idiot we will elect into office on Tuesday? Ding, ding, ding, you guessed it, the Economy with big, fat, capital F'ing "E"! I laugh at the people at work and around town that are harping on how poor the economy is and how worried they are about it. I ask them how their brokerage account is doing during the down turn and they look at me like I just ask them a question in French. All they have is the 401(k) or what have you and they can't even tell me wtf they have in it. They are worried, because the idiot box said they should be worried. Here's the deal, just relax and ride it out. This is the natural order of things, however, with the bailout and all the perks going to the scumbag (yes, I still use insults orginally used when I was 8) banks and financial institutions. The killer on this is the headline on the front page of the Wall Street Journal, "Banks Still Owe Executives Billions". I thought it might have been a typo and should have read "Shareholders" instead of "Executives".

Anyway, enough of the bs. Let's get down to business. Those of you who have a home or those of you who are looking for a home, but cannot get financing because of the credit crunch, lend me your ears. Purchasing a home in this day and age is a tough. You are looking at good rates, however, the catch is that your credit must be sterling and your debt to income ratio must be below 30%. On top of this, you need at least 8% down in order for most banks to lend you the mortgage. Also, this does not includ the closing costs. Bascially, you will need about 13%-15% in cash of the purchase price in order to get into the home. For first time home buyers, this is a daunting task to save up that kind of scratch, while not making that much money, considering you are early on in your careers. So, take a look at the average house price in the US, which is approximately $215,000, or if you grew up in the Syracuse area, it is about $78,000. I've heard the general rule on paying off the house early is making an extra payment each year. So, lets explore this fantastic train of thought.

We'll assume the mortgage rate for the property is 6.5% and the mortgage is fixed for 30 years. So, for the $215K home, the total paid assuming all minimum payments are made is approximately $450,000, so you paid approximately $235,000 in interest. If you put down the 8% for this $215K home, you'll be financing $197,800. If you make the minimum payment and at the beginning of each anniversary of the purchase, you make an extra payment, you'll pay the mortgage off in about 292 payments with a savings of approximately $85,000. Not too shabby!


If you flip it to the average cost of a Syracuse home at $78K. You put your 8% down and finance $71,760, then make the extra payment on each anniversary date, you'll pay it off in about 292 payments, just like the other house. Funny how ratios work. The savings in the end is approximately $31K.

Here is the problem with the whole extra payment a year thing. Most people do not have the discipline to stick to a plan such as that, especially when there is a adjustment make once a year. People will forget to do it. Just think about how many times you forgot about a family member or friend's birthday. This will slide just as easy, if not easier. Here's the plan. People have very small attention spans, so we need to make the adjustment perpetual or as close to that as possible. Here is the solution, which is simpler and more cost effective. Add $10 to each payment you make each month. For example, if you mortgage payment is $1000 (exluding taxes and insurance), the next month, you make a payment of $1010 and the following month, $1020, etc. This builds up, but as you progress throughout your career, your income will increase, so that this $10 increase will go unnoticed. Of course, if you can afford more, and do not have any other high interest debts, go for it. Here is the savings and the power of compounding. The home will be paid off in about 155 payments with a total savings of about $144K. Flip that over to your Syracuse home and this is the story. You will have the home paid off in about 104 payments with a savings of about $66K. In the long run, you will notice an astonishing difference.

So here is the deal kids. Pay off your credit card debt first, unless you have zero percent interest for a temporary period of time. Once that is finished off, then tackle your car payment and any other debt that does not give you a tax break. Mind you, if you pay down your mortgage, that will build your equity and give the option of taking out a home equity loan or line of credit in which you pay off your debts that you have which do not give you tax break, provided the interest rate difference makes it a proper decision. For example, if your home equity line of credit has an interest rate of 8% and your credit card has a 5% interest rate and your tax bracket is 25% for fed and state combined, you may not want to transfer, because the the interest rate after tax is only 6%, which is 1% more than the interest rate of teh credit card. Well, until next time. I'll offer up my stock picks from 10/13/08. It'll be the super six (ha, I know it is stupid, but the money you can make from these will blow your mind, if you are a long term investor. If you are a short term investor, you will lose in the long run.). Remember, no one is smarter than the market, even though the market is dumb as hell.